UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from N/A to N/A.
Commission file number 333-02491*.
KEMPER INVESTORS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in charter)
ILLINOIS
(State of Incorporation)
36-3050975
(I.R.S. Employer
Identification Number)
1 KEMPER DRIVE
LONG GROVE, ILLINOIS
(Address of Principal Executive Offices)
60049-0001
(Zip Code)
Registrant's telephone number, including area code: (847) 550-5500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of August 1, 2000, 250,000 shares of common stock (all held by an affiliate,
Kemper Corporation) were outstanding. There is no market value for any such
shares.
* Pursuant to Rule 429 under the Securities Act of 1933, this Form 10-Q
also relates to Commission file numbers 33-33547, 33-43462, 33-46881,
333-22389 and 333-32632.
1
KEMPER INVESTORS LIFE INSURANCE COMPANY
FORM 10-Q
PART I. FINANCIAL STATEMENTS PAGE NO.
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999...............................3
Consolidated Statements of Operations -
Six months and three months ended June 30, 2000 and 1999..........4
Consolidated Statements of Comprehensive Income (Loss) -
Six months and three months ended June 30, 2000 and 1999..........5
Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 1999...........................6
Notes to Consolidated Financial Statements............................7
Management's Discussion and Analysis
Results of Operations............................................10
Investments......................................................14
Liquidity and Capital Resources..................................16
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.........17
ITEM 6. Exhibits and Reports on Form 8-K............................17
Signatures...........................................................18
2
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
June 30 December 31
2000 1999
(unaudited)
------------ ----------
ASSETS
Investments:
Fixed maturities, available for sale, at
fair value (amortized cost: June 30, 2000,
$3,199,946; December 31, 1999, $3,397,188) $3,060,693 $3,276,017
Equity securities (cost: June 30, 2000,
$65,473; December 31, 1999, $65,235) 61,675 61,592
Short-term investments 42,703 42,391
Joint venture mortgage loans 67,291 67,242
Third-party mortgage loans 63,678 63,875
Other real estate-related investments 20,073 20,506
Policy loans 256,751 261,788
Other invested assets 26,424 25,621
---------- ---------
Total investments 3,599,288 3,819,032
Cash 15,067 12,015
Accrued investment income 129,230 127,219
Reinsurance recoverable 288,089 309,696
Deferred insurance acquisition costs 203,302 159,667
Goodwill 197,535 203,907
Value of business acquired 106,859 119,160
Other intangibles 4,776 -
Deferred income taxes 98,851 93,502
Receivable on sales of securities 3,500 3,500
Other assets and receivables 29,246 29,950
Assets held in separate accounts 10,908,318 9,778,068
---------- ---------
Total assets $15,584,061 $14,655,716
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits $ 3,532,439 $3,718,833
Other policyholder benefits and funds payable 455,912 457,328
Other accounts payable and liabilities 75,885 71,482
Liabilities related to separate accounts 10,908,318 9,778,068
---------- ---------
Total liabilities 14,972,554 14,025,711
---------- ---------
Commitments and contingent liabilities
Stockholder's equity:
Capital stock - $10 par value, authorized
300,000 shares; outstanding 250,000 shares 2,500 2,500
Additional paid-in capital 804,347 804,347
Accumulated other comprehensive loss (139,819) (120,819)
Retained deficit (55,521) (56,023)
---------- ---------
Total stockholder's equity 611,507 630,005
---------- ---------
Total liabilities and stockholder's equity $15,584,061 $14,655,716
========== ==========
See accompanying notes to consolidated financial statements.
3
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Operations
(in thousands)
(unaudited)
Six Months Ended Three Months Ended
June 30 June 30
---------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUE
Net investment income $ 130,564 $ 131,201 $ 64,305 $ 65,508
Realized investment losses (2,281) (2,944) (161) (1,979)
Premium income 10,263 10,878 5,260 5,190
Separate account fees and charges 39,465 36,706 24,311 14,060
Other income 13,083 5,969 9,731 3,385
------- ------- ------- -------
Total revenue 191,094 181,810 103,446 86,164
------- ------- ------- -------
BENEFITS AND EXPENSES
Interest credited to policyholders 76,283 81,284 39,047 39,738
Claims incurred and other
policyholder benefits 7,365 9,048 2,374 5,875
Taxes, licenses and fees 15,175 13,833 12,370 1,102
Commissions 53,519 29,421 30,150 16,728
Operating expenses 29,345 22,661 14,916 11,895
Deferral of insurance acquisition
costs (51,747) (33,100) (26,723) (18,775)
Amortization of insurance
acquisition costs 10,084 3,608 5,936 795
Amortization of value of business
acquired 8,749 8,269 4,609 3,309
Amortization of goodwill 6,372 6,372 3,186 3,186
Amortization of intangibles acquired 122 - 122 -
------- ------- ------- -------
Total benefits and expenses 155,267 141,396 85,987 63,853
------- ------- ------- ------
Income before income tax expense 35,827 40,414 17,459 22,311
Income tax expense (benefit)
Current 20,122 40,222 20,745 7,392
Deferred (4,796) (23,502) (13,134) 1,820
------- ------- ------- -------
Total income tax expense 15,326 16,720 7,611 9,212
------- ------- ------- ------
Net come $ 20,501 $ 23,694 $ 9,848 $ 13,099
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
4
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
Six Months Ended Three Months Ended
June 30 June 30
------------------ ------------------
2000 1999 2000 1999
----- ----- ----- -----
Net income $ 20,501 $ 23,694 $ 9,848 $ 13,099
Other comprehensive income (loss),
before tax:
Unrealized holding gains (losses)
on investments arising during
period:
Unrealized holding gains
(losses) on investments (22,688) (114,094) (13,575) (73,736)
Adjustment to value of business
acquired (3,525) 12,953 (3,738) 8,702
Adjustment to deferred insurance
acquisition costs 107 6,708 1,066 4,569
------- ------- ------- -------
Total unrealized holding gains
(losses) on investments arising
during period (26,106) (94,433) (16,247) (60,465)
------- ------- ------- -------
Less reclassification adjustments
for items included in net income:
Adjustment for (gains) losses
included in realized investment
gains (losses) (2,312) 7,967 (1,157) 5,852
Adjustment for amortization of
premium on fixed maturities
included in net investment
income (2,403) (6,825) (1,050) (3,151)
Adjustment for (gains) losses
included in amortization of
value of business acquired 27 (598) 133 (287)
Adjustment for (gains) losses
included in amortization of
insurance acquisition costs (1,865) 292 (883) 314
Total reclassification
adjustments for items ------- ------- ------- -------
included in net income (6,553) 836 (2,957) 2,728
------- ------- ------ -------
Other comprehensive income (loss),
before related income tax expense
(benefit) (19,553) (95,269) (13,290) (63,193)
Related income tax expense (benefit) (553) (14,488) (673) (3,262)
------- ------- ------- -------
Other comprehensive income (loss),
net of tax (19,000) (80,781) (12,617) (59,931)
------- ------- ------- -------
Comprehensive income (loss) $ 1,501 $(57,087) $(2,769) $(46,832)
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
5
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30
-----------------
2000 1999
------ ------
Cash flows from operating activities
Net income $20,501 $23,694
Reconcilement of net income to net cash provided
(used):
Realized investment losses 2,281 2,944
Net change in trading account securities - (33,477)
Interest credited and other charges 73,981 79,879
Deferred insurance acquisition costs, net (41,663) (29,492)
Amortization of value of business acquired 8,749 8,269
Amortization of goodwill 6,372 6,372
Amortization of discount and premium on investments 2,607 7,156
Amortization of other intangibles acquired 122 -
Deferred income taxes (4,797) (23,503)
Net change in current Federal income taxes 2,236 (52,393)
Benefits and premium taxes due related to separate
account bank-owned life insurance (13,945) 63,849
Other, net 11,340 (5,312)
------- -------
Net cash flow from operating activities 67,784 47,986
------- -------
Cash flows from investing activities
Cash from investments sold or matured:
Fixed maturities held to maturity 64,999 210,552
Fixed maturities sold prior to maturity 314,546 695,091
Equity securities 1,104 1,645
Mortgage loans, policy loans and other invested
assets 33,945 47,079
Cost of investments purchased or loans originated:
Fixed maturities (188,726) (860,285)
Equity securities (1,263) -
Mortgage loans, policy loans and other invested
assets (26,230) (24,790)
Investment in subsidiaries (4,899) -
Short-term investments, net (312) 30,958
Net change in receivable and payable for securities
transactions - 20,767
Net change in other assets (2,462) -
------- -------
Net cash from investing activities 190,702 121,017
------- -------
Cash flows from financing activities
Policyholder account balances:
Deposits 234,489 159,011
Withdrawals (473,258) (303,350)
Dividends paid to parent (20,000) (20,000)
Other 3,335 4,521
------- -------
Net cash from financing activities (255,434) (159,818)
------- -------
Net increase in cash 3,052 9,185
Cash at the beginning of period 12,015 13,486
------- -------
Cash at the end of the period $15,067 $22,671
======= =======
See accompanying notes to consolidated financial statements.
6
Kemper Investors Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
1. Kemper Investors Life Insurance Company ("KILICO") is incorporated under
the insurance laws of the State of Illinois. KILICO is licensed in the
District of Columbia and all states, except New York. KILICO is a
wholly-owned subsidiary of Kemper Corporation ("Kemper"), a nonoperating
holding company.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles.
2. In the opinion of management, all necessary adjustments consisting of
normal recurring accruals have been made for a fair statement of the
results of KILICO for the periods included in these financial statements.
These financial statements should be read in conjunction with the
financial statements and related notes in the 1999 Annual Report on
Form 10-K.
3. KILICO, along with its affiliates Federal Kemper Life Assurance Company,
Zurich Life Insurance Company of America, Zurich Direct, Incorporated, and
Fidelity Life Association, a Mutual Legal Reserve Company under common
management ("FLA") operates under the trade name Zurich Kemper Life
("ZKL"). ZKL is segregated by Strategic Business Unit ("SBU"). The SBU
concept has each SBU concentrate on a specific customer market. The SBU
is the focal point of ZKL because it is at the SBU level that ZKL can
clearly identify customer segments and then work to understand and
satisfy the needs of each customer. The contributions of ZKL's SBUs to
consolidated revenues, operating results and certain balance sheet data
pertaining thereto, are shown in the following tables on the basis of
generally accepted accounting principles. For purposes of this
disclosure, ZKL excludes FLA, as it is owned by its policyholders. ZKL
is segregated into the Life Brokerage, Financial Institutions
("Financial"), Retirement Solutions Group ("RSG") and Direct SBUs. The
SBUs are not managed at the legal entity level, but rather at the ZKL
level. ZKL's SBUs cross legal entity lines, as certain similar products
are sold by more than one legal entity.
7
Summarized financial information for ZKL's SBUs are as follows:
As of and for the period ending June 30, 2000:
(in thousands)
Life
Brokerage Financial RSG Direct Total
--------- --------- --- ------ -----
Total revenues $173,306 $118,678 $79,711 $33,662 $405,357
======= ======= ====== ====== =======
Net income (loss) $12,306 $10,007 $8,254 $(531) $30,036
====== ====== ===== ==== ======
Total assets $2,940,788 $11,323,087 $4,725,011 $200,037 $19,188,923
========= ========== ========= ======= ==========
Total revenue, net income (loss) Net
and assets, respectively, from above: Revenue Income (Loss) Assets
------- ------------- ------
$405,357 $30,036 $19,188,923
Less:
Revenue, net income & assets of FKLA 163,427 11,542 3,117,937
Revenue, net income & assets of ZLICA 27,680 5,138 479,414
Revenue, net (loss) & assets of Zurich
Direct 23,156 (7,145) 7,511
------ ----- -----
Totals per KILICO's consolidated
financial statements $191,094 $20,501 $15,584,061
As of and for the period ending June 30, 1999:
(in thousands)
Life
Brokerage Financial RSG Direct Total
--------- --------- --- ------ -----
Total revenues $179,958 $106,220 $68,599 $20,830 $375,607
======= ======= ====== ====== =======
Net income (loss) $19,746 $16,879 $5,252 $(2,440) $39,437
====== ====== ===== ====== ======
Total assets $3,054,067 $9,382,556 $4,311,762 $68,724 $16,817,109
========= ========= ========= ====== ==========
Total revenue, net income (loss) and Net
assets, respectively, from above: Revenue Income (Loss) Assets
------- ------------- ------
$375,607 $39,437 $16,817,109
Less:
Revenue, net income & assets of FKLA 151,547 16,307 3,260,258
Revenue, net income & assets of ZLICA 26,279 4,622 430,679
Revenue, net (loss) & assets of Zurich
Direct 15,971 (5,186) 3,658
------ ------ -----
Totals per KILICO's consolidated
financial statements $181,810 $23,694 $13,122,514
======= ====== ==========
8
4. KILICO's financial statements as of June 30, 2000 include the second
quarter 2000 results of the following companies purchased for $5.5
million on March 31, 2000:
* PMG Securities Corporation
* PMG Asset Management, Inc.
* PMG Life Agency, Inc., and
* PMG Marketing, Inc.
These companies were primarily purchased for their specialization in the
target market of the RSG SBU.
5. On July 17, 2000, KILICO transferred $63.3 million in fixed maturities
and cash to fund the operations of its newly formed subsidiary, Zurich
Kemper Life Insurance Company of New York. Business is expected to
commence in the third or fourth quarter of 2000.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Kemper Investors Life Insurance Company and subsidiaries("we", "our" or
"KILICO")recorded net income of $20.5 million in the first six months of
2000, compared with net income of $23.7 million in the first six months
of 1999.
The following table reflects the components of net
income:
Net income:
(in millions)
Six months ended
June 30
------------------
2000 1999
---- ----
Operating earnings before amortization of
goodwill and other intangibles $ 28.5 $32.0
Amortization of goodwill and other intangibles (6.5) (6.4)
Net realized capital losses (1.5) (1.9)
---- ----
Net income $ 20.5 $23.7
==== ====
The following table reflects the major components of net realized capital
gains and losses included in net income.
Net realized capital gains (losses)
(in millions)
Six months ended Three months ended
June 30 June 30
----------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Fixed maturities $(4.0) $(2.7) $(1.7) $(1.7)
Real estate-related 1.6 3.4 1.5 2.1
Equity securities .1 .9 - .2
Trading account securities-
realized gains - .2 - .2
Trading account securities-
holding losses - (5.7) - (3.8)
Other - 1.0 - 1.0
----- ----- ----- -----
Realized investment losses (2.3) (2.9) (.2) (2.0)
Income tax benefit (.8) (1.0) (.1) (.7)
----- ----- ----- -----
Net realized capital losses $(1.5) $(1.9) $ (.1) $(1.3)
===== ===== ===== =====
Operating earnings before amortization of goodwill decreased to $28.5
million in the first six months of 2000, compared with $32.0 million in the
first six months of 1999. This decrease was primarily due to:
* an increase in commissions and operating expenses, net of the deferral
of insurance acquisition costs
* an increase in the amortization of insurance acquisition costs and
* an increase in taxes, licenses and fees, offset by
* an increase in separate account fees,
* an increase in spread revenue (net investment income less interest
credited to policyholders)
* an increase in other income, and
* a decrease in claims incurred and other benefits
10
The following table reflects our sales:
Sales
(in millions)
Six Months Ended Three Months Ended
June 30 June 30
---------------- -----------------
2000 1999 2000 1999
------ ------ ------ ------
Annuities:
General account $ 233.2 $ 158.6 $ 109.9 $ 96.1
Separate account 399.7 215.1 220.5 119.5
----- ----- ----- -----
Total annuities 632.9 373.7 330.4 215.6
----- ----- ----- -----
Life insurance:
Separate account bank-owned life
insurance("BOLI") 630.3 696.1 517.5 28.9
Separate account variable universal
life insurance 10.8 15.2 5.0 4.2
Term life 10.3 10.5 5.3 5.2
Interest-sensitive life .3 .9 .2 .9
----- ----- ----- ----
Total life 651.7 722.7 528.0 39.2
----- ----- ----- -----
Total sales $ 1,284.6 $ 1,096.4 $ 858.4 $ 254.8
===== ===== ===== =====
Sales of annuity products consist of total deposits received, which are not
recorded as revenue within the consolidated statements of operations.
General account fixed annuity sales increased $74.6 million in the first six
months of 2000, compared with the first six months of 1999. Separate account
variable annuity sales increased $184.6 million in the first six months of
2000, compared with the first six months of 1999. The increase in general
account and separate account sales was primarily due to continued strong
sales of a new variable annuity product introduced in the second half of
1998 that offers both a variable option and a fixed option, including dollar
cost averaging.
Sales of variable annuities increase administrative fees earned and pose
minimal investment risk, to the extent that policyholders allocate net
premium to one or more subaccounts that invest in underlying investment funds
that invest in stocks and bonds.
The decrease in BOLI sales in 2000 was primarily due to the nature of the
BOLI product - high dollar volume per sale, low frequency of sales.
Spread revenue increased in the first six months of 2000, compared with the
same period in 1999, due to a smaller decrease in investment income than in
interest credited to policyholders. The decrease in investment income is
primarily due to a decrease in cash and invested assets from the 1999 levels,
reflecting the surrender and withdrawal activity of 1999 and 2000 and the
dividends paid to Kemper Corporation in 1999. Also contributing to this
decrease in cash and invested assets are the ongoing exchanges from the fixed
to the variable option of in- force annuity policies, primarily reflecting
the dollar cost averaging option mentioned above. Somewhat mitigating these
factors is the reinvestment of 1999 and 2000 sales proceeds, maturities and
prepayments at higher yields due to funds being directed to higher yielding
securities, and the overall increasing interest rate environment. The
decrease in interest credited was primarily due to a decrease in policyholder
liabilities due to surrender, withdrawal and exchange activity in 1999 and
2000 and a decrease in crediting rates in 1999 and 2000.
11
Separate account fees and charges consist of the following as of
June 30, 2000 and 1999:
(in millions)
Six Months Ended Three Months Ended
June 30 June 30
----------------- ------------------
2000 1999 2000 1999
------ ------ ------ ------
Separate account fees on non-BOLI
variable life and annuities $ 31.1 $22.2 $15.6 $11.5
BOLI cost of insurance charges
and fees - direct 85.8 86.8 41.8 40.3
BOLI cost of insurance charges-
ceded <F1> (90.3) (83.7) (44.1) (37.7)
BOLI premium tax expense
loads <F2> <F3> 12.9 11.4 11.0 -
------ ------ ------ ------
Total $ 39.5 $36.7 24.3 14.1
====== ====== ====== ======
-------------------
<FN>
<F1> Includes $7.4 million and $(1.0) million of cost of insurance charges
ceded related to appreciation (depreciation) of the BOLI funds withheld
account during 2000 and 1999, respectively.
<F2> There is a corresponding offset in taxes, licenses and fees.
<F3> No commissions were paid on BOLI.
</FN>
Separate account fees on non-BOLI variable life and annuities increased
during the first half of 2000, compared with 1999, primarily due to new
sales during 1999 and 2000. Also contributing to this increase was an
increase in the market value of separate account assets during 1999, as
the fees are primarily asset based.
BOLI cost of insurance charges and fees decreased $7.6 million in the first
half of 2000, compared with 1999, primarily reflecting a decrease in the net
cost of insurance charges on the mortality-rated BOLI contracts.
Other income increased $7.1 million in the first six months of 2000,
compared with the same period in 1999. The increase was primarily due to
an increase in commission revenue from broker-dealer operations of
approximately $6.9 million during the first half of 2000, compared with the
first half of 1999. This increase is mainly attributable to the inclusion
of PMG's operating results effective April 1, 2000. The increase in broker
dealer commission revenue is somewhat offset by an increase in broker-dealer
commission expense.
12
Policyholder surrenders, withdrawals and death benefits were as follows:
(in millions)
Six Months Ended Three Months Ended
June 30 June 30
----------------- ------------------
2000 1999 2000 1999
----- ----- ----- -----
General account $ 302.6 $ 270.1 $ 145.5 $ 134.6
Separate account 212.2 222.5 107.3 107.5
----- ----- ----- -----
Total $ 514.8 $ 492.6 $ 252.8 $ 242.1
===== ====== ===== ======
Reflecting the current interest rate environment and other competitive market
factors, we adjust our crediting rates on interest-sensitive products over
time in order to manage spread revenue and policyholder surrender and
withdrawal activity. We can also improve spread revenue over time by
increasing investment income.
General account surrenders, withdrawals and death benefits increased $32.5
million in the first half of 2000, compared with the first half of 1999,
reflecting an increase in death benefits as well as an increase in overall
surrenders and withdrawals as investors seek potentially higher returns from
alternative investments.
Separate account surrenders, withdrawals and death benefits decreased $10.3
million in the first half of 2000, compared with the first half of 1999.
Contributing to this decrease is a partial withdrawal on a BOLI contract in
the first half of 1999 of $39.8 million. Excluding the partial withdrawal,
separate account surrenders, withdrawals and death benefits increased $29.5
million in the first half of 2000, compared with the same period in 1999.
Claims and other policyholder benefits decreased $1.7 million for the first
six months of 2000, compared with the same period in 1999, primarily due to
a decrease in claims assumed from FKLA.
Taxes, licenses and fees increased during the first half of 2000, compared
with 1999, primarily reflecting premium taxes on BOLI. We received a
corresponding expense load related to these premium taxes in separate
account fees and other charges during the first half of 1999 and 2000.
Commissions expense and the deferral of insurance acquisition costs increased
in the first half of 2000, compared with the first half of 1999, due to the
higher level of sales, excluding BOLI. Commission expense related to broker-
dealer operations increased approximately $6.7 million in the first half of
2000, compared with the same period in 1999, primarily due to the inclusion
of PMG's operating results, as mentioned earlier.
Amortization of insurance acquisition costs increased $6.5 million in the
first half of 2000, compared with the first half of 1999, primarily due to
the increasing level of the deferred insurance acquisition cost asset.
Operating expenses increased $6.7 million in the first half of 2000, compared
with the same period in 1999. This increase was primarily due to an increase
in salaries and related benefits due to continued staffing needs for various
new business initiatives. Also contributing to the increase is the inclusion
of PMG's operating expenses of approximately $.6 million.
13
INVESTMENTS
Our principal investment strategy is to maintain a balanced, well-diversified
portfolio supporting the insurance contracts written. We make shifts in our
investment portfolio depending on, among other factors, the evaluation of risk
and return in various markets, consistency with our business strategy and
investment guidelines approved by the board of directors, the interest rate
environment, liability durations and changes in market and business
conditions.
Invested assets and cash
(in millions)
June 30, 2000 December 31, 1999
--------------- -----------------
Cash and short-term investments $ 58 1.6% $ 54 1.4%
Fixed maturities:
Investment grade:
NAIC <F1> Class 1 1,988 55.0 2,164 56.5
NAIC <F1> Class 2 954 26.4 994 25.9
Below investment grade:
Performing 118 3.3 118 3.1
Equity securities 62 1.7 62 1.6
Joint venture mortgage loans 67 1.9 67 1.8
Third-party mortgage loans 64 1.8 64 1.7
Other real estate-related investments 20 0.5 21 0.5
Policy loans 257 7.1 262 6.8
Other 26 0.7 25 0.7
----- ----- ----- -----
Total $3,614 100.0% $3,831 100.0%
===== ===== ===== =====
__________________________________________________________
<FN>
<F1> National Association of Insurance Commissioners ("NAIC").
-- Class 1 = A- and above
-- Class 2 = BBB- through BBB+
</FN>
Fixed maturities
The fixed maturity investment portfolio, which is considered available for
sale, is carried at estimated fair value, with the aggregate unrealized
appreciation or depreciation being recorded as a component of accumulated
other comprehensive income (loss), net of any applicable income taxes. The
aggregate unrealized depreciation on fixed maturities at June 30, 2000 was
$139.3 million, compared with $121.2 million at December 31, 1999. Fair
values are sensitive to movements in interest rates and other economic
developments and can be expected to fluctuate, at times significantly, from
period to period.
At June 30, 2000, investment-grade fixed maturities and cash and short-term
investments accounted for 83.0 percent of invested assets and cash, compared
with 83.8 percent at December 31, 1999.
At June 30, 2000, approximately 17.9 percent of investment-grade fixed
maturities were mortgage-backed securities, down from 20.0 percent at December
31, 1999, due to sales and paydowns during 2000. We plan to continue to
reduce our holdings of such investments over time.
Approximately 15.7 percent of the investment-grade fixed maturities at June
30, 2000 consisted of corporate asset backed securities, compared with 16.8
percent at December 31, 1999. The majority of investments in asset-backed
securities were backed by home equity loans, commercial mortgage-backed
securities and collateralized loan and bond obligations.
14
Real estate-related investments
The $151.0 million real estate portfolio, consisting of joint venture and
third-party mortgage loans and other real estate-related investments,
constituted 4.2 percent of cash and invested assets at June 30, 2000, compared
with $151.6 million, or 4.0 percent, at December 31, 1999.
Real estate outlook
Loans to a master limited partnership (the "MLP") between subsidiaries of
Kemper and subsidiaries of Lumbermens Mutual Casualty Company, a former
affiliate, amounted to $55.5 million (net of reserves) at June 30, 2000. The
MLP's underlying investment primarily consists of a water development project
located in California's Sacramento River Valley. This project is currently
in the final stages of a permit process with various Federal and California
State agencies that will impact the long-term economic viability of the
project. Loans to the MLP were placed on nonaccrual status effective January
1, 1999 to ensure that book value of the MLP did not increase over net
realizable value.
Troubled real estate-related investments are made up of loans on nonaccrual
status, before reserves and writedowns, totaling $96.7 million and $98.3
million at June 30, 2000 and December 31, 1999, respectively. We do not
accrue interest on real estate-related investments when it is judged that the
likelihood of interest collection is doubtful. Loans on nonaccrual status
after reserves and write-downs amounted to $74.7 million and $76.3 million at
June 30, 2000 and December 31, 1999, respectively.
Net investment income
Pre-tax net investment income totaled $130.6 million in the first half of
2000, compared with $131.2 million in the first half of 1999. Included in
pre-tax net investment income is our share of operating gains and losses from
equity investments in real estate consisting of other income less
depreciation, interest and other expenses. Such operating results exclude
interest expense on loans by us that are on nonaccrual status.
Total foregone investment income before tax on nonaccrual real estate-related
investments was as follows:
Foregone investment income
(dollars in millions)
Six months ended
June 30
------------------
2000 1999
---- ----
Real estate-related investments $ 4.7 $ 5.1
==== ====
Foregone investment income from the nonaccrual of real estate related
investments is net of our share of interest expense on these loans excluded
from our share of joint venture operating results. Any increase in
non-performing securities, and either worsening or stagnating real estate
conditions, would increase the expected adverse effect on future investment
income and realized investment results.
15
Interest rates
Interest rates rose in the first half of 2000, continuing the trend from 1999.
Rising interest rates contributed to an increase in unrealized fixed maturity
investment losses. Interest rate fluctuations can cause significant
fluctuations in both future investment income and future realized and
unrealized investment gains and losses.
LIQUIDITY AND CAPITAL RESOURCES
We carefully monitor cash and short-term investments to maintain adequate
balances for timely payment of policyholder benefits, expenses, taxes and
policyholder's account balances. In addition, regulatory authorities
establish minimum liquidity and capital standards. The major ongoing sources
of liquidity are deposits for fixed annuities, investment income, premium
income, separate account fees, other operating revenue and cash provided
from maturing or sold investments.
16
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders of KILICO held on
May 9, 2000, the following directors were elected:
Gale K. Caruso
William H. Bolinder
David A. Bowers
Eliane C. Frye
Gunther Gose
James E. Hohmann
ITEM 6. Exhibits and Reports on Form 8-K.
(a) EXHIBIT INDEX.
Exhibit No.
-----------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the three
months ended June 30, 2000.
17
Kemper Investors Life Insurance Company
FORM 10-Q
For the fiscal period ended June 30, 2000
-------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Kemper Investors Life Insurance Company
(Registrant)
Date: August 14, 2000 By: /s/GALE K. CARUSO
---------------------------------
Gale K. Caruso
President, Chief Executive Officer and
Director
Date: August 14, 2000 By: /s/FREDERICK L. BLACKMON
--------------------------------
Frederick L. Blackmon
Executive Vice President and
Chief Financial Officer
18
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
HALF FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
[MULTIPLIER] 1,000
[PERIOD-TYPE] 6-MOS.
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-START] JAN-01-2000
[PERIOD-END] June-30-2000
[DEBT-HELD-FOR-SALE] 3,060,693
[DEBT-CARRYING-VALUE] 3,060,693
[DEBT-MARKET-VALUE] 3,060,693
[EQUITIES] 61,675
<MORTGAGES> 130,969
[REAL-ESTATE] 20,073
[TOTAL-INVEST] 3,599,288
[CASH] 15,067
[RECOVER-REINSURE] 288,089
[DEFERRED-ACQUISITION] 203,302
[TOTAL-ASSETS] 15,584,061
[POLICY-LOSSES] 3,532,439
[UNEARNED-PREMIUMS] 0
[POLICY-OTHER] 0
[POLICY-HOLDER-FUNDS] 455,912
[NOTES-PAYABLE] 0
[COMMON] 2,500
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 609,007
[TOTAL-LIABILITY-AND-EQUITY] 15,584,061
[PREMIUMS] 10,263
[INVESTMENT-INCOME] 130,564
[INVESTMENT-GAINS] (2,281)
[OTHER-INCOME] 52,548
[BENEFITS] 83,648
[UNDERWRITING-AMORTIZATION] 10,084
[UNDERWRITING-OTHER] 0
[INCOME-PRETAX] 35,827
[INCOME-TAX] 15,326
[INCOME-CONTINUING] 20,501
<DISCOUNTED> 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 20,501
[EPS-BASIC] 0
[EPS-DILUTED] 0
[RESERVE-OPEN] 0
[PROVISION-CURRENT] 0
[PROVISION-PRIOR] 0
[PAYMENTS-CURRENT] 0
[PAYMENTS-PRIOR] 0
[RESERVE-CLOSE] 0
[CUMULATIVE-DEFICIENCY] 0
19