1
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 March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-21459
AMERUS LIFE HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
699 WALNUT STREET
DES MOINES, IOWA 50309-3948
(Address of principal executive offices)
IOWA 42-1459712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (515) 362-3600
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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / x / No / /
The number of shares outstanding of each of the Registrant's classes of common
stock on May 5, 2000 was as follows:
Class A, Common Stock 25,003,422 shares
Class B, Common Stock 5,000,000 shares
Exhibit index - Page 44
Page 1 of 51
1
2
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION................................................................... 4
Item 1. Financial Statements............................................................... 4
Consolidated Balance Sheets
March 31, 2000 (Unaudited) and December 31, 1999................................... 4
Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31, 2000 and 1999................................. 6
Consolidated Statements of Comprehensive Income (Unaudited)
For the Three Months Ended March 31, 2000 and 1999................................. 7
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2000 and 1999................................. 8
Notes to Consolidated Financial Statements
(Unaudited) ....................................................................... 10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition ............................................................... 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 40
PART II - OTHER INFORMATION...................................................................... 41
Item 1. Legal Proceedings.................................................................. 41
Item 6. Exhibits and Reports on Form 8-K................................................... 41
Signatures....................................................................................... 43
Exhibit Index.................................................................................... 44
2
3
SAFE HARBOR STATEMENT
All statements, trend analyses and other information contained in this
report relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate", "believe", "plan", "estimate", "expect", "intend",
and other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) general economic conditions and other factors, including
prevailing interest rate levels and stock market performance, which may affect
the ability of the Company to sell its products, the market value of the
Company's investments and the lapse rate and profitability of policies; (2) the
Company's ability to achieve anticipated levels of operational efficiencies and
cost-saving initiatives and to meet cash requirements based upon projected
liquidity sources; (3) customer response to new products, distribution channels
and marketing initiatives; (4) mortality, morbidity, and other factors which may
affect the profitability of the Company's insurance products; (5) changes in the
Federal income tax laws and regulations which may affect the relative tax
advantages of some of the Company's products; (6) increasing competition in the
sale of insurance and annuities; (7) regulatory changes or actions, including
those relating to regulation of insurance products and of insurance companies;
(8) ratings assigned to the Company and its subsidiaries by independent rating
organizations which the Company believes are particularly important to the sale
of its products; and (9) unanticipated litigation. There can be no assurance
that other factors not currently anticipated by management will not also
materially and adversely affect the Company's results of operations.
3
4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
2000 1999
--------------------------------
(unaudited)
Assets
Investments:
Securities available-for-sale at fair value:
Fixed maturity securities $ 6,806,131 $ 6,680,755
Equity securities 16,242 14,585
Short-term investments 155 155
Mortgage loans on real estate 489,899 615,186
Real estate 1,533 1,538
Policy loans 108,796 109,864
Other investments 285,654 269,158
--------------------------------
Total investments 7,708,410 7,691,241
Cash and cash equivalents 45,121 23,090
Accrued investment income 100,037 91,591
Premiums and fees receivable 4,329 6,910
Reinsurance receivables 6,449 17,535
Deferred policy acquisition costs 574,588 529,663
Value of business acquired 224,102 230,542
Investment in unconsolidated subsidiary 31,740 30,683
Goodwill 222,254 206,324
Property and equipment 23,669 23,046
Deferred income taxes 59,003 72,691
Other assets 399,224 383,415
Closed Block assets 1,432,196 1,412,622
--------------------------------
Total assets $ 10,831,122 $10,719,353
================================
See accompanying notes to consolidated financial statements.
4
5
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
2000 1999
------------------------------
(unaudited)
Liabilities and Stockholders' Equity
Policy reserves and policyowner funds:
Future life and annuity policy benefits $ 7,439,491 $ 7,390,991
Policyowner funds 295,264 282,026
------------------------------
7,734,755 7,673,017
Accrued expenses 28,864 36,309
Dividends payable to policyowners 2,373 2,248
Policy and contract claims 7,587 12,221
Income taxes payable 1,407 16,532
Other liabilities 136,945 102,083
Debt (note 3) 188,975 173,088
Closed Block liabilities 1,767,550 1,756,064
------------------------------
Total liabilities 9,868,456 9,771,562
------------------------------
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Company (note 3) 214,791 214,791
------------------------------
Stockholders' equity:
Preferred Stock, no par value, 20,000,000 shares
authorized, none issued - -
Common Stock, Class A, no par value, 180,000,000
shares authorized: issued and outstanding; 24,997,902
shares (net of 4,735,257 treasury shares) in 2000 and
25,070,854 shares (net of 4,662,305 treasury shares) in 1999 24,998 25,071
Common Stock, Class B, no par value, 50,000,000 shares
authorized; 5,000,000 shares issued and outstanding 5,000 5,000
Paid-in capital 281,433 282,831
Accumulated other comprehensive income (loss) (132,389) (135,964)
Unearned compensation (270) (323)
Unallocated ESOP shares (1,378) (1,378)
Retained earnings 570,481 557,763
------------------------------
Total stockholders' equity 747,875 733,000
------------------------------
Total liabilities and stockholders' equity $10,831,122 $10,719,353
==============================
See accompanying notes to consolidated financial statements.
5
6
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
2000 1999
-------------------------------
Revenues:
Insurance premiums $ 20,151 $ 23,835
Universal life and annuity product charges 20,185 17,186
Net investment income 139,854 129,965
Realized gains (losses) on investments (3,028) 2,604
Other income 4,665 1,715
Contribution from the Closed Block 5,860 6,542
-------------------------------
187,687 181,847
-------------------------------
Benefits and expenses:
Policyowner benefits 108,986 109,419
Underwriting, acquisition, and other expenses 24,158 22,417
Amortization of deferred policy acquisition costs
and value of business acquired 22,320 16,985
Dividends to policyowners 1,136 976
-------------------------------
156,600 149,797
-------------------------------
Income from operations 31,087 32,050
Interest expense 7,298 7,229
-------------------------------
Income before income tax expense and equity in
earnings of unconsolidated subsidiary 23,789 24,821
Income tax expense (note 4) 8,852 8,194
-------------------------------
Income before equity in earnings of unconsolidated
subsidiary 14,937 16,627
Equity in earnings of unconsolidated subsidiary,
net of tax 781 330
-------------------------------
Net income $ 15,718 $ 16,957
===============================
Earnings per common share:
Basic $ 0.52 $ 0.56
===============================
Diluted $ 0.52 $ 0.56
===============================
Weighted average common shares outstanding
Basic 29,967,997 30,432,955
===============================
Diluted 30,031,206 30,469,673
===============================
See accompanying notes to consolidated financial statements.
6
7
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
Three Months Ended
March 31,
2000 1999
------------------------------
Net Income $ 15,718 $ 16,957
Other comprehensive income (loss), before tax
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during period 1,057 (30,158)
Less: reclassification adjustment for gains (losses)
included in net income (4,443) 3,328
------------------------------
Other comprehensive income (loss), before tax 5,500 (33,486)
Income tax (expense) benefit related to items of other
comprehensive income (1,925) 11,720
------------------------------
Other comprehensive income (loss), net of tax 3,575 (21,766)
------------------------------
Comprehensive income (loss) $ 19,293 $ (4,809)
==============================
See accompanying notes to consolidated financial statements.
7
8
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended
March 31,
2000 1999
----------------------------
Cash flows from operating activities
Net Income $ 15,718 $ 16,957
Adjustments to reconcile net income to net cash
provided by operating activities:
Policyowner assessments on universal life
and annuity products (13,545) (13,381)
Interest credited to policyowner account
balances 75,875 77,271
Realized investment (gains) losses 3,028 (2,604)
Goodwill amortization 2,062 1,880
VOBA amortization 8,984 7,410
Change in:
Accrued investment income (8,446) (5,464)
Reinsurance receivables 11,086 (2,048)
Deferred policy acquisition costs (35,167) (27,961)
Liabilities for future policy benefits 17,776 (44,583)
Policy and contract claims and other
policyowner funds (1,476) (4,001)
Income taxes:
Current (15,814) (2,358)
Deferred 12,577 1,414
Other, net (25,685) 30,070
Change in Closed Block assets and
liabilities, net 13,341 37,431
----------------------------
Net cash provided by operating activities 60,314 70,033
----------------------------
Cash flows from investing activities
Purchase of fixed maturities available-for-sale 550,469 (1,126,910)
Maturities, calls and principal reductions of
fixed maturities available for sale 434,583 1,069,617
Purchase of equity securities (7,316) (69,880)
Proceeds from sale of equity securities 3,463 58,078
Change in short-term investments, net - (19,800)
Purchase of mortgage loans (23,950) (47,986)
8
9
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended
March 31,
2000 1999
------------------------
Proceeds from repayment and sale of
mortgage loans 150,795 37,579
Purchase of real estate and other invested assets (32,709) (46,267)
Proceeds from sale of real estate and other
invested assets 16,299 36,915
Change in policy loans, net 1,068 (345)
Other assets, net (1,754) (1,387)
Change in Closed Block investments, net (20,257) (12,724)
------------------------
Net cash (used in) investing activities (30,247) (123,110)
------------------------
Cash flows from financing activities:
Change in checks written in excess of balance - 17,764
Deposits to policyowner account balances 325,060 288,780
Withdrawals from policyowner account balances (344,565) (304,047)
Change in debt, net 15,887 364
Purchase of treasury stock (1,523) -
Issuance of treasury stock 105 67
Dividends to shareholders (3,000) (3,042)
------------------------
Net cash provided by (used in) financing activities (8,036) (114)
------------------------
Net increase (decrease) in cash 22,031 (53,191)
Cash and cash equivalents at beginning of period 23,090 60,090
------------------------
Cash and cash equivalents at end of period $ 45,121 $ 6,899
========================
Supplemental disclosure of cash activities:
Interest paid $ 7,377 $ 7,196
========================
Income taxes paid $ 11,613 $ 120
========================
9
10
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All adjustments were of a
normal recurring nature, unless otherwise noted in Management's Discussion and
Analysis and the Notes to Financial Statements. Operating results for the three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. For further information
and for capitalized terms not defined in this 10-Q, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 financial statement presentation.
SFAS 133 AND 137
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments
and provides comprehensive accounting and reporting standards for the
recognition and measurement of derivative and hedging activities (including
certain instruments embedded in other contracts). It requires derivatives to be
recorded in the consolidated balance sheet at fair value and establishes
criteria for hedges of changes in the fair value of assets, liabilities or firm
commitments, hedges or variable cash flows or forecasted transactions, and
hedges of foreign currency exposures of net investments in foreign operations.
Changes in the fair value of derivatives not meeting specific hedge accounting
criteria would be recognized in the consolidated statement of operations. In
June 1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 delays the effective date of SFAS No. 133 for all fiscal
quarters until fiscal years beginning after June 15, 2000. The Company is
evaluating SFAS No. 133 and has not determined its effect on the Consolidated
Financial Statements.
STATUTORY ACCOUNTING CODIFICATION
The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and are
effective in 2001. Codification will change prescribed statutory accounting
practices and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The changes of
codification will not have a material impact on statutory surplus.
10
11
EARNINGS PER COMMON SHARE
Basic earnings per share of common stock are computed by dividing net
income by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share assumes the issuance of common shares
applicable to stock options and warrants calculated using the treasury stock
method.
(2) CLOSED BLOCK
Summarized financial information of the Closed Block balance sheet as of
March 31, 2000 and December 31, 1999 and statements of income for the three
months ended March 31, 2000 and 1999 are as follows:
11
12
March 31, December 31,
2000 1999
----------------------------------
(unaudited)
($ in thousands)
Assets:
Securities available-for-sale at fair value
Fixed maturity securities $ 1,108,628 $ 1,087,672
Policy loans 193,293 188,035
Other investments - 602
Cash and cash equivalents 1,727 5,910
Accrued investment income 16,084 14,949
Premiums and fees receivable 752 957
Deferred policy acquisition costs 93,415 97,141
Other assets 18,297 17,356
----------------------------------
Total Assets $ 1,432,196 $ 1,412,622
==================================
Liabilities:
Future life and annuity policy benefits $ 1,598,804 $ 1,581,923
Policyowner funds 6,792 8,905
Dividends payable to policyowners 151,167 152,984
Policy and contract claims 4,880 4,670
Other liabilities 5,907 7,582
----------------------------------
Total Liabilities $ 1,767,550 $ 1,756,064
==================================
Three Months Ended March 31,
2000 1999
----------------------------------
Revenues and expenses:
Insurance premiums $ 48,974 $ 48,960
Universal life and annuity product charges 3,091 3,404
Net investment income 27,294 29,651
Realized gains (losses) on investments 40 452
Policyowner benefits (53,951) (51,321)
Underwriting, acquisition and other expenses (828) (1,811)
Amortization of deferred policy acquisition costs (3,727) (7,553)
Dividends to policyowners (15,033) (15,240)
Contribution from the Closed Block ----------------------------------
before income taxes $ 5,860 $ 6,542
==================================
12
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(3) DEBT AND CAPITAL SECURITIES
Debt consists of the following:
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
($ in thousands)
Federal Home Loan Bank community investment
long-term advances with a weighted average
interest rate of 6.29% at March 31, 2000 (A) $ 15,975 $ 16,088
Revolving credit agreement 48,000 32,000
Senior notes bearing interest at 6.95%
due June, 2005 125,000 125,000
------------ ------------
$ 188,975 $ 173,088
AmerUs Capital I 8.85 % Capital ============ ============
Securities Series A due
February 1, 2007 $ 86,000 $ 86,000
AmerUs Capital II 7.00 % Adjustable
Conversion-rate Equity Security
Units due July 27, 2003 128,791 128,791
------------ ------------
$ 214,791 $ 214,791
============ ============
(A) The Company has multiple credit arrangements with the Federal Home Loan
Bank (FHLB). In addition to the long-term advances disclosed above, the Company
is eligible to borrow under variable-rate short term fed funds arrangements of
which no amount was outstanding at March 31, 2000. These borrowings are secured
and interest is payable at the current rate at the time of any advance.
For an additional discussion of the terms of the above indebtedness refer
to the Company's consolidated financial statements as of December 31, 1999.
(4) FEDERAL INCOME TAXES
The effective income tax rate for the three months ending March 31, 2000
and 1999 varied from the prevailing corporate rate primarily as a result of
goodwill amortization and low income housing and rehabilitation credits.
13
14
(5) COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with various partnerships in which
a subsidiary of AMHC has an interest. Pursuant to these agreements the Company
is obligated to make future capital contributions to the partnerships of up to
$48.4 million.
The Company is party to financial instruments in the normal course of
business to meet the financing needs of its customers having risk exposure not
reflected in the balance sheet. These financial instruments include commitments
to extend credit, guarantees and standby letters of credit. Commitments to
extend credit are agreements to lend to customers. Commitments generally have
fixed expiration dates and may require payment of a fee. Since many commitments
expire without being drawn upon, the total amount of commitments does not
necessarily represent future cash requirements. The Company has also guaranteed
two loans for a fee. At March 31, 2000, outstanding commitments to extend credit
totaled approximately $11.6 million and loan guarantees totaled approximately
$6.5 million.
The Company has an agreement with Bank One, N.A. whereby the Company
guarantees the payment of loans made to certain of the Company's managers and
executives for the purpose of purchasing Common Stock and ACES pursuant to the
Stock Purchase Program. The liability of the Company in respect of the principal
amount of loans is limited to $25 million. The Company has also guaranteed
interest and all other fees and obligations owing on the loans. Each participant
in the program has agreed to repay the Company for any amounts paid by the
Company under the guarantee in accordance with a reimbursement agreement entered
into between the participant and the Company.
AmerUs Life Insurance Company ("AmerUs Life") and its joint venture partner
are contingently liable in the event the joint venture, Ameritas Variable Life
Insurance Company ("AVLIC"), cannot meet its policyholder obligations. At March
31, 2000, AVLIC had statutory assets of $2,724.8 million, liabilities of
$2,682.5 million, and surplus of $42.3 million.
In the ordinary course of business, the Company and its subsidiaries are
engaged in certain other litigation, none of which management believes is
material to the Company's results of operations.
(6) REORGANIZATION
On December 20, 1999 the Company and the Company's controlling shareholder,
American Mutual Holding Company, AMHC, announced that their respective boards of
directors had approved plans for the demutualization of AMHC and the merger of
the Company into AMHC following the demutualization. Upon completion of the
demutualization, AMHC would be a public company and will change its name to
AmerUs Group Co. (AmerUs Group). Members of AMHC will receive approximately 17
million shares of AmerUs Group and cash or policy credits in excess of $300
million as a result of the demutualization. Shareholders of the Company will
receive shares in AmerUs Group in a one-for-one exchange. Upon completion of the
demutualization, AmerUs Group will consist of the Company and AMHC's non-life
subsidiaries, principally AmerUs Properties, Inc. and AmerUs Home Equity, Inc.
Approval for the demutualization and merger is needed from the members of
AMHC, the Iowa Insurance Commissioner and shareholders of the Company. The
Company expects to ask for approval of these transactions during the second
quarter of 2000.
On February 18, 2000, the Company, AMHC and Indianapolis Life Insurance Co.
(ILICO) entered into a definitive agreement for a combination of the companies.
Under these terms, AMHC will proceed with its previously announced
demutualization. ILICO will demutualize separately and ILICO's members will
receive cash, policy credits and stock equivalent to the value of 11.25 million
shares of
14
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stock of AmerUs Group. Upon demutualization, ILICO will become a subsidiary of
AmerUs Group and will continue operations as a stock life insurance company.
As part of the transaction, the Company made an investment of $100 million
in a downstream holding company of ILICO.
ILICO is a 95-year old mutual life insurance and annuity company based in
Indianapolis, Indiana. ILICO and its subsidiaries are licensed to do business in
all 50 states and the District of Columbia. At March 31, 2000, ILICO had total
assets of $6.2 billion and insurance in force of $30.0 billion.
The contemplated transactions are subject to normal closing conditions,
including appropriate policyholder/member, shareholder and regulatory approvals.
The Company expects the demutualization of ILICO and combination into AmerUs
Group to take place in the fourth quarter of 2000.
(7) OPERATING SEGMENTS
The Company has two operating segments: Life Insurance and Annuities.
Products generally distinguish a segment. A brief description of each segment
follows:
LIFE INSURANCE
Open Block: The primary product offerings consist of whole life, universal
life and term life insurance policies. These products are marketed on a
national basis primarily through a Preferred Producer agency system and a
Personal Producing General Agent ("PPGA") distribution system.
Closed Block: The Closed Block was established for insurance policies which
had a dividend scale in effect as of June 30, 1996. The Closed Block was
designed to provide reasonable assurance to owners of insurance policies
included therein that, after the Reorganization of AmerUs Life, assets
would be available to maintain the dividend scales and interest credits in
effect prior to the Reorganization if the experience underlying such scales
and credits continues. The primary products included in the Closed Block
are whole life, certain universal life policies and term life insurance
policies.
ANNUITIES
The Annuity segment markets individual fixed annuities on a national basis
primarily through independent brokers and marketing companies. The Annuity
segment also includes one insurance contract issued to a commercial paper
conduit.
The Company uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated
income from operations and assets with the exception of the elimination of
certain items which management believes are not necessarily indicative of
overall operating trends. For example, net realized capital gains or losses on
investments, excluding gains or losses on convertible debt which are considered
core earnings, are not included as part of operating segment income. These items
are shown between adjusted pre-tax operating income and income from operations
on the following operating segment income tables. Operating segment income is
generally income before non-core realized gains and losses, interest expense,
income tax and equity earnings of the Company's unconsolidated subsidiary, AMAL.
Premiums, product charges, policyowner benefits, insurance expenses,
amortization of deferred policy acquisition costs and VOBA and dividends to
policyowners are attributed directly to each operating segment. Net investment
income and core realized gains and losses on investments are allocated based on
directly-related assets required for transacting the business of that segment.
Other revenues and benefits and expenses which are deemed not to be associated
with any specific segment are grouped together in the All other category. These
items
15
16
primarily consist of discontinued product lines such as group and health and
holding company revenues and expenses. The contribution to the operating income
of the life insurance segment from the Closed Block is reported as a single line
item.
Assets are segmented based on policy liabilities directly attributable to
each segment. All assets allocated to the Closed Block are grouped together and
shown as a separate item entitled "Closed Block Assets."
There are no significant intersegment transactions.
There have been no material changes in segment assets since December
31, 1999.
Operating segment income is as follows:
16
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Operating Segment Income
($ in thousands)
Three Months Ended March 31, 2000
Life Insurance Annuities All Other Consolidated
-----------------------------------------------------------------
Revenues:
Insurance premiums $ 14,307 $ 5,883 $ (39) $ 20,151
Universal life and annuity product charges 11,695 8,490 - 20,185
Net investment income 24,848 113,301 1,705 139,854
Core realized gains on investments - 1,528 - 1,528
Other income - 4,165 500 4,665
Contribution from the Closed Block 5,860 - - 5,860
-----------------------------------------------------------------
56,710 133,367 2,166 192,243
Benefits and expenses:
Policyowner benefits 22,005 86,808 173 108,986
Underwriting, acquisition, and other expenses 9,784 11,391 2,533 23,708
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of $620 5,810 15,890 - 21,700
Dividends to policyowners 1,136 - - 1,136
-----------------------------------------------------------------
38,735 114,089 2,706 155,530
-----------------------------------------------------------------
Adjusted pre-tax operating income (loss) $ 17,975 $ 19,278 $ (540) 36,713
================================================
Non-core realized gains (losses) on investments (4,556)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses (620)
Reorganization costs (450)
---------------
Income from operations 31,087
Interest (expense) (7,298)
Income tax (expense) (8,852)
Equity in earnings of unconsolidated subsidiary, net of tax 781
---------------
Net income $ 15,718
===============
17
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Operating Segment Income
($ in thousands)
Three Months Ended March 31, 1999
Total
Life Insurance Annuities All Other Consolidated
------------------------------------------------------------------
Revenues:
Insurance premiums $15,326 $ 8,470 $ 39 $ 23,835
Universal life and annuity product charges 11,821 5,365 - 17,186
Net investment income 20,623 108,201 1,141 129,965
Core realized gains on investments - 2,969 - 2,969
Other income - 1,362 353 1,715
Contribution from the Closed Block 6,542 - - 6,542
------------------------------------------------------------------
54,312 126,367 1,533 182,212
Benefits and expenses:
Policyowner benefits 24,586 84,745 88 109,419
Underwriting, acquisition, and other expenses 12,175 9,576 666 22,417
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of $511 5,017 11,457 - 16,474
Dividends to policyowners 976 - - 976
------------------------------------------------------------------
42,754 105,778 754 149,286
------------------------------------------------------------------
Adjusted pre-tax operating income $11,558 $ 20,589 $ 779 32,926
================================================
Non-core realized gains (losses) on investments (365)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses (511)
--------------
Income from operations 32,050
Interest (expense) (7,229)
Income tax (expense) (8,194)
Equity in earnings of unconsolidated subsidiary, net of tax 330
--------------
Net income $ 16,957
==============
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Selected Consolidated Financial and Operating Data and Consolidated Financial
Statements and related notes.
OVERVIEW
The Company is a holding company engaged through its subsidiaries in the
business of marketing, underwriting and distributing a broad range of individual
life insurance and annuity products to individuals and businesses in 49 states,
the District of Columbia and the U.S. Virgin Islands. The Company has two
operating segments: Life Insurance and Annuities. The Life Insurance segment's
primary product offerings consist of whole life, universal life and term life
insurance policies. The primary product offerings of the Annuity segment are
fixed annuities.
In accordance with Generally Accepted Accounting Principals (GAAP),
universal life insurance premiums and annuity deposits received are reflected as
increases in liabilities for policyowner account balances and not as revenues.
Revenues reported for universal life and annuity products consist of policy
charges for the cost of insurance, administration charges and surrender charges
assessed against policyowner account balances. Surrender benefits paid relating
to universal life insurance policies and annuity products are reflected as
decreases in liabilities for policyowner account balances and not as expenses.
Amounts for interest credited to universal life and annuity policyowner account
balances and benefit claims in excess of policyowner account balances are
reported as expenses in the financial statements. The Company receives
investment income earned from the funds deposited into account balances by
universal life and annuity policyowners, the majority of which is passed through
to such policyowners in the form of interest credited.
Premium revenues reported for traditional life insurance products are
recognized as revenues when due. Future policy benefits and policy acquisition
costs are recognized as expenses over the life of the policy by means of a
provision for future policy benefits and amortization of deferred policy
acquisition costs.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as policy acquisition costs, are deferred. The method of
amortizing deferred policy acquisition costs for life insurance products varies,
dependent upon whether the contract is participating or non-participating.
Participating contracts are those which are expected to pay dividends to
policyowners in proportion to their relative contribution to the Company's
statutory surplus. Non-participating life insurance deferred policy acquisition
costs are amortized over the premium-paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated premium
revenues using assumptions consistent with those used in computing policy
benefit reserves. Deferred policy acquisition costs for participating policies
are amortized as an expense primarily in proportion to expected profits or
margins from such policies. This amortization is adjusted when current or
estimated future gross profits or margins on the underlying policies vary from
previous estimates. For example, the amortization of deferred policy acquisition
costs is accelerated when policy terminations are higher than originally
estimated or when investments supporting the policies are sold at a gain prior
to their anticipated maturity. Death and other policyowner benefits reflect
exposure to mortality risk and fluctuate from period to period based on the
level of claims incurred within insurance retention limits. The profitability of
the Company is primarily affected by expense levels, interest spread results
(i.e., the excess of investment earnings over the interest credited to
policyowners) and fluctuations in mortality, persistency and other policyowner
benefits. The Company has the ability to mitigate adverse experience through
adjustments to credited interest rates, policyowner dividends or cost of
insurance charges.
19
20
ADJUSTED NET OPERATING INCOME
The following table reflects net income adjusted to eliminate certain items
(net of applicable income taxes and minority interest) which management believes
do not necessarily indicate overall operating trends. For example, net realized
capital gains or losses on investments, excluding gains or losses on convertible
debt which are considered core earnings, are eliminated. Net realized capital
gains or losses on investments may be realized at the sole discretion of
management and are often realized in accordance with tax planning strategies.
Therefore, net realized capital gains or losses do not reflect the Company's
ongoing earnings capacity. Different items are likely to occur in each period
presented and others may have different opinions as to which items may warrant
adjustment. Adjusted net operating income is the basis used by the Company in
assessing its overall performance. Adjusted net operating income as described
here may not be comparable to similarly titled measures reported by other
companies. The adjusted net operating income shown below does not constitute net
income computed in accordance with GAAP.
For the Three Months Ended
March 31,
2000 1999
-----------------------------------
($ in thousands, except per share data)
Net Income $ 15,718 $ 16,957
Net non-core realized (gains) losses (A) 2,962 237
Net amortization of deferred policy
acquisition costs due to non-core
realized gains or losses (B) 403 332
Reorganization costs (C) 450 -
-----------------------------------
Adjusted Net Operating Income $ 19,533 $ 17,526
===================================
Adjusted Net Operating Income
per common share:
Basic (D) $ 0.65 $ 0.58
Diluted (E) $ 0.65 $ 0.58
(A) Represents total realized gains or losses on investments less core realized
gains or losses (defined as gains or losses on the convertible preferred
stock and bond portfolio, and gains on loans held for sale) adjusted for
income taxes on such amounts. Non-core realized gains or losses may vary
widely between periods. Such amounts are determined by management's timing
of individual transactions and do not necessarily correspond to the
underlying operating trends.
(B) Represents amortization of deferred policy acquisition costs due to
non-core realized gains or losses being included in product margins,
adjusted for income taxes on such amounts.
20
21
C) Represents costs directly related to the Company's proposed merger with its
controlling shareholder, American Mutual Holding Company (AMHC), following
the proposed demutualization of AMHC. These costs consist primarily of
legal and consulting expenses. See further discussion of the proposed
reorganization plans in the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
(D) Basic adjusted net operating income per common share for the first quarters
of 2000 and 1999 is calculated using 29.97 million and 30.43 million
shares, respectively.
(E) Diluted adjusted net operating income per common share for the first
quarters of 2000 and 1999 is calculated using 30.03 million and 30.47
million shares, respectively.
THE CLOSED BLOCK
The Closed Block was established on June 30, 1996. Insurance policies which
had a dividend scale in effect as of June 30, 1996, were included in the Closed
Block. The Closed Block was designed to provide reasonable assurance to owners
of insurance policies included therein that, after the reorganization of AmerUs
Life, assets would be available to maintain the dividend scales and interest
credits in effect prior to the reorganization if the experience underlying such
scales and credits continues.
The contribution to the operating income of the Company from the Closed
Block is reported as a single line item in the income statement. Accordingly,
premiums, product charges, investment income, realized gains and (losses) on
investments, policyowner benefits and dividends attributable to the Closed
Block, less certain minor expenses including amortization of deferred policy
acquisition costs, are shown as a net number under the caption "Contribution
from the Closed Block". This results in material reductions in the respective
line items in the income statement while having no effect on net income. The
expenses associated with the administration of the policies included in the
Closed Block and the renewal commissions on these policies are not charged
against the Contribution from the Closed Block, but rather are grouped with
underwriting, acquisition and other expenses. Also, all assets allocated to the
Closed Block are grouped together and shown as a separate item titled "Closed
Block Assets". Likewise, all liabilities attributable to the Closed Block are
combined and disclosed as the "Closed Block Liabilities".
OPERATING SEGMENTS
The Company has two reportable operating segments: Life Insurance and
Annuities. Products generally distinguish a segment. The Company uses the same
accounting policies and procedures to measure operating segment income as it
uses to measure its consolidated income from operations with the exception of
the elimination of certain items which management believes are not necessarily
indicative of overall operating trends. These items are explained further in the
Adjusted Net Operating Income section of Management's Discussion and Analysis of
Results of Operations and Financial Condition. Revenues and benefits and
expenses are primarily attributed directly to each operating segment. Net
investment income and core realized gains and (losses) on investments are
allocated based on the directly-related asset portfolios. Other revenues and
expenses which are deemed not to be associated with any specific reportable
segment are grouped together in the All Other category. These items primarily
consist of discontinued product lines such as group and health and holding
company revenues and expenses. The Company assesses the performance of its
operating segments before interest expense, income taxes, and equity in earnings
of its unconsolidated subsidiary, AMAL Corporation (AMAL).
21
22
SALES
LIFE INSURANCE
The following table sets forth information regarding the Company's life
insurance sales activity by product:
Sales Activity by Product
Direct First Year Annualized Premiums
For the Three Months Ended
March 31,
2000 1999
-----------------------------------
($ in thousands)
Traditional life insurance:
Participating whole life $ 3,768 $ 4,905
Term life 2,879 1,412
Universal life 4,563 3,210
-----------------------------------
Total $ 11,210 $ 9,527
===================================
Life insurance sales as measured by annualized premiums increased 17.7% to
$11.2 million for the first quarter of 2000 compared to $9.5 million for the
same period in 1999. Sales of participating whole life insurance decreased in
the first quarter of 2000 compared to the first quarter of 1999 which was
consistent with the general industry decline of sales of this product. Term life
insurance sales increased $1.5 million to $2.9 million for the first quarter of
2000 compared to $1.4 million for the same period in 1999. The increase in term
life insurance sales was primarily the result of product repricing completed in
mid-1999 along with an increase in consumer demand for the product. Sales of
universal life insurance for the first three months of 2000 increased by $1.3
million from the same period in 1999. Increased sales of universal life were
primarily attributable to new universal life products introduced in mid-1999.
22
23
The following table sets forth the Company's life insurance collected
premiums, including collected premiums associated with the Closed Block, for the
periods indicated:
Collected Premiums by Product
For the Three Months Ended
March 31,
2000 1999
-----------------------------------
($ in thousands)
Individual life premiums collected:
Traditional life:
First year and single $ 21,552 $ 22,222
Renewal 47,497 46,624
---------------------------------
Total 69,049 68,846
Universal life:
First year and single 7,612 5,098
Renewal 19,239 18,771
---------------------------------
Total 26,851 23,869
Total individual life 95,900 92,715
Reinsurance assumed 372 349
Reinsurance ceded (5,912) (4,302)
---------------------------------
Total individual life, net of reinsurance $ 90,360 $ 88,762
=================================
Traditional life insurance premiums collected were $69.0 million for the
first quarter of 2000 compared to $68.8 million for the first quarter of 1999.
Although repetitive premiums were higher in the first quarter of 2000 as
compared to the first quarter of 1999, first year and single premium decreased
between periods due to decreased discretionary premium contributions.
Discretionary premium contributions are largely impacted by alternative
investment rates available. Renewal direct collected premium was $0.9 million
higher in the first quarter of 2000 as compared to the same period in 1999
primarily due to continued favorable persistency and the continued growth of the
block of business.
Universal life insurance premiums collected were $26.9 million in the first
quarter of 2000 compared to $23.9 million for the same period in 1999. The
increase in 2000 was primarily due to new products introduced in mid-1999.
Effective January 1, 2000, the Company entered into additional reinsurance
agreements which effectively reduced the Company's retention limit to $100,000
for the majority of policies issued since July 1, 1996 and for the majority of
new business going forward. As a result of these new agreements, reinsurance
ceded was $1.6 million higher for the first quarter of 2000 as compared to the
same period in 1999.
23
24
The following table sets forth information regarding the Company's life
insurance in force for each date presented:
Individual Life Insurance in Force
As of March 31,
2000 1999
-----------------------------------------------
($ in thousands)
Traditional life
Number of policies 249,600 252,975
GAAP life reserves $ 1,664,907 $ 1,578,053
Face amounts $ 22,594,000 $ 19,843,000
Universal life
Number of policies 112,779 114,397
GAAP life reserves $ 927,749 $ 900,756
Face amounts $ 12,387,000 $ 12,114,000
Total life insurance
Number of policies 362,379 367,372
GAAP life reserves $ 2,592,656 $ 2,478,809
Face amounts $ 34,981,000 $ 31,957,000
While the total policy count continues to decline consistent with industry
trends, the average policy size continues to increase, from $87,000 in 1999 to
$96,500 in 2000. As a result, total insurance in force has grown to almost $35
billion as of March 31, 2000.
24
25
ANNUITIES
The following table sets forth annuity collected premiums for the periods
indicated:
Collected Premiums by Product
For the Three Months Ended
March 31,
2000 1999
----------------------------------
($ in thousands)
Fixed annuities $ 206,324 $ 233,675
Multi-choice annuities 20,206 -
Equity-index annuities 70,931 4,639
----------------------------------
Total 297,461 238,314
Reinsurance assumed - -
Reinsurance ceded (54) (66)
----------------------------------
Total annuities, net of reinsurance $ 297,407 $ 238,248
==================================
The Company markets its annuity products on a national basis through
networks of independent agents whom are supervised by regional vice presidents
and directors or Independent Marketing Organizations (IMO's). The Company's
IMO's consist of approximately 70 contracted organizations and three
wholly-owned organizations. Annuity collected premiums were $297.5 million for
the first quarter of 2000 compared to $238.3 million for the same period in
1999. The increase in collected premiums was primarily attributable to the
introduction of new equity-index and multi-choice annuity products in late-1999
and first quarter 2000. The multi-choice annuity product provides for various
earnings strategies under one product, such as a long-term equity index, an
annual equity index, an investment grade bond index, and a guaranteed one-year
rate. Earnings are credited to this product based on the increases in the
applicable indices, less management fees, and funds may be moved between
investment alternatives.
25
26
The following table sets forth information regarding annuities in force for
each date presented:
Annuities in Force
As of March 31,
2000 1999
--------------------------------------------------
($ in thousands)
Deferred fixed and immediate annuities
Number of policies 166,607 177,032
GAAP life reserves $ 5,886,865 $ 5,982,979
Multi-choice annuities
Number of policies 389 -
GAAP life reserves $ 22,146 $ -
Equity-index annuities
Number of policies 10,673 6,369
GAAP life reserves $ 519,931 $ 254,059
Total annuities
Number of policies 177,669 183,401
GAAP life reserves $ 6,428,942 $ 6,237,038
The total number of annuity policies declined between periods while the
GAAP reserves on annuity policies increased. These changes between periods were
primarily attributable to an increase in the average size of policies sold
combined with surrenders of smaller average size policies.
RESULTS OF OPERATIONS
A summary of the Company's revenue follows:
26
27
Three Months Ended
March 31,
2000 1999
------------------------------
($ in thousands)
Insurance premiums
Life insurance - traditional $ 14,307 $ 15,326
Annuities - Immediate annuity &
supplementary contract premiums 5,883 8,470
All other (39) 39
------------------------------
Total insurance premiums 20,151 23,835
Product charges
Life insurance - universal life 11,695 11,821
Annuities 8,490 5,365
------------------------------
Total product charges 20,185 17,186
Net investment income
Life insurance 24,848 20,623
Annuities 113,301 108,201
All other 1,705 1,141
------------------------------
Total net investment income 139,854 129,965
Realized gains (losses) on investments
Life insurance - core - -
Annuities - core 1,528 2,969
All other - non-core (4,556) (365)
------------------------------
Total realized gains (losses) on investments (3,028) 2,604
Other income
Life insurance - -
Annuities 4,165 1,362
All other 500 353
------------------------------
Total other income 4,665 1,715
Contribution from the Closed Block 5,860 6,542
------------------------------
Total revenues $ 187,687 $ 181,847
==============================
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28
Traditional life insurance premiums were $14.3 million for the first
quarter of 2000 compared to $15.3 million for the same period in 1999. Effective
January 1, 2000, the Company entered into reinsurance agreements which
effectively reduced the Company's retention limit to $100,000 for the majority
of new business. The decrease in traditional life insurance premiums was
primarily the result of approximately $1.0 million of additional premium ceded
to reinsurers and approximately $1.3 million of lower discretionary premium
contributions, partially offset by increased renewal premium of approximately
$1.3 million.
Immediate annuity and supplementary contract premiums decreased by $2.6
million to $5.9 million for the first quarter of 2000 compared to $8.5 million
for the first quarter of 1999. A decrease in immediate annuity premiums in 2000
was anticipated as a result of pricing adjustments made on immediate annuity
products.
Universal life product charges were $0.1 million lower in the first quarter
of 2000 compared with the same period in 1999. The decrease in product charges
in 2000 was primarily due to higher reinsurance costs partially offset by
increased cost of insurance charges as a result of the normal aging of the block
of business.
Annuity product charges were $8.5 million for the first quarter of 2000
compared to $5.4 million for the same period in 1999. The increase in product
charges was primarily due to increased surrender charges resulting from the
larger annuity block of business in force and an increase in withdrawals.
Annuity withdrawal rates averaged 16.9% in the first quarter of 2000 compared to
14.7% in the first quarter of 1999. Based on the current interest rate
environment, withdrawal rates for the near term are expected to run at a higher
level as compared to a year ago. Although withdrawal rates were up, internal
replacement rates were also up as some of the surrendered policies were rolled
over to other AmerUs products.
Total net investment income was $139.9 million for the first quarter of
2000 compared to $130.0 million for the first quarter of 1999. The increase in
2000 net investment income was primarily attributable to higher average invested
assets (excluding market value adjustments) and a higher effective yield as
compared to 1999. Average invested assets (excluding market value adjustments)
increased approximately $325.4 million in the first quarter of 2000 as compared
to the same period in 1999 primarily due to the Company's increased investment
funds from a structured asset-backed commercial paper vehicle entered into in
the third quarter of 1999 and the growth of the Company's life insurance and
annuity business since last year. The effective yield of the entire portfolio in
the first quarter of 2000 was 7.34% compared to 7.09% in the first quarter of
1999. The effective yield of the annuity portion of the portfolio increased 4
basis points to 6.77% for the first quarter of 2000 as compared to 6.73% for the
same period in 1999. The increase in effective yields primarily resulted from
higher reinvestment rates near the end of 1999 and in the first quarter of 2000
as compared to the portfolio rate at the beginning of the prior year period.
Realized losses on investments were $3.0 million for the first quarter of
2000 compared to realized gains of $2.6 million for the first quarter of 1999.
The level of realized gains and losses will fluctuate from period to period
depending on the prevailing interest rate and economic environment and the
timing of the sale of investments.
All other income primarily consists of structured finance fees from
affordable housing programs and third party annuity commissions received by
wholly-owned IMO's. Other income increased approximately $3.0 million in the
first quarter of 2000 as compared to the same period in 1999 primarily due to
the acquisition of another IMO in February, 2000.
28
29
The Contribution from the Closed Block was $5.9 million for the first
quarter of 2000 compared to $6.5 million for the same period in 1999. The
following table sets forth the operating results of the Closed Block for the
periods indicated:
Three Months Ended
March 31,
2000 1999
-------------------------
($ in thousands)
Revenues
Insurance premiums $ 48,974 $ 48,960
Universal life and annuity product charges 3,091 3,404
Net investment income 27,294 29,651
Realized gains (losses) on investments 40 452
------------------------
Total revenues 79,399 82,467
Benefits and expenses
Policyowner benefits 53,951 51,321
Underwriting, acquisition and insurance expenses 828 1,811
Amortization of deferred policy acquisition costs 3,727 7,553
Dividends to policyowners 15,033 15,240
------------------------
Total benefits and expenses 73,539 75,925
------------------------
Contribution from the Closed Block $ 5,860 $ 6,542
========================
Closed Block insurance premiums were approximately $49.0 million for the
first quarter of 2000 and the first quarter of 1999. Closed Block insurance
premiums are expected to decline as the Closed Block's life insurance in force
declines over the life of the Block. However, due to an increase in paid-up
additions to life insurance policies from dividend distributions, life insurance
premiums for the first quarter of 2000 remained at the same level as the first
quarter of 1999.
Product charges on universal life policies included in the Closed Block
decreased $0.3 million to $3.1 million for the first quarter of 2000 compared to
$3.4 million for the same period in 1999. The decrease in product charges on
universal life policies was primarily the result of the reduction of such
business in force due to deaths and surrenders.
Net investment income for the Closed Block was $27.3 million for the first
quarter of 2000 compared to $29.7 million for the same period in 1999. The
decrease was primarily attributable to lower effective yields, partially offset
by higher average invested assets (excluding market value adjustments).
There were minimal realized gains on investments of the Closed Block in the
first quarter of 2000 compared to $0.4 million of realized gains in the first
quarter of 1999. The level of realized gains is subject to fluctuation from
period to period depending on the prevailing interest rate and economic
environment and the timing of the sale of investments.
29
30
Closed Block policyowner benefits were $2.6 million higher in the first
quarter of 2000 compared to the same period in 1999. The increase was primarily
due to increased death benefits.
The amortization of deferred policy acquisition costs for the Closed Block
decreased by $3.9 million to $3.7 million for the first quarter of 2000 compared
to $7.6 million for the first quarter of 1999. Deferred policy acquisition costs
are generally amortized in proportion to gross margins. The decrease in the
amortization of deferred policy acquisition costs for the first quarter of 2000
compared to the first quarter of 1999 is consistent with the projected reduction
in the gross margins of the Closed Block as the life insurance in force
declines.
Closed Block dividends to policyowners decreased by $0.2 million to $15.0
million for the first quarter of 2000 compared to $15.2 million for the same
period in 1999. The decrease in 2000 was primarily due to the decrease in the
deferred dividends resulting from lower margins as compared to the same period
in 1999.
30
31
A summary of the Company's policyowner benefits follows:
Three Months Ended
March 31,
2000 1999
------------------------
($ in thousands)
Life Insurance
Traditional:
Death benefits $ 770 $ 694
Change in liability for future policy
benefits and other policy benefits 4,314 10,291
------------------------
Total traditional 5,084 10,985
Universal:
Death benefits in excess of cash value 8,313 6,289
Interest credited on policyowner
account balances 7,654 7,531
Other 954 (219)
------------------------
Total universal 16,921 13,601
------------------------
Total life insurance benefits 22,005 24,586
Annuities
Interest credited to deferred annuity
account balances 68,221 69,740
Other annuity benefits 18,587 15,005
------------------------
Total annuity benefits 86,808 84,745
All other benefits 173 88
------------------------
Total policyowner benefits $ 108,986 $ 109,419
========================
Total life insurance benefits were $22.0 million for the first quarter of
2000 compared to $24.6 million for the first quarter of 1999. The Company
entered into additional reinsurance agreements which effectively reduced the
Company's retention limit to $100,000 for the majority of new business. The
decrease in traditional life insurance benefits was primarily due to increased
reserve credits associated with the new reinsurance agreements and lower
premiums. Universal life insurance benefits increased in the first quarter of
2000 as compared to the same period in 1999 primarily due to increased death
benefits corresponding to the expected growth of the business in force. In
addition, the Company experienced higher than expected death benefits in the
first quarter of 2000. The Company does not believe that this is
31
32
an indication of a change in long-term mortality trends but more of a
fluctuation which is not unusual from time to time. Interest credited on
universal policyowner account balances increased $0.1 million to $7.6 million
for the first quarter of 2000 compared to $7.5 million for the same period in
1999 primarily due to higher policyowner account balances. Policyowner account
balances were approximately $5.8 million higher in the first quarter of 2000 as
compared to the first quarter of 1999. Partially offsetting the increase in
policyowner account balances was a decrease in crediting rates. The weighted
average interest crediting rate on policyowner account balances for the first
quarter of 2000 was 5.62% compared to 5.75% for the same period in 1999.
Annuity benefits were $86.8 million for the first quarter of 2000 compared
to $84.7 million for the same period in 1999. The increase was primarily in
other annuity benefits which included approximately $3.9 million of interest
expense on an insurance contract issued to a commercial paper conduit in
mid-1999. Partially offsetting this increase in other annuity benefits was a
decrease in interest credited to deferred annuity account balances. This
decrease was primarily attributable to a lower weighted average crediting rate
in the first quarter of 2000 compared to the first quarter of 1999. The weighted
average crediting rate on deferred annuity account balances was decreased 19
basis points to 4.87% for the first quarter of 2000 compared to 5.06% for the
first quarter of 1999. As a result of the crediting rate decrease combined with
the increase in annuity investment portfolio yields, GAAP spreads widened 23
basis points in the first quarter of 2000 as compared to the same period in
1999.
32
33
A summary of the Company's expenses follows:
For the Three Months Ended
March 31,
1999 1998
--------------------------------
($ in thousands)
Life Insurance
Underwriting, acquisition and
other expenses $ 9,784 $ 12,175
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of $21 and $315
for the three months ended March 31,
2000 and 1999, respectively 5,810 5,017
--------------------------------
Total life insurance 15,594 17,192
Annuities
Underwriting, acquisition and
other expenses 11,391 9,576
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of $599 and $196
for the three months ended March 31,
2000 and 1999, respectively 15,890 11,457
--------------------------------
Total annuities 27,281 21,033
Amortization of deferred policy acquisition costs due
to non-core realized gains or losses 620 511
All other expenses 2,533 666
Reorganization costs 450 --
--------------------------------
Total expenses $ 46,478 $ 39,402
================================
Total life insurance expenses were $15.6 million for the first quarter of
2000 compared to $17.2 million for the first quarter of 1999. Underwriting,
acquisition and other expenses were $2.4 million lower in the first quarter of
2000 compared to the same period in 1999 primarily due to decreased technology
costs primarily related to the Year 2000 Compliance Project. Partially
offsetting this decrease was a $0.8 million increase in the amortization of
deferred policy acquisition costs and value of business acquired (VOBA),
resulting primarily from the growth in the deferred policy acquisition cost
asset as the block of business in force continues to grow.
33
34
Total annuity expenses increased by $6.3 million to $27.3 million for the
first quarter of 2000 compared to $21.0 million for the first quarter of 1999.
Underwriting, acquisition and other expenses increased approximately $1.8
million in the first quarter of 2000 compared to the same period in 1999
primarily due to the additional operating costs associated with the new IMO
acquired in the first quarter of 2000. This increase in expense was more than
offset by the increase in other income from the IMO as discussed previously.
Amortization of deferred policy acquisition costs and VOBA increased
approximately $4.4 million in the first quarter of 2000 compared to the same
period in 1999. The increase in amortization was primarily attributable to the
general growth in the deferred policy acquisition cost asset associated with the
continued growth in annuity sales. In addition, VOBA amortization increased in
the first quarter of 2000 as surrenders of those policies associated with the
VOBA asset increased during the period.
All other expenses increased by $1.8 million in the first quarter of 2000
compared to the same period in 1999 primarily due to increased incentive
compensation at the holding company.
The 2000 reorganization costs consist of legal and consulting expenses
associated with the Company's proposed merger with its controlling shareholder,
AMHC, following the proposed demutualization of AMHC. See further discussion of
these proposed reorganization plans in the Liquidity and Capital Resources
section. As these costs are not of a continuing nature, they have been excluded
from the Operating Segment amounts.
34
35
A summary of the Company's adjusted pre-tax operating income by operating
segment follows:
Three Months Ended
March 31,
2000 1999
-------------------------------
($ in thousands)
Life Insurance
Open Block:
Revenues $ 50,850 $ 47,770
Benefits and expenses (37,599) (41,778)
Dividends to policyowners (1,136) (976)
Closed Block contribution 5,860 6,542
-------------------------------
Adjusted pre-tax operating income 17,975 11,558
Annuities
Revenues 133,367 126,367
Benefits and expenses (114,089) (105,778)
-------------------------------
Adjusted pre-tax operating income 19,278 20,589
All other adjusted pre-tax operating (loss) (540) 779
-------------------------------
Total adjusted pre-tax operating income $ 36,713 $ 32,926
===============================
Adjusted pre-tax operating income from Life Insurance operations was $18.0
million for the first quarter of 2000 compared to $11.6 million for the first
quarter of 1999. The increase in the first quarter of 2000 compared to the first
quarter of 1999 was primarily due to increased investment income and decreased
other expenses, which were partially offset by a decreased contribution from the
Closed Block.
Adjusted pre-tax operating income from Annuity operations was $19.3 million
for the first quarter of 2000 compared to $20.6 million for the same period in
1999. The decrease in 2000 was primarily due to increased amortization of the
VOBA asset related to the increased surrenders of the associated block of
business, which was partially offset by increased surrender charge income and
interest spreads.
All other adjusted pre-tax operating loss was $0.5 million for the first
quarter of 2000 compared to income of $0.8 million for the same period in 1999.
The decrease in 2000 was primarily due to increased holding company expenses.
Interest expense increased by $0.1 million in the first quarter of 2000 to
$7.3 million compared to $7.2 million in the first quarter of 1999. The
increased interest expense in 2000 was primarily due to higher average
outstanding borrowings during the first quarter of 2000 as compared to the first
quarter of 1999. The additional borrowings were primarily used to support
insurance company operations, affordable housing investments and fund the
acquisition of the new IMO.
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Income tax expense was $8.9 million for the first quarter of 2000 compared
to $8.2 million for the first quarter of 1999. The effective tax rate in 2000
was 37.2% compared to 33.0% in 1999. The increase in the effective tax rate in
2000 was primarily due to a $0.8 million decrease in tax credits generated by
affordable housing and historic rehabilitation investments. Tax credits
generated from these investments totaled $0.4 million in 2000 compared to $1.2
million in 1999.
The equity in earnings of unconsolidated subsidiary represents 34% of the
net income of AMAL Corporation, net of goodwill amortization and income taxes.
AMAL Corporation is the parent company of Ameritas Variable Life Insurance
Company, the joint venture partner that markets variable life, and variable and
select fixed annuity products.
Net income was $15.7 million for the first quarter of 2000 compared to
$17.0 million for the same period in 1999. The decrease in net income in the
first quarter of 2000 as compared to the first quarter of 1999 was primarily due
to higher realized losses on investments and higher effective income tax rates,
partially offset by increased Life Insurance operating income.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest income on loans and advances to its
subsidiaries (including a surplus note issued to the Company by AmerUs Life),
investment income on assets held by the Company and fees which the Company
charges its subsidiaries and certain other of its affiliates for services,
offset by the expenses incurred for debt service, salaries and other expenses.
The Company intends to rely primarily on dividends and interest income from
its life insurance subsidiaries in order to make dividend payments to its
shareholders. The payment of dividends by its life insurance subsidiaries is
regulated under various state laws. Under Iowa law, AmerUs Life and Delta Life
may pay dividends only from the earned surplus arising from their respective
businesses and must receive the prior approval of the Iowa Insurance
Commissioner to pay any dividend that would exceed certain statutory
limitations. The current statute limits any dividend, together with dividends
paid out within the preceding 12 months, to the greater of (i) 10% of the
respective company's policyowners' surplus as of the preceding year end or (ii)
the net gain from operations for the previous calendar year. Iowa law gives the
Iowa Commissioner broad discretion to disapprove requests for dividends in
excess of these limits. The payment of dividends by AmVestors' subsidiaries,
American Investors Life Insurance Company, Inc. (American), and Financial
Benefit Life Insurance Company (FBL) is regulated under Kansas law, which has
statutory limitations similar to those in place in Iowa. Based on these
limitations and 1999 results, the Company's subsidiaries could pay an estimated
$61.1 million in dividends in 2000 without obtaining regulatory approval. Of
this amount, the Company's subsidiaries paid the Company $10 million in
dividends during the first three months of 2000.
The Company and its subsidiaries generated cash flows from operating
activities of $60.3 million and $70.0 million for the three months ended March
31, 2000 and 1999, respectively. Excess operating cash flows were primarily used
to increase the Company's investment portfolio, fund policyowner account
withdrawals and purchase common stock for the treasury.
The Company has a $150 million revolving credit facility with a syndicate
of lenders (the "Bank Credit Facility"). As of March 31, 2000, there was a $48
million outstanding loan balance under the facility. The Bank Credit Facility
provides for typical events of default and covenants with respect to the conduct
of the business of the Company and its subsidiaries and requires the maintenance
of various financial levels and ratios. Among other covenants, the Company (a)
cannot have a leverage ratio greater than 0.35:1.0 or an interest coverage ratio
less than 2.5:1.0, (b) is prohibited from paying cash dividends
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on its common stock in excess of an amount equal to 3% of its consolidated net
worth as of the last day of the preceding fiscal year, and (c) must cause
certain of its subsidiaries, including AmerUs Life and Delta Life, to maintain
certain ratings from A.M. Best and certain levels of risk-based capital.
The Company is a party to a $250 million separate account funding
agreement. Under this agreement, a five-year floating rate insurance contract is
issued to a commercial paper conduit. The funding agreement is secured by assets
in the Company's separate account and is further backed by the general account
assets. The separate account assets are legally segregated and are not subject
to claims that arise out of any other business of the Company. The separate
account assets and liabilities are included with general account assets in the
financial statements. The funding agreement may not be cancelled by the
commercial paper conduit unless there is a default under the agreement, but the
Company may terminate at any time.
During the first quarter of 2000, the Company purchased 75,000 shares of
common stock for the treasury at a total cost of $1.5 million.
On December 20, 1999, the Company and the Company's controlling
shareholder, AMHC, announced that their respective boards of directors had
approved plans for the demutualization of AMHC and the merger of the Company
into AMHC following the demutualization. Upon completion of the demutualization,
AMHC would be a public company. AMHC will change its name to AmerUs Group Co.
(AmerUs Group) and be traded on the New York Stock Exchange under the symbol
"AMH". Members of AMHC will receive approximately 17 million shares of AmerUs
Group and cash or policy credits in excess of $300 million as a result of the
demutualization. Shareholders of the Company will receive shares in AmerUs Group
in a one-for-one exchange. To complete the demutualization and merger, approval
is needed from the members of AMHC, the Iowa Commissioner of Insurance and
shareholders of the Company. Members of AMHC and shareholders of the Company
will be asked to approve the proposed demutualization and merger plans during
the second quarter of 2000.
On February 18, 2000, the Company, AMHC and Indianapolis Life Insurance Co.
(ILICO) entered into a definitive agreement for a combination of the companies.
Under these terms, AMHC will proceed with its previously announced
demutualization. ILICO will demutualize separately and ILICO's members will
receive cash, policy credits and stock equivalent to the value of 11.25 million
shares of stock of AmerUs Group. Upon demutualization, ILICO will become a
subsidiary of AmerUs Group and will continue operations as a stock life
insurance company. As part of the transaction, the Company made an investment of
$100 million in a downstream holding company of ILICO. ILICO is a 95-year old
mutual life insurance and annuity company based in Indianapolis, Indiana. ILICO
and its subsidiaries are licensed to do business in all 50 states and the
District of Columbia. At March 31, 2000, ILICO had total assets of $6.2 billion
and insurance in force of $30.0 billion. The contemplated transactions are
subject to normal closing conditions, including appropriate policyholder/member,
shareholder and regulatory approvals. The Company expects the demutualization of
ILICO and combination with AmerUs Group to take place in the fourth quarter of
2000.
LIFE INSURANCE SUBSIDIARIES
The cash flows of the Company's life insurance subsidiaries consist
primarily of premium income, deposits to policyowner account balances, income
from investments, sales, maturities and calls of investments and repayments of
investment principal. Cash outflows are primarily related to withdrawals of
policyowner account balances, investment purchases, payment of policy
acquisition costs, payment of policyowner benefits, payment of debt, income
taxes and current operating expenses. Life insurance companies generally produce
a positive cash flow from operations, as measured by the amount by which cash
flows are adequate to meet benefit obligations to policyowners and normal
operating expenses as they are incurred. The remaining cash flow is generally
used to increase the asset base to provide funds to meet the need for future
policy benefit payments and for writing new business.
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Management anticipates that funds to meet its short-term and long-term
capital expenditures, cash dividends to shareholders and operating cash needs
will come from existing capital and internally generated funds. Management
believes that the current level of cash and available-for-sale and short-term
securities, combined with expected net cash inflows from operations, maturities
of fixed maturity investments, principal payments on mortgage-backed securities
and its insurance products, will be adequate to meet the anticipated short-term
cash obligations of the Company's life insurance subsidiaries.
Matching the investment portfolio maturities to the cash flow demands of
the type of insurance being provided is an important consideration for each type
of life insurance product and annuity. The Company continuously monitors
benefits and surrenders to provide projections of future cash requirements. As
part of this monitoring process, the Company performs cash flow testing of its
assets and liabilities under various scenarios to evaluate the adequacy of
reserves. In developing its investment strategy, the Company establishes a level
of cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage-backed securities, are believed adequate to meet anticipated short-term
and long-term benefit and expense payment obligations. There can be no assurance
that future experience regarding benefits and surrenders will be similar to
historic experience since withdrawal and surrender levels are influenced by such
factors as the interest rate environment and the claims-paying and financial
strength ratings of the Company's life insurance subsidiaries.
The Company takes into account asset/liability management considerations in
the product development and design process. Contract terms for the Company's
interest-sensitive products include surrender and withdrawal provisions which
mitigate the risk of losses due to early withdrawals. These provisions generally
do one or more of the following: limit the amount of penalty-free withdrawals,
limit the circumstances under which withdrawals are permitted, or assess a
surrender charge or market value adjustment relating to the underlying assets.
The following table summarizes liabilities for interest-sensitive life products
and annuities by their contractual withdrawal provisions at March 31, 2000
(including liabilities in both the Closed Block and the general account):
($ in millions)
Not subject to discretionary withdrawal $ 367.9
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) 4,419.3
Market value adjustments 1,433.4
----------------------
Subtotal 5,852.7
----------------------
Subject to discretionary withdrawal without adjustments 1,448.8
----------------------
Total $ 7,669.4
======================
(A) Includes $1,210.6 million of statutory liabilities with a contractual
surrender charges of less than five percent of the account balance.
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AmerUs Life and its joint venture partner are contingently liable in the
event the joint venture, AVLIC, cannot meet its policyholder obligations. At
March 31, 2000, AVLIC had statutory assets of $2,724.8 million, liabilities of
$2,682.5 million and surplus of $42.3 million.
Through its membership in the Federal Home Loan Bank (FHLB) of Des Moines,
AmerUs Life is eligible to borrow under variable-rate short term fed funds
arrangements to provide additional liquidity. These borrowings are secured and
interest is payable at the current rate at the time of any advance. There were
no borrowings under these arrangements outstanding at March 31, 2000. In
addition, AmerUs Life has long-term advances from FHLB outstanding of $16.0
million at March 31, 2000.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments. The Company's investment portfolio as of March 31, 2000
had a carrying value of $9 billion, including Closed Block investments.
At March 31, 2000, the statutory surplus of the Company's subsidiaries was
approximately $433.4 million. The Company believes that this level of statutory
capital is more than adequate as each life insurance subsidiary's risk-based
capital is significantly in excess of required levels.
In the future, in addition to their cash flows from operations and
borrowing capacity, the life insurance subsidiaries would anticipate obtaining
their required capital from the Company as the Company will have access to the
public debt and equity markets.
YEAR 2000 COMPLIANCE
In connection with the year 2000, an important business issue emerged
regarding how existing application software programs and operating systems could
accommodate the date value "2000". Many existing application software products
were designed to accommodate only a two-digit date position which represents the
year (i.e., the number "95" is stored on the system and represents the year
1995). As a result, the year 1999 (i.e., "99") is the maximum date value many
information technology systems will be able to process accurately.
The Company formed a Year 2000 working group to address potential problems
posed by this development to assure that the Company was prepared for the year
2000. The Company's overall Year 2000 compliance initiatives included the
following components: (i) assessment of all business critical systems (business
critical systems include computer and embedded systems); processes and external
interfaces and dependencies; (ii) remediation or upgrading of business critical
systems; (iii) testing of both modified and updated systems as well as
integrated systems testing; (iv) implementation of modified and updated systems;
and (v) contingency planning.
The Company completed the Year 2000 modifications, conversions and testing
and, to date, has not experienced any significant operational difficulties in
2000.
Total costs associated with Year 2000 modifications and conversions were
approximately $8.5 million. These costs were expensed as incurred.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The main objectives in managing the investment portfolios of the Company
and its insurance subsidiaries are to maximize investment income and total
investment returns while minimizing credit risks in order to provide maximum
support to the insurance underwriting operations. Investment strategies are
developed based on many factors including asset liability management, regulatory
requirements, fluctuations in interest rates and consideration of other market
risks. Investment decisions are centrally managed by investment professionals
based on guidelines established by management and approved by the boards of
directors.
Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. The market risks related to financial
instruments of the Company and its subsidiaries primarily relate to the
investment portfolio, which exposes the Company to risks related to interest
rates and, to a lesser extent, credit quality and prepayment variation.
Analytical tools and monitoring systems are in place to assess each of these
elements of market risk.
Interest rate risk is the price sensitivity of a fixed income security to
changes in interest rates. Management views these potential changes in price
within the overall context of asset and liability management. Company actuaries
estimate the payout pattern of our liabilities, primarily the Company's
lapsation, to determine duration, which is the present value of the fixed income
investment portfolios after consideration of the duration of these liabilities
and other factors, which management believes mitigates the overall effect of
interest rate risk for the Company.
The table below provides information about the Company's fixed maturity
investments and mortgage loans at March 31, 2000. The table presents cash flows
of principal amounts and related weighted average interest rates by expected
maturity dates. The cash flows are based on the earlier of the call date or the
maturity date or, for mortgage-backed securities, expected payment patterns.
Actual cash flows could differ from the expected amounts.
EXPECTED CASH FLOWS
($ in millions)
9 mos
Amortized 2000 2001 2002 2003 2004 2005 Thereafter Cost
--------- ---- ---- ---- ---- ---- ---- ---------- ----
Fixed maturity securities $ 215,000 $ 361,000 $ 427,000 $ 830,000 $ 677,000 $ 744,000 $3,552,000 $6,806,000
Average interest rate 7.3% 6.9% 6.9% 6.6% 6.5% 6.4% 7.5%
Mortgage loans $ 42,000 $ 50,000 $ 24,000 $ 26,000 $ 38,000 $ 28,000 $ 282,000 $ 490,000
Average interest rate 9.2% 9.4% 9.5% 9.1% 9.2% 9.7% 8.5%
Total $ 257,000 $ 411,000 $ 451,000 $ 856,000 $ 715,000 $ 772,000 $3,834,000 $7,296,000
=======================================================================================================
The Company and its subsidiaries have consistently invested in high quality
marketable securities. As a result, management believes that the Company has
minimal credit quality risk. Fixed maturity securities are comprised of U.S.
Treasury, government agency, mortgage-backed and corporate securities.
Approximately 68% of fixed maturity securities are issued by the U.S. Treasury
or U.S. government agencies or are rated A or better by Moody's, Standard and
Poor's, or the NAIC. Less than 8% of the bond portfolio is below investment
grade. Fixed maturity securities have a weighted average maturity of
approximately 7.56 years.
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Prepayment risk refers to the changes in prepayment patterns that can
either shorten or lengthen the expected timing of the principal repayments and
thus the average life and the effective yield of a security. Such risk exists
primarily within the Company's portfolio of mortgage-backed securities.
Management monitors such risk regularly. The Company invests primarily in those
classes of mortgage-backed securities that are less subject to prepayment risk.
The Company's use of derivatives is generally limited to hedging purposes
and has principally consisted of using interest rate swaps, caps, swaptions and
options. These instruments, viewed separately, subject the Company to varying
degrees of market and credit risk. However when used for hedging, the
expectation is that these instruments would reduce overall market risk. Credit
risk arises from the possibility that counterparties may fail to perform under
the terms of the contracts.
Equity price risk is the potential loss arising from changes in the value
of equity securities. In general, equities have more year-to-year price
variability than intermediate term grade bonds. However, returns over longer
time frames have been consistently higher. The Company's equity securities are
high quality and readily marketable.
All of the above risks are monitored on an ongoing basis. A combination of
in-house systems and proprietary models and externally licensed software are
used to analyze individual securities as well as each portfolio. These tools
provide the portfolio managers with information to assist them in the evaluation
of the market risks of the portfolio.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company and its subsidiaries are
parties to certain other litigation, none of which management believes is
material to the Company's results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this report is set forth in the
Exhibit Index which immediately precedes such exhibits and is hereby
incorporated by reference herein.
(b) The following reports on Form 8-K were filed during the quarter
ended March 31, 2000:
1. Form 8-K dated January 12, 2000, announcing the combination of the
Company, AMHC and ILICO.
2. Form 8-K/A dated January 13, 2000, amending Form 8-K dated January
12, 2000, to include conformed signature page.
3. Form 8-K dated February 21, 2000, announcing the definitive
agreement between the Company, AMHC and ILICO.
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4. Form 8-K/A dated March 6, 2000, amending Form 8-K dated February
21, 2000, to include Combination and Investment Agreement among
AMHC, the Company, ILICO and The Indianapolis Life Group of
Companies, Inc. and the Investment Advisory Agreements between
AmerUs Capital Management Group, Inc. and ILICO, Bankers Life
Insurance Company of New York, IL Annuity and Insurance Company and
Western Security Life Insurance Company.
5. Form 8-K/A dated March 24, 2000 amending Form 8-K dated February
21, 2000 to include the Consolidated Financial Statements of
Indianapolis Life Insurance Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: May 15, 2000 AMERUS LIFE HOLDINGS, INC.
By /s/ Michael G. Fraizer
----------------------------------
Executive Vice President and
Chief Financial Officer
By /s/ Brenda J. Cushing
----------------------------------
Vice President and Controller
(Principal Accounting Officer)
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AMERUS LIFE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
2.1 Plan of Reorganization dated October 27, 1995, filed as Exhibit 2.1
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
September 19, 1997 and as amended and restated as of October 8,
1997, by and among the Registrant, AFC Corp. and AmVestors Financial
Corporation ("AmVestors"), filed as Exhibit 2.2 to the Registration
Statement of the Registrant on Form S-4, Registration Number
333-40065 is hereby incorporated by reference.
2.3 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a wholly
owned subsidiary of the Registrant and Delta Life Corporation, filed
as Exhibit 2.2 to Form 8-K of the Registrant dated October 8, 1997,
is hereby incorporated by reference.
2.4 Combination and Investment Agreement, dated February 18, 2000, among
American Mutual Holding Company, the Registrant, Indianapolis Life
Insurance Company and The Indianapolis Life Group of Companies,
Inc., filed as Exhibit 2.1 to the Registrant's report on Form 8-K/A
on March 6, 2000, is hereby incorporated by reference.
2.5 Purchase Agreement, dated as of February 18, 2000, by and between
American Mutual Holding Company and the Registrant, filed as Exhibit
2.5 on Form 10-K, dated March 8, 2000, is hereby incorporated by
reference.
2.6 Agreement and Plan of Merger, dated December 17, 1999, by and between
American Mutual Holding Company and the Registrant, filed as Exhibit
2.6 on Form 10-K, dated March 8, 2000, is hereby incorporated by
reference.
2.7 Amendment No. 1 to Agreement and Plan of Merger, dated February 18,
2000, by and between American Mutual Holding Company and the
Registrant, filed as Exhibit 2.7 on Form 10-K, dated March 8, 2000,
is hereby incorporated by reference.
2.8 Letter agreement, dated December 17, 1999, by and between American
Mutual Holding Company and the Registrant, filed as Exhibit 2.8 on
Form 10-K, dated March 8, 2000, is hereby incorporated by reference.
2.9 Notification Agreement, dated as of February 18, 2000, by and among
American Mutual Holding Company, the Registrant and Bankers Trust
Company, filed as Exhibit 2.9 on Form 10-K, dated March 8, 2000, is
hereby incorporated by reference.
2.10* Amendment No. 2 to Agreement and Plan of Merger, dated April 3, 2000,
by and between American Mutual Holding Company and the Registrant.
2.11* Amendment No. 1 to the Purchase Agreement, dated April 3, 2000, by
and between American Mutual Holding Company and the Registrant.
3.1 Amended and Restated Articles of Incorporation of the Registrant
filed as Exhibit 3.5 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, are hereby incorporated
by reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, are hereby incorporated by reference.
3.3 Articles of Amendment of the Registrant dated September 25, 1998,
filed as Exhibit 3.3 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
4.1 Amended and Restated Trust Agreement dated as of February 3, 1997
among the Registrant, Wilmington Trust Company, as property trustee,
and the administrative trustees named therein (AmerUs Capital I
business trust), filed as Exhibit 3.6 to the registration statement
of the Registrant and AmerUs Capital I on Form S-1, Registration
Number 333-13713, is hereby incorporated by reference.
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4.2 Indenture dated as of February 3, 1997 between the Registrant and
Wilmington Trust Company relating to the Company's 8.85% Junior
Subordinated Debentures, Series A, filed as Exhibit 4.1 to the
registration statement of the Registrant and AmerUs Capital I on
Form S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.3 Guaranty Agreement dated as of February 3, 1997 between the
Registrant, as guarantor, and Wilmington Trust Company, as trustee,
relating to the 8.85% Capital Securities, Series A, issued by AmerUs
Capital I, filed as Exhibit 4.4 to the registration statement on
Form S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.4 Common Stock Purchase Warrant, filed as Exhibit (10)(v) to Form 10-Q
of AmVestors Financial Corporation dated May 13, 1992, is hereby
incorporated by reference.
4.5 Amended and Restated Declaration of Trust of AmerUs Capital II, dated
as of July 27, 1998, among the Registrant, First Union Trust Company
and the administrative trustees named therein, relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.5 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.6 Certificate of Trust of AmerUs Capital III filed as Exhibit 4.7 to
the registration statement of the Registrant, AmerUs Capital II and
AmerUs Capital III, on Form S-3 (No. 333-50249), is hereby
incorporated by reference.
4.7 Common Trust Securities Guarantee Agreement, dated as of July 27,
1998, by the Registrant, relating to the Registrant's 7.0% ACES
Units, filed as Exhibit 4.7 on Form 10-Q, dated August 13, 1998, is
hereby incorporated by reference.
4.8 QUIPS Guarantee Agreement, dated as of July 27, 1998, by the
Registrant, relating to the Registrant's 7.0% ACES Units, filed as
Exhibit 4.8 on Form 10-Q, dated August 13, 1998, is hereby
incorporated by reference.
4.9 Master Unit Agreement, dated as of July 27, 1998, between the
Registrant and First Union National Bank relating to the Registrant's
7.0% ACES Units, filed as Exhibit 4.9 on Form 10-Q, dated August 13,
1998, is hereby incorporated by reference.
4.10 Call Option Agreement, dated as of July 27, 1998, between Goldman,
Sachs & Co. and First Union National Bank relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.10 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.11 Pledge Agreement, dated as of July 27, 1998, among the Registrant,
Goldman, Sachs & Co. and First Union National Bank relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.11 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.12 Senior Indenture, dated as of June 16, 1998, by and between the
Registrant and First Union National Bank, as Indenture Trustee,
relating to the Registrant's 6.95% Senior Notes, filed as Exhibit
4.14 on Form 10-Q, dated August 13, 1998, is hereby incorporated by
reference.
4.13 Subordinated Indenture, dated as of July 27, 1998, by and between the
Registrant and First Union National Bank, as Indenture Trustee,
relating to the Registrant's 6.86% Junior Subordinated Deferrable
Interest Debentures, filed as Exhibit 4.15 on Form 10-Q, dated August
13, 1998, is hereby incorporated by reference.
10.1 Amended and Restated Intercompany Agreement dated as of December 1,
1996, among American Mutual Holding Company, AmerUs Group Co. and
the Company. Filed as Exhibit 10.81 to the Registrant's registration
statement on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.2 Joint Venture Agreement, dated as of June 30, 1996, between American
Mutual Insurance Company and Ameritas Life Insurance Corp., filed as
Exhibit 10.2 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.3 Management and Administration Service Agreement, dated as of April
1, 1996, among American Mutual Life Insurance Company, Ameritas
Variable Life Insurance Company and Ameritas Life Insurance Corp.,
filed as Exhibit 10.3 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.4 AmerUs Life Holdings, Inc. Executive Stock Purchase Plan, dated
November 13, 1998, filed as Exhibit 4.11 to the registration
statement of the Registrant on Form S-8, Registration Number
333-72237, is hereby incorporated by reference.
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10.5 All*AmerUs Supplemental Executive Retirement Plan, effective January
1, 1996, filed as Exhibit 10.6 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.6 Management Incentive Plan, filed as Exhibit 10.9 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.7 AmerUs Life Insurance Company Performance Share Plan, filed as
Exhibit 10.10 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.8 AmerUs Life Stock Incentive Plan, filed as Exhibit 10.11 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.9 AmerUs Life Non-Employee Director Stock Plan, filed as Exhibit 10.13
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.10 Form of Indemnification Agreement executed with directors and certain
officers, filed as Exhibit 10.33 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.11 Tax Allocation Agreement dated as of November 4, 1996, filed as
Exhibit 10.68 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.12 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a
wholly-owned subsidiary of the Registrant and Delta Life
Corporation, filed as Exhibit 2.2 to the Registrant's report on Form
8-K on October 8, 1997, is hereby incorporated by reference.
10.13 Credit Agreement, dated as of October 23, 1997, among the
Registrant, Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit
10.84 to the registration statement of the Registrant on Form S-4,
Registration Number 333-40065, is incorporated by reference.
10.14 Coinsurance Agreement, effective February 1, 1996, between Delta Life
and Annuity Company and London Life Reinsurance Company, filed as
Exhibit 10.85 to the registration statement of the Registrant on Form
S-4, Registration Number 333-40065, is incorporated by reference.
10.15 AmVestors Financial Corporation 1996 Incentive Stock Option Plan,
filed as Exhibit (4)(a) to Registration Statement of AmVestors
Financial Corporation on Form S-8, Registration Number 333-14571
dated October 21, 1996, is hereby incorporated by reference.
10.16 1989 Non-Qualified Stock Option Plan adopted March 17, 1989, filed as
Exhibit (10)(q) to Form 10-K of AmVestors Financial Corporation,
dated April 12, 1989, is hereby incorporated by reference.
10.17 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, property 611
Fifth Avenue, Des Moines, Iowa, filed as Exhibit 10.58 on Form 10-K,
dated March 25, 1998, is hereby incorporated by reference.
10.18 First Amendment dated February 1, 1998 to Lease Agreement dated
December 1, 1996 between AmerUs Properties, Inc. and AmerUs Life
Insurance Company, property 611 Fifth Avenue, Des Moines, Iowa, filed
as Exhibit 10.59 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.19 Lease - Business Property, dated December 1, 1999, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, property 611
Fifth Avenue, Des Moines, Iowa, filed as Exhibit 10.19 on Form 10-K,
dated March 8, 2000, is hereby incorporated by reference.
10.20 Lease - Assignment & Assumption Agreement - Business Property, dated
December 15, 1999, between AmerUs Properties, Inc. and 611 Fifth
Avenue, L.L.C., property 611 Fifth Avenue, Des Moines, Iowa, filed as
Exhibit 10.20 on Form 10-K, dated March 8, 2000, is hereby
incorporated by reference.
10.21 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, 1213 Cherry
Street, Des Moines, Iowa, filed as Exhibit 10.60 on Form 10-K, dated
March 25, 1998, is hereby incorporated by reference.
10.22 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and the Registrant, property 418 Sixth Avenue
Moines, Iowa, filed as Exhibit 10.61 on Form 10-K, dated March 25,
1998, is hereby incorporated by reference.
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10.23 Revised and Restated Lease - Business Property, dated May 28, 1998,
between AmerUs Properties, Inc. and the Registrant property, 699
Walnut Street, Des Moines, Iowa, filed as Exhibit 10.26 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
10.24 Addendum, dated May 28, 1998 to lease dated May 28, 1998 between
AmerUs Properties and the Registrant, filed as Exhibit 10.27 on Form
10-K, dated March 30, 1999, is hereby incorporated by reference.
10.25 Addendum II, dated July 21, 1998, to lease dated May 28, 1998 between
AmerUs Properties and the Registrant, filed as Exhibit 10.28 on Form
10-K, dated March 30, 1999, is hereby incorporated by reference.
10.26 Servicing Agreement, dated March 5, 1997, between AmerUs Life
Insurance Company and AmerUs Properties, Inc., filed as Exhibit 10.64
on Form 10-K, dated March 25, 1998, is hereby incorporated by
reference.
10.27 Consent dated as of May 20, 1998 to the Credit Agreement dated as of
October 23, 1997 among the Registrant, Various Lender Institutions,
the Co-Arrangers and The Chase Manhattan Bank, as Administrative
Agent, filed as Exhibit 10.72 on Form 10-Q, dated November 12, 1998,
is hereby incorporated by reference.
10.28 First Amendment dated as of May 30, 1997 to the Credit Agreement
dated as of October 23, 1997 among the Registrant, Various Lender
Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.73 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.29 Second Amendment dated as of June 22, 1998 to the Credit Agreement
dated as of October 23, 1997 among the Registrant, Various Lender
Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.74 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.30 Second Consent and Amendment dated as of October 2, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.75 on Form 10-Q,
dated November 12, 1998, is hereby incorporated by reference.
10.31 MIP Deferral Plan dated as of September 1, 1998, filed as Exhibit
10.76 on Form 10-Q, dated November 12, 1998, is hereby incorporated
by reference.
10.32 Open Line of Credit Application and Terms Agreement, dated March 5,
1999, between Federal Home Loan Bank of Des Moines and AmerUs Life
Insurance Company, filed as Exhibit 10.34 on Form 10-Q dated May 14,
1999, is hereby incorporated by reference.
10.33 Origination Agreement, dated August 1, 1998, between AmerUs Home
Equity, Inc. and AmerUs Life Insurance Company, filed as Exhibit
10.36 on Form 10-K, dated March 30, 1999, is hereby incorporated by
reference.
10.34 Third Waiver to Credit Agreement dated as of November 16, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.37 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
10.35 Fourth Consent and Amendment, dated as of December 4, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.38 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
10.36 Administrative Services Agreement, dated as of August 1, 1998, among
American Mutual Holding Company, Registrant, AmerUs Group, AmerUs
Home Equity, Inc., AmerUs Mortgage, Inc., AmerUs Properties, Inc.,
American Capital Management Group, Inc., AmerUs Life Insurance
Company, AmVestors Financial Corporation, American Investors Life
Insurance Company, Inc., and Delta Life and Annuity Company, filed as
Exhibit 10.39 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
10.37 Facility and Guaranty Agreement, dated February 12, 1999, among The
First National Bank of Chicago and the Registrant, filed as Exhibit
10.39 on Form 10-Q dated May 14, 1999, is hereby incorporated by
reference.
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10.38 Form of Reimbursement Agreement, dated February 15, 1999, among the
Registrant and Roger K. Brooks, Victor N. Daley, Michael G. Fraizer,
Thomas C. Godlasky, Marcia S. Hanson, Mark V. Heitz and Gary R.
McPhail, filed as Exhibit 10.40 on Form 10-Q dated May 14, 1999, is
hereby incorporated by reference.
10.39 Amendment No. 1 to Facility Agreement, dated March 23, 1999, among
The First National Bank of Chicago and the Registrant, filed as
Exhibit 10.41 on Form 10-Q dated May 14, 1999, is hereby incorporated
by reference.
10.40 1999 Non-Employee Stock Option Plan, dated April 19, 1999, filed on
Form S-3, Registration Number 333-72643, is hereby incorporated by
reference.
10.41 Fifth Waiver and Amendment to Credit Agreement dated as of October 1,
1998 to the Credit Agreement dated as of October 23, 1997 among the
Registrant, Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.43
on Form 10-Q dated August 13, 1999, is hereby incorporated by
reference.
10.42 Sixth Amendment to Credit Agreement dated as of May 18, 1999 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.44 on Form 10-Q
dated August 13, 1999, is hereby incorporated by reference.
10.43 Administrative Services Agreement, dated as of January 1, 2000, among
American Mutual Holding Company, the Registrant, AmerUs Group Co.,
AmerUs Home Equity, Inc. AmerUs Mortgage, Inc., AmerUs Properties,
Inc., American Capital Management Group, Inc., AmerUs Life Insurance
Company, AmVestors Financial Corporation, and Delta Life and Annuity
Company, filed as Exhibit 10.43 on Form 10-K, dated March 8, 2000, is
hereby incorporated by reference.
10.44 Amendment No. 2 to Facility Agreement, dated January 25, 2000, among
The First National Bank of Chicago and the Registrant, filed as
Exhibit 10.44 on Form 10-K, dated March 8, 2000, is hereby
incorporated by reference.
10.45 Irrevocable Standby Letter of Credit Application and Terms Agreement,
dated February 1, 2000, between Federal Home Loan Bank of Des Moines
and AmerUs Life Insurance Company, filed as Exhibit 10.45 on Form
10-K, dated March 8, 2000, is hereby incorporated by reference.
10.46 Seventh Amendment to Credit Agreement dated as of December 23, 1999
to the Credit Agreement dated as of October 23, 1997 among the
Registrant, Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.46
on Form 10-K, dated March 8, 2000, is hereby incorporated by
reference.
10.47 Investment Advisory Agreements, dated as of February 18, 2000, by and
between Indianapolis Life Insurance Company, Bankers Life Insurance
Company of New York, IL Annuity and Insurance Company, Western
Security Life Insurance Company and AmerUs Capital Management Group,
Inc. filed as Exhibits 10.1,10.3, 10.4 and 10.2, respectively, to the
Registrant's report on Form 8-K/A on March 6, 2000, are hereby
incorporated by reference.
10.48* Advance, Pledge and Security Agreement, dated April 12, 2000, by and
between the Federal Home Loan Bank of Topeka and American Investors
Life Insurance Company, Inc.
10.49* Institutional Custody Agreement, dated April 12, 2000, by and between
the Federal Home Loan Bank of Topeka and American Investors Life
Insurance Company, Inc.
10.50* Line of Credit Application, dated April 12, 2000, by and between the
Federal Home Loan Bank of Topeka and American Investors Life
Insurance Company, Inc.
10.51* Stock Purchase Agreement, dated February 1, 2000, by and among
AmVestors Financial Corporation, Creative Marketing International
Corporation and the Stockholders of Creative Marketing International
Corporation.
10.52* Stock Purchase Agreement, dated February 23, 2000, by and among
American Investors Sales Group, Inc., Community Bank Marketing, Inc.
and Community Financial Services, Inc.
10.53* Agreement for Advances, Pledge and Security Agreement, dated March
12, 1992, by and between Central Life Assurance Company and the
Federal Home Loan Bank of Des Moines.
10.54* Agreement for Advances, Pledge and Security Agreement, dated
September 1, 1995, by and between American Vanguard Life Insurance
Company and the Federal Home Loan Bank of Des Moines.
10.55* Agreement and Plan of Merger, dated September 30, 1998, by and among
AmVestors Financial Corporation, Senior Benefit Services of Kansas,
Inc., Senior Benefit Services Insurance Agency, Inc., National Senior
Benefit Services, Inc. and Richard McCarter.
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11* Statement Re: Computation of Earnings Per Share.
27.1* Financial Data Schedule.
99.1 Retirement Agreement, dated June 27, 1997, by and between Victor N.
Daley and Registrant filed as Exhibit 99.5 on Form 10-K, dated March
30, 1999, is hereby incorporated by reference.
99.2 First Amendment to Employment Agreement, dated as of April 15, 1999,
to the Employment Agreement dated as of September 19, 1997, among
Mark V. Heitz, AmVestors Financial Corporation, American Investors
Life Insurance Company, Inc., AmVestors Investment Group, Inc.,
American Investors Sales Group, Inc., and the Registrant, filed as
Exhibit 99.4 on Form 10-Q dated August 13, 1999, is hereby
incorporated by reference.
99.3 Supplemental Benefit Agreement, dated as of April 15, 1999, among
Roger K. Brooks and the Registrant, filed as Exhibit 99.5 on Form
10-Q dated August 13, 1999, is hereby incorporated by reference.
99.4 Form of Supplemental Benefit Agreement, dated as of April 15, 1999,
among the Registrant and Victor N. Daley, Michael G. Fraizer, Thomas
C. Godlasky and Gary R. McPhail, filed as Exhibit 99.6 on Form 10-Q
dated August 13, 1999, is hereby incorporated by reference.
99.5 Amended and Restated Employment Agreement, dated as of April 15,
1999, among Marcia S. Hanson and the Registrant, filed as Exhibit
99.7 on Form 10-Q dated August 13, 1999, is hereby incorporated by
reference.
99.6 Agreement and Release, dated as of December 31, 1999, by and between
Marcia S. Hanson, Registrant, AmerUs Group Co., American Mutual
Holding Company, and all of their respective subsidiaries and
affiliates, filed as Exhibit 99.6 on Form 10-K, dated March 8, 2000,
is hereby incorporated by reference.
99.7 Form of Supplemental Benefit Agreement, dated as of February 7, 2000,
among the Registrant and Victor N. Daley, Michael G. Fraizer, Thomas
C. Godlasky and Gary R. McPhail, filed as Exhibit 99.7 on Form 10-K,
dated March 8, 2000, is hereby incorporated by reference.
99.8* Retirement Agreement, dated March 14, 2000, by and between Victor N.
Daley and Registrant.
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* included herein
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