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 June 30, 2001
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 000-30898
AMERUS GROUP CO.
(Exact name of Registrant as specified in its charter)
699 WALNUT STREET
DES MOINES, IOWA 50309-3948
(Address of principal executive offices)
IOWA 42-1458424
(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 August 6, 2001 was as follows:
Common Stock 42,849,226 shares
1
Exhibit index - Page 48
Page 1 of 55
2
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION........................................ 4
Item 1. Financial Statements........................................ 4
Consolidated Balance Sheets
June 30, 2001 (Unaudited) and December 31, 2000............. 4
Consolidated Statements of Income (Unaudited)
For the Six Months Ended June 30, 2001 and 2000............. 6
Consolidated Statements of Comprehensive Income (Unaudited)
For the Six Months Ended June 30, 2001 and 2000............. 7
Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2001 (Unaudited) and
the Year Ended December 31, 2000............................ 8
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2001 and 2000............. 9
Notes to Consolidated Financial Statements
(Unaudited) ................................................ 12
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ......................... 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 44
PART II - OTHER INFORMATION........................................... 46
Item 1. Legal Proceedings........................................... 46
Item 4. Submission of Matters to a Vote of Security Holders......... 46
Item 6. Exhibits and Reports on Form 8-K............................ 46
Signatures............................................................ 47
Index to Exhibits..................................................... 48
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, liquidity 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; (9) the performance of the investment portfolio; (10) the
impact of purchase accounting adjustments; (11) expected life and annuity
product margins; and (12) 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 GROUP CO.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
June 30, December 31,
2001 2000
------------------------------
(unaudited)
Assets
Investments:
Securities available-for-sale at
fair value:
Fixed maturity securities $ 10,466,581 $ 8,261,647
Equity securities 76,740 152,903
Short-term investments 10,183 20,861
Securities held for trading purposes:
Fixed maturity securities 2,295,917 -
Equity securities 2,288 -
Loans 931,730 534,857
Real estate 2,531 3,226
Policy loans 508,742 312,662
Other investments 270,743 320,650
------------------------------
Total investments 14,565,455 9,606,806
Cash and cash equivalents 113,377 65,485
Accrued investment income 175,393 114,034
Premiums, fees and other receivables 7,458 9,652
Income taxes receivable 5,574 -
Reinsurance receivables 307,202 6,529
Deferred policy acquisition costs 489,152 437,312
Value of business acquired 699,138 468,430
Goodwill 184,645 183,491
Property and equipment 89,477 56,101
Other assets 540,701 491,296
Separate Account assets 342,034 -
Assets of discontinued operations 34,142 32,386
------------------------------
Total assets $ 17,553,748 $11,471,522
==============================
See accompanying notes to consolidated financial statements.
4
5
AMERUS GROUP CO.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
June 30, December 31,
2001 2000
------------------------------
(unaudited)
Liabilities and Stockholders' Equity
Policy reserves and policyowner funds:
Future life and annuity policy benefits $ 11,380,715 $ 9,482,625
Policyowner funds 3,529,377 325,251
------------------------------
14,910,092 9,807,876
Accrued expenses and other liabilities 504,967 216,451
Dividends payable to policyowners 191,754 158,473
Policy and contract claims 23,224 11,890
Income taxes payable - 8,825
Deferred income taxes 25,770 5,904
Notes and contracts payable 229,156 215,627
Separate Account liabilities 342,034 -
Liabilities of discontinued operations 20,157 14,806
------------------------------
Total liabilities 16,247,154 10,439,852
Company-obligated mandatorily redeemable
preferred capital securities of
subsidiary trusts holding solely junior
subordinated debentures of the Company 197,691 197,691
Stockholders' equity:
Preferred Stock, no par value,
20,000,000 shares authorized,
none issued - -
Common Stock, no par value,
230,000,000 shares authorized;
39,074,398 shares issued and
outstanding in 2001 (net of 20,382
treasury shares) and 30,011,034
shares issued and outstanding
in 2000 39,074 30,011
Paid-in capital 1,033,752 809,894
Accumulated other comprehensive
income (loss) (1,060) (11,164)
Unearned compensation (110) (146)
Unallocated ESOP shares (683) (683)
Retained earnings 37,930 6,067
------------------------------
Total stockholders'
equity 1,108,903 833,979
------------------------------
Total liabilities and
stockholders' equity $ 17,553,748 $11,471,522
==============================
See accompanying notes to consolidated financial statements.
5
6
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
For The Three Months Ended For The Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------------------- -------------------------
Revenues:
Insurance premiums $ 81,137 $ 69,137 $ 147,729 $ 138,264
Universal life and annuity product charges 34,847 25,519 59,113 48,794
Net investment income 207,093 170,143 388,221 343,755
Realized/unrealized gains (losses) on investments (11,825) (7,162) (51,660) (4,259)
Other income 11,952 7,345 22,284 13,878
-------------------------- -------------------------
323,204 264,982 565,687 540,432
-------------------------- -------------------------
Benefits and expenses:
Policyowner benefits 198,788 148,622 328,697 312,326
Underwriting, acquisition and other expenses 35,121 34,252 66,455 61,247
Reorganization costs 202 5,495 202 6,705
Amortization of deferred policy acquisition costs
and value of business acquired 29,971 20,142 55,242 46,189
Dividends to policyowners 23,067 21,326 42,225 37,496
-------------------------- -------------------------
287,149 229,837 492,821 463,963
-------------------------- -------------------------
Income from continuing operations 36,055 35,145 72,866 76,469
Interest expense 7,410 7,681 14,742 14,827
-------------------------- -------------------------
Income before income tax expense and minority interest 28,645 27,464 58,124 61,642
Income tax expense 8,950 11,070 18,971 23,657
Minority interest - 8,664 - 15,270
-------------------------- -------------------------
Net income from continuing operations 19,695 7,730 39,153 22,715
Discontinued operations (net of tax):
Income (loss) from discontinued operations 532 147 946 (58)
-------------------------- -------------------------
Net income before cumulative effect of change in
accounting for derivatives 20,227 7,877 40,099 22,657
Cumulative effect of change in accounting for
derivatives, net of tax - - (8,236) -
-------------------------- -------------------------
Net income $ 20,227 $ 7,877 $ 31,863 $ 22,657
========================== =========================
Net income from continuing operations per common share:
Basic $ 0.57 $ 0.44 $ 1.22 $ 1.31
========================== =========================
Diluted $ 0.57 $ 0.44 $ 1.21 $ 1.30
========================== =========================
Net income from discontinued operations per common share:
Basic $ 0.02 $ 0.01 $ 0.03 $ (0.01)
========================== =========================
Diluted $ 0.02 $ 0.01 $ 0.03 $ -
========================== =========================
Net income per common share:
Basic $ 0.59 $ 0.45 $ 0.99 $ 1.30
========================== =========================
Diluted $ 0.59 $ 0.45 $ 0.99 $ 1.30
========================== =========================
Weighted average common shares outstanding:
Basic 34,364,932 17,390,165 32,181,646 17,390,165
========================== =========================
Diluted 34,528,541 17,407,252 32,325,847 17,416,085
========================== =========================
See accompanying notes to consolidated financial statements.
6
7
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
For The Three Months Ended For The Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------------------- -------------------------
Net income $ 20,227 $ 7,877 $ 31,863 $ 22,657
Other comprehensive income, before tax:
Unrealized gains (losses) on securities:
Transfer related to unrealized gain
on available-for-sale securities
reclassified to trading (1,092) - (430) -
Unrealized holding (losses) arising
during period (36,552) (24,376) (2,342) (15,326)
Less: reclassification adjustment for
gains (losses) included in net income (6,808) (3,907) (14,223) (357)
-------------------------- -------------------------
Other comprehensive income, before tax (30,836) (20,469) 11,451 (14,969)
Income tax (expense) related to items of other
comprehensive income 10,792 7,164 (4,008) 5,239
-------------------------- -------------------------
(20,044) (13,305) 7,443 (9,730)
Amounts attributable to:
Minority interest - 5,607 - 3,914
Change in accounting for derivatives - 2,661 -
-------------------------- -------------------------
Other comprehensive income, net of taxes (20,044) (7,698) 10,104 (5,816)
-------------------------- -------------------------
Comprehensive income $ 183 $ 179 $ 41,967 $ 16,841
========================== =========================
See accompanying notes to consolidated financial statements.
7
8
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
June 30, 2001
($ in thousands)
Accumulated
Additional Other Unallocated Total
Paid-In Comprehensive Unearned ESOP Unassigned Retained Stockholders'
Common Stock Capital Income (Loss) Compensation Shares Surplus Earnings Equity
------------ ---------- ------------- ------------ ----------- ---------- -------- -------------
Balance at December 31,
1999 $ - $ - $ (78,628) $ (187) $ (797) $ 840,962 $ - $ 761,350
2000:
Net income - - - - - 33,801 18,039 51,840
Net unrealized gain
(loss) on securities - - 67,641 - - - - 67,641
Stock issued under
various incentive
plans, net of
forfeitures 6 169 - 105 - 273 - 553
Dividends declared
on common stock - - - - - - (11,972) (11,972)
Allocation of shares
in leveraged ESOP - 600 - - 695 - - 1,295
Minority interest
ownership changes - - (177) - (2) 94 - (85)
Acquisition of minority
interest 12,615 285,405 - - - - - 298,020
Demutualization of
AmerUs Group 17,390 518,535 - (64) (579) (875,130) - (339,848)
Other - 5,185 - - - - - 5,185
---------- ---------- ------------- ------------ ----------- ---------- -------- -------------
Balance at December 31,
2000 $ 30,011 $ 809,894 $ (11,164) $ (146) $ (683) $ - $ 6,067 $ 833,979
========== ========== ============= ============ =========== ========== ======== =============
2001 (unaudited):
Net income before
change in accounting - - - - - - 40,099 40,099
Change in accounting
for derivatives - - 2,661 - - - (8,236) (5,575)
Transfer related to
unrealized gain on
available-for-sale
securities
reclassified to
trading - - (430) - - - - (430)
Net unrealized gain
(loss) on securities - - 9,942 - - - - 9,942
Net unrealized gain
(loss) on
derivatives
designated as cash
flow hedges - - (2,069) - - - - (2,069)
Stock issued under
various incentive
plans, net of
forfeitures 46 1,414 - 36 - - - 1,496
Purchase of treasury
stock (27) (830) - - - - - (857)
Acquisition of ILICO 9,044 223,274 - - - - - 232,318
---------- ---------- ------------- ------------ ----------- ---------- -------- -------------
Balance at June 30, 2001 $ 39,074 $1,033,752 $ (1,060) $ (110) $ (683) $ - $ 37,930 $ 1,108,903
========== ========== ============= ============ =========== ========== ======== =============
See accompanying notes to consolidated financial statements.
8
9
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
For The Six Months Ended
June 30,
2001 2000
------------------------------
Cash flows from operating activities
Net Income $ 31,863 $ 22,657
Less: (Income) loss from discontinued
operations (946) 58
Less: Cumulative effect of change
in accounting for derivatives 8,236 -
------------------------------
39,153 22,715
Adjustments to reconcile net income to
net cash provided by operating
activities:
Policyowner assessments on universal
life and annuity products (46,255) (35,081)
Interest credited to policyowner
account balances 181,081 151,766
Change in option value of equity-indexed
products and market value adjustments
on total return strategy annuities (32,510) -
Realized/unrealized investment
(gains) losses 51,660 4,259
Goodwill amortization 3,898 4,233
VOBA amortization 37,057 21,964
Minority interest - 15,270
Change in:
Accrued investment income (8,046) (3,914)
Reinsurance receivables (10,568) 12,514
Securities held for trading purposes:
Fixed maturities (48,891) -
Equity securities (1,648) -
Short-term investments - -
Deferred policy acquisition costs (89,502) (70,295)
Liabilities for future policy benefits (3,283) 54,045
Policy and contract claims and other
policyowner funds (1,720) (3,506)
Income taxes:
Current (12,292) (11,938)
Deferred 20,690 31,717
Other, net (48,809) 20,034
------------------------------
Net cash provided by
operating activities 30,015 213,783
------------------------------
Cash flows from investing activities:
Purchase of fixed maturities
available-for-sale (1,603,208) (1,035,781)
Maturities, calls and principal
reductions of fixed maturities
available-for-sale 1,166,090 843,613
Purchase of equity securities (61,095) (109,492)
Proceeds from sale of equity securities 54,557 2,230
Change in short-term investments, net 9,473 -
Purchase of loans (81,967) (51,318)
9
10
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
For The Six Months Ended
June 30,
2001 2000
------------------------------
Proceeds from repayment and sale of loans 50,752 169,944
Purchase of real estate and other
invested assets (40,256) (84,206)
Proceeds from sale of real estate
and other invested assets 57,603 80,237
Change in policy loans, net 1,459 (9,079)
Other assets, net (51,991) (539)
Acquisitions, net of cash acquired 156,959 -
------------------------------
Net cash (used in)
investing activities (341,624) (194,391)
------------------------------
Cash flows from financing activities:
Deposits to policyowner account balances 1,010,247 701,359
Withdrawals from policyowner
account balances (639,913) (698,549)
Change in debt, net (11,471) 10,505
Dividends to shareholders - (1,265)
Other, net 638 (963)
------------------------------
Net cash provided by
financing activities 359,501 11,087
------------------------------
Net increase (decrease) in cash 47,892 30,479
Cash and cash equivalents at beginning
of period 65,485 297,698
------------------------------
Cash and cash equivalents at end of period $ 113,377 $ 328,177
==============================
Supplemental disclosure of cash activities:
Interest paid $ 14,392 $ 16,012
==============================
Income taxes paid $ 9,829 $ 4,880
==============================
10
11
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
For The Six Months Ended
June 30,
2001 2000
------------------------------
Details of acquisitions:
Fair value of assets acquired $ 5,671,628 $ -
Liabilities assumed 5,345,186 -
------------------------------
Carrying value of acquisitions 326,442 -
Common stock issued (232,318) -
Accrual of cash payout component
of purchase price (9,121) -
Preliminary investment in ILGC (77,200)
Acquisition costs previously paid (2,857)
------------------------------
Cash paid 4,946 -
Less: Cash acquired 161,905 -
------------------------------
Net cash (received in) acquisitions $ (156,959) $ -
==============================
11
12
AMERUS GROUP CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP) 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 GAAP 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 six months
ended June 30, 2001 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001 (see further discussion in
Management's Discussion and Analysis). 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, 2000.
The accompanying consolidated financial statements include the accounts and
operations of the Company and its wholly-owned subsidiaries, principally AmerUs
Life Insurance Company (ALIC), AmerUs Annuity Group Co. (AAG) (formerly known as
AmVestors Financial Corporation), AmerUs Capital Management Group, Inc. (ACM),
and ILICO Holdings, Inc., holding company of Indianapolis Life Insurance Company
(ILICO). All significant intercompany transactions and balances have been
eliminated in consolidation.
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 financial statement presentation.
(2) EARNINGS PER 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.
(3) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138, which requires
that all derivative instruments, including certain derivative instruments
embedded in other contracts, be reported on the balance sheet at fair value.
Accounting for gains and losses resulting from changes in the values of
derivatives is dependent upon the use of the derivative and its qualification
for special hedge accounting. In accordance with the provisions of SFAS No. 133,
the Company recorded a transition adjustment as of January 1, 2001 upon adoption
of the standard to recognize its derivative instruments at fair value resulting
in a pre-tax reduction to income of $12.4 million ($8.2 million after-tax) and
an increase to Accumulated Other Comprehensive Income (AOCI) of $2.7 million.
The reduction to income, which is classified as a "cumulative effect of change
in accounting for derivatives, net of tax" in the Consolidated Statements of
Income, is attributable to losses on basis swaps that were natural hedges and
losses on interest rate swaps reclassified from AOCI that have been redesignated
as cash flow hedges of floating rate funding agreement liability effective
January 1, 2001. In addition, the reduction to income includes adjustments to
fair value for options being used as
12
13
natural hedges of embedded options contained within equity-indexed annuity
products. The increase in AOCI, which is classified as "change in accounting for
derivatives" in the Consolidated Statements of Comprehensive Income, is
attributable to the reclassification of the interest rate swap's fair value
adjustment from AOCI to the Consolidated Statements of Income.
The Company uses financial instruments, including options, futures, swaps,
caps and swaptions to reduce its exposure to changes in interest rates and to
manage duration mismatches. The Company also uses call options to hedge
equity-indexed annuity products. The use of these financial instruments modifies
the exposure of these risks with the intent to reduce the risk and variability
to the Company. Although the Company is subject to the risk that counterparties
will fail to perform, credit standings of counterparties are monitored
regularly. The Company only enters into transactions with highly-rated
counterparties. The Company is not a party to leveraged derivatives.
Initially, upon adoption of the new derivative accounting requirements, and
prospectively, on the date a derivative contract is entered into, the Company
designates the derivative as either (1) a hedge of a recognized asset or
liability or an unrecognized firm commitment (a fair value hedge), (2) a hedge
of a forecasted transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability (a cash flow hedge), or (3) a
natural hedging instrument whose change in fair value is recognized to act as an
economic hedge against changes in the values of the hedged item and which does
not meet the accounting hedge criteria for SFAS No. 133 (a natural hedge).
For fair value hedges, both the effective and ineffective portion of the
changes in the fair value of the derivative, along with the gain or loss on the
hedged item that is attributable to the hedged risk, are recorded in earnings
and reported net in the Consolidated Statements of Income. The effective portion
of the changes in the fair value of a derivative that is designated as a cash
flow hedge is recorded in AOCI. When the hedged cash transaction is realized,
the gain or loss included in AOCI is reported net in the Consolidated Statements
of Income with the hedged cash transaction item. In addition, the ineffective
portion of the changes in the fair value of derivatives designated as cash flow
hedges are reported in net investment income in the Consolidated Statements of
Income. For derivatives designated as a natural hedge, changes in fair value are
classified as realized/unrealized gains (losses) on investments in the
Consolidated Statements of Income.
The Company formally documents its hedge relationships, including
identification of the hedging instruments and the hedged items, as well as its
risk management objectives and strategies for undertaking the hedge transaction.
Free standing derivatives are recorded in the Consolidated Balance Sheets at
fair value in other assets and option derivatives embedded in equity-indexed
annuity products are marked to fair value and classified in the Consolidated
Balance Sheets as "policy reserves and policyowner funds." This process includes
linking derivatives that are designated as hedges of specific assets,
liabilities, firm commitments or forecasted transactions. The Company also
formally assesses at inception and at least quarterly thereafter, whether the
derivatives that are used in hedging transactions, other than natural hedges,
are highly effective in offsetting changes in either the fair value or cash
flows of the hedged item. When a determination is made that a derivative ceases
to be a highly effective hedge, the Company will discontinue hedge accounting.
To manage interest rate risk, the Company has entered into interest rate
swaps that effectively fix the interest payments of a floating rate funding
agreement liability. These interest rate swap agreements are accounted for as
cash flow hedges.
13
14
The Company has equity-indexed annuity products that guarantee the return
of principal to the customer and credits interest based on a percentage of the
gain in the Standard & Poor's 500 Composite Stock Price Index(R) (S&P 500
Index). A portion of the premium from each customer is invested in investment
grade fixed income securities to cover the minimum guaranteed value due the
customer at the end of the term. A portion of the premium is used to purchase
S&P 500 Index call options to hedge the growth in interest credited to the
customer as a direct result of increases in the S&P 500 Index. The amounts to be
paid or received pursuant to these agreements are accrued and recognized in
income over the life of the agreements. Both call options held by the Company
and the options embedded in the policy, which the Company has designated as a
natural hedge, are valued at fair value. The change in fair value for the call
options is included in realized/unrealized gains (losses) on investments and the
change in fair value of the embedded options is included in policyowner benefits
in the Consolidated Statements of Income.
The Company has certain fixed annuity products that credit interest based
on a total return strategy. Under the total return strategy, the policyowner is
allowed to allocate their premium payments to different asset classes within the
Company's general account assets to which the selected strategy is linked, less
certain charges. The total return adjustment is paid when a policyowner accesses
the funds. The Company guarantees a minimum return of premium plus approximately
3% interest per annum over the life of the contract. The general account assets
backing the total return strategy of these products are fixed maturity
securities and are designated by the Company as held for trading. Both the
trading securities held by the Company and the annuity contracts are valued at
fair value. The change in fair value for the trading securities is included in
realized/unrealized gains (losses) on investments and the change in fair value
of the annuity contracts is included in policyowner benefits in the Consolidated
Statements of Income.
During the first six months of 2001, realized/unrealized gains (losses) on
investments included an unrealized loss of $34.1 million from the change in fair
value on call options used as a natural hedge of embedded options within
equity-indexed annuities and a $3.5 million unrealized loss from the change in
fair value on the trading securities backing the total return strategy products.
Policyowner benefits included an offsetting adjustment from fair value changes
in options embedded within the equity-indexed products and fair value changes on
total return strategy annuity contracts totaling $32.5 million. In addition,
basis swaps were terminated during the first quarter of 2001 and an increase in
fair value of $1.8 million on those swaps was included in net investment income.
AOCI included an unrealized loss of $2.1 million from the fair value change in
interest rate swaps used to hedge the floating rate funding agreement liability.
The Company estimates that $0.6 million of derivative losses included in AOCI
will be reclassified into earnings within the next twelve months. The
ineffectiveness of the interest rate swap cash flow hedge was not considered
significant for the first half of 2001.
14
15
The following table summarizes the income (loss) impact of adopting SFAS
No. 133 in the cumulative effect of change in accounting for derivatives as of
January 1, 2001 and the market value adjustments on trading securities and
derivatives in the first six months of 2001:
Cumulative Effect of
Change in Accounting Six Months
for Derivatives Ended
January 1, 2001 June 30, 2001
-------------------- -------------
($ in thousands)
Basis swaps (A) $ (921) $ -
Separate account swap (B) (4,100) -
Fixed maturity securities
held for trading - (3,519)
Options on equity-indexed
annuities (4,056) (34,096)
Equity-indexed and total return
strategy fixed annuity
liabilities (1,335) 32,510
Deferred (loss) (C) (899) -
Deferred policy acquisition
cost amortization
impact of net annuity
adjustments (1,127) 2,102
-------------------- -------------
Pre-tax total (12,438) (3,003)
Income taxes 4,202 1,051
-------------------- -------------
After-tax total $ (8,236) $ (1,952)
==================== =============
(A) Terminated during first quarter 2001.
(B) Future adjustments are through AOCI.
(C) Balance eliminated in transition adjustment.
The cumulative effect of change in accounting for derivatives per common
share for the six months ended June 30, 2001:
Basic $ 0.26
Diluted $ 0.25
Weighted average common shares outstanding:
Basic 32,181,646
Diluted 32,325,847
(4) CLOSED BLOCK
The Company has established two Closed Blocks. The first was established on
June 30, 1996 in connection with the reorganization of ALIC to a stock form. The
second was established on May 18, 2001 in connection with the reorganization of
ILICO to a stock form. Insurance policies which had a dividend scale in effect
as of each Closed Block establishment date, were included in the Closed Block.
15
16
The Closed Block was designed to provide reasonable assurance to owners of
insurance policies included therein that, after the reorganization of ALIC and
ILICO, 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. Effective with the first quarter of 2001, the
Company has adopted the Accounting Standards Executive Committee's Statement of
Position 00-3 (SOP 00-3) "Accounting by Insurance Enterprises for
Demutualizations and Formations of Mutual Holding Companies and for Certain
Long-Duration Participating Contracts." The provisions of SOP 00-3 required the
Company to modify its presentation of the Closed Block in its Consolidated
Financial Statements to no longer show the operations of the Closed Block and
the assets and liabilities of the Closed Block as single line items. In
addition, the SOP required the Company to report unrealized gains and losses on
Closed Block investments as a component of the Closed Block policyholder
dividend obligation rather than AOCI. At June 30, 2001, there was an unrealized
gain of $16.5 million included in the policyholder dividend obligation.
Summarized balance sheet information of the combined Closed Blocks as of
June 30, 2001 and December 31, 2000 and statements of income for the three
months and six months ended June 30, 2001 and 2000 are as follows:
June 30, December 31,
2001 2000
----------------------------------
(unaudited)
($ in thousands)
Assets:
Securities available-for-sale at
fair value:
Fixed maturity securities $ 1,760,917 $ 1,191,592
Loans 106,203 -
Policy loans 363,093 201,092
Other investments 2,112 2,934
Cash and cash equivalents 2,081 3,025
Accrued investment income 31,359 16,811
Premiums and fees receivable 18,711 7,062
Deferred policy acquisition costs 44,989 48,126
Value of business acquired 164,955 71,830
Other assets 43,073 41,885
----------------------------------
Total Assets $ 2,537,493 $ 1,584,357
==================================
Liabilities:
Future life and annuity policy benefits 2,817,562 1,654,784
Policyowner funds 5,076 5,081
Accrued expenses and other liabilities 64,221 34,689
Dividends payable to policyowners 185,619 154,603
Policy and contract claims 7,150 5,495
----------------------------------
Total Liabilities $ 3,079,628 $ 1,854,652
==================================
16
17
Three Months Ended June 30,
2001 2000
----------------------------------
(unaudited)
Revenues and expenses:
Insurance premiums $ 59,714 $ 45,427
Universal life and annuity product charges 3,015 3,166
Net investment income 34,004 27,529
Realized gains (losses) on investments 69 4
Policyowner benefits (62,075) (46,618)
Underwriting, acquisition and
other expenses (922) (434)
Amortization of deferred policy
acquisition costs and value
of business acquired (4,474) (3,602)
Dividends to policyowners (21,195) (19,764)
Contribution from the Closed Block
before income taxes ----------------------------------
$ 8,136 $ 5,708
==================================
Six Months Ended June 30,
2001 2000
----------------------------------
(unaudited)
Revenues and expenses:
Insurance premiums $ 104,562 $ 94,403
Universal life and annuity product charges 6,329 6,257
Net investment income 63,397 54,823
Realized gains (losses) on investments 313 44
Policyowner benefits (110,898) (100,570)
Underwriting, acquisition and
other expenses (1,687) (1,262)
Amortization of deferred policy
acquisition costs and value of
business acquired (8,588) (7,329)
Dividends to policyowners (38,823) (34,798)
Contribution from the Closed Block
before income taxes ----------------------------------
$ 14,605 $ 11,568
==================================
(5) FEDERAL INCOME TAXES
The effective income tax rate for the three months and six months ending
June 30, 2001 and 2000 varied from the prevailing corporate rate primarily as a
result of goodwill amortization, non-deductible reorganization costs, low income
housing and rehabilitation credits, and tax exempt income.
(6) ACQUISITIONS
On May 18, 2001, the Company completed the acquisition of ILICO for an
amount of cash, policy credits and shares of the Company's common stock equal to
the value of 9.3 million shares of the Company's common stock. The purchase
price totaled approximately $326 million. The acquisition was accounted for
using the purchase method of accounting and accordingly the total purchase price
was
17
18
allocated to the assets and liabilities of ILICO based on the relative fair
values as of May 18, 2001, with the excess of the fair value of the assets
acquired less the fair value of the liabilities assumed over the purchase price
recorded as a reduction of value of business acquired (VOBA). The reduction to
VOBA was approximately $8.0 million. The purchase price allocations related to
VOBA were based on preliminary studies which will be finalized by year end.
Therefore, the final allocations may differ from the amounts reflected as of
June 30, 2001 and VOBA will be adjusted accordingly. Although the final
allocations may differ, the consolidated financial statements as of June 30,
2001 reflect the Company's best estimate based on currently available
information and the differences between the current and final allocations are
not expected to be material. The operations of ILICO for the period of May 18,
2001 through June 30, 2001 have been included in the consolidated financial
statement of income of the Company.
The preliminary allocation of the purchase price of ILICO is as follows (in
millions):
Investments (including cash and short-term investments) $ 4,655.7
Receivables and other assets 413.4
Value of business acquired 256.9
Separate account assets 345.6
Policyowner reserves and funds (4,811.5)
Other liabilities (163.1)
Debt (25.0)
Separate account liabilities (345.6)
-----------
Total investment in ILICO $ 326.4
===========
The following table sets forth certain pro forma operating data of the
Company for the six months ended June 30, 2001 and 2000. This pro forma data
assumes the acquisition of ILICO occurred on January 1, 2000.
Six months ended June 30,
2001 2000
----------- -----------
(in thousands, except per share data)
Pro Forma operating data:
Total revenue $ 746,575 $ 789,863
Net income from continuing operations 41,038 39,024
Net income 32,306 39,024
Diluted pro forma net income from
continuing operations per share of
common stock $ 1.05 $ 1.48
Diluted pro forma net income per share
of common stock $ 0.83 $ 1.48
Under the terms of the joint venture ALIC participates in with Ameritas,
ALIC had an option to purchase an additional 5% to 15% of AMAL if certain
premium growth targets were met. ALIC met the premium growth target requirement
for one 5% purchase option in January 2001. ALIC exercised the option on March
28, 2001 and acquired an additional 5% ownership interest in AMAL for $7.2
million. ALIC's ownership percentage in AMAL is now 39% and ALIC's has a
remaining option to purchase an additional 5% to 10% of AMAL.
18
19
(7) SUBSEQUENT EVENTS
On July 27, 2001, the forward common stock purchase contract component of
the Company's adjustable conversion-rate equity security (ACES) units matured.
Under the terms of the contract, ACES unit holders had an obligation to purchase
Company common stock at a price of $31.5625 per share. In lieu of paying cash to
satisfy their purchase obligation, the ACES unit holders could surrender the
preferred security component of the ACES unit. Of the 4,080,500 ACES units
outstanding, 4,075,625 were surrendered, and the remaining ACES unit holders
submitted cash of approximately $0.1 million to purchase Company common stock.
The number of shares of common stock to be issued by the Company was based upon
the average price of the Company's common stock for the twenty consecutive
trading days ending on July 26, 2001, compared to the stated ACES unit amount of
$31.5625. As a result of this, the Company issued approximately 3.8 million
shares of common stock and retired approximately $128.7 million of ACES debt.
In July 2001, the Company consolidated various management functions in
connection with its life insurance and annuity operations reorganization. As a
result, the Company incurred one-time restructuring charges of approximately
$5.0 million pre-tax, primarily related to severance. These charges will be
expensed in the Company's third quarter 2001 Consolidated Statement of Income.
On July 20, 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), which change the accounting for business
combinations, goodwill and other intangible assets. In particular, SFAS 142,
which will generally become effective January 1, 2002, adopts a nonamortization,
impairment-only model for the Company's goodwill and indefinite-lived intangible
assets. This includes a more stringent impairment test methodology for measuring
and recognizing impairment losses. The Company is presently studying the impact
that the new Statements will have on its accounting policies. Under current GAAP
standards, the Company has recorded goodwill amortization expense of
approximately $3.9 million and $4.2 million for the six months ended June 30,
2001 and 2000, respectively.
(8) 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
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.
ANNUITIES
The Annuity segment markets individual fixed and variable 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
19
20
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 income or loss from discontinued
operations. 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 primarily consist of holding company revenues and expenses and the
operations of the Company's real estate management subsidiary.
Assets are segmented based on policy liabilities directly attributable to
each segment. There are no significant intersegment transactions.
20
21
Operating segment income and assets are as follows:
Operating Segment Income
($ in thousands)
For The Three Months Ended June 30, 2001
Total
Life Insurance Annuities All Other Consolidated
-----------------------------------------------------
Revenues:
Insurance premiums $ 78,331 $ 2,581 $ 225 $ 81,137
Universal life and annuity product charges 25,821 9,026 - 34,847
Net investment income 65,294 138,684 3,115 207,093
Core realized/unrealized gains (losses) on investments 69 (305) - (236)
Other income - 9,732 2,220 11,952
-----------------------------------------------------
169,515 159,718 5,560 334,793
Benefits and expenses:
Policyowner benefits 91,856 103,877 596 196,329
Underwriting, acquisition, and other expenses 17,911 13,565 3,645 35,121
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of ($4,899) 12,123 22,747 - 34,870
Dividends to policyowners 23,067 - - 23,067
-----------------------------------------------------
144,957 140,189 4,241 289,387
-----------------------------------------------------
Adjusted pre-tax operating income $ 24,558 $ 19,529 $ 1,319 45,406
======================================
Non-core realized gains (losses) on investments (11,589)
Change in option value of equity-indexed
annuity products and market value
adjustments on total return strategy annuities (2,459)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses 4,899
Reorganization costs (202)
------------
Income from continuing operations 36,055
Interest (expense) (7,410)
Income tax (expense) (8,950)
Income from discontinued operations, net of tax 532
------------
Net income $ 20,227
============
21
22
Operating Segment Income
($ in thousands)
For The Three Months Ended June 30, 2000
Total
Life Insurance Annuities All Other Consolidated
-----------------------------------------------------
Revenues:
Insurance premiums $ 62,548 $ 6,457 $ 132 $ 69,137
Universal life and annuity product charges 15,767 9,752 - 25,519
Net investment income 52,145 115,887 2,111 170,143
Core realized/unrealized gains (losses) on investments 4 (6,242) - (6,238)
Other income - 5,348 1,997 7,345
-----------------------------------------------------
130,464 131,202 4,240 265,906
Benefits and expenses:
Policyowner benefits 73,694 74,902 26 148,622
Underwriting, acquisition, and other expenses 15,794 14,242 4,216 34,252
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of ($4,335) 7,528 16,949 - 24,477
Dividends to policyowners 21,326 - - 21,326
-----------------------------------------------------
118,342 106,093 4,242 228,677
-----------------------------------------------------
Adjusted pre-tax operating income $ 12,122 $ 25,109 $ (2) 37,229
======================================
Non-core realized gains (losses) on investments (924)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses 4,335
Reorganization costs (5,495)
------------
Income from continuing operations 35,145
Interest (expense) (7,681)
Income tax (expense) (11,070)
Minority interest (8,664)
Income from discontinued operations, net of tax 147
------------
Net income $ 7,877
============
22
23
Operating Segment Income
($ in thousands)
For The Six Months Ended June 30, 2001
Total
Life Insurance Annuities All Other Consolidated
-----------------------------------------------------
Revenues:
Insurance premiums $ 140,282 $ 7,194 $ 253 $ 147,729
Universal life and annuity product charges 42,955 16,158 - 59,113
Net investment income 118,325 265,872 4,024 388,221
Core realized/unrealized gains (losses) on investments 313 347 - 660
Other income - 17,789 4,495 22,284
-----------------------------------------------------
301,875 307,360 8,772 618,007
Benefits and expenses:
Policyowner benefits 166,387 194,235 585 361,207
Underwriting, acquisition, and other expenses 32,051 28,082 6,322 66,455
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of ($5,537) 21,733 39,046 - 60,779
Dividends to policyowners 42,225 - - 42,225
-----------------------------------------------------
262,396 261,363 6,907 530,666
-----------------------------------------------------
Adjusted pre-tax operating income $ 39,479 $ 45,997 $ 1,865 87,341
======================================
Non-core realized gains (losses) on investments (52,320)
Change in option value of equity-indexed
annuity products and market value
adjustments on total return strategy annuities 32,510
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses 5,537
Reorganization costs (202)
------------
Income from continuing operations 72,866
Interest (expense) (14,742)
Income tax (expense) (18,971)
Income from discontinued operations, net of tax 946
Cumulative effect of change in accounting for derivatives, net of tax (8,236)
------------
Net income $ 31,863
============
23
24
Operating Segment Income
($ in thousands)
For The Six Months Ended June 30, 2000
<Table>
<Caption>
Total
Life Insurance Annuities All Other Consolidated
-----------------------------------------------------
Revenues:
Insurance premiums $ 125,831 $ 12,339 $ 94 $ 138,264
Universal life and annuity product charges 30,553 18,241 - 48,794
Net investment income 105,103 229,573 9,079 343,755
Core realized/unrealized gains (losses) on investments 577 (4,481) - (3,904)
Other income - 9,513 4,365 13,878
-----------------------------------------------------
262,064 265,185 13,538 540,787
Benefits and expenses:
Policyowner benefits 149,651 162,477 198 312,326
Underwriting, acquisition, and other expenses 26,406 25,632 9,209 61,247
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of ($3,715) 17,065 32,839 - 49,904
Dividends to policyowners 37,496 - - 37,496
-----------------------------------------------------
230,618 220,948 9,407 460,973
-----------------------------------------------------
Adjusted pre-tax operating income $ 31,446 $ 44,237 $ 4,131 79,814
======================================
Non-core realized gains (losses) on investments (355)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses 3,715
Reorganization costs (6,705)
------------
Income from continuing operations 76,469
Interest (expense) (14,827)
Income tax (expense) (23,657)
Minority interest (15,270)
Income from discontinued operations, net of tax (58)
------------
Net income $ 22,657
============
24
25
Operating Segment Assets
($ in thousands)
Total
Life Insurance Annuities All Other Consolidated
--------------------------------------------------------
June 30, 2001
Investments $ 4,500,025 $ 10,028,828 $ 36,602 $ 14,565,455
Deferred policy acquisition costs and VOBA 589,864 598,426 - 1,188,290
Other assets 463,875 1,269,684 66,444 1,800,003
--------------------------------------------------------
Total assets $ 5,553,764 $ 11,896,938 $ 103,046 $ 17,553,748
========================================================
December 31, 2000
Investments $ 2,673,659 $ 6,859,314 $ 73,833 $ 9,606,806
Deferred policy acquisition costs and VOBA 365,819 539,923 - 905,742
Other assets 216,088 660,738 82,148 958,974
--------------------------------------------------------
Total assets $ 3,255,566 $ 8,059,975 $ 155,981 $ 11,471,522
========================================================
25
26
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
Consolidated Financial Statements and related notes.
NATURE OF OPERATIONS
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 all 50
states, the District of Columbia and the U.S. Virgin Islands. The Company also
owns a real estate management company through which it conducts limited real
estate management, development, syndication and marketing activities. The
Company has two reportable 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 individual fixed and variable annuities.
The Company sold certain lines of business and made the decision to exit
certain other businesses in 1998. These businesses are referred to as
discontinued operations and include the following activities: banking,
residential real estate brokerage, residential land development, and mortgage
banking.
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
preferred stock and bonds 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.
26
27
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------------------- ---------------------------
($ in thousands, except per share data)
Net Income $ 20,227 $ 7,877 $ 31,863 $ 22,657
Net non-core realized (gains) losses (A) 4,677 299 9,494 (1,058)
Net amortization of deferred policy
acquisition costs due to non-core
realized gains or losses (B) (1,317) (1,635) (2,823) (1,401)
Net effect of accounting differences
from the adoption of SFAS No. 133 (C) 2,541 - 2,541 -
Reorganization costs (D) 202 4,834 202 5,855
Discontinued operations (E) (532) (147) (946) 58
Cumulative effect of change in
accounting for derivatives (F) - - 8,236 -
-------------------------- ---------------------------
Adjusted Net Operating Income $ 25,798 $ 11,228 $ 48,567 $ 26,111
========================== ===========================
Adjusted Net Operating Income
per common share (G):
Basic $ 0.75 $ 0.65 $ 1.51 $ 1.50
========================== ===========================
Diluted $ 0.75 $ 0.65 $ 1.50 $ 1.50
========================== ===========================
Weighted average common
shares outstanding (G):
Basic 34,364,932 17,390,165 32,181,646 17,390,165
========================== ===========================
Diluted 34,528,541 17,407,252 32,325,847 17,416,085
========================== ===========================
(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) adjusted for income taxes and
minority interest 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 on the
non-core realized gains or losses that are included in product margins,
adjusted for income taxes and minority interest on such amounts.
(C) Represents the net effect of SFAS No. 133 related accounting entries
during the quarter, adjusted for income taxes. The accounting entries
consist of market value adjustments on trading securities, derivatives,
certain annuity contracts, and the associated change in amortization of
deferred acquisition costs resulting from such adjustments.
27
28
(D) For the 2001 periods presented, represents costs directly related to
ILICO's reorganization. For the 2000 periods presented, represents
costs directly related to the Company's reorganization and merger with
ALHI, adjusted for minority interest on such amounts. The costs consist
primarily of legal, actuarial and consulting expenses.
(E) Represents the net income from the Company's discontinued operations.
(F) Represents the cumulative effect of change in accounting for
derivatives, net of income taxes, as of January 1, 2001, resulting from
the Company's adoption of SFAS No. 133. This statement is effective for
fiscal years beginning after June 15, 2000.
(G) The Company was formed in 1996 as a mutual holding company and
therefore, had no shares of common stock outstanding until its
demutualization on September 20, 2000. At that time, the Company
distributed 17.4 million shares of its common stock to its former
members and exchanged its common stock for the 12.9 million shares of
common stock held by the public in ALHI on a one-for-one basis. The
Company's operating income is primarily from its former subsidiary,
ALHI. The Company has owned shares of ALHI common stock since 1996.
Adjusted net operating income per share has been calculated on the
basis that the shares of stock the Company owned of ALHI were
distributed to members and outstanding from January 1, 1996 and the
shares exchanged for ALHI shares were outstanding from the date of
demutualization.
Adjusted net operating income increased $14.6 million to $25.8
million, or $0.75 per diluted share, for the second quarter of 2001 compared to
$11.2 million, or $0.65 per diluted share, for the second quarter of 2000. For
the six months ended June 30, adjusted net operating income was $48.6 million in
2001 compared to $26.1 million in 2000. The increase in adjusted net operating
income in 2001 was primarily attributable to the acquisition of ILICO and the
reduction in income applicable to the minority interest. Excluding the effects
of these two items, adjusted net operating income remained approximately level
between years for both the three month and six month periods. Adjusted net
operating income is analyzed further in the operating segment discussion.
SALES
LIFE INSURANCE
The following table sets forth information regarding the Company's life
insurance sales activity by product:
Sales Activity by Product
Direct First Year Annualized Premiums
For the Three Months Ended June 30, For the Six Months Ended June 30,
2001 2000 2001 2000
----------------------------------- -----------------------------------
($ in thousands)
Traditional life insurance:
Whole life $ 1,506 $ 2,627 $ 3,518 $ 6,395
Interest-sensitive whole life 2,425 - 2,425 -
Term life 2,624 1,651 4,027 4,530
Universal life 4,053 2,229 5,702 6,459
Equity-indexed universal life 5,455 1,595 10,724 1,928
----------------------------------- -----------------------------------
Total $ 16,063 $ 8,102 $ 26,396 $ 19,312
=================================== ===================================
28
29
Life insurance sales as measured by annualized premiums were $16.1 million
in the second quarter of 2001 compared to $8.1 million in the second quarter of
2000. Year-to-date, life insurance sales increased $7.1 million to $26.4 million
in 2001 compared to $19.3 million in 2000. Approximately $5.9 million of the
increase for the quarter and year-to-date was due to sales from ILICO, which was
acquired during the second quarter of 2001. Excluding the sales from ILICO, life
insurance sales increased 26% and 6% for the 2001 three month and six month
periods, respectively, as compared to 2000. The increases were from the
Company's new equity-indexed universal life products which allow the policyowner
to elect an earnings strategy for a portion of the account value whereby
earnings are credited based on increases in the S&P 500 Index, excluding
dividends. The earnings credit is subject to a participation rate and an annual
cap. In the first six months of 2001, sales of these products were $10.7 million
as compared to $1.9 million for the same period a year ago. The Company
anticipates continued higher sales of these products as compared to last year.
The following table sets forth the Company's life insurance collected
premiums, including collected premiums associated with the Closed Block, for the
periods indicated:
<Table>
<Caption>
Collected Premiums by Product
For the Three Months Ended June 30, For the Six Months Ended June 30,
2001 2000 2001 2000
----------------------------------- -----------------------------------
($ in thousands)
Individual life premiums collected:
Traditional life:
First year and single $ 26,027 $ 19,851 $ 46,091 $ 41,403
Renewal 65,022 46,399 114,222 93,896
----------------------------------- -----------------------------------
Total 91,049 66,250 160,313 135,299
Universal life:
First year and single 12,764 7,065 24,119 14,677
Renewal 24,547 17,820 44,368 37,058
----------------------------------- -----------------------------------
Total 37,311 24,885 68,487 51,735
Total individual life 128,360 91,135 228,800 187,034
Reinsurance assumed 5,517 264 6,026 636
Reinsurance ceded (15,802) (6,558) (25,152) (12,470)
----------------------------------- -----------------------------------
Total individual life, net
of reinsurance $ 118,075 $ 84,841 $ 209,674 $ 175,200
=================================== ===================================
Traditional life insurance premiums collected were $91.0 million for the
second quarter of 2001 compared to $66.3 million for the second quarter of 2000.
For the first six months of 2001, traditional life insurance premiums increased
$25.0 million to $160.3 million compared to $135.3 million in 2000. The entire
amount of the increase, for both 2001 reporting periods, was due to the
additional premiums from ILICO. Excluding the ILICO premiums, first year and
single premiums declined $1.2 million for the second quarter of 2001 as compared
to 2000, and renewal premium remained level between second quarter periods.
Year-to-date, first year and single premium decreased approximately $2.6 million
while
29
30
renewal premium increased $1.6 million. The decrease in first year and
single premium, exclusive of the ILICO premium, was primarily due to the
Company's shift in sales from whole and term life to universal life. The
increase in renewal premium is primarily a result of the maturing of the block
of business.
Universal life insurance premiums collected were $37.3 million for the
second quarter of 2001 compared to $24.9 million for the same period in 2000 and
$68.5 million for the first six months of 2001 compared to $51.7 million for the
first six months of 2000. Approximately $7.3 million of the increase in the
three month and six month 2001 periods was due to the additional universal life
premiums from the ILICO acquisition. The remaining increase in the 2001
reporting periods was due to the new universal life products discussed
previously.
Reinsurance assumed increased approximately $5.3 million for both the three
months and six months ended June 30, 2001 as compared to the same periods in
2000. The entire amount of the increase is from the ILICO acquisition. ILICO
private labels various whole, universal and term life products. The products are
issued by ILICO's private label partners and then assumed in whole or in part by
ILICO.
Effective January 1, 2000, ALIC entered into additional reinsurance
agreements which effectively reduced ALIC'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. In addition, effective July 1, 2000, ALIC entered into a
reinsurance agreement covering its Closed Block policies. Under this agreement,
ALIC has reinsured approximately 90% of the Closed Block net amount at risk not
previously reinsured. Reinsurance ceded was $2.7 million higher for the second
quarter of 2001 and $6.2 million higher for the first six months of 2001 as
compared to the same periods in 2000 due to these additional reinsurance
agreements. The remainder of the increase in ceded premium was from the ILICO
acquisition. ILICO's reinsurance agreements effectively reduce ILICO's retention
limit to $500,000.
The following table sets forth information regarding the Company's life
insurance in force for each date presented:
Individual Life Insurance in Force
As of June 30,
2001 2000
-----------------------------------
($ in thousands)
Traditional life
Number of policies 403,718 249,483
GAAP life reserves $ 3,058,196 $ 1,690,950
Face amounts $ 45,153,000 $ 22,589,000
Universal life
Number of policies 163,927 112,770
GAAP life reserves $ 1,440,699 $ 937,233
Face amounts $ 21,249,000 $ 12,386,000
Total life insurance
Number of policies 567,645 362,253
GAAP life reserves $ 4,498,895 $ 2,628,183
Face amounts $ 66,402,000 $ 34,975,000
The acquisition of ILICO increased the number of policies in force by
213,000, GAAP life reserves by $1.8 billion, and face amounts by $29.5 billion.
30
31
ANNUITIES
The following table sets forth annuity collected premiums for the periods
indicated:
Collected Premiums by Product
For the Three Months Ended June 30, For the Six Months Ended June 30,
2001 2000 2001 2000
----------------------------------- -----------------------------------
($ in thousands)
Fixed annuities:
Deferred fixed annuities $ 293,953 $ 251,083 $ 730,991 $ 457,408
Multi-choice annuities 103,764 29,828 154,308 50,033
Equity-index annuities 35,879 70,160 69,688 141,091
Variable annuities 4,197 - 4,197 -
----------------------------------- -----------------------------------
Total 437,793 351,071 959,184 648,532
Reinsurance assumed - - - -
Reinsurance ceded (56,144) (62) (104,733) (116)
----------------------------------- -----------------------------------
Total annuities, net of reinsurance $ 381,649 $ 351,009 $ 854,451 $ 648,416
=================================== ===================================
The Company primarily markets its annuity products on a national basis
through networks of independent agents who are supervised by regional vice
presidents or Independent Marketing Organizations (IMOs). The Company's IMOs
consist of approximately 78 contracted organizations and four wholly-owned
organizations. Annuity collected premiums were $437.8 million for the second
quarter of 2001 compared to $351.1 million for the same period in 2000.
Year-to-date, annuity collected premiums were $959.2 million in 2001 compared to
$648.5 million in 2000. The increase in annuity collected premiums was partially
attributable to the introduction of multi-choice annuity products in late-1999
and early-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.
This product has continued to grow in popularity with consumers and agents since
its introduction. In addition to the increase in multi-choice annuities, fixed
annuity collected premiums increased in 2001 as compared to 2000 primarily due
to product repricing, growth in agents, increased marketing efforts aimed at
these products, and the acquisition of ILICO. Annuity collected premiums from
ILICO were approximately $29.7 million for the three months and six months ended
June 30, 2001. With the acquisition of ILICO, the Company has variable annuity
products. Sales of variable annuities were $4.2 million for the period from May
18, 2001, the acquisition date, through June 30, 2001. The assets and
liabilities related to the variable annuities are shown on the Consolidated
Balance Sheets as "Separate Account assets" and "Separate Account liabilities".
Effective October 1, 2000, the Company entered into a reinsurance agreement
to cede 35% of certain fixed annuity production on a modified coinsurance basis.
As a result of this new agreement, fixed annuity production ceded was $100.6
million higher in the first six months of 2001 as compared to the same period in
2000. In addition, ILICO reinsures approximately 75% of its fixed annuities on a
modified coinsurance basis which increased reinsurance ceded by approximately
$4.0 million for the three months and six months ended June 30, 2001 as compared
to the same periods in 2000. The ILICO
31
32
modified coinsurance agreement also impacted the Company's balance sheet. At
June 30, 2001, reinsurance receivables were $307.2 million compared to $6.5
million at December 31, 2000.
The following table sets forth information regarding annuities in force for
each date presented:
Annuities in Force
As of June 30,
2001 2000
-----------------------------------
($ in thousands)
Deferred fixed and immediate
annuities
Number of policies 172,774 163,611
GAAP annuity reserves $ 6,498,895 $ 5,859,591
Multi-choice annuities
Number of policies 53,972 962
GAAP annuity reserves $ 2,968,823 $ 51,092
Equity-index annuities
Number of policies 16,516 12,364
GAAP annuity reserves $ 715,117 $ 573,355
Total annuities
Number of policies 243,262 176,937
GAAP annuity reserves $ 10,182,835 $ 6,484,038
The acquisition of ILICO increased the total number of annuity policies by
58,000 and GAAP annuity reserves by $3.0 billion.
32
33
RESULTS OF OPERATIONS
A summary of the Company's revenue follows:
For The Three Months Ended For The Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------------------------ ------------------------------
($ in thousands)
Insurance premiums
Life insurance - traditional $ 78,331 $ 62,548 $ 140,282 $ 125,831
Annuities - Immediate annuity &
supplementary contract premiums 2,581 6,457 7,194 12,339
All other 225 132 253 94
------------------------------ ------------------------------
Total insurance premiums 81,137 69,137 147,729 138,264
Product charges
Life insurance - universal life 25,821 15,767 42,955 30,553
Annuities 9,026 9,752 16,158 18,241
------------------------------ ------------------------------
Total product charges 34,847 25,519 59,113 48,794
Net investment income
Life insurance 65,294 52,145 118,325 105,103
Annuities 138,684 115,887 265,872 229,573
All other 3,115 2,111 4,024 9,079
------------------------------ ------------------------------
Total net investment income 207,093 170,143 388,221 343,755
Realized/unrealized gains (losses) on investments
Life insurance - core 69 4 313 577
Annuities - core (305) (6,242) 347 (4,481)
All other - non-core (11,589) (924) (52,320) (355)
------------------------------ ------------------------------
Total realized/unrealized gains (losses)
on investments (11,825) (7,162) (51,660) (4,259)
Other income
Annuities 9,732 5,348 17,789 9,513
All other 2,220 1,997 4,495 4,365
------------------------------ ------------------------------
Total other income 11,952 7,345 22,284 13,878
------------------------------ ------------------------------
Total revenues $ 323,204 $ 264,982 $ 565,687 $ 540,432
============================== ==============================
Traditional life insurance premiums were $78.3 million in the second
quarter of 2001 compared to $62.5 million in the first second of 2000. For the
six months ended June 30, 2001, traditional life insurance premiums increased
$14.5 million to $140.3 million compared to $125.8 million for the same period
in 2000. The acquisition of ILICO in the second quarter of 2001 added $18.9
million of traditional life insurance premiums. Excluding these ILICO premiums,
traditional life insurance premiums declined $3.1 million and $4.4 million for
the three months and six months, respectively, ended June 30, 2001 as compared
to the same periods a year ago. The decrease in traditional life insurance
premiums in 2001 as compared to 2000 was primarily the result of the shift in
sales focus from traditional life products to universal life products discussed
previously. In addition, the new reinsurance agreements entered into in 2000
resulted in an increase in ceded premium for the first six months of 2001 of
approximately $5.0 million as compared to a year ago. Partially offsetting the
decline in first year premium and the increase in ceded premium was increased
renewal premium. Open block renewal premium increased approximately $6.1 million
in the first half of 2001 as compared to the same period a year ago primarily
33
34
due to the maturing of this block, while Closed Block renewal premium declined
approximately $4.5 million due to an increase in lapses. Total life insurance
lapse rates, exclusive of ILICO, were 7.6% for the first half of 2001 as
compared to 7.2% a year ago. This increase in lapses in the Closed Block
followed the completion of the Company's demutualization. The total life
insurance lapse rate including ILICO was 7.2% for the first half of 2001. As was
the case with the Company's demutualization, lapses are anticipated to increase
at ILICO now that its demutualization is completed.
Immediate annuity and supplementary contract premiums decreased by $3.9
million to $2.6 million for the second quarter of 2001 compared to $6.5 million
for the same period in 2000, and decreased $5.1 million for the six months ended
June 30, 2001 as compared to the six months ended June 30, 2000. A decrease in
immediate annuity premiums was anticipated as a result of pricing adjustments
made on these products.
Universal life product charges were $25.8 million for the second quarter of
2001 compared to $15.8 million for the second quarter of 2000. Year-to-date,
universal life product charges increased $12.4 million to $43.0 million in 2001
compared to $30.6 million in 2000. Approximately $10.3 million of the universal
life product charges for the three months and six months ended June 30, 2001
were attributable to the acquisition of ILICO. The decrease between
quarter-to-date periods, excluding the impact of ILICO, was primarily due to
increased reinsurance premiums. The 2001 year-to-date increase, excluding ILICO,
primarily reflects the increased sales of universal life products and increased
cost of insurance charges corresponding with the normal aging and growth of the
block of business.
Annuity product charges were $9.0 million for the second quarter of 2001
compared to $9.8 million for the same period in 2000, and $16.2 million for the
first half of 2001 compared to $18.2 million for the first half of 2000. Annuity
product charges from the acquisition of ILICO totaled approximately $2.4 million
for the three months and six months ended June 30, 2001. Excluding these ILICO
amounts, annuity product charges declined $3.2 million and $4.5 million for the
three months and six months, respectively, ended June 30, 2001 as compared to
the same periods in 2000. The decrease in product charges was primarily due to
decreased surrenders of annuity policies with surrender charges. Surrenders
totaled approximately $510.2 million for the first six months of 2001 compared
to $571.5 million for the first six months of 2000. Annuity withdrawal rates
averaged 14.6% in the first half of 2001 compared to 15.7% in the first half of
2000. Excluding internal replacements, withdrawal rates decreased 2.8% to 11.8%
for the first half of 2001 compared to 14.6% for the same period a year ago.
Annuity withdrawal rates, including ILICO from the acquisition date forward,
averaged 15.6% for the first half of 2001. Surrenders at ILICO from the
acquisition date through June 30, 2001 were approximately $77.6 million.
Total net investment income was $207.1 million for the second quarter of
2001 compared to $170.1 million for the same period in 2000 and $388.2 million
for the first six months of 2001 compared to $343.8 million for the same period
in 2000. Approximately $26.2 million of net investment income for the three
months and six months ended June 30, 2001 was attributable to the acquisition of
ILICO. Excluding ILICO, 2001 net investment increased primarily due to higher
average invested assets (excluding market value adjustments) and higher
effective yields as compared to 2000. Average invested assets (excluding market
value adjustments) increased approximately $171.9 million and $141.6 million
between quarterly and year-to-date periods, respectively. The increase was
primarily due to the growth of the Company's life insurance and annuity
businesses since last year. Partially offsetting this growth in assets from the
product lines was a reduction in holding company cash equivalents. The cash
equivalents were generated primarily from the sale of the Company's discontinued
operations in mid-1998 and were carried as invested assets of the Company until
October 2000, when the Company distributed the funds to its former Members in
connection with its reorganization. Investment income on the cash equivalents
was approximately $4.1 million and $7.2 million for the second quarter 2001
period and year-to-date 2001 period, respectively. Net investment income for
2001 was also negatively impacted as compared to 2000 due to lower equity
earnings from the Company's variable products joint venture. Equity earnings
from this joint venture were $0.8 million for the first six months of 2001
compared to $1.6 million for the
34
35
same period in 2000. This decline was consistent with the operating results of
others in the variable product industry.
The effective yield on the entire investment portfolio in the second
quarter of 2001 was 6.72% compared to 6.91% in the second quarter of 2000 and
7.00% for the first six months of 2001 compared to 7.02% for the first six
months of 2000. Excluding ILICO, 2001 second quarter and year-to-date yields
increased to 7.21% and 7.28%, respectively. The increase in yields, exclusive of
ILICO, primarily resulted from the market value adjustments the Company made to
its assets in connection with its reorganization, in the third quarter of 2000.
The overall yield is lower including ILICO primarily due to the higher
percentage of convertible securities ILICO carries in its investment portfolio.
The convertible securities are associated with ILICO's total return strategy
fixed annuity products. The effective yield on the deferred fixed annuity
portfolio increased 27 basis points to 7.11% for the second quarter of 2001 as
compared to 6.84% for the second quarter of 2000. Year-to-date, the yields
increased 32 basis points to 7.15% as compared to 6.83% for 2000. The deferred
fixed annuity portfolio yield was also positively impacted by the market value
adjustments made in the third quarter of 2000.
Total realized and unrealized gains and losses on investments were a net
loss of $11.8 million for the second quarter of 2001 compared to a net loss of
$7.2 million for the same period a year ago, and a net loss of $51.7 million for
the first half of 2001 compared to a net loss of $4.3 million for the first half
of 2000. The significant change between periods is primarily driven by the
Company's adoption of SFAS No. 133 "Accounting for Certain Derivative
Instruments and Hedging Activities." In accordance with this Statement, the
Company has adjusted its options to market value, which, due to the economic
environment, resulted in an unrealized loss of $0.8 million and $34.1 million
for the second quarter and first half, respectively, of 2001. The Company uses
its options to hedge its equity-indexed annuity products. In addition, the
Company also has trading securities that back its total return strategy fixed
annuity products. The market value adjustment on the trading securities resulted
in a loss of $3.5 million for the 2001 second quarter and six month periods. The
majority of the unrealized gains and losses on the options and trading
securities are offset by similar adjustments to the option portion of the
equity-indexed annuity reserves and to the total return strategy annuity
reserves. The reserve adjustments are reflected in the policyowner benefits line
of the Consolidated Statements of Income and are discussed in the next section
of Management's Discussion and Analysis of Results of Operations and Financial
Condition. The remainder of the second quarter and year-to-date 2001 realized
and unrealized gains and losses on investments consisted of $7.5 million and
$14.1 million, respectively, of realized losses on investments. 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.
Other income primarily consists of real estate operating income, property
management fees, structured finance fees from affordable housing programs,
Corporate Owned Life Insurance (COLI) income, and third party annuity
commissions received by wholly-owned IMOs. Other income increased approximately
$4.7 million in the second quarter of 2001 to $12.0 million as compared to $7.3
million in the second quarter of 2000. Year-to-date, other income was $22.3
million in 2001 compared to $13.9 million in 2000. Approximately $4.3 million of
the year-to-date 2001 increase in other income was due to the acquisition of
another IMO in January, 2001 and the remainder reflects the income on a $100
million COLI investment the Company made in the fourth quarter of 2000. COLI is
classified as an other asset and accordingly the income from this asset appears
in other income instead of net investment income.
35
36
A summary of the Company's policyowner benefits follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------------------- ---------------------------
($ in thousands)
Life Insurance:
Traditional
Death benefits $ 15,125 $ 8,737 $ 25,074 $ 21,973
Change in liability for future policy
benefits and other policy benefits 51,827 46,431 97,371 88,754
-------------------------- ---------------------------
Total traditional 66,952 55,168 122,445 110,727
Universal
Death benefits in excess of cash value 7,877 7,050 16,094 16,390
Interest credited on policyowner
account balances 15,763 11,376 26,253 21,480
Other 1,264 100 1,595 1,054
-------------------------- --------------------------
Total universal 24,904 18,526 43,942 38,924
-------------------------- ---------------------------
Total life insurance benefits 91,856 73,694 166,387 149,651
Annuities
Interest credited to deferred annuity
account balances 81,243 61,298 154,828 130,286
Other annuity benefits 22,634 13,604 39,407 32,191
-------------------------- ---------------------------
Total annuity benefits 103,877 74,902 194,235 162,477
All other benefits 596 26 585 198
Change in option value of equity-indexed
products and market value adjustments on
total return strategy annuities 2,459 - (32,510) -
-------------------------- ---------------------------
Total policyowner benefits $ 198,788 $ 148,622 $ 328,697 $ 312,326
========================== ===========================
Total life insurance benefits were $91.9 million in the second quarter of
2001 compared to $73.7 million in the second quarter of 2000. For the first half
of 2001, total life insurance benefits increased $16.7 million to $166.4 million
compared to $149.7 million in the same period in 2000. The acquisition of ILICO
in the second quarter of 2001 increased life insurance benefits $20.7 million
for the three months and six months ended June 30, 2001. Excluding the impact of
the ILICO acquisition, total life insurance benefits decreased $2.5 million and
$4.0 million for the three months and six months, respectively, ended June 30,
2001 as compared to the same periods in 2000. This decrease in life insurance
benefits exclusive of the impact of ILICO was primarily due to decreased death
benefits and interest credited on universal life policies. The weighted average
crediting rate on universal life policyowner account balances for the first half
of 2001 decreased 6 basis points to 5.56% compared to 5.62% for the first half
of 2000. In addition, traditional life benefits, excluding ILICO, decreased in
the 2001 reporting periods as compared to 2000. The Company experienced
unfavorable mortality in its traditional Closed Block policies in the second
quarter of 2001 compared to 2000 resulting in increased death benefits of
approximately $2.4 million. This increase in traditional death benefits was more
than offset by a lower change in traditional life reserves.
36
37
Annuity benefits were $103.9 million in the second quarter of 2001 compared
to $74.9 million in the same period a year ago. Year-to-date, annuity benefits
increased $31.7 million to $194.2 million in 2001 compared to $162.5 million in
2000. Approximately $15.1 million of the increase in annuity benefits in both
the three month and six month 2001 periods was due to the acquisition of ILICO
in the second quarter of 2001. Annuity benefits increased approximately $13.9
million and $16.6 million for the three months and six months, respectively,
ending June 30, 2001 as compared to 2000, exclusive of the impact of the ILICO
acquisition. Interest credited to deferred annuity account balances increased
$20.7 million, exclusive of ILICO, in the first half of 2001 compared to the
same period a year ago. Between 2001 and 2000 six month periods, average
deferred fixed annuity account balances increased approximately $194.0 million
and the weighted average crediting rate on deferred fixed annuity account
balances increased 20 basis points to 5.08%. The increase in crediting rates
reflects the change in product mix and the increase in the investment yields of
the deferred fixed annuity portfolio. Overall, spreads on deferred fixed
annuities widened 11 basis points to 208 basis points in the first half of 2001
as compared to the same period a year ago. Including ILICO deferred fixed
annuity products, the weighted average crediting rate remained at 5.08% and
spreads were 207 basis points. Other annuity benefits declined approximately
$4.1 million, exclusive of ILICO, between first half periods, which corresponds
with the decline in immediate annuity and supplementary contract premiums. ILICO
added approximately $11.3 million to the 2001 other annuity benefits due to
payments made under modified coinsurance agreements.
Included in policyowner benefits is the fair value change in options
embedded within the equity-indexed products and fair value changes on total
return strategy fixed annuity contracts. These fair value changes are being
recorded in accordance with SFAS No. 133, which the Company adopted January 1,
2001. Based on the economic environment for the three months ended June 30,
2001, the fair value changes resulted in a $2.5 million increase in reserve
balances while the year-to-date fair value changes in 2001 were a $32.5 million
decrease in reserve balances. As discussed previously, there is an offsetting
adjustment to these fair value changes in the realized/unrealized gains (losses)
on investments line of the Consolidated Income Statement related to the fair
value changes on the options that hedge the equity-indexed products and on the
trading securities that back the total return strategy products. All of these
fair value changes are excluded from adjusted net operating income as they do
not indicate overall operating trends.
37
38
A summary of the Company's expenses follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------------------- --------------------------
($ in thousands)
Life Insurance
Underwriting, acquisition and
other expenses $ 17,911 $ 15,794 $ 32,051 $ 26,406
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of $411 and $62
for the three months ended June 30, 2001
and 2000, respectively, and $584 and $83
for the six months ended June 30, 2001
and 2000, respectively 12,123 7,528 21,733 17,065
-------------------------- --------------------------
Total life insurance 30,034 23,322 53,784 43,471
Annuities
Underwriting, acquisition and
other expenses 13,565 14,242 28,082 25,632
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of ($5,310) and
($4,397) for the three months ended June 30,
2001 and 2000, respectively, and ($6,121)
and ($3,798) for the six months ended
June 30, 2001 and 2000, respectively 22,747 16,949 39,046 32,839
-------------------------- --------------------------
Total annuities 36,312 31,191 67,128 58,471
Amortization of deferred policy acquisition costs due
to non-core realized gains or losses (4,899) (4,335) (5,537) (3,715)
All other expenses 3,645 4,216 6,322 9,209
Reorganization costs 202 5,495 202 6,705
-------------------------- --------------------------
Total expenses $ 65,294 $ 59,889 $ 121,899 $ 114,141
========================== ==========================
Total life insurance expenses were $30.0 million in the second quarter of
2001 compared to $23.3 million in the same period in 2000. For the first six
months of 2001, life insurance expenses totaled $53.8 million compared to $43.5
million a year ago. The acquisition of ILICO in the second quarter of 2001
increased total life insurance expenses approximately $6.5 million for the three
months and six months ended June 30, 2001. Excluding the impact of the ILICO
acquisition, underwriting, acquisition and insurance expenses decreased
approximately $1.4 million in the second quarter of 2001 and increased
approximately $2.1 million in the first half of 2001, as compared to the same
periods a year ago. The decrease in the second quarter 2001 expenses as compared
to a year ago was primarily due to lower technology costs while the increase in
the year-to-date 2001 expenses as compared to last year was primarily due to
general compensation increases, depreciation on the new life insurance
administrative system and distribution system enhancements. Amortization of
deferred policy acquisition costs and value of business acquired (VOBA),
exclusive of ILICO, increased $1.6 million in both the second
38
39
quarter of 2001 and the first six months of 2001 compared to the comparable
periods in 2000. Deferred policy acquisition costs are generally amortized in
proportion to gross margins. The increase in amortization in 2001 as compared to
2000 is primarily associated with the Company's market value adjustment
completed at the end of the third quarter 2000. Additional VOBA was established
as a result of the market value adjustment.
Total annuity expenses increased by $5.1 million to $36.3 million in the
second quarter of 2001 compared to $31.2 million in the second quarter of 2000.
Year-to-date, total annuity expenses were $67.1 million in 2001 compared to
$58.5 million in 2000. Approximately $1.1 million of the 2001 total annuity
expenses in both the second quarter and year-to-date periods were due to the
ILICO acquisition. Excluding these ILICO expenses, underwriting, acquisition and
insurance expenses decreased approximately $1.3 million in the second quarter of
2001 compared to the same period a year ago and increased approximately $1.8
million between year-to-date periods. The decrease in the second quarter
expenses primarily reflects the reduction in expenses from the consolidation of
annuity operations in Topeka while the year-to-date increase was primarily due
to the new IMO acquired in January of 2001. The increase in expense due to the
new IMO was offset by the increase in other income from the IMO discussed
previously. Exclusive of the impact of ILICO, amortization of deferred policy
acquisition costs and VOBA increased $5.4 million in the second quarter of 2001
as compared to the same period in 2000 and $5.8 million between year-to-date
periods. The increase in amortization was partially attributable to the general
growth in the deferred policy acquisition cost asset associated with the
continued growth in annuity sales. In addition, VOBA amortization was higher in
2001 due to the additional VOBA established in connection with the Company's
third quarter market value adjustment.
Other expenses decreased by $0.6 million in the second quarter of 2001 to
$3.6 million compared to $4.2 million in the same period in 2000. Year-to-date,
other expenses were $6.3 million in 2001 compared to $9.2 million in 2000. Other
expenses primarily consist of expenses related to the real estate management
company and the holding company, and tend to fluctuate from period to period
depending on the properties under management each quarter. Beginning in 1999,
the Company began decreasing the number of properties under management and,
accordingly, other expenses are also declining.
The 2000 reorganization costs consist primarily of legal, actuarial and
consulting expenses associated with the demutualization of the Company that was
completed in the third quarter of 2000. The 2001 reorganization costs are
associated with the demutualization of ILICO, which was completed in connection
with the Company's acquisition of ILICO. As these costs are not of a continuing
nature, they have been excluded from the Operating Segment amounts.
39
40
A summary of the Company's income from operations by operating segment
follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------------------- --------------------------
($ in thousands)
Life Insurance:
Open Block:
Revenues $ 169,515 $ 130,464 $ 301,875 $ 262,064
Benefits and expenses (121,890) (97,016) (220,171) (193,122)
Dividends to policyowners (23,067) (21,326) (42,225) (37,496)
-------------------------- --------------------------
Adjusted pre-tax operating income 24,558 12,122 39,479 31,446
Annuities:
Revenues 159,718 131,202 307,360 265,185
Benefits and expenses (140,189) (106,093) (261,363) (220,948)
-------------------------- --------------------------
Adjusted pre-tax operating income 19,529 25,109 45,997 44,237
All other adjusted pre-tax operating (loss) 1,319 (2) 1,865 4,131
-------------------------- --------------------------
Total adjusted pre-tax operating income $ 45,406 $ 37,229 $ 87,341 $ 79,814
========================== ==========================
Adjusted pre-tax operating income from Life Insurance operations was $24.6
million in the first quarter of 2001 compared to $12.1 million in the second
quarter of 2000. For the first six months of 2001, adjusted pre-tax operating
income from Life Insurance operations increased $8.1 million to $39.5 million
compared to $31.4 million in 2000. The acquisition of ILICO contributed $11.0
million of adjusted pre-tax operating income to the Life Insurance segment in
the second quarter. Exclusive of the impact of the ILICO acquisition, Life
Insurance operating income increased $1.5 million between quarterly periods and
decreased $2.9 million between year-to-date periods. Gross margins in the Life
Insurance segment remained level between year over year periods with the
fluctuations in insurance expenses and the decline in earnings from the
Company's variable products joint venture primarily impacting the overall
results.
Adjusted pre-tax operating income from Annuity operations was $19.5 million
in the second quarter of 2001 compared to $25.1 million in the same period in
2000. Year-to-date, adjusted pre-tax operating income from Annuity operations
increased $1.8 million to $46.0 million in 2001 compared to $44.2 million in
2000. Annuity operating income was negatively impacted approximately $1.0
million from the acquisition of ILICO. Excluding this loss from ILICO, Annuity
operating income decreased $4.6 million between quarterly periods and increased
$2.8 million between year-to-date periods. The decrease in the second quarter of
2001 was primarily due to lower margins on equity-indexed annuity products.
Year-to-date, the decreased margins on the equity-indexed annuity products were
offset by the increase in spreads on the deferred fixed annuity products.
All other adjusted pre-tax operating income was $1.9 million in the first
half of 2001 compared to $4.1 million in the first half of 2000. The decrease in
2001 compared to 2000 was primarily due to decreased investment income as the
Company distributed approximately $340 million of cash equivalents in October
2000 in connection with its reorganization.
Interest expense decreased $0.3 million in the second quarter of 2001 to
$7.4 million compared to $7.7 million in the second quarter of 2000.
Year-to-date, interest expense was $14.7 million in 2001
40
41
compared to $14.8 million in 2000. The decreased interest expense in 2001 was
primarily due to lower borrowing rates in 2001 as compared to 2000. The 2001
interest expense also included approximately $0.3 million of interest expense
from ILICO. ILICO has a $25 million, 8.66% surplus note, due on April 1, 2011.
Income tax expense was $19.0 million in the first half of 2001 compared to
$23.7 million in the same period in 2000. The effective tax rate was 32.6% and
38.4% for the first half of 2001 and 2000, respectively. The decrease in the
effective tax rate in 2001 reflected the decline in nondeductible expenses
associated with the Company's reorganization and increased tax exempt income
from the COLI investment.
Minority interest represents the minority stockholders ownership percentage
share of net income of ALHI prior to the Company's acquisition of this Minority
Interest. The minority shareholder ownership percentage was 42% for the six
months ended June 30, 2000. As a result of the Company's acquisition of the
Minority Interest there is no net income applicable to the Minority Interest in
2001.
Net income from continuing operations increased $12.0 million to $19.7
million in the second quarter of 2001 compared to $7.7 million in the second
quarter of 2000. Year-to-date, net income from continuing operations was $39.2
million in 2001 and $22.7 million in 2000. Approximately $4.1 million of the
increase in the quarter and year-to-date periods was from the ILICO acquisition
and the remainder was due to the lower effective tax rate and the reduction in
net income applicable to the Minority Interest.
The Company adopted SFAS No. 133 January 1, 2001. In accordance with the
provisions of the Statement, the Company has recorded the differences between
the previous carrying amounts of its derivative instruments and the fair value
of its derivative instruments, as of this initial application date, as the
effect of a change in accounting principle. The gross difference between
carrying amounts and fair value amounts of the Company's derivative instruments
was a reduction of approximately $11.3 million. The deferred policy acquisition
cost and VOBA amortization impact from the derivative adjustments was
approximately $1.1 million and the income tax benefit was $4.2 million,
resulting in the net cumulative effect of change in accounting for derivatives
of $8.2 million.
Net income was $20.2 million in the second quarter of 2001 compared to $7.9
million in the second quarter of 2000 and $31.9 million in the first half of
2001 compared to $22.7 million in the first half of 2000. The acquisition of
ILICO increased net income approximately $4.1 million in the 2001 second quarter
and year-to-date periods. In addition, the lower effective tax rate and
reduction in net income applicable to Minority Interest also increased net
income in the 2001 periods as compared to 2000. Year- to-date, the adoption of
SFAS No. 133 in the first quarter of 2001 had a one-time cumulative effect of
reducing net income by $8.2 million.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest from income on loans and advances
to its subsidiaries (including a surplus note issued to the Company by ALIC),
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. Generally, under the various state statutes,
the Company's life insurance subsidiaries dividends may be paid only from the
earned surplus arising
41
42
from their respective businesses and must receive the prior approval of the
respective state regulator to pay any dividend that would exceed certain
statutory limitations. The current statutes generally limit 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.
Generally, the various state laws give the state regulators broad discretion to
approve or disapprove requests for dividends in excess of these limits. Based on
these limitations and 2000 results, the Company's subsidiaries could pay an
estimated $102.9 million in dividends in 2001 without obtaining regulatory
approval. Of this amount, the Company's subsidiaries paid the Company $20.0
million in the first six months of 2001. The 2000 statutory results exceeded
prior years' statutory results primarily due to reinsurance transactions entered
into in 2000 and the acquisition of ILICO. As reinsurance activity varies from
year to year, 2001 statutory results may decline as compared to 2000 and
dividend capacity would change accordingly.
The Company has a $150 million revolving credit facility with a syndicate
of lenders (the "Bank Credit Facility"). As of June 30, 2001, there was a $64
million outstanding loan balance under the Bank Credit Facility. The Bank Credit
Facility provides for typical events of default and covenants with respect to
the conduct of 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, (b) cannot have
an interest coverage ratio less than 2.50:1.0, (c) is prohibited from paying
cash dividends 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 (d)
must cause certain of its life insurance subsidiaries to maintain certain
ratings from A.M. Best and certain levels of risk-based capital.
The Company has announced that its Board of Directors approved a stock
purchase program under which the Company may purchase up to three million shares
of its common stock at such times and under such conditions as the Company deems
advisable. The purchases may be made in the open market or by such other means
as the Company determines to be appropriate, including privately negotiated
purchases. The purchase program supercedes all prior purchase programs. The
funds for the purchase program would come from a combination of internal sources
from its life insurance subsidiaries and utilization of its Bank Credit
Facility.
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.
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
42
43
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 June 30, 2001
(including liabilities in both the Closed Block and the general account):
($ in millions)
---------------
Not subject to discretionary withdrawal $ 578.0
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) 5,742.1
Market value adjustments 3,921.5
---------------
Subtotal 9,663.6
---------------
Subject to discretionary withdrawal without adjustments 1,509.1
---------------
Total $ 11,750.7
===============
(A) Includes $620.1 million of statutory liabilities with a contractual
surrender charge of less than five percent of the account balance.
ALIC 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 a
separate account and is further backed by the general account assets of ALIC.
The separate account assets are legally segregated and are not subject to claims
that arise out of any other business of ALIC. 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 ALIC may terminate at
any time.
ALIC and its joint venture partner are contingently liable in the event the
joint venture, AVLIC, cannot meet its obligations. At June 30, 2001, AVLIC had
statutory assets of $2,296.0 million, liabilities of $2,230.3 million and
surplus of $65.7 million.
Through their respective memberships in the Federal Home Loan Banks (FHLB)
of Des Moines and Topeka, ALIC and American Investors Life Insurance Company, a
subsidiary of AAG, are 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
43
44
no borrowings under these arrangements outstanding at June 30, 2001. In
addition, ALIC has long-term advances from the FHLB outstanding of $15.2 million
at June 30, 2001.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments. The Company's investment portfolio as of June 30, 2001 had
a carrying value of $14.7 billion, including Closed Block investments.
At June 30, 2001, the statutory surplus of the Company's subsidiaries was
approximately $645.2 million. The Company believes that this level of statutory
capital is more than adequate as each 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 has access to the public
debt and equity markets.
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 the Company's liabilities, primarily the
Company's lapsation, to determine liability duration. The asset duration is
determined 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.
44
45
The table below provides information about the Company's fixed maturity
investments and mortgage loans at June 30, 2001. 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
6 mos
Amortized 2001 2002 2003 2004 2005 2006 Thereafter Cost
($ in millions)
Fixed maturity securities $ 391 $ 725 $ 1,617 $ 1,327 $ 1,617 $ 1,107 $ 5,964 $ 12,748
Average interest rate 6.8% 6.6% 6.1% 6.3% 6.5% 7.2% 6.8%
Mortgage loans $ 30 $ 52 $ 53 $ 67 $ 69 $ 66 $ 595 $ 932
Average interest rate 8.1% 8.3% 8.2% 8.2% 8.2% 8.1% 7.9%
Total $ 421 $ 777 $ 1,670 $ 1,394 $ 1,686 $ 1,173 $ 6,559 $ 13,680
============================================================================
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 64% 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 7% of the bond portfolio is below investment
grade. Fixed maturity securities have a weighted average maturity of
approximately 7.24 years.
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
consist primarily of its investment in AMAL. The remainder of 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.
45
46
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company and its subsidiaries are
parties to certain litigation, none of which management believes is material to
the Company's results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of the votes at the annual meeting of the Company's
shareholders on May 10, 2001 were reported on the Company's Form 10-Q dated May
15, 2001.
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 report on Form 8-K was filed during the quarter ended
June 30, 2001:
Form 8-K dated May 18, 2001 announcing the Company's completion of the
acquisition of Indianapolis Life Insurance Company.
46
47
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: August 13, 2001 AMERUS GROUP CO.
By /s/ Michael G. Fraizer
-------------------------------------
Executive Vice President and
Chief Financial Officer
By /s/ Brenda J. Cushing
-------------------------------------
Vice President and Controller
(Principal Accounting Officer)
47
48
AMERUS GROUP CO. 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 AmerUs Life Holdings, Inc. 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 AmerUs Life Holdings, Inc., AFC Corp. and
AmVestors Financial Corporation ("AmVestors"), filed as Exhibit 2.2
to the Registration Statement of AmerUs Life Holdings, Inc. 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 AmerUs Life Holdings, Inc., a
wholly owned subsidiary of AmerUs Life Holdings, Inc. and Delta Life
Corporation, filed as Exhibit 2.2 to Form 8-K of AmerUs Life
Holdings, Inc. dated October 8, 1997, is hereby incorporated by
reference.
2.4 Combination and Investment Agreement, dated February 18, 2000, among
American Mutual Holding Company, AmerUs Life Holdings, Inc.,
Indianapolis Life Insurance Company and The Indianapolis Life Group
of Companies, Inc., filed as Exhibit 2.1 to AmerUs Life Holdings,
Inc.'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 AmerUs Life Holdings, Inc., 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 AmerUs Life Holdings, Inc., 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 AmerUs
Life Holdings, Inc., 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 AmerUs Life Holdings, Inc., 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, AmerUs Life Holdings, Inc. 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 AmerUs
Life Holdings, Inc., filed as Exhibit 2.10 on Form 10-Q, dated
May 15, 2000, is hereby incorporated by reference.
2.11 Amendment No. 1 to the Purchase Agreement, dated April 3, 2000, by
and between American Mutual Holding Company and AmerUs Life
Holdings, Inc., filed as Exhibit 2.11 on Form 10-Q, dated May 15,
2000, is hereby incorporated by reference.
2.12 Amendment to Combination and Investment Agreement dated February 18,
2000 among American Mutual Holding Company, AmerUs Life Holdings,
Inc., Indianapolis Life Insurance Company and The Indianapolis Life
Group of Companies, Inc., dated September 18, 2000, filed as Exhibit
2.2 to Form 8-K12G3 of the Registrant dated September 21, 2000, is
hereby incorporated by reference.
3.1 Amended and Restated Articles of Incorporation of the Registrant
filed as Exhibit 3.1 on Form 10-Q, dated November 14, 2000 is
hereby incorporated by reference.
3.2 Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.2
on Form 10-Q, dated November 14, 2000 is hereby incorporated
by reference.
48
49
4.1 Amended and Restated Trust Agreement dated as of February 3, 1997
among AmerUs Life Holdings, Inc., 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 AmerUs Life Holdings, Inc. and AmerUs
Capital I on Form S-1, Registration Number 333-13713, is hereby
incorporated by reference.
4.2 Indenture dated as of February 3, 1997 between AmerUs Life Holdings,
Inc. 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 AmerUs Life Holdings, Inc. 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 AmerUs Life
Holdings, Inc., 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 AmerUs Life Holdings, Inc., First Union
Trust Company and the administrative trustees named therein, relating
to AmerUs Life Holdings, Inc.'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 AmerUs Life Holdings, Inc., 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 AmerUs Life Holdings, Inc., relating to AmerUs Life
Holdings, Inc.'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 AmerUs Life
Holdings, Inc., relating to AmerUs Life Holdings, Inc.'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 AmerUs Life
Holdings, Inc. and First Union National Bank relating to AmerUs Life
Holdings, Inc.'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 AmerUs Life
Holdings, Inc.'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 AmerUs Life
Holdings, Inc., Goldman, Sachs & Co. and First Union National Bank
relating to AmerUs Life Holdings, Inc.'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 AmerUs
Life Holdings, Inc. and First Union National Bank, as Indenture
Trustee, relating to the AmerUs Life Holdings, Inc.'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
AmerUs Life Holdings, Inc. and First Union National Bank, as
Indenture Trustee, relating to AmerUs Life Holdings, Inc.'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.
4.14 First Supplement to Indenture dated February 3, 1997 among American
Mutual Holding Company, AmerUs Life Holdings, Inc. and Wilmington
Trust Company as Trustee, relating to the Company's 8.85% Junior
Subordinated Debentures, Series A, dated September 20, 2000, filed as
Exhibit 4.14 on Form 10-Q dated November 14, 2000, is hereby
incorporated by reference.
49
50
4.15 Assignment and Assumption Agreement to Amended and Restated Trust
Agreement, dated February 3, 1997 between American Mutual Holding
Company and AmerUs Life Holdings, Inc., dated September 20, 2000,
filed as Exhibit 4.15 on Form 10-Q dated November 14, 2000, is hereby
incorporated by reference.
4.16 Assignment and Assumption to Guaranty Agreement, dated February 3,
1997 between American Mutual Holding Company and AmerUs Life
Holdings, Inc., dated September 20, 2000, filed as Exhibit 4.16 on
Form 10-Q, dated November 14, 2000, is hereby incorporated by
reference.
4.17 First Supplement to Subordinated Indenture, dated July 27, 1998,
relating to AmerUs Life Holdings, Inc.'s 6.86% Junior Subordinated
Deferrable Interest Debentures, among American Mutual Holding
Company, AmerUs Life Holdings, Inc. and First Union National Bank,
as Indenture Trustee, dated September 20, 2000, filed as Exhibit
4.17 on Form 10-Q, dated November 14, 2000, is hereby incorporated
by reference.
4.18 First Supplement to Master Unit Agreement dated July 27, 1998,
relating to AmerUs Life Holdings, Inc.'s 7.0% ACES units, between
American Mutual Holding Company and First Union National Bank, as
Unit Agent, dated September 20, 2000, filed as Exhibit 4.18 on Form
10-Q, dated November 14, 2000, is hereby incorporated by reference.
4.19 Assignment and Assumption Agreement to the QUIPS Guarantee Agreement
dated July 27, 1998, relating to AmerUs Life Holdings, Inc.'s 7.0%
ACES units, between American Mutual Holding Company and AmerUs Life
Holdings, Inc., dated September 20, 2000, filed as Exhibit 4.19 on
Form 10-Q, dated November 14, 2000, is hereby incorporated by
reference.
4.20 Assignment and Assumption Agreement to the Common Trust Securities
Guarantee Agreement dated July 27, 1998, relating to AmerUs Life
Holdings, Inc.'s 7.0% ACES units, between American Mutual Holding
Company and AmerUs Life Holdings, Inc., dated September 20, 2000,
filed as Exhibit 4.20 on Form 10-Q, dated November 14, 2000, is
hereby incorporated by reference.
4.21 First Supplement to Purchase Contracts between American Mutual
Holding Company and Holders, as specified, dated September 20, 2000,
filed as Exhibit 4.21 on Form 10-Q, dated November 14, 2000, is
hereby incorporated by reference.
4.22 First Supplement to the Pledge Agreement dated July 27, 1998,
relating to AmerUs Life Holdings, Inc.'s 7.0% ACES units, among
American Mutual Holding Company, Goldman Sachs & Co., as Call Option
Holder, the Chase Manhattan Bank, as Collateral Agent and First
Union National Bank, as Unit Agent, dated September 20, 2000, filed
as Exhibit 4.22 on Form 10-Q, dated November 14, 2000, is hereby
incorporated by reference.
4.23 First Supplement to Senior Indenture dated June 16, 1998, relating
to AmerUs Life Holdings, Inc.'s 6.95% Senior Notes, among American
Mutual Holding Company, AmerUs Life Holdings, Inc. and First Union
National Bank, as Trustee, dated September 20, 2000, filed as
Exhibit 4.23 on Form 10-Q, dated November 14, 2000, is hereby
incorporated by reference.
10.1 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.
10.2 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 AmerUs Life
Holdings, Inc. on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.3 AmerUs Life Holdings, Inc. Executive Stock Purchase Plan, dated
November 13, 1998, filed as Exhibit 4.11 to the registration
statement of AmerUs Life Holdings, Inc. on Form S-8, Registration
Number 333-72237, is hereby incorporated by reference.
10.4 All+AmerUs Supplemental Executive Retirement Plan, effective January
1, 1996, filed as Exhibit 10.6 to the registration statement of
AmerUs Life Holdings, Inc. on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
50
51
10.5 Management Incentive Plan, filed as Exhibit 10.9 to the
registration statement of AmerUs Life Holdings, Inc. on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.6 AmerUs Life Insurance Company Performance Share Plan, filed as
Exhibit 10.10 to the registration statement of AmerUs Life Holdings,
Inc. on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.7 AmerUs Life Stock Incentive Plan, filed as Exhibit 10.11 to the
registration statement of AmerUs Life Holdings, Inc. on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.8 AmerUs Life Non-Employee Director Stock Plan, filed as Exhibit 10.13
to the registration statement of AmerUs Life Holdings, Inc. on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.9 Form of Indemnification Agreement executed with directors and certain
officers, filed as Exhibit 10.33 to the registration statement of
AmerUs Life Holdings, Inc. on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.10 Tax Allocation Agreement dated as of November 4, 1996, filed as
Exhibit 10.68 to the registration statement of AmerUs Life Holdings,
Inc. on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.11 Credit Agreement, dated as of October 23, 1997, among AmerUs Life
Holdings, Inc., Various Lender Institutions, the Co-Arrangers and
The Chase Manhattan Bank, as Administrative Agent , filed as Exhibit
10.84 to the registration statement of AmerUs Life Holdings, Inc. on
Form S-4, Registration Number 333-40065, is incorporated by
reference.
10.12 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.
10.13 Consent dated as of May 20, 1998 to the Credit Agreement dated as of
October 23, 1997 among AmerUs Life Holdings, Inc., 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.
10.14 First Amendment dated as of May 30, 1997 to the Credit Agreement
dated as of October 23, 1997 among AmerUs Life Holdings, Inc.,
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.
10.15 Second Amendment dated as of June 22, 1998 to the Credit Agreement
dated as of October 23, 1997 among AmerUs Life Holdings, Inc.,
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.
10.16 Second Consent and Amendment dated as of October 2, 1998 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., 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.
10.17 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.
10.18 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.
10.19 Third Waiver to Credit Agreement dated as of November 16, 1998 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., 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.
51
52
10.20 Fourth Consent and Amendment, dated as of December 4, 1998 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., 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.
10.21 Facility and Guaranty Agreement, dated February 12, 1999, among The
First National Bank of Chicago and AmerUs Life Holdings, Inc., filed
as Exhibit 10.39 on Form 10-Q dated May 14, 1999, is hereby
incorporated by reference.
10.22 Form of Reimbursement Agreement, dated February 15, 1999, among
AmerUs Life Holdings, Inc. 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.
10.23 Amendment No. 1 to Facility Agreement, dated March 23, 1999, among
The First National Bank of Chicago and AmerUs Life Holdings,
Inc., filed as Exhibit 10.41 on Form 10-Q dated May 14, 1999, is
hereby incorporated by reference.
10.24 1999 Non-Employee Stock Option Plan, dated April 19, 1999, filed on
Form S-3, Registration Number 333-72643, is hereby incorporated by
reference.
10.25 Fifth Waiver and Amendment to Credit Agreement dated as of October 1,
1998 to the Credit Agreement dated as of October 23, 1997 among
AmerUs Life Holdings, Inc., 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.
10.26 Sixth Amendment to Credit Agreement dated as of May 18, 1999 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., 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.
10.27 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.
10.28 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.
10.29 Seventh Amendment to Credit Agreement dated as of December 23, 1999
to the Credit Agreement dated as of October 23, 1997 among AmerUs
Life Holdings, Inc., 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.
10.30 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
AmerUs Life Holdings, Inc.'s report on Form 8-K/A on March 6, 2000,
are hereby incorporated by reference.
10.31 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., filed as Exhibit 10.48 on Form 10-Q,
dated May 15, 2000, is hereby incorporated by reference.
10.32 Institutional Custody Agreement, dated April 12, 2000, by and between
the Federal Home Loan Bank of Topeka and American Investors Life
Insurance Company, Inc., filed as Exhibit 10.49 on Form 10-Q, dated
May 15, 2000, is hereby incorporated by reference.
10.33 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., filed as Exhibit 10.50 on Form 10-Q, dated
May 15, 2000, is hereby incorporated by reference.
10.34 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, filed as Exhibit 10.51 on Form 10-Q, dated May 15, 2000,
is hereby incorporated by reference.
52
53
10.35 Stock Purchase Agreement, dated February 23, 2000, by and among
American Investors Sales Group, Inc., Community Bank Marketing,
Inc. and Community Financial Services, Inc., filed as Exhibit
10.52 on Form 10-Q, dated May 15, 2000, is hereby incorporated by
reference.
10.36 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, filed as Exhibit 10.53 on Form
10-Q, dated May 15, 2000, is hereby incorporated by reference.
10.37 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, filed as
Exhibit 10.54 on Form 10-Q, dated May 15, 2000, is hereby
incorporated by reference.
10.38 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,
filed as Exhibit 10.55 on Form 10-Q, dated May 15, 2000, is
hereby incorporated by reference.
10.39 Eighth Amendment to Credit Agreement dated as of June 23, 2000 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.57
on Form 10-Q, dated August 14, 2000, is hereby incorporated by
reference.
10.40 Affirmation Agreement to Facility and Guaranty Agreement dated
February 12, 1999 by American Mutual Holding Company, survivor of a
merger with AmerUs Life Holdings, Inc. in favor of the Agent and the
Lenders, dated September 20, 2000, filed as Exhibit 10.58 on Form
10-Q, dated November 14, 2000, is hereby incorporated by reference.
10.41 Amendment to Facility and Guaranty Agreement dated February 12, 1999
among The First National Bank of Chicago and AmerUs Group Co., dated
September 20, 2000, filed as Exhibit 10.59 on Form 10-Q, dated
November 14, 2000, is hereby incorporated by reference.
10.42 Acknowledgement and Assumption Agreement to Credit Agreement dated
October 23, 1997, among American Mutual Holding Company and The Chase
Manhattan Bank, as Administrative Agent for Various Lender
Institutions, dated September 20, 2000, filed as Exhibit 10.60 on
Form 10-Q, dated November 14, 2000, is hereby incorporated by
reference.
10.43 AmerUs Group Co. 2000 Stock Incentive Plan, dated November 15,
2000, filed as Exhibit 99.9 to the registration statement of
AmerUs Group Co. on Form S-8, Registration Number 333-50030, is
hereby incorporated by reference.
11* Statement Re: Computation of Earnings per share.
99.1 Retirement Agreement, dated March 14, 2000, by and between Victor N.
Daley and AmerUs Life Holdings, Inc., filed as Exhibit 99.8 on
Form 10-Q, dated May 15, 2000, 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 AmerUs
Life Holdings, Inc., 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 AmerUs Life Holdings, Inc., 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 AmerUs Life Holdings, Inc. 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 AmerUs Life Holdings, Inc.,
filed as Exhibit 99.7 on Form 10-Q dated August 13, 1999, is
hereby incorporated by reference.
53
54
99.6 Agreement and Release, dated as of December 31, 1999, by and between
Marcia S. Hanson, AmerUs Life Holdings, Inc., Registrant, 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 AmerUs Life Holdings, Inc. 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.
- ----------------------
* included herein
54