1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------------------------------------
(Mark One)
/ x / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER 0-21459
AMERUS LIFE HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
699 WALNUT STREET
DES MOINES, IOWA 50309-3948
(Address of principal executive offices)
IOWA 42-1459712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (515) 362-3600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / x / No / /
The number of shares outstanding of each of the Registrant's classes of common
stock on April 30, 1999 was as follows:
Class A, Common Stock 25,436,174 shares
Class B, Common Stock 5,000,000 shares
Exhibit index - Page 39
Page 1 of 44
1
2
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION............................................. 3
Item 1. Financial Statements......................................... 3
Consolidated Balance Sheets March 31, 1999
(Unaudited) and December 31, 1998............................ 3
Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31, 1999 and 1998........... 5
Consolidated Statements of Comprehensive Income
(Unaudited) For the Three Months Ended March 31, 1999
and 1998..................................................... 6
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 1999 and 1998........... 7
Notes to Consolidated Financial Statements
(Unaudited) ................................................. 9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ......................... 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................. 36
PART II - OTHER INFORMATION................................................ 37
Item 1. Legal Proceedings............................................ 37
Item 6. Exhibits and Reports on Form 8-K............................. 37
Signatures................................................................. 38
Exhibit Index.............................................................. 39
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
1999 1998
--------------------------------
(unaudited)
Assets
Investments:
Securities available for sale at fair value:
Fixed maturity securities $ 6,692,231 $ 6,710,246
Equity securities 31,330 68,483
Short-term investments 42,228 22,428
Mortgage loans on real estate 586,034 566,403
Real estate 628 633
Policy loans 111,131 110,786
Other investments 206,368 205,790
--------------------------------
Total investments 7,669,950 7,684,769
Cash 6,899 60,090
Accrued investment income 85,385 79,921
Premiums and fees receivable 4,114 4,385
Reinsurance receivables 8,222 6,174
Deferred policy acquisition costs 326,893 246,030
Value of business acquired 240,212 224,540
Investment in unconsolidated subsidiaries 30,111 29,602
Goodwill 213,626 215,506
Property and equipment 24,034 23,249
Deferred income taxes 529 -
Other assets 358,289 401,239
Closed Block assets 1,459,712 1,453,305
--------------------------------
Total assets $ 10,427,976 $ 10,428,810
================================
3
4
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
1999 1998
--------------------------------
(unaudited)
Liabilities and Stockholders' Equity
Policy reserves and policyowner funds:
Future life and annuity policy benefits $ 7,193,427 $ 7,185,417
Policyowner funds 87,881 95,974
--------------------------------
7,281,308 7,281,391
Checks written in excess of bank balance 17,764 -
Accrued expenses 28,757 41,323
Dividends payable to policyowners 1,457 1,168
Policy and contract claims 8,062 13,433
Income taxes payable 7,216 9,574
Deferred income taxes - 11,398
Other liabilities 148,545 159,350
Debt 141,415 141,051
Closed Block liabilities 1,734,309 1,703,195
--------------------------------
Total liabilities 9,368,833 9,361,883
--------------------------------
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Company 216,729 216,729
--------------------------------
Stockholders' equity:
Preferred Stock, no par value, 20,000,000 shares
authorized, none issued - -
Common Stock, Class A, no par value, 180,000,000
shares authorized: issued and outstanding; 25,436,039
shares (net of 4,298,880 treasury shares) in 1999 and
25,425,983 (net of 4,308,936 treasury shares) in 1998 25,436 25,426
Common Stock, Class B, no par value, 50,000,000 shares
authorized; 5,000,000 shares issued and outstanding 5,000 5,000
Paid-in capital 290,242 290,091
Accumulated other comprehensive income 4,945 26,711
Unearned compensation (334) (240)
Retained earnings 517,125 503,210
--------------------------------
Total stockholders' equity 842,414 850,198
--------------------------------
Total liabilities and stockholders' equity $ 10,427,976 $ 10,428,810
================================
4
5
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended
March 31,
1999 1998
---------------------------
Revenues:
Insurance premiums $ 23,835 $ 17,294
Universal life and annuity product charges 17,186 16,380
Net investment income 130,318 133,173
Realized gains on investments 2,604 6,219
Contribution from the Closed Block 6,542 8,975
---------------------------
180,485 182,041
---------------------------
Benefits and expenses:
Policyowner benefits 109,419 107,356
Underwriting, acquisition, and insurance expenses 21,055 21,215
Amortization of deferred policy acquisition costs
and value of business acquired 16,985 14,957
Dividends to policyowners 976 315
---------------------------
148,435 143,843
---------------------------
Income from operations 32,050 38,198
Interest expense 7,229 6,682
---------------------------
Income before income tax expense and equity in
earnings of unconsolidated subsidiary 24,821 31,516
Income tax expense 8,372 10,177
---------------------------
Income before equity in earnings of unconsolidated
subsidiary 16,449 21,339
Equity in earnings of unconsolidated subsidiary 508 418
---------------------------
Net income $ 16,957 $ 21,757
===========================
Earnings per common share:
Basic $ 0.56 $ 0.63
===========================
Diluted $ 0.56 $ 0.62
===========================
Weighted average common shares outstanding
Basic 30,432,955 34,734,918
===========================
Diluted 30,469,673 34,831,363
===========================
5
6
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
---------------------
Net Income $ 16,957 $ 21,757
Other comprehensive income (loss), before tax
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during period (30,158) 3,369
Less: reclassification adjustment for gains included
in net income 3,328 7,594
---------------------
(33,486) (4,225)
Minimum pension liability adjustment - -
---------------------
Other comprehensive (loss), before tax (33,486) (4,225)
Income tax benefit related to items of other
comprehensive income 11,720 2,577
---------------------
Other comprehensive (loss), net of tax (21,766) (1,648)
---------------------
Comprehensive income (loss) $ (4,809) $ 20,109
=====================
6
7
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
----------------------------------
Cash flows from operating activities:
Net Income $ 16,957 $ 21,757
Adjustments to reconcile net income to net cash
provided by operating activities:
Policyowner assessments on universal life
and annuity products (13,381) (16,381)
Interest credited to policyowner account balances 86,254 46,819
Realized investment (gains) (2,604) (6,220)
Goodwill amortization 1,880 1,795
VOBA amortization 7,410 6,388
Change in:
Accrued investment income (5,464) (2,161)
Reinsurance ceded receivables (2,048) (39)
Deferred policy acquisition costs (27,961) (15,352)
Liabilities for future policy benefits (53,566) (46,669)
Policy and contract claims and other policyowner funds (4,001) 1,022
Income taxes:
Current (2,358) 7,243
Deferred 1,414 (4,182)
Other, net 30,070 (19,695)
Change in Closed Block assets and liabilities, net 37,431 53,003
----------------------------------
Net cash provided by operating activities 70,033 27,328
----------------------------------
7
8
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
----------------------------------
Cash flows from investing activities:
Purchase of fixed maturities available-for-sale (1,192,379) (604,573)
Maturities, calls, and principal reductions of
fixed maturities available for sale 1,115,286 577,195
Purchase of equity securities (69,880) (61,798)
Proceeds from sale of equity securities 58,078 53,946
Proceeds from repayment and sale of mortgage loans 37,579 20,089
Purchase of mortgage loans (47,986) (43,872)
Purchase of real estate and other invested assets (46,267) (25,971)
Proceeds from sale of real estate and invested assets 36,915 2,898
Change in policy loans, net (345) (1,899)
Other assets, net (1,387) 39,685
Change in Closed Block investments, net (12,724) (50,010)
----------------------------------
Net cash (used in) investing activities (123,110) (94,310)
----------------------------------
Cash flows from financing activities:
Change in checks written in excess of balance, net 17,764 -
Deposits to policyowner account balances 288,780 191,598
Withdrawals from policyowner account balances (304,047) (157,204)
Change in debt, net 364 (94)
Issuance of treasury stock 67 -
Dividends to shareholders (3,042) (3,472)
----------------------------------
Net cash provided by (used in) financing activities (114) 30,828
----------------------------------
Net (decrease) in cash (53,191) (36,154)
Cash at beginning of period 60,090 58,081
----------------------------------
Cash at end of period $ 6,899 $ 21,927
==================================
Supplemental disclosure of cash activities:
Interest paid $ 7,196 $ 6,419
==================================
Income taxes paid $ 120 $ 2,189
==================================
8
9
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for annual financial statements. In the opinion of
management, all adjustments considered necessary for a fair
presentation have been included. All adjustments were of a normal
recurring nature, unless otherwise noted in Management's Discussion and
Analysis and the Notes to Financial Statements. Operating results for
the three months ended March 31, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
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, 1998.
Certain amounts in the 1998 financial statements have been reclassified
to conform to the 1999 financial statement presentation.
SFAS 133
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative
instruments and provides comprehensive accounting and reporting
standards for the recognition and measurement of derivative and hedging
activities (including certain instruments embedded in other contracts).
It requires derivatives to be recorded in the Consolidated Balance
Sheet at fair value and establishes criteria for hedges of changes in
the fair value of assets, liabilities or firm commitments, hedges or
variable cash flows or forecasted transactions, and hedges of foreign
currency exposures of net investments in foreign operations. Changes in
the fair value of derivatives not meeting specific hedge accounting
criteria would be recognized in the Consolidated Statement of
Operations. SFAS No. 133 is effective for all fiscal quarters of all
years beginning after December 31, 1999. The Company is evaluating SFAS
No. 133 and has not determined its effect on the Consolidated Financial
Statements.
SOP 97-3
On January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." This statement provides guidance on when an insurance or
other enterprise should recognize a liability for guaranty fund and
other assessments and on how to measure such liability. The adoption of
SOP 97-3 has no material impact on the financial position or results of
operations as the Company currently estimates assessment liabilities
when a determination of an insolvency has occurred.
9
10
SOP 98-1
On January 1, 1999, the Company adopted the AICPA SOP 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
This SOP provides guidance for determining whether costs of software developed
or obtained for internal use should be capitalized or expensed as incurred. In
the past, the Company has expensed such costs as they were incurred. The
adoption of SOP 98-1 has no material impact on the financial position or
results of operations of the Company.
STATUTORY ACCOUNTING CODIFICATION
The NAIC has codified statutory accounting practices, which are expected
to constitute the only source of prescribed statutory accounting practices and
are effective in 2001. Codification will change prescribed statutory
accounting practices and may result in changes to the accounting practices
that insurance enterprises use to prepare their statutory financial
statements. The Company is currently evaluating the impact of codification to
its statutory financial statements, however the changes will not have a
material impact on statutory surplus.
EARNINGS PER COMMON SHARE
Basic earnings per share of common stock are computed by dividing net
income by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share assumes the issuance of common shares
applicable to stock options and warrants calculated using the treasury stock
method.
(2) CLOSED BLOCK
Summarized financial information of the Closed Block balance sheet as
of March 31, 1999 and December 31, 1998 and statements of income for the three
months ended March 31, 1999 and 1998 are as follows (in thousands):
10
11
March 31, December 31,
1999 1998
----------------------------------
Assets:
Securities available for sale at fair value
Fixed maturity securities $ 1,137,953 $ 1,116,540
Short-term investments 683 8,875
Policy loans 181,757 181,866
Other investments 642 3,027
Cash 2,001 4
Accrued investment income 17,917 14,445
Premiums and fees receivable 784 3,385
Deferred policy acquisition costs 109,926 117,479
Other assets 8,049 7,684
----------------------------------
Total Assets $ 1,459,712 $ 1,453,305
==================================
Liabilities:
Future life and annuity policy benefits $ 1,542,367 $ 1,517,162
Policyowner funds 7,118 6,350
Accrued expenses 5,184 3,887
Dividends payable to policyowners 149,529 149,487
Policy and contract claims 5,346 8,395
Other liabilities 24,765 17,914
----------------------------------
Total Liabilities $ 1,734,309 $ 1,703,195
==================================
Three Months Ended March 31,
1999 1998
----------------------------------
Revenues and expenses:
Insurance premiums $ 48,960 $ 50,416
Universal life and annuity product charges 3,404 3,521
Net investment income 29,651 29,183
Realized gains on investments 452 869
Policyowner benefits (51,321) (49,031)
Underwriting, acquisition and insurance expenses (1,811) (1,361)
Amortization of deferred policy acquisition costs (7,553) (8,034)
Dividends to policyowners (15,240) (16,588)
----------------------------------
Contribution from the Closed Block before income taxes $ 6,542 $ 8,975
==================================
11
12
(3) DEBT AND CAPITAL SECURITIES
Debt consists of the following (in thousands):
March 31, 1999 December 31, 1998
-------------------- ---------------------------
(Unaudited)
Federal Home Loan Bank
community investment long-term
advances with a weighted
average interest rate of 6.29% at
March 31, 1999 $ 16,415 $ 16,051
Revolving credit agreement - -
Senior Notes bearing interest at 6.95%
due June, 2005 125,000 125,000
------- -------
$ 141,415 $ 141,051
======= =======
March 31, 1999 December 31, 1998
-------------------- ---------------------------
(Unaudited)
AmerUs Capital I 8.85% Capital
Securities Series A due
February 1, 2007 $ 86,000 $ 86,000
AmerUs Capital II 7.00%
Adjustable Conversion-rate
Equity Security Units due
July 27, 2003 130,729 130,729
------- -------
$ 216,729 $ 216,729
======= =======
For an additional discussion of the terms of the above indebtedness
refer to the Company's consolidated financial statements as of December 31,
1998.
(4) FEDERAL INCOME TAXES
The effective income tax rate for the periods ending March 31, 1999 and
1998 were lower than the prevailing corporate rate primarily as a result of
earned low income housing and historic rehabilitation credits which totaled $1.2
million and $1.7 million, respectively.
12
13
(5) COMMITMENTS AND CONTINGENCIES
AmerUs Life Insurance Company ("AmerUs Life") and its joint venture
partner are contingently liable in the event the joint venture, Ameritas
Variable Life Insurance Company ("AVLIC"), cannot meet its policyholder
obligations. At March 31, 1999, AVLIC had statutory assets of $2,042.9 million,
liabilities of $1,992.0 million, and surplus of $50.9 million.
The Company, AmerUs Life and their direct and indirect majority
shareholders AmerUs Group and American Mutual Holding Company (collectively
"AmerUs"), are defendants in a class action lawsuit, Bhat v. AmerUs Life
Insurance Company, which was filed in December 1996 in the United States
District Court for the Northern District of California. The complaint, as
amended in 1998, alleges that the defendants breached the terms of certain
universal life policies, breached certain other duties owed to policyowners and
violated RICO in setting their cost of insurance rates and credited interest
rates. These allegations include a claim that the defendants passed an increase
in corporate income taxes (known as the deferred acquisition cost, or DAC, tax)
through to owners of those policies. The plaintiff, an insured under a universal
life policy issued by AmerUs Life, seeks unspecified actual and punitive damages
and injunctive relief on a universal life policy issued by AmerUs Life, seeks
unspecified actual and punitive damages and injunctive relief on behalf of
himself and all similarly situated policyowners of AmerUs Life with universal
life insurance policies. AmerUs denies the allegations contained in the
complaint, including the existence of a legitimate class. An earlier companion
case filed in the same court in June 19996 was dismissed in October 1997. This
litigation has been vigorously defended by AmerUs Life.
The parties have entered into a nationwide class settlement of certain
contract and related issues for a substantial block of AmerUs Life's life
insurance policies. The settlement was approved by the court by order dated
April 2, 1999. The order will become final and unappealable approximately 60
days after the date of the order if no appeal is filed.
Due to pending settlement negotiations, the Company incurred a charge
to income for 1998. Based upon current estimates of the costs associated with
the settlement, the Company established a reserve of $1.2 million at that time.
In the ordinary course of business, the Company and its subsidiaries
are also engaged in certain other litigation, none of which management believes
is material to the Company's results of operations.
(6) RELATED PARTY TRANSACTIONS
AmerUs Life has a master agreement of purchase and sale with AmerUs
Home Equity whereby AmerUs Life agrees to purchase whole loans from AmerUs Home
Equity from time to time. AmerUs Life also has a loan servicing agreement with
AmerUs Home Equity, whereby AmerUs Home Equity acts as servicer of the loans and
receives a servicing fee of 50 basis points of the outstanding principal
balances of the loans. During the quarter ended March 31, 1999, AmerUs Life
purchased loans with a total outstanding principal balance of $13.1 million at
par.
(7) OPERATING SEGMENTS
The Company has two operating segments: Life Insurance and Annuities.
Products generally distinguish a segment. A brief description of each segment
follows:
13
14
LIFE INSURANCE
Open Block: The primary product offerings consist of whole life,
universal life and term life insurance policies. These products are
marketed on a national basis primarily through a Preferred Producer
agency system and a Personal Producing General Agent ("PPGA")
distribution system.
Closed Block: The Closed Block was established for insurance policies
which had a dividend scale in effect as of June 30, 1996. The Closed
Block was designed to provide reasonable assurance to owners of
insurance policies included therein that, after the Reorganization of
AmerUs Life, assets would be available to maintain the dividend scales
and interest credits in effect prior to the Reorganization if the
experience underlying such scales and credits continues. The primary
products included in the Closed Block are whole life, certain universal
life policies and term life insurance policies.
ANNUITIES
The Annuity segment markets fixed annuities on a national basis
primarily through independent brokers and marketing companies.
The Company uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated
operating income and assets. Operating segment income is generally income before
interest expense and income tax. 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 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 are deemed not to be
associated with any specific segment. The contribution to the operating income
of the life insurance segment from the Closed Block is reported as a single line
item.
Intersegment transactions for the first quarter of 1999 primarily
consisted of holding company charges to the life and annuity operating segments
for investment management services in the amounts of $2.9 million and $3.8
million, respectively, and for information technology services in the amounts of
$6.0 million and $0.4 million, respectively. Intersegment transactions for the
first quarter of 1998 primarily consisted of holding company charges to the life
and annuity operating segments for investment management services in the amounts
of $2.4 million and $2.2 million, respectively. There have been no material
changes in segment assets since December 31, 1998.
Operating segment income is as follows:
14
15
Operating Segment Income
(in thousands)
Three Months Ended March 31, 1999
Total
Life Insurance Annuities Other Consolidated
---------------------------------------------------------------
Revenues:
Insurance premiums $ 15,326 $ 8,470 $ 39 $ 23,835
Universal life and annuity product charges 11,821 5,365 - 17,186
Net investment income 19,524 104,800 5,994 130,318
Realized gains on investments 116 2,386 102 2,604
Contribution from the Closed Block 6,542 - - 6,542
---------------------------------------------------------------
53,329 121,021 6,135 180,485
Benefits and expenses:
Policyowner benefits 24,586 84,745 88 109,419
Underwriting, acquisition, and insurance expenses 12,909 8,305 (159) 21,055
Amortization of deferred policy acquisition costs
and value of business acquired 5,332 11,653 - 16,985
Dividends to policyowners 976 - - 976
---------------------------------------------------------------
43,803 104,703 (71) 148,435
---------------------------------------------------------------
Income from operations $ 9,526 $ 16,318 6,206 32,050
=================================
Interest expense 7,229 7,229
Income tax expense 8,372 8,372
Equity in earnings of unconsolidated subsidiary 508 508
------------
Net income $ 16,957
============
15
16
Operating Segment Income
(in thousands)
Three Months Ended March 31, 1998
Total
Life Insurance Annuities Other Consolidated
----------------------------------------------------------------
Revenues:
Insurance premiums $ 10,141 $ 7,077 $ 76 $ 17,294
Universal life and annuity product charges 11,660 4,720 - 16,380
Net investment income 18,704 111,957 2,512 133,173
Realized gains on investments 1,756 6,554 (2,091) 6,219
Contribution from the Closed Block 8,975 - - 8,975
----------------------------------------------------------------
51,236 130,308 497 182,041
Benefits and expenses:
Policyowner benefits 20,980 86,319 57 107,356
Underwriting, acquisition, and insurance expenses 10,074 10,089 1,052 21,215
Amortization of deferred policy acquisition costs -
and value of business acquired 6,148 8,809 - 14,957
Dividends to policyowners 315 - - 315
----------------------------------------------------------------
37,517 105,217 1,109 143,843
----------------------------------------------------------------
Income from operations $ 13,719 $ 25,091 (612) 38,198
================================
Interest expense 6,682 6,682
Income tax expense 10,177 10,177
Equity in earnings of unconsolidated subsidiary 418 418
------------
Net income $ 21,757
============
16
17
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.
OVERVIEW
The Company is a holding company engaged through its subsidiaries in
the business of marketing, underwriting and distributing a broad range of
individual life insurance and annuity products to individuals and businesses in
49 states, the District of Columbia and the U.S. Virgin Islands. The Company has
two operating segments: Life Insurance and Annuities. The Life Insurance
segment's primary product offerings consist of whole life, universal life and
term life insurance policies. The primary product offerings of the Annuity
segment are fixed annuities.
In accordance with Generally Accepted Accounting Principals (GAAP),
universal life insurance premiums and annuity deposits received are reflected as
increases in liabilities for policyowner account balances and not as revenues.
Revenues reported for universal life and annuity products consist of policy
charges for the cost of insurance, administration charges and surrender charges
assessed against policyowner account balances. Surrender benefits paid relating
to universal life insurance policies and annuity products are reflected as
decreases in liabilities for policyowner account balances and not as expenses.
Amounts for interest credited to universal life and annuity policyowner account
balances and benefit claims in excess of policyowner account balances are
reported as expenses in the financial statements. The Company receives
investment income earned from the funds deposited into account balances by
universal life and annuity policyowners, the majority of which is passed through
to such policyowners in the form of interest credited.
Premium revenues reported for traditional life insurance products are
recognized as revenues when due. Future policy benefits and policy acquisition
costs are recognized as expenses over the life of the policy by means of a
provision for future policy benefits and amortization of deferred policy
acquisition costs.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as deferred policy acquisition costs, are capitalized and
amortized as an expense primarily in proportion to expected profits or margins
from such policies. This amortization is adjusted when current or estimated
future gross profits or margins on the underlying policies vary from previous
estimates. For example, the amortization of deferred policy acquisition costs is
accelerated when policy terminations are higher than originally estimated or
when investments supporting the policies are sold at a gain prior to their
anticipated maturity. Death and other policyowner benefits reflect exposure to
mortality risk and fluctuate from period to period based on the level of claims
incurred within insurance retention limits. The profitability of the Company is
primarily affected by expense levels, interest spread results (i.e., the excess
of investment earnings over the interest credited to policyowners) and
fluctuations in mortality, persistency and other policyowner benefits. The
Company has the ability to mitigate adverse experience through adjustments to
credited interest rates, policyowner dividends or cost of insurance charges.
17
18
ADJUSTED OPERATING INCOME
The following table reflects net income adjusted to eliminate certain
items (net of applicable income taxes) 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 eliminated. Different items are
likely to occur in each period presented and others may have different opinions
as to which items may warrant adjustment. The adjusted operating income shown
below does not constitute net income computed in accordance with GAAP.
For the Three Months Ended March 31,
1999 1998
----------------------------------------
(In thousands, except per share amounts)
Net Income $ 16,957 $ 21,757
Net realized (gains) losses on investments (A) (1,693) (4,606)
Core realized gains (losses) (B) 1,930 1,835
Amortization of deferred policy acquisition
costs due to realized gains or losses (C) 332 506
----------------------------------------
Adjusted Operating Income $ 17,526 $ 19,492
=======================================
Adjusted Operating Income per common share:
Basic (D) $ 0.58 $ 0.56
Diluted (E) $ 0.58 $ 0.56
(A) Represents realized gains or losses on investments adjusted for income
taxes on such amounts. 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 gains on the convertible preferred stock and bond portfolio,
net of income taxes.
(C) Represents amortization of deferred policy acquisition costs due to
realized gains or losses being included in product margins adjusted for
income taxes on such amounts.
(D) Basic adjusted operating income per common share for the first quarters
of 1999 and 1998 is calculated using 30.43 million and 34.73 million
shares, respectively.
(E) Diluted adjusted operating income per common share for the first
quarters of 1999 and 1998 is calculated using 30.47 million and 34.83
million shares, respectively.
18
19
THE CLOSED BLOCK
The Closed Block was established on June 30, 1996. Insurance
policies which had a dividend scale in effect as of June 30, 1996, were included
in the Closed Block. The Closed Block was designed to provide reasonable
assurance to owners of insurance policies included therein that, after the
reorganization of AmerUs Life, assets would be available to maintain the
dividend scales and interest credits in effect prior to the reorganization if
the experience underlying such scales and credits continues.
The contribution to the operating income of the Company from
the Closed Block is reported as a single line item in the income statement.
Accordingly, premiums, product charges, investment income, realized gains
(losses) on investments, policyowner benefits and dividends attributable to the
Closed Block, less certain minor expenses including amortization of deferred
policy acquisition costs, are shown as a net number under the caption
"Contribution from the Closed Block". This results in material reductions in the
respective line items in the income statement while having no effect on net
income. The expenses associated with the administration of the policies included
in the Closed Block and the renewal commissions on these policies are not
charged against the Contribution from the Closed Block, but rather are grouped
with underwriting, acquisition and insurance expenses. Also, all assets
allocated to the Closed Block are grouped together and shown as a separate item
titled "Closed Block Assets". Likewise, all liabilities attributable to the
Closed Block are combined and disclosed as the "Closed Block Liabilities".
OPERATING SEGMENTS
The Company has two operating segments: Life Insurance and
Annuities. Products generally distinguish a segment. The Company uses the same
accounting policies and procedures to measure operating segment income as it
uses to measure its consolidated operating income. Revenues and benefits and
expenses are primarily attributed directly to each operating segment. Net
investment income and realized gains (losses) on investments are allocated based
on the directly-related asset portfolios. Other revenues and expenses are deemed
not to be associated with any specific segment and primarily consist of
discontinued product lines such as group and health, and holding company
revenues and expenses not directly associated with a segment.
19
20
SALES
LIFE INSURANCE
The following table sets forth information regarding the Company's life
insurance sales activity by product:
Sales Activity by Product
For the Three Months Ended March 31,
1999 1998
------------------------------------
($ in thousands)
Traditional life insurance:
Participating whole life $ 4,905 $ 3,570
Term Life 1,412 1,456
Universal Life 3,210 2,176
------------------------------------
Total (A) $ 9,527 $ 7,202
====================================
(A) Direct first year annualized premiums.
Life insurance sales as measured by annualized premiums increased 32.3%
to $9.5 million for the first quarter of 1999 compared to $7.2 million for the
same period in 1998. Sales of participating whole life insurance continued at a
strong pace that commenced during the second half of 1998. Sales of universal
life insurance for the first three months of 1999 increased by $1.0 million from
the same period in 1998. Increased sales of universal life were primarily
attributable to a new universal life product introduced in the fourth quarter of
1998.
20
21
The following table sets forth the Company's life insurance collected
premiums, including collected premiums associated with the Closed Block, for the
periods indicated:
Collected Premiums by Product
For the Three Months Ended March 31,
1999 1998
------------------------------------
($ in thousands)
Individual life premiums collected:
Traditional life:
First year and single $ 22,222 $ 19,511
Renewal 46,624 45,012
------------------------------------
Total 68,846 64,523
Universal life:
First year and single 5,098 4,078
Renewal 18,771 19,079
------------------------------------
Total 23,869 23,157
Total individual life 92,715 87,680
Reinsurance assumed 349 97
Reinsurance ceded (4,302) (2,836)
------------------------------------
Total individual life, net of reinsurance $ 88,762 $ 84,941
====================================
Traditional life insurance premiums collected were $68.8 million for
the first quarter of 1999 compared to $64.5 million for the first quarter of
1998. Whole life production was up approximately 47.5% in the first quarter of
1999 as compared to the same period in 1998 while term production was down
approximately 3.0% between the periods. Renewal direct collected premium was
$1.6 million higher in the first quarter of 1999 as compared to the same period
in 1998 primarily due to continued favorable persistency.
Universal life insurance premiums collected were $23.9 million in the
first quarter of 1999 compared to $23.2 million for the same period in 1998. The
increase in 1999 was primarily due to the new product introduced in the fourth
quarter of 1998.
21
22
The following table sets forth information regarding the Company's life
insurance in force for each date presented:
Life Insurance in Force
As of March 31,
1999 1998
-----------------------------------
($ in thousands)
Individual life insurance:
Traditional life
Number of policies 252,975 256,688
GAAP life reserves $ 1,578,053 $ 1,493,263
Face amounts $ 19,843,000 $ 18,333,000
Universal life
Number of policies 114,397 117,044
GAAP life reserves $ 900,756 $ 876,030
Face amounts $ 12,114,000 $ 12,104,000
Total life insurance
Number of policies 367,372 373,732
GAAP life reserves $ 2,478,809 $ 2,369,293
Face amounts $ 31,957,000 $ 30,437,000
While the total policy count continues to decline consistent with
industry trends, the average size of policy continues to increase from $81,400
in 1998 to $87,000 in 1999. As a result, total insurance in force has grown to
almost $32 billion as of March 31, 1999.
22
23
ANNUITIES
The following table sets forth annuity collected premiums for the
periods indicated:
For the Three Months Ended March 31,
1999 1998
----------------------------------------
($ in thousands)
Fixed annuities $ 233,675 $ 167,961
Equity-index fixed annuities 4,639 6,735
----------------------------------------
Total 238,314 174,696
Reinsurance ceded (66) (965)
----------------------------------------
Total annuities, net of reinsurance $ 238,248 $ 173,731
========================================
The Company markets its annuity products on a national basis through
networks of independent agents whom are supervised by regional vice presidents
and directors or Independent Marketing Organizations (IMO's). The Company's
IMO's consist of approximately 60 contracted organizations, two wholly-owned
organizations, and one partially-owned organization. Annuity collected premiums
were $238.2 million for the first quarter of 1999 compared to $173.7 million for
the same period in 1998. The Company's acquisition of an IMO in the second half
of 1998 and the Company's investment in an IMO in the first quarter of 1999
contributed to the increase in collected premiums.
The following table sets forth information regarding annuities in force
for each date presented:
Annuities in Force
As of March 31,
1999 1998
-----------------------------------
($ in thousands)
Deferred fixed annuities
Number of policies 177,032 188,593
GAAP life reserves $ 5,982,980 $ 5,930,407
Equity-index fixed annuities
Number of policies 6,369 4,734
GAAP life reserves $ 254,059 $ 229,180
Total annuities
Number of policies 183,401 193,327
GAAP life reserves $ 6,237,039 $ 6,159,587
23
24
RESULTS OF OPERATIONS
A summary of the Company's revenue follows:
Three Months Ended, March 31,
1999 1998
-----------------------------
($ in thousands)
Insurance premiums
Life insurance - traditional $ 15,326 $ 10,141
Annuities - Immediate annuity &
supplementary contract premiums 8,470 7,077
Other 39 76
-----------------------------
Total insurance premiums 23,835 17,294
Product charges
Life insurance - universal life 11,821 11,660
Annuities 5,365 4,720
-----------------------------
Total product charges 17,186 16,380
Net investment income
Life insurance 19,524 18,704
Annuities 104,800 111,957
Other 5,994 2,512
-----------------------------
Total net investment income 130,318 133,173
Realized gains (losses) on investments
Life insurance 116 1,756
Annuities 2,386 6,554
Other 102 (2,091)
-----------------------------
Total realized gains on investments 2,604 6,219
Contribution from the Closed Block 6,542 8,975
-----------------------------
Total revenues $ 180,485 $ 182,041
==============================
24
25
Traditional life insurance premiums were $15.3 million for the first
quarter of 1999 compared to $10.1 million for the same period in 1998. The
increase in traditional life insurance premiums was primarily the result of
continued favorable persistency and increased sales of participating whole life
insurance products.
Immediate annuity and supplementary contract premiums increased by $1.4
million to $8.5 million for the first quarter of 1999 compared to $7.1 million
for the first quarter of 1998. The increase in contract premiums in 1999 was
primarily due to increased immediate annuity sales.
Universal life product charges were $0.1 million higher in the first
quarter of 1999 compared with the same period in 1998. The increase in product
charges in 1999 was primarily due to increased cost of insurance charges as a
result of the normal aging of the block of business, partially offset by higher
reinsurance costs.
Annuity product charges were $5.4 million for the first quarter of 1999
compared to $4.7 million for the same period in 1998. The increase in product
charges was primarily due to increased surrender charges resulting from an
increase in lapses.
Total net investment income was $130.3 million for the first quarter of
1999 compared to $133.2 million for the first quarter of 1998. The decrease in
1999 net investment income was primarily attributable to lower effective yields
on average invested assets (excluding market value adjustments). Average
invested assets (excluding market value adjustments) were approximately $134.6
million higher in the first quarter of 1999 as compared to the same period in
1998. Offsetting the higher average invested assets was a lower effective yield.
The effective yield of the entire portfolio in the first quarter of 1999 was
7.09% compared to 7.38% in the first quarter of 1998. The effective yield of the
annuity portion of the portfolio decreased 51 basis points to 6.47% for the
first quarter of 1999 as compared to 6.98% for the same period in 1998. The
decrease in effective yields primarily resulted from lower reinvestment rates
throughout 1998 and in the first quarter of 1999 as compared to the portfolio
rate at the beginning of the prior year period. Other net investment income was
$3.5 million higher for the first quarter 1999 compared to the same period in
1998. The increase in 1999 other net investment income was primarily
attributable to increased investment management services fees to the operating
segments and to other affiliates and third parties. Insurance segment and
Annuity segment fees increased approximately $0.5 million and $1.6 million,
respectively, in first quarter 1999 as compared to the same period in 1998. The
remainder of the increased fees were from other affiliates and third parties.
Realized gains on investments were $2.6 million for the first quarter
of 1999 compared to $6.2 million for the first quarter of 1998. 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.
25
26
The Contribution from the Closed Block was $6.5 million for the first
quarter of 1999 compared to $9.0 million for the same period in 1998. The
following table sets forth the operating results of the Closed Block for the
periods indicated:
Three Months Ended March 31,
($ in thousands) 1999 1998
-----------------------------
Revenues
Insurance premiums $ 48,960 $ 50,416
Universal life and annuity product charges 3,404 3,521
Net investment income 29,651 29,183
Realized gains on investments 452 869
-----------------------------
Total revenues 82,467 83,989
Benefits and expenses
Policyowner benefits 51,321 49,031
Underwriting, acquisition and insurance expenses 1,811 1,361
Amortization of deferred policy acquisition costs 7,553 8,034
Dividends to policyowners 15,240 16,588
-----------------------------
Total benefits and expenses 75,925 75,014
-----------------------------
Contribution from the Closed Block $ 6,542 $ 8,975
=============================
Closed Block insurance premiums decreased by $1.4 million to $49.0
million for the first quarter of 1999 compared to $50.4 million for the same
period in 1998. The decrease in insurance premiums is consistent with the
reduction of the Closed Block's life insurance in force that is expected to
continue over the life of the Block. Similarly, the decrease in product charges
on universal life policies included in the Closed Block is primarily the result
of the reduction of such business in force.
Net investment income for the Closed Block was $29.7 million for the
first quarter of 1999 compared to $29.2 million for the same period in 1998. The
increase was primarily attributable to approximately $25 million higher average
invested assets (excluding market value adjustments). The effective yield on
average invested assets (excluding market value adjustments) was 7.41% for both
the first quarters of 1999 and of 1998.
Realized gains on investments of the Closed Block were $0.4 million
lower in the first quarter of 1999 compared to the first quarter of 1998. The
level of realized gains is subject to fluctuation from period to period
depending on the prevailing interest rate and economic environment and the
timing of the sale of investments.
Closed Block policyowner benefits were $2.3 million higher in the first
quarter of 1999 compared to the same period in 1998. The increase was primarily
due to increased death benefits. The increased death benefits were partially
offset by the reduction of life reserves, which is consistent with the reduction
of the Closed Block's life insurance in force that is expected over the life of
the Block.
26
27
The amortization of deferred policy acquisition costs for the Closed
Block decreased by $0.4 million to $7.6 million for the first quarter of 1999
compared to $8.0 million for the first quarter of 1998. Deferred policy
acquisition costs are generally amortized in proportion to gross margins. The
decrease in the amortization of deferred policy acquisition costs corresponds to
lower gross margins which resulted from higher death benefits in the first
quarter of 1999 as compared to the same period in 1998.
Closed Block dividends to policyowners decreased by $1.4 million to
$15.2 million for the first quarter of 1999 compared to $16.6 million for the
same period in 1998. The decrease in 1999 was primarily due to the decrease in
the deferred dividend liability resulting from increased policyowner benefits as
compared to the same period in 1998.
27
28
A summary of the Company's policyowner benefits follows:
Three Months Ended March 31,
1999 1998
------------------------------
($ in thousands)
Life Insurance:
Traditional:
Death benefits $ 694 $ 397
Change in liability for future policy
benefits and other policy benefits 10,291 6,514
------------------------------
Total traditional 10,985 6,911
Universal:
Death benefits in excess of cash value 6,289 4,660
Interest credited on policyowner
account balances 7,531 7,941
Other (219) 1,468
------------------------------
Total universal 13,601 14,069
------------------------------
Total life insurance benefits 24,586 20,980
Annuities
Interest credited to deferred annuity
account balances 69,740 75,742
Other annuity benefits 15,005 10,577
------------------------------
Total annuity benefits 84,745 86,319
Other benefits 88 57
------------------------------
Total policyowner benefits $ 109,419 $ 107,356
==============================
Total life insurance benefits were $24.6 million for the first quarter
of 1999 compared to $21.0 million for the first quarter of 1998. The increase in
life insurance benefits was primarily due to increased death benefits and the
growth in liability for future policy benefits and other policy benefits
(reserves) in the traditional life insurance line of business as expected from
the growth of the business in force. Interest credited on universal policyowner
account balances decreased $0.4 million to $7.5 million for the first quarter of
1999 compared to $7.9 million for the same period in 1998 primarily due to lower
crediting rates. The weighted average interest crediting rate on policyowner
account balances for the first quarter of 1999 was 5.75% compared to 6.23% for
the same period in 1998. Partially offsetting the decrease in crediting rates
was an increase in policyowner account balances of approximately $11.4 million.
28
29
Annuity benefits were $84.7 million for the first quarter of 1999
compared to $86.3 million for the same period in 1998. The decrease is primarily
due to a lower weighted average crediting rate in the first quarter of 1999
compared to the first quarter of 1998, partially offset by higher average
liabilities. The weighted average crediting rate on deferred annuity account
balances was decreased 28 basis points to 5.06% for the first quarter of 1999
compared to 5.34% for the first quarter of 1998. Crediting rates were decreased
in response to the decrease in effective yields on the annuity investment
portfolio. Although crediting rates were decreased, GAAP spreads narrowed 8
basis points (adjusted for inter-segment charges) in the first quarter of 1999
as compared to the same period in 1998 due to the larger reduction in effective
portfolio yields. Partially offsetting the decrease in interest credited to
deferred annuity account balances was an increase in other annuity benefits
which corresponds to the change in immediate annuity reserves and benefit
payments on immediate annuities.
A summary of the Company's expenses follows:
Three Months Ended March 31,
1999 1998
---------------------------
($ in thousands)
Life Insurance
Underwriting, acquisition and
insurance expenses $ 12,909 $ 10,074
Amortization of deferred policy acquisition costs
and VOBA 5,332 6,148
---------------------------
Total life insurance 18,241 16,222
Annuities
Underwriting, acquisition and
insurance expenses 8,305 10,089
Amortization of deferred policy acquisition
costs and VOBA 11,653 8,809
---------------------------
Total annuities 19,958 18,898
Other $ (159) $ 1,052
---------------------------
Total expenses $ 38,040 $ 36,172
===========================
Total life insurance expenses were $18.2 million for the first quarter
of 1999 compared to $16.2 million for the first quarter of 1998. Underwriting,
acquisition and insurance expenses were $2.8 million higher in 1999 compared to
the same period in 1998 primarily due to approximately $1.8 million of costs
related to the Year 2000 Compliance Project and costs associated with the
Company's enhancement of its distribution systems and increased holding company
services. Offsetting this increase was a $0.8 million decrease in the
amortization of deferred policy acquisition costs and value of business acquired
(VOBA). Deferred policy acquisition costs are generally amortized in proportion
to gross margins, including realized capital gains. Higher death benefits on
those policies for which deferred costs are amortized contributed to lower gross
margins in the first quarter of 1999 as compared to the first quarter of 1998,
resulting in the decreased amortization.
29
30
Total annuity expenses increased by $1.1 million to $20.0 million for
the first quarter of 1999 compared to $18.9 million for the first quarter of
1998. Underwriting, acquisition and insurance expenses decreased approximately
$1.8 million in the first quarter of 1999 compared to the same period in 1998
primarily due to cost savings realized from the consolidation of acquired
subsidiary operations. Offsetting this decrease in insurance expenses was a $2.9
million increase in amortization of deferred policy acquisition costs and VOBA.
Gross margins, including realized capital gains, increased due to the reduced
expenses, resulting in the increased amortization.
Other expenses decreased by $1.2 million in the first quarter of 1999
compared to the same period in 1998 primarily due to a change in charges to the
life operating segment for additional services provided by the holding company
in 1999.
A summary of the Company's income from operations by operating segment
follows:
Three Months Ended March 31,
1999 1998
-----------------------------
($ in thousands)
Life Insurance:
Open Block:
Revenues $ 46,787 $ 42,261
Benefits and Expenses (42,827) (37,202)
Dividends to policyowners (976) (315)
Closed Block contribution 6,542 8,975
-----------------------------
Income from operations 9,526 13,719
Annuities:
Revenues 121,021 130,308
Benefits and Expenses (104,703) (105,217)
-----------------------------
Income from operations 16,318 25,091
Other 6,206 (612)
-----------------------------
Total income from operations $ 32,050 $ 38,198
=============================
30
31
Income from Life Insurance operations was $9.5 million for the first
quarter of 1999 compared to $13.7 million for the first quarter of 1998. The
decrease in the first quarter of 1999 compared to the first quarter of 1998 was
primarily due to increased death benefits, increased costs related to the Year
2000 Compliance Project and holding company services, and a decreased
contribution from the Closed Block.
Income from Annuity operations was $16.3 million for the first quarter
of 1999 compared to $25.1 million for the same period in 1998. The decrease in
1999 was primarily due to decreased spreads, lower realized gains and higher
holding company investment management charges as compared to the first quarter
of 1998.
Other income was $6.2 million for the first quarter of 1999 compared to
a loss of $0.6 million for the same period in 1998. The increase in 1999 was
primarily due to changes in the charges to the operating segments for holding
company services such as investment management, information technology, and
other administrative services.
Interest expense increased by $0.5 million in the first quarter of 1999
to $7.2 million compared to $6.7 million in the first quarter of 1998. The
increased interest expense in 1999 was primarily due to a higher interest rate
on the senior notes and adjustable conversion-rate equity security units
outstanding during the first quarter of 1999 as compared to the revolving credit
agreement borrowings outstanding during the first quarter of 1998.
Income tax expense was $8.4 million for the first quarter of 1999
compared to $10.2 million for the first quarter of 1998. The effective tax rate
in 1999 was 33.1% compared to 31.9% in 1998. The increase in the effective tax
rate in 1999 was primarily due to a $0.5 million decrease in tax credits
generated by affordable housing and historic rehabilitation investments. Tax
credits generated from these investments totaled $1.2 million in 1999 compared
to $1.7 million in 1998.
The equity in earnings of unconsolidated subsidiary represents 34% of
the net income of AMAL Corporation, net of goodwill amortization. AMAL
Corporation is the parent company of Ameritas Variable Life Insurance Company,
the joint venture partner that markets variable life, and variable and fixed
annuity products.
Net income was $17.0 million for the first quarter of 1999 compared to
$21.8 million for the same period in 1998. The decrease in net income in the
first quarter of 1999 as compared to the first quarter of 1998 was primarily due
to increased death benefits and Year 2000 compliance costs in the Life Insurance
operating segment, decreased spreads and lower realized gains in the Annuity
operating segment, and the reduction in average stockholders' equity resulting
from the common stock buyback program.
31
32
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest income on loans and advances to its
subsidiaries (including a surplus note issued to the Company by AmerUs Life),
investment income on assets held by the Company and fees which the Company
charges its subsidiaries and certain other of its affiliates for management
services, offset by the expenses incurred for debt service, salaries and other
expenses.
The Company intends to rely primarily on dividends and interest income
from its life insurance subsidiaries in order to make dividend payments to its
shareholders. The payment of dividends by its life insurance subsidiaries is
regulated under various state laws. Under Iowa law, AmerUs Life and Delta Life
may pay dividends only from the earned surplus arising from their respective
businesses and must receive the prior approval of the Iowa Insurance
Commissioner to pay any dividend that would exceed certain statutory
limitations. The current statute limits any dividend, together with dividends
paid out within the preceding 12 months, to the greater of (i) 10% of the
respective company's policyowners' surplus as of the preceding year end or (ii)
the net gain from operations for the previous calendar year. Iowa law gives the
Iowa Commissioner broad discretion to disapprove requests for dividends in
excess of these limits. The payment of dividends by AmVestors' subsidiaries,
American Investors Life Insurance Company, Inc. (American), and Financial
Benefit Life Insurance Company (FBL) is regulated under Kansas law, which has
statutory limitations similar to those in place in Iowa. During the first
quarter of 1999, the Company's subsidiaries paid the Company $10 million in
dividends. Based on these limitations and 1998 results, the Company's
subsidiaries could pay an estimated $9 million in additional dividends in 1999
without obtaining regulatory approval.
The Company and its subsidiaries generated cash flows from operating
activities of $70.0 million and $27.3 million for the first quarters ended March
31, 1999 and 1998, respectively. Excess operating cash flows were primarily used
to increase the Company's investment portfolio.
The Company has a $150 million revolving credit facility with a
syndicate of lenders (the "Bank Credit Facility"). As of March 31, 1999, there
was no outstanding loan balance under the facility. The Bank Credit Facility
provides for typical events of default and covenants with respect to the conduct
of the business of the Company and its subsidiaries and requires the maintenance
of various financial levels and ratios. Among other covenants, the Company (a)
cannot have a leverage ratio greater than 0.35:1.0 or an interest coverage ratio
less than 2.5:1.0, (b) is prohibited from paying cash dividends on its common
stock in excess of an amount equal to 3% of its consolidated net worth as of the
last day of the preceding fiscal year, and (c) must cause certain of its
subsidiaries, including AmerUs Life and Delta Life, to maintain certain ratings
from A.M. Best and certain levels of adjusted capital and surplus and risk-based
capital.
The Company may from time to time review potential acquisition
opportunities. The Company anticipates that funding for any such acquisition may
be provided from available cash resources, from debt or equity financing or
stock-for-stock acquisitions. In the future, the Company anticipates that its
liquidity and capital needs will be met through interest and dividends from its
life insurance subsidiaries, accessing the public equity and debt markets
depending upon market conditions, or alternatively from bank financing.
On February 15, 1999, the Company's controlling shareholder, American
Mutual Holding Company (American Mutual), a mutual insurance holding company,
announced that its board of directors had authorized management to review the
potential benefits of a demutualization of American Mutual. American Mutual is
owned by its members who are also policyowners of AmerUs Life. American Mutual
expects to complete the study and make a final decision in mid 1999.
32
33
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 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-
33
34
sensitive life products and annuities by their contractual withdrawal provisions
at March 31, 1999 (including liabilities in both the Closed Block and the
general account):
(dollars in millions)
Not subject to discretionary withdrawal $370.2
Subject to discretionary withdrawal with adjustments
Specified surrender charges (A) 4,093.3
Market value adjustments 1,641.7
--------
Subtotal 5,735.0
Subject to discretionary withdrawal without adjustments 1,213.1
--------
Total $7,318.3
--------
(A) Includes $1,164.1 million of liabilities with a contractual surrender
charge of less than five percent of the account balance.
Through its membership in the Federal Home Loan Bank (FHLB) of Des
Moines, AmerUs Life is eligible to borrow on a line of credit available to
provide it additional liquidity. Interest is payable at a current rate at the
time of any advance. As of March 31, 1999, AmerUs Life had a $25.0 million open
secured line of credit against which there were no borrowings. In addition to
the line of credit, AmerUs Life has long-term advances from the FHLB outstanding
of $16.4 million at March 31, 1999.
The Company's life insurance subsidiaries may also obtain liquidity
through sales of investments. The Company's investment portfolio as of March 31,
1999 had a carrying value of $9.0 billion, including Closed Block investments.
At March 31, 1999, the statutory surplus of the Company's subsidiaries
was approximately $453.7 million. The Company believes that this level of
statutory capital is more than adequate as each life insurance subsidiary's
risk-based capital is significantly in excess of required levels.
In the future, in addition to their cash flows from operations
and borrowing capacity, the life insurance subsidiaries would anticipate
obtaining their required capital from the Company as the Company will have
access to the public debt and equity markets.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate the date value "2000". Many existing application software products
were designed to accommodate only a two-digit date position which represents the
year (e.g., the number "95" is stored on the system and represents the year
1995). As a result, the year 1999 (i.e., "99") is the maximum date value many
information technology (IT) systems will be able to process accurately.
The Company formed a Year 2000 working group to address
potential problems posed by this development to assure that the Company is
prepared for the year 2000. The Company's overall Year 2000 compliance
initiatives include the following components: (i) assessment of all business
critical systems (business critical systems include computer and embedded
systems); processes and external interfaces and dependencies; (ii) remediation
or upgrading of business critical systems; (iii) testing of both modified and
updated systems as well as integrated systems testing; (iv) implementation of
modified and updated systems; and (v) contingency planning.
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The Company has made significant progress in accomplishing the
necessary modifications and conversions to deal with Year 2000 issues. The Year
2000 Project has four main components: IT Systems, Non-IT Systems, Business
Partners and Contingency Planning.
The IT Systems Project has been organized into three phases as
follows: inventory, remediation/replacement and integrated testing. The
inventory phase is complete. Because mainframe systems are a major part of our
Year 2000 Project, work on these systems began in 1996. Mainframe remediation
efforts are more than 99% complete, and the remaining work is scheduled for
completion in the second quarter of 1999. Work on personal computer and network
systems began in early 1998, and the remediation/replacement phase for these
systems is substantially complete. The Company has been testing individual
systems as part of its remediation effort, and full system integration testing
of all business critical systems is scheduled for completion in the second
quarter of 1999.
Non-IT Systems include administrative systems such as faxes
and phone systems. Facilities also contain non-IT systems such as elevators,
heating and cooling systems and security systems. Work on these embedded systems
began in 1998; this project is more than 88% complete. The scheduled completion
date is the second quarter of 1999.
All entities with which the Company does business are part of
the Business Partners component of the Year 2000 Project. The Company has
completed an inventory of business partners, and has identified the significance
of various partners to the Company's business. Correspondence has been initiated
with business partners to ascertain their Year 2000 readiness, and risk/impact
analysis of service or supply disruptions have been completed. Based upon the
results of analysis, action and contingency plans are being developed for
various business partners. This project is scheduled for completion in the
second or third quarter of 1999.
Despite efforts to address all Year 2000 needs in a timely and
effective manner, there are risks that the time frames set forth above may not
be met and that some Year 2000 effects may cause operational difficulties for
the Company. Some causes of these risks are the potential for unanticipated
complications in making Year 2000 modifications, the possibility of oversights
in the remediation process, and the difficulty of hiring and retaining IT
personnel in the current business environment. While the Company does not expect
any such operational difficulties to be material, the potential for these
occurrences cannot be fully assessed at this time. For these reasons, the
Company is in the process of developing contingency plans to cover the risk of
non-compliance due to Year 2000 failures in Company systems or those of its
business partners. Contingency Planning will include an identification of
critical business processes and development of alternative methods of carrying
them out in the event of any system failure. This effort is scheduled for
completion in the third quarter of 1999.
During the second quarter of 1998 the Company engaged an
independent IT consulting firm to review its Year 2000 Project plans, priorities
and processes. This review considered the Company's efforts as compared to
industry "best practices." This review verified the appropriateness of the
Company's Year 2000 Project and provided additional direction for its
continuation. In December of 1998 the Company hired an independent consulting
firm to conduct a quality assurance review of this project. Recommendations were
evaluated and implemented as appropriate.
Total estimated costs associated with Year 2000 modifications
and conversions are approximately $9 million. These costs are expensed as
incurred. For the quarter ended March 31, 1999, the Company has incurred $2.1
million in Year 2000 expenses, and $6.3 million since the beginning of the Year
2000 Project.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The main objectives in managing the investment portfolios of the
Company and its insurance subsidiaries are to maximize investment income and
total investment returns while minimizing credit risks in order to provide
maximum support to the insurance underwriting operations. Investment strategies
are developed based on many factors including asset liability management,
regulatory requirements, fluctuations in interest rates and consideration of
other market risks. Investment decisions are centrally managed by investment
professionals based on guidelines established by management and approved by the
boards of directors.
Market risk represents the potential for loss due to adverse changes in
the fair value of financial instruments. The market risks related to financial
instruments of the Company and its subsidiaries primarily relate to the
investment portfolio, which exposes the Company to risks related to interest
rates and, to a lesser extent, credit quality and prepayment variation.
Analytical tools and monitoring systems are in place to assess each of these
elements of market risk.
Interest rate risk is the price sensitivity of a fixed income security
to changes in interest rates. Management views these potential changes in price
within the overall context of asset and liability management. Company actuaries
estimate the payout pattern of our liabilities, primarily the Company's
lapsation, to determine duration, which is the present value of the fixed income
investment portfolios after consideration of the duration of these liabilities
and other factors, which management believes mitigates the overall effect of
interest rate risk for the Company.
The Company calculated the cash flows of principal amounts and related
weighted average interest rates by expected maturity dates of its fixed maturity
investments and mortgage loans as of December 31, 1998 and included this
information in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Through March 31, 1999, there have been no significant
changes.
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 67% of fixed maturity securities are issued by the U.S. Treasury
or U.S. government agencies or are rated A or better by Moody's, Standard and
Poor's, or the NAIC. Less than 8% of the bond portfolio is below investment
grade. Fixed maturity securities have a weighted average maturity of
approximately 7 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 are
high quality and readily marketable.
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All of the above risks are monitored on an ongoing basis. A combination
of in-house systems and proprietary models and externally licensed software are
used to analyze individual securities as well as each portfolio. These tools
provide the portfolio managers with information to assist them in the evaluation
of the market risks of the portfolio.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company, AmerUs Life and their direct and indirect majority
shareholders AmerUs Group and American Mutual Holding Company (collectively
"AmerUs"), are defendants in a class action lawsuit, Bhat v. AmerUs Life
Insurance Company, which was filed in December 1996 in the United States
District Court for the Northern District of California. The complaint, as
amended in 1998, alleges that the defendants breached the terms of certain
universal life policies, breached certain other duties owed to policyowners and
violated RICO in setting their cost of insurance rates and credited interest
rates. These allegations include a claim that the defendants passed an increase
in corporate income taxes (known as the deferred acquisition cost, or DAC, tax)
through to owners of those policies. The plaintiff, an insured under a universal
life policy issued by AmerUs Life, seeks unspecified actual and punitive damages
and injunctive relief on behalf of himself and all similarly situated
policyowners of AmerUs Life with universal life insurance policies. AmerUs
denies the allegations contained in the complaint, including the existence of a
legitimate class. An earlier companion case filed in the same court in June 1996
was dismissed in October 1997. This litigation has been vigorously defended by
AmerUs Life.
The parties have entered into a nationwide class settlement of certain
contract and related issues for a substantial block of AmerUs Life's life
insurance policies. The settlement was approved by the court by order dated
April 2, 1999. The order will become final and unappealable in approximately 60
days after the date of the order if no appeal is filed.
Due to pending settlement negotiations, the Company incurred a charge to
income for 1998. Based upon current estimates of the costs associated with the
settlement, the Company established a reserve of $1.2 million at that time.
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
March 31, 1999:
1. Form 8-K dated February 15, 1999, announcing the
demutualization study of American Mutual Holding
Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DATED: May 14, 1999 AMERUS LIFE HOLDINGS, INC.
By /s/ Michael G. Fraizer
-----------------------------------
Senior Vice President and
Chief Financial Officer
By /s/ Brenda J. Cushing
-----------------------------------
Vice President and Controller
(Principal Accounting Officer)
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AMERUS LIFE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
2.1 Plan of Reorganization dated October 27, 1995, filed as Exhibit 2.1
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
September 19, 1997 and as amended and restated as of October 8,
1997, by and among the Registrant, AFC Corp. and AmVestors Financial
Corporation ("AmVestors"), filed as Exhibit 2.2 to the Registration
Statement of the Registrant on Form S-4, Registration Number
333-40065 is hereby incorporated by reference.
2.3 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a wholly
owned subsidiary of the Registrant and Delta Life Corporation, filed
as Exhibit 2.2 to Form 8-K of the Registrant dated October 8, 1997,
is hereby incorporated by reference.
3.1 Amended and Restated Articles of Incorporation of the Registrant
filed as Exhibit 3.5 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, are hereby incorporated
by reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, are hereby incorporated by reference.
3.3 Articles of Amendment of the Registrant dated September 25, 1998,
filed as Exhibit 3.3 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
4.1 Amended and Restated Trust Agreement dated as of February 3, 1997
among the Registrant, Wilmington Trust Company, as property trustee,
and the administrative trustees named therein (AmerUs Capital I
business trust), filed as Exhibit 3.6 to the registration statement
of the Registrant and AmerUs Capital I on Form S-1, Registration
Number 333-13713, is hereby incorporated by reference.
4.2 Indenture dated as of February 3, 1997 between the Registrant and
Wilmington Trust Company relating to the Company's 8.85% Junior
Subordinated Debentures, Series A, filed as Exhibit 4.1 to the
registration statement of the Registrant and AmerUs Capital I on
Form S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.3 Guaranty Agreement dated as of February 3, 1997 between the
Registrant, as guarantor, and Wilmington Trust Company, as trustee,
relating to the 8.85% Capital Securities, Series A, issued by AmerUs
Capital I, filed as Exhibit 4.4 to the registration statement on
Form S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.4 Common Stock Purchase Warrant, filed as Exhibit (10)(v) to Form 10-Q
of AmVestors Financial Corporation dated May 13, 1992, is hereby
incorporated by reference.
4.5 Amended and Restated Declaration of Trust of AmerUs Capital II, dated
as of July 27, 1998, among the Registrant, First Union Trust Company
and the administrative trustees named therein, relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.5 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.6 Certificate of Trust of AmerUs Capital III filed as Exhibit 4.7 to
the registration statement of the Registrant, AmerUs Capital II and
AmerUs Capital III, on Form S-3 (No. 333-50249), is hereby
incorporated by reference.
4.7 Common Trust Securities Guarantee Agreement, dated as of July 27,
1998, by the Registrant, relating to the Registrant's 7.0% ACES
Units, filed as Exhibit 4.7 on Form 10-Q, dated August 13, 1998, is
hereby incorporated by reference.
4.8 QUIPS Guarantee Agreement, dated as of July 27, 1998, by the
Registrant, relating to the Registrant's 7.0% ACES Units, filed as
Exhibit 4.8 on Form 10-Q, dated August 13, 1998, is hereby
incorporated by reference.
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4.9 Master Unit Agreement, dated as of July 27, 1998, between the
Registrant and First Union National Bank relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.9 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.10 Call Option Agreement, dated as of July 27, 1998, between Goldman,
Sachs & Co. and First Union National Bank relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.10 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.11 Pledge Agreement, dated as of July 27, 1998, among the Registrant,
Goldman, Sachs & Co. and First Union National Bank relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.11 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.12 Senior Indenture, dated as of June 16, 1998, by and between the
Registrant and First Union National Bank, as Indenture Trustee,
relating to the Registrant's 6.95% Senior Notes, filed as Exhibit
4.14 on Form 10-Q, dated August 13, 1998, is hereby incorporated by
reference.
4.13 Subordinated Indenture, dated as of July 27, 1998, by and between
the Registrant and First Union National Bank, as Indenture Trustee,
relating to the Registrant's 6.86% Junior Subordinated Deferrable
Interest Debentures, filed as Exhibit 4.15 on Form 10-Q, dated
August 13, 1998, is hereby incorporated by reference.
10.1 Amended and Restated Intercompany Agreement dated as of December 1,
1996, among American Mutual Holding Company, AmerUs Group Co. and
the Company. Filed as Exhibit 10.81 to the Registrant's registration
statement on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.2 Joint Venture Agreement, dated as of June 30, 1996, between American
Mutual Insurance Company and Ameritas Life Insurance Corp., filed as
Exhibit 10.2 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.3 Management and Administration Service Agreement, dated as of April
1, 1996, among American Mutual Life Insurance Company, Ameritas
Variable Life Insurance Company and Ameritas Life Insurance Corp.,
filed as Exhibit 10.3 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.4 AmerUs Life Holdings, Inc. Executive Stock Purchase Plan, dated
November 13, 1998, filed as Exhibit 4.11 to the registration
statement of the Registrant on Form S-8, Registration Number
333-72237, is hereby incorporated by reference.
10.5 All*AmerUs Supplemental Executive Retirement Plan, effective January
1, 1996, filed as Exhibit 10.6 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.6 American Mutual Life Insurance Company Supplemental Pension Plan
(which was curtailed as of December 31, 1995), filed as Exhibit 10.7
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.7 Central Life Assurance Company Supplemental Pension Plan (which was
curtailed as of December 31, 1995), filed as Exhibit 10.8 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.8 Management Incentive Plan, filed as Exhibit 10.9 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.9 AmerUs Life Insurance Company Performance Share Plan, filed as
Exhibit 10.10 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.10 AmerUs Life Stock Incentive Plan, filed as Exhibit 10.11 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.11 AmerUs Life Non-Employee Director Stock Plan, filed as Exhibit 10.13
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.12 Form of Indemnification Agreement executed with directors and
certain officers, filed as Exhibit 10.33 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.13 Tax Allocation Agreement dated as of November 4, 1996, filed as
Exhibit 10.68 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
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10.14 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a
wholly-owned subsidiary of the Registrant and Delta Life
Corporation, filed as Exhibit 2.2 to the Registrant's report on Form
8-K on October 8, 1997, is hereby incorporated by reference.
10.15 Purchase Agreement between AmerUs Life and AmerUs Bank dated March
5, 1997 relating to the sale of certain loans, filed as Exhibit
10.82 to the registration statement of the Registrant on Form S-4,
Registration Number 333-40065, is incorporated by reference.
10.16 Credit Agreement, dated as of October 23, 1997, among the
Registrant, Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent , filed as Exhibit
10.84 to the registration statement of the Registrant on Form S-4,
Registration Number 333-40065, is incorporated by reference.
10.17 Coinsurance Agreement, effective February 1, 1996, between Delta Life
and Annuity Company and London Life Reinsurance Company, filed as
Exhibit 10.85 to the registration statement of the Registrant on Form
S-4, Registration Number 333-40065, is incorporated by reference.
10.18 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.
10.19 1989 Non-Qualified Stock Option Plan adopted March 17, 1989, filed as
Exhibit (10)(q) to Form 10-K of AmVestors Financial Corporation,
dated April 12, 1989, is hereby incorporated by reference.
10.20 Amended and Restated Miscellaneous Service Agreement, dated as of
July 21, 1997, among American Mutual Holding Company, Registrant,
AmerUs Life Insurance Company, AmerUs Group Co., AmerUs Bank, AmerUs
Mortgage, Inc., Iowa Realty Co., Inc., Iowa Title Company, AmerUs
Insurance, Inc., AmerUs Properties, Inc., AmerUs Direct, Inc., filed
as Exhibit 10.57 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.21 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, property 611
Fifth Avenue, Des Moines, Iowa, filed as Exhibit 10.58 on Form 10-K,
dated March 25, 1998, is hereby incorporated by reference.
10.22 First Amendment dated February 1, 1998 to Lease Agreement dated
December 1, 1996 between AmerUs Properties, Inc. and AmerUs Life
Insurance Company, property 611 Fifth Avenue, Des Moines, Iowa, filed
as Exhibit 10.59 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.23 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, 1213 Cherry
Street, Des Moines, Iowa, filed as Exhibit 10.60 on Form 10-K, dated
March 25, 1998, is hereby incorporated by reference.
10.24 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and the Registrant, property 418 Sixth Avenue
Moines, Iowa, filed as Exhibit 10.61 on Form 10-K, dated March 25,
1998, is hereby incorporated by reference.
10.25 Revised and Restated Lease - Business Property, dated May 28, 1998,
between AmerUs Properties, Inc. and the Registrant property, 699
Walnut Street, Des Moines, Iowa, filed as Exhibit 10.26 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
10.26 Addendum, dated May 28, 1998 to lease dated May 28, 1998 between
AmerUs Properties and the Registrant, filed as Exhibit 10.27 on Form
10-K, dated March 30, 1999, is hereby incorporated by reference.
10.27 Addendum II, dated July 21, 1998, to lease dated May 28, 1998 between
AmerUs Properties and the Registrant, filed as Exhibit 10.28 on Form
10-K, dated March 30, 1999, is hereby incorporated by reference.
10.28 Servicing Agreement, dated March 5, 1997, between AmerUs Life
Insurance Company and AmerUs Properties, Inc., filed as Exhibit 10.64
on Form 10-K, dated March 25, 1998, is hereby incorporated by
reference.
10.29 Consent dated as of May 20, 1998 to the Credit Agreement dated as of
October 23, 1997 among the Registrant, Various Lender Institutions,
the Co-Arrangers and The Chase Manhattan Bank, as Administrative
Agent, filed as Exhibit 10.72 on Form 10-Q, dated November 12, 1998,
is hereby incorporated by reference.
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10.30 First Amendment dated as of May 30, 1997 to the Credit Agreement
dated as of October 23, 1997 among the Registrant, Various Lender
Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.73 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.31 Second Amendment dated as of June 22, 1998 to the Credit Agreement
dated as of October 23, 1997 among the Registrant, Various Lender
Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.74 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.32 Second Consent and Amendment dated as of October 2, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.75 on Form 10-Q,
dated November 12, 1998, is hereby incorporated by reference.
10.33 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.
10.34* 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.
10.35 Origination Agreement, dated August 1, 1998, between AmerUs Home
Equity, Inc. and AmerUs Life Insurance Company, filed as Exhibit
10.36 on Form 10-K, dated March 30, 1999, is hereby incorporated by
reference.
10.36 Third Waiver to Credit Agreement dated as of November 16, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.37 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
10.37 Fourth Consent and Amendment, dated as of December 4, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.38 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
10.38 Administrative Services Agreement, dated as of August 1, 1998, among
American Mutual Holding Company, Registrant, AmerUs Group, AmerUs
Home Equity, Inc., AmerUs Mortgage, Inc., AmerUs Properties, Inc.,
American Capital Management Group, Inc., AmerUs Life Insurance
Company, AmVestors Financial Corporation, American Investors Life
Insurance Company, Inc., and Delta Life and Annuity Company, filed as
Exhibit 10.39 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
10.39* Facility and Guaranty Agreement, dated February 12, 1999, among The
First National Bank of Chicago and the Registrant.
10.40* Form of Reimbursement Agreement, dated February 15, 1999, among the
Registrant and Roger K. Brooks, Victor N. Daley, Michael G. Fraizer,
Thomas C. Godlasky, Marcia S. Hanson, Mark V. Heitz and Gary R.
McPhail.
10.41* Amendment No. 1 to Facility Agreement, dated March 23, 1999, among
The First National Bank of Chicago and the Registrant.
11* Statement Re: Computation of Per Share Earnings.
27.1* Financial Data Schedule
99.3 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. and
American Investors Sales Group, Inc., filed as Exhibit 99.3 to the
registration statement of the Registrant on Form S-4, Registration
Number 333-40065, is incorporated by reference.
99.4 Agreement of Sale, dated as of October 22, 1997, by and between R.
Rex Lee and AmerUs Group, Co., filed as Exhibit 99.4 to the
registration statement of the Registrant on Form S-4, Registration
Number 333-40065, is incorporated by reference.
99.5 Retirement Agreement, dated June 27, 1997, by and between Victor N.
Daley and Registrant filed as Exhibit 99.5 on Form 10-K, dated March
30, 1999, is hereby incorporated by reference.
- ----------------------
* included herein
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