UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark one)/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from to
Commission file number: 0-21459
AMERUS LIFE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-1459712
State of other jurisdiction of incorporation (I.R.S. Employer
or organization Identification Number)
699 Walnut Street, Des Moines, Iowa 50309-2407
------------------------------------------------
(Address of principal executive offices)
Telephone number: (515) 362-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
- -------------- ------------------------------------
Class A Common Stock (no par value) New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
Title of each class
8.85% Capital Securities, Series A issued by
AmerUs Capital I, a subsidiary trust
Class A Common Stock Warrants
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./x/ yes / / no
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /x/
The aggregate market value of voting stock held by
Non-affiliates of the Company on February 28, 1998 was $566,194,000
The number of shares outstanding of each of the registrant's classes of
common stock on February 28, 1998 was as follows:
Class A, Common Stock 29,734,918 shares
Class B, Common Stock 5,000,000 shares
Documents incorporated by reference
Notice of 1998 Annual Meeting of Shareholders and Proxy Statement
(incorporated into Part III)
Explanatory Note
There were some misclassifications of the Company's fixed maturity securities by
credit ratings at December 31, 1997. The accompanying 10-K/A corrects such
misclassifications with no effect on reported total fixed maturity securities,
assets, equity, net income or earnings per share.
TABLE OF CONTENTS
-------------------
PART II
- -------
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition. . . . . . . . . . . . . . . . . . . . . . 4
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . .34
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Index to Consolidated Financial Statements . . . . . . . . . . . F-1
Index to Consolidated Financial statement Schedules. . . . . . . S-1
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Selected Consolidated Financial and Operating Data and Consolidated Financial
Statements and related notes.
OVERVIEW
The Company is a holding company engaged through its subsidiaries in the
business of marketing, underwriting and distributing a broad range of individual
life insurance and annuity products to individuals and businesses in 49 states,
the District of Columbia and the U.S. Virgin Islands. The Company's primary
product offerings consist of whole life, universal life and term life insurance
policies and fixed annuities. Since April 1, 1996 the Company has been a party
to the Ameritas Joint Venture with Ameritas, through which it markets fixed
annuities and sells variable annuities and variable life insurance products.
In accordance with 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.
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, including net realized gains or losses
on investments. 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.
Year Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Net income $58,059 $74,173 $69,348 $6,667 $31,209
Net realized (gains) losses on
investments (A) (9,008) (42,552) (32,244) 11,223 (10,187)
Equity add-on tax (B) - 4,480 - 9,585 -
Reorganization costs (C) - 1,522 1,426 - -
Adoption of SFAS 106(D) - - - - 3,214
------- ------- ------- ------- -------
Adjusted operating income $49,051 $37,623 $38,530 $27,475 $24,236
======= ======= ======= ======= =======
Adjusted operating income
per common share
(basic and diluted) $2.08 $1.62 $1.66 $ - $ -
(A) Represents realized gains or losses on investments less that portion of
the amortization of deferred policy acquisition costs adjusted for
income taxes on such amounts. Realized gains 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 the mutual life insurance company equity add-on tax, which is
applicable only to mutual life insurance companies and which the Company
believes is not applicable to the Company after June 30, 1996 due to
AmerUs Life's conversion into a stock company.
(C) Represents costs directly related to the Reorganization consisting
primarily of printing, postage, legal and consulting costs. These costs
were not of a continuing nature and were not expected to have any effect on
future operations.
(D) As of January 1, 1993, the Company adopted SFAS 106, pursuant to which the
cost of certain post-retirement benefits must be recognized on an accrual
basis as employees perform services to earn such benefits. The Company's
transition obligation as of January 1, 1993 amounted to approximately $3.2
million, net of income tax benefits, and was recorded as a cumulative
effect adjustment to net income.
RECENT ACQUISITIONS
The Company acquired all of the outstanding stock of Delta in October,
1997, for approximately $165 million in cash. The transaction was accounted for
as a purchase and accordingly, the Company's results of operations include Delta
from the date of purchase. The Company acquired all of the outstanding stock of
AmVestors on December 19, 1997, in a stock exchange valued at approximately $350
million. This transaction was also accounted for as a purchase and the
Company's results of operations include AmVestors from the date of purchase.
(See note 14 to the note to Consolidated Financial Statements for the discussion
of the Company's acquisitions.)
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 the "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 entitled
"Closed Block Assets." Likewise, all liabilities attributable to the Closed
Block are combined and disclosed as the "Closed Block Liabilities."
COMBINED RESULTS OF OPERATIONS
Since the operating results from the Closed Block are reported on one line
of the income statement, "Contribution from the Closed Block," individual income
statement components are not fully comparable with those prior to the
establishment of the Closed Block. Management believes that the presentation of
the results of operations on a combined basis as if the Closed Block had not
been formed facilitates comparability with the results of operation for 1996
prior to the formation of the Closed Block and for 1995. Accordingly, the
combined presentation set forth below includes certain revenues and expenses
associated with the policies included in the Closed Block. Such presentation
does not, however, affect the Company's reported net income.
Year Ended December 31, 1997
-----------------------------------------
As Reported Closed Block Combined
----------------------- --------
(In thousands)
Revenues
Insurance premiums $ 48,127 $206,145 $254,272
Product charges 43,441 17,464 60,905
Net investment income 224,431 113,759 338,190
Realized gains on investments 13,791 718 14,509
Contribution from the Closed Block 31,045 (31,045) -
-------- -------- --------
Total revenues 360,835 307,041 667,876
Benefits and expenses
Policyowner benefits 193,237 209,377 402,614
Underwriting, acquisition and insurance
expenses 51,663 6,603 58,266
Amortization of deferred policy
acquisition costs 20,987 31,470 52,457
Dividends to policyowners 1,587 59,591 61,178
------- ------- -------
Total benefits and expenses 267,474 307,041 574,515
Income from operations 93,361 - 93,361
Interest expense 14,980 - 14,980
------- ------- -------
Income before income tax expense and equity
in earnings of unconsolidated subsidiary 78,381 - 78,381
Income tax expense 22,022 - 22,022
------- ------- --------
Income before equity in earnings of
unconsolidated subsidiary 56,359 - 56,359
Equity in earnings of unconsolidated
subsidiary 1,700 - 1,700
------- ------- --------
Net income $58,059 $- $58,059
======= ======= =======
Year Ended December 31, 1996
-------------------------------------
As Reported Closed Block Combined
--------------------------------
(In thousands)
Revenues
Insurance premiums $138,476 $108,315 $246,791
Product charges 49,347 9,324 58,671
Net investment income 228,625 56,329 284,954
Realized gains on investments 65,983 481 66,464
Contribution from the Closed Block 19,909 (19,909) -
-------- -------- -------
Total revenues 502,340 154,540 656,880
Benefits and expenses
Policyowner benefits 261,869 103,951 365,820
Underwriting, acquisition and insurance
expenses 54,857 2,969 57,826
Amortization of deferred policy
acquisition costs 40,160 18,412 58,572
Dividends to policyowners 26,324 29,208 55,532
------- ------- -------
Total benefits and expenses 383,210 154,540 537,750
Income from operations 119,130 - 119,130
Interest expense 2,142 - 2,142
------- ------- -------
Income before income tax expense and
equity in earnings of unconsolidated
subsidiary 116,988 - 116,988
Income tax expense 43,859 - 43,859
-------- -------- --------
Income before equity in earnings of
unconsolidated subsidiary 73,129 - 73,129
Equity in earnings of unconsolidated
subsidiary 1,044 - 1,044
------- ------- -------
Net income $74,173 $ - $74,173
======= ======= =======
A summary of the Company's combined revenues, including revenues associated
with the Closed Block, follows:
Year Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Insurance premiums
Traditional life insurance premiums $236,878 $228,986 $219,732
Immediate annuity and supplementary
contract premiums 17,238 16,082 17,659
Other premiums 156 1,723 6,696
-------- -------- --------
Total insurance premiums 254,272 246,791 244,087
Universal life product charges 59,236 57,834 56,763
Annuity product charges 1,669 837 607
--------- -------- --------
Total product charges 60,905 58,671 57,370
Net investment income 338,190 284,954 285,244
Realized gains on investments 14,509 66,464 51,387
-------- -------- --------
Total revenues $667,876 $656,880 $638,088
======== ======== ========
/TABLE
In 1997, individual life and annuity premiums and product charges increased
by $11.2 million to $315.0 million, or 3.7%, from $303.8 million in 1996 and
compared to $294.8 million in 1995. Included in the 1997 increase was $1.2
million of premium and product charges earned in the fourth quarter primarily
from the Delta acquisition. Insurance premiums increased by $7.5 million, to
$254.3 million in 1997 compared to $246.8 million in 1996, and $244.1 million in
1995. Traditional life insurance premiums increased by $7.9 million in 1997,
compared to a $9.3 million increase experienced in 1996. The increase in
traditional life insurance premiums in 1997 and 1996 has primarily been the
result of continued growth in renewal premiums and also the increased sales of
term life insurance products in 1997. Changes in the level of immediate annuity
deposits and supplementary contract premiums have primarily been the result of
fluctuations in immediate annuity and supplementary contract sales. Other
premiums have decreased significantly over the past two years primarily due to
the Company's exit from several group life and long-term disability reinsurance
pools in 1995 and the sale of the Company's remaining group life operation in
1996.
Universal life product charges have increased slightly in each of the past
two years primarily due to increased cost of insurance charges as a result of
the normal aging of the block of business. Annuity product charges for 1997
included $0.7 million earned in the fourth quarter by recently acquired
companies.
Net investment income increased by $53.3 million to $338.2 million in 1997
compared to $284.9 million in 1996, and $285.2 million in 1995. Included in the
1997 increase in net investment income was $30.2 million of net investment
income from recently acquired companies during the fourth quarter. The remaining
$23.1 million increase in 1997 was attributable to an increase in average
invested assets and effective yields on average invested assets. Average
invested assets (excluding market value adjustments and acquisitions) in 1997
increased $111.5 million from 1996, and the effective yield on average invested
assets (excluding market value adjustments and acquisitions) increased to 7.89%
in 1997 from 7.55% in 1996. Contributing to the higher yields in 1997 was
investment income of $10.1 million from equity in earnings of certain investment
partnerships. Average invested assets (excluding market value adjustments)
increased by $171.8 million in 1996, largely as a result of the investment of
$175.0 million in proceeds from bank borrowings late during the year. The
effective yield on average invested assets (excluding market value adjustments)
decreased to 7.55% in 1996 from 7.88% in 1995, primarily as a result of lower
bond yields and the timing of the investment of the proceeds from the bank
borrowing.
Realized gains on investments were $14.5 million in 1997 compared to gains
of $66.4 million and $51.4 million in 1996 and 1995, respectively. Included in
the amounts for 1996 were approximately $51.1 million of gains from the sale of
common stock as a result of the liquidation of the Company's equity portfolio
which commenced in 1995. The increase in gains in 1996 resulted primarily from
increased sales of common stock in the investment portfolio. The sale of common
stock in 1996 and 1995 was a direct result of the Company's decision to reduce
the level of equity securities as a percentage of its investment portfolio on a
long-term basis. Proceeds from these sales were invested primarily in fixed
maturity securities.
A summary of the Company's combined policyowner benefits, including
policyowner benefits associated with the Closed Block, follows:
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Traditional life insurance
Death benefits $40,821 $32,251 $32,196
Change in liability for future policy
benefits and other policy benefits 170,275 160,036 152,742
------- ------- -------
Total traditional life insurance
benefits 211,096 192,287 184,938
Universal life insurance
Death benefits in excess of
cash value 24,682 23,871 20,802
Interest credited to policyowner
account balances 45,232 43,203 41,532
Other policy benefits 3,453 3,026 5,218
------- ------- -------
Total universal life insurance
benefits 73,367 70,100 67,552
Annuities
Interest credited to deferred annuity
account balances 80,440 66,254 78,120
Other annuity benefits 37,133 34,334 35,582
------- ------- -------
Total annuity benefits 117,573 100,588 113,702
Miscellaneous benefits 578 2,845 8,428
-------- -------- --------
Total policyowner benefits $402,614 $365,820 $374,620
======== ======== ========
/TABLE
Total policyowner benefits were $402.6 million in 1997 compared to $365.8
million in 1996 and $374.6 million in 1995. The 1997 amount included fourth
quarter benefits of acquired companies of $23.4 million consisting primarily of
interest credited to annuity account balances and other annuity benefits.
Traditional life insurance benefits increased by $18.8 million in 1997 compared
to a $7.3 million increase in 1996. The increase in 1997 was primarily due to
the growth and aging of the business in force and increased death benefits as a
result of higher mortality. The increase in traditional life insurance benefits
in 1996 was primarily due to the growth and aging of the business in force.
Universal life insurance benefits increased by $3.3 million in 1997 and by $2.5
million in 1996. The increased benefits in 1997 and 1996 were due to increased
interest credited to policyowner account balances and increased death benefits
due to higher mortality. While the weighted average crediting rate for AmerUs
Life's universal life liabilities decreased four basis points to 6.23% in 1997
from 6.27% in 1996, AmerUs Life's average liabilities increased by $33.7
million, resulting in the increased credited amounts in 1997. While the weighted
average crediting rate for AmerUs Life's universal life liabilities decreased 19
basis points to 6.27% in 1996 from 6.46% in 1995, AmerUs Life's average
liabilities increased $39.8 million from 1995 to 1996, resulting in the
increased interest credited amounts in 1996.
Annuity benefits, including the fourth quarter results of recent
acquisitions, were $117.6 million, an increase of $17.0 million compared to
1996. The annuity benefits of recent acquisitions amounted to $23.2 million
which were partially offset by a $6.2 million decrease in AmerUs Life's annuity
benefits to $94.4 million compared to $100.6 million in 1996. The decrease in
AmerUs Life's annuity benefits during 1997 was due to reduced interest credited
to policyowner account balances. The weighted average crediting rate for AmerUs
Life's individual deferred annuity liabilities decreased eleven basis points to
5.25% in 1997 compared to 5.36% in 1996 and AmerUs Life's average deferred
annuity liabilities decreased $119.1 million from 1996 to 1997, also
contributing to the lower interest credited amounts in 1997 for AmerUs Life.
Most annuity sales after May, 1996 have been recorded by the Ameritas Joint
Venture, resulting in a decrease in the average deferred annuity liabilities at
AmerUs Life. Annuity benefits decreased by $13.1 million in 1996 to $100.6
million compared to $113.7 million in 1995, primarily due to reduced interest
credited to policyowner account balances. The weighted average crediting rate
for AmerUs Life's individual deferred annuity liabilities decreased 80 basis
points to 5.36% in 1996 compared to 6.16% in 1995 and AmerUs Life's average
deferred annuity liabilities decreased by $71.0 million from 1995 to 1996, also
contributing to the lower interest credited amounts in 1996.
Miscellaneous benefits have decreased significantly over the past two years
primarily due to the Company's exit from several group life and long-term
disability reinsurance pools in 1995 and the sale of the Company's remaining
group life operation in 1996.
A summary of the Company's combined expenses, including expenses associated
with the Closed Block, follows:
Year Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Commission expense, net of deferrals $ 8,252 $ 7,892 $10,448
Other underwriting, acquisition and
insurance expenses, net of deferrals 50,014 49,934 40,461
Amortization of deferred policy
acquisition costs 52,457 58,572 50,239
-------- -------- --------
Total expenses $110,723 $116,398 $101,148
======== ======== ========
The Company's commission expense, net of deferrals, increased by $0.4
million to $8.3 million in 1997 compared to $7.9 million in 1996, and $10.4
million in 1995. The increase in 1997 was primarily the result of the fourth
quarter commission expense, net of deferrals of the Company's recent
acquisitions. The reduction in 1996 was primarily due to a decrease in gross
commission expense as a result of lower life insurance sales in 1996 and the
transfer of new annuity sales to the Ameritas Joint Venture in May 1996. Other
underwriting, acquisition and insurance expenses, net of deferrals, were $50.0
million in 1997, compared to $49.9 million in 1996 and $40.5 million in 1995.
Included in the 1997 expenses were $4.1 million of fourth quarter expenses, net
of deferrals, attributable to the recently acquired companies.
Excluding recently acquired companies, other underwriting, acquisition and
insurance expenses, net of deferrals, decreased by $4.0 million to $45.9 million
in 1997. This decrease in expenses during 1997 was primarily due to the
establishment of a $5.0 million litigation reserve during 1996 in connection
with certain class action litigation, partially offset by a $1.3 million
write-off of expenses during 1997 related to the former bank credit facility
which was replaced by a new agreement in the fourth quarter of 1997. The
increase in expenses in 1996 was due to increased settlements and associated
legal fees of $4.7 million, primarily due to the $5.0 million class action
litigation reserve; expenses related to changing the name of the Company of $0.7
million; higher premium taxes of $1.1 million due to a one-time adjustment to
the amortization of the guaranty association asset and an increased accrual for
estimated future assessments; combined with a gain of $3.1 million recorded
against 1995 expenses resulting from the curtailment of the Company's defined
benefit pension plans effective December 31, 1995.
The amortization of deferred policy acquisition costs decreased by $6.1
million in 1997 and increased by $8.3 million in 1996. Deferred policy
acquisition costs are generally amortized in proportion to gross margins,
including capital gains. Higher death benefits and lower realized capital gains
in 1997, compared to 1996, contributed to lower gross margins in 1997 on
products for which deferred costs are amortized, resulting in the lower
amortization in 1997. The increased amortization in 1996 was primarily due to
higher gross margins, including increased realized capital gains in 1996, on
products for which deferred costs are amortized.
Dividends to policyowners increased by $5.7 million to $61.2 million in
1997 compared to $55.5 million in 1996 and $49.4 million in 1995. The increase
in dividends over each of the past two years was primarily the result of the
growth and aging of in force business. Traditional life reserves grew 7.7% from
the end of 1995 to the end of 1996 and an additional 8.1% to the end of 1997, to
$1.31 billion. The weighted average dividend interest rate credited to these
policies was 7.19% in 1997 compared to 7.17% and 7.14% in 1996 and 1995,
respectively.
Income from operations decreased by $25.7 million to $93.4 million in 1997
compared to $119.1 million in 1996, and $112.9 million in 1995. Recent
acquisitions added $3.3 million of income from operations during the fourth
quarter, however, the overall decrease in 1997 income from operations was
primarily due to the decrease in realized gains on investments in 1997. The
increase in 1996 resulted primarily from the increase in realized gains on
investments.
Interest expense increased by $12.9 million in 1997 to $15.0 million
compared to $2.1 million in 1996, and $2.4 million in 1995. The increase in
interest expense in 1997 was primarily due to the interest expense on the
capital securities issued by the Company during 1997 and interest expense on the
revolving line of credit. This added interest expense was largely offset by
investment of the borrowed funds which contributed to the growth in invested
assets and the higher investment earnings of 1997.
Income before income tax expense and equity in earnings of unconsolidated
subsidiary decreased by $38.6 million to $78.4 million in 1997 compared to
$117.0 million in 1996, and $110.5 million in 1995. While acquisitions added
$3.3 million of income before income tax expense during the fourth quarter, the
overall decrease in 1997 income resulted primarily from the decrease in realized
gains on investments in 1997. The increase in 1996 resulted primarily from the
increase in realized gains on investments.
Income tax expense decreased by $21.8 million in 1997 to $22.0 million
compared to $43.8 million in 1996, and $41.2 million in 1995. The decrease in
1997 was primarily due to the lower pre-tax income as a result of the lower
realized gains on investments, a $4.5 million provision for the equity add-on
tax included in the first half of 1996, and increased tax credits of $3.9
million in 1997. The increase in income taxes in 1996 was primarily the result
of the higher pre-tax income due primarily to the increased realized gains on
investments and the $4.5 million provision for the equity add-on tax in the
first half of 1996, partially offset by $2.7 million of low-income housing tax
credits. The equity add-on tax is applicable only to mutual life insurance
companies and the Company believes such tax is not applicable to the Company
after June 30, 1996 due to the conversion of AmerUs Life into a stock company.
Net income decreased by $16.1 million in 1997 to $58.1 million compared to
$74.2 million and $69.3 million in 1996 and 1995, respectively. Net income for
1997 included $1.8 million from acquisitions during the fourth quarter. The
overall lower net income for 1997 was primarily due to lower realized gains on
investments. The increase in net income from 1995 to 1996 was primarily due to
higher realized gains on investments.
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 Commissioner to pay
any dividend that would exceed certain statutory limitations. The current
statutory limitation is 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.
Based on this limitation and 1997 results, AmerUs Life and Delta Life would be
able to pay approximately $58 million and $8 million, respectively, in dividends
in 1998 without obtaining the Iowa Commissioner's approval. The payment of
dividends by American and FBL is regulated under Kansas law, which has statutory
limitations similar to those in place in Iowa. Based on these limitations and
1997 results, AmVestors' subsidiaries could pay approximately $15 million in
dividends in 1998. On February 26, 1998, AmerUs Life paid the Company $5 million
in dividends. Based upon the cumulative limitations and 1997 results, the
Company's subsidiaries could pay an estimated $75 million in additional
dividends in 1998 without obtaining regulatory approval.
On October 23, 1997, the Company entered into a $250 million revolving
credit facility with a syndicate of lenders (the "Bank Credit Facility") to be
used to replace its then existing revolving credit facility, to finance the
acquisition of Delta, to finance permitted mergers and acquisitions and for
other general corporate purposes. The Bank Credit Facility is secured by a
pledge of approximately 49.9% of the outstanding common stock of AmerUs Life,
100% of the outstanding common stock of Delta and a $50 million 9% surplus note
payable to the Company by AmerUs Life. As of December 31, 1997, there was an
outstanding loan balance of $250 million 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 other 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.
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, 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.
The Company and its subsidiaries generated cash flows from operating
activities of $224.4 million, $147.6 million and $189.1 million for the years
ended December 31, 1997, 1996 and 1995, respectively. Excess operating cash
flows were primarily used to increase the Company's fixed maturity investment
portfolio.
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 statutory liabilities for interest-sensitive life
products and annuities by their contractual withdrawal provisions at December
31, 1997 (dollars in millions):
Not subject to discretionary withdrawal $412.9
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) 4,546.9
Market value adjustments 1,319.2
--------
Subtotal 5,866.1
--------
Subject to discretionary withdrawal without adjustments 711.5
--------
Total $6,990.5
========
(A) Includes $1,674.3 million of statutory 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 December 31, 1997, 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 December 31, 1997.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments or borrowings collateralized by their investment
portfolios. The Company's investment portfolio as of December 31, 1997 had a
carrying value of $8.9 billion, including Closed Block investments. As of
December 31, 1997, fixed maturity securities were $7.9 billion, or 88.9% of
invested assets, with public and private fixed maturity securities constituting
$7.5 billion, or 95.4%, and $0.4 million, or 4.6%, of total fixed maturity
securities, respectively.
At December 31, 1997, the statutory surplus of AmerUs Life, Delta Life,
American and FBL were approximately $325 million, $83 million, $112 million and
$41 million, respectively. The Company believes that these levels of statutory
capital are 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.
INVESTMENT PORTFOLIO
General
The Company maintains a diversified portfolio of investments which is
supervised by an experienced in-house staff of investment professionals. The
Company employs sophisticated asset management techniques in order to achieve
competitive yields, while maintaining risk at acceptable levels. The asset
portfolio is segmented by liability type, with tailored investment strategies
for specific product lines. Investment policies and significant individual
investments are subject to approval by the Investment Committee of the Board of
Directors of each of the life insurance companies and are overseen by the
Investment Committee of the Board of Directors of the Company. Management
regularly monitors individual assets and asset groups, in addition to monitoring
the overall asset mix. In addition, the insurance company boards and the
Investment Committee review investment guidelines and monitor internal controls.
Investment Strategy
The Company's investment philosophy is to employ an integrated
asset/liability management approach with separate investment portfolios for
specific product lines, such as traditional life, universal life and annuities,
to generate attractive risk-adjusted returns on capital. Essential to this
philosophy is coordinating investments in the investment portfolio with product
strategies, focusing on risk-adjusted returns and identifying and evaluating
associated business risks.
The Company's asset/liability management approach utilizes separate
investment portfolios for specific product lines, such as traditional life,
universal life and annuities. Investment policies and strategies have been
established based on the specific characteristics of each product line. The
portfolio investment policies and strategies establish asset duration, quality
and other guidelines. The Company utilizes analytical systems to establish an
optimal asset mix for each line of business. The Company seeks to manage the
asset/liability mismatch and the associated interest rate risk through active
management of the investment portfolio. Financial, actuarial, investment,
product development and product marketing professionals work together throughout
the product development, introduction and management phases to jointly develop
and implement product features, initial and renewal crediting strategies, and
investment strategies based on extensive modeling of a variety of factors under
a number of interest rate scenarios.
The objective of the Company's investment in mortgage backed securities
("MBS") is to provide incremental return, while maintaining reasonable liquidity
and cash flow stability. Each MBS is evaluated to determine its interest rate
sensitivity and average life variability. In general, the Company seeks
investments which provide improved cash flow stability through either implicit
or explicit prepayment protection. Investments with implicit prepayment
protection can take the form of pass-throughs or collateralized mortgage
obligations ("CMOs") backed by seasoned pools of loans which have already had
ample opportunity to refinance but have failed to do so. Explicit prepayment
protection can take the form of prepayment lockouts, yield maintenance
provisions or prepayment penalties, which are common features of multifamily
MBS, commercial MBS and FHA-insured project loans. At December 31, 1997 the
Company's MBS investment portfolio composition was approximately 54% fixed rate
pass-throughs backed by seasoned loan pools, 5% floating rate pass-throughs and
41% CMOs with some form of explicit prepayment protection. The Company has
established specific investment guidelines for the management of MBS. As a
general policy, the Company does not invest in interest-only and principal-only
or other similar leveraged derivative mortgage instruments.
Invested Assets
The Company maintains a diversified portfolio of investments, including
public and private fixed maturity securities, commercial mortgage loans and
equity real estate. The Company's objective is to maintain a high-quality,
diversified fixed maturity securities portfolio that produces a yield and total
return that supports the various product line liabilities and the Company's
earnings goals.
In connection with the Reorganization, the Closed Block, was formed to give
certain policyowners additional assurances as to the dividend policies of the
Company. As a result of establishing the Closed Block on June 30, 1996 the
Company allocated certain assets from its investment portfolio to the Closed
Block (see Note 1 to the consolidated financial statements for further
discussion). The following table summarizes consolidated invested assets by
asset category as of December 31, 1997 and 1996 and sets forth the allocation of
such assets between the Closed Block and the general account. The remaining
information relating to the Company's investment portfolio presents information
about the investment portfolio on a combined basis (including invested assets in
both the Closed Block and the general account).
Consolidated Invested Assets
December 31,
1997 1996
----------------------------- ----------------------------
Carrying Carrying Carrying Carrying
Value Value Value Value
Closed General % of Closed General % of
Block Account Combined Total Block Account Combined Total
----- ------- ------- ----- ----- ------- ------- -----
(Dollars in millions)
Fixed maturity securities:
Public $894.2 $6,667.7$7,561.9 84.8% $730.4 $2,263.4 $2,993.8 75.7%
Private 158.9 206.7 365.6 4.1 170.9 151.4 322.3 8.2
------- ------- ------- ---- ------ -------- ------- ----
Subtotal 1,053.1 6,874.4 7,927.5 88.9 901.3 2,414.8 3,316.1 83.9
Equity securities - 61.4 61.4 .7 - 64.0 64.0 1.7
Mortgage loans - 462.5 462.5 5.2 - 225.7 225.7 5.7
Policy loans 168.4 117.8 286.2 3.2 166.8 65.2 232.0 5.9
Real estate:
Investments - 8.7 8.7 .1 - 4.6 4.6 .1
Foreclosures - - - - - - - -
------- ------- ------- ---- ----- -------- ------- ----
Subtotal - 8.7 8.7 .1 - 4.6 4.6 .1
Other invested assets 0.6 158.1 158.7 1.8 - 93.2 93.2 2.3
Short-term investments 0.6 12.6 13.2 .1 3.1 13.3 16.4 .4
------- ------- ------- ----- ------- -------- -------- -------
Total invested assets $1,222.7 $7,695.5$8,918.2 100.0% $1,071.2 $2,880.8 $3,952.1 100.0%
======= ======= ======= ===== ======== ======== ======== ======
/TABLE
Fixed Maturity Securities
The fixed maturity securities portfolio consists primarily of investment
grade corporate fixed maturity securities, high-quality MBS and United States
government and agency obligations. As of December 31, 1997 fixed maturity
securities were $7,927.5 million, or 88.9% of the carrying value of invested
assets with public and private fixed maturity securities constituting $7,561.9
million, or 95.4%, and $365.6 million, or 4.6%, of total fixed maturity
securities, respectively.
The following table summarizes the composition of the fixed maturity
securities by category as of December 31, 1997 and 1996:
Composition of Fixed Maturity Securities
December 31, 1997 December 31, 1996
------------------- ------------------
Carrying % of Carrying % of
Value Total Value Total
------- ------ -------- ------
(Dollars in millions)
U.S. government/agencies $54.6 0.7% $46.2 1.4%
State and political subdivisions 9.6 0.1%
Foreign governments 76.6 1.0% 26.7 0.8%
Corporate 4,234.4 53.4% 1,938.4 58.4%
Redeemable preferred stocks 102.0 1.3% 73.2 2.2%
MBS:
U.S. government/agencies 2,793.6 35.2% 681.9 20.6%
Non-government/agencies 656.7 8.3% 549.7 16.6%
------- ----- ------- --------
Subtotal-MBS 3,450.3 43.5% 1,231.6 37.2%
------- ----- ------- --------
Total $7,927.5 100.0% $3,316.1 100.0%
======= ===== ======= ========
/TABLE
The following table summarizes fixed maturity securities by remaining
maturity as of December 31, 1997:
Remaining Maturity of Fixed Maturity Securities
Carrying % of
Value Total
------- -----
(Dollars in millions)
Due:
In one year or less (1998) $70.9 0.9%
One to five years (1999-2003) 1,490.5 18.8%
Five to 10 years (2004-2008) 1,764.0 22.3%
10 to 20 years (2009-2018) 598.7 7.6%
Over 20 years (2019 and after) 553.1 6.9%
-------- ----
Subtotal 4,477.2 56.5%
MBS 3,450.3 43.5%
-------- ----
Total $7,927.5 100.0%
======== =====
The Company's portfolio of investment grade fixed maturity securities is
diversified by number and type of issuer. As of December 31, 1997, investment
grade fixed maturity securities included the securities of over 1,055 issuers,
with 2,692 different issues of securities. No issuer represents more than 2.8%
of investment grade fixed maturity securities.
Below-investment grade fixed maturity securities as of December 31, 1997
included the securities of 115 issuers representing 4.6% of total invested
assets, with the largest being a $10.6 million investment.
As of December 31, 1997, 84.3% of total invested assets were investment
grade fixed maturity securities. The following table sets forth the credit
quality, by NAIC designation and Standard & Poor's rating equivalents, of
fixed maturity securities as of December 31, 1997:
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
December 31, 1997
Standard Public Private Total
& Poor's -------------------- -------------- --------------------
NAIC Equivalent Carrying % of Carrying % of Carrying % of
Designation Designation Value Total Value Total Value Total
- ----------- ------------ ------ ------ ------ ------- ------- ------
(Dollars in millions)
1 A- or Higher $5,515.5 72.9% $151.9 41.6% $5,667.4 71.5%
2 BBB- to BBB+ 1,659.5 21.9 190.0 52.0 1,849.5 23.3
-------- ---- ------- ---- -------- ----
Total investment grade 7,175.0 94.9 341.9 93.5 7,516.9 94.8
-------- ---- ------- ---- -------- ----
3 BB to BB+ 231.8 3.1 18.5 5.0 250.3 3.2
4 B 148.0 2.0 4.3 1.2 152.2 1.9
5 CCC or lower 7.1 0.1 0.8 0.2 7.9 0.1
In or near default 0.0 0.0 0.2 0.1 0.2 0.0
-------- ---- ------- ---- -------- -----
Total below investment grade $386.9 5.1% $23.7 6.5% $410.6 5.2%
-------- ---- -------- ---- -------- -----
Total $7,561.9 100.0% $365.6 100.0% $7,927.5 100.0%
======== ===== ======== ===== ======== =====
MBS comprise a core position within the Company's fixed maturity
securities investments. MBS investments include residential, commercial MBS,
home equity loans (including home equity loans purchased from one of the
Company's affiliates), manufactured housing, FHA Title I and CMBS. Residential
mortgage pass-throughs and CMOs total $2,794.9 million or 31.8% of total
invested assets. As of December 31, 1997, MBS were $3,450.3 million or 38.7%,
of total invested assets of which $2,793.6 million, or 81.0% of MBS were
guaranteed by the United States government or an agency of the United States
government. Other MBS were $656.7 million, or 19.0%, of MBS as of December 31,
1997. Management believes that the quality of assets in the MBS portfolio is
generally high, with 91.7% of such assets representing agency backed or "AAA"
rated securities.
The Company uses interest rate swaps and caps to reduce its exposure to
changes in interest rates and to manage duration mismatches. Although the
Company is subject to the risk that counterparties will fail to perform,
credit standings of counterparties are monitored regularly. The Company's
policy is to contract only with counterparties that are rated "AA" or higher;
accordingly, it is expected that counterparties will be able to satisfy their
obligations under such contracts. The Company is also subject to the risk
associated with changes in the value of contracts. However, such adverse
changes in value generally are offset by changes in the value of the items
being hedged. The notional principal amounts of the swaps and caps, which
represent the extent of the Company's involvement in such contracts but not
the risk of loss, at December 31, 1997, amounted to $1,100.2 million. The
swaps had no carrying value at December 31, 1997 and a fair value which
amounted to a net payable position of ($.1) million at December 31, 1997. The
carrying value and fair value of interest rate caps and swaptions amounted to
$2.1 million and $2.0 million, respectively, and are reflected as "other
investments" on the Company's consolidated financial statements as of December
31, 1997. The net amount payable or receivable from interest rate swaps and
caps is accrued as an adjustment to interest income.
Mortgage Loans
As of December 31, 1997, mortgage loans in the Company's investment
portfolio were $462.5 million, or 5.2% of the aggregate carrying value of
invested assets, including the Closed Block. As of December 31, 1997,
commercial mortgage loans and residential mortgage loans comprised 96.4% and
3.6%, respectively, of the mortgage loans in the Company's investment
portfolio.
Commercial mortgage loans consist primarily of fixed-rate mortgage loans.
As of December 31, 1997, the Company held 435 individual commercial mortgage
loans with an average balance of $1.1 million.
As of December 31, 1997, only five loans aggregating $2.0 million, or
0.4%, of the Company's loan portfolio (as measured by principal balance) were
classified as delinquent or in foreclosure. As of the same date, only
$4.4 million, or 0.9%, of the Company's loan portfolio (as measured by
principal balance) was classified as restructured. During 1997, the Company
had no foreclosures.
Equity Real Estate
In recent years the Company has significantly reduced its equity real
estate portfolio. As of December 31, 1997, the carrying value of investment
real estate, including the Closed Block, was $8.7 million.
Other
The Company held $286.2 million of policy loans on individual insurance
products as of December 31, 1997. Policy loans are permitted to the extent of
a policy's contractual limits and are fully collateralized by policy cash
values.
As of December 31, 1997, the Company held equity securities of $61.5
million. The largest holding of equity securities, Federal Home Loan Bank, had
a carrying value of $28.1 million as of December 31, 1997.
The Company held $172.0 million of other invested assets (including
short-term investments) on December 31, 1997. Other invested assets consist
primarily of various joint venture and limited partnership investments.
EFFECTS OF INFLATION AND INTEREST RATE CHANGES
The Company does not believe that inflation has had a material effect on
its consolidated results of operations.
Interest rate changes may have temporary effects on the sale and
profitability of the annuities and life insurance products offered by the
Company. For example, if interest rates rise, competing investments (such as
annuities or life insurance products offered by the Company's competitors,
certificates of deposit, mutual funds, and similar instruments) may become
more attractive to potential purchasers of the Company's products until the
Company increases the interest rate credited to owners of its annuities and
life insurance products. In contrast, as interest rates fall, the Company
attempts to adjust its credited rates to compensate for the corresponding
decline in reinvestment rates. The Company monitors interest rates and sells
annuities and life insurance policies that permit flexibility to make interest
rate changes as part of its management of interest spreads. However, the
profitability of the Company's products is based upon persistency, mortality
and expenses, as well as interest rate spreads.
The Company manages its investment portfolio in part to reduce its
exposure to interest rate fluctuations. In general, the market value of its
fixed maturity portfolio increases or decreases in an inverse relationship
with fluctuations in interest rates, and net investment income increases or
decreases in a direct relationship with interest rate changes.
The Company has developed an asset/liability management approach with
separate investment portfolios for major product lines such as traditional
life, universal life and annuities. Investment policies and strategies have
been established based on the specific characteristics of each product line.
The portfolio investment policies and strategies establish asset duration,
quality and other guidelines. The Company utilizes analytical systems to
establish an optimal asset mix for each line of business. The Company seeks
to manage the asset/liability mismatch and the associated interest rate risk
through active management of the investment portfolio. Financial, actuarial,
investment, product development and product marketing professionals work
together throughout the product development, introduction and management
phases to jointly develop and implement product features, initial and renewal
crediting strategies, and investment strategies based on extensive modeling of
a variety of factors under a number of interest rate scenarios.
Inforce reserves and the assets allocated to each segment are modeled on
a regular basis to analyze projected cash flows under a variety of economic
scenarios. The result of this modeling is used to modify asset allocation,
investment portfolio duration and convexity and renewal crediting strategies.
The Company invests in CMOs as part of its basic portfolio strategy, but uses
other types of derivatives only as a hedge against the effects of interest
rate fluctuations or to synthetically alter the investment characteristics of
specific assets. For a further discussion and disclosure of the nature and
extent of the Company's use of derivatives, see Note 13 to the Consolidated
Financial Statements.
FEDERAL INCOME TAX MATTERS
Until February 3, 1997, the Company and its subsidiaries, with the
exception of American Vanguard Life Insurance Company, filed as part of a
consolidated United States federal income tax return with AMHC and its
subsidiaries. For the short tax year beginning February 4, 1997, the Company
and its subsidiaries will not file as part of a consolidated United States
federal income tax return with AMHC. Further, the Company and its
subsidiaries (including AmerUs Life, Delta and AmVestors) would not be
eligible to file a consolidated life/non-life United States federal income tax
return until January 1, 2003, subject to the other requirements of federal
income tax law relating to consolidation.
EMERGING ACCOUNTING MATTERS
SFAS 130
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components: revenues, expenses, gains, and
losses. All items that are required to be recognized under accounting
standards as components of comprehensive income, consisting of changes in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources, are to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 is effective for financial statements
beginning after December 15, 1997. The provisions of SFAS 130 are of a
reporting nature and are not expected to have an impact on the financial
position or results of operations of the Company.
SFAS 131
In June 1997, the FASB issued Statement 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes standards for
the way that public businesses report information about operating segments in
financial statements. Operating segments are components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and assess performance. Generally, financial information is
required to be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to segments. SFAS
131 is effective for financial statements for periods beginning after December
15, 1997. The provisions of SFAS 131 are of a reporting nature and are not
expected to have an impact on the financial position or results of operations
of the Company as the life insurance and annuity operation is the Company's
only business segment.
SFAS 132
In February 1998, the FASB issued Statement 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits". SFAS 132 standardizes the
disclosure requirements for pensions and other postretirement benefits,
requires additional information on the benefit obligations and fair values of
plan assets and on changes in the benefit obligations and fair values of plan
assets and eliminates certain disclosures. SFAS 132 is effective for
financial statements for periods beginning after December 15, 1997. The
provisions of SFAS 132 are of a reporting nature and are not expected to have
an impact on the financial position or results of operations of the Company.
SOP 97-3
In December 1997, the American Institute of Certified Public Accountants
issued 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.
SOP 97-3 is effective for fiscal years beginning after December 15, 1998;
however, its adoption will not have a 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.
Statutory Accounting Codification
The NAIC recently approved the codification of statutory accounting
practices, which constitutes "prescribed" statutory accounting practices.
Additional guidance on its implementation is being developed and is
anticipated to be effective January 1, 1999, resulting in changes to certain
statutory accounting practices. The codification may result in changes to the
permitted or prescribed accounting practices that the Company's insurance
subsidiaries use to prepare their statutory-basis financial statements.
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 only accommodate 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 systems will be able to accurately process. 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 has already made significant progress in accomplishing the
necessary modifications and conversions to deal with year 2000 issues and
anticipates that the majority of the required efforts will be completed by the
end of 1998. Management does not anticipate that the Company will incur
significant operating expenses or be required to invest heavily in computer
system improvements to address year 2000 issues. Total estimated costs are in
a range of $4 to $6 million with approximately $3 million to be incurred in
1998. However, if modifications and conversions to deal with year 2000 issues
are not completed on a timely basis or are not fully effective, such issues
may have a material adverse effect on the operations of the Company. All cost
associated with year 2000 modifications and conversions will be expensed as
incurred.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. Reference is made to the index on page F-1 of
the report.
2. Financial Statement Schedules. Reference is made to the Index on
page S-1 of the report.
3. Exhibits Reference is made to the Index to Exhibits on page 61 of
the report.
(b) Reports on Form 8-K
1. Form 8-K dated October 23, 1997, reporting the acquisition of Delta
Life Corporation.
2. Form 8-K/A dated October 23, 1997, as amended January 6, 1998,
including financial statements as follows:
(a) Delta Life Corporation (Unaudited) as of September 30, 1997 and
the nine months ended September 30, 1997 and 1996.
(b) Delta Life Corporation as of December 31, 1996 and 1995 and the
years ended December 31, 1996, 1995 and 1994.
(c) AmerUs Life Holdings, Inc. Unaudited Pro Forma Financial
Statements as of September 30, 1997 and for the nine months
ended September 30, 1997 and the year ended December, 1996.
3. Form 8-K dated December 19, 1997, reporting the acquisition of
AmVestors Financial Corporation.
4. Form 8-K/A dated December 19, 1997, as amended March 3, 1998,
including financial statements as follows:
(a) AmVestors Financial Corporation (Unaudited) as of September 30,
1997 and the nine months ended September 30, 1997 and 1996.
(b) AmVestors Financial Corporation as of December 31, 1996 and
1995 and the years ended December 31, 1996, 1995 and 1994.
(c) AmerUs Life Holdings, Inc. Unaudited Pro Forma Financial
Statements as of September 30, 1997 and for the nine months
ended September 30, 1997 and the year ended December, 1996.
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.
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.
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 to the Annual Report Form 10-K dated March 25, 1998.
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 Agreement and Plan of Merger, dated as of August 24, 1994, among
Central Life Assurance Company and American Mutual Life Insurance
Company, filed as Exhibit 10.4 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, 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 Modification of Real Estate Contract, dated as of July 1, 1996,
between AmerUs Life Insurance Company and AmerUs Properties, Inc.,
filed as Exhibit 10.14 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.13 Asset Management and Disposition Agreement, dated January 3, 1995,
between American Mutual Life Insurance Company and Central
Properties, Inc. (now AmerUs Properties, Inc.), filed as Exhibit
10.15 to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.14 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.
10.15 Amended and Restated Agreement and Certificate of Limited
Partnership of CPI Housing Partners I, L.P., dated as of September
1, 1995, among AmerUs Properties, Inc., American Mutual Life
Insurance Company and American Mutual Affordable Housing Partners,
L.P., filed as Exhibit 10.34 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.16 Amended and Restated Agreement of Limited Partnership of American
Mutual Affordable Housing Partners, L.P., dated as of September 1,
1995, among GrA Partners Joint Venture, AmerUs Properties, Inc.,
American Mutual Life Insurance Company, NCC Polar Company and NCC
Orion Company, filed as Exhibit 10.35 to the registration statement
of the Registrant on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.17 Amended and Restated Agreement and Certificate of Limited
Partnership of 65th & Vista, L.P., dated as of September 1, 1995,
among AmerUs Properties, Inc., American Mutual Life Insurance
Company and American Mutual Affordable Housing Partners, L.P., filed
as Exhibit 10.36 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.18 Amended and Restated Agreement and Certificate of Limited
Partnership of 60th & Vista, L.P., dated as of September 1, 1995,
among I.R.F.B. Joint Venture, American Mutual Life Insurance Company
and American Mutual Affordable Housing Partners, L.P., filed as
Exhibit 10.37 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.19 Certificate of Limited Partnership and Limited Partnership Agreement
of CPI Housing Partners II, L.P., dated March 27, 1995, between
Central Properties, Inc. (now AmerUs Properties, Inc.) and American
Mutual Life Insurance Company, filed as Exhibit 10.38 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.20 Amended and Restated Agreement and Certificate of Limited
Partnership of API Housing Partners III, L.P., dated as of March 1,
1996, among AmerUs Properties, Inc., American Mutual Life Insurance
Company, American Mutual Affordable Housing Partners II, L.P. and
AmerUs Management, Inc., filed as Exhibit 10.39 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.21 Certificate of Limited Partnership and Limited Partnership Agreement
of API Housing Partners IV, L.P., dated as of June 1995, between
AmerUs Properties, Inc. and American Mutual Life Insurance Company,
filed as Exhibit 10.40 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.22 Amended and Restated Agreement and Certificate of Limited
Partnership of API Housing Partners V, L.P., dated as of March 1,
1996, among AmerUs Properties, Inc., American Mutual Life Insurance
Company, American Mutual Affordable Housing Partners II, L.P. and
AmerUs Management, Inc., filed as Exhibit 10.41 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.23 Amended and Restated Agreement and Certificate of Limited
Partnership of API-Chimney Ridge Partners, L.P., dated as of March
1, 1996, among AmerUs Properties, Inc., American Mutual Life
Insurance Company, American Mutual Affordable Housing Partners II,
L.P. and AmerUs Management, Inc., filed as Exhibit 10.42 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.24 Certificate of Limited Partnership and Limited Partnership Agreement
of API Housing Partners VI, L.P., dated as of October 10, 1995,
between AmerUs Properties, Inc. and American Mutual Life Insurance
Company, filed as Exhibit 10.43 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.25 Certificate of Limited Partnership and Limited Partnership Agreement
of 86th & Meredith Associates, L.P., dated as of February 14, 1995,
between Central Properties, Inc. (now AmerUs Properties, Inc.) and
American Mutual Life Insurance Company, filed as Exhibit 10.44 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.26 Certificate of Limited Partnership and Limited Partnership Agreement
of Altoona Meadows Investors, L.P., dated as of February 22, 1995,
between KPI Investments, Inc. and Dennis Galeazzi, filed as Exhibit
10.45 to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.27 First Amendment to the Certificate of Limited Partnership and
Limited Partnership Agreement of Altoona Meadows Investors, L.P.,
dated as of September 28, 1995, between KPI Investments, Inc. and
American Mutual Life Insurance Company, filed as Exhibit 10.46 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.28 Loan Servicing Agreement, dated August 1, 1990, between Central Life
Assurance Company and Midland Financial Mortgages, Inc. (now AmerUs
Mortgage), filed as Exhibit 10.47 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.29 Construction Loan Servicing Agreement, dated November 20, 1995,
between American Mutual Life Insurance Company and AmerUs
Properties, Inc., filed as Exhibit 10.48 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.30 Loan Servicing Agreement, dated September 1, 1994, between Central
Life Assurance Company and Midland Savings Bank, FSB (now AmerUs
Bank), filed as Exhibit 10.50 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.31 Amendment to Service Agreement, dated as of May 1, 1996, between
American Mutual Life Insurance Company and AmerUs Bank, filed as
Exhibit 10.52 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.32 Data Processing Service Agreement, dated November 1, 1989, between
Central Life Assurance Company and Midland Financial Savings and
Loan Association (now AmerUs Bank), filed as Exhibit 10.29 to
Central Resource Group, Inc.'s registration statement on Form S-1,
Registration No. 33-48359, filed on June 4, 1992), filed as Exhibit
10.53 to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.33 First Amendment to Data Processing Service Agreement, dated as of
September 30, 1990, between Central Life Assurance Company and
Midland Savings Bank FSB (now AmerUs Bank), filed as Exhibit 10.54
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.34 Second Amendment to Data Processing Service Agreement, dated as of
May 1, 1991, between Central Life Assurance Company and Midland
Savings Bank FSB (now AmerUs Bank), filed as Exhibit 10.55 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.35 Third Amendment to Data Processing Service Agreement, dated as of
October 1, 1991, between Central Life Assurance Company and Midland
Savings Bank, FSB (now AmerUs Bank), filed as Exhibit 10.56 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.36 Fourth Amendment to Data Processing Service Agreement, dated as of
January 2, 1992, between Central Life Assurance Company and Midland
Savings Bank, (now AmerUs Bank), filed as Exhibit 10.57 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.37 Fifth Amendment to Data Processing Service Agreement, dated as of
June 1, 1993, between Central Life Assurance Company and Midland
Savings Bank FSB (now AmerUs Bank), filed as Exhibit 10.58 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.38 Sixth Amendment to Data Processing Service Agreement, dated as of
September 1, 1995, between American Mutual Life Company and AmerUs
Bank, filed as Exhibit 10.59 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.39 Seventh Amendment to Data Processing Service Agreement, dated as of
January 1, 1996, between American Mutual Life Insurance Company and
AmerUs Bank, filed as Exhibit 10.60 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.40 Data Processing Support Services Agreement, dated as of July 1,
1993, between Central Life Assurance Company and Midland Savings
Bank, FSB (now AmerUs Bank), filed as Exhibit 10.61 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.41 Investment Management Agreement, dated as of August 15, 1992,
between Central Life Assurance Company and Midland Savings Bank FSB
(now AmerUs Bank), filed as Exhibit 10.63 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.42 Purchase Agreement, dated as of June 28, 1996, between AmerUs Life
Insurance Company and AmerUs Bank, filed as Exhibit 10.65 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.43 Brokerage Contract dated January 1, 1995, among American Mutual Life
Insurance Company and Midland Investment Services, Inc. (now AmerUs
Investments, Inc.), filed as Exhibit 10.66 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.44 Servicing Agreement, dated March 1, 1992, between Central Life
Assurance Company and Midland Investment Services, Inc. (now AmerUs
Investments, Inc.), filed as Exhibit 10.67 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.45 Tax Allocation Agreement dated as of November 4, 1996, filed as
Exhibit 10.68 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.46 Limited Partnership Agreement of Theater Project Limited Partnership
dated March 15, 1985, among Tapp Management, Inc., Tapp Management
Co., Ltd., Michael Longley, Michael A. Hammond and Gary L. Wood
along with an Amendment to Certificate of Limited Partnership, dated
August 22, 1986, and an Assignment of Limited Partnership Interest,
dated November 15, 1992, between F. Barry Tapp and Tapp Development
Co., Ltd., and an Amended Certificate of Limited Partnership dated
December 24, 1992, filed as Exhibit 10.73 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.47 Assignment of Limited Partnership Interest of Theater Project
Limited Partnership, dated December 30, 1995, between American
Mutual Life Insurance Company and AmerUs Properties, Inc., filed as
Exhibit 10.74 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.48 Certificate of Limited Partnership and Limited Partnership Agreement
of Lagos Vista Limited Partnership, dated August 10, 1994, between
Central Properties, Inc. (now AmerUs Properties, Inc.) and Central
Life Assurance Company, filed as Exhibit 10.75 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.49 Revolving Credit and Term Loan Agreement, dated as of December 1996,
among the Registrant, certain Signatory Banks thereto and The Chase
Manhattan Bank, Note issued by the Registrant and Borrower Pledge
Agreement, filed as Exhibit 10.80 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.50 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 current report on Form 8-K on
October 8, 1997, is hereby incorporated by reference.
10.51 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.
10.52 Letter Agreement dated as of March 1, 1997 between AmerUs Life and
AmerUs Mortgage relating to the purchase of residential mortgage
loans, together with an amendment thereto dated March 11, 1997 ,
filed as Exhibit 10.83 to the registration statement of the
Registrant on Form S-4, Registration Number 333-40065, is
incorporated by reference.
10.53 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.
10.54 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.
10.55 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.
10.56 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.
10.57 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 to the Annual Report Form 10-K dated March 25,
1998.
10.58 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 to the
Annual Report Form 10-K dated March 25, 1998.
10.59 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 to the Annual Report Form 10-K dated March
25, 1998.
10.60 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 to the Annual
Report Form 10-K dated March 25, 1998.
10.61 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 to the Annual Report Form 10-K
dated March 25, 1998.
10.62 Lease - Business Property, dated December 31, 1997, between AmerUs
Properties, Inc. and the Registrant property, 699 Walnut Street, Des
Moines, Iowa , filed as Exhibit 10.62 to the Annual Report Form 10-K
dated March 25, 1998.
10.63 First Amendment dated February 1, 1998 to lease dated December 31,
1997 between AmerUs Properties and the Registrant , filed as Exhibit
10.63 to the Annual Report Form 10-K dated March 25, 1998.
10.64 Servicing Agreement, dated March 5, 1997, between AmerUs Life
Insurance Company and AmerUs Properties, Inc., filed as Exhibit
10.64 to the Annual Report Form 10-K dated March 25, 1998.
10.65 First Amended and Restated Articles of Limited Partnership of Cotton
Mill Limited Partnership, dated as of September 30, 1996, among
API-Cotton Mill Partners, L.P., Historic Restoration Incorporated and
AmerUs Management, Inc., filed as Exhibit 10.65 to the Annual Report
Form 10-K dated March 25, 1998.
10.66 Articles of Organization of AmerUs-Blackstone, L.L.C. dated July 8,
1997 , filed as Exhibit 10.66 to the Annual Report Form 10-K dated
March 25, 1998.
10.67 First Amended and Restated Articles of Limited Partnership of
Blackstone Hotel Partners L.P. dated as of July 23, 1997 , filed as
Exhibit 10.67 to the Annual Report Form 10-K dated March 25, 1998.
10.68 First Amended and Restated Limited Partnership Agreement of Briggs
Renewal Limited Partnership dated as of November 18, 1997 , filed as
Exhibit 10.68 to the Annual Report Form 10-K dated March 25, 1998.
10.69 Declaration of Operating Agreement of AmerUs-Blackstone, L.L.C.,
dated as of July 23, 1997, filed as Exhibit 10.69 to the Annual
Report Form 10-K dated March 25, 1998.
10.70 Open Line of Credit Application and Terms Agreement, dated March 3,
1997, between Federal Home Loan Bank of Des Moines and AmerUs Life
Insurance Company , filed as Exhibit 10.70 to the Annual Report Form
10-K dated March 25, 1998.
10.71 Certificate of Limited Partnership Agreement of API Cottonmill
Partner, L.P., dated as of June 21, 1996, among AmerUs Management,
Inc. and AmerUs Properties, Inc., filed as Exhibit 10.71 to the
Annual Report Form 10-K dated March 25, 1998.
12 Computation of Ratios of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Registrant
23.1* Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 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.
- --------------------------
* Filed herewith
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.
AMERUS LIFE HOLDINGS, INC.
/s/ Roger K. Brooks
Date: June 4, 1998 --------------------------------------
Roger K. Brooks
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of AmerUs Life Holdings, Inc.,
hereby severally and individually constitute and appoint Michael E. Sproule,
Michael G. Fraizer and James A. Smallenberger, and each of them, the true and
lawful attorneys and agents of each of us to execute in the name, place and
stead of each of us (individually and in any capacity stated below) any and
all amendments to this Annual Report on Form 10-K and all instruments
necessary or advisable in connection therewith and to file the same with the
Securities and Exchange Commission, each of said attorneys and agents to have
the power to act with or without the others and to have full power and
authority to do and perform in the name and on behalf of each of the
undersigned every act whatsoever necessary or advisable to be done on the
premises as fully and to all intents and purposes as any of the undersigned
might or could do in person, and we hereby ratify and confirm our signatures
as they may be signed by or said attorneys and agents or each of them to any
and all such amendments and instruments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
/s/ Roger K. Brooks
- ------------------------------------ Chairman, President and Chief Executive
Roger K. Brooks Officer (principal executive officer)
and Director
/s/ Michael E. Sproule
- ------------------------------------ Executive Vice President and Chief
Michael E. Sproule Financial Officer (principal financial
officer)
/s/ Michael G. Fraizer
- ------------------------------------ Senior Vice President and Controller/
Michael G. Fraizer Treasurer (principal accounting
officer)
*
- ------------------------------------ Director
John R. Albers
*
- ------------------------------------ Director
Malcolm Candlish
*
- ------------------------------------ Director
Maureen M. Culhane
*
- ------------------------------------ Director
Thomas F. Gaffney
*
- ------------------------------------ Director
Ilene B. Jacobs
*
- ------------------------------------ Director
Sam C. Kalainov
*
- ------------------------------------ Director
Ralph W. Laster, Jr.
*
- ------------------------------------ Director
John W. Norris, Jr.
*
- ------------------------------------ Director
Jack C. Pester
*
- ------------------------------------ Director
John A. Wing
* By: /s/ James A. Smallenberger
-------------------------------
James A. Smallenberger
(Attorney-in-Fact)
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Consolidated Balance Sheets as of
December 31, 1997 and 1996 F-3 through F-5
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 F-6 through F-7
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-8 through F-9
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 F-10 through F-12
Notes to Consolidated Financial Statements F-13 through F-62
Separate financial statements of subsidiaries not consolidated and 50% or
less owned persons accounted for by the equity method have been omitted
because they do not individually constitute a significant subsidiary.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AmerUs Life Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AmerUs
Life Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 13, 1998
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(In thousands)
1997 1996
---- ----
Assets
Investments:
Securities available-for-sale at fair value: (note 2)
Fixed maturity securities $6,851,427 $2,414,807
Equity securities (note 5) 61,480 64,033
Short-term investments 12,595 13,288
Fixed maturity securities held for
trading purposes (note 2) 22,955 -
Mortgage loans on real estate (note 3) 462,473 225,743
Real estate 8,670 4,561
Policy loans 117,865 65,183
Other investments 158,073 93,228
--------- ---------
Total investments 7,695,538 2,880,843
Cash 58,081 1,814
Accrued investment income 84,713 30,792
Premiums and fees receivable 3,445 1,489
Reinsurance receivables 6,203 1,329
Deferred policy acquisition costs (note 4) 118,896 120,481
Value of business acquired (note 16) 266,014 -
Investment in unconsolidated subsidiaries 26,849 23,461
Goodwill (note 14) 220,250 -
Property and equipment 22,863 4,393
Other assets 359,308 49,459
Closed block assets 1,391,848 1,270,168
----------- ----------
Total assets $10,254,008 $4,384,229
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Policy reserves and policyowner funds:
Future life and annuity policy
benefits $7,074,444 $2,053,740
Policyowner funds 89,641 55,369
----------- ----------
7,164,085 2,109,109
Accrued expenses 39,095 14,227
Dividends payable to policyowners 1,575 -
Policy and contract claims 4,548 7,039
Income taxes payable 12,753 25,182
Deferred income taxes (note 6) 16,914 1,337
Other liabilities 111,180 64,173
Debt (note 5) 266,435 188,381
Closed block liabilities 1,623,432 1,517,271
----------- ----------
Total liabilities 9,240,017 3,926,719
----------- ----------
Company-obligated mandatorily redeemable
preferred capital securities of
subsidiary trust holding solely junior
subordinated debentures of the Company
(note 5) 86,000 -
----------- ----------
Stockholders' equity: (note 11)
Preferred stock, no par value,
20,000,000 shares authorized,
none issued - -
Common stock, Class A, no par value,
75,000,000 shares authorized;
issued and outstanding 29,734,918
shares in 1997 and 14,500,000 shares
in 1996 29,735 14,500
Common stock, Class B, no par value,
50,000,000 shares authorized;
5,000,000 shares issued and
outstanding 5,000 5,000
Unrealized appreciation of
available-for-sale securities(note 2) 55,747 35,300
Paid-in capital 383,686 -
Retained earnings 453,823 402,710
----------- ----------
Total stockholders' equity 927,991 457,510
----------- ----------
Commitments and contingencies (note 10)
Total liabilities and
stockholders' equity $10,254,008 $4,384,229
=========== ==========
See accompanying notes to consolidated financial statements.
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
Revenues:
Insurance premiums $48,127 $138,476 $244,087
Universal life and annuity product charges 43,441 49,347 57,370
Net investment income (note 2) 224,431 228,625 285,244
Realized gains on investments (note 2) 13,791 65,983 51,387
Contribution from the Closed Block 31,045 19,909 -
------- -------- -------
360,835 502,340 638,088
------- -------- --------
Benefits and expenses:
Policyowner benefits 193,237 261,869 374,620
Underwriting, acquisition, and insurance
expenses 51,663 54,857 50,909
Amortization of deferred policy acquisition
costs (note 4) 20,987 40,160 50,239
Dividends to policyowners 1,587 26,324 49,414
-------- -------- --------
267,474 383,210 525,182
-------- -------- --------
Income from operations 93,361 119,130 112,906
Interest expense 14,980 2,142 2,356
-------- ------- -------
Income before income tax expense and
equity in earnings of unconsolidated
subsidiary 78,381 116,988 110,550
Income tax expense (note 6) 22,022 43,859 41,202
------- ------- -------
Income before equity in earnings of
unconsolidated subsidiary 56,359 73,129 69,348
Equity in earnings of unconsolidated
subsidiary 1,700 1,044 -
------- ------- -------
Net income $58,059 $74,173 $69,348
======= ======= =======
Earnings per common share: (note 15)
Basic $2.47 $3.20 $2.99
==== ==== ====
Diluted $2.46 $3.20 $2.99
==== ==== ====
Weighted average common shares outstanding:
Basic 23,536,666 23,155,989 23,155,989
========== ========== ==========
Diluted 23,572,259 23,155,989 23,155,989
========== ========== ==========
See accompanying notes to consolidated financial statements.
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996, and 1995
(In thousands)
Unrealized
appreciation
(depreciation) of
available- Total
Common Stock Additional for-sale stock-
------------- Paid in securities Retained holders'
Class A Class B Capital (Note 2) earnings equity
------- -------- -------- -------- ------ ---------
Balance at December 31, 1994 $- $- - $15,320 $403,003 $418,323
Net income - - - - 69,348 69,348
Net unrealized appreciation - - - 93,394 - 93,394
Dividend to American
Mutual Holding Company
(note 8) - - - - (41,156) (41,156)
---- ---- ---- -------- -------- --------
Balance at December 31, 1995 - - - 108,714 431,195 539,909
Net income - - - - 74,173 74,173
Net unrealized depreciation - - - (73,414) - (73,414)
Dividend to American
Mutual Holding Company
(note 8) - - - - (4,158) (4,158)
Capital Contributions to
Affiliates (note 8) - - - - (79,000) (79,000)
Issuance of common stock 14,500 5,000 - - (19,500) -
------ ------ ------- ------ ------- --------
Balance at December 31, 1996 14,500 5,000 - 35,300 402,710 457,510
Net income - - - 58,059 58,059
Net unrealized appreciation - - - 20,447 - 20,447
Issuance of common stock 15,235 - 383,686 - - 398,921
Dividends declared on
common stock - - - - (6,946) (6,946)
------- ------ -------- ------- -------- --------
Balance at December 31, 1997 $29,735 $5,000 $383,686 $55,747 $453,823 $927,991
======= ====== ======== ======= ======== ========
See accompanying notes to consolidated financial statements.
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $58,059 $74,173 $69,348
Adjustments to reconcile net income to
net cash provided by operating
activities:
Policyowner assessments on universal
life and annuity products (43,441) (49,347) (57,370)
Interest credited to policyowner
account balances 127,066 109,457 123,360
Realized investment gains (13,791) (65,983) (51,387)
Change in:
Accrued investment income (351) 8,033 1,485
Reinsurance ceded receivables (1,548) (6,708) (223)
Deferred policy acquisition costs (30,366) (12,235) (7,491)
Liabilities for future policy benefits (21,448) 16,504 94,856
Policy and contract claims and other
policyowner funds (2,727) (9,578) 6,814
Income taxes:
Current (1,552) 6,422 3,298
Deferred 2,156 (7,181) (3,105)
Other, net 16,363 15,127 9,538
Change in Closed Block assets
and liabilities, net 135,970 68,870 -
------- ------- --------
Net cash provided by operating activities 224,390 147,554 189,123
------- ------ -------
Cash flows from investing activities:
Purchase of fixed maturities
available for sale (1,473,579)(1,423,268)(887,971)
Maturities, calls, and principal
reductions of fixed maturities
available for sale 1,361,312 1,362,115 595,879
Purchase of equity securities (53,850) (280,215) (117,345)
Proceeds from sale of equity securities 67,794 363,358 178,115
Proceeds from repayment and sale
of mortgage loans 171,082 119,061 112,484
Purchase of mortgage loans (137,222) (46,532) (37,328)
Purchase of real estate and other
invested assets (22,524) (59,119) (28,490)
Proceeds from sale of real estate and
other invested assets - 26,023 31,484
Change in policy loans, net (9,625) (6,630) (10,532)
Tax on capital gains (4,550) (22,255) (16,524)
Other assets, net 89,109 (73,735) 44,855
Acquisitions, net of cash acquired (153,798) - -
Change in Closed Block
investments, net (103,401) (69,550) -
Initial establishment of the
Closed Block - (22,925) -
--------- --------- --------
Net cash used in investing activities (269,252) (133,672) (135,373)
--------- --------- --------
Cash flows from financing activities:
Deposits to policyowner account balances 122,531 156,420 272,431
Withdrawals from policyowner account
balances (233,537) (293,521) (302,291)
Change in debt, net 78,054 160,642 (1,496)
Dividends to American Mutual
Holding Company - (4,158) (41,156)
Dividend to shareholders (6,946) - -
Issuance of company-obligated mandatory
redeemable capital securities 86,000 - -
Net proceeds from initial public stock
offering 55,027 - -
Capital contribution to affiliates - (36,071) -
-------- -------- -------
Net cash provided by (used in)
financing activities 101,129 (16,688) (72,512)
-------- -------- -------
Net (decrease) increase in cash 56,267 (2,806) (18,762)
Cash at beginning of period 1,814 4,620 23,382
-------- -------- -------
Cash at end of period $58,081 $1,814 $4,620
======== ======== =======
Supplemental disclosure of cash activities:
Interest paid $10,420 $2,224 $2,356
======== ======= =======
Income taxes paid $33,030 $45,417 $51,900
======== ======= =======
1997 1996 1995
---- ---- ----
Supplemental disclosure of non-cash
investing and financing activities:
Issuance of Class A and Class B
Common Stock related to the
Reorganization as a
reclassification of retained
earnings $ - $19,500 $ -
========== ======= =========
Details of acquisitions:
Fair value of assets acquired $5,744,191 $ - $ -
Liabilities assumed 5,190,829 - -
---------- ------- ------
Carrying value of acquisitions 553,362 - -
Common stock issued (343,894) - -
Warrants, options and SAR's
rolled over (23,184) - -
Payments made on liabilities
included above 25,800 - -
---------- -------- -------
Cash paid 212,084 - -
Less cash acquired 58,286 - -
---------- -------- -------
Net cash paid for acquisitions $153,798 $ - $ -
========== ======== =======
Capital Contribution to Affiliates:
Net transfer of invested assets:
Fixed maturities $ - $ 3,550 $ -
Real estate - 38,432 -
Mortgage loans - 9,309 -
Equity securities - 802 -
Debt assumed from affiliates - (9,164) -
---------- -------- -------
Total non-cash items contributed - 42,929 -
Cash contributed - 36,071 -
---------- -------- --------
$ - $79,000 $ -
========== ======== ========
See accompanying notes to consolidated financial statements.
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Nature of Operations
AmerUs Life Holdings, Inc.'s (the "Company") operations consist primarily
of marketing, underwriting, and distributing life insurance, annuities, and
related products to individuals throughout the United States. The Company's
products are sold through a career general agency system, a personal producing
general agency system and national networks of independent agents. The life
insurance and annuity operation is the Company's only business segment.
Organization and Principles of Consolidation
The Company was formed on August 1, 1996 in conjunction with a plan of
reorganization (the "Reorganization") of the former American Mutual Life
Insurance Company ("American Mutual Life"). Pursuant to this Reorganization
which became effective on June 30, 1996, American Mutual Life was converted to
a mutual insurance holding company structure whereby American Mutual Holding
Company ("AMHC"), a mutual insurance holding company, was formed.
Additionally, American Mutual Life was converted to a stock life insurance
company and renamed AmerUs Life Insurance Company ("AmerUs Life"). All of the
initial shares of capital stock of AmerUs Life were issued to AMHC.
On August 1, 1996, AMHC contributed all of its shares of capital stock of
AmerUs Life to AmerUs Group Co. ("AmerUs Group"). On the same date, the
Company was formed and all of its shares of capital stock were issued to
AmerUs Group.
As a result of the Reorganization, AMHC indirectly owned, through AmerUs
Group, 14,500,000 shares of Class A Common Stock and 5,000,000 shares of Class
B Common Stock of the Company. The Class B Common Stock must be held,
directly or indirectly, by AMHC. The Class B Common Stock is generally
convertible on a share-for-share basis for Class A Common Stock. Each share
of Class A and Class B Common Stock entitles its holder to one vote per share;
however, the voting rights of the Class B shares are adjusted to ensure that
votes of the Class B shares together with the votes of Class A shares held by
the Class B shareholders will always have a majority of the votes. AMHC must
directly or indirectly control a majority of the voting shares of the Company.
In addition, as long as the members of AMHC own directly or indirectly more
than 50 percent of the voting power of the outstanding voting stock, AMHC is
entitled to equity purchase rights which provide for the Company to notify
AMHC in writing of a proposed sale of voting stock or any options, warrants,
or rights to acquire voting stock. AMHC has the right to purchase the same
proportionate number of shares being offered for sale as AMHC owns of the
total shares at the time of the registration.
In February 1997, AmerUs Group sold 2,793,489 shares of the Company's
Class A common stock to the public and the Company issued 3,655,989 shares of
its Class A common stock in an initial public offering for gross proceeds of
$56.7 million.
On December 19, 1997, the Company acquired 100% of the outstanding common
stock of AmVestors Financial Corporation ("AmVestors") in exchange for
11,578,929 shares of the Company's Class A common stock valued at
approximately $350 million. After the transaction, AmerUs Group's ownership of
the Company was reduced to 50.04%.
AmVestors' principal operating subsidiaries are American Investors Life
Insurance Company, Inc. ("American"), a Kansas domiciled life insurance
company licensed in 48 states and the District of Columbia; and Financial
Benefit Life Insurance Company ("FBL"), which AmVestors acquired in April,
1996, a Kansas domiciled life insurance company doing business in 40 states,
the District of Columbia, and the U.S. Virgin Islands. With the acquisition of
AmVestors, the Company assumed 710,543 currently outstanding warrants to
acquire shares of AmVestors common stock. As a result of the merger of the
two companies, AmVestors shareholders received .6724 shares of AmerUs stock
for each share of AmVestors stock. Applying the foregoing ratio, and upon
payment of the original exercise price of $16.42 per warrant, 704,338 of these
warrants may be exchanged for 473,596 shares of AmerUs stock. The remaining
6,205 warrants may be exchanged pursuant to the same ratio for 4,171 shares of
AmerUs stock upon the payment of exercise prices between $2.36 and $3.72 per
warrant.
On October 23, 1997, the Company acquired all of the outstanding capital
stock of Delta Life Corporation ("Delta") for approximately $165 million in
cash. Delta's principal wholly-owned subsidiary is Delta Life and Annuity
Company ("Delta Life"), an Iowa domiciled life insurance company formed in
1955. Delta Life is licensed in the District of Columbia and in all states
except New York, and specializes in the sale of individual single and flexible
premium deferred annuities through a network of independent agents.
Basis of Presentation
The accompanying consolidated financial statements of the Company and its
wholly-owned subsidiaries have been prepared in conformity with Generally
Accepted Accounting Principles ("GAAP") which, as to the insurance company
subsidiaries, differ from statutory accounting practices prescribed or
permitted by regulatory authorities.
The accompanying consolidated financial statements include the accounts
and operations, after intercompany eliminations, of the Company and its
wholly-owned subsidiaries, principally, AmerUs Life, AmVestors and Delta.
The preparation of consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Certain balances for 1995 and
1996 have been reclassified to conform to the 1997 presentation format.
Closed Block
The Reorganization contained an arrangement, known as a closed block (the
"Closed Block"), to provide for dividends on policies that were in force
generally on June 30, 1996 and were within the classes of individual policies
for which AmerUs Life had a dividend scale in effect at the time of the
Reorganization. The Closed Block was designed to give reasonable assurance to
owners of affected policies that assets will be available to support such
policies, including maintaining dividend scales in effect at the time of the
Reorganization, if the experience underlying such scales continues. The
assets, including revenue therefrom, allocated to the Closed Block will accrue
solely to the benefit of the owners of policies included in the Closed Block
until the Closed Block is no longer in effect. The Company will not be
required to support the payment of dividends and interest credits on the
Closed Block policies from its general funds, although it could choose to
provide such support. The Company will continue to pay guaranteed benefits
under all policies, including policies included in the Closed Block, in
accordance with their terms.
The financial information of the Closed Block, while prepared on a GAAP
basis, reflects its contractual provisions and not its actual results of
operations and financial position. Many expenses related to the Closed Block
operations are charged to operations outside of the Closed Block; accordingly,
the contribution from the Closed Block does not represent the actual
profitability of the Closed Block operations. Operating costs and expenses
outside of the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
Summarized financial information of the Closed Block as of December 31,
1997 and 1996 and for the year ended December 31, 1997 and for the six months
ended December 31, 1996, is as follows (in thousands):
December 31,
1997 1996
---- ----
Assets:
Fixed maturity securities, at fair value
(amortized cost of 1997 - $1,004,976;
1996 - $883,351) $1,053,066 $901,261
Short-term investments, at fair value 660 3,126
Policy loans 168,368 166,827
Other investments 591 -
Cash 21 3
Accrued Investment Income 12,617 10,798
Premiums and fees receivable 3,591 4,998
Deferred policy acquisition costs 143,765 175,235
Other assets 9,169 7,920
---------- ----------
$1,391,848 $1,270,168
========== ==========
Liabilities:
Future life and annuity policy benefits $1,448,725 $1,363,073
Policyowner funds 6,786 7,602
Accrued expenses 5,980 2,969
Dividends payable to policyowners 135,985 132,661
Policy and contract claims 5,966 4,765
Other liabilities 19,990 6,201
---------- ----------
$1,623,432 $1,517,271
========== ==========
Revenues and Expenses:
Insurance premiums $206,145 $108,315
Universal life and annuity product charges 17,465 9,324
Net investment income 113,759 56,329
Realized gains on investments 718 481
Policyowner benefits (209,377) (103,951)
Underwriting, acquisition, and insurance expenses (6,604) (2,969)
Amortization of deferred policy acquisition costs (31,470) (18,412)
Dividends to policyowners (59,591) (29,208)
---------- ----------
Contribution from the Closed Block before
income taxes $31,045 $19,909
========== =========
/TABLE
Investments
Investments in fixed maturity and equity securities that are to be held
for indefinite periods of time are reported as securities available for sale.
Securities available for sale are reported in the accompanying consolidated
financial statements at fair value. Any valuation changes resulting from
changes in the fair value of these securities are reflected as a component of
stockholders' equity. These unrealized gains or losses in stockholders' equity
are reported net of taxes and adjustments to deferred policy acquisition
costs.
Investments in debt securities which were purchased principally for the
purpose of selling such securities in the near term are classified as trading
securities and are carried at market. Unrealized gains (losses) are included
in earnings.
Premiums and discounts on fixed maturity securities are amortized or
accreted over the life of the related security as an adjustment to yield using
the effective interest method. Realized gains and losses are included in
earnings and are determined using the specific identification method. The
carrying value of investments is reduced to its estimated realizable value if
a decline in fair value is considered other than temporary with such reduction
charged to earnings.
Mortgage loans on real estate and other long-term investments are stated
at cost less amortized discounts and allowances for possible losses. Policy
loans are stated at their aggregate unpaid balances. Real estate acquired by
foreclosure is stated at the lower of cost or fair value less estimated costs
to sell.
Investments in real estate and mortgage loans on real estate are
considered impaired when the Company determines that collection of all amounts
due under the contractual terms is doubtful or carrying values exceed the fair
value of underlying collateral. The Company adjusts real estate and mortgage
loans on real estate to their estimated net realizable value at the point at
which it determines an impairment is other than temporary. Interest income on
impaired mortgage loans is recognized when cash is received. In addition, the
Company has established a valuation allowance for mortgage loans on real
estate and other invested assets. Valuation allowances for other than
temporary impairments in value are netted against the asset categories to
which they apply, and additions to valuation allowances are included in total
investment results.
Interest Rate Swaps, Caps, Swaptions and Options
The Company uses interest rate swaps, caps, and swaptions as part of its
overall interest rate risk management strategy for certain life insurance and
annuity products. The book values of the underlying hedged investments or
anticipated investment transactions are amortized over the remaining lives of
the hedged investments as adjustments to investment income. Certain agreements
hedge assets which are carried at fair value; accordingly, such underlying
hedged investments are also carried at fair value. Any unamortized gains or
losses are recognized when the underlying investments are sold.
Interest rate swap contracts are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of
the related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income as incurred.
Interest rate caps are used to limit the effects of changing interest
rates on yields of variable rate or short-term assets or liabilities. The
initial cost of any such agreement is amortized to investment income over the
life of the agreement. Periodic payments that are receivable as a result of
the agreements are accrued as an adjustment of investment income.
Swaption agreements are used in conjunction with interest rate caps to
protect against rising rates. Swaption agreements involve the right to enter
into a swap transaction at a pre-specified price. The initial cost of a
swaption agreement is amortized to investment income over the life of the
agreement.
The Company has equity-indexed annuity products that guarantee the return
of principal to the customer and credits interest based on a percentage of the
gain in the S&P 500 Index -Registered Trademark-. A portion of the premium
from each customer is invested in investment grade fixed income securities to
cover the minimum guaranteed value due the customer at the end of the term. A
portion of the premium is used to purchase S&P 500 call options to hedge the
growth in interest credited to the customer as a direct result of increases in
the S&P 500 Index -Registered Trademark-. The call options provide the
Company the opportunity to participate in the increases of the S&P 500 Index
- -Registered Trademark- if the market advances.
Policy Acquisition Costs
Certain commissions, policy issue and underwriting costs, and other
variable costs incurred to acquire or renew traditional life insurance,
universal life insurance, and annuity products have been deferred. The method
of amortizing deferred policy acquisition costs for traditional life insurance
products varies, dependent upon whether the contract is participating or
non-participating. Participating contracts are those which are expected to pay
dividends to policyowners in proportion to their relative contribution to the
Company's surplus. Deferred policy acquisition costs for participating
traditional life insurance are amortized over the life of the policies
generally in proportion to the present value of estimated gross margins.
Non-participating traditional life insurance deferred policy acquisition costs
are amortized over the premium-paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated
premium revenues using assumptions consistent with those used in computing
policy benefit reserves. For universal life insurance and annuity products,
deferred policy acquisition costs are amortized generally in proportion to the
present value of estimated gross margins from surrender charges and
investment, mortality, and expense margins. The amortization for participating
traditional life, universal life, and annuity products is adjusted
retrospectively when current or estimated future gross margins on the
underlying policies vary from previous estimates. The deferred policy
acquisition cost asset is adjusted for the impact on estimated gross profits
of net unrealized gains and losses on securities.
Value of Business Acquired
Value of Business Acquired ("VOBA") from insurance companies acquired
represents the portion of the purchase price allocated to the right to receive
future cash flows from insurance contracts existing at the date of the
acquisition. This cost of policies purchased represents the actuarially
determined present value of the projected future cash flows from the acquired
policies.
The expected future cash flows used in determining such value are based on
actuarially determined projections of future premium receipts, mortality,
surrenders, operating expenses, changes in insurance liabilities, investment
yields on the assets retained to support the policy liabilities and other
factors. These projections take into account all factors known or expected at
the valuation date, based on the judgment of management. The actual
experience on purchased business may vary from projections due to differences
in renewal premium, investment spread, investment gains or losses, mortality
and morbidity costs and other factors.
The discount rate used to determine the value of policies purchased is the
rate of return required in order to invest in the business being acquired.
Factors in determining this rate include the cost of capital required to fund
the acquisition; the acquired company's compatibility with other Company
activities that may impact future cash flows; the complexity of the acquired
company; and recent discount rates used by others to determine valuations to
acquire similar blocks of business.
VOBA is amortized based on the incidence of the expected cash flows using
the interest rate credited to the underlying policies. If cash flows differ
from expectations, the amortization of the VOBA is adjusted. Each year, the
recoverability of the VOBA is evaluated and if the evaluation indicates that
the existing insurance liabilities, together with the present value of future
net cash flows from the blocks of business acquired, is insufficient to
recover the VOBA, the difference is charged to expense as an additional
write-off of the VOBA.
Goodwill
Goodwill represents the excess of the amount paid to acquire a company
over the fair value of its net assets. Goodwill is amortized on a straight-line
basis over a thirty year period. The value of goodwill is monitored
based on the estimates of future earnings. If it is determined that future
earnings do not support the recoverability of goodwill, its carrying value is
reduced by a corresponding charge to expense.
Recognition of Revenues
Premiums for traditional life insurance products (including those products
with fixed and guaranteed premiums and benefits and which consist principally
of whole life insurance policies and certain annuities with life
contingencies) are recognized as revenues when due. For limited payment life
insurance policies, premiums are recorded as income when due with any excess
profit deferred and recognized over the expected lives of the contracts.
Amounts received as payments for universal life insurance policies and for
annuity products (including deferred annuities and annuities without life
contingencies) are not recorded as premium revenue. Revenues for such
contracts consist of policy charges for the cost of insurance, policy
administration charges, and surrender charges assessed against policyowner
account balances during the period. All insurance-related revenue is reported
net of reinsurance ceded.
Future Policy Benefits
The liability for future policy benefits for traditional life insurance is
computed using the net level method, utilizing the guaranteed interest and
mortality rates used in calculating cash surrender values as described in the
contracts. Reserve interest assumptions range from 2.00 percent to 7.25
percent. The weighted average assumed interest rate for all traditional life
policy reserves was 4.27 percent in 1997, 4.23 percent in 1996 and 4.20
percent in 1995. Policy benefit claims are charged to expense in the period
that the claims are incurred. All insurance-related benefits, losses, and
expenses are reported net of reinsurance ceded.
Future policy benefit reserves for universal life insurance and annuity
products are computed under a retrospective deposit method and represent
policy account balances before applicable surrender charges. Policy benefits
and claims that are charged to expense include benefit claims incurred in the
period in excess of related policy account balances. The weighted average
interest crediting rates for universal life products were 6.23 percent in
1997, 6.27 percent in 1996 and 6.46 percent in 1995. The range of interest
crediting rates for annuity products excluding bonus interest payouts, were
4.50 to 6.70 percent in 1997, 4.50 to 6.15 percent in 1996 and 4.75 to 8.00
percent in 1995.
Participating Policies
Participating policies entitle the policyowners to receive dividends based
on actual interest, mortality, morbidity, and expense experience for the
related policies. These dividends are distributed to the policyowners through
an annual dividend using current dividend scales which are approved by the
board of directors. Nearly 100 percent of traditional life policies are
currently paying dividends and traditional life policies represent
approximately 59 percent of the Company's individual life policies in force.
Property and Equipment
Property and equipment is recorded at cost and is depreciated principally
under the straight-line method.
Stock-Based Compensation
SFAS 123, "Accounting for Stock-Based Compensation," requires increased
disclosure of compensation expense arising from stock compensation plans.
SFAS 123 encourages rather than requires companies to adopt a new method of
accounting for stock compensation awards based on their estimated fair value
at the date they are granted. Companies are permitted to continue accounting
under APB Opinion 25 which requires compensation cost be recognized based on
the difference, if any, between the quoted market price of the stock on the
date of grant and the amount an employee must pay to acquire the stock. The
Company has elected to continue to apply APB Opinion 25 in its consolidated
financial statements and has disclosed pro forma net income and earnings per
share information.
Guaranty Fund Assessments
The Company is subject to insurance guaranty laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyowners and claimants in the event of
insolvency of other life insurance companies. As of December 31, 1997, the
Company has accrued for the gross amount of guaranty fund assessments for
known insolvencies net of estimated recoveries of premium tax offsets.
Benefit Plan Costs
The Company recognizes pension costs for its defined benefit plans in
accordance with SFAS 87, "Employers' Accounting for Pensions." Pension costs
are funded according to regulations provided under the Internal Revenue Code.
Postretirement Benefits Other than Pensions
Under SFAS 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," the cost of postretirement benefits must be recognized on an
accrual basis as employees perform services to earn the benefits.
Income Taxes
The Company and its subsidiaries, with the exception of American Vanguard
Life, filed a consolidated federal income tax return with the non-life
insurance subsidiaries of AMHC through February 3, 1997. For the short tax
year beginning February 4, 1997 the Company and its subsidiaries, with the
exception of AmerUs Life and American Vanguard Life Insurance Company (which
file a consolidated life insurance federal income tax return), Delta, American
and FBL (which file separate federal income tax returns), file a consolidated
federal income tax return. The separate return method is used to compute the
Company's provision for federal income taxes. Deferred income tax assets and
liabilities are determined based on differences among the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws.
Earnings Per Share
The Company adopted the provisions of SFAS 128, "Earnings per Share",
which had no effect on the Company's previously reported earnings per share
information for 1996 and 1995. 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.
Emerging Accounting Matters
SFAS 130
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components: revenues, expenses, gains, and
losses. All items that are required to be recognized under accounting
standards as components of comprehensive income, consisting of changes in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources, are to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 is effective for financial statements
beginning after December 15, 1997. The provisions of SFAS 130 are of a
reporting nature and are not expected to have an impact on the financial
position or results of operations of the Company.
SFAS 131
In June 1997, the FASB issued Statement 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes standards for
the way that public businesses report information about operating segments in
financial statements. Operating segments are components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and assess performance. Generally, financial information is
required to be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to segments. SFAS
131 is effective for financial statements for periods beginning after December
15, 1997. The provisions of SFAS 131 are of a reporting nature and are not
expected to have an impact on the financial position or results of operations
of the Company, as the life insurance and annuity operation is the Company's
only business segment.
SFAS 132
In February 1998, the FASB issued Statement 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits". SFAS 132 standardizes an
employer's disclosures about pension and other postretirement benefit plans,
requires additional information on the benefit obligations and fair values of
plan assets and on changes in the benefit obligations and fair values of plan
assets and eliminates certain disclosures. SFAS 132 is effective for
financial statements for periods beginning after December 15, 1997. The
provisions of SFAS 132 are of a reporting nature and are not expected to have
an impact on the financial position or results of operations of the Company.
SOP 97-3
In December 1997, the American Institute of Certified Public Accountants
(AICPA) issued 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.
SOP 97-3 is effective for fiscal years beginning after December 15, 1998;
however, its adoption will not have a 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.
Business Risks
The Company operates in a business environment which is subject to various
risks and uncertainties. Such risks and uncertainties include interest rate
risk, legal and regulatory changes, and default risk.
Interest rate risk is the potential for interest rates to change, which
can cause fluctuations in the value of investments. To the extent that
fluctuations in interest rates cause the duration of assets and liabilities to
differ, the Company may have to sell assets prior to their maturity and
realize losses. Interest rate exposure for the investment portfolio is managed
through asset/liability management techniques which attempt to match the
duration of the assets with the estimated duration of the liabilities. The
Company also utilizes derivative investment contracts to manage interest rate
risk.
The potential also exists for changes in the legal or regulatory
environment in which the Company operates, which can create additional costs
and expenses not anticipated by the Company in pricing its products. In other
words, regulatory initiatives or new legal theories may create costs for the
Company beyond those recorded in the financial statements. The Company
mitigates this risk by operating in a geographically diverse area, which
reduces its exposure to any single jurisdiction, closely monitoring the
regulatory environment to anticipate changes, and by using underwriting
practices which identify and minimize the potential adverse impact of this
risk.
Default risk is the risk that issuers of securities owned by the Company
may default or that other parties, including reinsurers, may not be able to
pay amounts due the Company. The Company minimizes this risk by adhering to a
conservative investment strategy, holding a well diversified portfolio of
assets to minimize concentrations, maintaining sound reinsurance and credit
and collection policies, and providing allowances or reserves for any amounts
deemed uncollectible.
(2) Investments
The Company's investments at December 31, 1997 and 1996 are classified as
available-for-sale securities and trading securities and are summarized as
follows:
Gross Gross
Amortized UnrealizedUnrealized Fair
Cost Gains Losses Value
--------- ------------------- -----
(In thousands)
Fixed maturity securities
available-for-sale
at December 31, 1997:
Corporate bonds $3,513,858 $85,494 $2,347 $3,597,005
U.S. government bonds 49,058 555 11 49,602
State and political subdivisions 9,563 65 5 9,623
Foreign government bonds 68,592 4,048 1,469 71,171
Mortgage-backed bonds 3,002,523 33,897 1,669 3,034,751
Redeemable preferred stock 87,233 2,042 - 89,275
---------- -------- ------ ----------
Fixed maturities available for sale $6,730,827 $126,101 $5,501 $6,851,427
Fixed maturity securities held for
trading purposes:
Corporate bonds 22,799 - - 22,799
Redeemable preferred stock 156 - - 156
---------- -------- ------ ---------
Fixed maturities held for trading
purposes 22,955 - - 22,955
---------- -------- ------ ---------
Total fixed maturities $6,753,782 $126,101 $5,501 $6,874,382
========== ======== ====== ==========
Equity securities-available for sale $60,262 $1,218 $ - $61,480
======= ====== ====== =======
Short-term investments-available
for sale $12,595 $ - $ - $12,595
======= ====== ====== =======
/TABLE
Gross Gross
Amortized unrealized unrealized Fair
Cost gains losses value
-------- -------- --------- -------
(In thousands)
Available-for-sale securities at December 31, 1996:
Fixed maturity securities:
Corporate bonds $1,391,421 $60,164 $4,915 $1,446,670
U.S. government bonds 41,270 222 109 41,383
Foreign government bonds 20,114 1,638 78 21,674
Mortgage-backed bonds 819,264 22,751 2,054 839,961
Redeemable preferred stock 63,806 1,418 105 65,119
---------- ------- ------ ----------
$2,335,875 $86,193 $7,261 $2,414,807
========== ======= ====== ==========
Equity securities $60,247 $3,832 $46 $64,033
========== ======= ====== ==========
Short-term investments $13,288 $ - $ - $13,288
========== ======= ====== ==========
The amortized cost and estimated fair value of investments in fixed
maturity securities at December 31, 1997, are summarized by stated maturity as
follows:
Amortized Fair
Cost Value
---------- ---------
(In thousands)
Fixed maturity available for sale:
Due in 1998 $ 64,992 $ 65,305
Due in 1999 - 2003 1,337,084 1,358,847
Due in 2004 - 2008 1,495,019 1,526,514
Due after 2008 831,209 866,010
Mortgage-backed securities 3,002,523 3,034,751
---------- ----------
$6,730,827 $6,851,427
---------- ----------
Fixed maturity trading:
Due in 1998 $ - $ -
Due in 1999 - 2003 1,455 1,455
Due in 2004 - 2008 18,500 18,500
Due after 2008 3,000 3,000
Mortgage-backed securities - -
----------- -----------
22,955 22,955
---------- ----------
Total $6,753,782 $6,874,382
========== ==========
The foregoing data is based on the stated maturities of the securities.
Actual maturities will differ for some securities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
The ratings of the Company's fixed maturity securities at December 31,
1997, using Standard & Poor's rating service, are summarized as follows (in
thousands):
Treasuries and AAA $3,792,038
AA 359,976
A 785,036
BBB 1,527,482
BB 250,295
Less than BB 159,555
----------
$6,874,382
==========
Major categories of investment income are summarized as follows:
Years ended December 31,
---------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Fixed maturity securities $178,429 $195,073 $231,208
Equity securities 9,122 2,993 6,311
Mortgage loans on real estate 30,373 26,254 33,738
Real estate 1,048 6,891 9,729
Policy loans 5,215 9,426 14,043
Other 10,036 600 5,211
-------- -------- --------
Gross investment income 234,223 241,237 300,240
Investment expenses 9,792 12,612 14,996
-------- -------- --------
Net investment income $224,431 $228,625 $285,244
======== ======== ========
Investment expenses include depreciation on real estate of $0.3 million,
$2.0 million and $2.9 million in the years ended December 31, 1997, 1996 and
1995, respectively.
The foregoing summarization does not include investment income
attributable to Closed Block investments of $113.8 million and $56.3 million
for the year ended December 31, 1997 and the six months ended December 31,
1996, respectively.
Realized gains and losses on investments and provisions for losses are
summarized as follows:
Years ended December 31,
--------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Securities available-for-sale:
Fixed maturity securities:
Gross realized gains $15,862 $21,088 $18,652
Gross realized losses (9,335) (13,331) (9,240)
Equity securities:
Gross realized gains 3,670 55,646 45,419
Gross realized losses (57) (451) (3,634)
Other investments 2,796 (998) 812
Net provision for (losses)recoveries-
mortgage loans on real estate 855 4,029 (622)
------- ------- -------
$13,791 $65,983 $51,387
======= ======= =======
The unrealized appreciation on invested assets available-for-sale is
reported as a separate component of stockholders' equity, reduced by
adjustments to deferred acquisition costs and a provision for deferred income
taxes.
A summary of the components of the net unrealized appreciation on
invested assets carried at fair value is as follows:
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Unrealized appreciation:
Fixed maturity securities $119,507 $78,932 $190,847
Equity securities 1,218 3,786 56,806
Short-term investments - - 77
Other investments 304 3,263 6,335
Closed Block investments 48,090 18,002 -
Deferred policy acquisition costs (83,426) (51,476) (88,039)
Deferred income taxes (29,946) (17,207) (57,312)
------- -------- ---------
$55,747 $35,300 $108,714
======= ======== ========
The change in unrealized appreciation on fixed maturity securities was $41
million, ($112) million and $288 million for the years ended December 31,
1997, 1996 and 1995, respectively; the corresponding amounts for equity
securities were ($3) million, ($53) million and ($9) million, respectively.
At December 31, 1997, investments in fixed maturity securities with a
carrying amount of $4.0 million were on deposit with state insurance
departments to satisfy regulatory requirements.
No investment in any person or its affiliates exceeded 10 percent of
stockholders' equity at December 31, 1997.
(3) Mortgage Loans on Real Estate
Mortgage loans on real estate consist almost entirely of commercial
mortgage loan investments, substantially all of which are made on a full
recourse basis and consist primarily of fixed-rate first mortgages on
completed properties. The following table sets forth additions, reductions
from payments, and other charges and foreclosures related to the mortgage loan
portfolio:
December 31,
-------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Commercial loans:
Beginning balance $234,002 $379,414 $504,034
Additions 18,618 21,760 39,933
Payments and miscellaneous charges (72,152) (113,764) (146,496)
Sales - (47,234) -
Foreclosed properties - (6,174) (18,057)
Acquisition of Delta 270,599 - -
Acquisition of AmVestors 9,524 - -
-------- -------- -------
Ending balance 460,591 234,002 379,414
Residential and other mortgage loans 17,166 3,363 4,250
Valuation allowance (15,284) (11,622) (30,067)
-------- -------- -------
Total mortgage loans $462,473 $225,743 $353,597
======== ======== ========
The Company manages its credit risk associated with these loans by
diversifying its mortgage portfolio by property type and geographic location
and by seeking favorable loan to value ratios on secured properties. The
portfolio credit risk for mortgage loans was concentrated in the following
geographic regions:
December 31,
-----------------------------------
1997 1996
Number Amount Number Amount
------ ------ ------ -------
(Dollars in thousands)
Commercial:
California 16 $27,995 20 $39,824
Colorado 8 11,520 8 11,937
Florida 61 95,498 4 15,375
Iowa 47 57,621 48 66,808
Kansas 9 11,480 11 20,934
Michigan 31 28,090 2 809
Tennessee 56 32,127 - -
Texas 82 75,429 6 21,521
Other 125 120,831 44 56,794
Residential 129 17,166 69 3,363
Valuation allowance (15,284) (11,622)
--- -------- --- --------
564 $462,473 212 $225,743
=== ======== === ========
At December 31, 1997, the Company's investment in mortgage loans included
$22.4 million in loans that are considered to be impaired, for which the
related allowance for credit losses is $2.4 million. The average recorded
investment in impaired loans during the year ended December 31, 1997, was
$23.7 million. For the year ended December 31, 1997, the Company recorded $2.1
million in interest income on those impaired loans.
No mortgage loan on any one individual property exceeded $13 million at
December 31, 1997.
Provisions for losses are summarized as follows:
Years ended December 31,
---------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Balance at beginning of year $11,622 $30,067 $65,549
Provisions for losses - mortgage loans (856) (4,029) 622
Provision on mortgages sold/transferred
to real estate (50) (14,416) (36,104)
------ ------- -------
Net decrease for year (906) (18,445) (35,482)
Provision for mortgages acquired 4,568 - -
------ ------- -------
Balance at end of year $15,284 $11,622 $30,067
======= ======= =======
/TABLE
(4) Deferred Policy Acquisition Costs
A summary of the policy acquisition costs deferred and amortized are as
follows:
Years ended December 31,
-------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Balance at beginning of year $171,957 $355,750 $348,259
Deferred policy acquisition costs
associated with Closed Block
policies at formation of
Closed Block - (193,647) -
Policy acquisition costs deferred 51,352 50,014 57,730
Policy acquisition costs amortized (20,987) (40,160) (50,239)
------- -------- --------
202,322 171,957 355,750
Unrealized gain on
available-for-sale securities (83,426) (51,476) (88,039)
------- ------- --------
Balance at end of year $118,896 $120,481 $267,711
======== ========= =========
The components of the deferred policy acquisition costs are as follows:
December 31,
-------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Universal life insurance and
annuity products $157,455 $156,578 $203,949
Participating traditional life insurance 36,006 13,419 131,602
Non-participating traditional life insurance 8,861 1,960 20,199
------ ------ -------
$202,322 $171,957 $355,750
Unrealized gain on
available-for-sale securities (83,426) (51,476) (88,039)
------- -------- --------
$118,896 $120,481 $267,711
======== ======== ========
/TABLE
Commissions represent approximately 84 percent of deferred policy acquisition
costs.
(5) Debt and Capital Securities
Debt consists of the following:
December 31,
--------------------
1997 1996
---- ----
(In thousands)
Federal Home Loan Bank community investment
long-term advances with a weighted average
interest rate of 6.35% at December 31, 1997
maturing at various dates through July 2010 (A) $16,435 $13,381
Revolving credit agreement bearing
interest at 6.6%(B) 250,000 -
Bank Credit Facility:(C)
Term loan - 100,000
Revolving credit loan - 75,000
-------- --------
$266,435 $188,381
======== ========
(A) The Company has multiple credit arrangements with the Federal Home Loan
Bank (FHLB). In addition to the long-term advances disclosed above, the
Company has a $25 million open secured line of credit and periodically,
the Company borrows amounts under repurchase agreements, of which no
amount was outstanding under either type of facility at December 31,
1997. The carrying value of the securities pledged to the FHLB under all
agreements was $17.4 million at December 31, 1997.
(B) The revolving credit agreement provides for a maximum borrowing of $250
million with the balance maturing in October 2002. The interest rate is
variable, however, the Company may elect to fix the rate for periods from
30 days to six months. The loan agreement contains various financial and
operating covenants which, among other things, limit future indebtedness
and restrict the amount of future dividend payments. In addition, the
Company has pledged 49.9% of the stock of AmerUs Life, the stock of Delta
and a $50 million note payable to the Company by AmerUs Life.
(C) The bank credit facility was retired in 1997.
Maturities of long-term debt are as follows for each of the five years
ending December 31:
(In thousands)
-------------
Year ending December 31:
1998 $ 384
1999 410
2000 437
2001 467
2002 250,498
Thereafter 14,239
--------
$266,435
========
On February 3, 1997, the Company issued $86,000,000 of 8.85% Capital
Securities, Series A, through a wholly-owned subsidiary trust. The sole asset
of the trust is the junior subordinated debentures of the Company in the
principal amount of $88.66 million with interest at 8.85% maturing February 1,
2027. The Company has fully and unconditionally guaranteed the obligation of
the trust under the Capital Securities and is obligated to mandatorily redeem
the securities on February 1, 2027. The Company may prepay the securities at
anytime after February 1, 2007.
Interest expense on the debt and capital securities totaled $14.9 million,
$2.1 million and $2.4 million in the years ended December 31, 1997, 1996 and
1995, respectively.
(6) Income Taxes
Comprehensive federal income tax expense is summarized as follows:
Years ended December 31,
---------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Income tax expense on:
Operations $22,022 $43,859 $41,202
Unrealized holding gains (losses) on
available-for-sale securities 12,739 (40,105) 50,246
------- ------- -------
$34,761 $3,754 $91,448
======= ======= =======
The effective income tax rate on pre-tax income is higher than the
prevailing corporate federal income tax rate and is summarized as follows:
Years ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
Corporate federal income tax rate 35.00% 35.00% 35.00%
Differential earnings amount - 3.78 -
Tax-exempt investment income (.54) (.20) (.24)
Acquisitions costs and reorganization expense .22 .30 .48
Goodwill amortization .39 .06 -
Net benefit of tax credits (7.88) (2.39) -
Other items, net .32 .61 2.03
----- ----- -----
Effective tax rate 27.51% 37.16% 37.27%
===== ===== =====
The differential earnings amount is an equity add-on tax which mutual life
insurance companies are required to pay. The amount is determined annually and
is calculated by comparing the earnings rate of mutual life insurance
companies and certain stock life insurance companies. In 1995, the calculation
resulted in a negative adjustment with no additional tax amount to be paid.
The Company believes this tax is not applicable to the Company after June 30,
1996, due to AmerUs Life's conversion to a stock life insurance company.
The Company's federal income tax expense (benefit) is summarized as
follows:
Years ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Current $19,866 $51,849 $44,307
Deferred 2,156 (7,990) (3,105)
------- ------- -------
Total federal income tax expense $22,022 $43,859 $41,202
======= ======= =======
</TABLE
The significant components of net deferred income tax liabilities are
summarized as follows:
December 31,
1997 1996
---- ----
(In thousands)
Deferred income tax assets:
Policy reserves and policyholder funds $240,245 $99,137
Policy acquisition costs capitalized for tax 39,899 29,771
Deferred policy acquisition costs related to
unrealized appreciation 29,199 18,017
Deferred compensation 14,670 12,928
Other 34,348 18,651
-------- -------
Total gross deferred income tax asset 358,361 178,504
-------- ---------
Deferred income tax liabilities:
Deferred policy acquisition costs (120,536) (120,585)
Net unrealized appreciation on available-for-sale
securities (58,811) (36,394)
Net unrealized investment appreciation from
acquisitions (38,421) -
Reinsurance receivable (41,738) (14,686)
Value of business acquired (93,105) -
Other (22,664) (8,176)
------- --------
Total gross deferred tax liability (375,275) (179,841)
------- --------
Net deferred income tax liability $(16,914) $(1,337)
======= ========
The Company is required to establish a "valuation allowance" for any
portion of the deferred tax asset that management believes will not be
realized. In the opinion of management, it is more likely than not that it
will realize the benefit of the deferred tax assets, and, therefore, no such
valuation allowance has been established.
Federal Income tax returns for the Company for years through 1989 are
closed to further assessment of taxes. The Internal Revenue Service is
examining federal income tax returns of the Company for 1990 through 1994.
Management believes adequate provisions have been made for any additional
taxes which may become due with respect to open years.
Income taxes paid by the Company totaled $42.8 million, $45.4 million and
$51.9 million in the years ended December 31, 1997, 1996 and 1995,
respectively.
(7) Employee Benefit Plans
Defined Benefit Plans
The Company has defined benefit pension plans which covered substantially
all of the Company's employees, as well as employees of certain other
subsidiary companies of AMHC. The plans provided for benefits based upon years
of service and the employee's compensation. The Company froze the defined
benefit pension plans effective December 31, 1995, and has recognized its
portion of a curtailment gain amounting to $6.2 million, or $3.1 million after
federal excise taxes. Effective January 1, 1996, the defined benefit pension
plans were replaced by a defined contribution savings and retirement plan
which also replaced the Company's defined contribution pension plans. The
Company has recorded a prepaid pension asset of $6,901,000 and $6,757,000 at
December 31, 1997 and 1996, respectively. The Company's portion of net
pension (benefit) cost was ($951,000), ($954,000), and $696,000 for 1997, 1996
and 1995, respectively. The Company had settlements under the defined benefit
plan and recognized a loss under SFAS 88 of approximately $796,000 in 1997.
Defined Contribution Pension Plans
The Company had three defined contribution 401(k) plans which covered
substantially all employees. The Company's total contribution under the plans
amounted to $0.4 million in the year ended December 31, 1995. Effective
January 1, 1996, the defined contribution 401(k) plans together with the
defined benefit pension plans were replaced by a single defined contribution
savings and retirement plan to which total contributions from the Company
amounted to $3.7 million and $2.4 million in 1997 and 1996, respectively.
Nonqualified Pension Plan
The Company has a nonqualified pension plan covering substantially all of
AmerUs Life's career and general agents. Accumulated benefits of the plan are
unfunded and have been included in other liabilities at December 31, 1997, and
December 31, 1996, amounting to $16.7 million, and $13.9 million,
respectively.
Postretirement Plans
The Company has postretirement benefit plans which provide certain
eligible participants and dependents with certain medical, dental, and life
insurance benefits. The Company's plan for medical and life insurance
benefits is combined with that of the subsidiaries of AMHC. The Company has
accrued its share of the postretirement benefit cost amounting to $7,532,000
and $7,140,000 as an other liability at December 31, 1997 and 1996,
respectively. The Company's portion of net periodic postretirement benefit
expense was $392,000 in 1997 and $612,000 in 1996, respectively. As of
January 1, 1996 the plan was changed to provide a fixed monthly benefit for
medical benefits; accordingly, information for the health care cost trend rate
is not applicable.
Leveraged Employee Stock Ownership Plan
The Company has a Leveraged Employee Stock Ownership Plan ("LESOP") which
was sponsored by AmVestors for all full-time employees with one year of
service. The LESOP acquired AmVestors stock, which was subsequently exchanged
for the Company's stock, through the proceeds of a note payable to American.
The note bears interest at 7.0% and is payable in annual installments through
December 30, 2002. The note had an unpaid principal balance of $2,290,693 at
December 31, 1997. The LESOP held 123,909 unallocated shares of the Company's
Class A Common Stock at December 31, 1997.
(8) Related Party Transactions
The Company made a capital contribution of $79 million to the non-life
insurance subsidiaries which were then distributed to AmerUs Group in 1996.
The following summarizes transactions of the Company with affiliates:
Years ended December 31,
--------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Dividend to AmerUs Group $5,012 $4,158 $41,156
Management, administrative, data processing,
rent and other services fee
income from affiliates 10,983 7,640 10,423
Commissions paid to affiliates for the sale of
insurance products 1,833 521 1,259
Interest income from financings of affiliates 5,300 6,794 6,000
Investments in bonds and accrued
interest of affiliates - 7,648 12,868
Contribution of joint venture interests
and sale of partnership interests to
partnerships in which an affiliate has
an interest 10,979 1,638 10,957
Purchase of limited partnership interest
in which an affiliate has an interest - 2,160 -
Investments in partnerships and joint
ventures in which an affiliate has an
interest 11,987 18,557 9,625
Purchase of investments backed by the assets
of a trust which acquired loans from an
affiliate - 46,755 -
Investments in mortgage loans from
affiliated companies and joint ventures 46,004 62,372 63,977
Payable to an affiliate for
purchase of commercial mortgage loans at
December 31 - - 6,520
Transfer of partnership interests in
certain joint ventures to an affiliate - 1,697
Purchase of mortgage loans from affiliates 111,361 - -
Real estate management and mortgage
servicing fees charged by an affiliate 2,840 2,528 2,555
(9) Reinsurance
At December 31, 1997, the Company's maximum retention limit for acceptance
of risk on life insurance was $1 million. The Company has indemnity
reinsurance agreements with various companies whereby insurance in excess of
its retention limits are reinsured. Insurance in-force ceded to nonaffiliated
companies under risk sharing arrangements at December 31, 1997, 1996 and 1995,
totaled approximately $4,102 million, $4,170 million and $2,917 million,
respectively.
Total life premiums ceded amounted to $16.4 million, $14.8 million and
$14.2 million for the years ended December 31, 1997, 1996, and 1995,
respectively. Total life premiums assumed amounted to $1.4 million,
$1.5 million and $4.9 million, for the years ended December 31, 1997, 1996 and
1995, respectively.
At December 31, 1997, Delta Life reinsured 50% of its equity index annuity
reserves amounting to $76.9 million with an unaffiliated reinsurer.
The Company is contingently liable for the portion of the policies
reinsured under each of its existing reinsurance agreements in the event the
reinsurance companies are unable to pay their portion of any reinsured claim.
Management believes that any liability from this contingency is unlikely.
However, to limit the possibility of such losses, the Company evaluates the
financial condition of its reinsurers and monitors concentration of credit
risk.
(10) Commitments and Contingencies
The Company has agreed to make loans up to $3.5 million to newly formed
partnerships.
The Company has entered into agreements with various partnerships in which
a subsidiary of AMHC has an interest. Pursuant to these agreements the
Company is obligated to make future capital contributions to the partnerships
of up to $3,700,000.
At December 31, 1997, Delta has outstanding two commitments for
conventional mortgage loans. These commitments totaled $2,460,000 at rates of
8.1% to 8.5%. The Company also had commitments to purchase $11,033,769 of
securities at rates of 6.68% to 6.82%.
The Company is party to financial instruments in the normal course of
business to meet the financing needs of its customers having risk exposure not
reflected in the balance sheet. These financial instruments include
commitments to extend credit and standby letters of credit. Commitments to
extend credit are agreements to lend to customers. Commitments generally have
fixed expiration dates and may require payment of a fee. Since many
commitments expire without being drawn upon, the total amount of commitments
does not necessarily represent future cash requirements. At December 31, 1997,
outstanding commitments to extend credit totaled approximately $3.5 million.
AmerUs Life is a defendant 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 alleges
that AmerUs Life breached the terms of certain life and annuity policies,
breached certain other duties owed to policyowners and violated RICO, when it
allegedly passed an increase in its corporate income taxes (known as the
deferred acquisition costs, or DAC, tax) through to owners of those policies.
The plaintiff, an insured under a universal life policy issued by Central Life
(the predecessor of AmerUs Life), seeks unspecified actual and punitive
damages and injunctive relief on behalf of himself and all policyowners of
AmerUs Life with universal life, term and "blended" life insurance policies
and annuities. AmerUs Life denies the allegations contained in the complaint,
including the existence of a legitimate class. The litigation is in the
discovery stage and is being vigorously defended by AmerUs Life. A hearing on
certification of the class has not yet been scheduled. An earlier companion
case filed in the same court in June 1996 was dismissed in October 1997.
Despite the Company's vigorous defense of this class action lawsuit and
its denial of any wrongdoing, there can be no assurance that the outcome of
this type of lawsuit will not have a material adverse effect on the Company's
results of operations.
AmerUs Life settled a class action lawsuit which was filed in 1995 in the
District Court for Travis County, Texas. The complaint alleged that sales
presentations and policy illustrations misrepresented that premiums would
"vanish" after a stated number of years, without adequate disclosure of the
effect of changes in the policy dividends. Although AmerUs Life denied the
allegations contained in such complaint and denied any wrongdoing in
connection with such allegations, AmerUs Life and the plaintiffs entered into
a nationwide settlement of certain market conduct issues for a substantial
block of AmerUs Life's policies. On September 16, 1997, the court entered an
order approving the certification of the class and the fairness of the
settlement. The settlement is currently being implemented.
The eventual costs of any settlement cannot be precisely determined at
this time, but the Company believes that the costs will be within the
initially estimated range of loss of between five and eight million dollars.
The Company has a reserve of five million dollars for settlement of the case.
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.
(11) Stockholders' Equity
Generally, the stockholders' equity of the Company's insurance
subsidiaries available for distribution to the Company is limited to the
amounts that the insurance subsidiaries' net assets, as determined in
accordance with statutory accounting practices, exceed minimum statutory
capital requirements; however, payments of such amounts as dividends may be
subject to approval by regulatory authorities. In 1998, the Company's
insurance subsidiaries could distribute approximately $80 million in the form
of dividends to the Company without prior approval of such regulatory
authorities.
Stock Option Plans
The Company has adopted a stock incentive plan authorizing the issuance of
incentive and non-qualified stock options to employees and officers of the
Company. The option price per share may not be less than the fair value of
the Company's Class A Common Stock on the date of grant and the term of the
option may not be longer than ten years. All options have a three year
vesting schedule with one-third of the options granted vesting at the end of
each of the three years. The Company has reserved 1,400,000 shares and
150,000 shares of Class A Common Stock for issuance under the Company's Stock
Incentive Plan and Non-Employee Director Stock Plan, respectively.
A summary of the Company's stock option plan as of and for the year ended
December 31, 1997 follows:
Weighted
Number Average
of Exercise
Shares Price
------- --------
Options outstanding,
beginning of year - $ -
Options granted 684,000 28.09
Conversion of AmVestors
nonqualified stock options 337,038 18.29
Conversion of AmVestors
incentive stock options 464,671 20.76
-------- -----
Options outstanding,
end of period 1,485,709 $23.57
========= ======
Options exercisable,
end of period 801,709
========
/TABLE
The following table summarizes information about stock options outstanding
under the Company's option plan as of December 31, 1997:
Weighted Weighted
Range of Remaining Average Average
Exercise Options Contractual Exercise
Prices Outstanding Life in Years Price
-------- ----------- ------------- ---------
$13.01 - $15.80 150,287 6.25 $14.89
$16.73 - $18.82 31,602 5.61 $18.60
$19.15 - $20.08 365,832 8.25 $19.36
$23.24 253,988 4.32 $23.24
$27.88 664,000 9.58 $27.88
$35.00 20,000 9.97 $35.00
-------- ----- -----
1,485,709 7.94 $23.57
========== ==== =====
The following table summarizes information about stock options exercisable
under the Company's option plans as of December 31, 1997:
Weighted
Average
Options Exercise
Exercisable Price
----------- ------
150,287 $14.89
31,602 18.60
365,832 19.36
253,988 23.24
---------- -------
801,709 $19.72
========== ========
The estimated fair value of options granted in 1997 was $9.86 per share.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for its option plans. Had
compensation expense for the Company's option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method prescribed by SFAS 123, the Company's net earnings and diluted
earnings per share for the year ended December 31, 1997 would have been
reduced to the pro forma amounts indicated below:
Net earnings (in thousands):
As reported $58,059
Pro forma 57,466
Diluted earnings per share:
As reported $2.46
Pro forma $2.44
The fair value of options granted in 1997 was estimated on the date of
grant using the Black-Scholes pricing model and the following weighted average
assumptions: (i) expected volatility of 25.0%, (ii) risk-free interest rate of
5.56%, (iii) dividend yield of 1.79% and (iv) an expected life equal to the
contractual expiration.
Stock Appreciation Rights Plan
On September 15, 1996, the Board of Directors also adopted a Stock
Appreciation Rights Plan (the SAR Plan) and a Restricted Stock Plan. The SAR
Plan authorized the Board of Directors to grant stock appreciation rights to
employees and officers in tandem with stock options. A SAR can be exercised
only to the extent the option with respect to which it is granted is not
exercised, and is subject to the same terms and conditions as the option to
which it relates. Issuance of SAR's is made at the sole discretion of the
Board of Directors.
For the
Year Ended
December 31, 1997
-----------------
Rights outstanding, beginning of year -
Conversion of AmVestors rights 81,024
-------
Rights outstanding, end of year 81,024
=======
/TABLE
The Company recorded no compensation expense relating to stock appreciation
rights for the year ended December 31, 1997.
Stock Warrants
In conjunction with the acquisition of AmVestors, the Company has
outstanding warrants to purchase 477,770 shares of the Company's Class A
common stock. The warrants are generally exercisable at $24.42 per share and
expire on April 2, 2002.
(12) Statutory Accounting Practices
The Company's insurance subsidiaries' statutory net income was $58.9
million, $62.4 million and $59.9 million in the years ended December 31, 1997,
1996, and 1995, respectively. The Company's insurance subsidiaries' statutory
surplus and capital was $572.3 million, $283.0 million and $276.3 million at
December 31, 1997, 1996 and 1995, respectively.
The Company's insurance subsidiaries are domiciled in Iowa and Kansas and
prepare their statutory-basis financial statements in accordance with
accounting practices prescribed or permitted by those respective state
insurance departments. Prescribed statutory accounting practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners (NAIC).
Permitted statutory accounting practices encompass all accounting practices
that are not prescribed; such practices may differ from state to state, may
differ from company to company within a state, and may change in the future.
The NAIC currently is in the process of codifying statutory accounting
practices, the result of which is expected to constitute the only source of
prescribed statutory accounting practices. Accordingly, that project, which is
expected to be effective in 1999, will likely change, to some extent,
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 does not utilize any permitted practices in
the preparation of its statutory-basis financial statements which would have a
material impact on statutory surplus.
The respective insurance departments impose minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC. The
formulas for determining the amount of risk-based capital (RBC) specify
various weighting factors that are applied to financial balances or various
levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio (the Ratio) of the enterprise's regulatory
total adjusted capital, as defined by the NAIC, to its authorized control
level, RBC, as defined by the NAIC. Enterprises below specific trigger points
or ratios are classified within certain levels, each of which requires
specified corrective action. The life insurance subsidiaries exceed the
authorized control level RBC requirements.
(13) Financial Instruments
The Company utilizes a variety of off-balance-sheet financial instruments
as part of its efforts to hedge and manage fluctuations in the market value of
its portfolio of available-for-sale securities, attributable to changes in
general interest rate levels, and to manage duration mismatch of assets and
liabilities. Those instruments include interest rate exchange agreements
(swaps, caps and swaptions) and involve elements of credit and market risks in
excess of the amounts recognized in the accompanying financial statements at a
given point in time. The contract or notional amounts of those instruments
reflect the extent of involvement in the various types of financial
instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the counterparty
defaults after the Company has delivered funds or securities under terms of
the contract) that would result in an accounting loss and replacement cost
risk (i.e., the cost to replace the contract at current market rates should
the counterparty default prior to settlement date). To limit exposure
associated with counterparty nonperformance on interest rate exchange
agreements, the Company enters into master netting agreements with its
counterparties.
The credit risk on all financial instruments, whether on or off the
balance sheet, is controlled through an on-going credit review, approval, and
monitoring process. The Company determines, on an individual counterparty
basis, the need for collateral or other security to support financial
instruments with credit risk and establishes individual and aggregate
counterparty exposure limits.
The Company's outstanding derivative positions shown in notional or
contract amounts, along with their carrying value and estimated fair values,
are summarized as follows:
December 31, 1997
-------------------------------
Notional Carrying Fair
amount value value
-------- -------- ------
(In thousands)
Interest rate caps $1,050,000 $2,117 $2,062
Pay 3 month LIBOR 50,000 - (144)
Options 160 643 643
Futures 2 - (2,402)
---------- ------ -----
$1,100,162 $2,760 $159
========== ====== =====
December 31, 1996
-----------------------------
Notional Carrying Fair
amount value value
-------- ------- -------
(In thousands)
Interest rate caps $500,000 $4,056 $3,269
Swaptions 255,000 5,102 4,793
Received fixed 150,000 6,516 6,516
Pay fixed 75,000 (621) (621)
-------- ------- -------
$980,000 $15,053 $13,957
======== ======= =======
Interest Rate Exchange Agreements
The Company enters into interest rate exchange agreements to reduce and
manage interest rate risk associated with individual assets and liabilities
and its overall aggregate portfolio. The interest rate swap agreement, which
expires in 2002, generally involves the exchange of fixed and floating rate
interest payments, without an exchange of the underlying principal. The
interest rate cap agreements, which expire between 2000 and 2003, involve the
payment of a maximum fixed interest rate when an indexed rate exceeds that
fixed rate. Swaption agreements involve the right to enter into a swap
transaction at a pre-specified price. These agreements are used in
conjunction with interest rate caps to protect against rising rates. The
amounts to be received or paid pursuant to those agreements are accrued and
recognized in the accompanying consolidated statements of income through an
adjustment to investment income over the life of the agreements. The net
effect on income from amortization and interest paid or received was a
decrease of $0.5 million in 1997, and increases of $0.9 million and $1.5
million for the years ended December 31, 1996 and 1995, respectively. Gains
or losses realized on closed or terminated agreements accounted for as hedges
are deferred and amortized to investment income on a constant yield basis over
the shorter of the life of the agreements or the expected remaining life of
the underlying assets or liabilities.
The following table shows unrealized gains and losses on derivative
positions.
December 31, 1997
-----------------------
Net
Total unrealized
notional Unrealized Unrealized gains
value gains losses (losses)
--------- ---------- --------- -----
(In thousands)
Pay 3 month LIBOR $50,000 $ $144 $(144)
Interest rate caps 1,050,000 - 55 (55)
Options 160 - - -
Futures 2 - 2,402 (2,402)
---------- --- ------ --------
$1,100,162 $- $2,601 $(2,601)
========== === ====== ========
December 31, 1996
-------------------------------------
Net
Total unrealized
notional UnrealizedUnrealized gains
value gains losses (losses)
------- -------- --------------
(In thousands)
Received fixed $150,000 $4,744 $ $4,744
Pay fixed 75,000 - 62 (62)
Interest rate caps 500,000 1,566 (1,566)
Swaptions 255,000 - - -
-------- ------ ------ ------
$980,000 $4,744 $1,628 $3,116
======== ====== ====== ======
/TABLE
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap and interest rate swap agreements. The
Company does not anticipate nonperformance by any of these counterparties. The
credit risk associated with such agreements is minimized by purchasing such
agreements from financial institutions with long-standing, superior
performance records. The amount of such exposure is essentially their
replacement cost, which is approximated by the unrealized gains in such
contracts.
The Company has no current exposure to the counterparty when a contract
contains an unrealized loss.
Maturity Schedule by Year for Derivative Products
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Pay fixed swaps:
Notional amount $- $- $- $- $50,000 $- $-
Weighted average:
Receive rate 5.988% 5.938% 5.938% 5.938% 5.938% -% -%
Pay rate (A) 5.875% 5.875% 5.875% 5.875% 5.875% -% -%
Interest rate caps:
Notional amount
(in thousands) $- $- $450,000 $- $- $600,000 $-
Options $- $- $- $- $- $- $160
Futures $2 $- $- $- $- $- $-
Total notional value of
swaps, caps and swaptions
(in thousands) $2 $- $450,000 $- $50,000 $600,000 $160
- -------------
(A) The actual variable rates in the agreements are based on three-month LIBOR, and the table assumes
that such rates will remain constant at December 31, 1997 levels. To the extent that actual rates
change, the variable interest rate information will change accordingly.
/TABLE
(14) Acquisitions
On October 23, 1997, the Company acquired all of the outstanding capital stock
of Delta in exchange for cash of approximately $165 million. The acquisition
was accounted for using the purchase method of accounting with goodwill of
$69.4 million established which is being amortized on a straight-line basis
over 30 years. The operations of Delta for the period from October 23, 1997
through December 31, 1997 have been included in the consolidated statement of
income of the Company.
On December 19, 1997, the Company acquired AmVestors in a stock exchange
valued at approximately $350 million. The acquisition was accounted for using
the purchase method of accounting with goodwill of $152.9 million established
which is being amortized on a straight-line basis over 30 years. The
operations of AmVestors for the period of December 19, 1997 through December
31, 1997 have been included in the consolidated statement of income of the
Company.
The following table sets forth certain pro forma operating data of the Company
for the years ended December 31, 1997 and 1996. This pro forma data assumes
the acquisitions of Delta and AmVestors occurred on January 1, 1997 and 1996,
respectively.
For the year ended December 31,
---------------------------------
1997 1996
------- ------
(In thousands, except per share data)
Pro forma operating data:
Total revenue $712,400 $859,700
Net income $75,000 $87,000
Diluted earnings per share of
common stock $2.14 $2.48
===== ======
(15) Earnings per Share
For the Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995
------------------------- ----------------------- ----------------------
Number Per Number Per Number Per
Net of Share Net of Share Net of Share
Income Shares Amount Income Shares Amount Income Shares Amount
------- --------- ------- ------- ------ ------ ----- ------ ------
(in thousands, except per share amounts)
Basic EPS
Net income $58,059 23,537 $2.47 $74,173 23,156 $3.20 $69,348 23,156 $2.99
Effect of dilutive
securities
Options - 29 - - - - - - -
Warrants - 5 - - - - - - -
Stock appreciation
rights - 1 - - - - - - -
------- ------ ----- ------- ------ ----- ------- ------ ----
Diluted EPS $58,059 23,572 $2.46 $74,173 23,156 $3.20 $69,348 23,156 $2.99
======= ====== ===== ======= ====== ===== ======= ====== ====
/TABLE
(16) Value of Business Acquired
(In thousands)
Balance, January 1, 1997 $ -
Value of business acquired during the year 268,804
Amortization of VOBA asset (2,790)
Balance, December 31, 1997 --------
$266,014
========
Amortization is recognized in proportion to expected future gross profits
over a 20 year period and is based on the average interest crediting rates
which range from 4.1% to 6.0% for 1997 and over the next five years. The
estimated amortization for the next five years is as follows:
1998 28,064
1999 33,252
2000 31,764
2001 30,855
2002 27,336
(17)Fair Value of Financial Instruments
SFAS 107, "Disclosures about Fair Values of Financial Instruments,"
requires disclosures of fair value information about financial instruments,
whether recognized or not recognized in a company's balance sheet, for which
it is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using discounted cash
flow or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rates and estimates
of the amount and timing of future cash flows. SFAS 107 excludes certain
insurance liabilities and other non-financial instruments from its disclosure
requirements. The fair value amounts presented herein do not include an amount
for the value associated with customer or agent relationships, the expected
interest margin (interest earnings over interest credited) to be earned in the
future on investment-type products, or other intangible items. Accordingly,
the aggregate fair value amounts presented herein do not necessarily represent
the underlying value of the Company; likewise, care should be exercised in
deriving conclusions about the Company's business or financial condition based
on the fair value information presented herein.
The Company closely monitors the level of its insurance liabilities, the
level of interest rates credited to its interest sensitive products, and the
assumed interest margin provided for within the pricing structure of its other
products. Those amounts are taken into consideration in the Company's overall
management of interest rate risk that attempts to minimize exposure to
changing interest rates through the matching of investment maturities with
amounts expected to be due under insurance contracts. As such, the Company
believes that it has reduced the volatility inherent in its fair value
adjusted stockholders' equity, although such volatility will not be reduced
completely. The Company has used discount rates in the determination of fair
values for its liabilities that are consistent with market yields for related
assets. The use of the asset market yield is consistent with management's
opinion that the risks inherent in the Company's asset and liability
portfolios are similar, and the fact that fair values for both assets and
liabilities generally will react in much the same manner during periods of
interest rate changes. However, that assumption might not result in fair
values that are consistent with values obtained through an actuarial appraisal
of the Company's business or values that might arise in a negotiated
transaction.
The following presentation reflects fair values for those instruments
specifically covered by SFAS 107, along with fair value amounts for those
traditional insurance liabilities for which disclosure is permitted but not
required; the fair values for all other assets and liabilities have been
reported at their carrying amounts.
Valuation Methods and Assumptions
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, short-term investments, policy loans, accrued investment income: the
carrying amounts for these instruments approximate their fair values.
Fixed maturities and equity securities: fair values for bonds are based
on quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for preferred and common stocks are based on quoted market
prices.
Mortgage loans on real estate: for all performing fixed interest rate
loans, the estimated net cash flows to maturity were discounted to derive
an estimated market value. The discount rate used was based on the
individual loan's remaining weighted average life and a basis point spread
based on the market conditions for the type of loan and credit quality.
These spreads were over the December 31, 1997, United States treasury
yield curve. Performing variable rate commercial loans and residential
loans were valued at the current outstanding balance. Loans which have
been restructured, are in foreclosure, are significantly delinquent, or
are to affiliates were valued primarily at the lower of the estimated net
cash flows to maturity discounted at a market rate of interest or the
current outstanding principal balance.
Hedging instruments: fair values for derivative securities are based on
pricing models or formulas using current assumptions and are classified as
other assets or other liabilities.
Policy reserves: fair values of the Company's liabilities under contracts
not involving significant mortality or morbidity risks (principally,
annuities) are stated at the cost the Company would incur to extinguish
the liability; i.e., the cash surrender value.
Debt: fair values for debt are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements.
The carrying amounts of other financial assets, dividends payable to
policyowners, and policy reserves including significant mortality or
morbidity risks approximate their fair values.
The estimated fair values of the Company's significant financial
instruments are as follows:
December 31,
--------------------------------------------------
1997 1996
---------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
--------- ----------- -------- ------------
(in thousands)
Financial assets:
Securities available-for-sale:
Fixed maturity $6,851,427 $6,851,427 $2,414,807 $2,414,807
========== ========== ========== ==========
Equity securities $61,480 $61,480 $64,033 $64,033
========== ========== ========== ==========
Short-term investments $12,595 $12,595 $13,288 $13,288
========== ========== ========== ==========
Fixed maturity securities
held for trading purposes $22,955 $22,955 $ - $ -
========== ========== ========== ==========
Mortgage loans on real
estate $462,473 $466,471 $225,743 $231,337
========== ========== ========== ==========
Interest rate swaps:
Net receivable position $- $- $6,516 $6,516
========== ========== ========== ==========
Net payable position $- $(144) $(621) $(621)
========== ========== ========== ==========
Interest rate caps $2,117 $2,062 $4,056 $3,269
========== ========== ========== ==========
Swaptions $- $- $5,102 $4,793
========== ========== ========== ==========
Options $643 $643 $ - $ -
========= ========== ========== ==========
Futures $- $(2,402) $ - $ -
========= ========== ========== ==========
Financial liabilities
policy reserves for
annuities $6,244,677 $6,130,925 $1,460,118 $1,428,141
========== ========== ========== ==========
Debt $266,435 $266,435 $188,381 $188,381
========== ========== ========== ==========
/TABLE
(18) Quarterly Results (Unaudited)
1997 Quarter Data
Quarter Ended
--------------------------------------
March 31 June 30 September 30 December 31
---------- -------- ------------ -----------
(dollars in thousands, except earnings per common share)
Total revenues (excluding
realized gains) $76,059 $75,452 $81,838 $113,695
Realized gains $5,259 $4,264 $4,987 $(719)
Total benefits and expenses $61,142 $59,908 $64,762 $96,642
Net income $14,580 $14,442 $16,475 $12,562
Weighted average number of
common shares
- basic 23,155,989 23,155,989 23,155,989 24,666,285
Weighted average number of
common shares
- diluted 23,155,989 23,155,989 23,155,989 24,774,973
Earnings per common share
- basic $0.63 $0.62 $0.71 $0.51
Earnings per common share
- diluted $0.63 $0.62 $0.71 $0.50
/TABLE
1996 Quarterly Data
Quarter Ended
----------------------------
March 31 June 30 September 30 December 31
---------- -------- ------------ -----------
(dollars in thousands, except earnings per common share)
Total revenues (excluding
realized gains) $150,350 $145,574 $68,074 $72,359
Realized gains (losses) $58,740 $5,669 $(1,854) $3,428
Total benefits and expenses $139,473 $131,857 $54,420 $59,602
Net income $44,790 $11,671 $6,483 $11,229
Weighted average number of
common share 23,155,989 23,155,989 23,155,989 23,155,989
Earnings per common share
- basic and diluted $1.93 $0.51 $0.28 $0.48
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule Page
- -------- ----
Independent Auditors' Report on Schedules. . . . . . . . . . . . . . . . . S-2
I Summary of Investments - Other than Investments
in Related Parties. . . . . . . . . . . . . . . . . . . S-3 through S-4
II Condensed Financial Information of Registrant . . . . . S-5 through S-11
III Supplementary Insurance Information . . . . . . . . . . . . . . . . .S-12
IV Reinsurance . . . . . . . . . . . . . . . . . . . . . . S-13 through S-14
V Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . .S-15
All other schedules are omitted for the reason that they are not required,
amounts are not sufficient to require submission of the schedule, or that the
equivalent information has been included in the consolidated financial
statements, and notes thereto.
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
The Board of Directors and Stockholders'
AmerUs Life Holdings, Inc.:
Under date of February 13, 1998 we reported on the consolidated balance
sheets of AmerUs Life Holdings, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, as contained in Part II, Item 8 of the annual report on
Form 10-K for the year 1997
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 13, 1998
AMERUS LIFE HOLDINGS, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
Amount at
which
Amortized Market Shown in the
Type of Investment Cost Value Balance Sheet
- ------------------ --------- ------ -------------
(In thousands)
December 31, 1997
Fixed Maturities:
Bonds
United States Government and government
agencies and authorities $2,367,725 $2,389,292$2,389,292
States, municipalities and
political subdivisions 9,563 9,623 9,623
Foreign governments 68,592 71,171 71,171
Public utilities 395,271 409,452 409,452
Convertibles and bonds with
warrants attached - - -
All other corporate bonds 3,825,242 3,905,413 3,905,413
Redeemable preferred stock 87,389 89,431 89,431
---------- ---------- --------
Total fixed maturities $6,753,782 $6,874,382$6,874,382
Equity securities:
Common stocks
Public utilities $ - $ - $ -
Banks, trust and insurance companies 33,633 33,633 33,633
Industrial, miscellaneous and all
other 4,930 4,930 4,930
Nonredeemable preferred stocks 21,699 22,917 22,917
------- ------- -------
Total equity securities $60,262 $61,480 $61,480
------- ------- -------
Mortgage loans on real estate $462,473 $462,473
Real estate 8,670 8,670
Policy loans 117,865 117,865
Other long-term investments 158,073 158,073
Short-term investments 12,595 12,595
---------- ----------
Total investments $7,573,720 $7,695,538
========== ==========
/TABLE
AMERUS LIFE HOLDINGS, INC.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(Parent Company)
December 31, 1997 and 1996
Assets 1997 1996
------ ---- ----
(In thousands)
Investments:
Securities available-for-sale at fair value:
Fixed maturity securities $3,955 $ -
Investments in subsidiaries, at equity 1,230,664 582,451
Other investments 50,011 50,000
Cash 12,402 80
Accrued Investment income 4,759 259
Other assets 2,519 2,743
---------- --------
Total assets $1,304,310 $635,533
========== ========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Accrued expenses $ - $580
Income tax payable (2,155) -
Deferred income taxes - 32
Other liabilities 39,814 2,411
Debt (note 2) 338,660 175,000
-------- --------
Total liabilities 376,319 178,023
---------- --------
Stockholders' equity:
Preferred stock, no par value,
20,000,000 shares authorized,
none issued - -
Common stock, Class A, no par value,
75,000,000 shares authorized, issued
and outstanding 29,734,918 shares
in 1997 and 14,500,000 shares in 1996 29,735 14,500
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 383,686 -
Retained earnings 453,823 402,710
Unrealized appreciation 55,747 35,300
---------- --------
Total stockholders' equity 927,991 457,510
---------- --------
Total liabilities and stockholders' equity $1,304,310 $635,533
========== ========
See accompanying notes to condensed financial statements.
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME
(Parent Company)
Years Ended December 31, 1997 and 1996
1997 1996
---- ----
(In thousands)
Revenues:
Equity in undistributed earnings of subsidiaries $60,942 $74,114
Net investment income 13,255 259
Other income 1,107 1,000
------- -------
75,304 75,373
Expenses:
Operating expenses 18,527 1,168
------- -------
18,527 1,168
------- -------
Income before income tax expense 56,777 74,205
Income tax benefit (expense) 1,282 (32)
------- -------
Net income $58,059 $74,173
======= =======
See accompanying notes to condensed financial statements.
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE STATEMENT OF CASH FLOWS
(Parent Company)
Years ended December 31, 1997 and 1996
1997 1996
---- ----
Cash flows from operating activities:
Net income $58,059 $74,173
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in undistributed earnings (60,942) (74,114)
Change in:
Accrued investment income (4,500) (259)
Income taxes (2,187) 32
Other, net 10,701 248
-------- --------
Net cash used by operating activities 1,131 80
-------- --------
Cash flows from investing activities:
Purchase of other investments (3,966) (50,000)
Cash paid for acquisitions (212,084) -
-------- --------
Net cash used in investing activities (216,050) (50,000)
-------- --------
Cash flows from financing activities:
Change in debt, net 163,660 175,000
Capital contribution to subsidiaries - (125,000)
-------- --------
Dividends from subsidiary 15,000 -
Net proceeds from initial public
stock offering 55,027 -
Dividends paid to stockholders (6,446) -
Net cash provided by financing activities 227,241 50,000
Net increase in cash 12,322 80
Cash at beginning of period 80 -
--------- -------
Cash at end of period $12,402 $ 80
======== =======
See notes to accompanying condensed financial statements.
AMERUS LIFE HOLDINGS, INC.
(Parent Company)
Notes to Condensed Financial Statements
(1) Basis of Presentation
AmerUs Life Holdings, Inc. (the "Company") is the parent company of its
primary subsidiaries, AmerUs Life Insurance Company ("AmerUs Life"), AmVestors
Financial Corporation ("AmVestors") and Delta Life Corporation ("Delta"). The
Company's investment in its subsidiaries is stated at cost plus equity in
undistributed earnings of the subsidiaries. The Company's share of net income
of its unconsolidated subsidiaries is included in income using the equity
method. These financial statements should be read in conjunction with AmerUs
Life Holdings, Inc. consolidated financial statements.
(2) Debt
Debt consists of the following (in thousands):
1997 1996
---- ----
Revolving Credit Agreement
bearing interest at 6.6%(A): $250,000 $ -
Junior Subordinated debentures bearing interest
at 8.85%(B): 88,660 -
Bank Credit Facility (C):
Term loan - 100,000
Revolving credit loan - 75,000
-------- --------
$338,660 $175,000
======== ========
(A) The revolving credit agreement provides for a maximum borrowing of $250
million with the balance maturing in October 2002. The interest rate is
variable, however, the Company may elect to fix the rate for periods from
30 days to six months. The loan agreement contains various financial and
operating covenants which, among other things, limit future indebtedness
and restrict the amount of future dividend payments. In addition, the
Company has pledged 49.9% of the stock of AmerUs Life, the stock of Delta
and a $50 million note payable to the Company by AmerUs Life.
(B) The Company issued $88.66 million of junior subordinated debentures to a
wholly-owned subsidiary trust in connection with capital securities
issued by the trust. The debentures bear interest at the rate of 8.85%
and mature February 1, 2027.
(C) The bank credit facility was retired in 1997.
Maturities of long-term debt are as follows for each of the five years
ending December 31:
Year ending December 31: (In thousands)
------------------------ --------------
1998 $ -
1999 -
2000 -
2001 -
2002 250,000
Thereafter 88,660
--------
$338,660
========
/TABLE
AMERUS LIFE HOLDINGS, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Future
policy
benefits, Other Benefits, Amortization of
Deferred losses, Policy claims, deferred
policy claims & claims & Net in- losses & policy Other
acquisition loss Unearned benefits Premium vestment settlement acquis.operating Prem.
cost expenses(1) premiums payable(2) revenue income expenses costs expenses written
------- -------- -------- -------- ----- ------- ---------- --------- ------- -------
Segment
- --------
Life Insurance
12/31/97(3) $262,661 $8,757,156 - $10,514 $254,272 $338,190 $463,792 $52,457 $73,247 n/a
12/31/96(3) $295,716 $3,612,445 - $11,804 $246,791 $286,213 $421,352 $58,572 $62,894 n/a
12/31/95 $267,711 $3,621,537 - $16,617 $244,087 $285,244 $424,034 $50,239 $58,655 n/a
________________________
(1)Includes policy reserves, policyholder funds, and dividends payable
(2)Policy and contract claims
(3)Includes Closed Block amounts
/TABLE
AMERUS LIFE HOLDINGS, INC.
SCHEDULE IV
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Percentage
Ceded to Assumed of amount
Gross Other From Other Net assumed to
Amount Companies Companies Amount Net
------ ---------- ----------- ------ ------------
(Dollars in thousands)
Year ended December 31, 1997
Life insurance in
force $30,312,097 $4,102,216 $500,613 $26,710,494 1.85%
=========== ========== ======== =========== ====
Premiums
Life insurance premiums
and charges $106,909 16,716 1,375 91,568 0.44%
Accident and health
insurance 1,502 1,332 - 170 -%
-------- ------- ------ -------- ---
Total premiums $108,411 $18,048 $1,375 $91,738 0.44%
======== ======= ======= ======== ====
Year ended December 31, 1996
Life insurance in
force $29,456,101 $4,170,418 $446,785 $25,732,468 1.88%
=========== ========== ======== =========== ====
Premiums
Life insurance premiums
and charges $201,138 14,790 1,475 187,823 .48%
Accident and health
insurance 2,154 1,915 - 239 -%
-------- ------- ------ -------- ---
Total premiums $203,292 $16,705 $1,475 $188,062 .48%
======== ======= ====== ======== ====
Year ended December 31, 1995
Life insurance in
force $29,654,671 $3,814,429 $56,226 $25,896,468 0.21%
=========== ========== ======= =========== ====
Premiums
Life insurance premiums
and charges $310,781 $14,186 $4,862 $301,457 1.61%
Accident and health
insurance 2,596 2,361 4 239 1.49%
-------- ------- ------ -------- ----
Total premiums $313,377 $16,547 $4,866 $301,696 1.61%
======== ======= ====== ======== ====
/TABLE
AMERUS LIFE HOLDINGS, INC.
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
Charged to Deductions-
other provisions on
Balance at Charged toaccounts- mortgages Balance at
Description beginning of costs and mortgages sold end of
Mortgage Loans period expenses acquired transferred period
- -------------- ------------ --------------------- ---------- --------
(In thousands)
1997 $11,622 $(856) $4,568 $(50) $15,284
1996 $30,067 $(4,029) $ - $(14,416) $11,622
1995 $65,549 $622 $ - $(36,104) $30,067