1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------------------------------------
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER 000-30898
AMERUS GROUP CO.
(Exact name of Registrant as specified in its charter)
699 WALNUT STREET
DES MOINES, IOWA 50309-3948
(Address of principal executive offices)
IOWA 42-1458424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Registrant's telephone number, including area code (515) 362-3600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
The number of shares outstanding of each of the Registrant's classes of common
stock on May 9, 2001 was as follows:
Common Stock 30,025,629 shares
Exhibit index - Page 47
Page 1 of 53
2
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION................................................................... 4
Item 1. Financial Statements............................................................... 4
Consolidated Balance Sheets
March 31, 2001 (Unaudited) and December 31, 2000................................... 4
Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31, 2001 and 2000................................. 6
Consolidated Statements of Comprehensive Income (Unaudited)
For the Three Months Ended March 31, 2001 and 2000................................. 7
Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 2001 (Unaudited) and
the Year Ended December 31, 2000................................................... 8
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2001 and 2000................................. 9
Notes to Consolidated Financial Statements
(Unaudited) ....................................................................... 11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition ............................................................... 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 43
PART II - OTHER INFORMATION...................................................................... 44
Item 1. Legal Proceedings.................................................................. 44
Item 4. Submission of Matters to a Vote of Security Holders................................ 44
Item 6. Exhibits and Reports on Form 8-K................................................... 45
Signatures....................................................................................... 46
Index to Exhibits................................................................................ 47
2
3
SAFE HARBOR STATEMENT
All statements, trend analyses and other information contained in this
report relative to markets for the Company's products and trends in the
Company's operations, liquidity or financial results, as well as other
statements including words such as "anticipate", "believe", "plan", "estimate",
"expect", "intend", and other similar expressions, constitute forward-looking
statements under the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors which may cause actual results to be materially different from
those contemplated by the forward-looking statements. Such factors include,
among other things: (1) general economic conditions and other factors, including
prevailing interest rate levels and stock market performance, which may affect
the ability of the Company to sell its products, the market value of the
Company's investments and the lapse rate and profitability of policies; (2) the
Company's ability to achieve anticipated levels of operational efficiencies and
cost-saving initiatives and to meet cash requirements based upon projected
liquidity sources; (3) customer response to new products, distribution channels
and marketing initiatives; (4) mortality, morbidity, and other factors which may
affect the profitability of the Company's insurance products; (5) changes in the
Federal income tax laws and regulations which may affect the relative tax
advantages of some of the Company's products; (6) increasing competition in the
sale of insurance and annuities; (7) regulatory changes or actions, including
those relating to regulation of insurance products and of insurance companies;
(8) ratings assigned to the Company and its subsidiaries by independent rating
organizations which the Company believes are particularly important to the sale
of its products; (9) the performance of the investment portfolio; (10) the
impact of purchase accounting adjustments; (11) the Indianapolis Life Insurance
Company anticipated completion dates; and (12) unanticipated litigation. There
can be no assurance that other factors not currently anticipated by management
will not also materially and adversely affect the Company's results of
operations.
3
4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERUS GROUP CO.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
2001 2000
-----------------------------
(unaudited)
Assets
Investments:
Securities available-for-sale at fair value:
Fixed maturity securities $ 8,612,195 $ 8,261,647
Equity securities 162,247 152,903
Short-term investments 13,198 20,861
Fixed maturity securities held for trading purposes 36,441 --
Loans 563,638 534,857
Real estate 1,925 3,226
Policy loans 311,123 312,662
Other investments 294,868 320,650
-------------------------
Total investments 9,995,635 9,606,806
Cash and cash equivalents 44,517 65,485
Accrued investment income 123,356 114,034
Premiums, fees and other receivables 8,086 9,652
Income taxes receivable 2,987 --
Reinsurance receivables 8,941 6,529
Deferred policy acquisition costs 423,293 437,312
Value of business acquired 430,601 468,430
Goodwill 186,420 183,491
Property and equipment 55,287 56,101
Other assets 483,164 491,296
Assets of discontinued operations 31,401 32,386
-------------------------
Total assets $11,793,688 $11,471,522
=========================
See accompanying notes to consolidated financial statements.
4
5
AMERUS GROUP CO.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
2001 2000
----------- ------------
(unaudited)
Liabilities and Stockholders' Equity
Policy reserves and policyowner funds:
Future life and annuity policy benefits $ 9,712,279 $ 9,482,625
Policyowner funds 324,906 325,251
----------------------------
10,037,185 9,807,876
Accrued expenses and other liabilities 225,412 216,451
Dividends payable to policyowners 180,080 158,473
Policy and contract claims 11,815 11,890
Income taxes payable -- 8,825
Deferred income taxes 46,954 5,904
Notes and contracts payable 199,507 215,627
Liabilities of discontinued operations 19,065 14,806
----------------------------
Total liabilities 10,720,018 10,439,852
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Company 197,691 197,691
Stockholders' equity:
Preferred Stock, no par value, 20,000,000 shares
authorized, none issued -- --
Common Stock, no par value, 230,000,000 shares
authorized; 30,018,217 shares issued and
outstanding in 2001 (net of 3,893 treasury shares)
and 30,011,034 shares issued and outstanding
in 2000 30,018 30,011
Paid-in capital 810,079 809,894
Accumulated other comprehensive income (loss) 18,984 (11,164)
Unearned compensation (122) (146)
Unallocated ESOP shares (683) (683)
Retained earnings 17,703 6,067
----------------------------
Total stockholders' equity 875,979 833,979
----------------------------
Total liabilities and stockholders' equity $ 11,793,688 $ 11,471,522
============================
See accompanying notes to consolidated financial statements.
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6
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
For The Three Months Ended
March 31,
2001 2000
----------------------------
Revenues:
Insurance premiums $ 66,592 $ 69,125
Universal life and annuity product charges 24,266 23,277
Net investment income 181,128 173,612
Realized/unrealized gains (losses) on investments (39,835) 2,903
Other income 10,332 6,533
----------------------------
242,483 275,450
----------------------------
Benefits and expenses:
Policyowner benefits 129,909 163,704
Underwriting, acquisition and other expenses 31,334 26,997
Reorganization costs -- 1,210
Amortization of deferred policy acquisition costs
and value of business acquired 25,271 26,047
Dividends to policyowners 19,158 16,169
----------------------------
205,672 234,127
----------------------------
Income from continuing operations 36,811 41,323
Interest expense 7,332 7,145
----------------------------
Income before income tax expense and minority interest 29,479 34,178
Income tax expense 10,021 12,587
Minority interest -- 6,606
----------------------------
Net income from continuing operations 19,458 14,985
Discontinued operations (net of tax):
Income (loss) from discontinued operations 414 (205)
----------------------------
Net income before cumulative effect of change in
accounting for derivatives 19,872 14,780
Cumulative effect of change in accounting for
derivatives, net of tax (8,236) --
----------------------------
Net income $ 11,636 $ 14,780
============================
Net income from continuing operations per common share:
Basic $ 0.65 $ 0.86
============================
Diluted $ 0.64 $ 0.86
============================
Net income from discontinued operations per common share:
Basic $ 0.01 $ (0.01)
============================
Diluted $ 0.01 $ (0.01)
============================
Net income per common share:
Basic $ 0.39 $ 0.85
============================
Diluted $ 0.38 $ 0.85
============================
Weighted average common shares outstanding:
Basic 29,973,039 17,390,165
============================
Diluted 30,365,387 17,453,374
============================
See accompanying notes to consolidated financial statements.
6
7
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
For The Three Months Ended
March 31,
2001 2000
--------------------------
Net income $ 11,636 $ 14,780
Other comprehensive income, before tax:
Unrealized gains (losses) on securities:
Transfer related to unrealized gain on available-
for-sale securities reclassified to trading 662 --
Unrealized holding gains arising during period 34,210 9,050
Less: reclassification adjustment for gains (losses)
included in net income (7,415) 3,550
-------------------------
Other comprehensive income, before tax 42,287 5,500
Income tax (expense) related to items of other
comprehensive income (14,800) (1,925)
-------------------------
27,487 3,575
Amounts attributable to:
Minority interest -- (1,693)
Change in accounting for derivatives 2,661 --
-------------------------
Other comprehensive income, net of taxes 30,148 1,882
-------------------------
Comprehensive income $ 41,784 $ 16,662
=========================
See accompanying notes to consolidated financial statements.
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8
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
March 31, 2001
($ in thousands)
Accumulated
Additional Other
Paid-In Comprehensive Unearned
Common Stock Capital Income (Loss) Compensation
---------------------------------------------------------
Balance at December 31, 1999 $ -- $ -- $ (78,628) $ (187)
2000:
Net income -- -- -- --
Net unrealized gain (loss) on securities -- -- 67,641 --
Stock issued under various incentive
plans, net of forfeitures 6 169 -- 105
Dividends declared on common stock -- -- -- --
Allocation of shares in leveraged ESOP -- 600 -- --
Minority interest ownership changes -- -- (177) --
Acquisition of minority interest 12,615 285,405 -- --
Demutualization of AmerUs Group 17,390 518,535 -- (64)
Other -- 5,185 -- --
----------------------------------------------------
Balance at December 31, 2000 $ 30,011 $ 809,894 $ (11,164) $ (146)
====================================================
2001: (unaudited)
Net income -- -- -- --
Change in accounting for derivatives -- -- 2,661 --
Transfer related to unrealized gain on
available-for-sale securities reclassified
to trading -- -- 662 --
Net unrealized gain (loss) on securities -- -- 29,634 --
Net unrealized gain (loss) on derivatives
designated as cash flow hedges -- -- (2,809) --
Stock issued under various incentive
plans, net of forfeitures 17 474 -- 24
Purchase of treasury stock (10) (289) -- --
----------------------------------------------------
Balance at March 31, 2001 $ 30,018 $ 810,079 $ 18,984 $ (122)
====================================================
Unallocated Total
ESOP Unassigned Retained Stockholders'
Shares Surplus Earnings Equity
----------------------------------------------------
Balance at December 31, 1999 $ (797) $ 840,962 $ -- $ 761,350
2000:
Net income -- 33,801 18,039 51,840
Net unrealized gain (loss) on securities -- -- -- 67,641
Stock issued under various incentive
plans, net of forfeitures -- 273 -- 553
Dividends declared on common stock -- -- (11,972) (11,972)
Allocation of shares in leveraged ESOP 695 -- -- 1,295
Minority interest ownership changes (2) 94 -- (85)
Acquisition of minority interest -- -- -- 298,020
Demutualization of AmerUs Group (579) (875,130) -- (339,848)
Other -- -- -- 5,185
------------------------------------------------
Balance at December 31, 2000 $ (683) $ -- $ 6,067 $ 833,979
================================================
2001: (unaudited)
Net income -- -- 19,872 19,872
Change in accounting for derivatives -- -- (8,236) (5,575)
Transfer related to unrealized gain on
available-for-sale securities reclassified
to trading -- -- -- 662
Net unrealized gain (loss) on securities -- -- -- 29,634
Net unrealized gain (loss) on derivatives
designated as cash flow hedges -- -- -- (2,809)
Stock issued under various incentive
plans, net of forfeitures -- -- -- 515
Purchase of treasury stock -- -- -- (299)
------------------------------------------------
Balance at March 31, 2001 $ (683) $ -- $ 17,703 $ 875,979
================================================
See accompanying notes to consolidated financial statements.
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AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
For The Three Months Ended
March 31,
2001 2000
---------------------------
Cash flows from operating activities:
Net Income $ 11,636 $ 14,780
Less: (Income) loss from discontinued operations (414) 205
Less: Cumulative effect of change in accounting
for derivatives 8,236 --
----------------------
19,458 14,985
Adjustments to reconcile net income to net cash
provided by operating activities:
Policyowner assessments on universal life
and annuity products (17,448) (16,636)
Interest credited to policyowner account
balances 84,075 79,092
Change in option value of equity-indexed annuity
reserves (34,969) --
Realized/unrealized investment (gains) losses 39,835 (2,903)
Goodwill amortization 1,943 2,062
VOBA amortization 18,492 8,983
Minority interest -- 6,606
Change in:
Accrued investment income (9,322) (9,590)
Reinsurance receivables (2,412) 11,086
Fixed maturity securities held for trading purposes (10,049) --
Deferred policy acquisition costs (45,293) (31,440)
Liabilities for future policy benefits 5,055 33,185
Policy and contract claims and other
policyowner funds (307) (1,266)
Income taxes:
Current (11,812) (12,786)
Deferred 15,364 13,241
Other, net (32,007) (26,055)
----------------------
Net cash provided by (used in) operating activities 20,603 68,564
----------------------
Cash flows from investing activities:
Purchase of fixed maturities available-for-sale (860,573) (599,671)
Maturities, calls and principal reductions of
fixed maturities available-for-sale 655,308 463,740
Purchase of equity securities (43,010) (109,636)
Proceeds from sale of equity securities 34,649 3,178
Change in short-term investments, net 7,241 --
Purchase of loans (21,443) (23,990)
9
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AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
For The Three Months Ended
March 31,
2001 2000
--------------------------
Proceeds from repayment and sale of loans 14,212 146,737
Purchase of real estate and other invested assets (19,060) (33,680)
Proceeds from sale of real estate and other
invested assets 13,695 39,513
Change in policy loans, net 1,539 (4,190)
Other assets, net (4,433) (2,407)
Purchase of minority interest -- (1,522)
----------------------
Net cash (used in) investing activities (221,875) (121,928)
----------------------
Cash flows from financing activities:
Deposits to policyowner account balances 548,022 325,060
Withdrawals from policyowner account balances (351,814) (344,565)
Change in debt, net (16,120) (13,034)
Dividends to shareholders -- (1,265)
Other, net 216 208
----------------------
Net cash provided by (used in) financing activities 180,304 (33,596)
----------------------
Net increase (decrease) in cash (20,968) (86,960)
Cash and cash equivalents at beginning of period 65,485 297,698
----------------------
Cash and cash equivalents at end of period $ 44,517 $ 210,738
======================
Supplemental disclosure of cash activities:
Interest paid $ 7,833 $ 7,377
======================
Income taxes paid $ 3,495 $ 11,613
======================
See accompanying notes to consolidated financial statements.
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AMERUS GROUP CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF BUSINESS ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
AmerUs Group Co. (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 also owns a real estate management company in which it conducts
limited real estate management, development, syndication and marketing
activities. The Company has two reportable operating segments: Life Insurance
and Annuities. The Life Insurance segment's primary product offerings consist of
whole life, universal life and term life insurance policies. The primary product
offerings of the Annuity segment are fixed annuities.
The Company sold certain lines of business and made the decision to exit
certain other businesses in 1998. These businesses are referred to as
discontinued operations and include the following activities: banking,
residential real estate brokerage, residential land development, and mortgage
banking.
REORGANIZATION
The Company was formerly known as American Mutual Holding Company (AMHC)
and was a mutual insurance holding company whose principal asset was a 58%
interest in AmerUs Life Holdings, Inc. (ALHI). Public stockholders owned the
remaining 42% interest in ALHI (Minority Interest). ALHI was a holding company
which directly or indirectly owned three principal life insurance subsidiaries:
AmerUs Life Insurance Company (AmerUs), American Investors Life Insurance
Company (American) and Delta Life and Annuity Company (Delta). On September 20,
2000, AMHC converted to stock form, changed its name to AmerUs Group Co. and
acquired the Minority Interest of ALHI by issuing AmerUs Group Co. common stock
in exchange for the outstanding shares of ALHI held by the public. The value of
the stock exchange was approximately $298 million and ALHI merged into the
Company simultaneously with the stock exchange.
Prior to the conversion of the Company to a stock form, the Company was
owned by individuals and entities who held insurance policies or annuity
contracts issued by AmerUs (Members). In the conversion, which is referred to as
a "demutualization", the Company distributed cash, policy credits and its newly
issued common stock to its Members in exchange for their membership interests.
The value of the distribution totaled approximately $792 million.
The acquisition of the ALHI minority interest by the Company was accounted
for as a purchase and, accordingly, 42% of the book value of the assets and
liabilities of ALHI were adjusted to market value as of the acquisition date.
Approximately 42% of the ALHI earnings for the reporting periods up to the
acquisition date are reduced from the Company's results of operations on the
line titled "Minority interest" on the Company's Consolidated Statements of
Income. From the acquisition date forward, the Company's results of operations
include 100% of these earnings.
CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP) for interim financial
11
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information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for annual financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included. All
adjustments were of a normal recurring nature, unless otherwise noted in
Management's Discussion and Analysis and the Notes to Financial Statements.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001 (see further discussion in Management's Discussion and Analysis). For
further information and for capitalized terms not defined in this 10-Q, refer to
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 financial statement presentation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 policy acquisition costs, are deferred. The method of
amortizing deferred policy acquisition costs for life insurance products varies,
dependent upon whether the contract is participating or non-participating.
Participating contracts are those which are expected to pay dividends to
policyowners in proportion to their relative contribution to the Company's
statutory surplus. Non-participating life insurance deferred policy acquisition
costs are amortized over the premium-paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated premium
revenues using assumptions consistent with those used in computing policy
benefit reserves. Deferred policy acquisition costs for participating policies
are amortized as an expense primarily in proportion to expected profits or
margins from such policies. This amortization is adjusted when current or
estimated future gross profits or margins on the underlying policies vary from
previous estimates. For example, the amortization of deferred policy acquisition
costs is accelerated when policy terminations are higher than originally
estimated or when investments supporting the policies are sold at a gain prior
to their anticipated maturity. Death and other policyowner benefits reflect
exposure to mortality risk and fluctuate from period to period based on the
level of claims incurred within insurance retention limits. The profitability of
the Company is primarily affected by expense levels, interest spread results
(i.e. the excess of investment earnings over the interest credited to
policyowners) and fluctuations in mortality, persistency and other policyowner
benefits. The Company has the ability to mitigate adverse experience through
adjustments to credited interest rates, policyowner dividends or cost of
insurance charges.
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Basic earnings per share of common stock are computed by dividing net
income by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share assumes the issuance of common shares
applicable to stock options and warrants calculated using the treasury stock
method.
(2) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138, which requires
that all derivative instruments, including certain derivative instruments
embedded in other contracts, be reported on the balance sheet at fair value.
Accounting for gains and losses resulting from changes in the values of
derivatives is dependent upon the use of the derivative and its qualification
for special hedge accounting. In accordance with the provisions of SFAS No. 133,
the Company recorded a transition adjustment as of January 1, 2001 upon adoption
of the standard to recognize its derivative instruments at fair value resulting
in a pre-tax reduction to income of $12.4 million ($8.2 million after-tax) and
an increase to Accumulated Other Comprehensive Income (AOCI) of $2.7 million.
The reduction to income, which is classified as a "cumulative effect of change
in accounting for derivatives, net of tax" in the Consolidated Statements of
Income, is attributable to losses on basis swaps that were natural hedges and
losses on interest rate swaps reclassified from AOCI that have been redesignated
as cash flow hedges of floating rate funding agreement liability effective
January 1, 2001. In addition, the reduction to income includes adjustments to
fair value for options being used to hedge embedded options contained within
equity-indexed annuity products. The increase in AOCI, which is classified as
"change in accounting for derivatives" in the Consolidated Statements of
Comprehensive Income, is attributable to the reclassification of the interest
rate swap's fair value adjustment from AOCI to the Consolidated Statements of
Income.
The Company uses financial instruments, including options, futures, swaps,
caps and swaptions to reduce its exposure to changes in interest rates and to
manage duration mismatches. The Company also uses call options to hedge
equity-indexed annuity products. The use of these financial instruments modifies
the exposure of these risks with the intent to reduce the risk and variability
to the Company. Although the Company is subject to the risk that counterparties
will fail to perform, credit standings of counterparties are monitored
regularly. The Company only enters into transactions with highly-rated
counterparties. The Company is not a party to leveraged derivatives.
Initially, upon adoption of the new derivative accounting requirements, and
prospectively, on the date a derivative contract is entered into, the Company
designates the derivative as either (1) a hedge of a recognized asset or
liability or an unrecognized firm commitment (a fair value hedge), (2) a hedge
of a forecasted transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability (a cash flow hedge), or (3) a
natural hedging instrument whose change in fair value is recognized to act as an
economic hedge against changes in the values of the hedged item and which does
not meet the accounting hedge criteria for SFAS No. 133 (a natural hedge).
For fair value hedges, both the effective and ineffective portion of the
changes in the fair value of the derivative, along with the gain or loss on the
hedged item that is attributable to the hedged risk, are recorded in earnings
and reported net in the Consolidated Statements of Income. The effective portion
of the changes in the fair value of a derivative that is designated as a cash
flow hedge is recorded in AOCI. When the hedged cash transaction is realized,
the gain or loss included in AOCI is reported net in the Consolidated Statements
of Income with the hedge cash transaction item. In addition, the ineffective
portion of the changes in the fair value of derivatives designated as cash flow
hedges are reported in net investment income in the Consolidated Statements of
Income. For derivatives designated as a natural hedge, changes in fair value are
classified as realized/unrealized gains (losses) on investments in the
Consolidated Statements of Income.
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The Company formally documents its hedge relationships, including
identification of the hedging instruments and the hedged items, as well as its
risk management objectives and strategies for undertaking the hedge transaction.
Free standing derivatives are recorded in the Consolidated Balance Sheets at
fair value in other assets and option derivatives embedded in equity-indexed
annuity products are marked to fair value and classified in the Consolidated
Balance Sheets as "policy reserves and policyowner funds." This process includes
linking derivatives that are designated as hedges of specific assets,
liabilities, firm commitments or forecasted transactions. The Company also
formally assesses at inception and at least quarterly thereafter, whether the
derivatives that are used in hedging transactions, other than natural hedges,
are highly effective in offsetting changes in either the fair value or cash
flows of the hedged item. When a determination is made that a derivative ceases
to be a highly effective hedge, the Company will discontinue hedge accounting.
To manage interest rate risk, the Company has entered into interest rate
swaps that effectively fix the interest payments of a floating rate funding
agreement liability. These interest rate swap agreements are accounted for as
cash flow hedges.
The Company has equity-indexed annuity products that guarantee the return
of principal to the customer and credits interest based on a percentage of the
gain in the Standard & Poor's 500 Composite Stock Price Index(R) (S&P 500
Index). A portion of the premium from each customer is invested in investment
grade fixed income securities to cover the minimum guaranteed value due the
customer at the end of the term. A portion of the premium is used to purchase
S&P 500 Index call options to hedge the growth in interest credited to the
customer as a direct result of increases in the S&P 500 Index. The amounts to be
paid or received pursuant to these agreements are accrued and recognized in
income over the life of the agreements. Both call options held by the Company
and the options embedded in the policy, which the Company has designated as a
natural hedge, are valued at fair value. The change in fair value for the call
options is included in realized/unrealized gains (losses) on investments and the
change in fair value of the embedded options is included in policyowner benefits
in the Consolidated Statements of Income.
During the first quarter of 2001, realized/unrealized gains (losses) on
investments included an unrealized loss of $33.3 million from the change in fair
value on call options used as a natural hedge of embedded options within
equity-indexed annuities. Policyowner benefits included an offsetting adjustment
from fair value changes in options embedded within the equity-indexed products
of $35.0 million. In addition, basis swaps were terminated during the quarter
and an increase in fair value of $1.8 million on those swaps was included in net
investment income. AOCI included an unrealized loss of $2.8 million from the
fair value change in interest rate swaps used to hedge the floating rate funding
agreement liability. The Company estimates that $0.5 million of derivative
losses included in AOCI will be reclassified into earnings within the next
twelve months. The ineffectiveness of the interest rate swap cash flow hedge was
not considered significant for the first quarter of 2001.
The following table summarizes the impact of adopting SFAS No. 133 in the
cumulative effect of charge in accounting for derivatives as of January 1, 2001
and the derivative activity in the first quarter of 2001:
14
15
Cumulative Effect of
Change in Accounting Quarter
for Derivatives Ended
January 1, 2001 March 31, 2001
--------------------- ------------------
Basis swaps (A) $ (921) $ --
Separate account swap (B) (4,100) --
Options on equity-indexed annuities (4,056) (33,290)
Equity-indexed annuity liabilities (1,335) 34,969
Deferred (loss) (C) (899) --
Deferred policy acquisition cost amortization impact of
net equity-indexed annuity adjustments (1,127) (773)
-------- --------
Pre-tax total (12,438) 906
Income taxes 4,202 (317)
-------- --------
After-tax total $ (8,236) $ 589
======== ========
(A) Terminated during first quarter 2001.
(B) Future adjustments are through AOCI.
(C) Balance eliminated in transition adjustment.
The cumulative effect of change in accounting for derivatives per common
share in the first quarter 2001 was:
Basic $0.27
Diluted $0.27
Weighted average common shares outstanding:
Basic 29,973,039
Diluted 30,365,387
(3) CLOSED BLOCK
The Closed Block was established on June 30, 1996 in connection with the
reorganization of AmerUs to a stock form. 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,
assets would be available to maintain the dividend scales and interest credits
in effect prior to the reorganization if the experience underlying such scales
and credits continues. Effective with the first quarter of 2001, the Company has
adopted the Accounting Standards Executive Committee's Statement of Position
00-3 (SOP 00-3) "Accounting by Insurance Enterprises for Demutualizations and
Formations of Mutual Holding Companies and for Certain Long-Duration
Participating Contracts." The provisions of SOP 00-3 required the Company to
modify its presentation of the Closed Block in its Consolidated Financial
Statements to no longer show the operations of the Closed Block and the assets
and liabilities of the Closed Block as single line items. In addition, the SOP
required the Company to report unrealized gains and losses on Closed Block
investments as a component of the Closed Block policyholder dividend obligation
rather than AOCI. At March 31, 2001, there was an unrealized gain of $22.5
million included in the policyholder dividend obligation.
Summarized financial information of the Closed Block balance sheet as of
March 31, 2001 and December 31, 2000 and statements of income for the three
months ended March 31, 2001 and 2000 are as follows:
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16
March 31, December 31,
2001 2000
--------------------------
(unaudited)
($ in thousands)
Assets:
Securities available-for-sale at fair value:
Fixed maturity securities $1,221,995 $1,191,592
Policy loans 201,470 201,092
Other investments 5,296 2,934
Cash and cash equivalents 5,853 3,025
Accrued investment income 16,389 16,811
Premiums and fees receivable 1,075 7,062
Deferred policy acquisition costs 46,154 48,126
Value of business acquired 69,688 71,830
Other assets 46,669 41,885
-----------------------
Total Assets $1,614,589 $1,584,357
=======================
Liabilities:
Future life and annuity policy benefits $1,659,319 $1,654,784
Policyowner funds 5,290 5,081
Accrued expenses and other liabilities 36,552 34,689
Dividends payable to policyowners 176,076 154,603
Policy and contract claims 6,609 5,495
-----------------------
Total Liabilities $1,883,846 $1,854,652
=======================
Three Months Ended March 31,
2001 2000
----------------------------
Revenues and expenses:
Insurance premiums $ 44,848 $ 48,974
Universal life and annuity product charges 3,314 3,091
Net investment income 29,393 27,294
Realized gains (losses) on investments 244 40
Policyowner benefits (48,823) (53,951)
Underwriting, acquisition and other expenses (766) (828)
Amortization of deferred policy acquisition costs
and value of business acquired (4,114) (3,727)
Dividends to policyowners (17,627) (15,033)
------------------------
Contribution from the Closed Block
before income taxes $ 6,469 $ 5,860
========================
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(4) DEBT AND CAPITAL SECURITIES
Debt consists of the following:
March 31, December 31,
2001 2000
------------- -------------
(unaudited)
($ in thousands)
Federal Home Loan Bank community investment
long-term advances with a weighted average
interest rate of 6.28% at March 31, 2001 (A) $ 15,507 $ 15,627
Senior notes bearing interest at 6.95%
due June, 2005 125,000 125,000
Revolving credit agreement 59,000 75,000
-------- --------
$199,507 $215,627
======== ========
AmerUs Capital I 8.85 % Capital
Securities Series A due
February 1, 2007 $ 68,900 $ 68,900
AmerUs Capital II 7.00 % Adjustable
Conversion-rate Equity Security
Units are due July 27, 2003 (B) 128,791 128,791
-------- --------
$197,691 $197,691
======== ========
(A) The Company has multiple credit arrangements with the Federal Home Loan Bank
(FHLB). In addition to the long-term advances disclosed above, the Company is
eligible to borrow under variable-rate short term fed funds arrangements of
which no amount was outstanding at March 31, 2001. These borrowings are secured
and interest is payable at the current rate at the time of any advance.
(B) The annual distribution rate paid on the ACES units was reset effective
April 27, 2001 to 7.819%. The previous annual distribution rate was 6.86%. Each
holder of a unit is entitled to receive a quarterly cash payment which consists
of interest on the Quarterly Income Preferred Security (QUIPS) at the annual
distribution rate plus contract fees of 0.14%. A call option which permitted
Goldman Sachs & Co., an investment banking firm and lead underwriter of the
security, to acquire the QUIPS portion of the ACES Unit has expired without
exercise.
17
18
For an additional discussion of the terms of the above indebtedness refer
to the Company's consolidated financial statements as of December 31, 2000.
(5) FEDERAL INCOME TAXES
The effective income tax rate for the three months ending March 31, 2001
and 2000 varied from the prevailing corporate rate primarily as a result of
goodwill amortization, non-deductible reorganization costs, low income housing
and rehabilitation credits, and tax exempt income.
(6) COMMITMENTS AND CONTINGENCIES
The Company is obligated to make future capital contributions to various
partnerships of up to $7.8 million. The Company has also agreed to loan up to
$6.9 million to newly formed partnerships.
The Company is party to financial instruments in the normal course of
business to meet the financing needs of its customers having risk exposure not
reflected in the balance sheet. These financial instruments include commitments
to extend credit, guarantees and standby letters of credit. Commitments to
extend credit are agreements to lend to customers. Commitments generally have
fixed expiration dates and may require payment of a fee. Since many commitments
expire without being drawn upon, the total amount of commitments does not
necessarily represent future cash requirements. The Company has also guaranteed
two loans for a fee. At March 31, 2001, outstanding commitments to extend credit
totaled approximately $34.9 million and loan guarantees totaled approximately
$6.2 million.
The Company has an agreement with Bank One, N.A. whereby the Company
guarantees the payment of loans made to certain of the Company's managers and
executives for the purpose of purchasing Common Stock and ACES pursuant to the
Executive Stock Purchase Program. The liability of the Company in respect to the
principal amount of loans is limited to $25 million. The Company has also
guaranteed interest and all other fees and obligations owing on the loans. Each
participant in the program has agreed to repay the Company for any amounts paid
by the Company under the guarantee in accordance with a reimbursement agreement
entered into between the participant and the Company.
AmerUs and its joint venture partner, Ameritas Life Insurance Corp.
(Ameritas), are contingently liable in the event the joint venture, Ameritas
Variable Life Insurance Company (AVLIC), cannot meet its obligations. At March
31, 2001, AVLIC had statutory assets of $2,212.5 million, liabilities of
$2,151.2 million, and surplus of $61.3 million. AmerUs also has an outstanding
commitment to lend AMAL Corporation (AMAL), AVLIC's parent company,
approximately $2.7 million upon AMAL's request before September 1, 2001.
In the ordinary course of business, the Company and its subsidiaries are
engaged in certain litigation, none of which management believes is material to
the Company's results of operations.
(7) ACQUISITIONS
Under the terms of the joint venture AmerUs participates in with Ameritas,
AmerUs had an option to purchase an additional 5% to 15% of AMAL if certain
premium growth targets are met. AmerUs met the premium growth target requirement
for one 5% purchase option in January 2001. AmerUs exercised the option on March
28, 2001 and acquired an additional 5% ownership interest in AMAL for $7.2
million. AmerUs' ownership percentage in AMAL is now 39% and AmerUs' option is
now to purchase an additional 5% to 10% of AMAL.
18
19
(8) PROPOSED COMBINATION
On February 18, 2000, the Company and Indianapolis Life Insurance Company
(ILICO) entered into a definitive agreement for a combination of the companies.
Under the original terms of the agreement, ILICO would demutualize and ILICO's
members would receive cash, policy credits and stock equivalent to the value of
11.25 million shares of the Company's stock and ILICO would become a
wholly-owned subsidiary of the Company. However, on September 18, 2000 the terms
of the agreement were revised to reduce the consideration to the value of 9.3
million shares. The reduction in the number of shares was based on several
factors, including increased expenses related to ILICO's demutualization,
increased terminations of existing fixed annuities issued by ILICO's annuity
subsidiary, and a decrease in revenues and earnings in ILICO's annuity
subsidiary operations. These factors were partially offset by stronger than
expected performance of ILICO itself.
As part of the transaction, the Company made an investment of $100 million
in a downstream holding company of ILICO in February, 2000.
ILICO is a 95-year old mutual life insurance and annuity company based in
Indianapolis, Indiana. ILICO and its subsidiaries are licensed to do business in
all 50 states and the District of Columbia. At March 31, 2001, ILICO had total
assets of $5.8 billion and insurance in force of $32.6 billion.
The combination transaction is subject to normal closing conditions,
including certain approvals. The Company expects the demutualization of ILICO
and combination into the Company to take place in the second quarter of 2001.
(9) OPERATING SEGMENTS
The Company has two operating segments: Life Insurance and Annuities.
Products generally distinguish a segment. A brief description of each segment
follows:
LIFE INSURANCE
The primary product offerings consist of whole life, universal life and
term life insurance policies. These products are marketed on a national basis
primarily through a Preferred Producer agency system and a Personal Producing
General Agent (PPGA) distribution system.
ANNUITIES
The Annuity segment markets individual fixed annuities on a national basis
primarily through independent brokers and marketing companies. The Annuity
segment also includes one insurance contract issued to a commercial paper
conduit.
The Company uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated
income from operations and assets with the exception of the elimination of
certain items which management believes are not necessarily indicative of
overall operating trends. For example, net realized capital gains or losses on
investments, excluding gains or losses on convertible debt which are considered
core earnings, are not included as part of operating segment income. These items
are shown between adjusted pre-tax operating income and income from operations
on the following operating segment income tables. Operating segment income is
generally income before non-core realized gains and losses, interest expense,
income tax and income or loss from discontinued operations. Premiums, product
charges, policyowner benefits, insurance expenses, amortization of deferred
policy acquisition costs and VOBA and dividends to policyowners are attributed
19
20
directly to each operating segment. Net investment income and core realized
gains and losses on investments are allocated based on directly-related assets
required for transacting the business of that segment. Other revenues and
benefits and expenses which are deemed not to be associated with any specific
segment are grouped together in the All Other category. These items primarily
consist of holding company revenues and expenses and the operations of the
Company's real estate management subsidiary.
Assets are segmented based on policy liabilities directly attributable to
each segment. There are no significant intersegment transactions. There have
been no material changes in segment assets since December 31, 2000.
Operating segment income is as follows:
20
21
Operating Segment Income
($ in thousands)
For The Three Months Ended March 31, 2001
Total
Life Insurance Annuities All Other Consolidated
--------------------------------------------------------
Revenues:
Insurance premiums $ 61,951 $ 4,613 $ 28 $ 66,592
Universal life and annuity product charges 17,134 7,132 -- 24,266
Net investment income 53,031 127,188 909 181,128
Core realized/unrealized gains (losses) on investments 244 (32,638) -- (32,394)
Other income -- 8,057 2,275 10,332
-----------------------------------------------------
132,360 114,352 3,212 249,924
Benefits and expenses:
Policyowner benefits 74,532 55,388 (11) 129,909
Underwriting, acquisition, and other expenses 14,140 14,517 2,677 31,334
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of ($2,317) 9,609 17,979 -- 27,588
Dividends to policyowners 19,158 -- -- 19,158
-----------------------------------------------------
117,439 87,884 2,666 207,989
-----------------------------------------------------
Adjusted pre-tax operating income $ 14,921 $ 26,468 $ 546 41,935
=========================================
Non-core realized (losses) on investments (7,441)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses 2,317
Reorganization costs --
---------
Income from continuing operations 36,811
Interest (expense) (7,332)
Income tax (expense) (10,021)
Minority interest --
Income from discontinued operations, net of tax 414
Cumulative effect of change in accounting for derivatives, net of tax (8,236)
---------
Net income $ 11,636
=========
21
22
Operating Segment Income
($ in thousands)
For The Three Months Ended March 31, 2000
Total
Life Insurance Annuities All Other Consolidated
---------------------------------------------------------
Revenues:
Insurance premiums $ 63,281 $ 5,883 $ (39) $ 69,125
Universal life and annuity product charges 14,787 8,490 -- 23,277
Net investment income 52,958 113,686 6,968 173,612
Core realized/unrealized gains on investments 40 2,294 -- 2,334
Other income -- 4,165 2,368 6,533
-----------------------------------------------------
131,066 134,518 9,297 274,881
Benefits and expenses:
Policyowner benefits 75,957 87,575 172 163,704
Underwriting, acquisition, and other expenses 10,612 11,390 4,995 26,997
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of $620 9,537 15,890 -- 25,427
Dividends to policyowners 16,169 -- -- 16,169
-----------------------------------------------------
112,275 114,855 5,167 232,297
-----------------------------------------------------
Adjusted pre-tax operating income $ 18,791 $ 19,663 $ 4,130 42,584
========================================
Non-core realized gains on investments 569
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses (620)
Reorganization costs (1,210)
---------
Income from continuing operations 41,323
Interest (expense) (7,145)
Income tax (expense) (12,587)
Minority interest (6,606)
Income from discontinued operations, net of tax (205)
Cumulative effect of change in accounting for derivatives, net of tax --
--------
Net income $ 14,780
========
22
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements and related notes.
NATURE OF OPERATIONS
The Company is a holding company engaged through its subsidiaries in the
business of marketing, underwriting and distributing a broad range of individual
life insurance and annuity products to individuals and businesses in 49 states,
the District of Columbia and the U.S. Virgin Islands. The Company also owns a
real estate management company through which it conducts limited real estate
management, development, syndication and marketing activities. The Company has
two reportable operating segments: Life Insurance and Annuities. The Life
Insurance segment's primary product offerings consist of whole life, universal
life and term life insurance policies. The primary product offerings of the
Annuity segment are individual fixed annuities.
The Company sold certain lines of business and made the decision to exit
certain other businesses in 1998. These businesses are referred to as
discontinued operations and include the following activities: banking,
residential real estate brokerage, residential land development, and mortgage
banking.
ADJUSTED NET OPERATING INCOME
The following table reflects net income adjusted to eliminate certain items
(net of applicable income taxes and minority interest) which management believes
do not necessarily indicate overall operating trends. For example, net realized
capital gains or losses on investments, excluding gains or losses on convertible
preferred stock and bonds which are considered core earnings, are eliminated.
Net realized capital gains or losses on investments may be realized at the sole
discretion of management and are often realized in accordance with tax planning
strategies. Therefore, net realized capital gains or losses do not reflect the
Company's ongoing earnings capacity. Different items are likely to occur in each
period presented and others may have different opinions as to which items may
warrant adjustment. Adjusted net operating income is the basis used by the
Company in assessing its overall performance. Adjusted net operating income as
described here may not be comparable to similarly titled measures reported by
other companies. The adjusted net operating income shown below does not
constitute net income computed in accordance with GAAP.
23
24
For the Three Months Ended
March 31,
2001 2000
-------------------------------
($ in thousands, except per share data)
Net Income $ 11,636 $ 14,780
Net non-core realized (gains) losses (A) 4,817 (1,357)
Net amortization of deferred policy
acquisition costs due to non-core
realized gains or losses (B) (1,506) 234
Reorganization costs (C) -- 1,021
Discontinued operations (D) (414) 205
Cumulative effect of change in
accounting for derivatives (E) 8,236 --
-----------------------------
Adjusted Net Operating Income $ 22,769 $ 14,883
============================
Adjusted Net Operating Income
per common share (F):
Basic $ 0.76 $ 0.86
============================
Diluted $ 0.75 $ 0.85
============================
Weighted average common
shares outstanding (F):
Basic 29,973,039 17,390,165
============================
Diluted 30,365,387 17,453,374
============================
(A) Represents total realized gains or losses on investments less core realized
gains or losses (defined as gains or losses on the convertible preferred
stock and bond portfolio) adjusted for income taxes and minority interest
on such amounts. Non-core realized gains or losses may vary widely between
periods. Such amounts are determined by management's timing of individual
transactions and do not necessarily correspond to the underlying operating
trends.
(B) Represents amortization of deferred policy acquisition costs on the
non-core realized gains or losses that are included in product margins,
adjusted for income taxes and minority interest on such amounts.
24
25
(C) Represents costs directly related to the Company's reorganization and
merger with ALHI, adjusted for minority interest on such amounts. These
costs consist primarily of legal, actuarial and consulting expenses.
(D) Represents the net income from the Company's discontinued operations.
(E) Represents the cumulative effect of change in accounting for derivatives,
net of tax, resulting from the Company's adoption of SFAS Nos. 133 and 138.
These Statements are effective for fiscal years beginning after June 15,
2000.
(F) The Company was formed in 1996 as a mutual holding company and therefore,
had no shares of common stock outstanding until its demutualization on
September 20, 2000. At that time, the Company distributed 17.4 million
shares of its common stock to its former members and exchanged its common
stock for the 12.9 million shares of common stock held by the public in
ALHI on a one-for-one basis. The Company's operating income is primarily
from its former subsidiary, ALHI. The Company has owned shares of ALHI
common stock since 1996. Adjusted net operating income per share has been
calculated on the basis that the shares of stock the Company owned of ALHI
were distributed to members and outstanding from January 1, 1996 and the
shares exchanged for ALHI shares were outstanding from the date of
demutualization.
Adjusted net operating income increased $7.9 million to $22.8 million, or
$0.75 per diluted share, for the first quarter of 2001 compared to $14.9
million, or $0.85 per diluted share, for the first quarter of 2000. The increase
in adjusted net operating income in 2001 was primarily attributable to the
reduction in income applicable to the minority interest, growth in invested
assets, and increased spreads. These changes are analyzed further in the
operating segment discussion. While total adjusted net operating income
increased between first quarter periods, adjusted net operating income per
diluted share decreased. As explained in footnote (F) above, the diluted
earnings per share is a pro forma calculation since the Company did not actually
issue shares until its demutualization on September 20, 2000. The number of
shares that the Company owned of ALHI has been used in the pro forma calculation
since ALHI was the primary source of operating income for the Company. However,
in the first quarter of 2000, the Company also had approximately $2.0 million of
after-tax operating income from cash equivalents it held. These cash equivalents
were distributed to the Company's former Members in October 2000 in connection
with the Company's reorganization discussed previously, and therefore are no
longer a source of operating income for the Company. For comparison purposes
with the Company's on-going operating structure, ALHI's diluted adjusted net
operating income per share was $0.65 for the first quarter of 2000 and ALHI's
adjusted net operating income was $19.5 million.
OPERATING SEGMENTS
The Company has two reportable operating segments: Life Insurance and
Annuities. Products generally distinguish a segment. The Company uses the same
accounting policies and procedures to measure operating segment income as it
uses to measure its consolidated income from operations with the exception of
the elimination of certain items which management believes are not necessarily
indicative of overall operating trends. These items are explained further in the
Adjusted Net Operating Income section of Management's Discussion and Analysis of
Results of Operations and Financial Condition. Revenues and benefits and
expenses are primarily attributed directly to each operating segment. Net
investment income and core realized gains and losses on investments are
allocated based on the directly-related asset portfolios. Other revenues and
expenses which are deemed not to be associated with any specific reportable
segment are grouped together in the All Other category. These items primarily
consist of holding company revenues and expenses and the operations of the
Company's real estate management subsidiary. The Company assesses the
performance of its operating segments before interest expense, income taxes, and
minority interest. Income from operations and operating segment information do
not
25
26
include discontinued operations which are comprised of the former banking,
residential real estate brokerage, residential land development, and mortgage
banking activities of the Company.
SALES
LIFE INSURANCE
The following table sets forth information regarding the Company's life
insurance sales activity by product:
Sales Activity by Product
Direct First Year Annualized Premiums
For the Three Months Ended March 31,
2001 2000
-------------------------------------
($ in thousands)
Traditional life insurance:
Participating whole life $ 2,012 $ 3,768
Term life 1,403 2,879
Universal life 1,649 4,230
Equity-indexed universal life 5,269 333
-----------------------
Total $ 10,333 $ 11,210
=======================
Life insurance sales as measured by annualized premiums were $10.3 million
in the first quarter of 2001 compared to $11.2 million in the first quarter of
2000. As expected, term life sales declined fifty percent from first quarter
2000 as last year's sales were temporarily boosted by higher consumer demand
driven by legislative changes taking effect January 1, 2000 which were
anticipated to impact term product pricing. In addition, the Company has
introduced several new universal life products over the past two years which has
resulted in the shift in sales from participating life and term life products to
universal life products as noted in the table above. In particular, the Company
has introduced equity-indexed universal life products which allow the
policyowner to elect an earnings strategy for a portion of the account value
whereby earnings are credited based on increases in the S&P 500 Index, excluding
dividends. The earnings credit is subject to a participation rate and an annual
cap. In the first quarter of 2001, sales of these products were $5.3 million as
compared to $0.3 million for the same period a year ago. The Company anticipates
continued higher sales of these products as compared to last year.
26
27
The following table sets forth the Company's life insurance collected
premiums, including collected premiums associated with the Closed Block, for the
periods indicated:
Collected Premiums by Product
For the Three Months Ended March 31,
2001 2000
------------------------------------
($ in thousands)
Individual life premiums collected:
Traditional life:
First year and single $ 20,064 $ 21,552
Renewal 49,200 47,497
-------------------------
Total 69,264 69,049
Universal life:
First year and single 11,355 7,612
Renewal 19,821 19,239
-------------------------
Total 31,176 26,851
Total individual life 100,440 95,900
Reinsurance assumed 509 372
Reinsurance ceded (9,350) (5,912)
-------------------------
Total individual life, net of reinsurance $ 91,599 $ 90,360
=========================
Traditional life insurance premiums collected were $69.3 million for the
first quarter of 2001 compared to $69.0 million for the first quarter of 2000.
First year and single premium declined in 2001 as compared to 2000 which was
consistent with the lower participating whole life and term life sales, as
discussed previously. Renewal direct collected premium was $1.7 million higher
in 2001 as compared to 2000 primarily due to the maturing of the block of
business.
Universal life insurance premiums collected were $31.2 million for the
first quarter of 2001 compared to $26.9 million for the same period in 2000. The
increase in 2001 as compared to 2000 was primarily due to the new products
introduced over the last two years as discussed previously.
Effective January 1, 2000, the Company entered into additional reinsurance
agreements which effectively reduced the Company's retention limit to $100,000
for the majority of policies issued since July 1, 1996 and for the majority of
new business going forward. In addition, effective July 1, 2000, the Company
entered into a reinsurance agreement covering its Closed Block policies. Under
this agreement, the Company has reinsured approximately 90% of the Closed Block
net amount at risk not previously reinsured. Reinsurance ceded was $3.5 million
higher for the first quarter of 2001 as compared to the first quarter of 2000
due to these additional reinsurance agreements.
27
28
The following table sets forth information regarding the Company's life
insurance in force for each date presented:
Individual Life Insurance in Force
As of March 31,
2001 2000
----------------------------------
($ in thousands)
Traditional life
Number of policies 243,008 249,600
GAAP life reserves $ 1,756,249 $ 1,664,907
Face amounts $ 23,612,008 $ 22,593,911
Universal life
Number of policies 113,357 112,779
GAAP life reserves $ 961,989 $ 927,749
Face amounts $ 12,885,997 $ 12,387,384
Total life insurance
Number of policies 356,365 362,379
GAAP life reserves $ 2,718,238 $ 2,592,656
Face amounts $ 36,498,005 $ 34,981,295
While the total policy count continues to decline consistent with industry
trends, the average size of policy continues to increase from $96,500 in 2000 to
$102,400 in 2001. As a result, total insurance in force has grown to $36.5
billion as of March 31, 2001.
28
29
ANNUITIES
The following table sets forth annuity collected premiums for the periods
indicated:
Collected Premiums by Product
For the Three Months Ended March 31,
2001 2000
------------------------------------
($ in thousands)
Fixed annuities $ 437,038 $ 206,324
Multi-choice annuities 50,544 20,206
Equity-index annuities 33,809 70,931
-----------------------------
Total 521,391 297,461
Reinsurance assumed - -
Reinsurance ceded (48,589) (54)
-----------------------------
Total annuities, net of reinsurance $ 472,802 $ 297,407
=============================
The Company markets its annuity products on a national basis through
networks of independent agents who are supervised by regional vice presidents
and directors or Independent Marketing Organizations (IMOs). The Company's IMOs
consist of approximately 76 contracted organizations and four wholly-owned
organizations. Annuity collected premiums were $521.4 million for the first
quarter of 2001 compared to $297.5 million for the same period in 2000. The
increase in annuity collected premiums was partially attributable to the
introduction of multi-choice annuity products in late-1999 and early-2000. The
multi-choice annuity product provides for various earnings strategies under one
product, such as a long-term equity index, an annual equity index, an investment
grade bond index, and a guaranteed one-year rate. Earnings are credited to this
product based on the increases in the applicable indices, less management fees,
and funds may be moved between investment alternatives. This product has
continued to grow in popularity with consumers and agents since its
introduction. In addition to the increase in multi-choice annuities, fixed
annuity collected premiums increased $230.7 million in 2001 as compared to 2000
primarily due to product repricing, growth in agents and increased marketing
efforts aimed at these products.
Effective October 1, 2000, the Company entered into a reinsurance agreement
to cede 35% of certain fixed annuity production on a modified coinsurance basis.
As a result of this new agreement, fixed annuity production ceded was $48.6
million higher in the first quarter of 2001 as compared to the same period in
2000.
29
30
The following table sets forth information regarding annuities in force for
each date presented:
Annuities in Force
As of March 31,
2001 2000
-------------------------------
($ in thousands)
Deferred fixed and immediate annuities
Number of policies 162,527 166,607
GAAP life reserves $ 6,147,066 $ 5,886,865
Multi-choice annuities
Number of policies 3,494 389
GAAP life reserves $ 154,647 $ 22,146
Equity-index annuities
Number of policies 15,834 10,673
GAAP life reserves $ 686,373 $ 519,931
Total annuities
Number of policies 181,855 177,669
GAAP life reserves $ 6,988,086 $ 6,428,942
The total number of annuity policies and the GAAP reserves on annuity
policies increased between periods consistent with the increased annuity sales.
30
31
RESULTS OF OPERATIONS
A summary of the Company's revenue follows:
For The Three Months Ended
March 31,
2001 2000
--------------------------------
($ in thousands)
Insurance premiums
Life insurance - traditional $ 61,951 $ 63,281
Annuities - Immediate annuity &
supplementary contract premiums 4,613 5,883
All other 28 (39)
-------------------------------
Total insurance premiums 66,592 69,125
Product charges
Life insurance - universal life 17,134 14,787
Annuities 7,132 8,490
-------------------------------
Total product charges 24,266 23,277
Net investment income
Life insurance 53,031 52,958
Annuities 127,188 113,686
All other 909 6,968
-------------------------------
Total net investment income 181,128 173,612
Realized/unrealized gains (losses) on investments
Life insurance - core 244 40
Annuities - core (32,638) 2,294
All other - non-core (7,441) 569
-------------------------------
Total realized/unrealized gains (losses) on investments (39,835) 2,903
Other income
Annuities 8,057 4,165
All other 2,275 2,368
-------------------------------
Total other income 10,332 6,533
-------------------------------
Total revenues $ 242,483 $ 275,450
===============================
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32
Traditional life insurance premiums were $62.0 million in the first quarter
of 2001 compared to $63.3 million in the first quarter of 2000. The decrease in
traditional life insurance premiums in 2001 as compared to 2000 was primarily
the result of the shift in sales focus from traditional life products to
universal life products discussed previously. In addition, the new reinsurance
agreements entered into in 2000 resulted in an increase in ceded premium in 2001
of approximately $2.5 million as compared to a year ago. Partially offsetting
the decline in first year premium and the increase in ceded premium was
increased renewal premium. Open block renewal premium increased approximately
$4.5 million in the first quarter of 2001 as compared to the same period a year
ago primarily due to the maturing of this block while Closed Block renewal
premium declined approximately $1.6 million due to an increase in lapses. Total
life insurance lapse rates were 8.0% for the first quarter of 2001 as compared
to 7.2% a year ago first quarter. This increase in lapses in the Closed Block
was expected following the completion of the demutualization.
Immediate annuity and supplementary contract premiums decreased by $1.3
million to $4.6 million for the first quarter of 2001 compared to $5.9 million
for the same period in 2000. A decrease in immediate annuity premiums was
anticipated as a result of pricing adjustments made on these products.
Universal life product charges were $17.1 million for the first quarter of
2001 compared to $14.8 million for the first quarter of 2000. The increase in
product charges resulted from the increased sales of universal life products
combined with increased cost of insurance charges as a result of the normal
aging and growth of the block of business.
Annuity product charges were $7.1 million for the first quarter of 2001
compared to $8.5 million for the same period in 2000. The decrease in product
charges was primarily due to decreased surrenders of annuity policies with
surrender charges. Annuity withdrawal rates averaged 16.1% in the first quarter
of 2001 compared to 14.9% in the first quarter of 2000. The increase in
withdrawal rates in 2001 was due to internal replacements as some of the
surrendered policies were converted to other Company products. Excluding
internal replacements, withdrawal rates decreased 0.6% to 13.1% for the first
quarter of 2001 compared to 13.7% for the same period a year ago.
Total net investment income was $181.1 million for the first quarter of
2001 compared to $173.6 million for the same period in 2000. The increase in
2001 net investment income was primarily attributable to higher average invested
assets (excluding market value adjustments) and a higher effective yield as
compared to 2000. Average invested assets (excluding market value adjustments)
increased approximately $169.7 million for the first quarter of 2001 compared to
the first quarter of 2000. The increase was primarily due to the growth of the
Company's life insurance and annuity businesses since last year. Partially
offsetting this growth in assets from the product lines was a reduction in
holding company cash equivalents. The cash equivalents were generated primarily
from the sale of the Company's discontinued operations in mid-1998 and were
carried as invested assets of the Company until October 2000, when the Company
distributed the funds to its former Members in connection with its
reorganization discussed previously. Investment income on the cash equivalents
was approximately $3.1 million for the first quarter of 2000. The effective
yield of the entire portfolio in the first quarter of 2001 was 7.32% compared to
7.14% in the first quarter of 2000. The increase in yield primarily resulted
from the market value adjustment the Company made to its assets in connection
with its reorganization. The effective yield of the deferred annuity portfolio
increased 42 basis points to 7.19% for the first quarter of 2001 as compared to
6.77% for the same period in 2000. The deferred annuity portfolio yield was also
positively impacted by the market value adjustment. In addition, the yield also
increased due to the higher reinvestment rates resulting from the Company's move
out of convertible securities into traditional fixed income securities during
2000.
32
33
Total realized and unrealized gains and losses on investments were a net
loss of $39.8 million for the first quarter of 2001 compared to a net gain of
$2.9 million for the same period a year ago. The significant change between
periods is primarily driven by the Company's adoption of SFAS Nos. 133 and 138,
"Accounting for Certain Derivative Instruments and Hedging Activities." In
accordance with these Statements, the Company has adjusted its options to market
value, which, due to the economic environment, resulted in an unrealized loss of
$33.3 million for the first quarter of 2001. In prior years, the Company carried
its options at amortized cost plus intrinsic value, which, based on the economic
conditions a year ago, resulted in an unrealized gain of $0.8 million for the
first quarter of 2000. The Company uses its options to hedge its equity-indexed
annuity products. The majority of the unrealized gains and losses on the options
are offset by similar adjustments to the option portion of the equity-indexed
annuity reserves. The reserve adjustments are reflected in the policyowner
benefits line of the Consolidated Statements of Income and are discussed in the
next section of Management's Discussion and Analysis of Results of Operations
and Financial Condition. The remainder of the first quarter 2001 realized and
unrealized gains and losses on investments consisted of $0.7 million of
unrealized gains on investments held for trading and $7.2 million of realized
losses on investments. In comparison, there were $2.1 million of realized gains
on investments in the first quarter a year ago. The level of realized gains and
losses will fluctuate from period to period depending on the prevailing interest
rate and economic environment and the timing of the sale of investments.
Other income primarily consists of real estate operating income, property
management fees, structured finance fees from affordable housing programs,
Corporate Owned Life Insurance (COLI) income, and third party annuity
commissions received by wholly-owned IMOs. Other income increased approximately
$3.8 million in the first quarter of 2001 to $10.3 million as compared to $6.5
million in the first quarter of 2000. Approximately $2.0 million of the 2001
increase in annuity other income was due to the acquisition of another IMO in
January, 2001 and the remainder reflects the income on a $100 million COLI
investment the Company made in the fourth quarter of 2000. COLI is classified as
an other asset and accordingly the income from this asset appears in other
income instead of net investment income.
33
34
A summary of the Company's policyowner benefits follows:
For The Three Months Ended
March 31,
2001 2000
--------------------------
($ in thousands)
Life Insurance
Traditional
Death benefits $ 9,948 $ 13,236
Change in liability for future policy
benefits and other policy benefits 45,545 42,322
----------------------
Total traditional 55,493 55,558
Universal
Death benefits in excess of cash value 8,216 9,340
Interest credited on policyowner
account balances 10,491 10,105
Other 332 954
----------------------
Total universal 19,039 20,399
----------------------
Total life insurance benefits 74,532 75,957
Annuities
Interest credited to deferred annuity
account balances 73,584 68,988
Change in option value of equity-indexed
annuity reserves (34,969) --
Other annuity benefits 16,773 18,587
----------------------
Total annuity benefits 55,388 87,575
All other benefits (11) 172
----------------------
Total policyowner benefits $ 129,909 $ 163,704
======================
Total life insurance benefits were $74.5 million in the first quarter of
2001 compared to $76.0 million in the first quarter of 2000. An increase in life
insurance benefits is expected as the traditional and universal blocks of
business continue to grow. However, the Company's life insurance benefit expense
actually decreased in the first quarter of 2001 as compared to the same period
in 2000 due to favorable mortality, as measured per amount in force, and higher
reinsurance credits. Interest credited on universal policyowner account balances
increased $0.4 million in the first quarter of 2001 as compared to
34
35
the same period a year ago. The increase in 2001 was primarily due to higher
average policyowner account balances combined with a slight increase in
crediting rates. The weighted average interest crediting rate on policyowner
account balances was 5.63% for the first quarter of 2001 compared to 5.62% for
the first quarter of 2000.
Annuity benefits were $55.4 million in the first quarter of 2001 compared
to $87.6 million in the same period a year ago. As discussed previously, the
Company's adoption of SFAS Nos. 133 and 138 also impacted this line item and
caused the significant difference in amounts between periods. In accordance with
SFAS Nos. 133 and 138, the Company has adjusted the option portion of its
equity-indexed annuity reserves to market which, based on the economic
environment, resulted in a $35.0 million decrease in reserve balances. Interest
credited to deferred annuity account balances increased $4.6 million in the
first quarter of 2001 compared to the same quarter a year ago. Between 2001 and
2000 first quarter periods, average deferred fixed annuity account balances
increased approximately $115.0 million and the weighted average crediting rate
on deferred fixed annuity account balances increased 20 basis points to 5.07%.
The increase in crediting rates reflects the change in product mix and the
increase in the investment yields of the deferred fixed annuity portfolio.
Overall, spreads on deferred fixed annuities widened 22 basis points in the
first quarter of 2001 as compared to the same period a year ago. Other annuity
benefits declined approximately $1.8 million between first quarter periods which
corresponds with the decline in immediate annuity and supplementary contract
premiums.
35
36
A summary of the Company's expenses follows:
For the Three Months Ended March 31,
------------------------------------
2001 2000
------------------------------------
($ in thousands)
Life Insurance
Underwriting, acquisition and
other expenses $ 14,140 $ 10,612
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of $174 and $21
for the three months ended March 31,
2001 and 2000, respectively 9,609 9,537
---------------------------
Total life insurance 23,749 20,149
Annuities
Underwriting, acquisition and
other expenses 14,517 11,390
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of $(2,491) and $599
for the three months ended March 31,
2001 and 2000, respectively 17,979 15,890
---------------------------
Total annuities 32,496 27,280
Amortization of deferred policy acquisition costs due
to non-core realized gains or losses (2,317) 620
All other expenses 2,677 4,995
Reorganization costs -- 1,210
---------------------------
Total expenses $ 56,605 $ 54,254
===========================
Total life insurance expenses were $23.7 million in the first quarter of
2001 compared to $20.1 million in the same period in 2000. Underwriting,
acquisition and insurance expenses were approximately $3.5 million higher in the
first quarter of 2001 as compared to the same period a year ago. First quarter
2000 expenses were reduced by certain non-recurring items primarily related to
the frozen pension plan and joint venture distribution allowances. Excluding
these non-recurring items, underwriting, acquisition and insurance expenses
increased approximately $1.6 million from the first quarter a year ago primarily
due to general compensation increases, depreciation on the new life insurance
36
37
administrative system and distribution system enhancements. Amortization of
deferred policy acquisition costs and value of business acquired (VOBA)
increased $0.1 million in the first quarter of 2001 compared to the first
quarter of 2000. Deferred policy acquisition costs are generally amortized in
proportion to gross margins. The increase in amortization in 2001 as compared to
2000 reflects an increase in amortization of approximately $0.5 million
associated with the Company's market value adjustment completed at the end of
the third quarter 2000. Additional VOBA was established as a result of the
market value adjustment. Partially offsetting this increase in amortization from
the additional VOBA asset was decreased amortization related to modifications
made to future maintenance expense assumptions resulting in increased estimated
future gross margins, and therefore lower current year amortization.
Total annuity expenses increased by $5.2 million to $32.5 million in the
first quarter of 2001 compared to $27.3 million in the first quarter of 2000.
Underwriting, acquisition and insurance expenses increased approximately $3.1
million in the first quarter of 2001 compared to the same period a year ago.
Approximately $1.7 million of the increase related to the new IMO acquired in
January of 2001. The increase in expense due to the new IMO was offset by the
increase in other income from the IMO discussed previously. The remainder of the
increase was primarily due to additional agent-related expenses, such as
recruiting and annual conventions, and increased incentive compensation.
Amortization of deferred policy acquisition costs and VOBA increased $2.1
million in the first quarter of 2001 as compared to the same period in 2000. The
increase in amortization was partially attributable to the general growth in the
deferred policy acquisition cost asset associated with the continued growth in
annuity sales. In addition, VOBA amortization was higher in the first quarter of
2001 due to the additional VOBA established in connection with the Company's
third quarter market value adjustment.
Other expenses decreased by $2.3 million in the first quarter of 2001 to
$2.7 million compared to $5.0 million in the same period in 2000. Other expenses
primarily consist of expenses related to the real estate management company and
the holding company, and tend to fluctuate from period to period depending on
the properties under management each quarter. Beginning in 1999, the Company
began decreasing the number of properties under management and, accordingly,
other expenses are also declining.
The first quarter 2000 reorganization costs consist primarily of legal,
actuarial and consulting expenses associated with the reorganization of the
Company discussed previously. As these costs are not of a continuing nature,
they have been excluded from the Operating Segment amounts.
37
38
A summary of the Company's income from operations by operating segment
follows:
For The Three Months Ended
March 31,
2001 2000
--------------------------------
($ in thousands)
Life Insurance:
Revenues $ 132,360 $ 131,066
Benefits and expenses (98,281) (96,106)
Dividends to policyowners (19,158) (16,169)
--------------------------------
Adjusted pre-tax operating income 14,921 18,791
Annuities:
Revenues 114,352 134,518
Benefits and expenses (87,884) (114,855)
--------------------------------
Adjusted pre-tax operating income 26,468 19,663
All other adjusted pre-tax operating (loss) 546 4,130
--------------------------------
Total adjusted pre-tax operating income $ 41,935 $ 42,584
================================
Adjusted pre-tax operating income from Life Insurance operations was $14.9
million in the first quarter of 2001 compared to $18.8 million in the first
quarter of 2000. The decrease in adjusted pre-tax operating income in the first
quarter of 2001 compared to the first quarter of 2000 was primarily due to the
increased expenses discussed previously. Partially offsetting these increased
expenses was a favorable impact of approximately $0.2 million from the market
value adjustments the Company completed in September 2000 in connection with its
reorganization. As noted in the table above, dividends to policyowners increased
$3.0 million in the first quarter 2001 as compared to the same period a year
ago. The increase was primarily due to the change in the Closed Block
policyowner dividend obligation and does not have an impact on bottom line
adjusted pre-tax operating income as increased Closed Block net margins offset
the increase in this dividend line item.
Adjusted pre-tax operating income from Annuity operations was $26.5 million
in the first quarter of 2001 compared to $19.7 million in the same period in
2000. The increase in 2001 was primarily due to increased spreads on a growing
block of business and a favorable impact of approximately $2.8 million from the
Company's third quarter 2000 market value adjustment.
All other adjusted pre-tax operating income was $0.5 million in the first
quarter of 2001 compared to $4.1 million in the first quarter of 2000. The
decrease in 2001 compared to 2000 was primarily due to decreased investment
income as the Company distributed approximately $340 million of cash equivalents
in October 2000 in connection with its reorganization.
Interest expense increased $0.2 million in the first quarter of 2001 to
$7.3 million compared to $7.1 million in the first quarter of 2000. The
increased interest expense in 2001 was primarily due to higher average
outstanding borrowings during the first quarter of 2001 as compared to the first
quarter of
38
39
2000. The additional borrowings were primarily used to partially fund the
Company's demutualization distribution to its former Members.
Income tax expense was $10.0 million in the first quarter of 2001 compared
to $12.6 million in the same period in 2000. The effective tax rate was 34.0%
and 36.8% for the first quarter of 2001 and 2000, respectively. The decrease in
the effective tax rate in 2001 reflected the decline in nondeductible expenses
associated with the Company's reorganization and increased tax exempt income
from the COLI investment.
Minority interest represents the minority stockholders ownership percentage
share of net income of ALHI prior to the Company's acquisition of this Minority
Interest. The minority shareholder ownership percentage was 42% for the three
months ended March 31, 2000. As a result of the Company's acquisition of the
Minority Interest there is no net income applicable to the Minority Interest in
the first quarter of 2001.
Net income from continuing operations increased $4.5 million to $19.5
million in the first quarter of 2001 compared to $15.0 million in the first
quarter of 2000. While the operating income from the Company's Segments was
somewhat level between first quarter periods with an increase in the Annuity
Segment operating income being offset by a decline in the Life and All Other
Segments operating income, net income increased due to the lower effective tax
rate and the reduction in net income applicable to the Minority Interest.
The Company adopted SFAS Nos. 133 and 138 January 1, 2001. In accordance
with the provisions of these Statements, the Company has recorded the
differences between the previous carrying amounts of its derivative instruments
and the fair value of its derivative instruments, as of this initial application
date, as the effect of a change in accounting principle. The gross difference
between carrying amounts and fair value amounts of the Company's derivative
instruments was a reduction of approximately $11.3 million. The deferred policy
acquisition cost and VOBA amortization impact from the derivative adjustments
was approximately $1.1 million and the income tax benefit was $4.2 million,
resulting in the net cumulative effect of change in accounting for derivatives
of $8.2 million.
Net income was $11.6 million in the first quarter of 2001 compared to $14.8
million in the first quarter of 2000. As discussed above, the Company adopted
SFAS Nos. 133 and 138 in the first quarter of 2001 which had a one-time
cumulative effect of reducing net income by $8.2 million. Excluding this
one-time cumulative effect, net income increased $5.0 million due to the items
discussed in the net income from continuing operations paragraph above.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest from income on loans and advances
to its subsidiaries (including a surplus note issued to the Company by AmerUs),
investment income on assets held by the Company and fees which the Company
charges its subsidiaries and certain other of its affiliates for services,
offset by the expenses incurred for debt service, salaries and other expenses.
The Company intends to rely primarily on dividends and interest income from
its life insurance subsidiaries in order to make dividend payments to its
shareholders. The payment of dividends by its life insurance subsidiaries is
regulated under various state laws. Generally, under the various state statutes,
the Company's life insurance subsidiaries dividends may be paid only from the
earned surplus arising from their respective businesses and must receive the
prior approval of the respective state regulator to
39
40
pay any dividend that would exceed certain statutory limitations. The current
statutes generally limit any dividend, together with dividends paid out within
the preceding 12 months, to the greater of (i) 10% of the respective company's
policyowners' surplus as of the preceding year end or (ii) the net gain from
operations for the previous calendar year. Generally, the various state laws
give the state regulators broad discretion to approve or disapprove requests for
dividends in excess of these limits. Based on these limitations and 2000
results, the Company's subsidiaries could pay an estimated $92.7 million in
dividends in 2001 without obtaining regulatory approval. Of this amount, the
Company's subsidiaries paid the Company $10.0 million in the first quarter of
2001. The 2000 statutory results exceeded prior years' statutory results
primarily due to reinsurance transactions entered into in 2000. As reinsurance
activity varies from year to year, 2001 statutory results may decline as
compared to 2000 and dividend capacity would change accordingly.
The Company has a $150 million revolving credit facility with a syndicate
of lenders (the "Bank Credit Facility"). As of March 31, 2001, there was a $59
million outstanding loan balance under the Bank Credit Facility. The Bank Credit
Facility provides for typical events of default and covenants with respect to
the conduct of business of the Company and its subsidiaries and requires the
maintenance of various financial levels and ratios. Among other covenants, the
Company (a) cannot have a leverage ratio greater than 0.35:1.0, (b) cannot have
an interest coverage ratio less than 2.25:1.0 through June 30, 2001, 2.50:1.0
thereafter, (c) is prohibited from paying cash dividends on its common stock in
excess of an amount equal to 3% of its consolidated net worth as of the last day
of the preceding fiscal year, and (d) must cause certain of its subsidiaries,
including AmerUs and Delta, to maintain certain ratings from A.M. Best and
certain levels of risk-based capital.
As previously reported, the Company has entered into a definitive agreement
for the combination of the Company with ILICO. ILICO will demutualize and its
members will receive cash, policy credits and the Company's common stock
equivalent to the value of 9.3 million shares of the common stock of AmerUs
Group. The transaction is expected to be completed in the second quarter of
2001. Under the terms of the agreement, the Company is committed at a minimum to
distribute in cash the equivalent value of approximately 264,000 shares of its
common stock. The actual amount of the cash consideration will vary dependent
upon the price of the Company's common stock at or about the closing date and
the number of shares within the range that the Company elects to distribute in
the form of cash. The funding for the cash consideration is expected to
primarily come from the Company's Bank Credit Facility.
The Company has previously announced a stock repurchase plan for up to
$50.0 million. As of March 31, 2001, the Company has $48.2 million of remaining
capacity under the plan. The Company would expect some greater repurchase
activity if the market conditions are favorable. The funds for the repurchase
program would come from a combination of internal sources from its life
insurance subsidiaries and utilization of its Bank Credit Facility.
In July 2001, the forward common stock purchase contract component of the
Company's adjustable conversion-rate equity security units matures. Under the
terms of the contract, the Company will issue up to 4,080,500 shares of its
common stock at a price of $31.5625 per share for total consideration of $128.8
million. The actual number of shares to be issued is dependent upon the average
price of the Company's common stock for the twenty consecutive trading days
ending on the last trading day immediately preceding July 27, 2001. In lieu of
paying cash to satisfy their purchase obligation, the unit holders may surrender
the preferred security component of the adjustable conversion-rate equity
security unit. The form of consideration will not be known until July when the
holders make their election. If the Company receives cash proceeds, it is likely
that the funds will be applied towards the Company's Bank Credit Facility. If
the preferred securities are tendered, the Company intends to retire them. In
either case, debt and capital securities outstanding will be reduced by $128.8
million.
40
41
LIFE INSURANCE SUBSIDIARIES
The cash flows of the Company's life insurance subsidiaries consist
primarily of premium income, deposits to policyowner account balances, income
from investments, sales, maturities and calls of investments and repayments of
investment principal. Cash outflows are primarily related to withdrawals of
policyowner account balances, investment purchases, payment of policy
acquisition costs, payment of policyowner benefits, payment of debt, income
taxes and current operating expenses. Life insurance companies generally produce
a positive cash flow from operations, as measured by the amount by which cash
flows are adequate to meet benefit obligations to policyowners and normal
operating expenses as they are incurred. The remaining cash flow is generally
used to increase the asset base to provide funds to meet the need for future
policy benefit payments and for writing new business.
Management anticipates that funds to meet its short-term and long-term
capital expenditures, cash dividends to shareholders and operating cash needs
will come from existing capital and internally generated funds. Management
believes that the current level of cash and available-for-sale and short-term
securities, combined with expected net cash inflows from operations, maturities
of fixed maturity investments, principal payments on mortgage-backed securities
and its insurance products, will be adequate to meet the anticipated short-term
cash obligations of the Company's life insurance subsidiaries.
Matching the investment portfolio maturities to the cash flow demands of
the type of insurance being provided is an important consideration for each type
of life insurance product and annuity. The Company continuously monitors
benefits and surrenders to provide projections of future cash requirements. As
part of this monitoring process, the Company performs cash flow testing of its
assets and liabilities under various scenarios to evaluate the adequacy of
reserves. In developing its investment strategy, the Company establishes a level
of cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage-backed securities, are believed adequate to meet anticipated short-term
and long-term benefit and expense payment obligations. There can be no assurance
that future experience regarding benefits and surrenders will be similar to
historic experience since withdrawal and surrender levels are influenced by such
factors as the interest rate environment and the claims-paying and financial
strength ratings of the Company's life insurance subsidiaries.
The Company takes into account asset/liability management considerations in
the product development and design process. Contract terms for the Company's
interest-sensitive products include surrender and withdrawal provisions which
mitigate the risk of losses due to early withdrawals. These provisions generally
do one or more of the following: limit the amount of penalty-free withdrawals,
limit the circumstances under which withdrawals are permitted, or assess a
surrender charge or market value adjustment relating to the underlying assets.
The following table summarizes liabilities for interest- sensitive life products
and annuities by their contractual withdrawal provisions at March 31, 2001
(including liabilities in both the Closed Block and the general account):
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42
($ in millions)
----------------
Not subject to discretionary withdrawal $ 373.8
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) 4,985.3
Market value adjustments 1,474.8
---------
Subtotal 6,460.1
---------
Subject to discretionary withdrawal without adjustments 1,425.6
---------
Total $8,259.5
=========
(A) Includes $541.8 million of statutory liabilities with a contractual
surrender charge of less than five percent of the account balance.
AmerUs is a party to a $250 million separate account funding agreement.
Under this agreement, a five-year floating rate insurance contract is issued to
a commercial paper conduit. The funding agreement is secured by assets in a
separate account and is further backed by the general account assets of AmerUs.
The separate account assets are legally segregated and are not subject to claims
that arise out of any other business of AmerUs. The separate account assets and
liabilities are included with general account assets in the financial
statements. The funding agreement may not be cancelled by the commercial paper
conduit unless there is a default under the agreement, but AmerUs may terminate
at any time.
AmerUs and its joint venture partner are contingently liable in the event
the joint venture, AVLIC, cannot meet its obligations. At March 31, 2001, AVLIC
had statutory assets of $2,212.5 million, liabilities of $2,151.2 million and
surplus of $61.3 million.
Through their respective memberships in the Federal Home Loan Banks (FHLB)
of Des Moines and Topeka, AmerUs and American are eligible to borrow under
variable-rate short term fed funds arrangements to provide additional liquidity.
These borrowings are secured and interest is payable at the current rate at the
time of any advance. There were no borrowings under these arrangements
outstanding at March 31, 2001. In addition, AmerUs has long-term advances from
the FHLB outstanding of $15.5 million at March 31, 2001.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments. The Company's investment portfolio as of March 31, 2001
had a carrying value of $10 billion, including Closed Block investments.
At March 31, 2001, the statutory surplus of the Company's subsidiaries was
approximately $478.9 million. The Company believes that this level of statutory
capital is more than adequate as each insurance subsidiary's risk based capital
is significantly in excess of required levels.
In the future, in addition to their cash flows from operations and
borrowing capacity, the life insurance subsidiaries would anticipate obtaining
their required capital from the Company as the Company has access to the public
debt and equity markets.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The main objectives in managing the investment portfolios of the Company
and its insurance subsidiaries are to maximize investment income and total
investment returns while minimizing credit risks in order to provide maximum
support to the insurance underwriting operations. Investment strategies are
developed based on many factors including asset liability management, regulatory
requirements, fluctuations in interest rates and consideration of other market
risks. Investment decisions are centrally managed by investment professionals
based on guidelines established by management and approved by the boards of
directors.
Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. The market risks related to financial
instruments of the Company and its subsidiaries primarily relate to the
investment portfolio, which exposes the Company to risks related to interest
rates and, to a lesser extent, credit quality and prepayment variation.
Analytical tools and monitoring systems are in place to assess each of these
elements of market risk.
Interest rate risk is the price sensitivity of a fixed income security to
changes in interest rates. Management views these potential changes in price
within the overall context of asset and liability management. Company actuaries
estimate the payout pattern of the Company's liabilities, primarily the
Company's lapsation, to determine duration, which is the present value of the
fixed income investment portfolios after consideration of the duration of these
liabilities and other factors, which management believes mitigates the overall
effect of interest rate risk for the Company.
The table below provides information about the Company's fixed maturity
investments and mortgage loans at March 31, 2001. The table presents cash flows
of principal amounts and related weighted average interest rates by expected
maturity dates. The cash flows are based on the earlier of the call date or the
maturity date or, for mortgage-backed securities, expected payment patterns.
Actual cash flows could differ from the expected amounts.
EXPECTED CASH FLOWS
9 mos
Amortized 2001 2002 2003 2004 2005 2006 Thereafter Cost
--------- ------ ----- ------- ----- ------ ------ ---------- ----
($ in millions)
Fixed maturity securities $ 333 $ 535 $ 1,036 $ 919 $ 1,119 $ 706 $ 3,877 $ 8,525
Average interest rate 7.7% 7.4% 6.9% 7.0% 7.1% 7.2% 7.5%
Mortgage loans $ 31 $ 35 $ 38 $ 45 $ 41 $ 40 $ 335 $ 565
Average interest rate 8.2% 8.4% 8.3% 8.3% 8.3% 8.2% 8.0%
Total $ 364 $ 570 $ 1,074 $ 964 $ 1,160 $ 746 $ 4,212 $ 9,090
==========================================================================================
The Company and its subsidiaries have consistently invested in high quality
marketable securities. As a result, management believes that the Company has
minimal credit quality risk. Fixed maturity securities are comprised of U.S.
Treasury, government agency, mortgage-backed and corporate securities.
Approximately 68% of fixed maturity securities are issued by the U.S. Treasury
or U.S. government agencies or are rated A or better by Moody's, Standard and
Poor's, or the NAIC. Less than 7% of the bond portfolio is below investment
grade. Fixed maturity securities have a weighted average maturity of
approximately 6.76 years.
Prepayment risk refers to the changes in prepayment patterns that can
either shorten or lengthen the expected timing of the principal repayments and
thus the average life and the effective yield of a security. Such risk exists
primarily within the Company's portfolio of mortgage-backed securities.
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Management monitors such risk regularly. The Company invests primarily in those
classes of mortgage-backed securities that are less subject to prepayment risk.
The Company's use of derivatives is generally limited to hedging purposes
and has principally consisted of using interest rate swaps, caps, swaptions and
options. These instruments, viewed separately, subject the Company to varying
degrees of market and credit risk. However when used for hedging, the
expectation is that these instruments would reduce overall market risk. Credit
risk arises from the possibility that counterparties may fail to perform under
the terms of the contracts.
Equity price risk is the potential loss arising from changes in the value
of equity securities. In general, equities have more year-to-year price
variability than intermediate term grade bonds. However, returns over longer
time frames have been consistently higher. The Company's equity securities
consist primarily of its investments in ILICO and AMAL. The remainder of the
Company's equity securities are high quality and readily marketable.
All of the above risks are monitored on an ongoing basis. A combination of
in-house systems and proprietary models and externally licensed software are
used to analyze individual securities as well as each portfolio. These tools
provide the portfolio managers with information to assist them in the evaluation
of the market risks of the portfolio.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company and its subsidiaries are
parties to certain litigation, none of which management believes is material to
the Company's results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting held on March 27, 2001, a majority of the Company's
shareholders approved the issuance of up to 10.3 million shares of Company
common stock to eligible members of ILICO in connection with the Company's
combination with ILICO. The shareholders' approval of such issuance was required
by the rules of the New York Stock Exchange. The result of the vote is as
follows:
For: 18,816,390
Against: 403,773
Abstentions: 237,646
Broker Non-Votes: 0
At the annual meeting of the Company's shareholders on May 10, 2001, a
majority of the Company's shareholders approved (1) the reelection of Roger K.
Brooks and F.A. Wittern, Jr. as directors of the Company and (2) the
ratification of the appointment by the Board of Directors of the Company of
Ernst & Young LLP as the Company's independent auditors. The result of the vote
is as follows:
Election of Roger K. Brooks
For: 19,595,518
Withheld: 286,987
Election of F.A. Wittern, Jr.
For: 19,629,371
Withheld: 253,134
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Ratification of Ernst & Young LLP
For: 19,478,667
Against: 201,848
Abstaining: 201,990
The terms of the following other directors of the Company continued after the
meeting: John R. Albers, Joseph A. Borgen; Malcolm Candlish; Thomas F. Gaffney;
Ralph W. Laster, Jr.; John W. Norris, Jr.; Jack C. Pester; and John A. Wing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this report is set forth in the
Exhibit Index which immediately precedes such exhibits and is hereby
incorporated by reference herein.
(b) The following report on Form 8-K was filed during the quarter
ended March 31, 2001:
Form 8-K dated March 29, 2001 announcing the Company's
proposal to issue up to 10.3 million shares of common stock in
conjunction with the acquisition of Indianapolis Life
Insurance Company was approved at a special meeting of
shareholders. The Consolidated Financial Statements of
Indianapolis Life Insurance Company were attached.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DATED: May 15, 2001 AMERUS GROUP CO.
By /s/ Michael G. Fraizer
-------------------------------
Executive Vice President and
Chief Financial Officer
By /s/ Brenda J. Cushing
-------------------------------
Vice President and Controller
(Principal Accounting Officer)
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AMERUS GROUP CO. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
2.1 Plan of Reorganization dated October 27, 1995, filed as Exhibit 2.1 to
the registration statement of AmerUs Life Holdings, Inc. on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
September 19, 1997 and as amended and restated as of October 8, 1997,
by and among AmerUs Life Holdings, Inc., AFC Corp. and AmVestors
Financial Corporation ("AmVestors"), filed as Exhibit 2.2 to the
Registration Statement of AmerUs Life Holdings, Inc. on Form S-4,
Registration Number 333-40065 is hereby incorporated by reference.
2.3 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among AmerUs Life Holdings, Inc., a
wholly owned subsidiary of AmerUs Life Holdings, Inc. and Delta Life
Corporation, filed as Exhibit 2.2 to Form 8-K of AmerUs Life Holdings,
Inc. dated October 8, 1997, is hereby incorporated by reference.
2.4 Combination and Investment Agreement, dated February 18, 2000, among
American Mutual Holding Company, AmerUs Life Holdings, Inc.,
Indianapolis Life Insurance Company and The Indianapolis Life Group of
Companies, Inc., filed as Exhibit 2.1 to AmerUs Life Holdings, Inc.'s
report on Form 8-K/A on March 6, 2000, is hereby incorporated by
reference.
2.5 Purchase Agreement, dated as of February 18, 2000, by and between
American Mutual Holding Company and AmerUs Life Holdings, Inc., filed
as Exhibit 2.5 on Form 10-K, dated March 8, 2000, is hereby
incorporated by reference.
2.6 Agreement and Plan of Merger, dated December 17, 1999, by and between
American Mutual Holding Company and AmerUs Life Holdings, Inc., filed
as Exhibit 2.6 on Form 10-K, dated March 8, 2000, is hereby
incorporated by reference.
2.7 Amendment No. 1 to Agreement and Plan of Merger, dated February 18,
2000, by and between American Mutual Holding Company and AmerUs Life
Holdings, Inc., filed as Exhibit 2.7 on Form 10-K, dated March 8,
2000, is hereby incorporated by reference.
2.8 Letter agreement, dated December 17, 1999, by and between American
Mutual Holding Company and AmerUs Life Holdings, Inc., filed as
Exhibit 2.8 on Form 10-K, dated March 8, 2000, is hereby incorporated
by reference.
2.9 Notification Agreement, dated as of February 18, 2000, by and among
American Mutual Holding Company, AmerUs Life Holdings, Inc. and
Bankers Trust Company, filed as Exhibit 2.9 on Form 10-K, dated March
8, 2000, is hereby incorporated by reference.
2.10 Amendment No. 2 to Agreement and Plan of Merger, dated April 3, 2000,
by and between American Mutual Holding Company and AmerUs Life
Holdings, Inc., filed as Exhibit 2.10 on Form 10-Q, dated May 15,
2000, is hereby incorporated by reference.
2.11 Amendment No. 1 to the Purchase Agreement, dated April 3, 2000, by and
between American Mutual Holding Company and AmerUs Life Holdings,
Inc., filed as Exhibit 2.11 on Form 10-Q, dated May 15, 2000, is
hereby incorporated by reference.
2.12 Amendment to Combination and Investment Agreement dated February 18,
2000 among American Mutual Holding Company, AmerUs Life Holdings,
Inc., Indianapolis Life Insurance Company and The Indianapolis Life
Group of Companies, Inc., dated September 18, 2000, filed as Exhibit
2.2 to Form 8-K12G3 of the Registrant dated September 21, 2000.
3.1 Amended and Restated Articles of Incorporation of the Registrant filed
as Exhibit 3.1 on Form 10-Q, dated November 14, 2000 is hereby
incorporated by reference.
3.2 Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.2 on
Form 10-Q, dated November 14, 2000 is hereby incorporated by
reference.
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4.1 Amended and Restated Trust Agreement dated as of February 3, 1997
among AmerUs Life Holdings, Inc., Wilmington Trust Company, as
property trustee, and the administrative trustees named therein
(AmerUs Capital I business trust), filed as Exhibit 3.6 to the
registration statement of AmerUs Life Holdings, Inc. and AmerUs
Capital I on Form S-1, Registration Number 333-13713, is hereby
incorporated by reference.
4.2 Indenture dated as of February 3, 1997 between AmerUs Life Holdings,
Inc. and Wilmington Trust Company relating to the Company's 8.85%
Junior Subordinated Debentures, Series A, filed as Exhibit 4.1 to the
registration statement of AmerUs Life Holdings, Inc. and AmerUs
Capital I on Form S-1, Registration Number, 333-13713, is hereby
incorporated by reference.
4.3 Guaranty Agreement dated as of February 3, 1997 between AmerUs Life
Holdings, Inc., as guarantor, and Wilmington Trust Company, as
trustee, relating to the 8.85% Capital Securities, Series A, issued by
AmerUs Capital I, filed as Exhibit 4.4 to the registration statement
on Form S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.4 Common Stock Purchase Warrant, filed as Exhibit (10)(v) to Form 10-Q
of AmVestors Financial Corporation dated May 13, 1992, is hereby
incorporated by reference.
4.5 Amended and Restated Declaration of Trust of AmerUs Capital II, dated
as of July 27, 1998, among AmerUs Life Holdings, Inc., First Union
Trust Company and the administrative trustees named therein, relating
to AmerUs Life Holdings, Inc.'s 7.0% ACES Units, filed as Exhibit 4.5
on Form 10-Q, dated August 13, 1998, is hereby incorporated by
reference.
4.6 Certificate of Trust of AmerUs Capital III filed as Exhibit 4.7 to the
registration statement of AmerUs Life Holdings, Inc., AmerUs Capital
II and AmerUs Capital III, on Form S-3 (No. 333-50249), is hereby
incorporated by reference.
4.7 Common Trust Securities Guarantee Agreement, dated as of July 27,
1998, by AmerUs Life Holdings, Inc., relating to AmerUs Life Holdings,
Inc.'s 7.0% ACES Units, filed as Exhibit 4.7 on Form 10-Q, dated
August 13, 1998, is hereby incorporated by reference.
4.8 QUIPS Guarantee Agreement, dated as of July 27, 1998, by AmerUs Life
Holdings, Inc., relating to AmerUs Life Holdings, Inc.'s 7.0% ACES
Units, filed as Exhibit 4.8 on Form 10-Q, dated August 13, 1998, is
hereby incorporated by reference.
4.9 Master Unit Agreement, dated as of July 27, 1998, between AmerUs Life
Holdings, Inc. and First Union National Bank relating to AmerUs Life
Holdings, Inc.'s 7.0% ACES Units, filed as Exhibit 4.9 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.10 Call Option Agreement, dated as of July 27, 1998, between Goldman,
Sachs & Co. and First Union National Bank relating to AmerUs Life
Holdings, Inc.'s 7.0% ACES Units, filed as Exhibit 4.10 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.11 Pledge Agreement, dated as of July 27, 1998, among AmerUs Life
Holdings, Inc., Goldman, Sachs & Co. and First Union National Bank
relating to AmerUs Life Holdings, Inc.'s 7.0% ACES Units, filed as
Exhibit 4.11 on Form 10-Q, dated August 13, 1998, is hereby
incorporated by reference.
4.12 Senior Indenture, dated as of June 16, 1998, by and between AmerUs
Life Holdings, Inc. and First Union National Bank, as Indenture
Trustee, relating to the AmerUs Life Holdings, Inc.'s 6.95% Senior
Notes, filed as Exhibit 4.14 on Form 10-Q, dated August 13, 1998, is
hereby incorporated by reference.
4.13 Subordinated Indenture, dated as of July 27, 1998, by and between
AmerUs Life Holdings, Inc. and First Union National Bank, as Indenture
Trustee, relating to AmerUs Life Holdings, Inc.'s 6.86% Junior
Subordinated Deferrable Interest Debentures, filed as Exhibit 4.15 on
Form 10-Q, dated August 13, 1998, is hereby incorporated by reference.
4.14 First Supplement to Indenture dated February 3, 1997 among American
Mutual Holding Company, AmerUs Life Holdings, Inc. and Wilmington
Trust Company as Trustee, relating to the Company's 8.85% Junior
Subordinated Debentures, Series A, dated September 20, 2000, filed as
Exhibit 4.14 on Form 10-Q dated November 14, 2000, is hereby
incorporated by reference.
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4.15 Assignment and Assumption Agreement to Amended and Restated Trust
Agreement, dated February 3, 1997 between American Mutual Holding
Company and AmerUs Life Holdings, Inc., dated September 20, 2000,
filed as Exhibit 4.15 on Form 10-Q dated November 14, 2000, is hereby
incorporated by reference.
4.16 Assignment and Assumption to Guaranty Agreement, dated February 3,
1997 between American Mutual Holding Company and AmerUs Life Holdings,
Inc., dated September 20, 2000, filed as Exhibit 4.16 on Form 10-Q,
dated November 14, 2000, is hereby incorporated by reference.
4.17 First Supplement to Subordinated Indenture, dated July 27, 1998,
relating to AmerUs Life Holdings, Inc.'s 6.86% Junior Subordinated
Deferrable Interest Debentures, among American Mutual Holding Company,
AmerUs Life Holdings, Inc. and First Union National Bank, as Indenture
Trustee, dated September 20, 2000, filed as Exhibit 4.17 on Form 10-Q,
dated November 14, 2000, is hereby incorporated by reference.
4.18 First Supplement to Master Unit Agreement dated July 27, 1998,
relating to AmerUs Life Holdings, Inc.'s 7.0% ACES units, between
American Mutual Holding Company and First Union National Bank, as Unit
Agent, dated September 20, 2000, filed as Exhibit 4.18 on Form 10-Q,
dated November 14, 2000, is hereby incorporated by reference.
4.19 Assignment and Assumption Agreement to the QUIPS Guarantee Agreement
dated July 27, 1998, relating to AmerUs Life Holdings, Inc.'s 7.0%
ACES units, between American Mutual Holding Company and AmerUs Life
Holdings, Inc., dated September 20, 2000, filed as Exhibit 4.19 on
Form 10-Q, dated November 14, 2000, is hereby incorporated by
reference.
4.20 Assignment and Assumption Agreement to the Common Trust Securities
Guarantee Agreement dated July 27, 1998, relating to AmerUs Life
Holdings, Inc.'s 7.0% ACES units, between American Mutual Holding
Company and AmerUs Life Holdings, Inc., dated September 20, 2000,
filed as Exhibit 4.20 on Form 10-Q, dated November 14, 2000, is hereby
incorporated by reference.
4.21 First Supplement to Purchase Contracts between American Mutual Holding
Company and Holders, as specified, dated September 20, 2000, filed as
Exhibit 4.21on Form 10-Q, dated November 14, 2000, is hereby
incorporated by reference.
4.22 First Supplement to the Pledge Agreement dated July 27, 1998, relating
to AmerUs Life Holdings, Inc.'s 7.0% ACES units, among American Mutual
Holding Company, Goldman Sachs & Co., as Call Option Holder, the Chase
Manhattan Bank, as Collateral Agent and First Union National Bank, as
Unit Agent, dated September 20, 2000, filed as Exhibit 4.22 on Form
10-Q, dated November 14, 2000, is hereby incorporated by reference.
4.23 First Supplement to Senior Indenture dated June 16, 1998, relating to
AmerUs Life Holdings, Inc.'s 6.95% Senior Notes, among American Mutual
Holding Company, AmerUs Life Holdings, Inc. and First Union National
Bank, as Trustee, dated September 20, 2000, filed as Exhibit 4.23 on
Form 10-Q, dated November 14, 2000, is hereby incorporated by
reference.
10.1 Joint Venture Agreement, dated as of June 30, 1996, between American
Mutual Insurance Company and Ameritas Life Insurance Corp., filed as
Exhibit 10.2 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.2 Management and Administration Service Agreement, dated as of April 1,
1996, among American Mutual Life Insurance Company, Ameritas Variable
Life Insurance Company and Ameritas Life Insurance Corp., filed as
Exhibit 10.3 to the registration statement of AmerUs Life Holdings,
Inc. on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.3 AmerUs Life Holdings, Inc. Executive Stock Purchase Plan, dated
November 13, 1998, filed as Exhibit 4.11 to the registration statement
of AmerUs Life Holdings, Inc. on Form S-8, Registration Number
333-72237, is hereby incorporated by reference.
10.4 All(star)AmerUs Supplemental Executive Retirement Plan, effective
January 1, 1996, filed as Exhibit 10.6 to the registration statement
of AmerUs Life Holdings, Inc. on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
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10.5 Management Incentive Plan, filed as Exhibit 10.9 to the registration
statement of AmerUs Life Holdings, Inc. on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.6 AmerUs Life Insurance Company Performance Share Plan, filed as Exhibit
10.10 to the registration statement of AmerUs Life Holdings, Inc. on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.7 AmerUs Life Stock Incentive Plan, filed as Exhibit 10.11 to the
registration statement of AmerUs Life Holdings, Inc. on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.8 AmerUs Life Non-Employee Director Stock Plan, filed as Exhibit 10.13
to the registration statement of AmerUs Life Holdings, Inc. on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.9 Form of Indemnification Agreement executed with directors and certain
officers, filed as Exhibit 10.33 to the registration statement of
AmerUs Life Holdings, Inc. on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.10 Tax Allocation Agreement dated as of November 4, 1996, filed as
Exhibit 10.68 to the registration statement of AmerUs Life Holdings,
Inc. on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.11 Credit Agreement, dated as of October 23, 1997, among AmerUs Life
Holdings, Inc., Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.84
to the registration statement of AmerUs Life Holdings, Inc. on Form
S-4, Registration Number 333-40065, is incorporated by reference.
10.12 AmVestors Financial Corporation 1996 Incentive Stock Option Plan,
filed as Exhibit (4)(a) to Registration Statement of AmVestors
Financial Corporation on Form S-8, Registration Number 333-14571 dated
October 21, 1996, is hereby incorporated by reference.
10.13 Consent dated as of May 20, 1998 to the Credit Agreement dated as of
October 23, 1997 among AmerUs Life Holdings, Inc., Various Lender
Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.72 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.14 First Amendment dated as of May 30, 1997 to the Credit Agreement dated
as of October 23, 1997 among AmerUs Life Holdings, Inc., Various
Lender Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.73 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.15 Second Amendment dated as of June 22, 1998 to the Credit Agreement
dated as of October 23, 1997 among AmerUs Life Holdings, Inc., Various
Lender Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.74 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.16 Second Consent and Amendment dated as of October 2, 1998 to the Credit
Agreement dated as of October 23, 1997 among AmerUs Life Holdings,
Inc., Various Lender Institutions, the Co-Arrangers and The Chase
Manhattan Bank, as Administrative Agent, filed as Exhibit 10.75 on
Form 10-Q, dated November 12, 1998, is hereby incorporated by
reference.
10.17 MIP Deferral Plan dated as of September 1, 1998, filed as Exhibit
10.76 on Form 10-Q, dated November 12, 1998, is hereby incorporated by
reference.
10.18 Open Line of Credit Application and Terms Agreement, dated March 5,
1999, between Federal Home Loan Bank of Des Moines and AmerUs Life
Insurance Company, filed as Exhibit 10.34 on Form 10-Q dated May 14,
1999, is hereby incorporated by reference.
10.19 Third Waiver to Credit Agreement dated as of November 16, 1998 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.37
on Form 10-K, dated March 30, 1999, is hereby incorporated by
reference.
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10.20 Fourth Consent and Amendment, dated as of December 4, 1998 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.38
on Form 10-K, dated March 30, 1999, is hereby incorporated by
reference.
10.21 Facility and Guaranty Agreement, dated February 12, 1999, among The
First National Bank of Chicago and AmerUs Life Holdings, Inc., filed
as Exhibit 10.39 on Form 10-Q dated May 14, 1999, is hereby
incorporated by reference.
10.22 Form of Reimbursement Agreement, dated February 15, 1999, among AmerUs
Life Holdings, Inc. and Roger K. Brooks, Victor N. Daley, Michael G.
Fraizer, Thomas C. Godlasky, Marcia S. Hanson, Mark V. Heitz and Gary
R. McPhail, filed as Exhibit 10.40 on Form 10-Q dated May 14, 1999, is
hereby incorporated by reference.
10.23 Amendment No. 1 to Facility Agreement, dated March 23, 1999, among The
First National Bank of Chicago and AmerUs Life Holdings, Inc., filed
as Exhibit 10.41 on Form 10-Q dated May 14, 1999, is hereby
incorporated by reference.
10.24 1999 Non-Employee Stock Option Plan, dated April 19, 1999, filed on
Form S-3, Registration Number 333-72643, is hereby incorporated by
reference.
10.25 Fifth Waiver and Amendment to Credit Agreement dated as of October 1,
1998 to the Credit Agreement dated as of October 23, 1997 among AmerUs
Life Holdings, Inc., Various Lender Institutions, the Co-Arrangers and
The Chase Manhattan Bank, as Administrative Agent, filed as Exhibit
10.43 on Form 10-Q dated August 13, 1999, is hereby incorporated by
reference.
10.26 Sixth Amendment to Credit Agreement dated as of May 18, 1999 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.44
on Form 10-Q dated August 13, 1999, is hereby incorporated by
reference.
10.27 Amendment No. 2 to Facility Agreement, dated January 25, 2000, among
The First National Bank of Chicago and the Registrant, filed as
Exhibit 10.44 on Form 10-K, dated March 8, 2000, is hereby
incorporated by reference.
10.28 Irrevocable Standby Letter of Credit Application and Terms Agreement,
dated February 1, 2000, between Federal Home Loan Bank of Des Moines
and AmerUs Life Insurance Company, filed as Exhibit 10.45 on Form
10-K, dated March 8, 2000, is hereby incorporated by reference.
10.29 Seventh Amendment to Credit Agreement dated as of December 23, 1999 to
the Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.46
on Form 10-K, dated March 8, 2000, is hereby incorporated by
reference.
10.30 Investment Advisory Agreements, dated as of February 18, 2000, by and
between Indianapolis Life Insurance Company, Bankers Life Insurance
Company of New York, IL Annuity and Insurance Company, Western
Security Life Insurance Company and AmerUs Capital Management Group,
Inc. filed as Exhibits 10.1,10.3, 10.4 and 10.2, respectively, to
AmerUs Life Holdings, Inc.'s report on Form 8-K/A on March 6, 2000,
are hereby incorporated by reference.
10.31 Advance, Pledge and Security Agreement, dated April 12, 2000, by and
between the Federal Home Loan Bank of Topeka and American Investors
Life Insurance Company, Inc., filed as Exhibit 10.48 on Form 10-Q,
dated May 15, 2000, is hereby incorporated by reference.
10.32 Institutional Custody Agreement, dated April 12, 2000, by and between
the Federal Home Loan Bank of Topeka and American Investors Life
Insurance Company, Inc., filed as Exhibit 10.49 on Form 10-Q, dated
May 15, 2000, is hereby incorporated by reference.
10.33 Line of Credit Application, dated April 12, 2000, by and between the
Federal Home Loan Bank of Topeka and American Investors Life Insurance
Company, Inc., filed as Exhibit 10.50 on Form 10-Q, dated May 15,
2000, is hereby incorporated by reference.
10.34 Stock Purchase Agreement, dated February 1, 2000, by and among
AmVestors Financial Corporation, Creative Marketing International
Corporation and the Stockholders of Creative Marketing International
Corporation, filed as Exhibit 10.51 on Form 10-Q, dated May 15, 2000,
is hereby incorporated by reference.
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10.35 Stock Purchase Agreement, dated February 23, 2000, by and among
American Investors Sales Group, Inc., Community Bank Marketing, Inc.
and Community Financial Services, Inc., filed as Exhibit 10.52 on Form
10-Q, dated May 15, 2000, is hereby incorporated by reference.
10.36 Agreement for Advances, Pledge and Security Agreement, dated March 12,
1992, by and between Central Life Assurance Company and the Federal
Home Loan Bank of Des Moines, filed as Exhibit 10.53 on Form 10-Q,
dated May 15, 2000, is hereby incorporated by reference.
10.37 Agreement for Advances, Pledge and Security Agreement, dated September
1, 1995, by and between American Vanguard Life Insurance Company and
the Federal Home Loan Bank of Des Moines, filed as Exhibit 10.54 on
Form 10-Q, dated May 15, 2000, is hereby incorporated by reference.
10.38 Agreement and Plan of Merger, dated September 30, 1998, by and among
AmVestors Financial Corporation, Senior Benefit Services of Kansas,
Inc., Senior Benefit Services Insurance Agency, Inc., National Senior
Benefit Services, Inc. and Richard McCarter, filed as Exhibit 10.55 on
Form 10-Q, dated May 15, 2000, is hereby incorporated by reference.
10.39 Eighth Amendment to Credit Agreement dated as of June 23, 2000 to the
Credit Agreement dated as of October 23, 1997 among AmerUs Life
Holdings, Inc., various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.57
on Form 10-Q, dated August 14, 2000, is hereby incorporated by
reference.
10.40 Affirmation Agreement to Facility and Guaranty Agreement dated
February 12, 1999 by American Mutual Holding Company, survivor of a
merger with AmerUs Life Holdings, Inc. in favor of the Agent and the
Lenders, dated September 20, 2000, filed as Exhibit 10.58 on Form
10-Q, dated November 14, 2000, is hereby incorporated by reference.
10.41 Amendment to Facility and Guaranty Agreement dated February 12, 1999
among The First National Bank of Chicago and AmerUs Group Co., dated
September 20, 2000, filed as Exhibit 10.59 on Form 10-Q, dated
November 14, 2000, is hereby incorporated by reference.
10.42 Acknowledgement and Assumption Agreement to Credit Agreement dated
October 23, 1997, among American Mutual Holding Company and The Chase
Manhattan Bank, as Administrative Agent for Various Lender
Institutions, dated September 20, 2000, filed as Exhibit 10.60 on Form
10-Q, dated November 14, 2000, is hereby incorporated by reference.
10.43 AmerUs Group Co. 2000 Stock Incentive Plan, dated November 15, 2000,
filed as Exhibit 99.9 to the registration statement of AmerUs Group
Co. on Form S-8, Registration Number 333-50030, is hereby incorporated
by reference.
11* Statement Re: Computation of Earnings per share.
99.1 Retirement Agreement, dated March 14, 2000, by and between Victor N.
Daley and AmerUs Life Holdings, Inc., filed as Exhibit 99.8 on Form
10-Q, dated May 15, 2000, is hereby incorporated by reference.
99.2 First Amendment to Employment Agreement, dated as of April 15, 1999,
to the Employment Agreement dated as of September 19, 1997, among Mark
V. Heitz, AmVestors Financial Corporation, American Investors Life
Insurance Company, Inc., AmVestors Investment Group, Inc., American
Investors Sales Group, Inc., and AmerUs Life Holdings, Inc., filed as
Exhibit 99.4 on Form 10-Q dated August 13, 1999, is hereby
incorporated by reference.
99.3 Supplemental Benefit Agreement, dated as of April 15, 1999, among
Roger K. Brooks and AmerUs Life Holdings, Inc., filed as Exhibit 99.5
on Form 10-Q dated August 13, 1999, is hereby incorporated by
reference.
99.4 Form of Supplemental Benefit Agreement, dated as of April 15, 1999,
among AmerUs Life Holdings, Inc. and Victor N. Daley, Michael G.
Fraizer, Thomas C. Godlasky and Gary R. McPhail, filed as Exhibit 99.6
on Form 10-Q dated August 13, 1999, is hereby incorporated by
reference.
99.5 Amended and Restated Employment Agreement, dated as of April 15, 1999,
among Marcia S. Hanson and AmerUs Life Holdings, Inc., filed as
Exhibit 99.7 on Form 10-Q dated August 13, 1999, is hereby
incorporated by reference.
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99.6 Agreement and Release, dated as of December 31, 1999, by and between
Marcia S. Hanson, AmerUs Life Holdings, Inc., Registrant, American
Mutual Holding Company, and all of their respective subsidiaries and
affiliates, filed as Exhibit 99.6 on Form 10-K, dated March 8, 2000,
is hereby incorporated by reference.
99.7 Form of Supplemental Benefit Agreement, dated as of February 7, 2000,
among AmerUs Life Holdings, Inc. and Victor N. Daley, Michael G.
Fraizer, Thomas C. Godlasky and Gary R. McPhail, filed as Exhibit 99.7
on Form 10-K, dated March 8, 2000 is hereby incorporated by reference.
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* included herein
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