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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from to
Commission file number: 0-21459
AMERUS LIFE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-1459712
State of other jurisdiction (I.R.S. Employer
of incorporation or organization Identification Number)
418 Sixth Avenue, Des Moines, Iowa 50309-2407
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(Address of principal executive offices)
Telephone number: (515) 280-1331
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Title of each class
Class A Common Stock (no par value)
8.85% Capital Securities, Series A issued by
AmerUs Capital I, a subsidiary trust
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /X/ yes / / no
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of voting stock held by
Non-affiliates of the Company on February 28, 1997 was $134,809,038
The number of shares outstanding of each of the registrant's classes of
common stock on February 28, 1997 was as follows:
Class A, Common Stock 18,155,989 shares
Class B, Common Stock 5,000,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Notice of 1997 Annual Meeting of Shareholders and Proxy Statement
(incorporated into Part III)
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TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . 14
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 17
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 36
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 36
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 36
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 36
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 36
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . 37
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Index to Financial Statement . . . . . . . . . . . . . . . . . . .F-1
Index to Financial Statement Schedules . . . . . . . . . . . . . . . . . . .S-1
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PART I
ITEM 1. BUSINESS.
GENERAL
The Company is engaged in the business of marketing, underwriting and
distributing a broad range of individual life insurance and annuity products to
individuals and businesses in 45 states and the District of Columbia. The
Company's primary product offerings consist of whole life, universal life and
term life insurance policies and fixed annuities. In addition, through a joint
venture arrangement (the "Ameritas Joint Venture"), the Company's distribution
systems market fixed annuities issued by Ameritas Variable Life Insurance
Company ("AVLIC") and sells AVLIC's variable life insurance and variable annuity
products. Based on published comparisons and rankings of life insurance and
annuity products, the Company believes that its products have a history of being
competitive within the industry.
The Company was formed in 1996 in connection with the creation of the first
mutual insurance holding company in the United States, the American Mutual
Holding Company ("AMHC"). AMHC owns 100% of the Company's parent, AmerUs Group
Co. ("AmerUs Group"). The Company's subsidiary, AmerUs Life, was originally
incorporated in 1896 as a mutual insurance company under the name Central Life
Assurance Society of the United States. Its name was changed to American Mutual
Life Insurance Company in 1994 following the merger of American Mutual Life into
Central Life. On June 30, 1996, American Mutual Life was converted into a stock
life insurance company pursuant to a plan of reorganization involving the
formation of AMHC (the "Reorganization") and its name was changed to AmerUs
Life as a part of the Reorganization in June 1996. The non-life insurance
subsidiaries of AmerUs Life consisting of AmerUs Bank, Iowa Realty Co., Inc. and
AmerUs Properties, Inc. ("AmerUs Group Affiliates") were distributed (the
"Distribution") to the Company's parent, the AmerUs Group Co. The Distribution
effectively separated AMHC's non-life insurance businesses from the life
insurance businesses owned by the Company. As of December 31, 1996, AmerUs Life
had approximately 433,000 life insurance policies and annuity contracts
outstanding and individual life insurance in force, net of reinsurance, of
approximately $25.7 billion. As of December 31, 1996, the Company had total
assets of $4.4 billion and total shareholder's equity of $457.5 million. On
February 3, 1997, the Company received $56.7 million in gross proceeds from a
subscription offering and initial public offering of 3,655,990 shares of Class A
Common Stock.
The Company's target markets are individuals in the middle and upper income
brackets and small businesses. Its geographic focus is national in scope (except
for Connecticut, Maine, New Hampshire, New York and Vermont, in which the
Company is not licensed to do business), and it primarily serves suburban and
rural areas. The Company distributes its products primarily through a
combination of career general agency and personal producing general agency
("PPGA") distribution systems. The career general agency system consists of a
network of 36 career general agencies, with approximately 540 career agents and
a network of independent brokers. The PPGA system is comprised of approximately
400 PPGAs, with approximately 950 agents. Variable life
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insurance products and the fixed and variable annuities offered by the Ameritas
Joint Venture are marketed through the Company's distribution systems and the
distribution systems of Ameritas Life Insurance Corp. ("Ameritas") and AVLIC,
which consist of approximately 150 agents and 450 independent broker-dealers
(with approximately 7,800 registered representatives), respectively.
AmerUs Life's claims-paying ability is rated "AA-" (Very high) by Duff &
Phelps and "A" (Good) by Standard & Poor's. AmerUs Life is rated "A" (Excellent)
by A.M. Best and "A2" (Good) by Moody's.
The Company participates in the Ameritas Joint Venture through AmerUs
Life's 34% ownership interest in AMAL Corporation, a Nebraska corporation
("AMAL"). The Company's partner in the Ameritas Joint Venture is Ameritas, a
Nebraska mutual life insurance company which has been in existence for more than
100 years. AMAL's operations are conducted through AVLIC and Ameritas Investment
Corp., a registered broker-dealer ("AIC"), its two wholly-owned subsidiaries,
which have been in business since 1983. AVLIC is licensed to conduct business in
46 states and the District of Columbia. AIC is a registered broker/dealer which
is licensed to do business in all states except New York. As of December 31,
1996, AMAL had total consolidated assets of $1.1 billion and total consolidated
shareholder's equity of $61.2 million on a GAAP basis. AVLIC had $3.1 billion of
insurance in force and $44.1 million in surplus as of December 31, 1996, on a
statutory basis.
Under the terms of the Joint Venture Agreement, AmerUs Life has an option
to purchase an additional 5% to 15% of AMAL (the "Option") if certain premium
growth targets are met. The Option is exercisable in three portions, each of
which would permit AmerUs Life to acquire the number of newly-authorized shares
that would increase its equity ownership by 5%. Each portion of the Option is
exercisable at specified exercise prices set forth in the Joint Venture
Agreement. Management of the Ameritas Joint Venture is shared between AmerUs
Life and Ameritas. Each has equal membership on the board of directors of AMAL,
AVLIC and AIC. The Company and Ameritas each have guaranteed the obligations of
AVLIC. The guarantee of each party is joint and several, and will remain in
effect until certain financial conditions are met.
PRODUCTS
The Company offers a diverse line of individual life insurance products
which are tailored to its markets and distributed primarily through its career
general agency and PPGA distribution systems. In addition, the Company is a
party to the Ameritas Joint Venture, which offers fixed and variable annuity and
variable life insurance products. As a result of superior operating
fundamentals, including mortality, persistency, operating expenses and
investment yield, the Company has had a long history of providing high-value,
low-cost products to its customers, while operating profitably. Moreover, the
Company continuously reviews and updates its product portfolio in order to
continue offering a broad range of products at competitive performance levels.
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INDIVIDUAL LIFE INSURANCE AND FIXED ANNUITY PRODUCTS
The Company offers a broad line of individual traditional life and
universal life insurance products. Traditional life insurance has accounted for
approximately 70% of the Company's total individual life insurance premiums for
the last three years and universal life insurance has accounted for
approximately 30% of its total individual life insurance premiums for the same
time period. In addition, the Company has historically offered a broad line of
fixed annuity products.
The following table sets forth information regarding the Company's sales
activity by product:
SALES ACTIVITY BY PRODUCT
For the Year Ended
December 31,
--------------------------------
1996 1995 1994
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(In thousands)
Individual life insurance:
Participating whole life $18,362 $20,857 $21,319
Universal life 7,958 8,047 5,698
Term life 2,566 2,717 3,154
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Total life insurance (A) $28,886 $31,621 $30,171
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Individual annuities (B)(C) $72,797 $191,474 $180,459
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(A) Direct first year annualized premiums.
(B) Direct first year and single collected premiums.
(C) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture.
TRADITIONAL LIFE INSURANCE PRODUCTS
The Company's traditional life insurance products have a long history of
being highly competitive within the industry.
The Company's traditional life insurance products include participating
whole life and term life insurance products. Participating whole life insurance
is designed to provide benefits for the life of the insured. This product
generally provides for level premiums and a level death benefit and requires
payments in excess of the mortality cost in earlier years to offset increasing
mortality costs in later years. The Company also offers a second to die whole
life insurance product which insures two lives and provides benefits upon the
death of the second insured. The Company targets its second to die products
primarily to potential customers seeking to achieve estate planning goals.
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The Company also offers a portfolio of term life insurance policies that
provide life insurance protection for a specific time period (which generally
can be renewed at an increased premium). Such policies are mortality-based and
offer no cash accumulation feature.
Since 1989, the Company has offered a flexible life insurance product,
which is a combination of permanent participating whole life insurance,
increasing paid-up additions and decreasing term insurance coverage. In 1994,
the Company began offering an enhanced version of this product. These products
give policyowners additional flexibility in designing an appropriate combination
of permanent and term life insurance coverages to meet their specific needs at
varying premium levels.
For the year ended December 31, 1996, sales of participating whole life
and term life insurance products represented 64% and 9%, respectively, of
first year annualized premiums for all individual life insurance products.
UNIVERSAL LIFE INSURANCE PRODUCTS
The Company offers universal life insurance products, pursuant to which an
insurance account is maintained for each insurance policy. Premiums, net of
specified expenses, are credited to the account, as is interest, generally at a
rate determined from time to time by the Company. Specific charges are made
against the account for the cost of insurance protection and for the Company's
expenses. The universal life form allows for flexibility as to the amount and
timing of premium payments and for the level of death benefits provided.
The Company's universal life insurance products provide benefits for the
life of the insured. Within limits established by the Company and state
regulations, policyowners may vary the premiums and the amount of the policy's
death benefit as long as there are sufficient policy funds available to cover
all policy charges for the coming period. Interest is credited to the policy at
a rate determined from time to time by the Company. The weighted average
crediting rate for the Company's universal life insurance liabilities was 6.27%
for the year 1996, 6.46% for the year 1995 and 6.44% for the year 1994. For
the year ended December 31, 1996, sales of universal life insurance products
represented 27% of first year annualized premiums for all individual life
insurance products.
FIXED ANNUITY PRODUCTS
Historically, the Company has offered a broad portfolio of fixed annuity
products. Annuities provide for the payment of periodic benefits for a specified
time period. Benefits may commence immediately or may be deferred to a future
date. Fixed annuities generally are backed by a general investment account and
credited with a rate of return that is periodically reset.
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From September 1993 until the commencement of the Ameritas Joint Venture in
1996, the majority of the Company's fixed annuity sales consisted of its
Advantage Series of deferred annuities. The Advantage Series consists of three
products comprised of two book value annuities, which are fixed annuities, and
one market value adjusted annuity, which is a fixed annuity with a market
adjustment feature. Both book value annuities have a first year interest rate
guarantee. One of the book value annuities also provides a bonus interest rate
for the first year. The market value adjusted annuity has a first year interest
rate guarantee and also provides a bonus interest rate for the first year. In
1996, the Advantage Series accounted for over $59 million in first year
premiums, which represented 82% of the Company's total fixed annuity production
for the year.
AMERITAS JOINT VENTURE PRODUCTS
On April 1, 1996, the Company commenced the Ameritas Joint Venture with
Ameritas, through which the Company's distribution systems now offer AVLIC's
fixed annuity products and have begun to offer AVLIC's variable life insurance
and annuity products. The fixed annuities currently offered by the Ameritas
Joint Venture are substantially similar to the Company's Advantage
Series products. The Company's investment in the Ameritas Joint Venture affords
the Company access to a line of existing variable life insurance and variable
annuity products while providing a lower-cost entry into an established
business, thereby eliminating significant start-up costs and allowing for
immediate potential earnings.
The Ameritas Joint Venture offers, through AVLIC, flexible premium and
single premium variable universal life insurance products and variable
annuities. Variable products provide for allocation of funds to a general
account or to one or more separate accounts under which the owner bears the
investment risk. Through AVLIC's fund managers, owners of variable annuities and
life insurance policies are able to choose from a range of investment funds
offered by each manager.
Under the terms of the Joint Venture Agreement governing the Ameritas Joint
Venture, the Company and Ameritas write their new single and flexible premium
deferred fixed annuities and variable annuities and variable life insurance
through the Ameritas Joint Venture. The Company has retained the right to
continue to issue replacement business to its fixed annuity customers in
existence prior to the effective date of the Joint Venture Agreement.
The variable life insurance products and the fixed and variable annuities
offered by the Ameritas Joint Venture are distributed through the Company's
career general agency and PPGA distribution systems, as well as through the
distribution systems of Ameritas and AVLIC.
In response to customer demand, the Company developed an equity index
annuity which it began offering through the Ameritas Joint Venture in the fourth
quarter of 1996. The Company retained the right to issue this type of contract
to its customers in existence prior to the effective date of the Joint Venture
Agreement. An equity index annuity provides a baseline fixed rate of return in
addition to the possibility of sharing in a portion of the appreciation realized
from an investment in an indexed investment fund, such as the S&P 500 stock
index.
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SPONSORED PRODUCTS
The Company also derives fee income from the sale of various sponsored
products through its career general agency and PPGA distribution systems under
co-marketing arrangements with leading insurance providers for such products.
Such sponsored products include individual long-term disability and group life,
health and dental insurance products.
The following table sets forth the Company's collected premiums for the
periods indicated:
COLLECTED PREMIUMS BY PRODUCT
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------
1996 1995 1994
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(In thousands)
<S> <C> <C> <C>
Direct individual life premiums collected:
Traditional life:
First year & single $ 70,621 $ 70,786 $ 71,830
Renewal 162,168 153,299 143,048
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Total $232,789 $224,085 $214,878
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Universal Life:
First year & single $14,667 $15,451 $10,224
Renewal 75,632 77,151 80,338
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Total $90,299 $92,602 $90,562
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Total direct life $323,088 $316,687 $305,440
Reinsurance assumed 1,425 1,337 1,114
Reinsurance ceded (12,974) (13,795) (13,477)
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Total individual life, net of reinsurance $311,539 $304,229 $293,077
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Collected Premiums by Product (cont'd.)
Direct annuity premiums
collected:
Individual (A) $81,942 $197,959 $189,097
Group 50 (665) 2,580
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Total annuities 81,992 197,294 191,677
Reinsurance ceded (544) (853) (1,123)
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Total annuities, net of reinsurance $81,448 $196,441 $190,554
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Total group life, net of
reinsurance (B) $2,182 $6,634 $10,436
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Total accident & health, net of
reinsurance (C) $211 $264 $387
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Total collected premiums, net of
reinsurance $395,380 $507,568 $494,454
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</TABLE>
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(A) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture.
(B) The Company sold substantially all of its group life business as of
July 1, 1996 and is no longer actively marketing this line of business.
(C) The Company sold substantially all of its accident and health business in
1991 and is no longer actively marketing this line of business.
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The following table sets forth information regarding life insurance and
annuities in force for each date presented:
LIFE INSURANCE AND ANNUITIES IN FORCE
<TABLE>
<CAPTION>
As of December 31,
------------------------------------
1996 1995 1994
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(In thousands)
<S> <C> <C> <C>
Individual life insurance:
Traditional
Number of policies 255,441 253,656 259,229
GAAP life reserves $1,206,222 $1,120,799 $1,033,909
Face amounts $16,882,000 $16,600,000 $15,871,000
Universal life
Number of policies 120,277 121,619 124,225
GAAP life reserves $820,182 $784,363 $740,638
Face amounts $12,206,000 $12,211,000 $12,631,000
Total individual life
Number of policies 375,718 375,275 383,454
GAAP life reserves $2,026,404 $1,905,162 $1,774,547
Face amounts $29,088,000 $28,811,000 $28,502,000
Annuities (A):
Number of policies 56,467 56,054 52,616
GAAP reserves $1,192,915 $1,327,176 $1,337,395
Group life insurance (B):
Number of lives 29,801 32,724 29,592
Face amounts $815,000 $829,000 $741,000
</TABLE>
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(A) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture.
(B) The Company sold substantially all of its group life business as of July 1,
1996 and is no longer actively marketing this line of business.
DISTRIBUTION
The Company markets its insurance products on a national basis primarily
through a career general agency system, a PPGA system, independent insurance
brokers and certain of the Company's affiliates.
CAREER GENERAL AGENCY SYSTEM AND BROKERS
Under the career general agency system, the Company enters into a
contractual arrangement with the career general agent for the sale of insurance
products by the career agents and brokers assigned to the career general agent's
agency.
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The career general agents are independent contractors and are generally
responsible for the expenses of operating their agencies, including office and
overhead expenses and the recruiting, selection, contracting, training and
development of career agents and brokers in their agency. Currently, the Company
has 36 career general agencies in 23 states, through which approximately
540 career agents sell the Company's products. While career agents in the career
general agency system are non-exclusive, the Company believes most agents use
the Company's products for a majority of their new business of the type of
products offered by the Company. No single career general agency accounts for
more than 10% of the total first year commissions paid by the Company.
The Company also sells its products through a network of approximately
1,800 insurance brokers in all jurisdictions in which the Company is licensed to
sell insurance. Brokers are independent contractors who sell a variety of
insurance products issued by various companies. Brokers operate through the
career general agency system but are compensated under a commission structure
which is separate from those used for career agents and in the PPGA system.
PERSONAL PRODUCING GENERAL AGENCY SYSTEM
Under the PPGA system, the Company contracts primarily with individuals who
are experienced individual agents or head a small group of experienced
individual agents. These individuals are independent contractors and are
responsible for all of their own expenses. These individuals often sell products
for other insurance companies, and may offer selected products of the Company
rather than the Company's full line of insurance products.
DISTRIBUTIONS THROUGH AFFILIATES
The Company also sells its products through certain of its affiliated
companies. The Company has arrangements with AmerUs Investments, Inc. ("AmerUs
Investments"), a wholly-owned subsidiary of AmerUs Bank, to market products of
the Company. The Company has entered into an agreement with AmerUs Investments
pursuant to which the Company and AVLIC pay AmerUs Investments fees in the form
of commissions in exchange for generating sales of such products. Persons
selling the Company's products under this arrangement are employees of AmerUs
Investments and are paid a regular salary in addition to being eligible for
commissions under a commission structure (which is distinct from the structure
used under the Company's career general agency and PPGA systems).
AVLIC has a separate arrangement with AmerUs Investments pursuant to which
AmerUs Investments sells variable and fixed annuities and variable life
insurance products.
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INSURANCE UNDERWRITING
The Company follows detailed, uniform underwriting practices and procedures
in its insurance business which are designed to assess risks before issuing
coverage to qualified applicants. The Company has professional underwriters who
evaluate policy applications on the basis of information provided by applicants
and others.
Management believes that its actual mortality results compare favorably to
those of others in the industry. The Company believes that its favorable
mortality results are attributable to, among other things, the geographic
location of its customer base in rural and suburban areas (as opposed to urban
areas), the higher-income profile of its customer base and its consistent
application of appropriate underwriting criteria to the processing of new
customer applications.
REINSURANCE
In accordance with industry practices, the Company reinsures portions of
its life insurance and disability income exposure with unaffiliated insurance
companies under traditional indemnity reinsurance agreements. Reinsurance
arrangements entered into with unaffiliated insurance companies are in
accordance with standard reinsurance practices within the industry. As of
December 31, 1996, the Company had reinsurance arrangements in place for life
insurance having a face amount of approximately $4.2 billion with
21 unaffiliated reinsurers. All of the companies with which the Company had life
reinsurance arrangements as of such date were rated "A-" or better by A.M. Best.
As of December 31, 1996, the Company's top five reinsurers (by face amount
reinsured) constituted approximately 80% of the total face amount reinsured by
the Company as of such date. Of these top five reinsurers, four are rated "A+"
and the other is rated "A++" by A.M. Best.
The Company enters into indemnity reinsurance arrangements to assist in
diversifying its risks and to limit the maximum loss on risks that exceed the
Company's policy retention limits. The Company's present maximum retention limit
for life insurance policies is $1,000,000 per life insured. Indemnity
reinsurance does not fully discharge the Company's obligation to pay claims on
the reinsured business. The Company as the ceding insurer remains responsible
for policy claims to the extent the reinsurer fails to pay such claims. The
Company annually monitors the creditworthiness of its primary reinsurers, and
has experienced no material reinsurance recoverability problems in recent years.
COMPETITION
The Company operates in a highly competitive industry. Numerous life
insurance companies and other entities, including banks and other financial
institutions, compete with the Company, many of which have greater financial and
other resources as compared to the Company. The Company believes that the
principal competitive factors in the sale of insurance products are product
features, price, commission structure, perceived stability of the insurer,
claims-paying ratings, value-added
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service and name recognition. Many other companies are capable of competing for
sales in the Company's target markets (including companies that do not presently
compete in such markets). The Company's ability to compete for sales is
dependent upon its ability to address the competitive factors described above.
In addition to competing for sales, the Company competes for qualified
agents and brokers to distribute its products. Strong competition exists among
insurance companies for agents and brokers with demonstrated ability. Management
believes that the bases of competition for the services of such agents and
brokers are commission structure, support services, prior relationships and the
strength of an insurer's products. Although the Company believes that it has
good relationships with its agents and brokers, its ability to compete will
depend on its continued ability to attract and retain qualified persons.
EMPLOYEES
As of December 31, 1996, the Company had 412 full-time employees. None of
the Company's employees are covered by a collective bargaining agreement and the
Company believes that its relations with employees are satisfactory.
SUBSIDIARIES
The Company was formed in August, 1996 in connection with the
Reorganization. AmerUs Life has three wholly-owned subsidiaries: CLA Assurance
Company, an Iowa life insurance company, Centralife Annuity Services, Inc., an
Arizona corporation, and American Vanguard Life Insurance Company, an Iowa life
insurance company. In addition, AmerUs Life currently owns a 34% interest in
AMAL Corporation, through whose wholly-owned subsidiaries the Ameritas Joint
Venture operates.
REGULATION
The Company is indirectly owned by a mutual insurance holding company,
American Mutual Holding Company ("AMHC"). A mutual insurance holding company is
subject to regulation at a level substantially equal to that of an Iowa domestic
insurance company, and is governed by statutory and regulatory requirements
which are substantially identical to, or which parallel, the regulatory
requirements imposed upon Iowa domestic insurance companies. The Iowa
Commissioner of Insurance has jurisdiction over an intermediate holding company,
such as the Company, as if it were a mutual insurance holding company.
AMHC and the Company are each subject to the Iowa Insurer Supervision,
Rehabilitation and Liquidation Act, Iowa Code Chapter 507C. In addition, AMHC
and the Company are subject to the provisions of the Iowa Insurance Holding
Company Systems Act in the same manner and to the same extent as domestic
insurance companies. In addition, the assets of AMHC and the Company are
available to satisfy claims of policyowners of AmerUs Life in the event the Iowa
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Commissioner initiates a proceeding under Chapter 507C. AMHC and the Company
may not merge with, be acquired by or acquire another entity without approval of
the Iowa Commissioner. In addition, in the case of a merger with another mutual
company, separate approval by the Iowa Attorney General is required.
In addition to rules establishing the terms and conditions pursuant to
which the Iowa Commissioner will approve the sale of stock of an intermediate
insurance holding company or a subsidiary stock insurance company resulting from
a reorganization pursuant to Iowa law, the Iowa Commissioner has adopted rules
that also limit the activities and affiliations that are permissible for a
mutual insurance holding company. The Iowa Commissioner also has issued rules
which, under certain circumstances, require prior approval by the Iowa
Commissioner of the issuance of stock by the Company.
Shares of the capital stock of the Company which carry the right to cast a
majority of the votes entitled to be cast by all of the outstanding shares of
the Company are required by Iowa law to at all times be owned, directly or
indirectly, by AMHC and may not be conveyed, transferred, assigned, pledged,
subjected to a security interest or lien, encumbered, or otherwise hypothecated
or alienated by AMHC or any intermediate holding company.
AmerUs Life and its subsidiaries are subject to regulation and supervision
by the states in which they transact business. State insurance laws generally
establish supervisory agencies with broad administrative and supervisory powers
related to granting and revoking licenses, transacting business, establishing
guaranty fund associations, licensing agents, approving policy forms, regulating
sales practices, regulating premium rates for some lines of business,
establishing reserve requirements, prescribing the form and content of required
financial statements and reports, determining the reasonableness and adequacy of
statutory capital and surplus, and regulating the type and amount of investments
permitted.
Every state in which AmerUs Life is licensed administers a guaranty fund,
which provides for assessments of licensed insurers for the protection of
policyowners of insolvent insurance companies. There has been an increase in
the number of insurance companies that are under supervision which has resulted
in an increase in the amount of assessments to cover losses to policyowners of
such companies. Assessments can be partially recovered through a reduction in
future premium taxes in some states.
- 12 -
<PAGE>
Risk-based capital ("RBC") standards for life insurance companies were
adopted by the National Association of Insurance Commissioners ("NAIC") in 1992
and require insurance companies to calculate and report for statutory basis
financial statements information under a risk-based capital formula. The
formula is embodied in the NAIC Model Act, which has been adopted by many
states, including Iowa. RBC requirements are intended to allow insurance
regulators to identify at an early stage inadequately capitalized insurance
companies based upon the types and mixtures of risks inherent in such companies'
operations. The formula includes components for asset risk, liability risk,
interest rate exposure and other factors. As of December 31, 1996, AmerUs
Life's RBC levels were in excess of 700% of the authorized control level RBC
threshold.
Approximately once every three to five years, as part of their routine
regulatory oversight process, state insurance departments conduct detailed
examinations of the books, records and accounts of insurance companies domiciled
in their states. Such examinations are generally conducted in cooperation with
the departments of two or three other states, under guidelines promulgated by
the NAIC.
ITEM 2. PROPERTIES.
The Company's principal business operations are conducted from two
locations. The Company's executive offices consist of approximately 20,000
square feet located at 418 Sixth Avenue, Des Moines, Iowa. AmerUs Life's
executive offices consist of approximately 125,000 square feet located at 611
Fifth Avenue, Des Moines, Iowa. The Company and AmerUs Life both lease their
executive offices from AmerUs Properties, Inc., an affiliate.
ITEM 3. LEGAL PROCEEDINGS.
AmerUs Life is a defendant in a class action lawsuit which was brought on
August 31, 1995 in the District Court for Travis County, Texas. The complaint,
which seeks unspecified damages, was filed by former policyowners on behalf of
themselves and all similarly situated persons who purchased certain individual
life insurance policies which were underwritten and sold by AmerUs Life within
Texas from and after 1980. The complaint alleges that sales presentations and
policy illustrations misrepresented that premiums would "vanish" after a stated
number of years, without adequate disclosure of the effect of changes in the
policy dividends. AmerUs Life has denied the allegations contained in such
complaint and denies any wrongdoing in connection with such allegations. The
parties have engaged in discovery, but a hearing on certification of the class
has not yet been held.
The parties are engaged in a court-initiated mediation process in the Texas
litigation and, in light of the uncertainties, hazards and expenses of
litigation, have discussed a number of different settlement approaches,
including a nationwide class settlement of certain market conduct issues for a
substantial block of the Company's traditional whole life policies. Progress in
negotiating such a class settlement appears to have been made, but certain
issues remain unresolved and no definitive agreement has been reached. Even if
such an agreement were reached, the court would have to
- 13 -
<PAGE>
approve its terms. Should a settlement satisfactory to the Company not be
reached or not be approved, the Company would continue to vigorously defend
against the claims asserted, including the existence of a legitimate class.
Due to the potential that a settlement may be reached in this case, the
Company has incurred a significant charge to income for 1996. Based upon its
current estimates of the range of loss at between five and eight million
dollars, the company has established a reserve of five million dollars. The
eventual costs of any settlement cannot be precisely determined at this time,
and may be more or less than the amount of the range.
A class action lawsuit was filed in June 1996 in the United States District
Court for the Northern District of California. The complaint alleges that
AmerUs Life breached the terms of certain life and annuity policies, and
breached certain other duties owed to policyowners, when it allegedly passed an
increase in its corporate income taxes (known as the deferred acquisition cost,
or DAC, tax) through to owners of those policies. The Plaintiff, an insured
under a universal life policy issued by Central Life, seeks unspecified actual
and punitive damages and injunctive relief on behalf of himself and all
policyowners of AmerUs Life with universal life, term and "blended" life
insurance policies and annuities. The plaintiff has recently filed a second
complaint in the same court, based upon the same facts but adding RICO
allegations to those made in the original lawsuit. AmerUs Life denies the
allegations contained in both complaints, including the existence of a
legitimate class. The litigation is in the early discovery stage and is being
vigorously defended by AmerUs Life. A hearing on certification of the class has
not yet been scheduled.
Despite the Company's vigorous defense of these class action lawsuits and
its denial of any wrongdoing, there can be no assurance that the outcome of such
lawsuits will not have a material adverse effect on the life insurance industry
generally or on the Company. In the ordinary course of business, the Company
and its subsidiaries are also engaged in certain other litigation, none of which
management believes is material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of Security Holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Class A Common Stock is listed on the NASDAQ National Market.
There is no trading or other market for the Class B Common Stock.
- 14 -
<PAGE>
The initial trading date for the Company's Class A Common Stock was January
28, 1997.
HOLDERS
As of February 28, 1997, the number of holders of record of each class of
common equity of the Company was as follows:
Number of
Holders
-------
Class A Common Stock 1,508
Class B Common Stock 1
DIVIDENDS
The Company's Board of Directors currently intends to pay a quarterly
dividend of $0.10 per share of Common Stock, commencing in the second quarter of
1997. The declaration and payment of dividends in the future is subject to the
discretion of the Company's Board of Directors and will be dependent upon the
Company's financial condition, results of operations, cash requirements, future
prospects, regulatory restrictions on the payment of dividends by AmerUs Life
and other factors deemed relevant by the Company's Board of Directors.
The Company is an insurance holding company whose principal asset consists
of all of the outstanding shares of the common stock of AmerUs Life. The
Company's ongoing ability to pay dividends to its shareholders and meet its
other obligations, including operating expenses and any debt service, primarily
depends upon the receipt of sufficient funds from AmerUs Life in the form of
dividends, interest payments or loans. As a result of the Reorganization,
AmerUs Life will not be able to pay dividends to the Company in 1997 without the
prior approval of the Iowa Commissioner. It is the Company's intention to seek
regulatory approval to pay dividends from AmerUs Life during 1997. However, the
Company believes that it has sufficient resources available to pay the
anticipated shareholder dividends in 1997.
Under its bank credit facility, the Company is prohibited from paying
dividends on its Common Stock in excess of an amount equal to 4% of the
Company's consolidated net worth as of the last day of the preceding fiscal
year.
In connection with the 8.85% Capital Securities, Series A, issued in 1997
by AmerUs Capital I, the Company's subsidiary trust, the Company has agreed not
to declare or pay any dividends on the Company's capital stock (including the
Class A Common Stock) during any period for which the Company has elected to
extend interest payments on its junior subordinated debentures, except for stock
dividends paid by the Company where the dividend stock is the same stock as that
on which the dividend is being paid. Dividends on the Company's capital stock
cannot be paid until all accrued interest on the Capital Securities has been
paid.
- 15 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain financial and operating data of the
Company. The selected consolidated financial data below for each of the four
years ending December 31, 1996 are derived from the Consolidated Financial
Statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent auditors. The selected consolidated financial data
provided below for the year ending December 31, 1992 are derived from the
unaudited consolidated financial statements of the Company. In the opinion of
management, the unaudited financial data for the year ended December 31, 1992
presents fairly the consolidated financial statements for such period in
conformity with GAAP. (Dollars in millions except earnings per share
information.)
<TABLE>
<CAPTION>
As of or for the Year Ended
December 31, (A)
-------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues:
Insurance premiums $138.5 $244.1 $237.9 $226.4 $192.9
Product charges 49.3 57.3 56.3 57.4 57.2
Net investment income 229.9 285.2 275.7 269.9 273.1
Realized gains (losses) on investments 66.0 51.4 (19.9) 15.5 10.1
Other revenue 2.7 5.4 2.4 2.4 0.9
Contribution from the Closed Block 19.9 - - - -
------- ------- ------- ------- -------
Total revenues 506.3 643.4 552.4 571.6 534.2
Benefits and expenses:
Total policyowner benefits 261.9 374.6 369.9 364.3 334.8
Total expenses 100.1 108.9 111.4 106.0 100.0
Dividends to policyowners 26.3 49.4 45.0 45.5 42.1
------- ------- ------- ------- -------
Total benefits and expenses 388.3 532.9 526.3 515.8 476.9
------- ------- ------- ------- -------
Income before income taxes 118.0 110.5 26.1 55.8 57.3
Income tax expense 43.8 41.2 19.4 21.4 18.6
------- ------- ------- ------- -------
Income before cumulative effect of a
change in accounting principles 74.2 69.3 6.7 34.4 38.7
Cumulative effect of a change in
accounting principles, net of tax 0.0 0.0 0.0 (3.2) 0.0
------- ------- ------- ------- -------
Net income $74.2 $69.3 $6.7 $31.2 $38.7
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Earnings per share (B) $3.20 $2.99 - - -
Ratio of earnings to
fixed charges (C) 56.09 47.92 5.82 8.98 6.44
CONSOLIDATED BALANCE SHEET DATA:
Total invested assets $2,901.7 $3,965.0 $3,491.7 $3,639.3 $3,274.8
Total assets 4,384.2 4,371.9 4,036.9 4,030.7 3,707.6
Total liabilities 3,926.7 3,832.0 3,618.6 3,524.8 3,286.4
Total shareholder's equity (D) 457.5 539.9 418.3 505.9 421.2
Unrealized appreciation
of available-for-sale securities equity component (D) 35.3 108.7 15.3 104.6 50.8
OTHER OPERATING DATA:
Cash flows from operating activities $147.6 $189.1 $172.4 $173.6 $101.5
Cash flows from investing activities (133.7) (135.4) (134.9) (192.1) (99.6)
Cash flows from financing activities (16.7) (72.5) (24.8) 14.5 9.2
Individual life insurance in force, net of
reinsurance $25,725 $25,157 $25,282 $24,698 $23,947
Number of employees 412 406 457 489 505
- 16 -
<PAGE>
STATUTORY DATA:
Premiums and deposits:
Individual life $312.7 $307.1 $296.4 $286.3 $270.2
Annuities (E) 81.4 197.1 187.8 90.4 65.2
</TABLE>
- --------------------
(A) The merger of American Mutual Life into Central Life, which was consummated
in 1994, has been accounted for as a pooling of interests transaction.
(B) Retroactively reflects the pro forma effect of the issuance of 18.16
million shares of Class A Common Stock and 5.0 million shares of Class B
Common Stock at the beginning of the respective periods and gives
retroactive effect to the Capital Contribution.
(C) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of income from operations before federal income taxes
and fixed charges. "Fixed charges" consist of interest expense on debt and
amortization of debt expense.
(D) Amounts reported prior to December 31, 1996 reflect policyowners' equity.
From December 31, 1993, results reflect the impact of SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities."
(E) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
THE FOLLOWING ANALYSIS OF THE CONSOLIDATED RESULTS OF OPERATIONS AND
FINANCIAL CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA AND CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES.
OVERVIEW
The Company is engaged in the business of underwriting, marketing and
distributing a broad range of individual life insurance and annuity products to
individuals and businesses in 45 states and the District of Columbia. The
Company's primary product offerings consist of whole life, universal life and
term life insurance policies and fixed annuities. Since April 1, 1996 the
Company has been a party to the Ameritas Joint Venture with Ameritas Life
Insurance Corp., through which it now markets fixed annuities and has begun to
sell variable annuities and variable life insurance products.
In accordance with GAAP, universal life insurance premiums and annuity
deposits received are reflected as increases in liabilities for policyowner
account balances and not as revenues. Revenues reported for universal life and
annuity products consist of policy charges for the cost of insurance,
administration charges and surrender charges assessed against policyowner
account balances. Surrender benefits paid relating to universal life insurance
policies and annuity products are reflected as decreases in liabilities for
policyowner account balances and not as expenses. Amounts for interest credited
to universal life and annuity policyowner account balances and benefit
- 17 -
<PAGE>
claims in excess of policyowner account balances are reported as expenses in the
financial statements. The Company receives investment income earned from the
funds deposited into account balances by universal life and annuity
policyowners, the majority of which is passed through to such policyowners in
the form of interest credited.
Premium revenues reported for traditional life insurance products are
recognized as revenues when due. Future policy benefits and policy acquisition
costs are recognized as expenses over the life of the policy by means of a
provision for future policy benefits and amortization of deferred policy
acquisition costs.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as deferred policy acquisition costs, are capitalized and
amortized as an expense in proportion to expected profits or margins. 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.
THE CLOSED BLOCK
In connection with the Reorganization, the Closed Block was established.
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, assets would be available to maintain the dividend
scales and interest credits in effect for 1995 if the experience underlying such
scales and credits continues.
The contribution to the operating income of the Company from the Closed
Block is reported as a single line item in the income statement. Accordingly,
premiums, product charges, investment income, realized gains (losses) on
investments, policyowner benefits and dividends attributable to the Closed
Block, less certain minor expenses and the amortization of deferred policy
acquisition costs, are shown as a net number under the caption "Contribution
from the Closed Block." This results in material reductions in the respective
line items in the income statement while having no effect on net income. The
expenses associated with the administration of the policies included in the
Closed Block and the renewal commissions on these policies are not charged
against the Contribution from the Closed Block, but rather are grouped with
underwriting, acquisition and insurance expenses. Also, all assets allocated to
the Closed Block are grouped together and shown as a separate item entitled
"Closed Block Assets." Likewise, all liabilities attributable to the Closed
Block are combined and disclosed as the "Closed Block Liabilities."
- 18 -
<PAGE>
COMBINED RESULTS OF OPERATIONS
Since the operating results from the Closed Block for the six months ended
December 31, 1996 are reported on one line of the income statement,
"Contribution from the Closed Block," the individual income statement components
for 1996 are not fully comparable with those for 1995 and 1994, prior to the
establishment of the Closed Block. Management believes that the presentation of
the results of operations for 1996 on a combined basis as if the Closed Block
had not been formed facilitates comparability with the results of operations for
1995 and 1994. Accordingly, the combined presentation set forth below includes
certain revenues and expenses associated with the policies included in the
Closed Block. Such presentation does not, however, affect the Company's reported
net income.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------
Reported Closed Block Combined
-------- ------------ --------
(In thousands)
<S> <C> <C> <C>
Revenues
Insurance premiums $138,476 $108,315 $246,791
Product charges 49,347 9,324 58,671
Net investment income 229,884 56,329 286,213
Realized gains (losses) on investments 65,983 481 66,464
Other revenue 2,711 - 2,711
Contribution from the Closed Block 19,909 (19,909) -
------- ------- -------
Total revenues 506,310 154,540 660,850
Benefits and expenses
Policyowner benefits 261,869 103,951 365,820
Underwriting, acquisition and insurance expenses 59,925 2,969 62,894
Amortization of deferred policy acquisition costs 40,160 18,412 58,572
Dividends to policyowners 26,324 29,208 55,532
------- ------- -------
Total benefits and expenses 388,278 154,540 542,818
Income before income taxes 118,032 - 118,032
Income tax expenses 43,859 - 43,859
------- ------- -------
Net income $74,173 $ - $74,173
------- ------- -------
------- ------- -------
</TABLE>
-19-
<PAGE>
RESULTS OF OPERATIONS
A summary of the Company's combined revenues, including revenues associated
with the Closed Block, follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Insurance premiums
Traditional life insurance premiums $228,986 $219,732 $209,447
Immediate annuity and supplementary
contract premiums 16,082 17,659 16,680
Other premiums 1,723 6,696 11,785
------ ------ ------
Total insurance premiums 246,791 244,087 237,912
Universal life product charges 57,834 56,763 55,815
Annuity product charges 837 607 547
------ ------ ------
Total product charges 58,671 57,370 56,362
Net investment income 286,213 285,244 275,691
Realized gains (losses) on investments 66,464 51,387 (19,930)
Other revenues 2,711 5,390 2,391
------ ------ ------
Total revenues $660,850 $643,478 $552,426
-------- -------- --------
-------- -------- --------
</TABLE>
Individual life and annuity premiums and product charges increased $9.0
million to $303.8 million, or 3.1%, from $294.8 million in 1995 and $21.3
million, or 7.5%, from $282.5 million in 1994. Insurance premiums increased
$2.7 million to $246.8 million in 1996 compared to $244.1 million in 1995, and
$237.9 million in 1994. Traditional life insurance premiums increased $9.3
million in 1996, nearly matching the $10.3 million increase experienced in 1995.
While there have been modest decreases in new traditional life insurance
production over the past two years, continued growth in renewal premiums has
produced the increase in traditional life insurance premiums in both 1996 and
1995. Changes in the level of immediate annuity deposits and supplementary
contract premiums have primarily been the result of fluctuations in immediate
annuity sales. Other premiums have decreased significantly over the past two
years primarily due to the Company's exit from several group life and long-term
disability reinsurance pools in 1995 and the sale of the Company's remaining
group life operation in 1996.
-20-
<PAGE>
Universal life product charges have increased slightly in each of the past
two years primarily due to increased cost of insurance charges as a result of
the normal aging of that block of business.
Net investment income increased by $1.0 million to $286.2 million in 1996
compared to $285.2 million in 1995, and $275.7 million in 1994. The increases in
net investment income in 1996 and 1995 were both attributable to increases in
average invested assets partially offset by declines in the effective yields on
average invested assets. Average invested assets (excluding market value
adjustments) increased by $171.8 million to $3,790.1 million in 1996, compared
to $3,618.3 million in 1995, and $3,462.2 million in 1994. The increase in
average invested assets in 1996 was largely attributable to the investment of
the $175.0 million proceeds from bank borrowings late during the year. The
effective yield on average invested assets (excluding market value adjustments)
decreased to 7.55% in 1996 from 7.88% in 1995 and 7.96% in 1994. The decrease in
effective yield in 1996 was primarily due to lower bond yields and the timing of
the investment of the proceeds from the bank borrowing. The decrease in
effective yield in 1995 reflected a reduction in interest income on both bonds
and commercial mortgages as a result of lower market interest rates on new
investments.
Realized gains on investments were $66.4 million in 1996 compared to gains
of $51.4 million in 1995 and losses of $19.9 million in 1994. The increase in
gains of $15.0 million in 1996 resulted primarily from increased sales of common
stock in the investment portfolio. The increase of $71.3 million in 1995
resulted primarily from the combination of increased gains of $32.5 million over
1994 amounts from the sale of common stock and a gain of $9.4 million in 1995
compared to a loss of $25.5 million in 1994 from sales of fixed maturity
securities. Of the losses incurred in 1994, $21.1 million were incurred in
connection with sales of fixed maturity securities which resulted from a planned
investment strategy that maximized the after-tax proceeds from the sale of
selected fixed maturity securities. The sales of common stock in 1996 and 1995
were a direct result of the Company's decision to reduce the level of equity
securities as a percentage of its investment portfolio on a long-term basis.
Proceeds from these sales were invested primarily in fixed maturity securities.
Other revenues were relatively level in 1994 and 1996 with a modest
increase to $5.4 million in 1995. The increased other revenues in 1995 were
primarily due to a gain of $3.1 million which resulted from the curtailment of
the Company's defined benefit pension plans effective December 31, 1995.
Effective January 1, 1996, such defined benefit pension plans were replaced with
a defined contribution savings and retirement plan.
-21-
<PAGE>
A summary of the Company's combined policyowner benefits, including policyowner
benefits associated with the Closed Block, follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Traditional life insurance
Death benefits $ 32,251 $ 32,196 $ 30,044
Change in liability for future policy benefits
and other policy benefits 160,036 152,742 149,283
-------- -------- --------
Total traditional life insurance benefits 192,287 184,938 179,327
Universal life insurance
Death benefits in excess of cash value 23,871 20,802 20,418
Interest credited to policyowner account balances 43,203 41,532 38,647
Other policy benefits 3,026 5,218 5,432
-------- -------- --------
Total universal life insurance benefits 70,100 67,552 64,497
Annuities
Interest credited to deferred annuity
account balances 66,254 78,120 77,980
Other annuity benefits 34,334 35,582 34,918
-------- -------- --------
Total annuity benefits 100,588 113,702 112,898
Miscellaneous benefits 2,845 8,428 13,174
-------- -------- --------
Total policyowner benefits $365,820 $374,620 $369,896
-------- -------- --------
-------- -------- --------
</TABLE>
Total policyowner benefits were $365.8 million in 1996 compared to $374.6
million in 1995 and $369.9 million in 1994. Traditional life insurance benefits
increased by $7.3 million in 1996 compared to a $5.6 million increase in 1995.
Such increases in 1996 and 1995 were primarily due to the growth in the amount
of such business in force. Universal life insurance benefits increased by $2.5
million in 1996 and by $3.1 million in 1995. The increased benefits in 1996 were
due to increased mortality costs and increased interest credited to policyowner
account balances, with the increase in 1995 primarily due to increased interest
credited to policyowner account balances. While the weighted average crediting
rate for the Company's universal life liabilities decreased 19 basis points
to 6.27% in 1996 from 6.46% in 1995, the Company's average liabilities
increased $39.8 million from 1995 to 1996, resulting in the increased
credited amounts in 1996. The weighted average crediting rate increased two
basis points from 6.44% in 1994 to 6.46% in 1995, and the Company's average
liabilities increased $41.9 million from 1994 to 1995, resulting in the
increased interest credited amounts in 1995.
-22-
<PAGE>
While annuity benefits were relatively level in 1995 and 1994, such
benefits decreased $13.1 million in 1996 to $100.6 million. Such benefits
decreased in 1996 primarily due to reduced interest credited to policyowner
account balances. The weighted average crediting rate for the Company's
individual deferred annuity liabilities decreased 80 basis points to 5.36% in
1996 compared to 6.16% in 1995 and the Company's average deferred annuity
liabilities decreased $71.0 million from 1995 to 1996, also contributing to the
lower interest credited amounts in 1996. The weighted average crediting rate
decreased 25 basis points from 6.41% in 1994 to the 6.16% in 1995 while the
Company's average liabilities increased $32.1 million from 1994 to 1995,
resulting in the slightly increased interest credited amounts in 1995.
Miscellaneous benefits have decreased significantly over the past two years
primarily due to the Company's exit from several group life and long-term
disability reinsurance pools in 1995 and the sale of the Company's remaining
group life operation in 1996.
A summary of the Company's combined expenses, including expenses associated
with the Closed Block, follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Commission expense, net of deferrals $ 7,892 $ 10,448 $ 9,451
Other underwriting, acquisition and insurance
expenses, net of deferrals 55,002 48,207 59,153
Amortization of deferred policy acquisition costs 58,572 50,239 42,756
------- ------- -------
Total expenses $121,466 $108,894 $111,360
-------- -------- --------
-------- -------- --------
</TABLE>
Commission expense, net of deferrals, decreased $2.5 million to $7.9
million in 1996 compared to $10.4 million in 1995, and $9.4 million in 1994. The
reduction in 1996 was primarily due to a decrease in gross commission expense as
a result of lower life insurance sales in 1996 and the transfer of new annuity
sales to the Ameritas Joint Venture in May 1996. The increase in such expenses
in 1995 of $1.0 million was primarily the result of the integration of the
product lines of Central Life and American Mutual Life following the merger at
the end of 1994, and an increase in gross commissions of $3.0 million in 1995 as
a result of increased sales. Other underwriting, acquisition and insurance
expenses, net of deferrals, increased by $6.8 million, or 14.1%, to $55.0
million in 1996. The increase in expenses during 1996 was due to increased costs
related to the Reorganization of $0.1 million, the formation of the Ameritas
Joint Venture of $0.4 million, and expenses related to changing the name of the
life company to AmerUs Life of $0.7 million; higher premium taxes of $1.1
million due to a one-time adjustment to the amortization of the guaranty
association asset and an increased accrual for estimated future assessments; and
increased settlements and associated legal fees of $4.7 million. 1996
settlements and legal fees included the establishment of a $5.0 million reserve
in connection with certain pending class action litigation.
-23-
<PAGE>
Management would not consider this charge a normal recurring type and as such
would add back this item net of tax in determining operating earnings. If such
an adjustment would have been made, adjusted operating earnings for 1997 would
have been $40.9 million. Other underwriting, acquisition and insurance
expenses, net of deferrals, decreased in 1995 by $10.9 million, or 18.5%, to
$48.2 million. 1995 was the first year of the consolidated operations of Central
Life and American Mutual Life. As a result of the combination, approximately
$7.8 million of cost reductions were realized in 1995 from 1994 combined levels,
excluding the merger-related expenses described below. These reductions in 1995
were partially offset by increased legal and settlement costs of $1.1 million,
higher incentive compensation of $1.0 million and $2.2 million of expenses
related to the investigation and review of alternative capital structures,
including implementation of the Reorganization. Included in 1994 expenses were
approximately $10.0 million of expenses related to the merger of the two
companies compared to $2.2 million of merger-related costs in 1995.
The amortization of deferred policy acquisition costs increased by $8.3
million in 1996 and $7.5 million in 1995. Since deferred policy acquisition
costs are primarily amortized in proportion to gross margins, the increases in
amortization in 1996 and 1995 are primarily due to higher gross margins
including increasing realized capital gains over the past two years.
Dividends to policyowners increased by $6.1 million, or 12.3%, to $55.5
million in 1996 compared to $49.4 million in 1995, and $45.0 million in 1994.
The increase in dividends over each of the past two years was primarily the
result of the growth and aging of in force business. Traditional life reserves
grew 8.4% from the end of 1994 to the end of 1995 and an additional 7.6% to the
end of 1996, or to $1.21 billion. The weighted average dividend rate credited to
these policies was 7.17% in 1996 compared to 7.14% in both 1995 and 1994.
Income before income taxes increased by $7.5 million to $118.0 million in
1996 compared to $110.5 million in 1995, and $26.1 million in 1994. The increase
in 1996 resulted primarily from the increase in realized gains on investments.
The significant increase in income before taxes in 1995 resulted largely from
net realized gains on investments of $51.4 million in 1995 compared to net
realized losses on investments of $19.9 million in 1994; the $9.5 million
increase in net investment income and the reduced expenses in 1995, partially
offset by higher dividends to policyowners in 1995.
Income tax expense increased $2.6 million in 1996 to $43.8 million compared
to $41.2 million in 1995, and $19.4 million in 1994. The increased 1996 income
taxes were the result of the higher pre-tax income due primarily to the
increased realized gains on investments and a $4.5 million provision for the
equity add-on tax in the first half of 1996, partially offset by $2.7 million of
low-income housing tax credits. The equity add-on tax is applicable only to
mutual life insurance companies and the Company believes such tax will not be
applicable to the Company after June 30, 1996 due to the Company's conversion
into a stock company. The increased 1995 income taxes were the result of the
higher pre-tax income discussed above. The effective income tax rate for 1996
was 37.2% compared to 37.3% in 1995, and 74.5% in 1994. In 1994, the Company as
a mutual life
-24-
<PAGE>
insurance company was subject to the equity add-on tax which resulted in an
additional $9.6 million of income tax expense. The effective income tax rate
for 1994, adjusted to remove the equity add-on tax, would have been 37.8%. The
1995 equity add-on tax was zero.
Net income increased by $4.9 million in 1996 to $74.2 million compared to
$69.3 million in 1995, and $6.7 million in 1994. The increased net income in
1996 resulted largely from the higher pre-tax income due primarily to the
increased realized gains on investments. The significant increase in net income
in 1995 resulted from the increases in pre-tax income discussed above.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's cash flow from operations will consist of dividends from
subsidiaries, if declared and paid, interest income on loans and advances to its
subsidiaries (including a surplus note issued to the Company by AmerUs Life),
investment income on assets held by the Company and fees which the Company will
charge AmerUs Group, AmerUs Life and certain other of its affiliates for
management services, offset by the expenses incurred for debt service, salaries
and other expenses.
The Company intends to rely primarily on dividends and interest income from
AmerUs Life to make any dividend payments to its shareholders. The payment of
dividends by AmerUs Life to the Company is regulated under Iowa law. Under Iowa
law, AmerUs Life may pay dividends only from the earned surplus arising from its
business and must receive the prior approval of the Iowa Commissioner to pay a
dividend, if such dividend would exceed certain statutory limitations. The
current statutory limitation is the greater of (i) 10% of AmerUs Life's capital
and surplus as of the preceding year end or (ii) the net gain from operations
for the previous calendar year. Iowa law gives the Iowa Commissioner broad
discretion to disapprove requests for dividends in excess of these limits.
During 1997, the maximum amount that would have been legally available for
distribution to the Company, absent the dividends paid as a part of the
Reorganization, without further regulatory approval would have been
approximately $34 million. However, as a result of the Distribution, AmerUs Life
will not be able to pay dividends to the Company in 1997 without the prior
consent of the Iowa Commissioner. It is the Company's intention to seek
regulatory approval to pay dividends from AmerUs Life during 1997. However, at
December 31, 1996, the Company also had the ability to borrow up to
approximately $119 million from AmerUs Life without prior regulatory approval.
The Company would utilize this borrowing capacity, if necessary, to meet its
liquidity needs including the payment of dividends to its shareholders. Any such
borrowings from AmerUs Life would be repaid from future available dividends from
AmerUs Life. Management believes that the Company's access to capital through
borrowings from AmerUs Life, public equity and debt markets and its $75 million
revolving credit facility provide the Company with sufficient liquidity and
capital resources during 1997, irrespective of whether regulatory approval for
the payment of dividends by AmerUs Life is obtained.
-25-
<PAGE>
In December, 1996, the Company entered into a bank credit agreement, which
was comprised of $100 million in term debt and $75 million under a revolving
line of credit ("Bank Credit Facility"). Immediately after establishing the Bank
Credit Facility the Company borrowed $100 million under the term debt component
of the facility and $75 million under the revolving line of credit. The Company
contributed $125 million of the borrowings under the Bank Credit Facility to
AmerUs Life and used $50 million to purchase a 9% surplus note, due December 1,
2006, from AmerUs Life. Proceeds from the Company's common stock and capital
note offerings were used to repay $50 million of borrowings outstanding under
the term facility and $75 million of borrowing outstanding under the revolving
line of credit. The Company has $75 million of unused borrowing capacity under
its revolving line of credit.
In connection with the Bank Credit Facility, the Company pledged
approximately 49.9% of the common stock of AmerUs Life owned by the Company and
a $50 million 9% surplus note payable to the Company by AmerUs Life.
The Company may from time to time review potential acquisition
opportunities. The Company anticipates that funding for any such acquisition may
be provided from available cash resources or from debt or equity financing. As
of December 31, 1996 the Company had no material commitments for capital
expenditures. In the future the Company anticipates that its liquidity and
capital needs will be met through interest and dividends from AmerUs Life,
accessing the public equity and debt markets depending upon market conditions,
or alternatively from bank financing.
At December 31, 1996, AmerUs Life had substantial excess statutory capital
as its adjusted statutory capital was $355.7 million resulting in an RBC ratio
in excess of 700% of the authorized control level RBC.
AMERUS LIFE
AmerUs Life's cash inflows consist primarily of premium income, deposits to
policyowner account balances, income from investments, sales, maturities and
calls of investments and repayments of investment principal. Cash outflows are
primarily related to withdrawals of policyowner account balances, investment
purchases, payment of policy acquisition costs, payment of policyowner benefits,
income taxes and current operating expenses. Life insurance companies generally
produce a positive cash flow from operations, as measured by the amount by which
cash inflows 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
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<PAGE>
securities and its insurance products, will be adequate to meet AmerUs Life's
anticipated short-term cash obligations.
AmerUs Life generated cash flows from operating activities of $147.6
million, $189.1 million and $172.4 million, for the years ended December 31,
1996, 1995 and 1994, respectively. Excess operating cash flows were primarily
used to increase AmerUs Life's fixed maturity investment portfolio consistent
with the long-term investment objective of the Company to reduce the level of
equity investments and mortgages as a percentage of its investment portfolio.
Matching the investment portfolio maturities to the cash flow demands of
the type of insurance being provided is an important consideration for each
type of life insurance product and annuity. AmerUs Life continuously monitors
benefits and surrenders to provide projections of future cash requirements.
As part of this monitoring process, AmerUs Life performs cash flow testing of
its assets and liabilities under various scenarios to evaluate the adequacy
of reserves. In developing its investment strategy, AmerUs Life 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 AmerUs Life's claims-paying and financial strength ratings.
AmerUs Life takes into account asset-liability management
considerations. Contract terms for AmerUs Life's interest-sensitive products
include surrender and withdrawal provisions which mitigate the risk of losses
due to early withdrawals. These provisions generally do one or more of the
following: limit the amount of penalty-free withdrawals, limit the
circumstances under which withdrawals are permitted, or assess a surrender
charge or market value adjustment relating to the underlying assets. The
following table summarizes statutory liabilities for interest-sensitive life
products and annuities by their contractual withdrawal provisions at December
31, 1996 (dollars in millions):
Not subject to discretionary withdrawal $ 209
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) $885
Market value adjustments 393
--------
Subtotal 1,278
Subject to discretionary withdrawal without adjustments 579
--------
Total $2,066
--------
--------
- --------------
-27-
<PAGE>
(A) Includes $301 million of statutory liabilities with a contractual surrender
charge of less than five percent of the account balance.
Through its membership in the Federal Home Loan Bank of Des Moines, AmerUs
Life is eligible to borrow on a line of credit available to provide it
additional liquidity. The line of credit, the amount of which is re-set
annually, is based on the amount of capital stock of the Federal Home Loan Bank
of Des Moines owned by AmerUs Life, which supported a borrowing capacity of
$36.6 million as of December 31, 1996. Interest is payable at a current rate at
the time of any advance. As of December 31, 1996, AmerUs Life had a $25 million
open secured line of credit with no amount outstanding.
In the future, in addition to cash flows from operations and AmerUs Life's
borrowing capacity, AmerUs Life would anticipate obtaining its required capital
from the Company as the Company will have access to the public markets.
INVESTMENT PORTFOLIO
GENERAL
The Company maintains a diversified portfolio of investments which is
supervised by an experienced in-house staff of investment professionals. The
Company employs sophisticated asset management techniques in order to achieve
competitive yields, while maintaining risk at acceptable levels. The asset
portfolio is segmented by liability type, with tailored investment strategies
for specific product lines. Investment policies and significant individual
investments are subject to approval by the Investment Committee of the Board of
Directors of AmerUs Life. Management regularly monitors individual assets and
asset groups, in addition to monitoring the overall asset mix. In addition, the
Investment Committee reviews investment guidelines and monitors internal
controls.
INVESTMENT STRATEGY
The Company's investment philosophy is to employ an integrated
asset/liability management approach with separate investment portfolios for
specific product lines, such as traditional life, universal life and annuities,
to generate attractive risk-adjusted returns on capital. Essential to this
philosophy is coordinating investments in the investment portfolio with product
strategies, focusing on risk-adjusted returns and identifying and evaluating
associated business risks.
The Company's asset/liability management approach utilizes separate
investment portfolios for specific product lines, such as traditional life,
universal life and annuities. Investment policies and strategies have been
established based on the specific characteristics of each product line. The
portfolio investment policies and strategies establish asset duration, quality
and other guidelines.
-28-
<PAGE>
The Company utilizes analytical systems to establish an optimal asset mix for
each line of business. The Company seeks to manage the asset/liability mismatch
and the associated interest rate risk through active management of the
investment portfolio. Financial, actuarial, investment, product development and
product marketing professionals work together throughout the product
development, introduction and management phases to jointly develop and implement
product features, initial and renewal crediting strategies, and investment
strategies based on extensive modeling of a variety of factors under a number of
interest rate scenarios.
The objective of the Company's mortgage backed securities ("MBS")
investments is to provide incremental return, while maintaining reasonable
liquidity and cash flow stability. Each MBS is evaluated to determine its
interest rate sensitivity and average life variability. In general, the Company
seeks investments which provide improved cash flow stability through either
implicit or explicit prepayment protection. Investments with implicit prepayment
protection can take the form of pass-throughs or collateralized mortgage
obligations ("CMO"s) backed by seasoned pools of loans which have already had
ample opportunity to refinance but have failed to do so. Explicit prepayment
protection can take the form of prepayment lockouts, yield maintenance
provisions or prepayment penalties, which are common features of multifamily
MBS, commercial MBS and FHA-insured project loans. At December 31, 1996, the
Company's MBS investment portfolio composition was approximately 15% fixed rate
pass-throughs backed by seasoned loan pools, 18% floating rate pass-throughs and
67% CMOs with some form of explicit prepayment protection. The Company has
established specific investment guidelines for the management of MBS. As a
general policy, the Company does not invest in interest-only and principal-only
or other similar leveraged derivative mortgage instruments.
The Company has improved the quality of its investment portfolio in recent
years in a number of respects. The Company has reduced real estate-related
assets (defined as real estate loans and real estate equity investments) as a
percentage of total invested assets from previous levels. Real estate related
assets, which totaled 19.2% of total invested assets as of December 31, 1993,
were reduced to 5.8% of total invested assets as of December 31, 1996. The
Company's problem loan ratio (defined as aggregate delinquent, in process of
foreclosure and restructured mortgage loans) also decreased from 21.3% of the
loan portfolio as of December 31, 1994 to 9.4% as of December 31, 1995, and to
3.5% as of December 31, 1996.
The Company in recent years has also reduced its exposure to higher risk
fixed maturity securities and common stock. The Company's percentage of higher
risk fixed maturity assets (defined as assets categorized in NAIC designations
3-6) was approximately 5.3% of total invested assets as of December 31, 1996, as
compared to 5.3% as of December 31, 1995 and 6.9% as of December 31, 1994. In
addition, the Company decreased its common stock holdings to .9% of total
invested assets as of December 31, 1996, down from 2.1% as of December 31, 1995
and 3.7% as of December 31, 1994.
-29-
<PAGE>
INVESTED ASSETS
The Company maintains a diversified portfolio of investments, including
public and private fixed maturity securities, commercial mortgage loans and
equity real estate. The Company's objective is to maintain a high-quality,
diversified fixed maturity securities portfolio that produces a yield and total
return that supports the various product line liabilities and the Company's
earnings goals.
In connection with the Reorganization, an arrangement, known as a closed
block ("Closed Block"), was formalized to give certain policyowners additional
assurances as to the dividend policies of the Company. As a result of
establishing the Closed Block on June 30, 1996, the Company allocated certain
assets from its investment portfolio to the Closed Block (see Note 1 to the
consolidated financial statements for further discussion). The following table
summarizes consolidated invested assets by asset category as of December 31,
1996 and 1995, and sets forth the allocation of such assets between the Closed
Block and the general account. The remaining information relating to the
Company's investment portfolio presents information about the investment
portfolio on a combined basis (including invested assets in both the Closed
Block and the general account).
<TABLE>
<CAPTION>
CONSOLIDATED INVESTED ASSETS
December 31,
-----------------------------------------------------------------------------------
1996 1995
-------------------------------------- -----------------------------------------
Carrying
Value- Carrying Combined
Closed Value-General Carrying % of Carrying % of
Block Account Value Total Value Total
----- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities:
Public $730.4 $2,263.4 $2,993.8 75.4% $2,717.7 68.5%
Private 170.9 151.4 322.3 8.1 424.4 10.7
----- ----- ----- ----- ------ -----
Subtotal 901.3 2,414.8 3,316.1 83.5 3,142.1 79.2
Equity securities - 64.0 64.0 1.6 109.7 2.8
Mortgage loans - 225.8 225.8 5.7 353.6 8.9
Policy loans 166.8 65.2 232.0 5.8 220.0 5.6
Real estate:
Investments - 4.6 4.6 .1 20.2 0.5
Foreclosures - - - - 31.9 0.8
-------- -------- -------- ------ -------- ------
Subtotal - 4.6 4.6 .1 52.1 1.3
Other invested assets - 114.0 114.0 2.9 48.1 1.2
Short-term investments 3.1 13.3 16.4 .4 39.4 1.0
-------- -------- -------- ------ -------- ------
Total invested assets $1,071.2 $2.901.7 $3,972.9 100.0% $3,965.0 100.0%
-------- -------- -------- ------ -------- ------
-------- -------- -------- ------ -------- ------
</TABLE>
FIXED MATURITY SECURITIES
The fixed maturity securities portfolio consists primarily of investment
grade corporate fixed maturity securities, high-quality MBS and United States
government and agency obligations. As of December 31, 1996, fixed maturity
securities were $3,316.1 million, or 83.5% of the carrying value of invested
assets with public and private fixed maturity securities constituting $2,993.8
million, or 90.3%, and $322.3 million, or 9.7%, of total fixed maturity
securities, respectively.
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<PAGE>
The following table summarizes the composition of the fixed maturity
securities by category as of December 31, 1996 and 1995:
COMPOSITION OF FIXED MATURITY SECURITIES
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------- -----------------------
Carrying Carrying
Value % of Total Value % of Total
----- ---------- ----- ----------
(Dollars in millions)
<S> <C> <C> <C> <C>
U.S. government/agencies $ 46.2 1.4% $ 67.2 2.1%
State and political subdivisions - - 1.7 0.1
Foreign governments 26.7 0.8 22.4 0.7
Corporate 1,938.4 58.4 2,131.8 67.8
Redeemable preferred stocks 73.2 2.2
MBS:
U.S. government/agencies 681.9 20.6 686.8 21.9
Non-government/agencies 549.7 16.6 232.2 7.4
--------- ------- --------- -------
Subtotal-MBS 1,231.6 37.2 919.0 29.3
--------- ------- --------- -------
Total $3,316.1 100.0% $3,142.1 100.0%
--------- ------- --------- -------
--------- ------- --------- -------
</TABLE>
The following table summarizes fixed maturity securities by remaining
maturity as of December 31, 1996:
REMAINING MATURITY OF FIXED MATURITY SECURITIES
<TABLE>
<CAPTION>
Carrying
Value % of Total
----- ----------
(Dollars in millions)
<S> <C> <C>
Due:
In one year or less (1997) $ 47.6 1.4%
One to five years (1998-2002) 534.7 16.1
Five to 10 years (2003-2007) 866.4 26.2
10 to 20 years (2008-2017) 306.5 9.2
Over 20 years (2018 and after) 329.3 9.9
--------- ---------
Subtotal 2,084.5 62.8
MBS 1,231.6 37.2
--------- ---------
Total $3,316.1 100.0%
--------- ---------
--------- ---------
</TABLE>
-31-
<PAGE>
The Company's portfolio of investment grade fixed maturity securities is
diversified by number and type of issuer. As of December 31, 1996, investment
grade fixed maturity securities included the securities of over 657 issuers,
with 1,027 different issues of securities. No issuer represents more than
2.8% of investment grade fixed maturity securities.
Below-investment grade fixed maturity securities as of December 31, 1996
included the securities of 49 issuers representing 6.4% of total invested
assets, with the largest being a $10.0 million investment.
As of December 31, 1996, 78.1% of total invested assets were investment
grade fixed maturity securities. The following table sets forth the credit
quality, by NAIC designation and Standard & Poor's rating equivalents, of fixed
maturity securities as of December 31, 1996:
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------------------------------------
NAIC Standard & Poor's Carrying % of Carrying % of Carrying % of
Designation Equivalent Designation Value Total Value Total Value Total
- ----------- ---------------------- ----- ----- ----- ----- ----- -----
Public Private Total
---------------------- --------------------- ----------------------
(Dollars in millions)
<S> <S> <C> <C> <C> <C> <C> <C>
1 A- or higher $2,053.9 68.6% $55.5 17.2% $2,109.4 63.6%
2 BBB- to BBB+ 763.9 25.6 230.9 71.6 994.8 30.0
-------- -------- -------- -------- -------- --------
Total investment grade 2,817.8 94.2 286.4 88.8 3,104.2 93.6
-------- -------- -------- -------- -------- --------
3 BB to BB+ 133.1 4.4 28.2 8.8 161.3 4.9
4 B 42.9 1.4 6.9 2.1 49.8 1.5
5 CBB or lower - - - - - -
6 In or near default - - .8 .3 .8 -
-------- -------- -------- -------- -------- --------
Total below investment grade $176.0 5.8% $35.9 11.2% $211.9 6.4%
-------- -------- -------- -------- -------- --------
Total $2,993.8 100.0% $322.3 100.0% $3,316.1 100%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
MBS comprise a core position within the Company's fixed maturity securities
investments. MBS investments include residential, commercial MBS, home equity
loans (including home equity loans purchased from one of the Company's
affiliates), manufactured housing, FHA Title I and CMBS. Residential mortgage
pass-throughs and CMOs total $904.9 million or 22.8% of total invested assets.
As of December 31, 1996, MBS were $1,231.6 million or 31.0%, of total invested
assets of which $681.9 million, or 55.4% of MBS were guaranteed by the United
States government or an agency of the United States government. Other MBS were
$549.7 million, or 44.6%, of MBS as of December 31, 1996. Management believes
that the quality of assets in the MBS portfolio is generally high, with 85.9% of
such assets representing agency backed or "AAA" rated securities.
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<PAGE>
The Company uses interest rate swaps and caps to reduce its exposure to
changes in interest rates and to manage duration mismatches. Although the
Company is subject to the risk that counterparties will fail to perform, credit
standings of counterparties are monitored regularly. The Company's policy is to
contract only with counterparties that are rated "AA" or higher; accordingly, it
is expected that counterparties will be able to satisfy their obligations under
such contracts. The Company is also subject to the risk associated with changes
in the value of contracts. However, such adverse changes in value generally are
offset by changes in the value of the items being hedged. The notional principal
amounts of the swaps and caps, which represent the extent of the Company's
involvement in such contracts but not the risk of loss, at December 31, 1996,
amounted to $980.0 million. The swaps had a carrying value and a fair value
which amounted to a net receivable position of $5.9 million at December 31,
1996. The carrying value and fair value of interest rate caps and swaptions
amounted to $9.2 million and $8.1 million, respectively, and are reflected as
"other investments" on the Company's consolidated financial statements as of
December 31, 1996. The net amount payable or receivable from interest rate swaps
and caps is accrued as an adjustment to interest income.
MORTGAGE LOANS
As of December 31, 1996, mortgage loans in the investment portfolio were
$225.8 million, or 5.7% of the aggregate carrying value of invested assets. Of
the December 31, 1996 amount, commercial mortgage loans were 98.5%, and
residential mortgage loans were 1.5%.
In the last several years, the Company has significantly reduced its
mortgage loan investments as a percentage of its invested assets through sales
of certain mortgage loan assets, decreased originations of new loans and
write-downs of delinquent loans. As of December 31, 1993, mortgage loans totaled
$652.2 million, or 17.9% of invested assets. By December 31, 1996, such
investments totaled $225.8 million, or 5.7% of invested assets. Commercial
mortgage loans consist primarily of fixed-rate mortgage loans on complete
properties. As of December 31, 1996, the Company held 142 individual commercial
mortgage loans having an average interest rate, maturity and balance of 9.3%, 74
months and $1.6 million, respectively.
The Company is not originating new commercial mortgage loans although it is
renewing existing loans in its portfolio in selected cases. The Company annually
estimates the current loan-to-value ratios of its commercial mortgage loans
based on an analysis of the operating statements of each mortgaged property.
As of December 31, 1996, only one loan for $2.0 million, or .9%, of the
Company's loan portfolio (principal balance) was classified as delinquent or in
foreclosure. As of the same date, only $6.3 million, or 2.6%, of the company's
loan portfolio (as measured by principal balance) was classified as
restructured. For the year 1996, the Company's foreclosures were approximately
$6.2 million (as measured by principal balance).
-33-
<PAGE>
EQUITY REAL ESTATE
In recent years the Company has significantly reduced its equity real
estate portfolio. As of December 31, 1996, investment real estate consisted
of two properties located in two states. The carrying value of investment
real estate as of December 31, 1996 was $4.6 million.
OTHER
The Company held $232.0 million of policy loans on individual insurance
products as of December 31, 1996. Policy loans are permitted to the extent of a
policy's contractual limits and are fully collateralized by policy cash values.
As of December 31, 1996, the Company held equity securities of $64.0
million (primarily preferred stock). The largest holding of equity securities
had a carrying value of $34.0 million as of December 31, 1996.
The Company held $130.4 million of other invested assets (including
short-term investments) on December 31, 1996. Other invested assets consist
primarily of various joint venture investments and financial instruments.
EFFECTS OF INFLATION AND INTEREST RATE CHANGES
The Company does not believe that inflation has had a material effect on
its consolidated results of operations.
Interest rate changes may have temporary effects on the sale and
profitability of the annuities and life insurance products offered by the
Company. For example, if interest rates rise, competing investments (such as
annuities or life insurance products offered by the Company's competitors,
certificates of deposit, mutual funds, and similar instruments) may become more
attractive to potential purchasers of the Company's products until the Company
increases the interest rate credited to owners of its annuities and life
insurance products. In contrast, as interest rates fall, the Company attempts to
adjust its credited rates to compensate for the corresponding decline in
reinvestment rates. The Company monitors interest rates and sells annuities and
life insurance policies that permit flexible responses to interest rate changes
as part of the Company's management of interest spreads. However, the
profitability of the Company's products is not based solely upon interest rate
spreads but also on persistency, mortality and expenses.
The Company manages its investment portfolio in part to reduce its exposure
to interest rate fluctuations. In general, the market value of the Company's
fixed maturity portfolio increases or decreases in an inverse relationship with
fluctuations in interest rates, and the Company's net investment income
increases or decreases in a direct relationship with interest rate changes.
-34-
<PAGE>
Although all of its assets support all of its liabilities, the Company has
developed an asset/liability management approach with separate investment
portfolios for major product lines such as traditional life, universal life and
annuities. Investment policies and strategies have been established based on the
specific characteristics of each product line. The portfolio investment policies
and strategies establish asset duration, quality and other guidelines. The
Company utilizes analytical systems to establish an optimal asset mix for each
line of business. The Company seeks to manage the asset/liability mismatch and
the associated interest rate risk through active management of the investment
portfolio. Financial, actuarial, investment, product development and product
marketing professionals work together throughout the product development,
introduction and management phases to jointly develop and implement product
features, initial and renewal crediting strategies, and investment strategies
based on extensive modeling of a variety of factors under a number of interest
rate scenarios.
In force reserves and the assets allocated to each segment are modeled on a
regular basis to analyze projected cash flows under a variety of economic
scenarios. The result of this modeling is used to modify asset allocation,
investment portfolio duration and convexity and renewal crediting strategies.
The Company does invest in collateralized mortgage obligations as part of its
basic portfolio strategy, but uses other types of derivatives only as a hedge
against the effects of interest rate fluctuations or to synthetically alter the
investment characteristics of specific assets. For a further discussion and
disclosure of the nature and extent of the Company's use of derivatives, see
Note 13 to the Consolidated Financial Statements.
FEDERAL INCOME TAX MATTERS
Until 1997, the Company and its subsidiaries filed as part of a
consolidated United States federal income tax return with AMHC and its
subsidiaries. Beginning in 1997, the Company and its subsidiaries will not file
as part of a consolidated United States federal income tax return with AMHC.
Further, the Company and its subsidiary AmerUs Life will not be eligible to file
a consolidated United States federal income tax return until December 31, 2002.
EMERGING ACCOUNTING MATTERS
SFAS NO. 125
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 provides consistent accounting standards for securitizations and other
transfers of financial assets, determines when financial assets (liabilities)
should be considered sold (settled) and removed from the balance sheet, and
determines when related revenues and expenses should be recognized. FASB
Statement No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. This
statement will be applicable to the Company, however, management believes that
it will have no material effect on the Company's consolidated financial
statements.
-35-
<PAGE>
STATUTORY ACCOUNTING CODIFICATION
The NAIC currently is in the process of codifying statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
not expected to be completed before the end of 1997, will likely change certain
statutory accounting practices. The codification may result in changes to the
permitted or prescribed accounting practices that the Company's insurance
subsidiaries use to prepare their statutory-basis financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements begin on page F-3.
Reference is made to the Index to Financial Statements on page F-1 herein.
Additional financial statement schedules are included on pages S-3 through
S-10 herein. Reference is made to the Index to Financial Statement Schedules on
page S-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
The Notice of 1997 Annual Meeting of Shareholders and Proxy Statement,
which, when filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934, will be incorporated by reference in this Annual Report on Form 10-K
pursuant to General Instruction G(3) of Form 10-K, provides the information
required under Part III (Items 10, 11, 12 and 13).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Reference is made to the index on page F-1 of the report.
(a) 2. Reference is made to the index on page S-1 of the report.
(a) 3. Exhibits
-36-
<PAGE>
AMERUS LIFE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1* Plan of Reorganization dated October 27, 1995
3.1 Amended and Restated Articles of Incorporation of the Company filed
as Exhibit 3.5 to the registration statement of the Company on Form
S-1, Registration Number 333-12234, is hereby incorporated by
reference.
3.2* Bylaws of the Company
4.1 Amended and Restated Trust Agreement dated as of February 3, 1997
among the Company, Wilmington Trust Company, as property trustee,
and the administrative trustees named therein (AmerUs Capital I
business trust), filed as exhibit 3.6 to the registration statement
of the Company and AmerUs Capital I on Form S-1, Registration Number
333-13713, is hereby incorporated by reference.
4.2 Indenture dated as of February 3, 1997 between the Company and
Wilmington Trust Company relating to the Company's 8.85% Junior
Subordinated Debentures, Series A, filed as exhibit 4.1 to the
registration statement of the Company and AmerUs Capital I on Form
S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.3 Guaranty Agreement dated as of February 3, 1997 between the Company,
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 on Form S-1, Registration Number, 333-13713, is
hereby incorporated by reference.
10.1 Amended and Restated Intercompany Agreement dated as of December 1,
1996, among American Mutual holding Company, AmerUs Group Co. and
the Company. Filed as Exhibit 10.81 to the company's registration
statement on Form S-1, Registration Number 333-12237, is hereby
incorporated by reference
10.2* Joint Venture Agreement, dated as of March 8, 1996, between American
Mutual Insurance Company and Ameritas Life Insurance Corp., and
First Amendment thereto dated as of April 1, 1996 between American
Mutual Life Insurance Company and Ameritas Life Insurance Corp.
10.3* Management and Administrative Service Agreement, dated as of April
1, 1996, among American Mutual Life Insurance Company, Ameritas
Variable Life Insurance Company and Ameritas Life Insurance Corp.
10.4* Agreement and Plan of Merger, dated as of August 24, 1994, among
Central Life Assurance Company and American Mutual Life Insurance
Company
10.5* Line of Credit Application and Approval, dated February 28, 1996 and
April 22, 1996, respectively, between American Mutual Life Insurance
Company and Federal Home Loan Bank of Des Moines
10.6* All*AmerUs Supplemental Executive Retirement Plan, effective January
1, 1996
-37-
<PAGE>
10.7* American Mutual Life Insurance Company Supplemental Pension Plan
(which was curtailed as of December 31, 1995)
10.8* Central Life Assurance Company Supplemental Pension Plan (which was
curtailed as of December 31, 1995)
10.9* Management Incentive Plan
10.10* AmerUs Life Insurance Company Performance Share Plan
10.11* AmerUs Life Stock Incentive Plan
10.12* Employment Agreement, dated February 1, 1995, between American
Mutual Life Insurance Company and Sam C. Kalainov
10.13* AmerUs Life Non-Employee Director Stock Plan
10.14* Modification of Real Estate Contract, dated as of July 1, 1996,
between AmerUs Life Insurance Company and AmerUs Properties, Inc.
10.15* Asset Management and Disposition Agreement, dated January 3, 1995,
between American Mutual Life Insurance Company and Central
Properties, Inc. (now AmerUs Properties, Inc.)
10.16* Management Contract, dated January 1, 1993, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.)
10.17* Management Contract, dated November 1, 1994, between American Mutual
Life Insurance Company and CPI Resource Group (now AmerUs Group Co.)
10.18* Management Contract, dated January 1, 1993, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.)
10.19* Management Contract, dated January 1, 1995, between American Mutual
Life Insurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.)
10.20* Management Contract, dated July 1, 1994, between Central Life
Assurance Company and CPI Resource Group (now AmerUs Group Co.)
10.21* Management Contract, dated February 1, 1994, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.)
10.22* Management Contract, dated May 1, 1994, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.)
10.23* Management Contract, dated February 1, 1994, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.)
10.24* Management Contract, dated January 4, 1994, between Central Life
Assurance Company and CPI Resource Group (now AmerUs Group Co.)
10.25* Management Contract, dated November 1, 1994, between American Mutual
Life Insurance Company and CPI Resource Group (now AmerUs Group Co.)
10.26* Lease - Business Property, dated December 1, 1995, between American
Mutual Life Insurance Company and AmerUs Leasing
10.27* Lease - Business Property, dated January 1, 1996, between American
Mutual Life Insurance Company and AmerUs Bank
10.28* Lease - Business Property, dated January 1,1 996, between American
Mutual Life Insurance Company and AmerUs Bank
10.29* Lease - Business Property, dated January 1, 1996, between American
Mutual Life Insurance Company and AmerUs Bank
-38-
<PAGE>
10.30* Lease - Business Property, dated January 1, 1996, between American
Mutual Life Insurance Company and AmerUs Group
10.31* Lease - Business Property, dated January 1, 1996, between American
Mutual Life Insurance Company and AmerUs Group
10.32* Assumption and Amendment of Lease Agreement, dated as of November
27, 1993 among Central Life Assurance Company, Midland Savings Bank
FSB (now AmerUs Bank) and Midland Financial Mortgages, Inc. (now
AmerUs Mortgage, Inc.)
10.33* Form of Indemnification Agreement executed with directors and
certain officers
10.34* Amended and Restated Agreement and Certificate of Limited
Partnership of CPI Housing Partners I, L.P., dated as of September
1, 1995, among AmerUs Properties, Inc., American Mutual Life
Insurance Company and American Mutual Affordable Housing Partners,
L.P.
10.35* Amended and Restated Agreement of Limited Partnership of American
Mutual Affordable Housing Partners, L.P., dated as of September 1,
1995, among GrA Partners Joint Venture, AmerUs Properties, Inc.,
American Mutual Life Insurance Company, NCC Polar Company and NCC
Orion Company
10.36* Amended and Restated Agreement and Certificate of Limited
Partnership of 65th & Vista, L.P., dated as of September 1, 1995,
among AmerUs Properties, Inc., American Mutual Life Insurance
Company and American Mutual Affordable Housing Partners, L.P.
10.37* Amended and Restated Agreement and Certificate of Limited
Partnership of 60th & Vista, L.P., dated as of September 1, 1995,
among I.R.F.B. Joint Venture, American Mutual Life Insurance Company
and American Mutual Affordable Housing Partners, L.P.
10.38* Certificate of Limited Partnership and Limited Partnership Agreement
of CPI Housing Partners II, L.P., dated March 27, 1995, between
Central Properties, Inc. (now AmerUs Properties, Inc.) and American
Mutual Life Insurance Company
10.39* Amended and Rested Agreement and Certificate of Limited Partnership
of API Housing Partners III, L.P., dated as of March 1, 1996, among
AmerUs Properties, Inc., American Mutual Life Insurance Company,
American Mutual Affordable Housing Partners II, L.P. and AmerUs
Management, Inc.
10.40* Certificate of Limited Partnership and Limited Partnership Agreement
of API Housing Partners IV, L.P., dated as of June 1995, between
AmerUs Properties, Inc. and American Mutual Life Insurance Company
10.41* Amended and Restated Agreement and Certificate of Limited
Partnership of API Housing Partners V, L.P., dated as of March 1,
1996, among AmerUs Properties, Inc., American Mutual Life Insurance
Company, American Mutual Affordable Housing Partners II, L.P. and
AmerUs Management, Inc.
10.42* Amended and Restated Agreement and Certificate of Limited
Partnership of API-Chimney Ridge Partners, L.P., dated as of March
1, 1996, among AmerUs Properties, Inc., American Mutual Life
Insurance Company, American Mutual Affordable Housing Partners II,
L.P. and AmerUs Management, Inc.
-39-
<PAGE>
10.43* Certificate of Limited Partnership and Limited Partnership Agreement
of API Housing Partners VI, L.P., dated as of October 10, 1995,
between AmerUs Properties, Inc. and American Mutual Life Insurance
Company
10.44* Certificate of Limited Partnership and Limited Partnership Agreement
of 86th & Meredith Associates, L.P., dated as of February 14, 1995,
between Central Properties, Inc. (now AmerUs Properties, Inc.) and
American Mutual Life Insurance Company
10.45* Certificate of Limited Partnership and Limited Partnership Agreement
of Altoona Meadows Investors, L.P., dated as of February 22, 1995,
between KPI Investments, Inc. and Dennis Galeazzi
10.46* First Amendment to the Certificate of Limited Partnership and
Limited Partnership Agreement of Altoona Meadows Investors, L.P.,
dated as of September 28, 1995, between KPI Investments, Inc. and
American Mutual Life Insurance Company
10.47* Loan Servicing Agreement, dated August 1, 1990, between Central Life
Assurance Company and Midland Financial Mortgages, Inc. (now AmerUs
Mortgage), filed as Exhibit 10.30 to Central Resource Group, Inc.'s
Registration Statement on Form S-1, Registration No. 33-48359, filed
on June 4, 1992
10.48* Construction Loan Servicing Agreement, dated November 20, 1995,
between American Mutual Life Insurance Company and AmerUs
Properties, Inc.
10.49* Servicing Agreement, dated March 1996, between American Mutual Life
Insurance Company and AmerUs Properties, Inc.
10.50* Loan Servicing Agreement, dated September 1, 1994, between Central
Life Assurance Company and Midland Savings Bank, FSB (now AmerUs
Bank)
10.51* Miscellaneous Services Agreement, dated as of January 1, 1996, among
American Mutual Life Insurance Company, AmerUs Group Co., AmerUs
Bank, AmerUs Mortgage, Inc., Iowa Realty Company, Inc., Midland
Homes, Inc., Iowa Title Company, AmerUs Insurance, Inc., and AmerUs
Finance Inc.
10.52* Amendment to Service Agreement, dated as of May 1, 1996, between
American Mutual Life Insurance Company and AmerUs Bank
10.53* Data Processing Service Agreement, dated November 1, 1989, between
Central Life Assurance Company and Midland Financial Savings and
Loan Association (now AmerUs Bank), filed as Exhibit 10.29 to
Central Resource Group, Inc.'s Registration Statement on Form S-1,
Registration No. 33-48359, filed on June 4, 1992
10.54* First Amendment to Data Processing Service Agreement, dated as of
September 30, 1990, between Central Life Assurance Company and
Midland Savings Bank FSB (now AmerUs Bank)
10.55* Second Amendment to data Processing Service Agreement, dated as of
May 1, 1991, between Central Life Assurance Company and Midland
Savings Bank FSB (now AmerUs Bank)
10.56* Third Amendment to Data Processing Service Agreement, dated as of
October 1, 1991, between Central Life Assurance Company and Midland
Savings Bank, FSB (now AmerUs Bank)
-40-
<PAGE>
10.57* Fourth Amendment to Data Processing Service Agreement, dated as of
January 2, 1992, between Central Life Assurance Company and Midland
Savings Bank, (now AmerUs Bank)
10.58* Fifth Amendment to Data Processing Service Agreement, dated as of
June 1, 1993, between Central Life Assurance Company and Midland
Savings Bank FSB (now AmerUs Bank)
10.59* Sixth Amendment to Data Processing Service Agreement, dated as of
September 1, 1995, between American Mutual Life Company and AmerUs
Bank
10.60* Seventh Amendment to Data Processing Service Agreement, dated as of
January 1, 1996, between American Mutual Life Insurance Company and
AmerUs Bank
10.61* Data Processing Support Services Agreement, dated as of July 1,
1993, between Central Life Assurance Company and Midland Savings
Bank, FSB (now AmerUs Bank)
10.62* Miscellaneous Services Agreement, dated as of February 5, 1992,
between Central Life Assurance Company and Midland Savings Bank FSB
(now AmerUs Bank)
10.63* Investment Management Agreement, dated as of August 15, 1992,
between Central Life Assurance Company and Midland Savings Bank FSB
(now AmerUs Bank)
10.64* Disbursement Services Agreement, dated as of April 15, 1995, between
American Mutual Life Insurance Company and Midland Savings Bank FSB
(now AmerUs Bank)
10.65* Purchase Agreement, dated as of June 28, 1996, between AmerUs Life
Insurance Company and AmerUs Bank
10.66* Brokerage Contract dated January 1, 1995, among American Mutual Life
Insurance Company and Midland Investment Services, Inc. (now AmerUs
Investments, Inc.)
10.67* Servicing Agreement, dated March 1, 1992, between Central Life
Assurance Company and Midland Investment Services, Inc. (now AmerUs
Investments, inc.)
10.68* Tax Allocation Agreement dated as of November 4, 1996
10.69* Amended and Restated Articles of Limited Partnership of T.L.B.
Limited Partnership, undated, among F. Barry Tapp, Lartnec
Investment Co., Michael H. Taylor, Michael Longley and Michael A.
Hammond, along with a Memorandum of Understanding Regarding
Assignments of Partnership Interests dated December 21, 1988 and
three corresponding Assignments of Partnership Interest dated
December 6, 1988 wherein Central Life Assurance Company is Assignee,
and an Assignment of Partnership Interest of T.L.B. Limited
Partnership dated December 29, 1995, between Lartnec Investment Co.
and AmerUs Properties, Inc.
10.70* Assignment of Partnership Interest of T.L.B. Limited Partnership,
dated December 28, 1994, between Lartnec Investment Co. and Central
Properties, Inc. (now AmerUs Properties, Inc.) and Assignment of
Limited Partnership Interest of T.L.B. Limited Partnership, dated
December 30, 1995, between American Mutual Life Insurance Company
and AmerUs Properties, Inc.
-41-
<PAGE>
10.71* Limited Partnership Agreement of South 19th Limited Partnership,
dated December 30, 1985, among Lartnec Investment Co., F. Barry Tapp
and Michael H. Taylor, along with a Memorandum of Understanding
Regarding Assignments of Partnership Interests dated December 21,
1988 and three corresponding Assignments of Partnership Interest
dated December 6, 1988 wherein Central Life Assurance Company is
Assignee, and an Assignment of Partnership Interest of South 19th
Limited Partnership dated December 29, 1995, between Lartnec
Investment Co. and AmerUs Properties, Inc.
10.72* Assignment of Partnership Interest of South 19th Limited
Partnership, dated December 28, 1994, between Lartnec Investment Co.
and Central Properties, Inc. (now AmerUs Properties, Inc.) and
Assignment of Partnership Interest of South 19th Limited
Partnership, dated December 30, 1995, between American Mutual Life
Insurance Company and AmerUs Properties, Inc.
10.73* Limited Partnership Agreement of Theater Project Limited Partnership
dated March 15, 1985, among Tapp Management, Inc., Tapp Management
Co., Ltd., Michael Longley, Michael A. Hammond and Gary L. Wood
along with an Amendment to Certificate of Limited Partnership, dated
August 22, 1986, and an Assignment of Limited Partnership Interest,
dated November 15, 1992, between F. Barry Tapp and Tapp Development
Co., Ltd., and an Amended Certificate of Limited Partnership dated
December 24, 1992
10.74* Assignment of Limited Partnership Interest of Theater Project
Limited Partnership, dated December 30, 1995, between American
Mutual Life Insurance Company and AmerUs Properties, Inc.
10.75* Certificate of Limited Partnership and Limited Partnership Agreement
of Lagos Vista Limited Partnership, dated August 10, 1994, between
Central Properties, Inc. (now AmerUs Properties, Inc.) and Central
Life Assurance Company
10.76* Joint Venture Agreement, dated July 30, 1980, between F. Barry Tapp
and Lartnec Investment Co., along with an Assignment by F. Barry
Tapp of Interest in Tapp & LICO Properties, dated December 24, 1981,
between F. Barry Tapp and Tapp Development Co., Ltd., an Assignment
of Partnership Interest, dated December 6, 1988, between Tapp
Development Co., Ltd. and Central Life Assurance Company and an
Assignment of Joint Venture Interest of Tapp and LICO Properties,
dated December 29, 1995, between Lartnec Investment Co. and AmerUs
Properties, Inc.
10.77* Assignment of Joint Venture Interest of Tapp and LICO Properties,
dated December 28, 1994, between Lartnec Investment Co. and Central
Properties, Inc. (now AmerUs Properties, Inc.) and Assignment of
Joint Venture Interest of Tapp and LICO Properties, dated December
30, 1995, between American Mutual Life Insurance Company and AmerUs
Properties, Inc.
-42-
<PAGE>
10.78* Joint Venture Agreement, dated December 30, 1980, between MBT, Ltd.
and Lartnec Investment Co., along with an Assignment by F. Barry
Tapp of Interest in MBT, Ltd., dated December 24, 1981, between F.
Barry Tapp and Tapp Development Co., Ltd., an Assignment by Michael
H. Taylor of Interest in MBT, Ltd., dated December 23, 1981, between
Michael H. Taylor and Tapp Development Co., Ltd., an Assignment of
Limited Partnership interest, dated December 6, 1988, between Tapp
Development Co., Ltd. and Central Life Assurance Company, and an
Assignment of Joint Venture Interest of Round Rock Outlet, Ltd.,
dated December 29, 1995, between Lartnec Investment Co. and AmerUs
Properties, Inc.
10.79* Assignment of Joint Venture Interest of Round Rock Outlet, Ltd.,
dated December 28, 1994, between Lartnec Investment Co. and Central
Properties, Inc. (now AmerUs Properties, Inc.) and Assignment of
Joint Venture Interest of Round Rock Outlet, Ltd., dated December
30, 1995, between American Mutual Life Insurance Company and AmerUs
Properties, Inc.
10.80* Revolving Credit and Term Loan Agreement, dated as of December 1996,
among the Company, certain Signatory Banks thereto and The Chase
Manhattan Bank, Note issued by the Company and Borrower Pledge
Agreement
11 Statement Regarding Computation of Per Share Earnings
12 Statement Regarding Computation of Ratios
21* List of Subsidiaries of the Registrant
27 Financial Data Schedule
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
- ------------------------
* Previously filed and identified with the same exhibit number in the Company's
Registration Statement on Form S-1, Registration Number 333-12239, and is
hereby incorporated by reference.
-43-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Des Moines, Iowa on March 25, 1997.
AMERUS LIFE HOLDINGS, INC.
/s/ Roger K. Brooks
By:
----------------------------------
Roger K. Brooks
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in capacity indicated on March 25, 1997.
Signature Title(s)
--------- --------
/s/ Roger K. Brooks
- ----------------------------- Chairman, President and Chief Executive Officer
Roger K. Brooks (principal executive officer) and Director
/s/ Michael E. Sproule
- ----------------------------- Executive Vice President and Chief Financial
Michael E. Sproule Officer (principal financial officer)
/s/ Michael G. Fraizer
- ----------------------------- Senior Vice President and Controller/Treasurer
Michael G. Fraizer (principal accounting officer)
/s/ John R. Albers
- ----------------------------- Director
John R. Albers
/s/ Malcolm Candlish
- ----------------------------- Director
Malcolm Candlish
-44-
<PAGE>
- ----------------------------- Director
Maureen M. Culhane
/s/ D T Doan
- ----------------------------- Director
D T Doan
- ----------------------------- Director
Thomas F. Gaffney
/s/ Ilene B. Jacobs
- ----------------------------- Director
Ilene B. Jacobs
/s/ Sam C. Kalainov
- ----------------------------- Director
Sam C. Kalainov
/s/ John W. Norris, Jr.
- ----------------------------- Director
John W. Norris, Jr.
/s/ Jack C. Pester
- ----------------------------- Director
Jack C. Pester
/s/ John A. Wing
- ----------------------------- Director
John A. Wing
-45-
<PAGE>
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . .F-2
Consolidated Balance Sheets as of
December 31, 1996 and 1995. . . . . . . . . . . . . . . . . .F-3 through F-4
Consolidated Income Statements for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . .F-5
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . .F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . .F-7 through F-9
Notes to Consolidated Financial Statements . . . . . . . . . .F-10 through F-44
Separate financial statements of subsidiaries not consolidated and 50% or
less owned persons accounted for by the equity method have been omitted because
they do not individually constitute a significant subsidiary.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AmerUs Life Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholder's equity, and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the
Company implemented the provisions of the Statement of Financial Accounting
Standards (SFAS) No. 120, "Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration Participating
Contracts." Also, as discussed in note 1, the Company restated its consolidated
financial statements to reflect the spin-off of a wholly owned subsidiary in
1996, which resulted in a change in the subsidiaries comprising the consolidated
financial statements.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 10, 1997
F-2
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Investments (notes 2 and 5):
Securities available-for-sale at fair value:
Fixed maturity securities $2,414,807 $3,142,096
Equity securities 64,033 109,675
Short-term investments 13,288 39,353
Mortgage loans on real estate
(notes 3 and 5) 225,743 353,597
Real estate 4,561 52,199
Policy loans 65,183 220,044
Other investments 114,037 48,064
---------- ----------
Total investments 2,901,652 3,965,028
Cash 1,814 4,620
Accrued investment income 30,792 49,226
Premiums and fees receivable 1,489 6,908
Reinsurance receivables 1,329 1,392
Deferred policy acquisition costs
(note 4) 120,481 267,711
Property and equipment (less accumulated
depreciation 1996-$11,775; 1995-$19,229) 4,393 13,502
Other assets 52,111 63,559
Closed block assets 1,270,168 -
---------- ----------
Total assets $4,384,229 $4,371,946
---------- ----------
---------- ----------
</TABLE>
F-3
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Liabilities:
Policy reserves and policyowner funds:
Future life and annuity policy benefits $2,053,740 $3,435,505
Policyowner funds 55,369 56,474
---------- ----------
2,109,109 3,491,979
Accrued expenses 14,227 11,100
Dividends payable to policyowners - 129,558
Policy and contract claims 7,039 16,617
Income taxes payable 25,182 18,760
Deferred income taxes (note 6) 1,337 48,623
Other liabilities 64,173 78,939
Debt (note 5) 188,381 36,461
Closed block liabilities 1,517,271 -
---------- ----------
Total liabilities 3,926,719 3,832,037
---------- ----------
Stockholder's equity (note 11):
Preferred stock, no par value,
20,000,000 shares authorized, none issued - -
Common stock, Class A, no par value,
75,000,000 shares authorized;
14,500,000 shares issued and outstanding 14,500 -
Common stock, Class B, no par value,
50,000,000 shares authorized;
5,000,000 shares issued and outstanding 5,000 -
Unrealized appreciation of
available-for-sale securities(note 2) 35,300 108,714
Retained earnings 402,710 431,195
---------- ----------
Total stockholder's equity 457,510 539,909
---------- ----------
Commitments and contingencies (note 10)
Total liabilities and stockholder's equity $4,384,229 $4,371,946
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Insurance premiums $138,476 $244,087 $237,912
Universal life and annuity product charges 49,347 57,370 56,362
Net investment income (note 2) 229,884 285,244 275,691
Realized gains (losses) on investments (note 2) 65,983 51,387 (19,930)
Other 2,711 5,390 2,391
Contribution from the Closed Block (note 1) 19,909 - -
----------- ----------- -----------
506,310 643,478 552,426
----------- ----------- -----------
Benefits and expenses:
Policyowner benefits 261,869 374,620 369,896
Underwriting, acquisition, and insurance expenses 59,925 58,655 68,604
Amortization of deferred policy acquisition costs
(note 4) 40,160 50,239 42,756
Dividends to policyowners 26,324 49,414 45,039
----------- ----------- -----------
388,278 532,928 526,295
----------- ----------- -----------
Income before income tax expense 118,032 110,550 26,131
Income tax expense (note 6) 43,859 41,202 19,464
----------- ----------- -----------
Net income $74,173 $69,348 $6,667
----------- ----------- -----------
----------- ----------- -----------
Pro forma net income per common share $3.20 $2.99 -
----------- ----------- -----------
----------- ----------- -----------
Weighted average Common Shares outstanding 23,155,989 23,155,989 -
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
appreciation Total
(depreciation) of stock-
Common Stock available-for-sale Retained holders
Class A Class B securities (note 2) earnings equity
------- ------- ------------------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ - $ - $104,581 $401,298 $505,879
Net income - - - 6,667 6,667
Net unrealized depreciation - - (89,261) - (89,261)
Dividend to American
Mutual Holding Company
(notes 8 and 11) - - - (4,962) (4,962)
-------- -------- -------- -------- --------
Balance at December 31, 1994 - - 15,320 403,003 418,323
Net income - - - 69,348 69,348
Net unrealized appreciation - - 93,394 - 93,394
Dividend to American
Mutual Holding Company
(notes 8 and 11) - - - (41,156) (41,156)
-------- -------- -------- -------- --------
Balance at December 31, 1995 - - 108,714 431,195 539,909
Net income - - - 74,173 74,173
Net unrealized depreciation - - (73,414) - (73,414)
Dividend to American
Mutual Holding Company
(notes 8 and 11) - - - (4,158) (4,158)
Capital Contributions to
Affiliates (note 8) - - (79,000) (79,000)
Issuance of common stock 14,500 5,000 - (19,500) -
-------- -------- -------- -------- --------
Balance at December 31, 1996 $14,500 $5,000 $35,300 $402,710 $457,510
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $74,173 $69,348 $6,667
Adjustments to reconcile net
income to net cash provided by
operating activities:
Policyowner assessments on universal
life and annuity products (49,347) (57,370) (56,362)
Interest credited to policyowner
account balances 109,457 123,360 120,075
Realized investment (gains) losses (65,983) (51,387) 19,930
Change in:
Accrued investment income 8,033 1,485 (1,250)
Reinsurance ceded receivables (6,708) (223) 666
Deferred policy acquisition costs (12,235) (7,491) (11,682)
Liabilities for future policy benefits 16,504 94,856 94,862
Policy and contract claims and other
policyowner funds (9,578) 6,814 (2,828)
Income taxes:
Current 6,422 3,298 6,727
Deferred (7,181) (3,105) 2,602
Other, net 15,127 9,538 (7,057)
Change in Closed Block assets
and liabilities, net 68,870 - -
---------- ---------- ----------
Net cash provided by
operating activities 147,554 189,123 172,350
---------- ---------- ----------
</TABLE>
F-7
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of fixed maturities
available for sale (1,423,268) (887,971) (886,236)
Maturities, calls, and principal
reductions of fixed maturities
available for sale 1,362,115 595,879 591,965
Purchase of equity securities (280,215) (117,345) (69,813)
Proceeds from sale of equity securities 363,358 178,115 48,117
Proceeds from repayment and sale
of mortgage loans 119,061 112,484 234,722
Purchase of mortgage loans (46,532) (37,328) (78,830)
Purchase of real estate and other
invested assets (59,119) (28,490) (31,515)
Change in policy loans, net (6,630) (10,532) (12,364)
Tax on capital gains (22,255) (16,524) 5,136
Other assets, net (47,712) 44,855 45,150
Change in Closed Block investments, net (69,550) - -
Initial establishment of the Closed Block (22,925) - -
---------- ---------- ----------
Net cash used in investing activities (133,672) (135,373) (134,862)
---------- ---------- ----------
Cash flows from financing activities:
Deposits to policyowner account balances 156,420 272,431 260,172
Withdrawals from policyowner account balances (293,521) (302,291) (208,313)
Change in debt, net 160,642 (1,496) (71,708)
Dividends to American Mutual Holding Company (4,158) (41,156) (4,962)
Capital Contribution to Affiliates (36,071) - -
---------- ---------- ----------
Net cash used in financing activities (16,688) (72,512) (24,811)
---------- ---------- ----------
Net (decrease) increase in cash (2,806) (18,762) 12,677
Cash at beginning of period 4,620 23,382 10,705
---------- ---------- ----------
Cash at end of period $1,814 $4,620 $23,382
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash activities:
Interest paid $2,224 $2,356 $5,394
---------- ---------- ----------
---------- ---------- ----------
Income taxes paid $45,417 $51,900 $14,630
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-8
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosure of non-cash
investing and financing activities:
Issuance of Class A and Class B
Common Stock related to the
Reorganization as a reclassification
of retained earnings $ 19,500 $ - $ -
-------- -------- --------
-------- -------- --------
Capital Contribution to Affiliates:
Net transfer of invested assets:
Fixed maturities $ 3,550 - -
Real estate 38,432 - -
Mortgage Loans 9,309 - -
Equity Securities 802 - -
Debt assumed from affiliates (9,164) - -
-------- -------- --------
Total non-cash items contributed 42,929 - -
Cash contributed 36,071 - -
-------- -------- --------
$ 79,000 $ - $ -
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
AmerUs Life Holdings, Inc.'s (the Company) operations consist primarily of
marketing, underwriting, and distributing life insurance, annuities, and related
products to individuals throughout the United States. The Company's products are
sold through a career general agency system and a personal producing general
agency system. The life insurance and annuity operations are the Company's only
business segment.
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The Company was formed on August 1, 1996 in conjunction with a plan of
reorganization (the Reorganization) of the former American Mutual Life Insurance
Company (American Mutual Life). Pursuant to the Reorganization which became
effective on June 30, 1996 (the Effective Date), American Mutual Life was
converted to a mutual insurance holding company structure whereby American
Mutual Holding Company (AMHC), a mutual insurance holding company, was formed.
Additionally, American Mutual Life was converted to a stock life insurance
company and renamed AmerUs Life Insurance Company (AmerUs Life). All of the
initial shares of capital stock of AmerUs Life were issued to AMHC.
On August 1, 1996, AMHC contributed all of its shares of capital stock of
AmerUs Life to AmerUs Group Co. (AmerUs Group). On the same date, the Company
was formed, and all of its shares of capital stock were issued to AmerUs Group.
Prior to the distribution (Distribution) by AmerUs Life of its Non-Life
Insurance Subsidiaries (as defined below), AmerUs Life made a capital
contribution of cash and other property (Capital Contribution) to or for the
benefit of AmerUs Properties, Inc., AmerUs Bank and Iowa Realty Co., Inc., and
each of their respective subsidiaries (Non-Life Insurance Subsidiaries). The net
assets contributed in the Capital Contribution had an aggregate carrying value
of approximately $79 million as of the date of contribution. Following the
Capital Contribution, a series of transactions was undertaken by the Company and
its affiliates. AmerUs Life effected the Distribution, pursuant to which it
distributed the Non-Life Insurance Subsidiaries to AmerUs Group. Immediately
after the Distribution, AmerUs Group contributed all of its shares of common
stock in AmerUs Life to the Company. Under this structure, the Company is an
intermediate holding company, with AmerUs Group as its direct parent company and
AmerUs Life as its wholly-owned subsidiary. Under Iowa law, AMHC is required to
retain direct or indirect ownership and control of shares representing a
majority of the vote of the outstanding capital stock of the Company.
Immediately following the Distribution, the Company entered into a bank credit
facility pursuant to which it borrowed $100 million in term debt and $75 million
under a revolving line of credit (Bank Credit Facility).
F-10
<PAGE>
The Company used the proceeds from such borrowings to make a $125 million
capital contribution to AmerUs Life and to purchase a $50 million surplus note
from AmerUs Life.
The effect of the Distribution was to decrease (increase) net income by
$6,292,000, $10,539,000, ($101,000) in the years ended December 31, 1996, 1995,
and 1994, respectively, such amounts representing the net income (loss) of
Lartnec Investment Co., a former subsidiary of AmerUs Life, and its subsidiaries
(collectively, Lartnec).
As a result of the Reorganization, AMHC indirectly owned, through AmerUs
Group, 14,500,000 shares of Class A Common Stock and 5,000,000 shares of Class B
Common Stock of the Company. The Class B Common Stock must be held, directly or
indirectly, by AMHC. The Class B Common Stock is generally convertible on a
share-for-share basis for Class A Common Stock. Each share of Class A and
Class B Common Stock entitles its holder to one vote per share; however, the
voting rights are adjusted if the number of Class A shares exceed the number of
Class B shares such that the holders of Class B shares will always have a
majority of the votes. AMHC must directly or indirectly control a majority of
the voting shares of AmerUs Life. In addition, as long as the members of AMHC
own directly or indirectly at least 50.1 percent of the voting power of the
outstanding voting stock, AMHC is entitled to equity purchase rights which
provide for the Company to notify AMHC in writing of a proposed sale of voting
stock or any options, warrants, or rights to acquire voting stock. AMHC has the
right to purchase the same proportionate number of shares being offered for sale
as AMHC owns of the total shares at the time of the registration.
In February 1997, AmerUs Group sold 2,793,489 shares of Class A common
stock to the public and the Company issued 3,655,989 shares of Class A common
stock in its initial public offering for gross proceeds of $56.7 million. As a
result, AmerUs Group's ownership of the Company was reduced to 72.15%.
The accompanying consolidated financial statements include only the
accounts and operations, after intercompany eliminations, of AmerUs Life
Holdings, Inc. and its wholly owned subsidiaries, principally, AmerUs Life
Insurance Company and American Vanguard Life Insurance Company (American
Vanguard Life).
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-11
<PAGE>
CLOSED BLOCK
The Reorganization contained an arrangement, known as a closed block (the
Closed Block), to provide for dividends on policies that were in force on the
Effective Date and were within the classes of individual policies for which the
Company had a dividend scale in effect at the time of the Reorganization. The
Closed Block was designed to give reasonable assurance to owners of affected
policies that assets will be available to support such policies, including
maintaining dividend scales in effect at the time of the Reorganization, if the
experience underlying such scales continues. The assets, including revenue
therefrom, allocated to the Closed Block will accrue solely to the benefit of
the owners of policies included in the block until the block is no longer in
effect. The Company will not be required to support the payment of dividends
except those contractually guaranteed on Closed Block policies from its general
funds.
The financial information of the Closed Block, while prepared on a GAAP
basis, reflects its contractual provisions and not its actual results of
operations and financial position. Many expenses related to the Closed Block
operations are charged to operations outside of the Closed Block; accordingly,
the contribution from the Closed Block does not represent the actual
profitability of the Closed Block operations. Operating costs and expenses
outside of the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
Summarized financial information of the Closed Block as of December 31,
1996 and from July 1, 1996 to December 31, 1996, is as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
Closed Block
------------
<S> <C>
ASSETS:
Fixed maturity securities, at fair value
(amortized cost of $883,351) $901,261
Short-term investments, at fair value 3,126
Policy loans 166,827
Cash 3
Accrued Investment Income 10,798
Premiums and fees receivable 4,998
Deferred policy acquisition costs 175,235
Other assets 7,920
----------
$1,270,168
----------
----------
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES:
Future life and annuity policy benefits $1,363,073
Policyowner funds 7,602
Accrued expenses 2,969
Dividends payable to policyowners 132,661
Policy and contract claims 4,765
Other liabilities 6,201
----------
$1,517,271
----------
----------
REVENUES AND EXPENSES:
Insurance premiums $108,315
Universal life and annuity product charges 9,324
Net investment income 56,329
Realized gains on investments 481
Policyowner benefits (103,951)
Underwriting, acquisition, and insurance expenses (2,969)
Amortization of deferred policy acquisition costs (18,412)
Dividends to policyowners (29,208)
----------
Contribution from the Closed Block before income taxes $19,909
----------
----------
</TABLE>
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company and its
wholly owned subsidiaries have been prepared in conformity with GAAP which, as
to the insurance company subsidiaries, differ from statutory accounting
practices prescribed or permitted by regulatory authorities.
The insurance company subsidiaries adopted SFAS 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts", in 1995. SFAS 120 permits stock
life insurance companies to apply the provisions of the American Institute of
Certified Public Accountant's Statement of Position 95-1, "Accounting for
Certain Insurance Activities of Mutual Life Insurance Enterprises," to
participating life insurance contracts that meet the conditions in SFAS 120. The
accompanying consolidated financial statements have been restated for the
effects of implementing SFAS 120.
F-13
<PAGE>
INVESTMENTS
Investments in fixed maturity and equity securities that are to be held for
indefinite periods of time are reported as securities available for sale.
Securities available for sale are reported in the accompanying consolidated
financial statements at fair value. Any valuation changes resulting from changes
in the fair value of these securities are reflected as a component of
stockholder's equity. These unrealized gains or losses in stockholder's equity
are reported net of taxes and adjustments to deferred policy acquisition costs.
Premiums and discounts on fixed maturity securities are amortized or
accreted over the life of the related security as an adjustment to yield using
the effective interest method. Realized gains and losses are included in
earnings and are determined using the specific identification method. The
carrying value of investments is reduced to its estimated realizable value if a
decline in fair value is considered other than temporary with such reduction
charged to earnings.
Mortgage loans on real estate and other long-term investments are stated at
cost less amortized discounts and allowances for possible losses. Policy loans
are stated at their aggregate unpaid balances. Real estate acquired by
foreclosure is stated at the lower of cost or fair value less estimated costs to
sell.
Investments in real estate and mortgage loans on real estate are considered
impaired when the Company determines that collection of all amounts due under
the contractual terms is doubtful or carrying values exceed the fair value of
underlying collateral. The Company adjusts real estate and mortgage loans on
real estate to their estimated net realizable value at the point at which it
determines an impairment is other than temporary. Interest income on impaired
mortgage loans is recognized when cash is received. In addition, the Company has
established a valuation allowance for mortgage loans on real estate and other
invested assets. Valuation allowances for other than temporary impairments in
value are netted against the asset categories to which they apply, and additions
to valuation allowances are included in total investment results.
INTEREST RATE SWAPS, CAPS AND SWAPTIONS
The Company uses interest rate swaps, caps, and swaptions as part of its
overall interest rate risk management strategy for certain life insurance and
annuity products. The book values of the underlying hedged investments or
anticipated investment transactions are amortized over the remaining lives of
the hedged investments as adjustments to investment income. Certain agreements
hedge assets which are carried at fair value; accordingly, such underlying
hedged investments are also carried at fair value. Any unamortized gains or
losses are recognized when the underlying investments are sold.
F-14
<PAGE>
Interest rate swap contracts are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of the
related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income as incurred.
Interest rate caps are used to limit the effects of changing interest rates
on yields of variable rate or short-term assets or liabilities. The initial cost
of any such agreement is amortized to investment income over the life of the
agreement. Periodic payments that are receivable as a result of the agreements
are accrued as an adjustment of investment income.
Swaption agreements are used in conjunction with interest rate caps to
protect against rising rates. Swaption agreements involve the right to enter
into a swap transaction at a pre-specified price. The initial cost of a swaption
agreement is amortized to investment income over the life of the agreement.
POLICY ACQUISITION COSTS
Certain commissions, policy issue and underwriting costs, and other
variable costs incurred to acquire or renew traditional life insurance,
universal life insurance, and annuity products have been deferred. The
amortization method of deferred policy acquisition costs for traditional life
insurance products is different, dependent upon whether the contract is
participating or non-participating. Participating contracts are those which are
expected to pay dividends to policyowners in proportion to their relative
contribution to the Company's surplus. Deferred policy acquisition costs for
participating traditional life insurance are being amortized over the life of
the policies generally in proportion to the present value of estimated gross
margins. Non-participating traditional life insurance deferred policy
acquisition costs are being amortized over the premium-paying period of the
related policies in proportion to the ratio of annual premium revenues to total
anticipated premium revenues using assumptions consistent with those used in
computing policy benefit reserves. For universal life insurance and annuity
products, deferred policy acquisition costs are being amortized generally in
proportion to the present value of estimated gross margins from surrender
charges and investment, mortality, and expense margins. The amortization for
participating traditional life, universal life, and annuity products is adjusted
retrospectively when current or estimated future gross profits or margins on the
underlying policies vary from previous estimates. Deferred policy acquisition
costs are adjusted for the impact on estimated gross profits of net unrealized
gains and losses on securities.
F-15
<PAGE>
RECOGNITION OF REVENUES
Premiums for traditional life insurance products (including those products
with fixed and guaranteed premiums and benefits and which consist principally of
whole life insurance policies and certain annuities with life contingencies) are
recognized as revenues when due. For limited payment life insurance policies,
premiums are recorded as income when due with any excess profit deferred and
recognized over the expected lives of the contracts. Amounts received as
payments for universal life insurance policies and for annuity products
(including deferred annuities and annuities without life contingencies) are not
recorded as premium revenue. Revenues for such contracts consist of policy
charges for the cost of insurance, policy administration charges, and surrender
charges assessed against policyowner account balances during the period. All
insurance-related revenue is reported net of reinsurance ceded.
FUTURE POLICY BENEFITS
The liability for future policy benefits for traditional life insurance is
computed using the net level method, utilizing the guaranteed interest and
mortality rates used in calculating cash surrender values as described in the
contracts. Reserve interest assumptions range from 2.00 percent to 7.25 percent.
The weighted average assumed interest rate for all traditional life policy
reserves was 4.23 percent in 1996, 4.20 percent in 1995 and 4.10 percent in
1994. Policy benefit claims are charged to expense in the period that the claims
are incurred. All insurance-related benefits, losses, and expenses are reported
net of reinsurance ceded.
Future policy benefit reserves for universal life insurance and annuity
products are computed under a retrospective deposit method and represent policy
account balances before applicable surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the period in
excess of related policy account balances. The weighted average interest
crediting rate for universal life products was 6.27 percent in 1996, 6.46
percent in 1995 and 6.44 percent in 1994. The weighted average interest
crediting rate for annuity products was 5.36 percent in 1996, 6.16 percent in
1995 and 6.41 percent in 1994.
PARTICIPATING POLICIES
Participating policies entitle the policyowners to receive dividends based
on actual interest, mortality, morbidity, and expense experience for the related
policies. These dividends are distributed to the policyowners through an annual
dividend using current dividend scales which are approved by the board of
directors. Nearly 100 percent of traditional life policies are currently paying
dividends and traditional life policies represent 67 percent of the Company's
individual life policies in force.
F-16
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated principally
under the straight-line method.
GUARANTY FUND ASSESSMENTS
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyowners and claimants in the event of insolvency of
other life insurance companies. As of December 31, 1996, the Company has accrued
for the gross amount of guaranty fund assessments for known insolvencies net of
estimated recoveries of premium tax offsets.
BENEFIT PLAN COSTS
The Company recognizes pension costs for its defined benefit plans in
accordance with SFAS 87, "Employers' Accounting for Pensions." Pension costs
are funded according to regulations provided under the Internal Revenue Code.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Under SFAS 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," the cost of postretirement benefits must be recognized on an
accrual basis as employees perform services to earn the benefits. The Company
adopted SFAS 106 as of January 1, 1993. Prior to 1993, the cost of retiree
health care and life insurance benefits was recognized as an expense when paid.
INCOME TAXES
The Company and its subsidiaries, with the exception of American Vanguard
Life, file a consolidated federal income tax return with the Non-Life Insurance
Subsidiaries. The separate return method is used to compute the Company's
provision for federal income taxes. Deferred income tax assets and liabilities
are determined based on differences among the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws.
F-17
<PAGE>
EMERGING ACCOUNTING MATTER
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 provides consistent accounting standards for securitizations and other
transfers of financial assets, determines when financial assets (liabilities)
should be considered sold (settled) and removed from the balance sheet, and
determines when related revenues and expenses should be recognized. FASB
Statement No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. This
statement will be applicable to the Company, however, management believes that
it will have no material effect on the Company's consolidated financial
statements.
BUSINESS RISKS
The Company operates in a business environment which is subject to various
risks and uncertainties. Such risks and uncertainties include interest rate
risk, legal and regulatory changes, and default risk.
Interest rate risk is the potential for interest rates to change, which can
cause fluctuations in the value of investments. To the extent that fluctuations
in interest rates cause the duration of assets and liabilities to differ, the
Company may have to sell assets prior to their maturity and realize losses.
Interest rate exposure for the investment portfolio is managed through
asset/liability management techniques which attempt to match the duration of the
assets with the estimated duration of the liabilities. The Company also utilizes
derivative investment contracts to manage interest rate risk.
The potential also exists for changes in the legal or regulatory
environment in which the Company operates, which can create additional costs and
expenses not anticipated by the Company in pricing its products. In other words,
regulatory initiatives or new legal theories may create costs for the Company
beyond those recorded in the financial statements. The Company mitigates this
risk by operating in a geographically diverse area, which reduces its exposure
to any single jurisdiction, closely monitoring the regulatory environment to
anticipate changes, and by using underwriting practices which identify and
minimize the potential adverse impact of this risk.
Default risk is the risk that issuers of securities owned by the Company
may default or that other parties, including reinsurers, may not be able to pay
amounts due the Company. The Company minimizes this risk by adhering to a
conservative investment strategy, holding a well diversified portfolio of assets
to minimize concentrations, maintaining sound reinsurance and credit and
collection policies, and providing allowances or reserves for any amounts deemed
uncollectible.
F-18
<PAGE>
EARNINGS PER COMMON SHARE
Earnings per share have been computed on a pro forma basis by giving
retroactive effect to the issuance of 18.16 million shares of Class A common
stock and 5 million shares of Class B common stock as if all such shares had
been issued at the beginning of the respective periods and by giving retroactive
effect to the Capital Contribution.
(2) INVESTMENTS
The Company's investments are classified as available-for-sale securities
and are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Amortized cost gains losses Fair value
-------------- ----- ------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities at
December 31, 1996:
Fixed maturity securities:
Corporate bonds $1,391,421 $60,164 $4,915 $1,446,670
U.S. government bonds 41,270 222 109 41,383
Foreign government bonds 20,114 1,638 78 21,674
Mortgage-backed bonds 819,264 22,751 2,054 839,961
Redeemable preferred stock 63,806 1,418 105 65,119
---------- ---------- ---------- ----------
$2,335,875 $86,193 $7,261 $2,414,807
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Equity securities $60,247 $3,832 $46 $64,033
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Short-term investments $13,288 $ - $ - $13,288
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Amortized cost gains losses Fair value
-------------- ----- ------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities at
December 31, 1995:
Fixed maturity securities:
Corporate bonds $1,977,567 $160,486 $6,208 $2,131,845
U.S. government bonds 65,513 1,652 - 67,165
Foreign government bonds 20,149 2,267 - 22,416
Mortgage-backed bonds 886,470 33,837 1,323 918,984
State and municipal bonds 1,550 136 - 1,686
---------- ---------- ---------- ----------
$2,951,249 $198,378 $7,531 $3,142,096
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Equity securities $52,869 $57,380 $574 $109,675
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Short-term investments $39,276 $77 $ - $39,353
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The amortized cost and estimated fair value of investments in fixed
maturity securities at December 31, 1996, are summarized by stated maturity as
follows:
<TABLE>
<CAPTION>
Available-for-sale
------------------
Amortized Cost Fair value
-------------- ----------
(In thousands)
<S> <C> <C>
Maturity:
Due in 1997 $ - $ -
Due in 1998 - 2002 322,422 335,656
Due in 2003 - 2007 680,096 709,488
Due after 2007 514,093 529,702
Mortgage-backed securities 819,264 839,961
---------- ----------
$2,335,875 $2,414,807
---------- ----------
---------- ----------
</TABLE>
The foregoing data is based on the stated maturities of the securities.
Actual maturities will differ for some securities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
F-20
<PAGE>
The ratings of the Company's fixed maturity securities at December 31,
1996, using Standard & Poor's rating service, are summarized as follows (in
thousands):
Treasuries and AAA $857,274
AA 61,530
A 573,959
BBB 696,776
BB 186,243
Less than BB 39,025
---------
$2,414,807
---------
---------
The Company's investment in non-income producing fixed maturity securities
and real estate was $.9 million as of December 31, 1996.
Major categories of investment income are summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $195,073 $231,208 $206,346
Equity securities 4,252 6,311 7,821
Mortgage loans on real estate 26,254 33,738 55,181
Real estate 6,891 9,729 9,907
Policy loans 9,426 14,043 12,745
Other 600 5,211 2,329
-------- -------- --------
Gross investment income 242,496 300,240 294,329
Investment expenses 12,612 14,996 18,638
-------- -------- --------
Net investment income $229,884 $285,244 $275,691
-------- -------- --------
-------- -------- --------
</TABLE>
Investment expenses include depreciation on real estate of $2.0 million,
$2.9 million and $2.0 million in the years ended December 31, 1996, 1995, and
1994, respectively.
F-21
<PAGE>
Realized gains and losses on investments and provisions for losses are
summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities:
Gross realized gains $21,088 $18,652 $10,879
Gross realized losses (13,331) (9,240) (36,423)
Equity securities:
Gross realized gains 55,646 45,419 14,746
Gross realized losses (451) (3,634) (5,181)
Other investments (998) 812 (2,744)
Net provision for (losses)recoveries-
mortgage loans on real estate 4,029 (622) (1,207)
-------- -------- --------
$65,983 $51,387 $(19,930)
-------- -------- --------
-------- -------- --------
</TABLE>
The unrealized appreciation (depreciation) on invested assets available for
sale is reported as a separate component of stockholder's equity, reduced by
adjustments to deferred acquisition costs and a provision for deferred income
taxes.
A summary of the components of the net unrealized appreciation
(depreciation) on invested assets carried at fair value is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Unrealized appreciation
(depreciation):
Fixed maturity securities $78,932 $190,847 $(97,217)
Equity securities 3,786 56,806 65,778
Short-term investments - 77 -
Other investments 3,263 6,335 (2,277)
Closed Block investments 18,002 - -
Deferred policy acquisition costs (51,476) (88,039) 56,102
Deferred income taxes (17,207) (57,312) (7,066)
-------- -------- --------
$35,300 $108,714 $15,320
-------- -------- --------
-------- -------- --------
</TABLE>
F-22
<PAGE>
The change in unrealized appreciation (depreciation) on fixed maturity
securities was ($112) million, $288 million and ($251) million for the years
ended December 31, 1996, 1995 and 1994, respectively; the corresponding amounts
for equity securities were ($53) million, ($9) million and ($21) million.
At December 31, 1996, investments in fixed maturity securities with a
carrying amount of $2.1 million were on deposit with state insurance departments
to satisfy regulatory requirements.
No investment in any person or its affiliates exceeded 10 percent of
stockholder's equity at December 31, 1996.
(3) MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate consist almost entirely of commercial
mortgage loan investments, substantially all of which are made on a full
recourse basis and consist primarily of fixed-rate first mortgages on completed
properties. The following table sets forth additions, reductions from payments,
and other charges and foreclosures related to the mortgage loan portfolio (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Commercial loans:
Beginning balance $379,414 $504,034
Additions 21,760 39,933
Payments and miscellaneous charges (113,764) (146,496)
Sales (47,234) -
Foreclosed properties (6,174) (18,057)
-------- --------
Ending balance 234,002 379,414
Residential and other mortgage loans 3,363 4,250
Valuation allowance (11,622) (30,067)
-------- --------
Total mortgage loans $225,743 $353,597
-------- --------
-------- --------
</TABLE>
The Company manages its credit risk associated with these loans by
diversifying its mortgage portfolio by property type and geographic location and
by seeking favorable loan to value ratios on secured properties. The portfolio
credit risk for mortgage loans was concentrated in the following geographic
regions (dollar amounts in thousands):
F-23
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1996 1995
--------------------- ---------------------
Number Amount Number Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Commercial:
California 20 $39,824 31 $69,946
Colorado 8 11,937 11 15,449
Florida 4 15,375 6 21,964
Iowa 48 66,808 56 95,837
Kansas 11 20,934 14 29,249
Texas 6 21,521 9 28,053
Washington 4 10,658 8 15,172
Other 42 46,945 77 103,744
Residential 69 3,363 95 4,250
Valuation allowance - (11,622) - (30,067)
-------- -------- -------- --------
212 $225,743 307 $353,597
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
At December 31, 1996, the company's investment in mortgage loans included
$25.1 million in loans that are considered to be impaired, for which the related
allowance for credit losses is $2.2 million. The average recorded investment in
impaired loans during the year ended December 31, 1996, was $51.2 million. For
the year ended December 31, 1996, the Company recorded $2.2 million in interest
income on those impaired loans.
No mortgage loan on any one individual property exceeded $14 million at
December 31, 1996.
Provisions for losses are summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $30,067 $65,549 $80,220
Provisions for losses - mortgage loans (4,029) 622 1,207
Provision on mortgages sold/transferred
to real estate (14,416) (36,104) (15,878)
------- ------- -------
Net decrease for year (18,445) (35,482) (14,671)
------- ------- -------
Balance at end of year $11,622 $30,067 $65,549
------- ------- -------
------- ------- -------
</TABLE>
F-24
<PAGE>
(4) DEFERRED POLICY ACQUISITION COSTS
A summary of the policy acquisition costs deferred and amortized are as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $355,750 $348,259 $336,577
Deferred policy acquisition costs
associated with Closed Block
policies at formation of Closed Block (193,647) - -
Policy acquisition costs deferred 50,014 57,730 54,438
Policy acquisition costs amortized (40,160) (50,239) (42,756)
-------- -------- --------
171,957 355,750 348,259
Unrealized (gain) loss on
available-for-sale securities (51,476) (88,039) 56,102
-------- -------- --------
Balance at end of year $120,481 $267,711 $404,361
-------- -------- --------
-------- -------- --------
</TABLE>
The components of the deferred policy acquisition costs are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Universal life insurance and
annuity products $156,578 $203,949 $197,256
Participating traditional
life insurance 13,419 131,602 131,500
Non-participating traditional
life insurance 1,960 20,199 19,503
-------- -------- --------
$171,957 $355,750 $348,259
Unrealized (gain) loss on
available-for-sale securities (51,476) (88,039) 56,102
-------- -------- --------
$120,481 $267,711 $404,361
-------- -------- --------
-------- -------- --------
</TABLE>
Commissions represent approximately 85 percent of policy acquisition costs
deferred.
F-25
<PAGE>
(5) DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
The Iowa Housing Finance Authority variable rate
demand Multi-Family Housing Bond Series 1985-A $ - $8,813
Federal Home Loan Bank community investment
long-term advances with a weighted average
interest rate of 6.26% at December 31, 1996
maturing at various dates through July 2010(A) 13,381 11,765
Class A certificate holders of 1988-1 REMIC - 15,883
Bank Credit Facility (B):
Term loan bearing interest at 6.50% 100,000 -
Revolving credit loan bearing interest at 6.475% 75,000 -
-------- --------
$188,381 $36,461
-------- --------
-------- --------
</TABLE>
(A) The Company has multiple credit arrangements with the Federal Home Loan
Bank (FHLB). In addition to the long-term advances disclosed above, the
Company has a $25 million open secured line of credit and periodically,
the Company borrows amounts under repurchase agreements, of which no amount
was outstanding under either type of facility at December 31, 1996. The
carrying value of the securities pledged to the FHLB under all agreements
was $27.2 million at December 31, 1996.
(B) The Bank Credit Facility consists of both a term loan and a revolving
credit loan. The term loan agreement provides for a mandatory prepayment
of $50 million from the proceeds of a common or preferred offering and
regular semi-annual payments of $5 million commencing in June 1997. The
revolving credit loan provides for a maximum borrowing of $75 million with
the balance maturing in December 2001. The interest rate for both loans is
variable, however, the Company may elect to fix the rate for periods from
30 days to six months. The Bank Credit Facility contains various financial
and operating covenants which among other things limit future indebtedness
and restrict the amount of future dividend payments. In addition, the
Company has pledged 49.9% of the stock of AmerUs Life and a $50 million
note payable to the Company by AmerUs Life.
F-26
<PAGE>
Maturities of long-term debt are as follows for each of the five years
ending December 31:
(In thousands)
--------------
Year ending December 31:
1997 $60,230
1998 10,245
1999 10,262
2000 10,279
2001 85,297
Thereafter 12,068
--------
$188,381
--------
--------
Interest paid totaled $2.2 million, $2.4 million, and $5.4 million in the
years ended December 31, 1996, 1995, and 1994, respectively.
(6) FEDERAL INCOME TAXES
Comprehensive federal income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income tax expense on:
Operations $43,859 $41,202 $19,464
Unrealized holding gains (losses) on
available-for-sale securities (40,105) 50,246 48,063
------- ------- -------
$3,754 $91,448 $67,527
------- ------- -------
------- ------- -------
</TABLE>
The effective income tax rate on pre-tax income is higher than the
prevailing corporate federal income tax rate and is summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Corporate federal income tax rate 35.00% 35.00% 35.00%
Differential earnings amount 3.78 - 36.68
Tax-exempt investment income (.20) (.24) (1.66)
Reorganization expenses .30 .48 2.29
Other items, net (1.72) 2.03 2.18
----- ----- -----
Effective tax rate 37.16% 37.27% 74.49%
----- ----- -----
----- ----- -----
</TABLE>
F-27
<PAGE>
The differential earnings amount is an equity add-on tax which mutual life
insurance companies are required to pay. The amount is determined annually and
is calculated by comparing the earnings rate of mutual life insurance companies
and certain stock life insurance companies. In certain years, such as 1993 and
1995, the calculations have resulted in negative adjustments with no additional
tax amount to be paid.
The Company's federal income tax expense (benefit) is summarized as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current $51,849 $44,307 $16,862
Deferred (7,990) (3,105) 2,602
------- ------- -------
Total federal income tax expense $43,859 $41,202 $19,464
------- ------- -------
------- ------- -------
</TABLE>
The significant components of net deferred income tax liabilities are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Deferred income tax assets:
Policy reserves and policyholder funds $99,137 $106,813
Policy acquisition costs capitalized for tax 29,771 26,588
Deferred policy acquisition costs
related to unrealized appreciation 18,017 30,813
Deferred compensation 12,928 10,134
Other 18,651 23,344
-------- --------
Total gross deferred income tax asset 178,504 197,692
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs (120,585) (124,513)
Net unrealized appreciation on
available-for-sale securities (36,394) (88,922)
Reinsurance receivable (14,686) (23,403)
Other (8,176) (9,477)
-------- --------
Total gross deferred tax liability (179,841) (246,315)
-------- --------
Net deferred income tax liability $(1,337) $(48,623)
-------- --------
-------- --------
</TABLE>
F-28
<PAGE>
The Company is required to establish a "valuation allowance" for any
portion of the deferred tax asset that management believes will not be realized.
In the opinion of management, it is more likely than not that it will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.
During 1996, the Company transferred $0.8 million in deferred tax
liabilities related to assets contributed in the Capital Contribution.
Federal Income tax returns for the Company for years through 1989 are
closed to further assessment of taxes. The Internal Revenue Service is
examining federal income tax returns of the Company for 1990 through 1992.
Management believes adequate provisions have been made for any additional taxes
which may become due with respect to open years.
Income taxes paid by the Company totaled $45.4 million, $51.9 million and
$14.6 million in the years ended December 31, 1996, 1995 and 1994, respectively.
(7) DEFINED BENEFIT PENSION PLANS
The Company has defined benefit pension plans which cover substantially all
of the Company's employees, as well as employees of certain affiliated
companies. The plans provide for benefits based upon years of service and the
employee's compensation. Information for the Company's portion of the plans'
funded status is not available. The Company has frozen the defined benefit
pension plans effective December 31, 1995, and has recognized its portion of a
curtailment gain amounting to $6.2 million, or $3.1 million after federal excise
taxes, as other revenues in 1995. Effective January 1, 1996, the defined benefit
pension plans have been replaced by a defined contribution savings and
retirement plan which also replaces the Company's defined contribution pension
plans. The following information presents the plans' funded status and pension
cost as of December 31, 1996, and December 31, 1995 (1995 is prior to
revaluation for curtailment of the plans):
F-29
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$44,505, and $45,505 in 1996 and 1995, respectively $(44,505) $(45,505)
--------- ---------
--------- ---------
Projected benefit obligation for service rendered
to date-includes effect of increase in
compensation levels $(44,505) $(45,505)
Plans' assets at fair value, primarily consisting
of mutual funds and certificates of deposit 53,638 52,592
--------- ---------
Plans' assets in excess of projected benefit obligations 9,133 7,087
Unrecognized (gain) loss from actual experience
difference from assumed and effects of changes
in assumptions (1,001) (2,745)
Unrecognized prior service cost (205) -
Net unrecognized transition asset (891) -
--------- ---------
Prepaid pension cost $7,036 $4,342
--------- ---------
--------- ---------
Weighted average discount rate 7.25% 7.25%
--------- ---------
--------- ---------
Rate of increase in future compensation levels n/a 5.50%
--------- ---------
--------- ---------
Expected long-term rate of return on assets 8.00% 8.00%
--------- ---------
--------- ---------
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost-benefits earned during year $ - $1,768 $2,325
Interest cost on projected benefit obligation 3,101 3,609 3,282
Actual return on plan assets (4,281) (3,729) (3,632)
Net amortization and deferral (90) (114) (37)
Special termination benefits due to early retirement - - 1,597
------- ------- -------
Defined benefit pension cost (benefit) $(1,270) $1,534 $3,535
------- ------- -------
------- ------- -------
Company's portion of net pension cost (benefit) $(954) $696 $2,578
------- ------- -------
------- ------- -------
</TABLE>
During 1993, the Company offered an early retirement plan to qualifying
employees based on age and years of service. The Company's portion of the loss
recognized for the years ending December 31, 1994, from the curtailment and
special termination benefits for the plan was approximately $1.6 million.
DEFINED CONTRIBUTION PENSION PLANS
The Company has three defined contribution 401(k) plans which cover
substantially all employees. The Company's total contribution under the plans
amounted to $0.4 million and $0.6 million in the years ended December 31,
1995, and 1994, respectively. Effective January 1, 1996, the defined
contribution 401(k) plans together with the defined benefit pension plans
were replaced by a single defined contribution savings and retirement plan to
which total contributions from the Company amounted to $2.4 million in 1996.
NONQUALIFIED PENSION PLAN
The Company also has a nonqualified pension plan covering substantially all
of its career and general agents. Accumulated benefits of the plan are unfunded
and have been included in other liabilities at December 31, 1996, and
December 31, 1995, amounting to $13.9 million, and $13.6 million, respectively.
F-31
<PAGE>
POSTRETIREMENT PLANS
The Company has postretirement benefit plans to provide certain eligible
participants and dependents with certain medical, dental, and life insurance
benefits. The Company's plan for medical and life insurance benefits is
combined with that of the subsidiaries of AMHC. Information for the Company's
individual funded status for 1996 and 1995 is not available. The following
information is presented on a combined plan basis accompanied by the Company's
portion of the net periodic postretirement benefit expense and sets forth the
combined postretirement benefit plans' funded status:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Fully eligible active plan participants $ 811 $ 491
Other active plan participants 1,727 1,716
Retirees 6,056 6,121
------ ------
Accumulated postretirement benefit obligation 8,594 8,328
Unrecognized prior service cost (989) (27)
Unrecognized (loss) gain 1,245 (167)
------ ------
Accrued postretirement benefit cost $8,850 $8,134
------ ------
------ ------
</TABLE>
Net periodic postretirement benefit expense included the following components:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost $ 409 $248 $268
Interest cost 572 586 521
Net amortization and deferral 57 5 19
Curtailment and special termination benefits - - -
------ ------ ------
Net periodic postretirement benefit expense $1,038 $839 $808
------ ------ ------
------ ------ ------
Company's portion of net periodic postretirement
benefit expense $612 $639 $426
------ ------ ------
------ ------ ------
</TABLE>
F-32
<PAGE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) for the medical and
dental plan is approximately 8.50 percent, 9.00 percent, and 9.50 percent for
1996, 1995, and 1994, respectively, and is assumed to decrease gradually to 5.00
percent over seven years and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported. For
example, increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation for the medical plan as of December 31, 1995 by 7.70 percent and the
aggregate of the service and interest cost components of net periodic
postretirement benefit expense for 1995 and 1994, by $.06 million and
$.02 million, respectively, on a combined basis. As of January 1, 1996 the plan
was changed to provide a fixed monthly benefit for medical benefits;
accordingly, information for the health care cost trend rate is not applicable
for the year ended December 31, 1996. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.25 percent,
7.25 percent and 8.00 percent, as of December 31, 1996, 1995 and 1994,
respectively.
F-33
<PAGE>
(8) RELATED PARTY TRANSACTIONS
As discussed in note 1, the Company made a Capital Contribution of $79
million to the Non-Life Insurance Subsidiaries and effected the Distribution of
the Company's Non-Life Insurance Subsidiaries to AmerUs Group in 1996.
The following summarizes transactions of the Company with affiliates:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Dividend to AMHC $4,158 $41,156 $4,962
Management, administrative, data
processing, rent and other services
fee income from affiliates 7,640 10,423 10,362
Commissions paid to affiliates for the
sale of insurance products 521 1,259 2,200
Interest income from financings of
affiliates 6,794 6,000 4,890
Investments in bonds and accrued
interest in Lartnec and subsidiaries
as of December 31 7,648 12,868 17,242
Contribution of joint venture interests
and sale of partnership interests to
partnerships in which an affiliate has
an interest 1,638 10,957 -
Purchase of limited partnership interest
in which an affiliate has an interest 2,160 - -
Investments in partnerships and joint
ventures in which an affiliate has an
interest 18,557 9,625 4,870
Purchase of investments backed by the
assets of a trust which acquired loans
from an affiliate 46,755 - -
Investments in mortgage loans from affiliated
companies and joint ventures 62,372 63,977 84,344
Payable to an affiliate for purchase of
commercial mortgage loans at December 31 - 6,520 -
Transfer of partnership interests in
certain joint ventures to an affiliate - 1,697 -
Real estate management and mortgage servicing
fees charged by an affiliate 2,528 2,555 1,301
</TABLE>
F-34
<PAGE>
(9) REINSURANCE
At December 31, 1996, the Company's maximum retention limit for acceptance
of risk on life insurance was $1 million. The retention limit for certain
policies issued prior to July 1, 1985, was $125,000 and for certain policies
issued after June 30, 1985, and before December 1, 1994, was $250,000. There are
reinsurance agreements with various companies whereby insurance in excess of
these retention limits are reinsured. Insurance in-force ceded to nonaffiliated
companies under risk sharing arrangements at December 31, 1996, 1995 and 1994,
totaled approximately $4,170 million, $3,814 million and $3,265 million,
respectively.
Total life premiums ceded amounted to $14.8 million, $14.2 million and
$13.7 million for the years ended December 31, 1996, 1995, and 1994,
respectively. Total life premiums assumed amounted to $1.5 million, $4.9 million
and $7.9 million, respectively.
To the extent that reinsuring companies are unable to meet obligations
under these agreements, the Company remains liable. To limit the possibility of
such losses, the Company evaluates the financial condition of its reinsurers and
monitors concentration of credit risk.
(10) COMMITMENTS AND CONTINGENCIES
The Non-Life Insurance Subsidiaries had various credit lines and
arrangements totaling $85 million at December 31, 1996. Approximately
$62 million was outstanding under these agreements at December 31, 1996, which
were collateralized by Company investments of approximately $88 million.
Subsequent to December 31, 1996, the Company's collateral was released.
The Company has agreed to make loans to newly formed partnerships, of which
$26,600,000 was outstanding as of December 31, 1996.
The Company guarantees the payment of 60 percent of a pool of mortgage
loans and the related interest, previously sold to an unrelated party. The
outstanding balance of such mortgage loans subject to this repayment guarantee
at December 31, 1996, was approximately $10 million.
The Company is party to financial instruments in the normal course of
business to meet the financing needs of its customers having risk exposure not
reflected in the balance sheet. These financial instruments include commitments
to extend credit 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
F-35
<PAGE>
requirements. At December 31, 1996, outstanding commitments to extend credit
totaled approximately $15.5 million.
AmerUs Life is a defendant in a class action lawsuit which was brought on
August 31, 1995 in the District Court for Travis County, Texas. The complaint,
which seeks unspecified damages, was filed by former policyowners on behalf of
themselves and all similarly situated persons who purchased certain individual
life insurance policies which were underwritten and sold by AmerUs Life within
Texas from and after 1980. The complaint alleges that sales presentations and
policy illustrations misrepresented that premiums would "vanish" after a stated
number of years, without adequate disclosure of the effect of changes in the
policy dividends. AmerUs Life has denied the allegations contained in such
complaint and denies any wrongdoing in connection with such allegations. The
parties have engaged in discovery, but a hearing on certification of the class
has not yet been held.
The parties are engaged in a court-initiated mediation process in the Texas
litigation and, in light of the uncertainties, hazards and expenses of
litigation, have discussed a number of different settlement approaches,
including a nationwide class settlement of certain market conduct issues for a
substantial block of the Company's traditional whole life policies. Progress in
negotiating such a class settlement appears to have been made, but certain
issues remain unresolved and no definitive agreement has been reached. Even if
such an agreement were reached, the court would have to approve its terms.
Should a settlement satisfactory to the Company not be reached or not be
approved, the Company would continue to vigorously defend against the claims
asserted, including the existence of a legitimate class.
Due to the potential that a settlement may be reached in this case, the
Company has incurred a significant charge to income for 1996. Based upon its
current estimates of the range of loss at between five and eight million
dollars, the Company has established a reserve of five million dollars. The
eventual costs of any settlement cannot be precisely determined at this time,
and may be more or less than the amount of the range.
A class action lawsuit was filed in June 1996 in the United States District
Court for the Northern District of California. The complaint alleges that
AmerUs Life breached the terms of certain life and annuity policies, and
breached certain other duties owed to policyowners, when it allegedly passed an
increase in its corporate income taxes (known as the deferred acquisition cost,
or DAC, tax) through to owners of those policies. The Plaintiff, an insured
under a universal life policy issued by Central Life, seeks unspecified actual
and punitive damages and injunctive relief on behalf of himself and all
policyowners of AmerUs Life with universal life, term and "blended" life
insurance policies and annuities. The plaintiff has recently filed a second
complaint in the same court, based upon the same facts but adding RICO
allegations to those made in the original
F-36
<PAGE>
lawsuit. AmerUs Life denies the allegations contained in both complaints,
including the existence of a legitimate class. The litigation is in the early
discovery stage and is being vigorously defended by AmerUs Life. A hearing on
certification of the class has not yet been scheduled.
Despite the Company's vigorous defense of these class action lawsuits and
its denial of any wrongdoing, there can be no assurance that the outcome of such
lawsuits will not have a material adverse effect on the life insurance industry
generally or on the Company. In the ordinary course of business, the Company
and its subsidiaries are also engaged in certain other litigation, none of which
management believes is material.
(11) STOCKHOLDER'S EQUITY
Generally, the stockholder's equity of the Company's insurance subsidiaries
available for distribution to the Company are limited to the amounts that the
insurance subsidiaries' net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements; however,
payments of such amounts as dividends may be subject to approval by regulatory
authorities. In 1997, the Company's insurance subsidiaries could distribute
approximately $34 million in the form of dividends to the Company without prior
approval of such regulatory authorities. However, as a result of the
distribution and capital contribution, the Company will not be able to pay
additional dividends in the 12-month period following the Distribution of the
Non-Life Insurance Subsidiaries without the prior approval of the Iowa
Commissioner.
The Company made additional contributions to the Non-Life Insurance
Subsidiaries amounting to $4.2 million, $41.2 million, and $5.0 million, in the
years ended December 31, 1996, 1995, and 1994, respectively, which have been
considered dividends to AMHC as a result of the Distribution.
(12) STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries' statutory net income was
$62.4 million, $59.9 million, and $20.3 million in the years ended December 31,
1996, 1995, and 1994, respectively.
The Company's insurance subsidiaries' statutory surplus and capital was
$283.0 million, and $276.3 million at December 31, 1996 and 1995,
respectively.
F-37
<PAGE>
The Company's insurance subsidiaries are domiciled in Iowa and prepare
their statutory-basis financial statements in accordance with accounting
practices prescribed or permitted by the Iowa Department of Commerce (Iowa
Department). Prescribed statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners (NAIC).
Permitted statutory accounting practices encompass all accounting practices that
are not prescribed; such practices may differ from state to state, may differ
from company to company within a state, and may change in the future. The NAIC
currently is in the process of codifying statutory accounting practices, the
result of which is expected to constitute the only source of prescribed
statutory accounting practices. Accordingly, that project, which is expected to
be completed in 1997, will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices that
insurance enterprises use to prepare their statutory financial statements.
The Company does not utilize any permitted practices in the preparation of
its statutory-basis financial statements which would have a material impact on
statutory surplus.
The Iowa Department imposes minimum risk-based capital requirements on
insurance enterprises that were developed by the National Association of
Insurance Commissioners (NAIC). The formulas for determining the amount of
risk-based capital (RBC) specify various weighting factors that are applied to
financial balances or various levels of activity based on the perceived degree
of risk. Regulatory compliance is determined by a ratio (the Ratio) of the
enterprise's regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level, RBC, as defined by the NAIC. Enterprises below
specific trigger points or ratios are classified within certain levels, each of
which requires specified corrective action.
AmerUs Life has a Ratio that is at least 700 percent of the authorized
control level RBC requirements; accordingly, AmerUs Life exceeds the RBC
requirements.
(13) FINANCIAL INSTRUMENTS
The Company utilizes a variety of off-balance-sheet financial instruments
as part of its efforts to hedge and manage fluctuations in the market value of
its portfolio of available-for-sale securities, attributable to changes in
general interest rate levels, and to manage duration mismatch of assets and
liabilities. Those instruments include interest rate exchange agreements (swaps,
caps and swaptions) and involve elements of credit and market risks in excess of
the amounts recognized in the accompanying financial statements at a given point
in time. The contract or notional amounts of those instruments reflect the
extent of involvement in the various types of financial instruments.
F-38
<PAGE>
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the counterparty defaults
after the Company has delivered funds or securities under terms of the contract)
that would result in an accounting loss and replacement cost risk (i.e., the
cost to replace the contract at current market rates should the counterparty
default prior to settlement date). To limit exposure associated with
counterparty nonperformance on interest rate exchange agreements, the Company
enters into master netting agreements with its counterparties.
The credit risk on all financial instruments, whether on or off the balance
sheet, is controlled through an on-going credit review, approval, and monitoring
process. The Company determines, on an individual counterparty basis, the need
for collateral or other security to support financial instruments with credit
risk and establishes individual and aggregate counterparty exposure limits.
The Company's outstanding derivative positions shown in notional or
contract amounts, along with their carrying value and estimated fair values, are
summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------
Notional Carrying Fair
amount value value
------ ----- -----
(In thousands)
<S> <C> <C> <C>
Interest rate caps $500,000 $4,056 $3,269
Swaptions 255,000 5,102 4,793
Received fixed 150,000 6,516 6,516
-------- -------- --------
Pay fixed 75,000 (621) (621)
-------- -------- --------
$980,000 $15,053 $13,957
-------- -------- --------
-------- -------- --------
December 31, 1995
--------------------------------------
Notional Carrying Fair
amount value value
------ ----- -----
(In thousands)
Interest rate caps $450,000 $4,112 $4,110
Received fixed 150,000 11,887 11,887
Pay fixed 150,000 (3,392) (3,392)
-------- -------- --------
$750,000 $12,607 $12,605
-------- -------- --------
-------- -------- --------
</TABLE>
INTEREST RATE EXCHANGE AGREEMENTS
The Company enters into interest rate exchange agreements to reduce and
manage interest rate risk associated with individual assets and liabilities and
its overall aggregate portfolio. The interest rate swap agreements, which expire
between 1999 and 2001, generally involve the exchange of fixed and floating rate
interest payments, without an exchange of the underlying principal. The interest
rate cap agreements, which expire between 1997 and 2001, involve the
F-39
<PAGE>
payment of a maximum fixed interest rate when an indexed rate exceeds that fixed
rate. Swaption agreements, which expire between 1999 and 2002, involve the right
to enter into a swap transaction at a pre-specified price. These agreements are
used in conjunction with interest rate caps to protect against rising rates. The
amounts to be received or paid pursuant to those agreements are accrued and
recognized in the accompanying consolidated statements of income through an
adjustment to investment income over the life of the agreements. The net effect
on income from amortization and interest paid or received was an increase of
$0.9 million and $1.5 million for the years ended December 31, 1996 and 1995,
respectively. There were no material effects in 1994. Gains or losses realized
on closed or terminated agreements accounted for as hedges are deferred and
amortized to investment income on a constant yield basis over the shorter of the
life of the agreements or the expected remaining life of the underlying assets
or liabilities.
The following table shows unrealized gains and losses on derivative positions.
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------
Net
Total unrealized
notional Unrealized Unrealized gains
value gains losses (losses)
----- ----- ------ --------
(In thousands)
<S> <C> <C> <C> <C>
Received fixed $150,000 $4,744 $ - $4,744
Pay fixed 75,000 - 62 (62)
Interest rate caps 500,000 - 1,566 (1,566)
Swaptions 255,000 - - -
-------- -------- -------- --------
$980,000 $4,744 $1,628 $3,116
-------- -------- -------- --------
-------- -------- -------- --------
December 31, 1995
-----------------------------------------------------
Net
Total unrealized
notional Unrealized Unrealized gains
value gains losses (losses)
----- ----- ------ --------
(In thousands)
Received fixed $150,000 $11,887 $ - $11,887
Pay fixed 150,000 - 3,392 (3,392)
Interest rate caps 450,000 183 2,518 (2,335)
-------- -------- -------- --------
$750,000 $12,070 $5,910 $6,160
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by
counterparties
F-40
<PAGE>
on interest rate cap and interest rate swap agreements. The Company does not
anticipate nonperformance by any of these counterparties. The credit risk
associated with such agreements is minimized by purchasing such agreements from
financial institutions with long-standing, superior performance records. The
amount of such exposure is essentially their replacement cost, which is
approximated by the unrealized gains in such contracts.
The Company has no current exposure to the counterparty when a contract
contains an unrealized loss.
MATURITY SCHEDULE BY YEAR FOR DERIVATIVE PRODUCTS
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Received fixed swaps:
Notional amount (in thousands) $150,000
Weighted average:
Receive rate 7.86% 7.86% 7.86%
Pay rate (A) 5.58% 5.58% 5.58%
Pay fixed swaps:
Notional amount (in thousands) $75,000
Weighted average:
Receive rate(A) 5.50% 5.50% 5.50% 5.50% 5.50%
Pay rate 6.63% 6.63% 6.63% 6.63% 6.63%
Total weighted average rates on swaps:
Receive rate 7.07% 7.07% 7.07% 5.50% 5.50%
Pay rate 5.93% 5.93% 5.93% 6.63% 6.63%
Interest rate caps
Notional amount (in thousands) $25,000 $125,000 $300,000 $50,000
Swaptions
Notional amount (in thousands) $50,000 $105,000 $100,000
Total notional value of swaps, caps and
swaptions (in thousands) $25,000 $325,000 $300,000 $230,000 $100,000
</TABLE>
- ---------------
(A) The actual variable rates in the agreements are based on three-month LIBOR,
and the table assumes that such rates will remain constant at December 31,
1996 levels. To the extent that actual rates change, the variable interest
rate information will change accordingly.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Values of Financial Instruments,"
requires disclosures of fair value information about financial instruments,
whether recognized or not recognized in a company's balance sheet, for which it
is practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using discounted cash flow or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rates and estimates of the amount and
timing of future cash flows. SFAS
F-41
<PAGE>
107 excludes certain insurance liabilities and other non-financial instruments
from its disclosure requirements. The fair value amounts presented herein do not
include an amount for the value associated with customer or agent relationships,
the expected interest margin (interest earnings over interest credited) to be
earned in the future on investment-type products, or other intangible items.
Accordingly, the aggregate fair value amounts presented herein do not
necessarily represent the underlying value of the Company; likewise, care should
be exercised in deriving conclusions about the Company's business or financial
condition based on the fair value information presented herein.
The Company closely monitors the level of its insurance liabilities, the
level of interest rates credited to its interest sensitive products, and the
assumed interest margin provided for within the pricing structure of its other
products. Those amounts are taken into consideration in the Company's overall
management of interest rate risk that attempts to minimize exposure to changing
interest rates through the matching of investment maturities with amounts
expected to be due under insurance contracts. As such, the Company believes that
it has reduced the volatility inherent in its fair value adjusted policyowners'
equity, although such volatility will not be reduced completely. The Company has
used discount rates in the determination of fair values for its liabilities that
are consistent with market yields for related assets. The use of the asset
market yield is consistent with management's opinion that the risks inherent in
the Company's asset and liability portfolios are similar, and the fact that fair
values for both assets and liabilities generally will react in much the same
manner during periods of interest rate changes. However, that assumption might
not result in fair values that are consistent with values obtained through an
actuarial appraisal of the Company's business or values that might arise in a
negotiated transaction.
The following presentation reflects fair values for those instruments
specifically covered by SFAS 107, along with fair value amounts for those
traditional insurance liabilities for which disclosure is permitted but not
required; the fair values for all other assets and liabilities have been
reported at their carrying amounts.
VALUATION METHODS AND ASSUMPTIONS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, short-term investments, policy loans, accrued investment income: the
carrying amounts for these instruments approximate their fair values.
F-42
<PAGE>
Fixed maturities and equity securities: fair values for bonds are based on
quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate applicable to
the yield, credit quality, and maturity of the investments. The fair values for
preferred and common stocks are based on quoted market prices.
Mortgage loans on real estate: for all performing fixed interest rate loans,
the estimated net cash flows to maturity were discounted to derive an estimated
market value. The discount rate used was based on the individual loan's
remaining weighted average life and a basis point spread based on the market
conditions for the type of loan and credit quality. These spreads were over the
December 31, 1996, United States treasury yield curve. Performing variable rate
commercial loans and residential loans were valued at the current outstanding
balance. Loans which have been restructured, are in foreclosure, are
significantly delinquent, or are to affiliates were valued primarily at the
lower of the estimated net cash flows to maturity discounted at a market rate of
interest or the current outstanding principal balance.
Hedging instruments: fair values for derivative securities are based on pricing
models or formulas using current assumptions and are classified as other assets
or other liabilities.
Policy reserves: fair values of the Company's liabilities under contracts not
involving significant mortality or morbidity risks (principally, annuities) are
stated at the cost the Company would incur to extinguish the liability; i.e.,
the cash surrender value.
Debt: fair values for debt are estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rate for similar types of
borrowing arrangements.
The carrying amounts of other financial assets, dividends payable to
policyowners, and policy reserves including significant mortality or morbidity
risks approximate their fair values.
F-43
<PAGE>
The estimated fair values of the Company's significant financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1996 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Securities available-for-sale:
Fixed maturity $2,414,807 $2,414,807 $3,142,096 $3,142,096
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Equity securities $64,033 $64,033 $109,675 $109,675
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Short-term investments $13,288 $13,288 $39,353 $39,353
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Mortgage loans on real estate $225,743 $231,337 $353,597 $369,706
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Interest rate swaps:
Net receivable position $6,516 $6,516 $11,887 $11,887
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net payable position $(621) $(621) $(3,392) $(3,392)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Interest rate caps $6,200 $3,269 $6,445 $4,110
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Swaptions $5,102 $4,793 $- $-
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Financial liabilities-policy
reserves for annuities $1,460,118 $1,428,141 $1,524,801 $1,493,847
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Debt $188,381 $188,381 $36,461 $36,461
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(15) SUBSEQUENT EVENTS
As mentioned previously, the Company successfully completed its initial
public offering of its Class A common stock in February 1997 with the sale of
3,655,989 shares for gross proceeds of $56.7 million. In addition, the Company
sold $86 million of 8.85% Capital Securities due February 1, 2027.
F-44
<PAGE>
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
SCHEDULE PAGE
- -------- ----
Independent Auditors' Report on Schedules. . . . . . . . . . . . . . . .S-2
I Summary of Investments - Other than Investments
in Related Parties. . . . . . . . . . . . . . . . . . . . . . . . .S-3
II Condensed Financial Information of Registrant . . . . .S-4 through S-7
III Supplementary Insurance Information . . . . . . . . . . . . . . . .S-8
IV Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-9
V Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . S-10
All other schedules are omitted for the reason that they are not required,
amounts are not sufficient to require submission of the schedule, or that the
equivalent information has been included in the consolidated financial
statements, and notes thereto.
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
The Board of Directors
AmerUs Life Holdings, Inc.:
Under date of February 10, 1997, we reported on the consolidated balance
sheets of AmerUs Life Holdings, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, as contained in Part II, Item 8 of the annual report on Form
10-K for the year 1996.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As reported in note 1 to the consolidated financial statements, the Company
implemented the provisions of the Statement of Financial Accounting Standards
(SFAS) No. 120, "Accounting and Reporting by Mutual Life Insurance Enterprises
and by Insurance Enterprises for Certain Long-Duration Participating Contracts."
Also, as discussed in note 1 to the consolidated financial statements, the
Company has restated its consolidated financial statements to reflect the spin-
off of a wholly owned subsidiary, which resulted in a change in the subsidiaries
comprising the consolidated financial statements.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 10, 1997
S-2
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS
<TABLE>
<CAPTION>
Amount at
which
Amortized Market Shown in the
Type of Investment Cost Value Balance Sheet
------------------ ---- ----- -------------
(Amounts in thousands)
<S> <C> <C> <C>
December 31, 1996
Fixed Maturities:
Bonds
United States Government and government
agencies and authorities $522,893 $537,305 $537,305
Foreign governments 20,114 21,674 21,674
Public utilities 232,546 243,102 243,102
All other corporate bonds 1,496,516 1,547,607 1,547,607
Redeemable preferred stock 63,806 65,119 65,119
---------- ---------- ----------
Total fixed maturities $2,335,875 $2,414,807 $2,414,807
Equity securities:
Common stocks
Banks, trust and insurance companies $33,956 $35,707 $35,707
Industrial, miscellaneous and all other 189 1,357 1,357
Nonredeemable preferred stocks 26,102 26,969 26,969
------- ------- -------
Total equity securities $60,247 $64,033 $64,033
------- ------- -------
Mortgage loans on real estate $225,743 $225,743
Real estate 4,561 4,561
Policy loans 65,183 65,183
Other long-term investments 114,037 114,037
Short-term investments 13,288 13,288
---------- ----------
Total investments $2,818,934 $2,901,652
---------- ----------
---------- ----------
</TABLE>
S-3
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(PARENT COMPANY)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
Assets
------
Investments in subsidiaries, at equity $582,451
Other investments 50,000
Cash 80
Accrued Investment income 259
Other assets 2,743
--------
Total assets $635,533
--------
--------
Liabilities and Stockholder's Equity
------------------------------------
Liabilities:
Accrued expenses $580
Deferred income taxes 32
Other liabilities 2,411
Debt 175,000
-------
Total liabilities 178,023
-------
Stockholder's equity:
Preferred stock, no par value,
20,000,000 shares authorized,
none issued -
Common stock, Class A, no par value,
75,000,000 shares authorized,
14,500,000 shares issued and outstanding 14,500
Common stock, Class B, no par value,
50,000,000 shares authorized,
5,000,000 shares issued and outstanding 5,000
Retained earnings 438,010
--------
Total stockholder's equity 457,510
--------
Total liabilities and stockholder's equity $635,533
--------
--------
See accompanying notes to condensed financial statements.
S-4
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSOLIDATED STATEMENT OF INCOME
(PARENT COMPANY)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
Revenues:
Equity in undistributed earnings of subsidiaries $74,114
Net investment income 259
Other income 1,000
-------
75,373
Operating expenses 1,168
-----
Income before income tax expense 74,205
Income tax expense 32
-------
Net income $74,173
-------
-------
See accompanying notes to condensed financial statements.
S-5
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE STATEMENT OF CASH FLOWS
(Parent Company)
December 31, 1996
(Dollars in thousands)
Cash flows from operating activities:
Net income $74,173
Adjustments to reconcile net income to net cash provided
by operating activities Equity in undistributed earnings (74,114)
Change in:
Accrued investment income (259)
Income taxes 32
Other, net 248
----------
Net cash used by operating activities 80
----------
Cash flows from investing activities:
Purchase of other investments (50,000)
----------
Net cash used in investing activities (50,000)
----------
Cash flows from financing activities:
Change in debt, net 175,000
Capital contribution to subsidiaries (125,000)
Net cash provided by financing activities 50,000
----------
Net increase in cash 80
Cash at beginning of period -
----------
Cash at end of period $ 80
----------
----------
See notes to accompanying condensed financial statements.
S-6
<PAGE>
AMERUS LIFE HOLDINGS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
AmerUs Life Holdings, Inc. (the "Company") is the parent company of its
primary subsidiary, AmerUs Life Insurance Company ("AmerUs Life"). The
Company's investment in its subsidiaries is stated at cost plus equity in
undistributed earnings of the subsidiaries. The Company's share of net income
of its unconsolidated subsidiaries is included in income using the equity
method. These financial statements should be read in conjunction with AmerUs
Life Holdings, Inc. consolidated financial statements.
(2) DEBT
Debt consists of the following (in thousands):
Bank Credit Facility (A):
Term loan bearing interest at 6.50% $100,000
Revolving credit loan bearing interest at 6.475% 75,000
--------
$175,000
--------
--------
(A) The Bank Credit Facility consists of both a term loan and a revolving
credit loan. The term loan agreement provides for a mandatory prepayment
of $50 million from the proceeds of a common or preferred offering and
regular semi-annual payments of $5 million commencing in June 1997. The
revolving credit loan provides for a maximum borrowing of $75 million with
the balance maturing in December 2001. The interest rate for both loans is
variable, however, the Company may elect to fix the rate for periods from
30 days to six months. The Bank Credit Facility contains various financial
and operating covenants which among other things limit future indebtedness
and restrict the amount of future dividend payments. In addition, the
Company has pledged 49.9% of the stock of AmerUs Life and a $50 million
note payable to the Company by AmerUs Life.
Maturities of long-term debt area s follows for each of the five years
ending December 31:
Year ending December 31: (In thousands)
--------------
1997 $60,000
1998 10,000
1999 10,000
2000 10,000
2001 85,000
--------
$175,000
--------
--------
S-7
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
FUTURE POLICY BENEFITS,
BENEFITS, CLAIMS AMORTIZATION
DEFERRED LOSSES, OTHER POLICY LOSSES OF DEFERRED
POLICY CLAIMS CLAIMS AND NET AND POLICY OTHER
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT COST EXPENSES (1) PREMIUMS PAYABLE (2) REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
------- ---- ------------ -------- ------------ ------- ------ -------- ----- -------- -------
Life Insurance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96(3) $295,716 $3,612,445 $ 0 $11,804 $246,791 $286,213 $421,352 $58,572 $62,894 n/a
12/31/95 $267,711 $3,621,537 $ 0 $16,617 $244,087 $285,244 $424,034 $50,239 $58,655 n/a
12/31/94 $404,361 $3,487,034 $ 0 $9,803 $237,912 $275,691 $414,935 $42,756 $68,604 n/a
</TABLE>
- --------------------
(1)Includes policy reserves, policyholder funds, and dividends payable
(2)Policy and contract claims
(3)Includes Closed Block amounts
S-8
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE IV
REINSURANCE
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
------ --------- --------- ---------- ---
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Life insurance in force $29,456,101 $4,170,418 $446,785 $25,732,468 1.88%
----------- ---------- -------- ----------- -----
----------- ---------- -------- ----------- -----
Premiums
Life insurance premiums
and charges $318,777 14,790 1,475 305,462 .48%
Accident and health insurance 2,154 1,915 - 239 -
----------- ---------- -------- ----------- -----
Total premiums $320,931 $16,705 $1,475 $305,701 .48%
Year ended December 31, 1995
Life insurance in force $29,654,671 $3,814,429 $56,226 $25,896,468 0.21%
----------- ---------- ------- ----------- -----
Premiums ----------- ---------- ------- ----------- -----
Life insurance premiums
and charges $310,543 $14,186 $4,862 $301,219 1.61%
Accident and health insurance 2,595 2,361 4 268 1.49%
----------- ---------- -------- ----------- -----
Total premiums $313,138 $16,547 $4,866 $301,487 1.61%
----------- ---------- -------- ----------- -----
----------- ---------- -------- ----------- -----
Year ended December 31, 1994
Life insurance in force $28,923,904 $3,265,105 $2,590,847 $28,249,646 9.17%
----------- ---------- ---------- ----------- -----
Premiums ----------- ---------- ---------- ----------- -----
Life insurance premiums
and charges $299,769 $13,740 $7,857 $293,886 2.67%
Accident and health insurance 3,024 2,697 61 388 15.72%
----------- ---------- -------- ----------- -----
Total Premiums $302,793 $16,437 $7,918 $294,274 2.69%
----------- ---------- -------- ----------- -----
----------- ---------- -------- ----------- -----
</TABLE>
S-9
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------------- DEDUCTIONS -
BALANCE AT CHARGED TO PROVISION ON BALANCE AT
BEGINNING OF COSTS AND CHARGED TO MORTGAGES SOLD/ END OF
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS TRANSFERRED PERIOD
----------- ------ -------- -------------- ----------- ------
(Amount in thousands)
<S> <C> <C> <C> <C> <C>
Mortgage Loans
1996 $30,067 $(4,029) $ - $(14,416) $11,622
1995 $65,549 $ 622 $ - $(36,104) $30,067
1994 $80,220 $ 1,207 $ - $(15,878) $65,549
</TABLE>
S-10
<PAGE>
AMERUS LIFE HOLDINGS, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES (in thousands)
Class A Common Stock owned by AmerUs Group 11,707
Class A Common Stock owned by the public 6,449
Class B Common Stock owned by AmerUs Group 5,000
------
23,156
------
------
* The issuance of Class A and Class B Common Stock is considered to have
occurred as of January 1, 1995 for pro forma purposes; therefore, the
weighted average number of shares outstanding is 23,156. The Company
has no dilution of shares.
PRIMARY PRO FORMA EARNINGS PER COMMON SHARE
Year Ended December 31,
-----------------------
1996 1995
---- ----
Primary Pro Forma Earnings Per Common Share 3.20 2.99
<PAGE>
AMERUS LIFE HOLDINGS, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIOS
RATIO OF EARNINGS FIXED CHARGES
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes
and accounting changes $118,032 $110,550 $26,131 $55,775 $57,312
Add, Combined Fixed
Charges and Preferred
Stock Dividends 2,142 2,356 5,423 6,991 10,532
-------- -------- -------- -------- --------
Adjusted Earnings $120,174 $112,906 $31,554 $62,766 $67,844
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Fixed Charges:
Interest on indebtedness $2,142 $2,356 $5,423 $6,991 $10,532
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of Earnings to
Combined Fixed
Changes and Preferred
Stock Dividends 56.09 47.92 5.82 8.98 6.44
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERUS
LIFE HOLDINGS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 2,414,807
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 64,033
<MORTGAGE> 225,743
<REAL-ESTATE> 4,561
<TOTAL-INVEST> 2,901,652
<CASH> 1,814
<RECOVER-REINSURE> 1,329
<DEFERRED-ACQUISITION> 120,481
<TOTAL-ASSETS> 4,384,229
<POLICY-LOSSES> 2,053,740
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 7,039
<POLICY-HOLDER-FUNDS> 55,369
<NOTES-PAYABLE> 188,381
0
0
<COMMON> 19,500
<OTHER-SE> 438,010
<TOTAL-LIABILITY-AND-EQUITY> 4,384,229
187,823
<INVESTMENT-INCOME> 229,884
<INVESTMENT-GAINS> 65,983
<OTHER-INCOME> 2,711
<BENEFITS> 261,869
<UNDERWRITING-AMORTIZATION> 40,160
<UNDERWRITING-OTHER> 59,925
<INCOME-PRETAX> 118,032
<INCOME-TAX> 43,859
<INCOME-CONTINUING> 74,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,173
<EPS-PRIMARY> 3.20
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
