<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------------------------------------
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER 0-21459
AMERUS LIFE HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
699 WALNUT STREET
DES MOINES, IOWA 50309-3948
(Address of principal executive offices)
IOWA 42-1459712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (515) 362-3600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /
The number of shares outstanding of each of the Registrant's classes of common
stock on August 3, 2000 was as follows:
Class A, Common Stock 25,004,744 shares
Class B, Common Stock 5,000,000 shares
Exhibit index - Page 46
Page 1 of 53
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION............................................. 4
Item 1. Financial Statements.............................................. 4
Consolidated Balance Sheets
June 30, 2000 (Unaudited) and December 31, 1999................... 4
Consolidated Statements of Income (Unaudited)
For the Three Months Ended June 30, 2000 and 1999
and the Six Months Ended June 30, 2000 and 1999................... 6
Consolidated Statements of Comprehensive Income (Unaudited)
For the Three Months Ended June 30, 2000 and 1999
and the Six Months Ended June 30, 2000 and 1999................... 7
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2000 and 1999................... 8
Notes to Consolidated Financial Statements
(Unaudited) ...................................................... 10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ............................... 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 42
PART II - OTHER INFORMATION................................................ 43
Item 1. Legal Proceedings................................................. 43
Item 4. Submission of Matters to a Vote of Security Holders............... 43
Item 6. Exhibits and Reports on Form 8-K.................................. 44
Signatures................................................................. 45
Exhibit Index.............................................................. 46
</TABLE>
2
<PAGE> 3
SAFE HARBOR STATEMENT
All statements, trend analyses and other information contained in this
report relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate", "believe", "plan", "estimate", "expect", "intend",
and other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) general economic conditions and other factors, including
prevailing interest rate levels and stock market performance, which may affect
the ability of the Company to sell its products, the market value of the
Company's investments and the lapse rate and profitability of policies; (2) the
Company's ability to achieve anticipated levels of operational efficiencies and
cost-saving initiatives and to meet cash requirements based upon projected
liquidity sources; (3) customer response to new products, distribution channels
and marketing initiatives; (4) mortality, morbidity, and other factors which may
affect the profitability of the Company's insurance products; (5) changes in the
Federal income tax laws and regulations which may affect the relative tax
advantages of some of the Company's products; (6) increasing competition in the
sale of insurance and annuities; (7) regulatory changes or actions, including
those relating to regulation of insurance products and of insurance companies;
(8) ratings assigned to the Company and its subsidiaries by independent rating
organizations which the Company believes are particularly important to the sale
of its products; and (9) unanticipated litigation. There can be no assurance
that other factors not currently anticipated by management will not also
materially and adversely affect the Company's results of operations.
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
June 30, December 31,
2000 1999
---------------------------
(unaudited)
Assets
Investments:
Securities available-for-sale at fair value:
Fixed maturity securities $ 6,793,198 $ 6,680,755
Equity securities 119,409 14,585
Short-term investments 155 155
Loans 484,794 615,186
Real estate 1,706 1,538
Policy loans 110,452 109,864
Other investments 318,823 269,158
----------- -----------
Total investments 7,828,537 7,691,241
Cash and cash equivalents 35,912 23,090
Accrued investment income 93,882 91,591
Premiums, fees and other receivables 4,671 6,910
Reinsurance receivables 5,021 17,535
Deferred policy acquisition costs 644,073 529,663
Value of business acquired 206,564 230,542
Investment in unconsolidated subsidiary 32,162 30,683
Goodwill 219,644 206,324
Property and equipment 24,755 23,046
Income taxes receivable 4,554 --
Deferred income taxes 48,148 72,691
Other assets 364,054 383,415
Closed Block assets (note 2) 1,447,340 1,412,622
----------- -----------
Total assets $10,959,317 $10,719,353
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------------------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Policy reserves and policyowner funds:
Future life and annuity policy benefits $ 7,510,987 $ 7,390,991
Policyowner funds 289,995 282,026
------------ ------------
7,800,982 7,673,017
Accrued expenses and other liabilities 174,243 138,392
Dividends payable to policyowners 2,609 2,248
Policy and contract claims 7,099 12,221
Income taxes payable -- 16,532
Notes and contract payable (note 3) 209,861 173,088
Closed Block liabilities (note 2) 1,794,382 1,756,064
------------ ------------
Total liabilities 9,989,176 9,771,562
------------ ------------
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Company (note 3) 214,791 214,791
------------ ------------
Stockholders' equity:
Preferred Stock, no par value, 20,000,000 shares
authorized, none issued -- --
Common Stock, Class A, no par value, 180,000,000
shares authorized: issued and outstanding; 25,003,422
shares (net of 4,729,737 treasury shares) in 2000 and
25,070,854 shares (net of 4,662,305 treasury shares) in 1999 25,003 25,071
Common Stock, Class B, no par value, 50,000,000 shares
authorized; 5,000,000 shares issued and outstanding 5,000 5,000
Paid-in capital 281,543 282,831
Accumulated other comprehensive income (loss) (145,694) (135,964)
Unearned compensation (210) (323)
Unallocated ESOP shares (1,378) (1,378)
Retained earnings 591,086 557,763
------------ ------------
Total stockholders' equity 755,350 733,000
------------ ------------
Total liabilities and stockholders' equity $ 10,959,317 $ 10,719,353
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 23,710 $ 20,385 $ 43,861 $ 44,220
Universal life and annuity product charges 22,353 18,900 42,537 36,086
Net investment income 142,022 129,667 281,876 259,632
Realized gains (losses) on investments (593) 1,415 (3,621) 4,019
Other income 5,683 2,483 10,348 4,198
Contribution from the Closed Block (note 2) 5,708 6,372 11,568 12,914
------------ ------------ ------------ ------------
198,883 179,222 386,569 361,069
------------ ------------ ------------ ------------
Benefits and expenses:
Policyowner benefits 108,801 101,277 217,786 210,696
Underwriting, acquisition and other expenses 33,004 25,356 57,162 47,774
Amortization of deferred policy acquisition costs
and value of business acquired 16,540 19,586 38,860 36,571
Dividends to policyowners 1,562 1,047 2,698 2,023
------------ ------------ ------------ ------------
159,907 147,266 316,506 297,064
------------ ------------ ------------ ------------
Income from operations 38,976 31,956 70,063 64,005
Interest expense 7,901 7,541 15,199 14,770
------------ ------------ ------------ ------------
Income before income tax expense and equity in
earnings of unconsolidated subsidiary 31,075 24,415 54,864 49,235
Income tax expense (note 4) 10,759 8,149 19,611 16,342
------------ ------------ ------------ ------------
Income before equity in earnings of unconsolidated
subsidiary 20,316 16,266 35,253 32,893
Equity in earnings of unconsolidated subsidiary,
net of tax 289 325 1,070 655
------------ ------------ ------------ ------------
Net income $ 20,605 $ 16,591 $ 36,323 $ 33,548
============ ============ ============ ============
Earnings per common share:
Basic $ 0.69 $ 0.55 $ 1.21 $ 1.10
============ ============ ============ ============
Diluted $ 0.69 $ 0.54 $ 1.21 $ 1.10
============ ============ ============ ============
Weighted average common shares outstanding
Basic 29,923,994 30,432,794 29,945,995 30,432,145
============ ============ ============ ============
Diluted 29,941,081 30,522,586 29,971,915 30,495,083
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------------- ---------------------
<S> <C> <C> <C> <C>
Net Income $ 20,605 $ 16,591 $ 36,323 $ 33,548
Other comprehensive income (loss), before tax
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during period (21,776) (53,268) (20,718) (83,427)
Less: reclassification adjustment for gains (losses)
included in net income (1,307) (3,276) (5,749) 52
------- --------- -------- ---------
Other comprehensive income (loss), before tax (20,469) (49,992) (14,969) (83,479)
Income tax (expense) benefit related to items of other
comprehensive income 7,164 17,497 5,239 29,218
------- --------- -------- ---------
Other comprehensive income (loss), net of tax (13,305) (32,495) (9,730) (54,261)
------- --------- -------- ---------
Comprehensive income (loss) $ 7,300 $ (15,904) $ 26,593 $ (20,713)
======= ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
-----------------------------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 36,323 $ 33,548
Adjustments to reconcile net income to net cash
provided by operating activities:
Policyowner assessments on universal life
and annuity products (27,298) (26,876)
Interest credited to policyowner account
balances 152,695 153,237
Realized investment (gains) losses 3,621 (4,019)
Goodwill amortization 4,233 3,760
VOBA amortization 21,964 16,058
Change in:
Accrued investment income (2,291) (4,521)
Reinsurance receivables 12,514 (3,223)
Deferred policy acquisition costs (77,623) (53,565)
Liabilities for future policy benefits 17,756 271,128
Policy and contract claims and other
policyowner funds (3,408) (8,510)
Income taxes:
Current (21,086) 4,583
Deferred 30,059 12,225
Other, net 11,100 9,934
Change in Closed Block assets and
liabilities, net 50,887 34,189
----------- -----------
Net cash provided by operating activities 209,446 437,948
----------- -----------
Cash flows from investing activities
Purchase of fixed maturities available-for-sale (938,137) (2,627,991)
Maturities, calls and principal reductions of
fixed maturities available for sale 794,229 2,356,997
Purchase of equity securities (109,484) (113,066)
Proceeds from sale of equity securities 2,515 102,327
Change in short-term investments, net -- 22,173
Purchase of loans (50,962) (70,968)
</TABLE>
8
<PAGE> 9
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------------------------
<S> <C> <C>
Proceeds from repayment and sale of loans 185,453 67,383
Purchase of real estate and other invested assets (84,054) (50,780)
Proceeds from sale of real estate and other
invested assets 29,587 19,688
Change in policy loans, net (588) (23)
Other assets, net (3,840) (8,857)
Change in Closed Block investments, net (56,683) (30,241)
--------- ---------
Net cash (used in) investing activities (231,964) (333,358)
--------- ---------
Cash flows from financing activities:
Deposits to policyowner account balances 701,359 458,220
Withdrawals from policyowner account balances (698,549) (586,141)
Change in debt, net 36,773 5,257
Purchase of treasury stock (1,523) (408)
Issuance of treasury stock 280 155
Dividends to shareholders (3,000) (6,089)
--------- ---------
Net cash provided by (used in) financing activities 35,340 (129,006)
--------- ---------
Net increase (decrease) in cash 12,822 (24,416)
Cash and cash equivalents at beginning of period 23,090 60,090
--------- ---------
Cash and cash equivalents at end of period $ 35,912 $ 35,674
========= =========
Supplemental disclosure of cash activities:
Interest paid $ 15,658 $ 14,692
========= =========
Income taxes paid $ 7,631 $ 9,020
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All adjustments were of a
normal recurring nature, unless otherwise noted in Management's Discussion and
Analysis and the Notes to Financial Statements. Operating results for the three
months and six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. For further
information and for capitalized terms not defined in this 10-Q, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 financial statement presentation.
SFAS 133, 137 AND 138
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 defines derivative instruments and provides comprehensive accounting and
reporting standards for the recognition and measurement of derivative and
hedging activities (including certain instruments embedded in other contracts).
It requires derivatives to be recorded in the consolidated balance sheet at fair
value and establishes criteria for hedges of changes in the fair value of
assets, liabilities or firm commitments, hedges or variable cash flows or
forecasted transactions, and hedges of foreign currency exposures of net
investments in foreign operations. Changes in the fair value of derivatives not
meeting specific hedge accounting criteria would be recognized in the
consolidated statement of operations. In June 1999, the FASB issued SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 delays the effective
date of SFAS No. 133 for all fiscal quarters until fiscal years beginning after
June 15, 2000. In June 2000, the FASB issued SFAS No. 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment of
FASB Statement No. 133." SFAS No. 138 addresses a limited number of Statement
133 implementation issues, including expanding normal purchase and normal sale
exceptions, redefining specific risks that can be identified as hedged risks and
defining certain other provisions related to foreign-currency and intercompany
derivatives. SFAS No. 138 is effective for fiscal years beginning after June 15,
2000. The Company is evaluating SFAS No. 133 and 138 and has not determined its
effect on the Consolidated Financial Statements.
STATUTORY ACCOUNTING CODIFICATION
The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and are
effective in 2001. Codification will change prescribed statutory accounting
practices and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The Company is
evaluating the changes related to codification and has not determined the effect
on statutory surplus.
10
<PAGE> 11
EARNINGS PER COMMON SHARE
Basic earnings per share of common stock are computed by dividing net
income by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share assumes the issuance of common shares
applicable to stock options and warrants calculated using the treasury stock
method.
(2) CLOSED BLOCK
Summarized financial information of the Closed Block balance sheet as of
June 30, 2000 and December 31, 1999 and statements of income for the three
months and six months ended June 30, 2000 and 1999 are as follows:
June 30, December 31,
2000 1999
---------------------------
(unaudited)
($ in thousands)
Assets:
Securities available for sale at fair value
Fixed maturity securities $1,126,407 $1,087,672
Policy loans 196,526 188,035
Other investments 2,735 602
Cash and cash equivalents 3,838 5,910
Accrued investment income 16,453 14,949
Premiums, fees and other receivables 677 957
Deferred policy acquisition costs 89,813 97,141
Other assets 10,891 17,356
---------- ----------
Total Assets $1,447,340 $1,412,622
========== ==========
Liabilities:
Future life and annuity policy benefits $1,618,749 $1,581,923
Policyowner funds 5,687 8,905
Accrued expenses and other liabilities 10,118 7,582
Dividends payable to policyowners 155,257 152,984
Policy and contract claims 4,571 4,670
---------- ----------
Total Liabilities $1,794,382 $1,756,064
========== ==========
11
<PAGE> 12
Three Months Ended June 30,
($ in thousands) 2000 1999
-------------------------
(unaudited)
Revenues and expenses:
Insurance premiums $ 45,427 $ 49,638
Universal life and annuity product charges 3,166 3,166
Net investment income 27,529 26,355
Realized gains (losses) on investments 4 210
Policyowner benefits (46,618) (47,651)
Underwriting, acquisition and other expenses (434) (1,010)
Amortization of deferred policy acquisition costs (3,602) (5,037)
Dividends to policyowners (19,764) (19,299)
-------- --------
Contribution from the Closed Block
before income taxes $ 5,708 $ 6,372
======== ========
Six Months Ended June 30,
2000 1999
------------------------
(unaudited)
Revenues and expenses:
Insurance premiums $ 94,403 $ 98,598
Universal life and annuity product charges 6,257 6,570
Net investment income 54,823 56,006
Realized gains (losses) on investments 44 662
Policyowner benefits (100,570) (98,972)
Underwriting, acquisition and other expenses (1,262) (2,821)
Amortization of deferred policy acquisition costs (7,329) (12,590)
Dividends to policyowners (34,798) (34,539)
--------- ---------
Contribution from the Closed Block
before income taxes $ 11,568 $ 12,914
========= =========
12
<PAGE> 13
(3) DEBT AND CAPITAL SECURITIES
Debt consists of the following:
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
($ in thousands)
Federal Home Loan Bank community investment
long-term advances with a weighted average
interest rate of 6.285% at June 30, 2000 (A) $ 15,861 $ 16,088
Revolving credit agreement 69,000 32,000
Senior notes bearing interest at 6.95%
due June, 2005 125,000 125,000
-------- --------
$209,861 $173,088
======== ========
AmerUs Capital I 8.85 % Capital
Securities Series A due
February 1, 2007 $ 86,000 $ 86,000
AmerUs Capital II 7.00 % Adjustable
Conversion-rate Equity Security
Units due July 27, 2003 128,791 128,791
-------- --------
$214,791 $214,791
======== ========
(A) The Company has multiple credit arrangements with the Federal Home Loan
Bank (FHLB). In addition to the long-term advances disclosed above, the Company
is eligible to borrow under variable-rate short term fed funds arrangements of
which no amount was outstanding at June 30, 2000. These borrowings are secured
and interest is payable at the current rate at the time of any advance.
For an additional discussion of the terms of the above indebtedness refer
to the Company's consolidated financial statements as of December 31, 1999.
(4) FEDERAL INCOME TAXES
The effective income tax rate for the six months ending June 30, 2000
and 1999 varied from the prevailing corporate rate primarily as a result of
goodwill amortization, non-deductible reorganization costs and dividend received
deductions.
13
<PAGE> 14
(5) COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with various partnerships in which
a subsidiary of AMHC has an interest. Pursuant to these agreements the Company
is obligated to make future capital contributions to the partnerships of up to
$31.3 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, guarantees and standby letters of credit. Commitments to
extend credit are agreements to lend to customers. Commitments generally have
fixed expiration dates and may require payment of a fee. Since many commitments
expire without being drawn upon, the total amount of commitments does not
necessarily represent future cash requirements. The Company has also guaranteed
two loans for a fee. At June 30, 2000, outstanding commitments to extend credit
totaled approximately $11.4 million and loan guarantees totaled approximately
$6.5 million.
The Company has an agreement with Bank One, N.A. whereby the Company
guarantees the payment of loans made to certain of the Company's managers and
executives for the purpose of purchasing Common Stock and ACES pursuant to the
Stock Purchase Program. The liability of the Company in respect of the principal
amount of loans is limited to $25 million. The Company has also guaranteed
interest and all other fees and obligations owing on the loans. Each participant
in the program has agreed to repay the Company for any amounts paid by the
Company under the guarantee in accordance with a reimbursement agreement entered
into between the participant and the Company.
AmerUs Life Insurance Company ("AmerUs Life") and its joint venture partner
are contingently liable in the event the joint venture, Ameritas Variable Life
Insurance Company ("AVLIC"), cannot meet its obligations. At June 30, 2000,
AVLIC had statutory assets of $2,646.0 million, liabilities of $2,602.1 million,
and surplus of $43.9 million.
In the ordinary course of business, the Company and its subsidiaries are
engaged in certain other litigation, none of which management believes is
material to the Company's results of operations.
(6) REORGANIZATION AND SUBSEQUENT EVENT
On December 20, 1999, the Company and the Company's controlling
shareholder, American Mutual Holding Company, ("AMHC"), announced that their
respective boards of directors had approved plans for the demutualization of
AMHC and the merger of the Company into AMHC following the demutualization. Upon
completion of the demutualization, AMHC will be a public company and will change
its name to AmerUs Group Co. ("AmerUs Group"). Members of AMHC will receive
approximately 17 million shares of AmerUs Group and cash or policy credits in
excess of $300 million as a result of the demutualization. Shareholders of the
Company will receive shares in AmerUs Group in a one-for-one exchange. Upon
completion of the demutualization, AmerUs Group will consist of the Company and
AMHC's non-life subsidiaries, principally AmerUs Properties, Inc. and AmerUs
Home Equity, Inc.
On June 22, 2000, the shareholders of the Company approved the merger, with
92 percent of the outstanding shares voting in favor of the plan. On the same
date, the members of AMHC approved the demutualization and merger. Of those
members voting on the plan of conversion, 98 percent voted in favor of the plan.
On August 1, 2000, the Iowa Insurance Commissioner issued an order approving
AMHC's plan of conversion. This completes the approvals needed for the
demutualization and merger. AMHC expects to be able to complete all other steps
necessary for the demutualization to become effective by late August 2000 and to
distribute AmerUs Group stock, cash or policy credits to eligible members in
late September 2000.
14
<PAGE> 15
On February 18, 2000, the Company, AMHC and Indianapolis Life Insurance Co.
(ILICO) entered into a definitive agreement for a combination of the companies.
Under these terms, AMHC will proceed with its previously announced
demutualization. ILICO will demutualize separately and ILICO's members will
receive cash, policy credits and stock equivalent to the value of 11.25 million
shares of stock of AmerUs Group. Upon demutualization, ILICO will become a
subsidiary of AmerUs Group and will continue operations as a stock life
insurance company.
As part of the transaction, the Company made an investment of $100 million
in a downstream holding company of ILICO.
ILICO is a 95-year old mutual life insurance and annuity company based in
Indianapolis, Indiana. ILICO and its subsidiaries are licensed to do business in
all 50 states and the District of Columbia. At June 30, 2000, ILICO had total
assets of $6.0 billion and insurance in force of $30.4 billion.
The contemplated transactions are subject to normal closing conditions,
including appropriate policyholder/member, shareholder and regulatory approvals.
The Company expects the demutualization of ILICO and combination into AmerUs
Group to take place in the first quarter of 2001.
(7) OPERATING SEGMENTS
The Company has two operating segments: Life Insurance and Annuities.
Products generally distinguish a segment. A brief description of each segment
follows:
LIFE INSURANCE
Open Block: The primary product offerings consist of whole life, universal
life and term life insurance policies. These products are marketed on a
national basis primarily through a Preferred Producer agency system and a
Personal Producing General Agent ("PPGA") distribution system.
Closed Block: The Closed Block was established for insurance policies which
had a dividend scale in effect as of June 30, 1996. The Closed Block was
designed to provide reasonable assurance to owners of insurance policies
included therein that, after the Reorganization of AmerUs Life, assets
would be available to maintain the dividend scales and interest credits in
effect prior to the Reorganization if the experience underlying such scales
and credits continues. The primary products included in the Closed Block
are whole life, certain universal life policies and term life insurance
policies.
ANNUITIES
The Annuity segment markets individual fixed annuities on a national basis
primarily through independent brokers and marketing companies. The Annuity
segment also includes one insurance contract issued to a commercial paper
conduit.
The Company uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated
income from operations and assets with the exception of the elimination of
certain items which management believes are not necessarily indicative of
overall operating trends. For example, net realized capital gains or losses on
investments, excluding gains or losses on convertible debt which are considered
core earnings, are not included as part of operating segment income. These items
are shown between adjusted pre-tax operating income and income from operations
on the following operating segment income tables. Operating segment income is
generally income before non-core realized gains and losses, interest expense,
income tax and equity earnings of the Company's unconsolidated subsidiary, AMAL.
Premiums, product charges, policyowner benefits, insurance expenses,
amortization of deferred policy acquisition costs and VOBA and dividends to
15
<PAGE> 16
policyowners are attributed directly to each operating segment. Net investment
income and core realized gains and losses on investments are allocated based on
directly-related assets required for transacting the business of that segment.
Other revenues and benefits and expenses which are deemed not to be associated
with any specific segment are grouped together in the All Other category. These
items primarily consist of discontinued product lines such as group and health
and holding company revenues and expenses. The contribution to the operating
income of the life insurance segment from the Closed Block is reported as a
single line item.
Assets are segmented based on policy liabilities directly attributable to
each segment. All assets allocated to the Closed Block are grouped together and
shown as a separate item entitled "Closed Block Assets."
There are no significant intersegment transactions.
There have been no material changes in segment assets since December 31,
1999.
Operating segment income is as follows:
16
<PAGE> 17
Operating Segment Income
($ in thousands)
Three Months Ended June 30, 2000
<TABLE>
<CAPTION>
Total
Life Insurance Annuities All Other Consolidated
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 17,121 $ 6,457 $ 132 $ 23,710
Universal life and annuity product charges 12,601 9,752 - 22,353
Net investment income 25,061 115,750 1,211 142,022
Core realized gains on investments - 555 - 555
Other income - 5,349 334 5,683
Contribution from the Closed Block 5,708 - - 5,708
-------- -------- ------ ---------
60,491 137,863 1,677 200,031
Benefits and expenses:
Policyowner benefits 27,077 81,698 26 108,801
Underwriting, acquisition, and other expenses 15,360 14,242 1,827 31,429
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of ($4,335) 3,926 16,949 - 20,875
Dividends to policyowners 1,562 - - 1,562
-------- -------- ------ ---------
47,925 112,889 1,853 162,667
-------- -------- ------ ---------
Adjusted pre-tax operating income (loss) $ 12,566 $ 24,974 $ (176) 37,364
======== ======== ======
Non-core realized gains (losses) on investments (1,148)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses 4,335
Reorganization costs (1,575)
--------
Income from operations 38,976
Interest (expense) (7,901)
Income tax (expense) (10,759)
Equity in earnings of unconsolidated subsidiary, net of tax 289
--------
Net income $ 20,605
========
</TABLE>
17
<PAGE> 18
Operating Segment Income
($ in thousands)
Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Total
Life Insurance Annuities All Other Consolidated
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 15,396 $ 4,933 $ 56 $ 20,385
Universal life and annuity product charges 11,786 7,114 - 18,900
Net investment income 22,864 106,676 127 129,667
Core realized gains on investments - 2,857 - 2,857
Other income - 1,773 710 2,483
Contribution from the Closed Block 6,372 - - 6,372
-------- -------- ------ --------
56,418 123,353 893 180,664
Benefits and expenses:
Policyowner benefits 24,000 77,257 20 101,277
Underwriting, acquisition, and other expenses 14,417 9,480 1,459 25,356
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of $1,170 5,711 12,705 - 18,416
Dividends to policyowners 1,047 - - 1,047
-------- -------- ------ --------
45,175 99,442 1,479 146,096
-------- -------- ------ --------
Adjusted pre-tax operating income $ 11,243 $ 23,911 $ (586) 34,568
======== ======== ======
Non-core realized gains (losses) on investments (1,442)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses (1,170)
--------
Income from operations 31,956
Interest (expense) (7,541)
Income tax (expense) (8,149)
Equity in earnings of unconsolidated subsidiary, net of tax 325
--------
Net income $ 16,591
========
</TABLE>
18
<PAGE> 19
Operating Segment Income
($ in thousands)
Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Total
Life Insurance Annuities All Other Consolidated
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 31,428 $ 12,339 $ 94 $ 43,861
Universal life and annuity product charges 24,296 18,241 - 42,537
Net investment income 49,909 229,051 2,916 281,876
Core realized gains on investments - 2,082 - 2,082
Other income - 9,513 835 10,348
Contribution from the Closed Block 11,568 - - 11,568
-------- -------- ------ --------
117,201 271,226 3,845 392,272
Benefits and expenses:
Policyowner benefits 49,081 168,507 198 217,786
Underwriting, acquisition, and other expenses 25,144 25,632 4,361 55,137
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of ($3,715) 9,736 32,839 - 42,575
Dividends to policyowners 2,698 - - 2,698
-------- -------- ------ --------
86,659 226,978 4,559 318,196
-------- -------- ------ --------
Adjusted pre-tax operating income (loss) $ 30,542 $ 44,248 $ (714) 74,076
======== ======== ======
Non-core realized gains (losses) on investments (5,703)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses 3,715
Reorganization costs (2,025)
--------
Income from operations 70,063
Interest (expense) (15,199)
Income tax (expense) (19,611)
Equity in earnings of unconsolidated subsidiary, net of tax 1,070
--------
Net income $ 36,323
========
</TABLE>
19
<PAGE> 20
Operating Segment Income
($ in thousands)
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Total
Life Insurance Annuities All Other Consolidated
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 30,721 $ 13,403 $ 96 $ 44,220
Universal life and annuity product charges 23,607 12,479 - 36,086
Net investment income 43,487 214,877 1,268 259,632
Core realized gains on investments - 5,826 - 5,826
Other income - 3,135 1,063 4,198
Contribution from the Closed Block 12,914 - - 12,914
-------- -------- ------ --------
110,729 249,720 2,427 362,876
Benefits and expenses:
Policyowner benefits 48,586 162,002 108 210,696
Underwriting, acquisition, and other expenses 26,592 19,056 2,126 47,774
Amortization of deferred policy acquisition costs
and value of business acquired, net of
non-core adjustment of $1,682 10,728 24,161 - 34,889
Dividends to policyowners 2,023 - - 2,023
-------- -------- ------ --------
87,929 205,219 2,234 295,382
-------- -------- ------ --------
Adjusted pre-tax operating income $ 22,800 $ 44,501 $ 193 67,494
======== ======== ======
Non-core realized gains (losses) on investments (1,807)
Amortization of deferred policy acquisition costs
due to non-core realized gains or losses (1,682)
--------
Income from operations 64,005
Interest (expense) (14,770)
Income tax (expense) (16,342)
Equity in earnings of unconsolidated subsidiary, net of tax 655
--------
Net income $ 33,548
========
</TABLE>
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements and related notes.
OVERVIEW
The Company is a holding company engaged through its subsidiaries in the
business of marketing, underwriting and distributing a broad range of individual
life insurance and annuity products to individuals and businesses in 49 states,
the District of Columbia and the U.S. Virgin Islands. The Company has two
operating segments: Life Insurance and Annuities. The Life Insurance segment's
primary product offerings consist of whole life, universal life and term life
insurance policies. The primary product offerings of the Annuity segment are
fixed annuities.
In accordance with Generally Accepted Accounting Principals (GAAP),
universal life insurance premiums and annuity deposits received are reflected as
increases in liabilities for policyowner account balances and not as revenues.
Revenues reported for universal life and annuity products consist of policy
charges for the cost of insurance, administration charges and surrender charges
assessed against policyowner account balances. Surrender benefits paid relating
to universal life insurance policies and annuity products are reflected as
decreases in liabilities for policyowner account balances and not as expenses.
Amounts for interest credited to universal life and annuity policyowner account
balances and benefit claims in excess of policyowner account balances are
reported as expenses in the financial statements. The Company receives
investment income earned from the funds deposited into account balances by
universal life and annuity policyowners, the majority of which is passed through
to such policyowners in the form of interest credited.
Premium revenues reported for traditional life insurance products are
recognized as revenues when due. Future policy benefits and policy acquisition
costs are recognized as expenses over the life of the policy by means of a
provision for future policy benefits and amortization of deferred policy
acquisition costs.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as policy acquisition costs, are deferred. The method of
amortizing deferred policy acquisition costs for life insurance products varies;
dependent upon whether the contract is participating or non-participating.
Participating contracts are those which are expected to pay dividends to
policyowners in proportion to their relative contribution to the Company's
statutory surplus. Non-participating life insurance deferred policy acquisition
costs are amortized over the premium-paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated premium
revenues using assumptions consistent with those used in computing policy
benefit reserves. Deferred policy acquisition costs for participating policies
are amortized as an expense primarily in proportion to expected profits or
margins from such policies. This amortization is adjusted when current or
estimated future gross profits or margins on the underlying policies vary from
previous estimates. For example, the amortization of deferred policy acquisition
costs is accelerated when policy terminations are higher than originally
estimated or when investments supporting the policies are sold at a gain prior
to their anticipated maturity. Death and other policyowner benefits reflect
exposure to mortality risk and fluctuate from period to period based on the
level of claims incurred within insurance retention limits. The profitability of
the Company is primarily affected by expense levels, interest spread results
(i.e., the excess of investment earnings over the interest credited to
policyowners) and fluctuations in mortality, persistency and other policyowner
benefits. The Company has the ability to mitigate adverse experience through
adjustments to credited interest rates, policyowner dividends or cost of
insurance charges.
21
<PAGE> 22
ADJUSTED NET OPERATING INCOME
The following table reflects net income adjusted to eliminate certain items
(net of applicable income taxes and minority interest) which management believes
do not necessarily indicate overall operating trends. For example, net realized
capital gains or losses on investments, excluding gains or losses on convertible
preferred stock and bonds which are considered core earnings, are eliminated.
Net realized capital gains or losses on investments may be realized at the sole
discretion of management and are often realized in accordance with tax planning
strategies. Therefore, net realized capital gains or losses do not reflect the
Company's ongoing earnings capacity. Different items are likely to occur in each
period presented and others may have different opinions as to which items may
warrant adjustment. Adjusted net operating income is the basis used by the
Company in assessing its overall performance. Adjusted net operating income as
described here may not be comparable to similarly titled measures reported by
other companies. The adjusted net operating income shown below does not
constitute net income computed in accordance with GAAP.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------- ---------------------------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Net Income $ 20,605 $ 16,591 $ 36,323 $ 33,548
Net non-core realized (gains) losses (A) 746 937 3,708 1,174
Net amortization of deferred policy
acquisition costs due to non-core
realized gains or losses (B) (2,818) 761 (2,415) 1,093
Reorganization costs (C) 1,575 - 2,025 -
----------- ----------- ----------- -----------
Adjusted Net Operating Income $ 20,108 $ 18,289 $ 39,641 $ 35,815
=========== =========== =========== ===========
Adjusted Net Operating Income
per common share:
Basic $ 0.67 $ 0.60 $ 1.32 $ 1.18
=========== =========== =========== ===========
Diluted $ 0.67 $ 0.60 $ 1.32 $ 1.17
=========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic 29,923,994 30,432,794 29,945,995 30,432,145
=========== =========== =========== ===========
Diluted 29,941,081 30,522,586 29,971,915 30,495,083
=========== =========== =========== ===========
</TABLE>
(A) Represents total realized gains or losses on investments less core realized
gains or losses (defined as gains or losses on the convertible preferred
stock and bond portfolio) adjusted for income taxes on such amounts.
Non-core realized gains or losses may vary widely between periods. Such
amounts are determined by management's timing of individual transactions
and do not necessarily correspond to the underlying operating trends.
22
<PAGE> 23
(B) Represents amortization of deferred policy acquisition costs on the
non-core realized gains or losses that are included in product margins,
adjusted for income taxes on such amounts.
(C) Represents costs directly related to the Company's proposed merger with its
controlling shareholder, American Mutual Holding Company (AMHC), following
the proposed demutualization of AMHC. These costs consist primarily of
legal and consulting expenses. See further discussion of the proposed
reorganization plans in the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
------------ ------------
THE CLOSED BLOCK
The Closed Block was established on June 30, 1996. Insurance policies which
had a dividend scale in effect as of June 30, 1996, were included in the Closed
Block. The Closed Block was designed to provide reasonable assurance to owners
of insurance policies included therein that, after the reorganization of AmerUs
Life, assets would be available to maintain the dividend scales and interest
credits in effect prior to the reorganization if the experience underlying such
scales and credits continues. The contribution to the operating income of the
Company from the Closed Block is reported as a single line item in the income
statement. Accordingly, premiums, product charges, investment income, realized
gains and (losses) on investments, policyowner benefits and dividends
attributable to the Closed Block, less certain minor expenses including
amortization of deferred policy acquisition costs, are shown as a net number
under the caption "Contribution from the Closed Block". This results in material
reductions in the respective line items in the income statement while having no
effect on net income. The expenses associated with the administration of the
policies included in the Closed Block and the renewal commissions on these
policies are not charged against the Contribution from the Closed Block, but
rather are grouped with underwriting, acquisition and other expenses. Also, all
assets allocated to the Closed Block are grouped together and shown as a
separate item titled "Closed Block Assets". Likewise, all liabilities
attributable to the Closed Block are combined and disclosed as the "Closed Block
Liabilities".
OPERATING SEGMENTS
The Company has two reportable operating segments: Life Insurance and
Annuities. Products generally distinguish a segment. The Company uses the same
accounting policies and procedures to measure operating segment income as it
uses to measure its consolidated income from operations with the exception of
the elimination of certain items which management believes are not necessarily
indicative of overall operating trends. These items are explained further in the
Adjusted Net Operating Income section of Management's Discussion and Analysis of
Results of Operations and Financial Condition. Revenues and benefits and
expenses are primarily attributed directly to each operating segment. Net
investment income and core realized gains and (losses) on investments are
allocated based on the directly-related asset portfolios. Other revenues and
expenses which are deemed not to be associated with any specific reportable
segment are grouped together in the All Other category. These items primarily
consist of discontinued product lines such as group and health and holding
company revenues and expenses. The Company assesses the performance of its
operating segments before interest expense, income taxes, and equity in earnings
of its unconsolidated subsidiary, AMAL Corporation (AMAL).
23
<PAGE> 24
SALES
LIFE INSURANCE
The following table sets forth information regarding the Company's life
insurance sales activity by product:
<TABLE>
<CAPTION>
Sales Activity by Product
Direct First Year Annualized Premiums
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------- --------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Traditional life insurance:
Participating whole life $ 2,627 $ 4,739 $ 6,395 $ 9,644
Term life 1,651 1,036 4,530 2,448
Universal life 3,824 3,795 8,387 7,005
------------------------- --------------------------
Total $ 8,102 $ 9,570 $ 19,312 $ 19,097
========================= ==========================
</TABLE>
Life insurance sales as measured by annualized premiums decreased $1.5
million to $8.1 million for the second quarter of 2000 compared to $9.6 million
for the second quarter of 1999. Participating whole life sales decreased in the
second quarter of 2000 compared to the same period in 1999 which was partially
attributable to the Company's introduction of new universal life products, thus
resulting in a shift in focus from participating to universal products, and the
general industry decline of sales of this product. Partially offsetting the
decreased participating whole life sales were increased sales of term life and
universal life in the second quarter of 2000 as compared to the second quarter
of 1999. The increases in term life and universal life sales were primarily the
result of the introduction of new products and product repricing completed in
mid-1999, along with an increase in consumer demand for term products.
For the first six months of 2000, life insurance sales as measured by
annualized premiums were $19.3 million compared to $19.1 million for the same
period in 1999. Consistent with the second quarter sales results discussed
above, participating whole life sales for the first half of 2000 decreased as
compared to the first half of 1999, which was offset by increases in term life
and universal life sales between these periods.
24
<PAGE> 25
The following table sets forth the Company's life insurance collected
premiums, including collected premiums associated with the Closed Block, for the
periods indicated:
<TABLE>
<CAPTION>
Collected Premiums by Product
For the Three Months Ended June 30, For the Six Months Ended June 30,
2000 1999 2000 1999
---------------------------------- --------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Individual life premiums collected:
Traditional life:
First year and single $ 19,851 $ 20,539 $ 41,403 $ 42,760
Renewal 46,399 43,914 93,896 90,538
------------------------- --------------------------
Total 66,250 64,453 135,299 133,298
Universal life:
First year and single 7,065 5,828 14,677 10,926
Renewal 17,820 18,209 37,058 36,980
------------------------- --------------------------
Total 24,885 24,037 51,735 47,906
Total individual life 91,135 88,490 187,034 181,204
Reinsurance assumed 264 472 636 821
Reinsurance ceded (6,558) (3,223) (12,470) (7,525)
------------------------- --------------------------
Total individual life, net of reinsurance $ 84,841 $ 85,739 $ 175,200 $ 174,500
========================= ==========================
</TABLE>
Traditional life insurance premiums collected were $66.3 million for the
second quarter of 2000 compared to $64.5 million for the same period in 1999 and
$135.3 million for the first half of 2000 compared to $133.3 million for the
first half of 1999. The increase in collected premiums was primarily the result
of increased renewal premium, partially offset by a decline in first year and
single premium. Renewal direct collected premium was $3.4 million higher in the
first half of 2000 as compared to the same period in 1999 primarily due to
continued favorable persistency and the continued growth of the block of
business. First year and single premium for the first six months of 2000 was
$41.4 million compared to $42.8 million for the same period in 1999. The decline
in the first year and single premium between periods is consistent with the
lower participating whole life sales as discussed previously.
Universal life insurance premiums collected were $24.9 million for the
second quarter of 2000 compared to $24.0 million for the second quarter of 1999.
Year-to-date universal life insurance premiums were $51.7 million in the first
half of 2000 compared to $47.9 million for the same period in 1999. The increase
in 2000 as compared to 1999 was primarily due to new products introduced in
mid-1999.
25
<PAGE> 26
Effective January 1, 2000, the Company entered into additional reinsurance
agreements which effectively reduced the Company's retention limit to $100,000
for the majority of policies issued since July 1, 1996 and for the majority of
new business going forward. As a result of these new agreements, reinsurance
ceded was $5.0 million higher for the first half of 2000 as compared to the same
period in 1999.
The following table sets forth information regarding the Company's life
insurance in force for each date presented:
Individual Life Insurance in Force
As of June 30,
2000 1999
-----------------------------------------
($ in thousands)
Traditional life
Number of policies 249,483 251,820
GAAP life reserves $ 1,690,950 $ 1,600,408
Face amounts $ 22,589,000 $ 20,196,000
Universal life
Number of policies 112,770 113,695
GAAP life reserves $ 937,233 $ 908,059
Face amounts $ 12,386,000 $ 12,161,000
Total life insurance
Number of policies 362,253 365,515
GAAP life reserves $ 2,628,183 $ 2,508,467
Face amounts $ 34,975,000 $ 32,357,000
While the total policy count continues to decline consistent with industry
trends, the average size of policy continues to increase from $88,500 in 1999 to
$96,500 in 2000. As a result, total insurance in force has grown to $35.0
billion as of June 30, 2000.
26
<PAGE> 27
ANNUITIES
The following table sets forth annuity collected premiums for the periods
indicated:
<TABLE>
<CAPTION>
Collected Premiums by Product
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------- --------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Fixed annuities $ 251,083 $ 181,384 $ 457,408 $ 415,060
Multi-choice annuities 29,828 - 50,033 -
Equity-index annuities 70,160 4,576 141,091 9,215
--------------------------- ---------------------------
Total 351,071 185,960 648,532 424,275
Reinsurance assumed - - - -
Reinsurance ceded (62) (122) (116) (187)
--------------------------- ---------------------------
Total annuities, net of reinsurance $ 351,009 $ 185,838 $ 648,416 $ 424,088
=========================== ===========================
</TABLE>
The Company markets its annuity products on a national basis through
networks of independent agents whom are supervised by regional vice presidents
and directors or Independent Marketing Organizations (IMOs). The Company's IMOs
consist of approximately 70 contracted organizations and three wholly-owned
organizations. Annuity collected premiums were $351.1 million for the second
quarter of 2000 compared to $186.0 million for the same period in 1999.
Year-to-date annuity collected premiums increased 52.8% to $648.5 million for
the first half of 2000 compared to $424.3 million for the first half of 1999.
The increase in annuity collected premiums was primarily attributable to the
introduction of new equity-index and multi-choice annuity products in late-1999
and first quarter of 2000. The multi-choice annuity product provides for various
earnings strategies under one product, such as a long-term equity index, an
annual equity index, an investment grade bond index, and a guaranteed one-year
rate. Earnings are credited to this product based on the increases in the
applicable indices, less management fees, and funds may be moved between
investment alternatives. In addition to the increases in multi-choice and
equity-index annuities, fixed annuity collected premiums increased 10.2% for the
year-to-date period in 2000 as compared to 1999 primarily due to product
repricing and increased marketing efforts aimed at these products.
27
<PAGE> 28
The following table sets forth information regarding annuities in force for
each date presented:
Annuities in Force
As of June 30,
2000 1999
------------------------------------
($ in thousands)
Deferred fixed and immediate annuities
Number of policies 163,611 174,134
GAAP life reserves $ 5,859,591 $ 5,960,581
Multi-choice annuities
Number of policies 962 -
GAAP life reserves $ 51,092 $ -
Equity-index annuities
Number of policies 12,364 6,484
GAAP life reserves $ 573,355 $ 271,700
Total annuities
Number of policies 176,937 180,618
GAAP life reserves $ 6,484,038 $ 6,232,281
The total number of annuity policies declined between periods while the
GAAP reserves on annuity policies increased. These changes between periods were
primarily attributable to an increase in the average size of policies sold
combined with surrenders of smaller average size policies.
RESULTS OF OPERATIONS
A summary of the Company's revenue follows:
28
<PAGE> 29
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------ --------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Insurance premiums
Life insurance - Traditional $ 17,121 $ 15,396 $ 31,428 $ 30,721
Annuities - Immediate annuity &
supplementary contract premiums 6,457 4,933 12,339 13,403
All other 132 56 94 96
--------- --------- --------- ---------
Total insurance premiums 23,710 20,385 43,861 44,220
Product charges
Life insurance - Universal life 12,601 11,786 24,296 23,607
Annuities 9,752 7,114 18,241 12,479
--------- --------- --------- ---------
Total product charges 22,353 18,900 42,537 36,086
Net investment income
Life insurance 25,061 22,864 49,909 43,487
Annuities 115,750 106,676 229,051 214,877
All other 1,211 127 2,916 1,268
--------- --------- --------- ---------
Total net investment income 142,022 129,667 281,876 259,632
Realized gains (losses) on investments
Life insurance - core -- -- -- --
Annuities - core 555 2,857 2,082 5,826
All other - core -- -- -- --
All other - non-core (1,148) (1,442) (5,703) (1,807)
--------- --------- --------- ---------
Total realized gains (losses) on investments (593) 1,415 (3,621) 4,019
Other income
Life insurance -- -- -- --
Annuities 5,349 1,773 9,513 3,135
All other 334 710 835 1,063
--------- --------- --------- ---------
Total other income 5,683 2,483 10,348 4,198
Contribution from the Closed Block 5,708 6,372 11,568 12,914
--------- --------- --------- ---------
Total revenues $ 198,883 $ 179,222 $ 386,569 $ 361,069
========= ========= ========= =========
</TABLE>
29
<PAGE> 30
Traditional life insurance premiums were $17.1 million for the second
quarter of 2000 compared to $15.4 million for the same period in 1999.
Year-to-date traditional life insurance premiums increased by $0.7 million to
$31.4 million for 2000 compared to $30.7 million for the same period in 1999.
The increases in traditional life insurance premiums were primarily the result
of increased renewal premium of approximately $6.0 million for the second
quarter of 2000 and $7.3 million for the first half of 2000 as compared to the
same periods in 1999. Partially offsetting the increased renewal premiums were
decreases in first year premium of approximately $2.0 million and $3.0 million
between quarterly and year-to-date periods, respectively. This decrease reflects
the shift in product focus from participating to universal products as discussed
previously. In addition, effective January 1, 2000, the Company entered into
reinsurance agreements which effectively reduced the Company's retention limit
to $100,000 for the majority of new business. Approximately $1.8 million and
$3.1 million of additional premiums were ceded to reinsurers in the second
quarter of 2000 and the first half of 2000, respectively, as compared to the
same periods in 1999, further offsetting the increased renewal premiums.
Immediate annuity and supplementary contract premiums increased by $1.6
million to $6.5 million for the second quarter of 2000 compared to $4.9 million
for the second quarter of 1999. Year-to-date, immediate annuity and
supplementary contract premiums were $12.3 million for 2000 compared to $13.4
million for the same period in 1999. A decrease in immediate annuity premiums
was anticipated in 2000 due to pricing adjustments made on these products,
although second quarter 2000 premiums did exceed premium levels as compared to
the same period a year ago.
Universal life product charges were $0.8 million higher in the second
quarter of 2000 compared to the same period in 1999 and $0.7 million higher for
the first six months of 2000 compared to the first six months of 1999. The
increases in product charges in 2000 were primarily due to increased cost of
insurance charges as a result of the normal aging and growth of the block of
business, partially offset by higher reinsurance costs.
Annuity product charges were $9.8 million for the second quarter of 2000
compared to $7.1 million for the same period in 1999. Year-to-date, annuity
product charges increased by $5.7 million to $18.2 million for 2000 compared to
$12.5 million for the same period in 1999. The increases in product charges were
primarily due to increased surrender and expense charges resulting from the
larger annuity block of business in force and increased surrender charges
associated with an increase in withdrawals. Annuity withdrawal rates averaged
15.7% in the first half of 2000 compared to 14.2% in the first half of 1999.
Slightly more than a third of the increase in withdrawal rates was due to
increased internal replacements as some of the surrendered policies were rolled
over to other AmerUs products. Based on the current interest rate environment,
withdrawal rates for the near term are expected to run at a higher level as
compared to a year ago.
Total net investment income was $142.0 million for the second quarter of
2000 compared to $129.7 million for the second quarter of 1999 and $281.9
million for the first six months of 2000 compared to $259.6 million for the same
period in 1999. The increase in 2000 net investment income was primarily
attributable to higher average invested assets (excluding market value
adjustments) and a higher effective yield as compared to 1999. Average invested
assets (excluding market value adjustments) were approximately $398.0 million
higher in 2000 as compared to 1999, primarily due to the Company's increased
investment funds from a structured asset-backed commercial paper vehicle entered
into in the third quarter of 1999 and the growth of the Company's life insurance
and annuity business since last year. The effective yield of the entire
portfolio for the first half of 2000 was 7.36% compared to 7.18% in 1999. The
effective yield of the deferred annuity product portfolio increased 13 basis
point to 6.83% for the first half of 2000 as compared to 6.70% in 1999. The
increase in effective yields primarily resulted from higher reinvestment rates
near the end of 1999 and continuing in 2000 as compared to the portfolio rate at
the beginning of the prior year period.
30
<PAGE> 31
Realized losses on investments were $0.6 million for the second quarter of
2000 and $3.6 million for the first half of 2000 compared to realized gains of
$1.4 million and $4.0 million, respectively, for the same periods in 1999. The
level of realized gains and losses will fluctuate from period to period
depending on the prevailing interest rate and economic environment and the
timing of the sale of investments.
Other income primarily consists of structured finance fees from affordable
housing programs and third party annuity commissions received by wholly-owned
IMOs. Other income increased approximately $3.2 million in the second quarter of
2000 and $6.1 million in the first half of 2000 as compared to the same periods
in 1999 primarily due to the acquisition of another IMO in February, 2000.
The Contribution from the Closed Block was $5.7 million for the second
quarter of 2000 compared to $6.4 million for the same period in 1999.
Year-to-date, the Contribution from the Closed Block was $11.6 million compared
to $12.9 million for 1999. The following table sets forth the operating results
of the Closed Block for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------------- ---------------------
($ in thousands)
<S> <C> <C> <C> <C>
Revenues
Insurance premiums $ 45,427 $ 49,638 $ 94,403 $ 98,598
Universal life and annuity product charges 3,166 3,166 6,257 6,570
Net investment income 27,529 26,355 54,823 56,006
Realized gains (losses) on investments 4 210 44 662
-------- -------- -------- --------
Total revenues 76,126 79,369 155,527 161,836
Benefits and expenses
Policyowner benefits 46,618 47,651 100,570 98,972
Underwriting, acquisition and insurance expenses 434 1,010 1,262 2,821
Amortization of deferred policy acquisition costs 3,602 5,037 7,329 12,590
Dividends to policyowners 19,764 19,299 34,798 34,539
-------- -------- -------- --------
Total benefits and expenses 70,418 72,997 143,959 148,922
-------- -------- -------- --------
Contribution from the Closed Block $ 5,708 $ 6,372 $ 11,568 $ 12,914
======== ======== ======== ========
</TABLE>
Closed Block insurance premiums were $45.4 million for the second quarter
of 2000 compared to $49.6 million for the same period in 1999. Year-to-date,
Closed Block insurance premiums decreased by $4.2 million to $94.4 million for
2000 compared to $98.6 million for the same period in 1999. The decrease in
insurance premiums is consistent with the reduction of the Closed Block's life
insurance in force that is expected to continue over the life of the Block.
Similarly, the slight decrease in product charges on universal life policies
included in the Closed Block is primarily the result of the reduction of such
business in force due to deaths and surrenders.
31
<PAGE> 32
Net investment income for the Closed Block was $27.5 million for the second
quarter of 2000 and $54.8 million for the first half of 2000 compared to $26.4
million and $56.0 million, respectively, for the same periods in 1999. The
increase in the second quarter 2000 as compared to the same period in 1999 was
primarily due to an increase in average invested assets (excluding market value
adjustments) while the decrease for the first half of 2000 as compared to the
first half of 1999 was primarily attributable to lower effective yields,
partially offset by higher average invested assets (excluding market value
adjustments).
Closed Block policyowner benefits were $1.1 million lower in the second
quarter of 2000 as compared to the same period in 1999. The decrease was
primarily due to decreased death benefits. Year-to-date, Closed Block
policyowner benefits were $1.6 million higher for 2000 as compared to 1999. The
increase was primarily due to higher death benefits which occurred in the first
quarter of 2000. Closed Block mortality for the periods was below expected
levels.
The amortization of deferred policy acquisition costs for the Closed Block
decreased by $1.4 million to $3.6 million for the second quarter of 2000
compared to $5.0 million for the second quarter of 1999. Year-to-date, the
amortization of deferred policy acquisition costs for the Closed Block decreased
$5.3 million. Deferred policy acquisition costs are generally amortized in
proportion to gross margins. The decrease in the amortization of deferred policy
acquisition costs for 2000 as compared to 1999 was consistent with the projected
reduction in the gross margins of the Closed Block as the life insurance in
force declines.
Closed Block dividends to policyowners increased by $0.5 million to $19.8
million for the second quarter of 2000 compared to $19.3 million for the same
period in 1999 and increased $0.3 million to $34.8 million for the first half of
2000 compared to $34.5 million for 1999. The increases in 2000 correspond with
the increases expected as the block of business ages.
32
<PAGE> 33
A summary of the Company's policyowner benefits follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------- ---------------------
($ in thousands)
<S> <C> <C> <C> <C>
Life Insurance
Traditional:
Death benefits $ 2,272 $ 1,723 $ 3,042 $ 2,416
Change in liability for future policy
benefits and other policy benefits 9,813 9,875 14,127 20,167
-------- -------- -------- --------
Total traditional 12,085 11,598 17,169 22,583
Universal:
Death benefits in excess of cash value 6,167 4,182 14,479 10,471
Interest credited on policyowner
account balances 8,725 7,686 16,379 15,217
Other 100 534 1,054 315
-------- -------- -------- --------
Total universal 14,992 12,402 31,912 26,003
-------- -------- -------- --------
Total life insurance benefits 27,077 24,000 49,081 48,586
Annuities
Interest credited to deferred annuity
account balances 68,094 68,280 136,316 138,020
Other annuity benefits 13,604 8,977 32,191 23,982
-------- -------- -------- --------
Total annuity benefits 81,698 77,257 168,507 162,002
All other benefits 26 20 198 108
-------- -------- -------- --------
Total policyowner benefits $108,801 $101,277 $217,786 $210,696
======== ======== ======== ========
</TABLE>
Total life insurance benefits were $27.1 million for the second quarter of
2000 compared to $24.0 million for the second quarter of 1999. Year-to-date,
total life insurance benefits increased $0.5 million to $49.1 million in 2000
compared to $48.6 million in 1999. The Company experienced favorable mortality
in 2000 as compared to 1999 as measured per amount in force. An increase in life
insurance benefits is expected as the traditional and universal blocks of
business continue to grow. However, the Company entered into additional
reinsurance agreements which effectively reduced the Company's retention limit
to $100,000 for the majority of new business. Increased reserve credits
associated with the new reinsurance agreements offset traditional life insurance
benefit expense contributing to only a modest increase in this expense for the
second quarter of 2000 and a reduction in this expense for the first half of
2000, as compared to the same periods in 1999. In addition, lower discretionary
premium contributions in the first quarter of 2000 further contributed to the
decrease in traditional life insurance benefit expense. Universal life insurance
benefits increased in the second quarter of 2000 and the first half of 2000 as
compared to the same periods in 1999. Death benefits increased as expected with
the growth of the business in force. Interest credited on universal policyowner
account balances increased $1.0 million for
33
<PAGE> 34
the second quarter of 2000 and $1.2 million for the first half of 2000 compared
to the same periods in 1999 primarily due to higher policyowner account
balances. Average policyowner account balances were approximately $22.0 million
higher for the first half of 2000 as compared to the first half of 1999. The
weighted average interest crediting rate on policyowner account balances
remained constant at 5.62% between 2000 and 1999.
Annuity benefits were $81.7 million for the second quarter of 2000 compared
to $77.3 million for the same period in 1999. Year-to-date, annuity benefits
were $168.5 million in 2000 compared to $162.0 million in 1999. The increase was
primarily in other annuity benefits which included approximately $4.2 million of
interest expense for the quarter, and $8.1 million year-to-date, on an insurance
contract issued to a commercial paper conduit in mid-1999. Partially offsetting
this increase in other annuity benefits was a decrease in interest credited to
deferred annuity account balances. This decrease was primarily attributable to a
lower weighted average crediting rate in 2000 compared to 1999. The weighted
average crediting rate on deferred annuity account balances was decreased 12
basis points to 4.88% for the first half of 2000 compared to 5.00% for the first
half of 1999. As a result of the crediting rate decrease combined with the
increase in the deferred annuity product investment portfolio yield, GAAP
spreads widened 25 basis points in the first half of 2000 as compared to the
same period in 1999.
34
<PAGE> 35
A summary of the Company's expenses follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------- ------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Life Insurance
Underwriting, acquisition and
other expenses $ 15,360 $ 14,417 $ 25,144 $ 26,592
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of $62 and $389
for the three months ended June 30,
2000 and 1999, respectively, and $83 and
$704 for the six months ended June 30,
2000 and 1999, respectively 3,926 5,711 9,736 10,728
-------- -------- -------- --------
Total life insurance 19,286 20,128 34,880 37,320
Annuities
Underwriting, acquisition and
other expenses 14,242 9,480 25,632 19,056
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of ($4,397) and $781
for the three months ended June 30,
2000 and 1999, respectively, and ($3,798) and
$978 for the six months ended June 30,
2000 and 1999, respectively 16,949 12,705 32,839 24,161
-------- -------- -------- --------
Total annuities 31,191 22,185 58,471 43,217
Amortization of deferred policy acquisition costs due
to non-core realized gains or losses (4,335) 1,170 (3,715) 1,682
All other expenses 1,827 1,459 4,361 2,126
Reorganization costs 1,575 -- 2,025 --
-------- -------- -------- --------
Total expenses $ 49,544 $ 44,942 $ 96,022 $ 84,345
======== ======== ======== ========
</TABLE>
Total life insurance expenses were $19.3 million for the second quarter of
2000 compared to $20.1 million for the second quarter of 1999 and $34.9 million
for the first half of 2000 compared to $37.3 million for the same period in
1999. Underwriting, acquisition and insurance expenses were higher in the second
quarter of 2000 compared to the same period in 1999 primarily due to lower
distribution allowances associated with the Company's variable life insurance
joint venture. Year-to-date, underwriting, acquisition and other expenses were
$1.5 million lower in 2000 compared to 1999 primarily due to decreased
technology costs primarily related to the Year 2000 Compliance Project and costs
associated with the Company's enhancement of its distribution systems.
Amortization of deferred policy acquisition costs and value of business acquired
(VOBA) decreased $1.8 million for the second quarter of 2000 compared to the
same period in 1999 and decreased $1.0 million for the first half of 2000
compared to the first half of 1999. Deferred policy acquisition costs are
generally amortized in proportion to gross margins. The decrease in amortization
in 2000 was primarily due to the increase in estimated future gross margins
resulting from the new reinsurance agreements that went into effect earlier this
year.
35
<PAGE> 36
Total annuity expenses increased by $9.0 million to $31.2 million for the
second quarter of 2000 compared to $22.2 million for the second quarter of 1999.
Year-to-date, total annuity expenses were $58.5 million compared to $43.2
million for the same period in 1999. Underwriting, acquisition and insurance
expenses increased approximately $6.5 million in the first half of 2000 compared
to the same period in 1999 primarily due to additional insurance agent related
expenses, such as recruiting and annual conventions, increased incentive
compensation and the additional operating costs associated with the new IMO
acquired in the first quarter of 2000. The increase in expense due to the new
IMO was offset by the increase in other income from the IMO as discussed
previously. Amortization of deferred policy acquisition costs and VOBA increased
$4.2 million in the second quarter of 2000 and $8.6 million in the first half of
2000 as compared to the same periods in 1999. The increase in amortization was
primarily attributable to the general growth in the deferred policy acquisition
cost asset associated with the continued growth in annuity sales. In addition,
VOBA amortization increased in 2000 as surrenders of those policies associated
with the VOBA asset increased during the period.
Other expenses increased by $0.3 million for the second quarter of 2000 and
$2.3 million for the first half of 2000 compared to the same periods in 1999
primarily due to increased incentive compensation at the holding company.
The 2000 reorganization costs consist of legal and consulting expenses
associated with the Company's proposed merger with its controlling shareholder,
AMHC, following the proposed demutualization of AMHC. See further discussion of
these proposed reorganization plans in the Liquidity and Capital Resources
section. As these costs are not of a continuing nature, they have been excluded
from the Operating Segment amounts.
A summary of the Company's income from operations by operating segment
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------- -----------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Life Insurance
Open Block:
Revenues $ 54,783 $ 50,046 $ 105,633 $ 97,815
Benefits and expenses (46,363) (44,128) (83,961) (85,906)
Dividends to policyowners (1,562) (1,047) (2,698) (2,023)
Closed Block contribution 5,708 6,372 11,568 12,914
--------- --------- --------- ---------
Adjusted pre-tax operating income 12,566 11,243 30,542 22,800
Annuities
Revenues 137,863 123,353 271,226 249,720
Benefits and expenses (112,889) (99,442) (226,978) (205,219)
--------- --------- --------- ---------
Adjusted pre-tax operating income 24,974 23,911 44,248 44,501
All other adjusted pre-tax operating (loss) (176) (586) (714) 193
--------- --------- --------- ---------
Total adjusted pre-tax operating income $ 37,364 $ 34,568 $ 74,076 $ 67,494
========= ========= ========= =========
</TABLE>
36
<PAGE> 37
Adjusted pre-tax operating income from Life Insurance operations was $12.6
million for the second quarter of 2000 compared to $11.2 million for the second
quarter of 1999. Year-to-date, adjusted pre-tax operating income from Life
Insurance operations was $30.5 million in 2000 compared to $22.8 million in
1999. The increase in adjusted pre-tax operating income in 2000 compared to 1999
was primarily due to increased investment income.
Adjusted pre-tax operating income from Annuity operations increased $1.1
million to $25.0 million for the second quarter of 2000 compared to $23.9
million for the same period in 1999 and decreased $0.3 million to $44.2 million
for the first half of 2000 compared to $44.5 million in 1999. The increase in
the second quarter of 2000 was primarily due to increased interest spreads. The
decrease in the first half of 2000 was primarily due to increased amortization
of the VOBA asset related to the increased surrenders of the associated block of
business, which was partially offset by increased surrender charge income and
interest spreads.
All other adjusted pre-tax operating loss was $0.2 million for the second
quarter of 2000 and $0.6 million for the same period in 1999. Year-to-date, all
other adjusted pre-tax operating loss was $0.7 million in 2000 compared to
pre-tax income of $0.2 million for the same period in 1999. The changes in
pre-tax income in 2000 as compared to 1999 were primarily due to changes in
holding company expense levels.
Interest expense increased $0.4 million in the second quarter of 2000 to
$7.9 million compared to $7.5 million in the second quarter of 1999.
Year-to-date, interest expense was $15.2 million in 2000 compared to $14.8
million in 1999. The increased interest expense in 2000 was primarily due to
higher average outstanding borrowings during the first half of 2000 as compared
to the first half of 1999. The additional borrowings were primarily used to
support insurance company operations, affordable housing investments, fund the
acquisition of the new IMO, and fund a portion of the initial investment in the
downstream holding company of Indianapolis Life Insurance Company (ILICO). See
further discussion of the ILICO investment in the Liquidity and Capital
Resources section of Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Income tax expense was $10.8 million for the second quarter of 2000
compared to $8.1 million for the second quarter of 1999 and $19.6 million for
the first half of 2000 compared to $16.3 million for the same period in 1999.
The effective tax rate for the first half of 2000 was 34.6% compared to 33.3%
for 1999. The increase in the effective tax rate in 2000 was primarily due to a
$1.7 million decrease in tax credits generated by affordable housing and
historic rehabilitation investments, partially offset by an increased dividend
received deduction. Tax credits generated from affordable housing and historic
rehabilitation investments totaled $0.6 million for the first half of 2000
compared to $2.3 million for the first half of 1999.
The equity in earnings of unconsolidated subsidiary represents 34% of the
net income of AMAL Corporation, net of goodwill amortization. AMAL Corporation
is the parent company of Ameritas Variable Life Insurance Company, the joint
venture partner that markets variable life, and variable and select fixed
annuity products.
Net income was $20.6 million for the second quarter of 2000 compared to
$16.6 million for the same period in 1999. Year-to-date, net income was $36.3
million in 2000 compared to $33.5 million in 1999. Pre-tax adjusted operating
income increased $2.8 million between second quarter periods and $6.6 million
between year-to-date periods due to the results of the Life Insurance and
Annuity operations discussed previously. Partially offsetting these operating
income increases were increases in interest expense, higher effective income tax
rates, and decreased non-core realized gains.
37
<PAGE> 38
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest income on loans and advances to its
subsidiaries (including a surplus note issued to the Company by AmerUs Life),
investment income on assets held by the Company and fees which the Company
charges its subsidiaries and certain other of its affiliates for services,
offset by the expenses incurred for debt service, salaries and other expenses.
The Company intends to rely primarily on dividends and interest income from
its life insurance subsidiaries in order to make dividend payments to its
shareholders. The payment of dividends by its life insurance subsidiaries is
regulated under various state laws. Under Iowa law, AmerUs Life and Delta Life
may pay dividends only from the earned surplus arising from their respective
businesses and must receive the prior approval of the Iowa Insurance
Commissioner to pay any dividend that would exceed certain statutory
limitations. The current statute limits any dividend, together with dividends
paid out within the preceding 12 months, to the greater of (i) 10% of the
respective company's policyowners' surplus as of the preceding year end or (ii)
the net gain from operations for the previous calendar year. Iowa law gives the
Iowa Commissioner broad discretion to disapprove requests for dividends in
excess of these limits. The payment of dividends by AmVestors' subsidiaries,
American Investors Life Insurance Company, Inc. (American), and Financial
Benefit Life Insurance Company (FBL) is regulated under Kansas law, which has
statutory limitations similar to those in place in Iowa. Based on these
limitations and 1999 results, the Company's subsidiaries could pay an estimated
$61.1 million in dividends in 2000 without obtaining regulatory approval. Of
this amount, the Company's subsidiaries paid the Company $20 million in
dividends during the first six months of 2000.
The Company and its subsidiaries generated cash flows from operating
activities of $209.4 million and $437.9 million for the six months ended June
30, 2000 and 1999, respectively. Excess operating cash flows were primarily used
to increase the Company's investment portfolio.
The Company has a $150 million revolving credit facility with a syndicate
of lenders (the "Bank Credit Facility"). As of June 30, 2000, there was a $69
million outstanding loan balance under the facility. The Bank Credit Facility
provides for typical events of default and covenants with respect to the conduct
of the business of the Company and its subsidiaries and requires the maintenance
of various financial levels and ratios. Among other covenants, the Company (a)
cannot have a leverage ratio greater than 0.35:1.0 or an interest coverage ratio
less than 2.25:1.0, (b) is prohibited from paying cash dividends on its common
stock in excess of an amount equal to 3% of its consolidated net worth as of the
last day of the preceding fiscal year, and (c) must cause certain of its
subsidiaries, including AmerUs Life and Delta Life, to maintain certain ratings
from A.M. Best and certain levels of risk-based capital.
The Company is a party to a $250 million separate account funding
agreement. Under this agreement, a five-year floating rate insurance contract is
issued to a commercial paper conduit. The funding agreement is secured by assets
in the Company's separate account and is further backed by the general account
assets. The separate account assets are legally segregated and are not subject
to claims that arise out of any other business of the Company. The separate
account assets and liabilities are included with general account assets in the
financial statements. The funding agreement may not be cancelled by the
commercial paper conduit unless there is a default under the agreement, but the
Company may terminate at any time.
During the first six months of 2000, the Company purchased 75,000 shares of
common stock for the treasury at a total cost of $1.5 million.
38
<PAGE> 39
On December 20, 1999, the Company and the Company's controlling
shareholder, AMHC, announced that their respective boards of directors had
approved plans for the demutualization of AMHC and the merger of the Company
into AMHC following the demutualization. Upon completion of the demutualization,
AMHC will be a public company. AMHC will change its name to AmerUs Group Co.
("AmerUs Group") and be traded on the New York Stock Exchange under the symbol
"AMH". Members of AMHC will receive approximately 17 million shares of AmerUs
Group and cash or policy credits in excess of $300 million as a result of the
demutualization. Shareholders of the Company will receive shares in AmerUs Group
in a one-for-one exchange. On June 22, 2000, the shareholders of the Company
approved the merger, with 92 percent of the outstanding shares voting in favor
of the plan. On the same date, the members of AMHC approved the demutualization
and merger. Of those members voting on the plan of conversion, 98 percent voted
in favor of the plan. On August 1, 2000, the Iowa Insurance Commissioner issued
an order approving AMHC's plan of conversion. This completes the approvals
needed for the demutualization and merger. AMHC expects to be able to complete
all other steps necessary for the demutualization to become effective by late
August 2000 and to distribute AmerUs Group stock, cash and policy credits to
eligible members in late September 2000.
On February 18, 2000, the Company, AMHC and ILICO entered into a definitive
agreement for a combination of the companies. ILICO will demutualize separately
and ILICO's members will receive cash, policy credits and stock equivalent to
the value of 11.25 million shares of stock of AmerUs Group. Upon
demutualization, ILICO will become a subsidiary of AmerUs Group and will
continue operations as a stock life insurance company. As part of the
transaction, the Company made an investment of $100 million in a downstream
holding company of ILICO. ILICO is a 95-year old mutual life insurance and
annuity company based in Indianapolis, Indiana. ILICO and its subsidiaries are
licensed to do business in all 50 states and the District of Columbia. At June
30, 2000, ILICO had total assets of $6.0 billion and insurance in force of $30.4
billion. The contemplated transactions are subject to normal closing conditions,
including appropriate policyholder/member, shareholder and regulatory approvals.
The Company expects the demutualization of ILICO and combination with AmerUs
Group to take place in the first quarter of 2001.
LIFE INSURANCE SUBSIDIARIES
The cash flows of the Company's life insurance subsidiaries consist
primarily of premium income, deposits to policyowner account balances, income
from investments, sales, maturities and calls of investments and repayments of
investment principal. Cash outflows are primarily related to withdrawals of
policyowner account balances, investment purchases, payment of policy
acquisition costs, payment of policyowner benefits, payment of debt, income
taxes and current operating expenses. Life insurance companies generally produce
a positive cash flow from operations, as measured by the amount by which cash
flows are adequate to meet benefit obligations to policyowners and normal
operating expenses as they are incurred. The remaining cash flow is generally
used to increase the asset base to provide funds to meet the need for future
policy benefit payments and for writing new business.
Management anticipates that funds to meet its short-term and long-term
capital expenditures, cash dividends to shareholders and operating cash needs
will come from existing capital and internally generated funds. Management
believes that the current level of cash and available-for-sale and short-term
securities, combined with expected net cash inflows from operations, maturities
of fixed maturity investments, principal payments on mortgage-backed securities
and its insurance products, will be adequate to meet the anticipated short-term
cash obligations of the Company's life insurance subsidiaries.
Matching the investment portfolio maturities to the cash flow demands of
the type of insurance being provided is an important consideration for each type
of life insurance product and annuity. The Company continuously monitors
benefits and surrenders to provide projections of future cash requirements. As
part of this monitoring process, the Company performs cash flow testing of its
assets and liabilities under various scenarios to evaluate the adequacy of
reserves. In developing its investment strategy, the Company establishes a level
of cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage-
39
<PAGE> 40
backed securities, are believed adequate to meet anticipated short-term and
long-term benefit and expense payment obligations. There can be no assurance
that future experience regarding benefits and surrenders will be similar to
historic experience since withdrawal and surrender levels are influenced by such
factors as the interest rate environment and the claims-paying and financial
strength ratings of the Company's life insurance subsidiaries.
The Company takes into account asset/liability management considerations in
the product development and design process. Contract terms for the Company's
interest-sensitive products include surrender and withdrawal provisions which
mitigate the risk of losses due to early withdrawals. These provisions generally
do one or more of the following: limit the amount of penalty-free withdrawals,
limit the circumstances under which withdrawals are permitted, or assess a
surrender charge or market value adjustment relating to the underlying assets.
The following table summarizes liabilities for interest- sensitive life products
and annuities by their contractual withdrawal provisions at June 30, 2000
(including liabilities in both the Closed Block and the general account):
($ in millions)
Not subject to discretionary withdrawal $ 369.1
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) 4,458.0
Market value adjustments 1,414.6
---------
Subtotal 5,872.6
---------
Subject to discretionary withdrawal without adjustments 1,469.0
---------
Total $ 7,710.7
=========
(A) Includes $1,156.4 million of statutory liabilities with a contractual
surrender charges of less than five percent of the account balance.
AmerUs Life and its joint venture partner are contingently liable in the
event the joint venture, AVLIC, cannot meet its obligations. At June 30, 2000,
AVLIC had statutory assets of $2,646.0 million, liabilities of $2,602.1 million
and surplus of $43.9 million.
Through its membership in the Federal Home Loan Bank (FHLB) of Des Moines,
AmerUs Life and American are eligible to borrow under variable-rate short term
fed funds arrangements to provide additional liquidity. These borrowings are
secured and interest is payable at the current rate at the time of any advance.
There were no borrowings under these arrangements outstanding at June 30, 2000.
In addition, AmerUs Life has long-term advances from FHLB outstanding of $15.9
million at June 30, 2000.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments. The Company's investment portfolio as of June 30, 2000 had
a carrying value of $9 billion, including Closed Block investments.
At June 30, 2000, the statutory capital and surplus of the Company's
subsidiaries was approximately $437.1 million. The Company believes that this
level of statutory capital is more than adequate as each life insurance
subsidiary's risk-based capital is significantly in excess of required levels.
40
<PAGE> 41
In the future, in addition to their cash flows from operations and
borrowing capacity, the life insurance subsidiaries would anticipate obtaining
their required capital from the Company as the Company will have access to the
public debt and equity markets.
YEAR 2000 COMPLIANCE
In connection with the year 2000, an important business issue emerged
regarding how existing application software programs and operating systems could
accommodate the date value "2000". Many existing application software products
were designed to accommodate only a two-digit date position which represents the
year (i.e., the number "95" is stored on the system and represents the year
1995). As a result, the year 1999 (i.e., "99") is the maximum date value many
information technology systems will be able to process accurately.
The Company formed a Year 2000 working group to address potential problems
posed by this development to assure that the Company was prepared for the year
2000. The Company's overall Year 2000 compliance initiatives included the
following components: (i) assessment of all business critical systems (business
critical systems include computer and embedded systems); processes and external
interfaces and dependencies; (ii) remediation or upgrading of business critical
systems; (iii) testing of both modified and updated systems as well as
integrated systems testing; (iv) implementation of modified and updated systems;
and (v) contingency planning.
The Company completed the Year 2000 modifications, conversions and testing
and, to date, has not experienced any significant operational difficulties in
2000.
Total costs associated with Year 2000 modifications and conversions were
approximately $8.5 million. These costs were expensed as incurred.
41
<PAGE> 42
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The main objectives in managing the investment portfolios of the Company
and its insurance subsidiaries are to maximize investment income and total
investment returns while minimizing credit risks in order to provide maximum
support to the insurance underwriting operations. Investment strategies are
developed based on many factors including asset liability management, regulatory
requirements, fluctuations in interest rates and consideration of other market
risks. Investment decisions are centrally managed by investment professionals
based on guidelines established by management and approved by the boards of
directors.
Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. The market risks related to financial
instruments of the Company and its subsidiaries primarily relate to the
investment portfolio, which exposes the Company to risks related to interest
rates and, to a lesser extent, credit quality and prepayment variation.
Analytical tools and monitoring systems are in place to assess each of these
elements of market risk.
Interest rate risk is the price sensitivity of a fixed income security to
changes in interest rates. Management views these potential changes in price
within the overall context of asset and liability management. Company actuaries
estimate the payout pattern of the Company's liabilities, primarily the
Company's lapsation, to determine duration, which is the present value of the
fixed income investment portfolios after consideration of the duration of these
liabilities and other factors, which management believes mitigates the overall
effect of interest rate risk for the Company.
The table below provides information about the Company's fixed maturity
investments and mortgage loans at June 30, 2000. The table presents cash flows
of principal amounts and related weighted average interest rates by expected
maturity dates. The cash flows are based on the earlier of the call date or the
maturity date or, for mortgage-backed securities, expected payment patterns.
Actual cash flows could differ from the expected amounts.
<TABLE>
<CAPTION>
EXPECTED CASH FLOWS
($ in millions)
6 mos
Amortized 2000 2001 2002 2003 2004 2005 Thereafter Cost
--------- ----- ---- ---- ---- ---- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities $ 94 $374 $467 $871 $702 $806 $3,841 $7,155
Average interest rate 7.2% 7.1% 7.2% 6.6% 6.5% 6.4% 7.6%
Mortgage loans $ 14 $ 38 $ 28 $ 34 $ 40 $ 29 $ 302 $ 485
Average interest rate 8.3% 8.4% 8.5% 8.3% 8.3% 8.2% 8.0%
Total $108 $412 $495 $905 $742 $835 $4,143 $7,640
=================================================================================
</TABLE>
The Company and its subsidiaries have consistently invested in high quality
marketable securities. As a result, management believes that the Company has
minimal credit quality risk. Fixed maturity securities are comprised of U.S.
Treasury, government agency, mortgage-backed and corporate securities.
Approximately 69% of fixed maturity securities are issued by the U.S. Treasury
or U.S. government agencies or are rated A or better by Moody's, Standard and
Poor's, or the NAIC. Less than 7% of the bond portfolio is below investment
grade. Fixed maturity securities have a weighted average maturity of
approximately 7.54 years.
42
<PAGE> 43
Prepayment risk refers to the changes in prepayment patterns that can
either shorten or lengthen the expected timing of the principal repayments and
thus the average life and the effective yield of a security. Such risk exists
primarily within the Company's portfolio of mortgage-backed securities.
Management monitors such risk regularly. The Company invests primarily in those
classes of mortgage-backed securities that are less subject to prepayment risk.
The Company's use of derivatives is generally limited to hedging purposes
and has principally consisted of using interest rate swaps, caps, swaptions and
options. These instruments, viewed separately, subject the Company to varying
degrees of market and credit risk. However when used for hedging, the
expectation is that these instruments would reduce overall market risk. Credit
risk arises from the possibility that counterparties may fail to perform under
the terms of the contracts.
Equity price risk is the potential loss arising from changes in the value
of equity securities. In general, equities have more year-to-year price
variability than intermediate term grade bonds. However, returns over longer
time frames have been consistently higher. The Company's equity securities are
high quality and readily marketable.
All of the above risks are monitored on an ongoing basis. A combination of
in-house systems and proprietary models and externally licensed software are
used to analyze individual securities as well as each portfolio. These tools
provide the portfolio managers with information to assist them in the evaluation
of the market risks of the portfolio.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company and its subsidiaries are
parties to certain other litigation, none of which management believes is
material to the Company's results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of its shareholders on May 5, 2000.
There were three matters voted upon at the meeting. The first was the election
of directors. The nominees, Messrs. Malcolm Candlish, Ralph W. Laster, Jr. and
John W. Norris, Jr. were elected to three-year terms. Other directors continuing
to serve are John R. Albers, Roger K. Brooks, Maureen M. Culhane, Thomas F.
Gaffney, Jack C. Pester and John A. Wing.
The second matter voted upon resulted in the approval of the 2000 Incentive
Plan and reservation of shares for issuance thereunder.
The third matter voted upon resulted in the ratification of the appointment
of KPMG LLP as independent auditors for the Company for the fiscal year ending
December 31, 2000.
The results of the balloting were as follows:
AGAINST OR ABSTENTIONS
FOR WITHHELD BROKER NON-VOTES
--- ---------- ----------------
Election of Directors:
Malcolm Candlish 28,273,029 48,430 -
Ralph W. Laster, Jr. 28,268,173 53,286 -
John W. Norris, Jr. 28,273,262 48,197 -
43
<PAGE> 44
AGAINST OR ABSTENTIONS
FOR WITHHELD BROKER NON-VOTES
--- ---------- ----------------
Approval of the 2000 Incentive Plan 22,262,792 4,211,539 32,680
Ratification of KPMG LLP 28,282,010 18,020 21,429
The Company held a special meeting of its shareholders on June 22, 2000.
There was one matter voted upon at the meeting. Shareholders of record as of
March 31, 2000 were asked to consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated December 17, 1999, as amended, between the
Company and American Mutual Holding Company, its parent company, pursuant to
which the Company would merge with and into American Mutual Holding Company. In
the merger, each share of the Company's Class A common stock outstanding on the
effective date of the merger would convert into one share of American Mutual
Holding Company common stock.
The results of the balloting were as follows:
AGAINST OR ABSTENTIONS
FOR WITHHELD BROKER NON-VOTES
--- ---------- ----------------
Approval of the Agreement and Plan of
Merger 27,462,407 110,596 17,438
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this report is set forth in the
Exhibit Index which immediately precedes such exhibits and is hereby
incorporated by reference herein.
(b) The following reports on Form 8-K were filed during the quarter ended
June 30, 2000:
Form 8-K dated June 26, 2000 announcing the shareholder approval of the
merger of the Company with and into AMHC.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DATED: August 14, 2000 AMERUS LIFE HOLDINGS, INC.
By /s/ Michael G. Fraizer
----------------------------------
Executive Vice President and
Chief Financial Officer
By /s/ Brenda J. Cushing
----------------------------------
Vice President and Controller
(Principal Accounting Officer)
45
<PAGE> 46
AMERUS LIFE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
2.1 Plan of Reorganization dated October 27, 1995, filed as Exhibit 2.1
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
September 19, 1997 and as amended and restated as of October 8,
1997, by and among the Registrant, AFC Corp. and AmVestors Financial
Corporation ("AmVestors"), filed as Exhibit 2.2 to the Registration
Statement of the Registrant on Form S-4, Registration Number
333-40065 is hereby incorporated by reference.
2.3 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a wholly
owned subsidiary of the Registrant and Delta Life Corporation, filed
as Exhibit 2.2 to Form 8-K of the Registrant dated October 8, 1997,
is hereby incorporated by reference.
2.4 Combination and Investment Agreement, dated February 18, 2000, among
American Mutual Holding Company, the Registrant, Indianapolis Life
Insurance Company and The Indianapolis Life Group of Companies,
Inc., filed as Exhibit 2.1 to the Registrant's report on Form 8-K/A
on March 6, 2000, is hereby incorporated by reference.
2.5 Purchase Agreement, dated as of February 18, 2000, by and between
American Mutual Holding Company and the Registrant, filed as Exhibit
2.5 on Form 10-K, dated March 8, 2000, is hereby incorporated by
reference.
2.6 Agreement and Plan of Merger, dated December 17, 1999, by and between
American Mutual Holding Company and the Registrant, filed as
Exhibit 2.6 on Form 10-K, dated March 8, 2000, is hereby incorporated
by reference.
2.7 Amendment No. 1 to Agreement and Plan of Merger, dated
February 18, 2000, by and between American Mutual Holding Company and
the Registrant, filed as Exhibit 2.7 on Form 10-K, dated March 8,
2000, is hereby incorporated by reference.
2.8 Letter agreement, dated December 17, 1999, by and between American
Mutual Holding Company and the Registrant, filed as Exhibit 2.8 on
Form 10-K, dated March 8, 2000, is hereby incorporated by reference.
2.9 Notification Agreement, dated as of February 18, 2000, by and among
American Mutual Holding Company, the Registrant and Bankers Trust
Company, filed as Exhibit 2.9 on Form 10-K, dated March 8, 2000, is
hereby incorporated by reference.
2.10 Amendment No. 2 to Agreement and Plan of Merger, dated April 3, 2000,
by and between American Mutual Holding Company and the Registrant,
filed as Exhibit 2.10 on Form 10-Q, dated May 15, 2000, is hereby
incorporated by reference.
2.11 Amendment No. 1 to the Purchase Agreement, dated April 3, 2000, by
and between American Mutual Holding Company and the Registrant, filed
as Exhibit 2.11 on Form 10-Q, dated May 15, 2000, is hereby
incorporated by reference.
3.1 Amended and Restated Articles of Incorporation of the Registrant
filed as Exhibit 3.5 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, are hereby incorporated
by reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, are hereby incorporated by reference.
3.3 Articles of Amendment of the Registrant dated September 25, 1998,
filed as Exhibit 3.3 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
46
<PAGE> 47
4.1 Amended and Restated Trust Agreement dated as of February 3, 1997
among the Registrant, Wilmington Trust Company, as property trustee,
and the administrative trustees named therein (AmerUs Capital I
business trust), filed as Exhibit 3.6 to the registration statement
of the Registrant and AmerUs Capital I on Form S-1, Registration
Number 333-13713, is hereby incorporated by reference.
4.2 Indenture dated as of February 3, 1997 between the Registrant and
Wilmington Trust Company relating to the Company's 8.85% Junior
Subordinated Debentures, Series A, filed as Exhibit 4.1 to the
registration statement of the Registrant and AmerUs Capital I on
Form S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.3 Guaranty Agreement dated as of February 3, 1997 between the
Registrant, as guarantor, and Wilmington Trust Company, as trustee,
relating to the 8.85% Capital Securities, Series A, issued by AmerUs
Capital I, filed as Exhibit 4.4 to the registration statement on
Form S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.4 Common Stock Purchase Warrant, filed as Exhibit (10)(v) to Form 10-Q
of AmVestors Financial Corporation dated May 13, 1992, is hereby
incorporated by reference.
4.5 Amended and Restated Declaration of Trust of AmerUs Capital II, dated
as of July 27, 1998, among the Registrant, First Union Trust Company
and the administrative trustees named therein, relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.5 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.6 Certificate of Trust of AmerUs Capital III filed as Exhibit 4.7 to
the registration statement of the Registrant, AmerUs Capital II and
AmerUs Capital III, on Form S-3 (No. 333-50249), is hereby
incorporated by reference.
4.7 Common Trust Securities Guarantee Agreement, dated as of July
27, 1998, by the Registrant, relating to the Registrant's 7.0% ACES
Units, filed as Exhibit 4.7 on Form 10-Q, dated August 13, 1998, is
hereby incorporated by reference.
4.8 QUIPS Guarantee Agreement, dated as of July 27, 1998, by the
Registrant, relating to the Registrant's 7.0% ACES Units, filed as
Exhibit 4.8 on Form 10-Q, dated August 13, 1998, is hereby
incorporated by reference.
4.9 Master Unit Agreement, dated as of July 27, 1998, between the
Registrant and First Union National Bank relating to the Registrant's
7.0% ACES Units, filed as Exhibit 4.9 on Form 10-Q, dated August 13,
1998, is hereby incorporated by reference.
4.10 Call Option Agreement, dated as of July 27, 1998, between Goldman,
Sachs & Co. and First Union National Bank relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.10 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.11 Pledge Agreement, dated as of July 27, 1998, among the Registrant,
Goldman, Sachs & Co. and First Union National Bank relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.11 on Form 10-Q,
dated August 13, 1998, is hereby incorporated by reference.
4.12 Senior Indenture, dated as of June 16, 1998, by and between the
Registrant and First Union National Bank, as Indenture Trustee,
relating to the Registrant's 6.95% Senior Notes, filed as Exhibit
4.14 on Form 10-Q, dated August 13, 1998, is hereby incorporated by
reference.
4.13 Subordinated Indenture, dated as of July 27, 1998, by and between the
Registrant and First Union National Bank, as Indenture Trustee,
relating to the Registrant's 6.86% Junior Subordinated Deferrable
Interest Debentures, filed as Exhibit 4.15 on Form 10-Q, dated August
13, 1998, is hereby incorporated by reference.
10.1 Amended and Restated Intercompany Agreement dated as of
December 1, 1996, among American Mutual Holding Company, AmerUs Group
Co. and the Company. Filed as Exhibit 10.81 to the Registrant's
registration statement on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.2 Joint Venture Agreement, dated as of June 30, 1996, between American
Mutual Insurance Company and Ameritas Life Insurance Corp., filed as
Exhibit 10.2 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.3 Management and Administration Service Agreement, dated as of April
1, 1996, among American Mutual Life Insurance Company, Ameritas
Variable Life Insurance Company and Ameritas Life Insurance Corp.,
filed as Exhibit 10.3 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
47
<PAGE> 48
10.4 AmerUs Life Holdings, Inc. Executive Stock Purchase Plan, dated
November 13, 1998, filed as Exhibit 4.11 to the registration
statement of the Registrant on Form S-8, Registration Number
333-72237, is hereby incorporated by reference.
10.5 All*AmerUs Supplemental Executive Retirement Plan, effective January
1, 1996, filed as Exhibit 10.6 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.6 Management Incentive Plan, filed as Exhibit 10.9 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.7 AmerUs Life Insurance Company Performance Share Plan, filed as
Exhibit 10.10 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.8 AmerUs Life Stock Incentive Plan, filed as Exhibit 10.11 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.9 AmerUs Life Non-Employee Director Stock Plan, filed as Exhibit 10.13
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.10 Form of Indemnification Agreement executed with directors and certain
officers, filed as Exhibit 10.33 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.11 Tax Allocation Agreement dated as of November 4, 1996, filed as
Exhibit 10.68 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.12 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a
wholly-owned subsidiary of the Registrant and Delta Life
Corporation, filed as Exhibit 2.2 to the Registrant's report on Form
8-K on October 8, 1997, is hereby incorporated by reference.
10.13 Credit Agreement, dated as of October 23, 1997, among the
Registrant, Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit
10.84 to the registration statement of the Registrant on Form S-4,
Registration Number 333-40065, is incorporated by reference.
10.14 Coinsurance Agreement, effective February 1, 1996, between Delta Life
and Annuity Company and London Life Reinsurance Company, filed as
Exhibit 10.85 to the registration statement of the Registrant on Form
S-4, Registration Number 333-40065, is incorporated by reference.
10.15 AmVestors Financial Corporation 1996 Incentive Stock Option Plan,
filed as Exhibit (4)(a) to Registration Statement of AmVestors
Financial Corporation on Form S-8, Registration Number 333-14571
dated October 21, 1996, is hereby incorporated by reference.
10.16 1989 Non-Qualified Stock Option Plan adopted March 17, 1989, filed as
Exhibit (10)(q) to Form 10-K of AmVestors Financial Corporation,
dated April 12, 1989, is hereby incorporated by reference.
10.17 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, property 611
Fifth Avenue, Des Moines, Iowa, filed as Exhibit 10.58 on Form 10-K,
dated March 25, 1998, is hereby incorporated by reference.
10.18 First Amendment dated February 1, 1998 to Lease Agreement dated
December 1, 1996 between AmerUs Properties, Inc. and AmerUs Life
Insurance Company, property 611 Fifth Avenue, Des Moines, Iowa, filed
as Exhibit 10.59 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.19 Lease - Business Property, dated December 1, 1999, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, property 611
Fifth Avenue, Des Moines, Iowa, filed as Exhibit 10.19 on Form 10-K,
dated March 8, 2000, is hereby incorporated by reference.
10.20 Lease - Assignment & Assumption Agreement - Business Property, dated
December 15, 1999, between AmerUs Properties, Inc. and 611 Fifth
Avenue, L.L.C., property 611 Fifth Avenue, Des Moines, Iowa, filed as
Exhibit 10.20 on Form 10-K, dated March 8, 2000, is hereby
incorporated by reference.
48
<PAGE> 49
10.21 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, 1213 Cherry
Street, Des Moines, Iowa, filed as Exhibit 10.60 on Form 10-K, dated
March 25, 1998, is hereby incorporated by reference.
10.22 Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and the Registrant, property 418 Sixth Avenue
Moines, Iowa, filed as Exhibit 10.61 on Form 10-K, dated
March 25, 1998, is hereby incorporated by reference.
10.23 Revised and Restated Lease - Business Property, dated May 28, 1998,
between AmerUs Properties, Inc. and the Registrant property, 699
Walnut Street, Des Moines, Iowa, filed as Exhibit 10.26 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
10.24 Addendum, dated May 28, 1998 to lease dated May 28, 1998 between
AmerUs Properties and the Registrant, filed as Exhibit 10.27 on Form
10-K, dated March 30, 1999, is hereby incorporated by reference.
10.25 Addendum II, dated July 21, 1998, to lease dated May 28, 1998 between
AmerUs Properties and the Registrant, filed as Exhibit 10.28 on Form
10-K, dated March 30, 1999, is hereby incorporated by reference.
10.26 Servicing Agreement, dated March 5, 1997, between AmerUs Life
Insurance Company and AmerUs Properties, Inc., filed as Exhibit 10.64
on Form 10-K, dated March 25, 1998, is hereby incorporated by
reference.
10.27 Consent dated as of May 20, 1998 to the Credit Agreement dated as of
October 23, 1997 among the Registrant, Various Lender Institutions,
the Co-Arrangers and The Chase Manhattan Bank, as Administrative
Agent, filed as Exhibit 10.72 on Form 10-Q, dated November 12, 1998,
is hereby incorporated by reference.
10.28 First Amendment dated as of May 30, 1997 to the Credit Agreement
dated as of October 23, 1997 among the Registrant, Various Lender
Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.73 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.29 Second Amendment dated as of June 22, 1998 to the Credit Agreement
dated as of October 23, 1997 among the Registrant, Various Lender
Institutions, the Co-Arrangers and The Chase Manhattan Bank, as
Administrative Agent, filed as Exhibit 10.74 on Form 10-Q, dated
November 12, 1998, is hereby incorporated by reference.
10.30 Second Consent and Amendment dated as of October 2, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.75 on Form 10-Q,
dated November 12, 1998, is hereby incorporated by reference.
10.31 MIP Deferral Plan dated as of September 1, 1998, filed as Exhibit
10.76 on Form 10-Q, dated November 12, 1998, is hereby incorporated
by reference.
10.32 Open Line of Credit Application and Terms Agreement, dated March 5,
1999, between Federal Home Loan Bank of Des Moines and AmerUs Life
Insurance Company, filed as Exhibit 10.34 on Form 10-Q dated May 14,
1999, is hereby incorporated by reference.
10.33 Origination Agreement, dated August 1, 1998, between AmerUs Home
Equity, Inc. and AmerUs Life Insurance Company, filed as Exhibit
10.36 on Form 10-K, dated March 30, 1999, is hereby incorporated by
reference.
10.34 Third Waiver to Credit Agreement dated as of November 16, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.37 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
10.35 Fourth Consent and Amendment, dated as of December 4, 1998 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.38 on Form 10-K,
dated March 30, 1999, is hereby incorporated by reference.
49
<PAGE> 50
10.36 Administrative Services Agreement, dated as of August 1, 1998, among
American Mutual Holding Company, Registrant, AmerUs Group, AmerUs
Home Equity, Inc., AmerUs Mortgage, Inc., AmerUs Properties, Inc.,
American Capital Management Group, Inc., AmerUs Life Insurance
Company, AmVestors Financial Corporation, American Investors Life
Insurance Company, Inc., and Delta Life and Annuity Company, filed as
Exhibit 10.39 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
10.37 Facility and Guaranty Agreement, dated February 12, 1999, among The
First National Bank of Chicago and the Registrant, filed as Exhibit
10.39 on Form 10-Q dated May 14, 1999, is hereby incorporated by
reference.
10.38 Form of Reimbursement Agreement, dated February 15, 1999, among the
Registrant and Roger K. Brooks, Victor N. Daley, Michael G. Fraizer,
Thomas C. Godlasky, Marcia S. Hanson, Mark V. Heitz and Gary R.
McPhail, filed as Exhibit 10.40 on Form 10-Q dated May 14, 1999, is
hereby incorporated by reference.
10.39 Amendment No. 1 to Facility Agreement, dated March 23, 1999, among
The First National Bank of Chicago and the Registrant, filed as
Exhibit 10.41 on Form 10-Q dated May 14, 1999, is hereby incorporated
by reference.
10.40 1999 Non-Employee Stock Option Plan, dated April 19, 1999, filed on
Form S-3, Registration Number 333-72643, is hereby incorporated by
reference.
10.41 Fifth Waiver and Amendment to Credit Agreement dated as of October 1,
1998 to the Credit Agreement dated as of October 23, 1997 among the
Registrant, Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.43
on Form 10-Q dated August 13, 1999, is hereby incorporated by
reference.
10.42 Sixth Amendment to Credit Agreement dated as of May 18, 1999 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent, filed as Exhibit 10.44 on Form 10-Q
dated August 13, 1999, is hereby incorporated by reference.
10.43 Administrative Services Agreement, dated as of January 1, 2000, among
American Mutual Holding Company, the Registrant, AmerUs Group Co.,
AmerUs Home Equity, Inc. AmerUs Mortgage, Inc., AmerUs Properties,
Inc., American Capital Management Group, Inc., AmerUs Life Insurance
Company, AmVestors Financial Corporation, and Delta Life and Annuity
Company, filed as Exhibit 10.43 on Form 10-K, dated March 8, 2000,
is hereby incorporated by reference.
10.44 Amendment No. 2 to Facility Agreement, dated January 25, 2000, among
The First National Bank of Chicago and the Registrant, filed as
Exhibit 10.44 on Form 10-K, dated March 8, 2000, is hereby
incorporated by reference.
10.45 Irrevocable Standby Letter of Credit Application and Terms Agreement,
dated February 1, 2000, between Federal Home Loan Bank of Des Moines
and AmerUs Life Insurance Company, filed as Exhibit 10.45 on Form
10-K, dated March 8, 2000, is hereby incorporated by reference.
10.46 Seventh Amendment to Credit Agreement dated as of December 23, 1999
to the Credit Agreement dated as of October 23, 1997 among the
Registrant, Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent, filed as Exhibit 10.46
on Form 10-K, dated March 8, 2000, is hereby incorporated by
reference.
10.47 Investment Advisory Agreements, dated as of February 18, 2000, by and
between Indianapolis Life Insurance Company, Bankers Life Insurance
Company of New York, IL Annuity and Insurance Company, Western
Security Life Insurance Company and AmerUs Capital Management Group,
Inc. filed as Exhibits 10.1,10.3, 10.4 and 10.2, respectively, to the
Registrant's report on Form 8-K/A on March 6, 2000, are hereby
incorporated by reference.
10.48 Advance, Pledge and Security Agreement, dated April 12, 2000, by and
between the Federal Home Loan Bank of Topeka and American Investors
Life Insurance Company, Inc., filed as Exhibit 10.48 on Form 10-Q,
dated May 15, 2000, is hereby incorporated by reference.
10.49 Institutional Custody Agreement, dated April 12, 2000, by and between
the Federal Home Loan Bank of Topeka and American Investors Life
Insurance Company, Inc., filed as Exhibit 10.49 on Form 10-Q, dated
May 15, 2000, is hereby incorporated by reference.
10.50 Line of Credit Application, dated April 12, 2000, by and between the
Federal Home Loan Bank of Topeka and American Investors Life
Insurance Company, Inc., filed as Exhibit 10.50 on Form 10-Q, dated
May 15, 2000, is hereby incorporated by reference.
50
<PAGE> 51
10.51 Stock Purchase Agreement, dated February 1, 2000, by and among
AmVestors Financial Corporation, Creative Marketing International
Corporation and the Stockholders of Creative Marketing International
Corporation, filed as Exhibit 10.51 on Form 10-Q, dated May 15, 2000,
is hereby incorporated by reference.
10.52 Stock Purchase Agreement, dated February 23, 2000, by and among
American Investors Sales Group, Inc., Community Bank Marketing, Inc.
and Community Financial Services, Inc., filed as Exhibit 10.52 on
Form 10-Q, dated May 15, 2000, is hereby incorporated by reference.
10.53 Agreement for Advances, Pledge and Security Agreement, dated March
12, 1992, by and between Central Life Assurance Company and the
Federal Home Loan Bank of Des Moines, filed as Exhibit 10.53 on Form
10-Q, dated May 15, 2000, is hereby incorporated by reference.
10.54 Agreement for Advances, Pledge and Security Agreement, dated
September 1, 1995, by and between American Vanguard Life Insurance
Company and the Federal Home Loan Bank of Des Moines, filed as
Exhibit 10.54 on Form 10-Q, dated May 15, 2000, is hereby
incorporated by reference.
10.55 Agreement and Plan of Merger, dated September 30, 1998, by and among
AmVestors Financial Corporation, Senior Benefit Services of Kansas,
Inc., Senior Benefit Services Insurance Agency, Inc., National Senior
Benefit Services, Inc. and Richard McCarter, filed as Exhibit 10.55
on Form 10-Q, dated May 15, 2000, is hereby incorporated by
reference.
10.56* Lease - Business Property, dated January 1, 2000, between AmerUs
Properties, Inc. and Registrant for the property located at 1213
Cherry Street, Des Moines, Iowa.
10.57* Eighth Amendment to Credit Agreement dated as of June 23, 2000 to the
Credit Agreement dated as of October 23, 1997 among the Registrant,
various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent.
11* Statement Re: Computation of Earnings Per Share.
27.1* Financial Data Schedule.
99.1 Retirement Agreement, dated June 27, 1997, by and between
Victor N. Daley and Registrant filed as Exhibit 99.5 on Form
10-K, dated March 30, 1999, is hereby incorporated by reference.
99.2 First Amendment to Employment Agreement, dated as of April 15, 1999,
to the Employment Agreement dated as of September 19, 1997, among
Mark V. Heitz, AmVestors Financial Corporation, American Investors
Life Insurance Company, Inc., AmVestors Investment Group, Inc.,
American Investors Sales Group, Inc., and the Registrant, filed as
Exhibit 99.4 on Form 10-Q dated August 13, 1999, is hereby
incorporated by reference.
99.3 Supplemental Benefit Agreement, dated as of April 15, 1999, among
Roger K. Brooks and the Registrant, filed as Exhibit 99.5 on Form
10-Q dated August 13, 1999, is hereby incorporated by reference.
99.4 Form of Supplemental Benefit Agreement, dated as of April 15, 1999,
among the Registrant and Victor N. Daley, Michael G. Fraizer,
Thomas C. Godlasky and Gary R. McPhail, filed as Exhibit 99.6 on
Form 10-Q dated August 13, 1999, is hereby incorporated by reference.
99.5 Amended and Restated Employment Agreement, dated as of April 15,
1999, among Marcia S. Hanson and the Registrant, filed as Exhibit
99.7 on Form 10-Q dated August 13, 1999, is hereby incorporated by
reference.
99.6 Agreement and Release, dated as of December 31, 1999, by and between
Marcia S. Hanson, Registrant, AmerUs Group Co., American Mutual
Holding Company, and all of their respective subsidiaries and
affiliates, filed as Exhibit 99.6 on Form 10-K, dated March 8, 2000,
is hereby incorporated by reference.
99.7 Form of Supplemental Benefit Agreement, dated as of February 7, 2000,
among the Registrant and Victor N. Daley, Michael G. Fraizer,
Thomas C. Godlasky and Gary R. McPhail, filed as Exhibit 99.7 on
Form 10-K, dated March 8, 2000, is hereby incorporated by reference.
99.8 Retirement Agreement, dated March 14, 2000, by and between
Victor N. Daley and Registrant, filed as Exhibit 99.8 on
Form 10-Q, dated May 15, 2000, is hereby incorporated herein.
----------------------
* included herein
51
