<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 September 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 000-30898
AMERUS GROUP CO.
(Exact name of Registrant as specified in its charter)
699 WALNUT STREET
DES MOINES, IOWA 50309-3948
(Address of principal executive offices)
IOWA 42-1458424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Registrant's telephone number, including area code (515) 362-3600
REGISTRANT WAS FORMERLY AMERUS LIFE HOLDINGS, INC.
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 November 10, 2000 was as follows:
Common Stock 30,004,744 shares
Exhibit index - Page 50
Page 1 of 58
<PAGE> 2
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION........................................ 4
Item 1. Financial Statements.................................... 4
Consolidated Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999.... 4
Consolidated Statements of Income (Unaudited)
For the Three Months Ended September 30, 2000 and 1999
and the Nine Months Ended September 30, 2000 and 1999... 6
Consolidated Statements of Comprehensive Income
(Unaudited) For the Three Months Ended September 30,
2000 and 1999 and the Nine Months Ended September 30,
2000 and 1999........................................... 7
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999... 8
Notes to Consolidated Financial Statements
(Unaudited) ............................................ 11
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition .................. 24
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................. 47
PART II - OTHER INFORMATION........................................... 48
Item 1. Legal Proceedings....................................... 48
Item 2. Changes in Securities and Use of Proceeds............... 48
Item 6. Exhibits and Reports on Form 8-K........................ 48
Signatures............................................................ 49
Exhibit Index......................................................... 50
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; (9) the performance of the investment portfolio including the
ILICO investment and COLI; (10) the impact of purchase accounting adjustments;
(11) the ILICO anticipated completion dates; and (12) unanticipated litigation.
There can be no assurance that other factors not currently anticipated by
management will not also materially and adversely affect the Company's results
of operations.
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERUS GROUP CO.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
September 30, December 31,
2000 1999
-------------------------------
(unaudited)
Assets
Investments:
Securities available-for-sale at fair value:
Fixed maturity securities $ 6,880,606 $ 6,680,951
Equity securities 149,808 45,268
Short-term investments 367 155
Loans 486,722 608,917
Real estate 7,590 45,756
Policy loans 111,279 109,864
Other investments 325,974 292,493
------------------------------
Total investments 7,962,346 7,783,404
Cash and cash equivalents 458,006 291,788
Accrued investment income 102,322 92,197
Premiums, fees and other receivables 2,093 9,798
Reinsurance receivables 2,071 17,535
Deferred policy acquisition costs 382,709 529,663
Value of business acquired 447,514 230,542
Goodwill 174,320 206,324
Property and equipment 53,560 51,626
Deferred income taxes 24,775 76,457
Other assets 342,595 357,510
Closed Block assets (note 2) 1,566,583 1,412,622
Assets of discontinued operations 41,648 38,241
------------------------------
Total assets $ 11,560,542 $11,097,707
==============================
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
AMERUS GROUP CO.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
September 30, December 31,
2000 1999
------------------------------
(unaudited)
Liabilities and Stockholders' Equity
Policy reserves and policyowner funds:
Future life and annuity policy benefits $ 7,637,034 $ 7,390,991
Policyowner funds 323,236 282,026
------------------------------
7,960,270 7,673,017
Accrued expenses and other liabilities 521,090 157,480
Dividends payable to policyowners 3,794 2,248
Policy and contract claims 5,594 12,221
Income taxes payable 7,194 21,932
Notes and contract payable (note 3) 197,745 196,263
Closed Block liabilities (note 2) 1,868,791 1,756,064
Liabilities of discontinued operations 12,826 10,340
------------------------------
Total liabilities 10,577,304 9,829,565
Minority interest - 309,101
Company-obligated mandatorily redeemable
preferred capital securities of
subsidiary trusts holding solely
junior subordinated debentures of the
Company 197,691 197,691
Stockholders' equity:
Preferred Stock, no par value,
20,000,000 shares authorized,
none issued - -
Common Stock, no par value,
230,000,000 shares authorized:
30,004,744 shares issued and
outstanding in 2000 30,005 -
Paid-in capital 809,125 -
Accumulated other comprehensive
income (loss) (52,053) (78,628)
Unearned compensation (152) (187)
Unallocated ESOP shares (1,378) (797)
Unassigned surplus - 840,962
------------------------------
Total stockholders'
equity 785,547 761,350
------------------------------
Total liabilities and
stockholders' equity $11,560,542 $11,097,707
==============================
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------ ------------------------
Revenues:
Insurance premiums $ 21,480 $ 22,821 $ 65,341 $ 67,041
Universal life and
annuity product
charges 22,952 19,399 65,490 55,485
Net investment income 147,053 141,473 435,984 411,926
Realized gains (losses)
on investments (2,603) 967 (876) 6,818
Other income 8,794 3,553 22,672 14,000
Contribution from the
Closed Block
(note 2) 5,558 6,207 17,126 19,121
------------------------ ------------------------
203,234 194,420 605,737 574,391
------------------------ ------------------------
Benefits and expenses:
Policyowner benefits 112,701 116,831 330,487 327,527
Underwriting,
acquisition and
other expenses 33,894 29,488 100,584 85,850
Amortization of
deferred policy
acquisition costs
and value of
business acquired 17,459 15,597 56,320 52,168
Dividends to
policyowners 1,640 1,396 4,337 3,419
------------------------ ------------------------
165,694 163,312 491,728 468,964
------------------------ ------------------------
Income from operations 37,540 31,108 114,009 105,427
Interest expense 7,603 6,963 22,430 21,967
------------------------ ------------------------
Income before income tax
expense and minority
interest 29,937 24,145 91,579 83,460
Income tax expense (note 4) 13,098 7,919 36,756 27,951
Minority interest 6,407 6,921 21,677 21,295
------------------------ ------------------------
Net income from continuing
operations $ 10,432 $ 9,305 $ 33,146 $ 34,214
Discontinued operations:
Income (loss) from
discontinued
operations, net
of tax 712 (730) 655 307
------------------------ ------------------------
Net income $ 11,144 $ 8,575 $ 33,801 $ 34,521
======================== ========================
Earnings per common share:
Basic $ 0.59 $ 0.49 $ 1.89 $ 1.99
======================== ========================
Diluted $ 0.59 $ 0.49 $ 1.88 $ 1.98
======================== ========================
Weighted average common
shares outstanding
Basic 18,888,948 17,390,165 17,893,406 17,390,165
======================== ========================
Diluted 19,026,397 17,551,797 17,934,801 17,463,913
======================== ========================
See accompanying notes to consolidated financial statements.
6
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AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------ ------------------------
Net Income $ 11,144 $ 8,575 $ 33,801 $ 34,521
Other comprehensive income
(loss), before tax
Unrealized gains (losses)
on securities
Unrealized holding gains
(losses) arising
during period 81,450 (46,579) 66,080 (128,173)
Less: reclassification
adjustment for gains
(losses) included in
net income (4,527) (1,550) (4,298) 334
------------------------ ------------------------
Other comprehensive
income (loss), before
tax 85,977 (45,029) 71,008 (128,507)
Income tax (expense)
benefit related to
items of other
comprehensive income (30,092) 15,760 (24,853) 44,978
------------------------ ------------------------
55,885 (29,269) 46,155 (83,529)
Amounts attributable to:
Minority interest (23,494) 12,162 (19,580) 34,340
------------------------ ------------------------
Other comprehensive income
(loss), net of tax 32,391 (17,107) 26,575 (49,189)
------------------------ ------------------------
Comprehensive income (loss) $ 43,535 $ (8,532) $ 60,376 $ (14,668)
======================== ========================
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
------------------------
Cash flows from operating activities
Net Income $ 33,801 $ 34,521
Less: (Income) loss from discontinued
operations (655) (307)
------------------------
33,146 34,214
Adjustments to reconcile net income to net cash
provided by operating activities:
Policyowner assessments on universal life
and annuity products (44,458) (39,412)
Interest credited to policyowner account
balances 234,990 233,839
Realized investment (gains) losses 876 (6,818)
Goodwill amortization 6,400 5,640
VOBA amortization 23,485 22,611
Minority interest 21,677 21,295
Change in:
Accrued investment income (10,125) (14,253)
Reinsurance receivables 15,464 (2,000)
Deferred policy acquisition costs (113,448) (82,822)
Liabilities for future policy benefits 12,535 568,051
Policy and contract claims and other
policyowner funds (5,018) (6,158)
Income taxes:
Current (14,738) 3,448
Deferred 29,510 18,821
Other, net 5,608 76,358
Change in Closed Block assets and
liabilities, net 92,168 56,092
-------------------------
Net cash provided by operating activities 288,072 888,906
------------------------
Cash flows from investing activities
Purchase of fixed maturities available-for-sale (1,401,864) (3,031,056)
Maturities, calls and principal reductions of
fixed maturities available for sale 1,279,909 2,397,198
Purchase of equity securities (128,697) (211,670)
Proceeds from sale of equity securities 21,734 227,243
Change in short-term investments, net - 9,173
Purchase of loans (70,587) (99,415)
8
<PAGE> 9
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
------------------------
Proceeds from repayment and sale of loans 196,701 191,861
Purchase of real estate and other
invested assets (116,300) (92,028)
Proceeds from sale of real estate and other
invested assets 129,471 40,177
Change in policy loans, net (1,415) 1,304
Other assets, net 1,413 (2,066)
Change in Closed Block investments, net (85,658) (44,751)
Purchase of minority interest (1,151) (5,880)
------------------------
Net cash (used in) investing activities (176,444) (619,910)
------------------------
Cash flows from financing activities:
Deposits to policyowner account balances 1,104,648 717,835
Withdrawals from policyowner account balances (1,050,272) (869,815)
Change in debt, net 1,482 15,904
Dividends to shareholders (1,268) (3,916)
Retirement of company-obligated mandatorily
redeemable capital securities - (1,523)
------------------------
Net cash provided by (used in)
financing activities 54,590 (141,515)
------------------------
Net increase (decrease) in cash 166,218 127,481
Cash and cash equivalents at beginning of period 291,788 138,172
------------------------
Cash and cash equivalents at end of period $ 458,006 $ 265,653
========================
Supplemental disclosure of cash activities:
Interest paid $ 23,903 $ 23,427
========================
Income taxes paid $ 6,592 $ 15,528
========================
9
<PAGE> 10
AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
------------------------
Details of acquisition:
Minority interest ownership in
assets acquired $ 4,750,145 $ -
Minority interest ownership of
liabilities assumed 4,499,238 -
------------------------
Fair value of minority interest acquired 250,907 -
Allocation of excess costs of acquiring
the minority interest over the fair
value of identifiable assets
less liabilities 47,113 -
Value of common stock issued to acquire ------------------------
minority interest $ 298,020 $ -
========================
See accompanying notes to consolidated financial statements.
10
<PAGE> 11
AMERUS GROUP CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF BUSINESS ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
AmerUs Group Co. (Company) is a holding company engaged through its
subsidiaries in the business of marketing, underwriting and distributing a broad
range of individual life insurance and annuity products to individuals and
businesses in 49 states, the District of Columbia and the U.S. Virgin Islands.
The Company also owns a real estate management company in which it conducts
limited real estate management, development, syndication and marketing
activities. The Company has two reportable operating segments: Life Insurance
and Annuities. The Life Insurance segment's primary product offerings consist of
whole life, universal life and term life insurance policies. The primary product
offerings of the Annuity segment are fixed annuities.
The Company sold certain lines of business and made the decision to exit
certain other businesses in 1998. These businesses are referred to as
discontinued operations and include the following activities: banking,
residential real estate brokerage, residential land development, and mortgage
banking.
REORGANIZATION
The Company was formerly known as American Mutual Holding Company (AMHC)
and was a mutual insurance holding company whose principal asset was a 58%
interest in AmerUs Life Holdings, Inc. (ALHI). Public stockholders owned the
remaining 42% interest in ALHI (Minority Interest). ALHI was a holding company
which directly or indirectly owned three principal life insurance subsidiaries:
AmerUs Life Insurance Company (AmerUs), American Investors Life Insurance
Company (American) and Delta Life and Annuity Company (Delta). On September 20,
2000, AMHC converted to stock form, changed its name to AmerUs Group Co. and
acquired the Minority Interest of ALHI by issuing AmerUs Group Co. common stock
in exchange for the outstanding shares of ALHI held by the public. The value of
the stock exchange was approximately $298 million and ALHI merged into the
Company simultaneously with the stock exchange.
Prior to the conversion of the Company to a stock form, the Company was
owned by individuals and entities who held insurance policies or annuity
contracts issued by AmerUs (Members). In the conversion, which is referred to as
a "demutualization", the Company distributed cash, policy credits and its newly
issued common stock to its Members in exchange for their membership interests.
The value of the distribution totaled approximately $792 million.
The acquisition of the ALHI minority interest by the Company was accounted
for as a purchase and accordingly 42% of the book value of the assets and
liabilities of ALHI were adjusted to market value as of the acquisition date.
Approximately 42% of the ALHI earnings for the reporting periods up to the
acquisition date are reduced from the Company's results of operations on the
line titled "Minority interest" on the Company's Consolidated Statements of
Income. From the acquisition date forward, the Company's results of operations
include 100% of these earnings.
CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to
11
<PAGE> 12
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 nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000, see further discussion in Management's Discussion and
Analysis. For further information and for capitalized terms not defined in this
10-Q, refer to the consolidated financial statements and notes thereto included
in the Company's predecessor AmerUs Life Holdings, Inc.'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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
12
<PAGE> 13
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.
EMERGING ACCOUNTING ISSUES
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 has evaluated SFAS No. 133 and 138 and has completed a
majority of the work in determining the impact of the statements on the
Company's Consolidated Financial Statements. However, due to outstanding issues
pending resolution with the FASB's Derivative Implementation Group, the Company
has not yet determined the final impact.
SFAS 140
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140 replaces SFAS No. 125 with the same title. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of
Statement 125's provisions without reconsideration. SFAS No. 140 is effective
for transfers and servicing of financial assets and extinguishment of
liabilities occurring after March 31, 2001 and for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. The
Company is evaluating SFAS No. 140 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.
13
<PAGE> 14
(2) CLOSED BLOCK
Summarized financial information of the Closed Block balance sheet as of
September 30, 2000 and December 31, 1999 and statements of income for the three
months and nine months ended September 30, 2000 and 1999 are as follows:
September 30, December 31,
2000 1999
-------------------------
(unaudited)
($ in thousands)
Assets:
Securities available for sale at fair value
Fixed maturity securities $ 1,172,831 $ 1,087,672
Short-term investments - -
Policy loans 200,876 188,035
Other investments 852 602
Cash and cash equivalents 3,293 5,910
Accrued investment income 16,942 14,949
Premiums, fees and other receivables - 957
Deferred policy acquisition costs 50,074 97,141
Value of business acquired 74,028 -
Other assets 47,687 17,356
------------------------
Total Assets $ 1,566,583 $ 1,412,622
========================
Liabilities:
Future life and annuity policy benefits $ 1,643,532 $ 1,581,923
Policyowner funds 5,494 8,905
Accrued expenses and other liabilities 59,442 7,582
Dividends payable to policyowners 155,860 152,984
Policy and contract claims 4,463 4,670
------------------------
Total Liabilities $ 1,868,791 $ 1,756,064
========================
14
<PAGE> 15
Three Months Ended September 30,
($ in thousands) 2000 1999
--------------------------------
(unaudited)
Revenues and expenses:
Insurance premiums $ 44,375 $ 42,737
Universal life and annuity product charges 3,196 3,184
Net investment income 28,617 26,408
Realized gains (losses) on investments 371 (37)
Policyowner benefits (50,018) (45,551)
Underwriting, acquisition and other expenses (412) (896)
Amortization of deferred policy
acquisition costs (3,479) (3,830)
Dividends to policyowners (17,092) (15,808)
--------------------------------
Contribution from the Closed Block
before income taxes $ 5,558 $ 6,207
================================
Nine Months Ended September 30,
2000 1999
--------------------------------
(unaudited)
Revenues and expenses:
Insurance premiums $ 138,777 $ 141,335
Universal life and annuity product charges 9,453 9,754
Net investment income 83,440 82,414
Realized gains (losses) on investments 414 625
Policyowner benefits (150,588) (144,523)
Underwriting, acquisition and other expenses (1,673) (3,717)
Amortization of deferred policy acquisition
costs (10,808) (16,419)
Dividends to policyowners (51,889) (50,348)
--------------------------------
Contribution from the Closed Block
before income taxes $ 17,126 $ 19,121
================================
15
<PAGE> 16
(3) DEBT AND CAPITAL SECURITIES
Debt consists of the following:
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
($ in thousands)
Federal Home Loan Bank community investment
long-term advances with a weighted average
interest rate of 6.284% at September 30,
2000 (A) $ 15,745 $ 16,088
Notes payable to banks and insurance companies - 23,175
Revolving credit agreement 57,000 32,000
Senior notes bearing interest at 6.95%
due June, 2005 125,000 125,000
------------ ------------
$ 197,745 $ 196,263
============ ============
AmerUs Capital I 8.85 % Capital
Securities Series A due
February 1, 2007 $ 68,900 $ 68,900
AmerUs Capital II 7.00 % Adjustable
Conversion-rate Equity Security
Units due July 27, 2003 128,791 128,791
------------ ------------
$ 197,691 $ 197,691
============ ============
(A) The Company has multiple credit arrangements with the Federal Home Loan
Bank (FHLB). In addition to the long-term advances disclosed above, the Company
is eligible to borrow under variable-rate short term fed funds arrangements of
which no amount was outstanding at September 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 predecessor AmerUs Life Holdings, Inc.'s consolidated financial
statements as of December 31, 1999.
(4) FEDERAL INCOME TAXES
The effective income tax rate for the nine months ending September 30, 2000
and 1999 varied from the prevailing corporate rate primarily as a result of
goodwill amortization, non-deductible reorganization costs and low income
housing and rehabilitation credits.
16
<PAGE> 17
(5) COMMITMENTS AND CONTINGENCIES
The Company is obligated to make future capital contributions to various
partnerships of up to $30.3 million. The Company has also agreed to loan up to
$6.9 million to newly formed partnerships.
The Company is party to financial instruments in the normal course of
business to meet the financing needs of its customers having risk exposure not
reflected in the balance sheet. These financial instruments include commitments
to extend credit, guarantees and standby letters of credit. Commitments to
extend credit are agreements to lend to customers. Commitments generally have
fixed expiration dates and may require payment of a fee. Since many commitments
expire without being drawn upon, the total amount of commitments does not
necessarily represent future cash requirements. The Company has also guaranteed
two loans for a fee. At September 30, 2000, outstanding commitments to extend
credit totaled approximately $21.9 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
Executive 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 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 September 30, 2000, AVLIC had statutory assets of $2,644.3
million, liabilities of $2,588.0 million, and surplus of $56.3 million. AmerUs
also has an outstanding commitment to lend AMAL Corporation (AMAL), AVLIC's
parent company, approximately $3.4 million upon AMAL's request before September
1, 2001.
In the ordinary course of business, the Company and its subsidiaries are
engaged in certain litigation, none of which management believes is material to
the Company's results of operations.
(6) ACQUISITION
On September 20, 2000, the Company acquired the 42% Minority Interest of
its subsidiary, ALHI, in a stock exchange valued at approximately $298 million.
ALHI merged into the Company simultaneously with the stock exchange. The
acquisition of the ALHI minority interest by the Company was accounted for as a
purchase and accordingly 42% of the book value of the assets and liabilities of
ALHI were adjusted to market value as of the acquisition date. Goodwill was
reduced by approximately $45 million. Approximately 42% of the ALHI earnings for
the reporting periods up to the acquisition date are reduced from the Company's
results of operations on the line titled "Minority interest" on the Company's
Consolidated Statements of Income. From the acquisition date forward, the
Company's results of operations include 100% of these earnings.
17
<PAGE> 18
The following table sets forth certain pro forma operating data of the
Company for the nine months ended September 30, 2000 and the year ended December
31, 1999. This pro forma data assumes the purchase of the minority interest
occurred on January 1, 1999.
September 30, December 31,
2000 1999
------------- -------------
($ in thousands, except share data)
Pro forma operating data:
Total revenue $ 593,800 $ 745,500
Net income $ 46,100 $ 46,900
Diluted earnings per share of
common stock $ 1.54 $ 1.55
(7) PROPOSED COMBINATION
On February 18, 2000, the Company and Indianapolis Life Insurance Company
(ILICO) entered into a definitive agreement for a combination of the companies.
Under the original terms of the agreement, ILICO demutualizes and ILICO's
members receive cash, policy credits and stock equivalent to the value of 11.25
million shares of the Company's stock and ILICO becomes a wholly-owned
subsidiary of the Company. However, on September 18, 2000 the terms of the
agreement were revised to reduce the value to the equivalent of 9.3 million
shares. The reduction in the number of shares was based on several factors,
including increased expenses related to ILICO's demutualization and a decrease
in revenues and earnings in ILICO's subsidiary operations. These factors were
partially offset by stronger than expected performance of ILICO itself.
As part of the transaction, the Company made an investment of $100 million
in a downstream holding company of ILICO in February, 2000.
ILICO is a 95-year old mutual life insurance and annuity company based in
Indianapolis, Indiana. ILICO and its subsidiaries are licensed to do business in
all 50 states and the District of Columbia. At September 30, 2000, ILICO had
total assets of $6.0 billion and insurance in force of $31.7 billion.
The combination transaction is subject to normal closing conditions,
including appropriate policyholder/member, shareholder and regulatory approvals.
The Company expects the demutualization of ILICO and combination into the
Company to take place in the first quarter of 2001.
(8) 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
18
<PAGE> 19
AmerUs, assets would be available to maintain the dividend scales and
interest credits in effect prior to the reorganization if the experience
underlying such scales and credits continues. 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 income or loss from discontinued operations. Premiums, product
charges, policyowner benefits, insurance expenses, amortization of deferred
policy acquisition costs and VOBA and dividends to policyowners are attributed
directly to each operating segment. Net investment income and core realized
gains and losses on investments are allocated based on directly-related assets
required for transacting the business of that segment. Other revenues and
benefits and expenses which are deemed not to be associated with any specific
segment are grouped together in the All Other category. These items primarily
consist of holding company revenues and expenses and the operations of the
companies real estate management subsidiary. 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:
19
<PAGE> 20
Operating Segment Income
($ in thousands)
Three Months Ended September 30, 2000
Total
Life Insurance Annuities All Other Consolidated
--------------------------------------------------------
Revenues:
Insurance premiums $ 16,980 $ 4,453 $ 47 $ 21,480
Universal life and
annuity product
charges 13,863 9,089 - 22,952
Net investment income 22,800 117,545 6,708 147,053
Core realized gains
on investments - 980 - 980
Other income - 5,899 2,895 8,794
Contribution from
the Closed Block 5,558 - - 5,558
--------------------------------------------------
59,201 137,966 9,650 206,817
Benefits and expenses:
Policyowner benefits 25,567 87,070 64 112,701
Underwriting,
acquisition, and
other expenses 10,897 12,659 6,606 30,162
Amortization of
deferred policy
acquisition costs
and value of
business acquired,
net of non-core
adjustment of
($2,551) 5,335 14,675 - 20,010
Dividends to
policyowners 1,640 - - 1,640
--------------------------------------------------
43,439 114,404 6,670 164,513
--------------------------------------------------
Adjusted pre-tax
operating income
(loss) $ 15,762 $ 23,562 $ 2,980 42,304
==================================================
Non-core realized
gains (losses) on
investments (3,583)
Amortization of
deferred policy
acquisition costs
due to non-core
realized gains or
losses 2,551
Reorganization costs (3,732)
--------
Income from operations 37,540
Interest (expense) (7,603)
Income tax (expense) (13,098)
Minority interest (6,407)
Income (loss) from
discontinued
operations, net
of tax 712
--------
Net income $ 11,144
========
20
<PAGE> 21
Operating Segment Income
($ in thousands)
Three Months Ended September 30, 1999
Total
Life Insurance Annuities All Other Consolidated
--------------------------------------------------------
Revenues:
Insurance premiums $ 15,816 $ 6,936 $ 69 $ 22,821
Universal life and
annuity product
charges 11,384 8,015 - 19,399
Net investment income 25,045 112,765 3,663 141,473
Core realized gains
on investments - 3,184 - 3,184
Other income - 1,467 2,086 3,553
Contribution from
the Closed Block 6,207 - - 6,207
--------------------------------------------------
58,452 132,367 5,818 196,637
Benefits and expenses:
Policyowner benefits 26,116 90,587 128 116,831
Underwriting,
acquisition, and
other expenses 12,904 8,831 5,927 27,662
Amortization of
deferred policy
acquisition costs
and value of
business acquired,
net of non-core
adjustment of $55 4,727 10,815 - 15,542
Dividends to
policyowners 1,396 - - 1,396
--------------------------------------------------
45,143 110,233 6,055 161,431
--------------------------------------------------
Adjusted pre-tax
operating income $ 13,309 $ 22,134 $ (237) 35,206
==================================================
Non-core realized
gains (losses)
on investments (2,217)
Amortization of
deferred policy
acquisition costs
due to non-core
realized gains
or losses (55)
Reorganization costs (1,826)
--------
Income from operations 31,108
Interest (expense) (6,963)
Income tax (expense) (7,919)
Minority interest (6,921)
Income (loss) from
discontinued
operations, net
of tax (730)
--------
Net income $ 8,575
========
21
<PAGE> 22
Operating Segment Income
($ in thousands)
Nine Months Ended September 30, 2000
Total
Life Insurance Annuities All Other Consolidated
--------------------------------------------------------
Revenues:
Insurance premiums $ 48,408 $ 16,793 $ 140 $ 65,341
Universal life and
annuity product
charges 38,159 27,331 - 65,490
Net investment income 73,079 347,118 15,787 435,984
Core realized gains
on investments - 3,063 - 3,063
Other income - 15,412 7,260 22,672
Contribution from
the Closed Block 17,126 - - 17,126
--------------------------------------------------
176,772 409,717 23,187 609,676
Benefits and expenses:
Policyowner benefits 74,648 255,576 263 330,487
Underwriting,
acquisition, and
other expenses 36,041 38,292 15,814 90,147
Amortization of
deferred policy
acquisition costs
and value of
business acquired,
net of non-core
adjustment of
($6,267) 15,070 47,517 - 62,587
Dividends to
policyowners 4,337 - - 4,337
--------------------------------------------------
130,096 341,385 16,077 487,558
--------------------------------------------------
Adjusted pre-tax
operating income
(loss) $ 46,676 $ 68,332 $ 7,110 122,118
==================================================
Non-core realized
gains (losses) on
investments (3,939)
Amortization of
deferred policy
acquisition costs
due to non-core
realized gains or
losses 6,267
Reorganization costs (10,437)
--------
Income from operations 114,009
Interest (expense) (22,430)
Income tax (expense) (36,756)
Minority interest (21,677)
Income (loss) from
discontinued
operations, net
of tax 655
--------
Net income $ 33,801
========
22
<PAGE> 23
Operating Segment Income
($ in thousands)
Nine Months Ended September 30, 1999
Total
Life Insurance Annuities All Other Consolidated
--------------------------------------------------------
Revenues:
Insurance premiums $ 46,537 $ 20,339 $ 165 $ 67,041
Universal life and
annuity product
charges 34,990 20,495 - 55,485
Net investment income 69,191 327,991 14,744 411,926
Core realized gains
on investments - 9,010 - 9,010
Other income - 4,602 9,398 14,000
Contribution from
the Closed Block 19,121 - - 19,121
--------------------------------------------------
169,839 382,437 24,307 576,583
Benefits and expenses:
Policyowner benefits 74,702 252,589 236 327,527
Underwriting,
acquisition, and
other expenses 39,496 27,887 16,595 83,978
Amortization of
deferred policy
acquisition costs
and value of
business acquired,
net of non-core
adjustment of
$1,736 15,456 34,976 - 50,432
Dividends to
policyowners 3,419 - - 3,419
--------------------------------------------------
133,073 315,452 16,831 465,356
--------------------------------------------------
Adjusted pre-tax
operating income $ 36,766 $ 66,985 $ 7,476 111,227
==================================================
Non-core realized
gains (losses)
on investments (2,192)
Amortization of
deferred policy
acquisition costs
due to non-core
realized gains or
losses (1,736)
Reorganization costs (1,872)
--------
Income from operations 105,427
Interest (expense) (21,967)
Income tax (expense) (27,951)
Minority interest (21,295)
Income (loss) from
discontinued
operations, net of tax 307
--------
Net income $ 34,521
========
23
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements and related notes.
NATURE OF OPERATIONS
The Company is a holding company engaged through its subsidiaries in the
business of marketing, underwriting and distributing a broad range of individual
life insurance and annuity products to individuals and businesses in 49 states,
the District of Columbia and the U.S. Virgin Islands. The Company also owns a
real estate management company in which it conducts limited real estate
management, development, syndication and marketing activities. The Company has
two reportable operating segments: Life Insurance and Annuities. The Life
Insurance segment's primary product offerings consist of whole life, universal
life and term life insurance policies. The primary product offerings of the
Annuity segment are fixed annuities.
The Company sold certain lines of business and made the decision to exit
certain other businesses in 1998. These businesses are referred to as
discontinued operations and include the following activities: banking,
residential real estate brokerage, residential land development, and mortgage
banking.
REORGANIZATION
The Company was formerly known as American Mutual Holding Company and was a
mutual insurance holding company whose principal asset was a 58% interest in
ALHI. Public stockholders owned the remaining 42% interest in ALHI. ALHI was a
holding company which directly or indirectly owned three principal life
insurance subsidiaries: AmerUs, American and Delta. On September 20, 2000, AMHC
converted to stock form, changed its name to AmerUs Group Co. and acquired the
Minority Interest of ALHI by issuing AmerUs Group Co. common stock in exchange
for the outstanding shares of ALHI held by the public. The value of the stock
exchange was approximately $298 million and ALHI merged into the Company
simultaneously with the stock exchange.
Prior to the conversion of the Company to a stock form, the Company was
owned by individuals and entities who held insurance policies or annuity
contracts issued by AmerUs. In the conversion, which is referred to as a
"demutualization", the Company distributed cash, policy credits and its newly
issued common stock to its Members in exchange for their membership interests.
The value of the distribution totaled approximately $792 million.
The acquisition of the ALHI minority interest by the Company was accounted
for as a purchase and accordingly 42% of the book value of the assets and
liabilities of ALHI were adjusted to market value as of the acquisition date.
Approximately 42% of the ALHI earnings for the reporting periods up to the
acquisition date are reduced from the Company's results of operations on the
line titled "Minority interest" on the Company's Consolidated Statements of
Income. From the acquisition date forward, the Company's results of operations
include 100% of these earnings.
24
<PAGE> 25
PROPOSED COMBINATION
On February 18, 2000, the Company and ILICO entered into a definitive
agreement for a combination of the companies. Under the original terms of the
agreement, ILICO demutualizes and ILICO's members receive cash, policy credits
and stock equivalent to the value of 11.25 million shares of the Company's stock
and ILICO becomes a wholly-owned subsidiary of the Company. However, on
September 18, 2000 the terms of the agreement were revised to reduce the value
to the equivalent of 9.3 million shares. The reduction in the number of shares
was based on several factors, including increased expenses related to ILICO's
demutualization and a decrease in revenues and earnings in ILICO's subsidiary
operations. These factors were partially offset by stronger than expected
performance of ILICO itself.
As part of the transaction, the Company made an investment of $100 million
in a downstream holding company of ILICO in February, 2000.
ILICO is a 95-year old mutual life insurance and annuity company based in
Indianapolis, Indiana. ILICO and its subsidiaries are licensed to do business in
all 50 states and the District of Columbia. At September 30, 2000, ILICO had
total assets of $6.0 billion and insurance in force of $31.7 billion.
The combination transaction is subject to normal closing conditions,
including appropriate policyholder/member, shareholder and regulatory approvals.
The Company expects the demutualization of ILICO and combination into the
Company to take place in the first quarter of 2001.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with GAAP, universal life insurance premiums and annuity
deposits received are reflected as increases in liabilities for policyowner
account balances and not as revenues. Revenues reported for universal life and
annuity products consist of policy charges for the cost of insurance,
administration charges and surrender charges assessed against policyowner
account balances. Surrender benefits paid relating to universal life insurance
policies and annuity products are reflected as decreases in liabilities for
policyowner account balances and not as expenses. Amounts for interest credited
to universal life and annuity policyowner account balances and benefit claims in
excess of policyowner account balances are reported as expenses in the financial
statements. The Company receives investment income earned from the funds
deposited into account balances by universal life and annuity policyowners, the
majority of which is passed through to such policyowners in the form of interest
credited.
Premium revenues reported for traditional life insurance products are
recognized as revenues when due. Future policy benefits and policy acquisition
costs are recognized as expenses over the life of the policy by means of a
provision for future policy benefits and amortization of deferred policy
acquisition costs.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as policy acquisition costs, are deferred. The method of
amortizing deferred policy acquisition costs for life insurance products varies;
dependent upon whether the contract is participating or non-participating.
Participating contracts are those which are expected to pay dividends to
policyowners in proportion to their relative contribution to the Company's
statutory surplus. Non-participating life insurance deferred policy acquisition
costs are amortized over the premium-paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated premium
revenues using assumptions consistent with those used in computing policy
benefit reserves. Deferred policy acquisition costs for participating policies
are amortized as an expense primarily in proportion to expected profits or
margins from such policies. This
25
<PAGE> 26
amortization is adjusted when current or estimated future gross profits or
margins on the underlying policies vary from previous estimates. For example,
the amortization of deferred policy acquisition costs is accelerated when policy
terminations are higher than originally estimated or when investments supporting
the policies are sold at a gain prior to their anticipated maturity. Death and
other policyowner benefits reflect exposure to mortality risk and fluctuate from
period to period based on the level of claims incurred within insurance
retention limits. The profitability of the Company is primarily affected by
expense levels, interest spread results (i.e., the excess of investment earnings
over the interest credited to policyowners) and fluctuations in mortality,
persistency and other policyowner benefits. The Company has the ability to
mitigate adverse experience through adjustments to credited interest rates,
policyowner dividends or cost of insurance charges.
ADJUSTED 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.
The adjusted net operating income for the Company is not comparable to the
reported adjusted net operating income of ALHI for prior periods. The principal
difference is the reduction of the Company's adjusted net operating income due
to the minority interests' equity in earnings through September 20, 2000. The
minority interests' equity in earnings was $6.4 million, $6.9 million, $21.7
million and $21.3 million for the three months and nine months ended September
30, 2000 and 1999, respectively.
26
<PAGE> 27
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- -------------------------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Net Income $ 11,144 $ 8,575 $ 33,801 $ 34,521
Net non-core realized (gains) losses (A) 1,370 652 285 235
Net amortization of deferred policy
acquisition costs due to non-core
realized gains or losses (B) (1,045) 21 (2,431) 655
Reorganization costs (C) 3,378 1,826 9,235 1,872
Discontinued operations (D) (712) 730 (655) (307)
-------------------------- -------------------------
Adjusted Net Operating Income $ 14,135 $ 11,804 $ 40,235 $ 36,976
========================== =========================
Adjusted Net Operating Income
per common share:
Basic $ 0.75 $ 0.68 $ 2.25 $ 2.13
========================== =========================
Diluted $ 0.74 $ 0.67 $ 2.24 $ 2.12
========================== =========================
Weighted average common
shares outstanding:
Basic 18,888,948 17,390,165 17,893,406 17,390,165
========================== =========================
Diluted 19,026,397 17,551,797 17,934,801 17,463,913
========================== =========================
</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 and
minority interest on such amounts. Non-core realized gains or losses
may vary widely between periods. Such amounts are determined by
management's timing of individual transactions and do not necessarily
correspond to the underlying operating trends.
(B) Represents amortization of deferred policy acquisition costs on the
non-core realized gains or losses that are included in product margins,
adjusted for income taxes and minority interest on such amounts.
(C) Represents costs directly related to the Company's reorganization and
merger with ALHI. These costs consist primarily of legal, actuarial and
consulting expenses.
(D) Represents the net income from the Company's discontinued operations.
Adjusted net operating income increased $2.4 million to $14.1 million, or
$0.74 per diluted share, for the third quarter of 2000 compared to $11.8
million, or $0.67 per diluted share, for the same period a year ago.
Year-to-date, adjusted net operating income increased to $40.2 million, or $2.24
per diluted share, from $37.0 million, or $2.12 per diluted share. The increases
in adjusted net operating income
27
<PAGE> 28
between periods were primarily attributable to the growth in invested assets and
a decrease in operating expenses. This change is analyzed further in the
operating segment discussion.
Adjusted net operating income for the third quarter of 2000 included the
following items: $2.7 million of after-tax earnings on the cash balances which
were distributed to the former Members in connection with the demutualization of
the Company, non-recurring expenses of $0.3 million, after-tax, related to the
former mutual holding company operations and a $1.6 million reduction due to the
Company's equity investment in the downstream holding company of ILICO (ILICO
investment). The loss on this equity investment was one of the factors in the
Company's reduction in the number of shares that will be issued in connection
with the ILICO combination discussed previously.
Going forward, the ILICO investment is anticipated to perform at a level
similar to the other investments in the Company's investment portfolio. However,
future adjusted net operating income will no longer contain the investment
earnings on the cash distribution the Company made to its Members in late
October in connection with the Company's demutualization. Adjusting for these
factors and the non-recurring expenses would have had the effect of reducing
adjusted net operating income to $13.4 million or $0.70 per diluted share and
$34.8 million or $1.94 per diluted share for the third quarter 2000 and
year-to-date 2000, respectively, as shown in the table below:
<TABLE>
<CAPTION>
-------------------------------- --------------------------------
For the Three Months Ended For the Nine Months Ended
September 30, 2000 September 30, 2000
-------------------------------- --------------------------------
Per Share Per Share
Dollar amounts Amounts Dollar amounts Amounts
-------------------------------- --------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Adjusted Net Operating Income $ 14,135 $ 0.74 $ 40,235 $ 2.24
After tax earnings on cash balances
distributed in connection with the
demutualization of the Company (2,651) (0.14) (7,338) (0.41)
After-tax non-recurring mutual holding
company expenses 282 0.01 282 0.02
Reduction due to equity investment in IL Group
not performing at the Company's investment
expectations, net of minority interest and taxes 1,635 0.09 1,635 0.09
-------------------------------- --------------------------------
$ 13,401 $ 0.70 $ 34,814 $ 1.94
================================ ================================
Weighted average number of shares 19,026,397 17,934,801
</TABLE>
THE CLOSED BLOCK
The Closed Block was established on June 30, 1996 in connection with the
reorganization of AmerUs to a stock form. Insurance policies which had a
dividend scale in effect as of June 30, 1996, were included in the Closed Block.
The Closed Block was designed to provide reasonable assurance to owners of
insurance policies included therein that, after the reorganization of AmerUs,
assets would be available to maintain the dividend scales and interest credits
in effect prior to the reorganization if the experience underlying such scales
and credits continues. 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
28
<PAGE> 29
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 holding company revenues and expenses and the operations of the
companies' real estate management subsidiary. The Company assesses the
performance of its operating segments before interest expense, income taxes, and
minority interest. Income from operations and operating segment information do
not include discontinued operations which are comprised of the former
residential land development, mortgage banking and home equity lending
activities of the Company.
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- -------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Traditional life insurance:
Participating whole life $ 4,020 $ 2,941 $ 10,415 $ 12,585
Term life 1,232 1,758 5,762 4,206
Universal life 3,531 3,193 11,917 10,198
-------------------------- -------------------------
Total $ 8,783 $ 7,892 $ 28,094 $ 26,989
========================== =========================
</TABLE>
29
<PAGE> 30
Life insurance sales as measured by annualized premiums increased $0.9
million to $8.8 million for the third quarter of 2000 compared to $7.9 million
for the third quarter of 1999. Participating whole life sales and universal life
sales increased in the third quarter of 2000 compared to the same period in
1999. Participating whole life sales were higher then expected in the third
quarter of 2000 due to the placement of several large cases, while third quarter
2000 universal life sales continued at a higher level than 1999, as expected,
from the Company's introduction of new universal life products. Partially
offsetting the increased participating whole life and universal life sales were
decreased sales of term life. The decrease in term life sales from 1999 was
expected, as consumer demand for term products was unusually high in the last
half of 1999 due to consumer anticipation of price increases in 2000.
For the first nine months of 2000, life insurance sales as measured by
annualized premiums were $28.1 million compared to $27.0 million for the same
period in 1999. Participating whole life sales for the first nine months of 2000
were lower than as compared to the same period in 1999 due in part to the
Company's introduction of new universal life products which has resulted in a
shift in focus from participating to universal products. In addition, there has
been an overall general industry decline in sales of participating products.
Term and universal life sales for the first nine months of 2000 increased $1.6
million and $1.7 million, respectively, over the same period a year ago
primarily due to new product introductions and product repricing.
The following table sets forth the Company's life insurance collected
premiums, including collected premiums associated with the Closed Block, for the
periods indicated:
<TABLE>
<CAPTION>
Collected Premiums by Product
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- ---------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Individual life premiums collected:
Traditional life:
First year and single $ 21,357 $ 19,852 $ 62,760 $ 62,612
Renewal 45,564 43,874 139,460 134,412
-------------------------- ---------------------------
Total 66,921 63,726 202,220 197,024
Universal life:
First year and single 6,208 7,080 20,885 18,005
Renewal 19,192 17,870 56,250 54,850
-------------------------- ---------------------------
Total 25,400 24,950 77,135 72,855
Total individual life 92,321 88,676 279,355 269,879
Reinsurance assumed 485 345 1,122 1,165
Reinsurance ceded (7,503) (6,081) (19,973) (13,606)
-------------------------- ---------------------------
Total individual life, net of reinsurance $ 85,303 $ 82,940 $ 260,504 $ 257,438
========================== ===========================
</TABLE>
30
<PAGE> 31
Traditional life insurance premiums collected were $66.9 million for the
third quarter of 2000 compared to $63.7 million for the same period in 1999 and
$202.2 million for the first nine months of 2000 compared to $197.0 million for
the first nine months of 1999. First year and single premium was level between
year-to-date periods which was consistent with the lower participating whole
life sales, offset by the higher term sales, as discussed previously. Renewal
direct collected premium was $5.1 million higher in the first nine months 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.
Universal life insurance premiums collected were $25.4 million for the
third quarter of 2000 compared to $25.0 million for the third quarter of 1999.
Year-to-date universal life insurance premiums were $77.1 million in the first
nine months of 2000 compared to $72.9 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.
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 $6.4 million higher for the first nine months of 2000 as compared to
the same period in 1999.
The following table sets forth information regarding the Company's life
insurance in force for each date presented:
Individual Life Insurance in Force
As of September 30,
2000 1999
----------------------------------
($ in thousands)
Traditional life
Number of policies 248,132 250,834
GAAP life reserves $ 1,722,442 $ 1,616,149
Face amounts $ 23,385,000 $ 20,782,000
Universal life
Number of policies 113,134 113,272
GAAP life reserves $ 948,778 $ 913,694
Face amounts $ 12,552,000 $ 12,188,000
Total life insurance
Number of policies 361,266 364,106
GAAP life reserves $ 2,671,220 $ 2,529,843
Face amounts $ 35,937,000 $ 32,970,000
While the total policy count continues to decline consistent with industry
trends, the average size of policy continues to increase from $90,550 in 1999 to
$99,475 in 2000. As a result, total insurance in force has grown to $35.9
billion as of September 30, 2000.
31
<PAGE> 32
ANNUITIES
The following table sets forth annuity collected premiums for the periods
indicated:
<TABLE>
<CAPTION>
Collected Premiums by Product
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- -------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Fixed annuities $ 297,240 $ 212,503 $ 754,648 $ 627,563
Multi-choice annuities 33,989 - 84,023 -
Equity-index annuities 62,654 36,313 203,745 45,528
-------------------------- -------------------------
Total 393,883 248,816 1,042,416 673,091
Reinsurance assumed - 59,561 - 59,561
Reinsurance ceded (36) (39) (152) (226)
-------------------------- -------------------------
Total annuities, net of reinsurance $ 393,847 $ 308,338 $ 1,042,264 $ 732,426
========================== =========================
</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 $393.9 million for the third
quarter of 2000 compared to $248.8 million for the same period in 1999.
Year-to-date annuity collected premiums increased 54.9% to $1,042.4 million for
2000 compared to $673.1 million for 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 20.3% 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.
In the third quarter of 1999, the Company entered into a reinsurance
agreement for the assumption of a block of equity-index annuities totaling $59.6
million from its joint venture partner, Ameritas Variable Life Insurance
Company. This transaction is reflected on the reinsurance assumed line in the
table above. There has been no annuity reinsurance assumption activity in 2000.
32
<PAGE> 33
The following table sets forth information regarding annuities in force for
each date presented:
Annuities in Force
As of September 30,
2000 1999
------------------------------------
($ in thousands)
Deferred fixed and immediate annuities
Number of policies 161,855 171,939
GAAP life reserves $ 5,926,263 $ 5,954,580
Multi-choice annuities
Number of policies 1,666 -
GAAP life reserves $ 84,981 $ -
Equity-index annuities
Number of policies 13,810 8,900
GAAP life reserves $ 640,306 $ 348,186
Total annuities
Number of policies 177,331 180,839
GAAP life reserves $ 6,651,550 $ 6,302,766
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.
33
<PAGE> 34
RESULTS OF OPERATIONS
A summary of the Company's revenue follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- --------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Insurance premiums
Life insurance - Traditional $ 16,980 $ 15,816 $ 48,408 $ 46,537
Annuities - Immediate annuity &
supplementary contract premiums 4,453 6,936 16,793 20,339
All other 47 69 140 165
-------------------------- --------------------------
Total insurance premiums 21,480 22,821 65,341 67,041
Product charges
Life insurance - Universal life 13,863 11,384 38,159 34,990
Annuities 9,089 8,015 27,331 20,495
-------------------------- --------------------------
Total product charges 22,952 19,399 65,490 55,485
Net investment income
Life insurance 22,800 25,045 73,079 69,191
Annuities 117,545 112,765 347,118 327,991
All other 6,708 3,663 15,787 14,744
-------------------------- --------------------------
Total net investment income 147,053 141,473 435,984 411,926
Realized gains (losses) on investments
Annuities - core 980 3,184 3,063 9,010
All other - non-core (3,583) (2,217) (3,939) (2,192)
-------------------------- --------------------------
Total realized gains (losses) on investments (2,603) 967 (876) 6,818
Other income
Annuities 5,899 1,467 15,412 4,602
All other 2,895 2,086 7,260 9,398
-------------------------- --------------------------
Total other income 8,794 3,553 22,672 14,000
Contribution from the Closed Block 5,558 6,207 17,126 19,121
-------------------------- --------------------------
Total revenues $ 203,234 $ 194,420 $ 605,737 $ 574,391
========================== ==========================
</TABLE>
Traditional life insurance premiums were $17.0 million for the third
quarter of 2000 compared to $15.8 million for the same period in 1999.
Year-to-date traditional life insurance premiums increased by $1.9 million to
$48.4 million for 2000 compared to $46.5 million for the same period in 1999.
The increases in traditional life insurance premiums were primarily the result
of increased first year and renewal premium, partially offset by increased ceded
premium. First year and renewal premium increased approximately $5.3 million for
the third quarter of 2000 and $10.4 million for the first nine
34
<PAGE> 35
months of 2000 as compared to the same periods in 1999 primarily due to
continued favorable persistency and the continued growth of the block of
business. The increase in ceded premium was due to the reinsurance agreements
the Company entered into effective January 1, 2000 which effectively reduced the
Company's retention limit to $100,000 for the majority of new business.
Approximately $4.2 million and $8.6 million of additional premiums were ceded to
reinsurers in the third quarter of 2000 and the first nine months of 2000,
respectively, as compared to the same periods in 1999, offsetting the increased
renewal premiums.
Immediate annuity and supplementary contract premiums decreased by $2.4
million to $4.5 million for the third quarter of 2000 compared to $6.9 million
for the third quarter of 1999. Year-to-date, immediate annuity and supplementary
contract premiums were $16.8 million for 2000 compared to $20.3 million for the
same period in 1999. A decrease in immediate annuity premiums in 2000 was
anticipated as a result of pricing adjustments made on these products.
Universal life product charges were $2.5 million higher in the third
quarter of 2000 compared to the same period in 1999 and $3.2 million higher for
the first nine months of 2000 compared to the first nine 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 $9.1 million for the third quarter of 2000
compared to $8.0 million for the same period in 1999. Year-to-date, annuity
product charges increased by $6.8 million to $27.3 million for 2000 compared to
$20.5 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
16.1% for the first nine months of 2000 compared to 14.1% for the first nine
months of 1999. Approximately half of the increase in withdrawal rates was due
to 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 $147.1 million for the third quarter of
2000 compared to $141.5 million for the third quarter of 1999 and $436.0 million
for the first nine months of 2000 compared to $411.9 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). Average
invested assets (excluding market value adjustments) were approximately $387
million and $329 million higher between quarterly and year-to-date periods,
respectively. The increase was primarily from the growth of the Company's life
insurance and annuity business since last year combined with the reinvestment of
the earnings on the holding company cash equivalents. As of September 30, 1999,
the Company had approximately $240 million of cash equivalents on hand which had
been generated primarily from the sale of the Company's discontinued operations.
These funds were invested as the Company awaited distribution of the funds to
its former Members in connection with its reorganization discussed previously.
In late October 2000, the Company distributed approximately $340 million of cash
to its former Members. The earnings on the cash on hand distributed totaled
approximately $4.1 million and $11.3 million for the third quarter 2000 period,
and year-to-date 2000 period, respectively. As a result of this distribution,
future quarterly earnings of the Company will no longer contain the net
investment income from this source.
35
<PAGE> 36
The effective yield of the entire portfolio for the first nine months of
2000 was 6.82% compared to 6.72% in 1999. For the quarter, the 2000 yield was
6.83% compared to 6.88% in 1999. The 2000 third quarter yield was unusually low
due to a loss on the Company's equity investment in the downstream holding
company of ILICO. This loss reduced net investment for the quarter by
approximately $3.3 million from normal levels. Adjusting the portfolio yields
for this loss, the third quarter and year-to-date yields would have been 6.98%
and 6.88%, respectively. As stated earlier, the loss on this equity investment
was one of the factors in the Company's reduction in the number of shares to be
issued in the ILICO combination. The effective yield of the annuity portfolio
increased 9 basis points to 6.75% for the first nine months of 2000 as compared
to 6.66% for the same period in 1999. The increase in the overall portfolio and
annuity portfolio yields in 2000 primarily resulted from higher reinvestment
rates near the end of 1999 and continuing into the first part of 2000 as
compared to the portfolio rates at the beginning of the prior year period. As
discussed previously, approximately 42% of the book value of the assets of ALHI
were adjusted to market value at the end of the third quarter of 2000 in
connection with the Company's reorganization. On a preliminary basis, this
results in improved investment yields on an ongoing basis of approximately 15 to
20 basis points.
Realized losses on investments were $2.6 million for the third quarter of
2000 and $0.9 million for the first nine months of 2000 compared to realized
gains of $1.0 million and $6.8 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 real estate operating income, property
management fees, structured finance fees from affordable housing programs and
third party annuity commissions received by wholly-owned IMOs. Other income
increased approximately $5.2 million in the third quarter of 2000 and $8.7
million in the first nine months of 2000 as compared to the same periods in 1999
primarily due to the acquisition of another IMO in February, 2000. In the
future, other income is expected to run at higher levels than prior years due to
the Company's investment in Corporate Owned Life Insurance (COLI) in the fourth
quarter of 2000. COLI is classified as an other asset and accordingly the income
from this asset will appear in other income instead of net investment income.
36
<PAGE> 37
The Contribution from the Closed Block was $5.6 million for the third
quarter of 2000 compared to $6.2 million for the same period in 1999.
Year-to-date, the Contribution from the Closed Block was $17.1 million compared
to $19.1 million for 1999. The following table sets forth the operating results
of the Closed Block for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- -------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Revenues
Insurance premiums $ 44,375 $ 42,737 $ 138,777 $ 141,335
Universal life and annuity product charges 3,196 3,184 9,453 9,754
Net investment income 28,617 26,408 83,440 82,414
Realized gains (losses) on investments 371 (37) 414 625
-------------------------- -------------------------
Total revenues 76,559 72,292 232,084 234,128
Benefits and expenses
Policyowner benefits 50,018 45,551 150,588 144,523
Underwriting, acquisition and insurance expenses 412 896 1,673 3,717
Amortization of deferred policy acquisition costs 3,479 3,830 10,808 16,419
Dividends to policyowners 17,092 15,808 51,889 50,348
-------------------------- -------------------------
Total benefits and expenses 71,001 66,085 214,958 215,007
---------------------------- -------------------------
Contribution from the Closed Block $ 5,558 $ 6,207 $ 17,126 $ 19,121
========================== =========================
</TABLE>
Closed Block insurance premiums were $44.4 million for the third quarter of
2000 compared to $42.7 million for the same period in 1999. Year-to-date, Closed
Block insurance premiums decreased by $2.5 million to $138.8 million for 2000
compared to $141.3 million for the same period in 1999. A 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. However, due
to unusually low surrender activity in the third quarter of 2000, insurance
premiums increased over the prior year period. The distribution the company
completed in October 2000 in connection with its demutualization impacted
surrender decisions as policies had to be in effect to be eligible to receive a
distribution. The slight decrease in product charges between year-to-date
periods 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.
Net investment income for the Closed Block was $28.6 million for the third
quarter of 2000 and $83.4 million for the first nine months of 2000 compared to
$26.4 million and $82.4 million, respectively, for the same periods in 1999. The
increases in 2000 periods as compared to the same periods in 1999 were primarily
due to increases in average invested assets and higher effective yields.
Closed Block policyowner benefits were $4.4 million higher in the third
quarter of 2000 as compared to the same period in 1999 and year-to-date, Closed
Block policyowner benefits were $6.1 million higher for 2000 as compared to
1999. The increases were due to higher death benefits and higher reserves
related to the increased persistency as policyholders held their policies
awaiting the Company's demutualization distribution.
37
<PAGE> 38
The amortization of deferred policy acquisition costs for the Closed Block
decreased by $0.3 million to $3.5 million for the third quarter of 2000 compared
to $3.8 million for the third quarter of 1999. Year-to-date, the amortization of
deferred policy acquisition costs for the Closed Block decreased $5.6 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 $1.3 million to $17.1
million for the third quarter of 2000 compared to $15.8 million for the same
period in 1999 and increased $1.6 million to $51.9 million for the first nine
months of 2000 compared to $50.3 million for 1999. The increases in 2000 were
expected as the Block matures.
A summary of the Company's policyowner benefits follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- -------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Life Insurance
Traditional:
Death benefits $ 1,131 $ 3,012 $ 4,173 $ 5,428
Change in liability for future policy
benefits and other policy benefits 9,550 8,131 23,677 28,298
-------------------------- -------------------------
Total traditional 10,681 11,143 27,850 33,726
Universal:
Death benefits in excess of cash value 4,747 6,821 19,227 17,292
Interest credited on policyowner
account balances 8,415 7,511 24,794 22,728
Other 1,724 641 2,777 956
-------------------------- -------------------------
Total universal 14,886 14,973 46,798 40,976
-------------------------- -------------------------
Total life insurance benefits 25,567 26,116 74,648 74,702
Annuities
Interest credited to deferred annuity
account balances 73,881 73,091 210,196 211,111
Other annuity benefits 13,189 17,496 45,380 41,478
-------------------------- -------------------------
Total annuity benefits 87,070 90,587 255,576 252,589
All other benefits 64 128 263 236
-------------------------- -------------------------
Total policyowner benefits $ 112,701 $ 116,831 $ 330,487 $ 327,527
========================== =========================
</TABLE>
38
<PAGE> 39
Total life insurance benefits were $25.6 million for the third quarter of
2000 compared to $26.1 million for the third quarter of 1999. Year-to-date,
total life insurance benefits were level between periods. An increase in life
insurance benefits is expected as the traditional and universal blocks of
business continue to grow. However, the Company experienced favorable mortality
in 2000 as compared to 1999, as measured per amount in force, which contributed
to lower benefit expense. In addition, lower discretionary premium contributions
in the first half of 2000 further contributed to the decrease in traditional
life insurance benefit expense. Universal life insurance benefits were level
between third quarter periods and increased for the first nine months of 2000 as
compared to the same periods in 1999. Death benefits increased as expected with
the growth of the business in force. Mortality was favorable in 2000 as compared
to 1999 as measured per amount in force. Interest credited on universal
policyowner account balances increased $0.9 million for the third quarter of
2000 and $2.1 million for the first nine months of 2000 compared to the same
periods in 1999 primarily due to higher policyowner account balances. Average
policyowner account balances were approximately $32.0 million higher for the
first nine months of 2000 as compared to the first nine months of 1999. The
weighted average interest crediting rate on policyowner account balances
remained constant at 5.62% between 2000 and 1999.
Annuity benefits were $87.1 million for the third quarter of 2000 compared
to $90.6 million for the same period in 1999. Year-to-date, annuity benefits
were $255.6 million in 2000 compared to $252.6 million in 1999. The fluctuations
between quarterly and year-to-date periods primarily relate to other annuity
benefits. In mid 1999, the Company issued two insurance contracts to two
commercial paper conduits. One of the contracts was terminated in the fourth
quarter of 1999. As a result, other annuity benefits for the third quarter of
2000 included approximately $4.4 million of interest expense on one insurance
contract compared to $6.3 million of interest expense on two insurance contracts
a year ago. Year-to-date, the interest expense on insurance contracts totaled
$12.5 million for 2000 compared to $6.3 million for the 1999 period. The
remaining changes between periods in other annuity benefits related to the
changes in immediate annuity reserves and benefit payments on immediate
annuities. Interest credited to deferred annuity account balances was $0.8
million higher in the third quarter 2000 as compared to the same quarter a year
ago, and $0.9 million lower for the first nine months of 2000 as compared to the
first nine months of 1999. Between quarterly periods, the weighted average
crediting rate on deferred fixed annuity account balances decreased 3 basis
points and average deferred fixed annuity account balances decreased
approximately $82 million. Offsetting this decline in deferred fixed annuity
crediting rates and account balances were increased equity-index and
multi-choice annuity account balances, which resulted in the 2000 expense
exceeding the 1999 expense for the quarter as the earnings credited to these
products are included with interest credited. The weighted average crediting
rate on deferred fixed annuity account balances was decreased 9 basis points to
4.90% for the first nine months of 2000 compared to 4.99% for the first nine
months of 1999, and average fixed annuity account balances decreased
approximately $44.0 million.
39
<PAGE> 40
A summary of the Company's expenses follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- -------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Life Insurance
Underwriting, acquisition and
other expenses $ 10,897 $ 12,904 $ 36,041 $ 39,496
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of $28 and ($133)
for the three months ended September 30,
2000 and 1999, respectively, and $111 and
$570 for the nine months ended September 30,
2000 and 1999, respectively 5,335 4,727 15,070 15,456
-------------------------- -------------------------
Total life insurance 16,232 17,631 51,111 54,952
Annuities
Underwriting, acquisition and
other expenses 12,659 8,831 38,292 27,887
Amortization of deferred policy acquisition costs
and value of business acquired (VOBA), net
of non-core adjustment of ($2,579) and $188
for the three months ended September 30,
2000 and 1999, respectively, and ($6,378) and
$1,166 for the nine months ended September 30,
2000 and 1999, respectively 14,675 10,815 47,517 34,976
-------------------------- -------------------------
Total annuities 27,334 19,646 85,809 62,863
Amortization of deferred policy acquisition costs due
to non-core realized gains or losses (2,551) 55 (6,267) 1,736
All other expenses 6,606 5,927 15,814 16,595
Reorganization costs 3,732 1,826 10,437 1,872
-------------------------- -------------------------
Total expenses $ 51,353 $ 45,085 $ 156,904 $ 138,018
========================== =========================
</TABLE>
Total life insurance expenses were $16.2 million for the third quarter of
2000 compared to $17.6 million for the third quarter of 1999 and $51.1 million
for the first nine months of 2000 compared to $55.0 million for the same period
in 1999. Underwriting, acquisition and insurance expenses were $2.0 million
lower in the third quarter of 2000 compared to the same period in 1999 and
year-to-date, $3.5 million lower in 2000 compared to 1999. The decreases were
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) increased $0.6 million for the third quarter
of 2000 compared to the same period in 1999 and decreased $0.4 million for the
first nine months of 2000 compared to the first nine months of 1999. Deferred
policy acquisition costs are generally amortized in proportion to gross margins.
The increase in amortization between quarterly periods primarily reflects the
higher product margins in the third quarter 2000 as compared to the third
quarter 1999, primarily associated with lower death benefits. The decrease in
amortization between year-to-date periods was primarily due to the increase in
40
<PAGE> 41
estimated future gross margins resulting from the new reinsurance agreements
that went into effect earlier this year.
Total annuity expenses increased by $7.7 million to $27.3 million for the
third quarter of 2000 compared to $19.6 million for the third quarter of 1999.
Year-to-date, total annuity expenses were $85.8 million compared to $62.9
million for the same period in 1999. Underwriting, acquisition and insurance
expenses increased approximately $10.4 million in the first nine months 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 discussed
previously. Amortization of deferred policy acquisition costs and VOBA increased
$3.9 million in the third quarter of 2000 and $12.5 million in the first nine
months 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 $0.7 million for the third quarter of 2000 and
decreased $0.8 million for the first nine months of 2000 compared to the same
periods in 1999. Other expenses primarily consist of expenses related to the
real estate management company and the holding company and tend to fluctuate
from period to period depending on the properties under management each quarter.
Beginning in 1999, the Company began decreasing the number of properties under
management and, accordingly, other expenses are also declining. Partially
offsetting the decreased property management expenses in the third quarter of
2000 were increased holding company expenses primarily related to incentive
compensation and amortization of debt issuance costs.
The 2000 reorganization costs consist primarily of legal, actuarial and
consulting expenses associated with the reorganization of the Company discussed
previously. As these costs are not of a continuing nature, they have been
excluded from the Operating Segment amounts.
41
<PAGE> 42
A summary of the Company's income from operations by operating segment
follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- -------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Life Insurance
Open Block:
Revenues $ 53,643 $ 52,245 $ 159,646 $ 150,718
Benefits and expenses (41,799) (43,747) (125,759) (129,654)
Dividends to policyowners (1,640) (1,396) (4,337) (3,419)
Closed Block contribution 5,558 6,207 17,126 19,121
-------------------------- -------------------------
Adjusted pre-tax operating income 15,762 13,309 46,676 36,766
Annuities
Revenues 137,966 132,367 409,717 382,437
Benefits and expenses (114,404) (110,233) (341,385) (315,452)
-------------------------- -------------------------
Adjusted pre-tax operating income 23,562 22,134 68,332 66,985
All other adjusted pre-tax operating (loss) 2,980 (237) 7,110 7,476
-------------------------- -------------------------
Total adjusted pre-tax operating income $ 42,304 $ 35,206 $ 122,118 $ 111,227
========================== =========================
</TABLE>
Adjusted pre-tax operating income from Life Insurance operations was $15.8
million for the third quarter of 2000 compared to $13.3 million for the third
quarter of 1999. Year-to-date, adjusted pre-tax operating income from Life
Insurance operations was $46.7 million in 2000 compared to $36.8 million in
1999. The increase in adjusted pre-tax operating income in 2000 compared to 1999
was primarily due to increased investment income and product charges combined
with decreased technology expenses and favorable mortality costs.
Adjusted pre-tax operating income from Annuity operations increased $1.5
million to $23.6 million for the third quarter of 2000 compared to $22.1 million
for the same period in 1999 and increased $1.3 million to $68.3 million for the
first nine months of 2000 compared to $67.0 million in 1999. The increase in
2000 was primarily due to increased interest spreads partially offset by
increased amortization of the deferred acquisition cost asset and VOBA asset.
All other adjusted pre-tax operating income was $3.0 million for the third
quarter of 2000 compared to a loss of $0.2 million for the same period in 1999.
The increase between quarterly periods was primarily due to increased investment
income on the higher cash equivalent balance in 2000 compared to 1999.
Year-to-date, all other adjusted pre-tax operating income was $7.1 million in
2000 compared to adjusted pre-tax operating income of $7.5 million for the same
period in 1999.
Interest expense increased $0.6 million in the third quarter of 2000 to
$7.6 million compared to $7.0 million in the third quarter of 1999.
Year-to-date, interest expense was $22.4 million in 2000 compared to $22.0
million in 1999. The increased interest expense in 2000 was primarily due to
higher average outstanding borrowings during 2000 as compared to 1999. The
additional borrowings were primarily used to support insurance company
operations, affordable housing investments, fund the
42
<PAGE> 43
acquisition of the new IMO, and fund a portion of the initial investment in the
downstream holding company of ILICO.
Income tax expense was $13.1 million for the third quarter of 2000 compared
to $7.9 million for the third quarter of 1999 and $36.8 million for the first
nine months of 2000 compared to $28.0 million for the same period in 1999. The
effective tax rate for the first nine months of 2000 was 40.1% compared to 33.5%
for 1999. The increase in the effective tax rate in 2000 was primarily due to
the nondeductible expenses associated with the Company's reorganization.
Minority interest represents the minority stockholders ownership percentage
share of net income of ALHI prior to the Company's acquisition of this Minority
Interest. The minority shareholder ownership percentage was 42% for both the
nine months ended September 30, 2000 and 1999. Starting with the fourth quarter
2000, there will be no further net income applicable to the Minority Interest.
Net income was $11.1 million for the third quarter of 2000 compared to $8.6
million for the same period in 1999. Year-to-date, net income was $33.8 million
in 2000 compared to $34.5 million in 1999. Pre-tax adjusted operating income
increased $7.1 million between third quarter periods and $10.9 million between
year-to-date periods due to the results of the Life Insurance and Annuity
operations discussed previously. Offsetting these operating income increases
were increases in interest expense, reorganization costs, higher effective
income tax rates, and decreased non-core realized gains.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest from income on loans and advances
to its subsidiaries (including a surplus note issued to the Company by AmerUs
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. Generally, under the various state statutes,
the Company's life insurance subsidiaries dividends may be paid only from the
earned surplus arising from their respective businesses and must receive the
prior approval of the respective state regulator to pay any dividend that would
exceed certain statutory limitations. The current statutes generally limit any
dividend, together with dividends paid out within the preceding 12 months, to
the greater of (i) 10% of the respective company's policyowners' surplus as of
the preceding year end or (ii) the net gain from operations for the previous
calendar year. Generally, the various state laws give the state regulators broad
discretion to approve or disapprove requests for dividends in excess of these
limits. Based on these limitations and 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
$30.0 million in dividends during the first nine months of 2000.
The Company and its subsidiaries generated cash flows from operating
activities of $288.1 million and $888.9 million for the nine months ended
September 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 September 30, 2000, there was a
$57 million outstanding loan balance under the facility. The Bank Credit
Facility provides for typical events of default and covenants with respect to
the
43
<PAGE> 44
conduct of business of the Company and its subsidiaries and requires the
maintenance of various financial levels and ratios. Among other covenants, the
Company (a) cannot have a leverage ratio greater than 0.35:1.0 or an interest
coverage ratio less than 2.25:10, (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.
As mentioned previously, the Company's demutualization became effective on
September 20, 2000. The actual distribution of cash, policy credits and the
Company's common stock to its former Members took place in late October, 2000.
Of the total cash and policy credits distributed of $339.8 million,
approximately $295.3 million came from cash balances on hand and $44.5 million
was funded by borrowings under the Company's revolving credit facility. In
addition, the Company distributed 17.4 million shares of its common stock to its
former Members resulting in total shares of common stock outstanding of 30.0
million shares.
As previously reported, the Company has entered into a definitive agreement
for the combination of the Company with ILICO. ILICO will demutualize and its
members will receive cash, policy credits and the Company's common stock
equivalent to the value of 9.3 million shares of the common stock of AmerUs
Group. The transaction is expected to be completed in the first quarter of 2001.
Under the terms of the agreement, the Company is committed at a minimum to
distribute in cash the equivalent value of approximately 264,000 shares of its
common stock. The actual amount of the cash consideration will vary dependent
upon the price of the Company's common stock at or about the closing date and
the number of shares within the range that the Company elects to distribute in
the form of cash. The funding for the cash consideration is expected to
primarily come from the Company's revolving credit facility.
The Company has previously announced a stock repurchase plan for up to
$50.0 million. As of September 30, 2000, the Company has $48.5 million of
remaining capacity under the plan. The Company would expect some greater
repurchase activity post the distribution of common stock to its former Members
if the market conditions are favorable. The funds for the repurchase program
would come from a combination of internal sources from its life insurance
subsidiaries and utilization of its revolving credit facility.
In July 2001, the forward common stock purchase contract component of the
Company's adjustable conversion-rate equity security units matures. Under the
terms of the contract, the Company will issue 4,080,500 shares of its common
stock at a price of $31.5625 per share for total consideration of $128.8
million. In lieu of paying cash to satisfy their purchase obligation, the unit
holders may surrender the preferred security component of the adjustable
conversion-rate equity security unit. The form of consideration will not be
known until April 2001 at which time the election must be made. If the Company
receives cash proceeds, the funds will probably be applied towards the Company's
revolving credit facility. If the preferred securities are tendered, the Company
intends to retire them. In either case, debt and capital securities outstanding
will be reduced by $128.8 million.
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
44
<PAGE> 45
they are incurred. The remaining cash flow is generally used to increase the
asset base to provide funds to meet the need for future policy benefit payments
and for writing new business.
Management anticipates that funds to meet its short-term and long-term
capital expenditures, cash dividends to shareholders and operating cash needs
will come from existing capital and internally generated funds. Management
believes that the current level of cash and available-for-sale and short-term
securities, combined with expected net cash inflows from operations, maturities
of fixed maturity investments, principal payments on mortgage-backed securities
and its insurance products, will be adequate to meet the anticipated short-term
cash obligations of the Company's life insurance subsidiaries.
Matching the investment portfolio maturities to the cash flow demands of
the type of insurance being provided is an important consideration for each type
of life insurance product and annuity. The Company continuously monitors
benefits and surrenders to provide projections of future cash requirements. As
part of this monitoring process, the Company performs cash flow testing of its
assets and liabilities under various scenarios to evaluate the adequacy of
reserves. In developing its investment strategy, the Company establishes a level
of cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage-backed securities, are believed adequate to meet anticipated short-term
and long-term benefit and expense payment obligations. There can be no assurance
that future experience regarding benefits and surrenders will be similar to
historic experience since withdrawal and surrender levels are influenced by such
factors as the interest rate environment and the claims-paying and financial
strength ratings of the Company's life insurance subsidiaries.
The Company takes into account asset/liability management considerations in
the product development and design process. Contract terms for the Company's
interest-sensitive products include surrender and withdrawal provisions which
mitigate the risk of losses due to early withdrawals. These provisions generally
do one or more of the following: limit the amount of penalty-free withdrawals,
limit the circumstances under which withdrawals are permitted, or assess a
surrender charge or market value adjustment relating to the underlying assets.
The following table summarizes liabilities for interest- sensitive life products
and annuities by their contractual withdrawal provisions at September 30, 2000
(including liabilities in both the Closed Block and the general account):
($ in millions)
Not subject to discretionary withdrawal $ 387.0
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) 4,500.6
Market value adjustments 1,422.0
---------
Subtotal 5,922.6
---------
Subject to discretionary withdrawal without adjustments 1,536.5
---------
Total $ 7,846.1
=========
(A) Includes $1,122.8 million of statutory liabilities with a contractual
surrender charge of less than five percent of the account balance.
45
<PAGE> 46
AmerUs is a party to a $250 million separate account funding agreement.
Under this agreement, a five-year floating rate insurance contract is issued to
a commercial paper conduit. The funding agreement is secured by assets in a
separate account and is further backed by the general account assets of AmerUs.
The separate account assets are legally segregated and are not subject to claims
that arise out of any other business of AmerUs. The separate account assets and
liabilities are included with general account assets in the financial
statements. The funding agreement may not be cancelled by the commercial paper
conduit unless there is a default under the agreement, but AmerUs Life may
terminate at any time.
AmerUs and its joint venture partner are contingently liable in the event
the joint venture, AVLIC, cannot meet its obligations. At September 30, 2000,
AVLIC had statutory assets of $2,644.3 million, liabilities of $2,588.0 million
and surplus of $56.3 million.
Through its membership in the Federal Home Loan Bank (FHLB) of Des Moines,
AmerUs and American are eligible to borrow under variable-rate short term fed
funds arrangements to provide additional liquidity. These borrowings are secured
and interest is payable at the current rate at the time of any advance. There
were no borrowings under these arrangements outstanding at September 30, 2000.
In addition, AmerUs has long-term advances from FHLB outstanding of $15.7
million at September 30, 2000.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments. The Company's investment portfolio as of September 30,
2000 had a carrying value of $10 billion, including Closed Block investments.
At September 30, 2000, the statutory capital and surplus of the Company's
subsidiaries was approximately $471.0 million. The Company believes that this
level of statutory capital is more than adequate as each life insurance
subsidiary's risk-based capital is significantly in excess of required levels.
In the future, in addition to their cash flows from operations and
borrowing capacity, the life insurance subsidiaries would anticipate obtaining
their required capital from the Company as the Company will have access to the
public debt and equity markets.
46
<PAGE> 47
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 September 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)
3 mos
Amortized 2000 2001 2002 2003 2004 2005 Thereafter Cost
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities $ 75 $ 361 $ 467 $ 819 $ 699 $ 832 $ 3,777 $ 7,030
Average interest rate 7.7% 7.7% 7.9% 7.1% 7.2% 7.1% 7.6%
Mortgage loans $ 8 $ 30 $ 27 $ 33 $ 67 $ 33 $ 289 $ 487
Average interest rate 8.3% 8.4% 8.4% 8.3% 8.2% 8.2% 8.0%
Total $ 83 $ 391 $ 494 $ 852 $ 766 $ 865 $ 4,066 $ 7,517
===================================================================
</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 68% of fixed maturity securities are issued by the U.S. Treasury
or U.S. government agencies or are rated A or better by Moody's, Standard and
Poor's, or the NAIC. Less than 7% of the bond portfolio is below investment
grade. Fixed maturity securities have a weighted average maturity of
approximately 7.27 years.
Prepayment risk refers to the changes in prepayment patterns that can
either shorten or lengthen the expected timing of the principal repayments and
thus the average life and the effective yield of a security. Such risk exists
primarily within the Company's portfolio of mortgage-backed securities.
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<PAGE> 48
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 litigation, none of which management believes is material to
the Company's results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On September 20, 2000, the Company converted from a mutual insurance
holding company owned by the policyholders of AmerUs (the Members) to a stock
company 100% owned by its stockholders (the Demutualization). In connection with
the Demutualization, the Members received cash and policy credits equal to
approximately $340 million and 17,390,165 shares of common stock of the Company
(Company Stock). The Company Stock issued to Members, in exchange for their
ownership interests in the Company, was exempt under Section 3(a)(10) of the
Securities Act of 1933 (the Exemption). The Company based its reliance on the
Exemption on a No Action Letter filed with the Securities and Exchange
Commission (the Commission) on April 7, 2000 and the Commission's response
thereto received by the Company on May 23, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
A list of exhibits included as part of this report is set forth in the
Exhibit Index which immediately precedes such exhibits and is hereby
incorporated by reference herein.
(b) The following report on Form 8-K was filed during the quarter ended
September 30, 2000:
Form 8-K12G3 dated September 21, 2000 announcing the Amendment to the
Combination and Investment Agreement and the demutualization of AMHC
and deeming the common stock of AGC, as successor to ALHI, registered
under Section 12(g) of the Securities Exchange Act of 1934.
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<PAGE> 49
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: November 14, 2000 AMERUS GROUP CO.
By /s/ Michael G. Fraizer
---------------------------------
Executive Vice President and
Chief Financial Officer
By /s/ Brenda J. Cushing
----------------------------------
Vice President and Controller
(Principal Accounting Officer)
49
<PAGE> 50
AMERUS GROUP CO. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
2.1 Plan of Reorganization dated October 27, 1995, filed as Exhibit 2.1
to the registration statement of 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.
2.12 Amendment to Combination and Investment Agreement dated February 18,
2000 among American Mutual Holding Company, AmerUs Life Holdings,
Inc., Indianapolis Life Insurance Company and The Indianapolis Life
Group of Companies, Inc., dated September 18, 2000, filed as Exhibit
2.2 to Form 8-K12G3 of the Registrant dated September 21, 2000.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2* Amended and Restated By-Laws of the Registrant.
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.
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<PAGE> 51
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.
4.14* First Supplement to Indenture dated February 3, 1997 among American
Mutual Holding Company, AmerUs Life Holdings, Inc. and Wilmington
Trust Company as Trustee, relating to the Company's 8.85% Junior
Subordinated Debentures, Series A, dated September 20, 2000.
4.15* Assignment and Assumption Agreement to Amended and Restated Trust
Agreement, dated February 3, 1997
between American Mutual Holding Company and AmerUs Life Holdings,
Inc., dated September 20, 2000.
4.16* Assignment and Assumption to Guaranty Agreement, dated February 3,
1997 between American Mutual Holding Company and AmerUs Life
Holdings, Inc., dated September 20, 2000.
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4.17* First Supplement to Subordinated Indenture, dated July 27, 1998,
relating to AmerUs Life Holdings, Inc.'s 6.86% Junior Subordinated
Deferrable Interest Debentures, among American Mutual Holding
Company, AmerUs Life Holdings, Inc. and First Union National Bank,
as Indenture Trustee, dated September 20, 2000.
4.18* First Supplement to Master Unit Agreement dated July 27, 1998,
relating to AmerUs Life Holdings, Inc.'s 7.0% ACES units, between
American Mutual Holding Company and First Union National Bank, as
Unit Agent, dated September 20, 2000.
4.19* Assignment and Assumption Agreement to the QUIPS Guarantee
Agreement dated July 27, 1998, relating to AmerUs Life Holdings,
Inc.'s 7.0% ACES units, between American Mutual Holding Company and
AmerUs Life Holdings, Inc., dated September 20, 2000.
4.20* Assignment and Assumption Agreement to the Common Trust Securities
Guarantee Agreement dated July 27, 1998, relating to AmerUs Life
Holdings, Inc.'s 7.0% ACES units, between American Mutual Holding
Company and AmerUs Life Holdings, Inc., dated September 20, 2000.
4.21* First Supplement to Purchase Contracts between American Mutual
Holding Company and Holders, as specified, dated September 20, 2000.
4.22* First Supplement to the Pledge Agreement dated July 27, 1998,
relating to AmerUs Life Holdings, Inc.'s 7.0% ACES units, among
American Mutual Holding Company, Goldman Sachs & Co., as Call
Option Holder, the Chase Manhattan Bank, as Collateral Agent and
First Union National Bank, as Unit Agent, dated September 20, 2000.
4.23* First Supplement to Senior Indenture dated June 16, 1998, relating
to AmerUs Life Holdings, Inc.'s 6.95% Senior Notes, among American
Mutual Holding Company, AmerUs Life Holdings, Inc. and First Union
National Bank, as Trustee, dated September 20, 2000.
10.1 Amended and Restated Intercompany Agreement dated as of December 1,
1996, among American Mutual Holding Company, AmerUs Group Co. and
the Company. Filed as Exhibit 10.81 to the Registrant's
registration statement on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.2 Joint Venture Agreement, dated as of June 30, 1996, between American
Mutual Insurance Company and Ameritas Life Insurance Corp., filed as
Exhibit 10.2 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.3 Management and Administration Service Agreement, dated as of April
1, 1996, among American Mutual Life Insurance Company, Ameritas
Variable Life Insurance Company and Ameritas Life Insurance Corp.,
filed as Exhibit 10.3 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.4 AmerUs Life Holdings, Inc. Executive Stock Purchase Plan, dated
November 13, 1998, filed as Exhibit 4.11 to the registration
statement of the Registrant on Form S-8, Registration Number
333-72237, is hereby incorporated by reference.
10.5 All*AmerUs Supplemental Executive Retirement Plan, effective January
1, 1996, filed as Exhibit 10.6 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.6 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.
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<PAGE> 53
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.
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.
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<PAGE> 54
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.
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.
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<PAGE> 55
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.
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.
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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, filed as Exhibit 10.56 on Form 10-Q,
dated August 14, 2000, is hereby incorporated by reference.
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, filed as Exhibit 10.57 on Form 10-Q,
dated August 14, 2000, is hereby incorporated by reference.
10.58* Affirmation Agreement to Facility and Guaranty Agreement dated
February 12, 1999 by American Mutual Holding Company, survivor of a
merger with AmerUs Life Holdings, Inc. in favor of the Agent and the
Lenders, dated September 20, 2000.
10.59* Amendment to Facility and Guaranty Agreement dated February 12, 1999
among The First National Bank of Chicago and AmerUs Group Co.,
dated September 20, 2000.
10.60* Acknowledgement and Assumption Agreement to Credit Agreement dated
October 23, 1997, among American Mutual Holding Company and The Chase
Manhattan Bank, as Administrative Agent for Various Lender
Institutions, dated September 20, 2000.
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
56
