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.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from N/A to N/A.
Commission file number 333-02491*.
KEMPER INVESTORS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in charter)
ILLINOIS
(State of Incorporation)
36-3050975
(I.R.S. Employer
Identification Number)
1 KEMPER DRIVE
LONG GROVE, ILLINOIS
(Address of Principal Executive Offices)
60049-0001
(Zip Code)
Registrant's telephone number, including area code: (847) 550-5500
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of November 1, 2000, 250,000 shares of common stock (all held by an
affiliate, Kemper Corporation) were outstanding. There is no market value for
any such shares.
* Pursuant to Rule 429 under the Securities Act of 1933, this Form 10-Q
also relates to Commission file numbers 33-33547, 33-43462, 33-46881,
333-22389 and 333-32632.
1
<PAGE>
KEMPER INVESTORS LIFE INSURANCE COMPANY
FORM 10-Q
PART I. FINANCIAL STATEMENTS PAGE NO.
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999...........................3
Consolidated Statements of Operations -
Nine months and three months ended September 30, 2000 and 1999.....4
Consolidated Statements of Comprehensive Income (Loss)-
Nine months and three months ended September 30, 2000 and 1999.....5
Consolidated Statements of Cash Flows -
Nine months ended September 30, 2000 and 1999......................6
Notes to Consolidated Financial Statements.............................7
Management's Discussion and Analysis
Results of Operations.............................................10
Investments.......................................................14
Liquidity and Capital Resources...................................16
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders..........17
ITEM 6. Exhibits and Reports on Form 8-K.............................17
Signatures............................................................18
2
<PAGE>
<TABLE>
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
<CAPTION>
September 30 December 31
2000 1999
(unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, at fair
value (amortized cost: September 30, 2000,
$3,149,202; December 31, 1999, $3,397,188) $ 3,052,306 $ 3,276,017
Equity securities (cost: September 30, 2000,
$65,473; December 31, 1999, $65,235) 62,263 61,592
Short-term investments 32,754 42,391
Joint venture mortgage loans 67,391 67,242
Third-party mortgage loans 63,683 63,875
Other real estate-related investments 17,872 20,506
Policy loans 257,017 261,788
Other invested assets 26,606 25,621
---------- ---------
Total investments 3,579,892 3,819,032
Cash 18,863 12,015
Accrued investment income 132,136 127,219
Reinsurance recoverable 273,150 309,696
Deferred insurance acquisition costs 225,212 159,667
Goodwill 194,349 203,907
Value of business acquired 103,793 119,160
Other intangibles 4,654 -
Deferred income taxes 95,742 93,502
Receivable on sales of securities 7,101 3,500
Other assets and receivables 46,031 29,950
Assets held in separate accounts 11,292,398 9,778,068
---------- ---------
Total assets $15,973,321 $14,655,716
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits $ 3,490,119 $ 3,718,833
Other policyholder benefits and funds payable 465,906 457,328
Other accounts payable and liabilities 61,781 71,482
Liabilities related to separate accounts 11,292,398 9,778,068
---------- ---------
Total liabilities 15,310,204 14,025,711
---------- ----------
Commitments and contingent liabilities
Stockholder's equity:
Capital stock - $10 par value, authorized
300,000 shares; issued and
outstanding 250,000 shares 2,500 2,500
Additional paid-in capital 804,347 804,347
Accumulated other comprehensive loss (97,866) (120,819)
Retained deficit (45,864) (56,023)
---------- ---------
Total stockholder's equity 663,117 630,005
---------- ---------
Total liabilities and stockholder's equity $ 15,973,321 $ 14,655,716
========== ==========
</TABLE>
3
<PAGE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Operations
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
--------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Net investment income $ 193,640 $ 196,943 $ 63,076 $ 65,742
Realized investment gains (losses) (823) (10,787) 1,458 (7,843)
Premium income 15,898 15,868 5,635 4,990
Separate account fees and charges 55,538 49,374 16,073 12,668
Other income 21,090 8,713 8,007 2,744
------- ------- ------- -------
Total revenue 285,343 260,111 94,249 78,301
------- ------- ------- -------
BENEFITS AND EXPENSES
Interest credited to policyholders 114,812 122,047 38,529 40,763
Claims incurred and other
policyholder benefits 14,987 12,079 7,622 3,031
Taxes, licenses and fees 19,153 16,018 3,978 2,185
Commissions 85,502 47,511 31,983 18,090
Operating expenses 45,223 33,891 15,878 11,230
Deferral of insurance acquisition
costs (81,532) (52,595) (29,785) (19,495)
Amortization of insurance
acquisition costs 15,789 7,699 5,705 4,091
Amortization of value of business
acquired 12,426 12,189 3,677 3,920
Amortization of goodwill 9,558 9,558 3,186 3,186
Amortization of intangibles acquired 245 - 123 -
------- ------- ------- -------
Total benefits and expenses 236,163 208,397 80,896 67,001
------- ------- ------- ------
Income before income tax expense 49,180 51,714 13,353 11,300
Income tax expense (benefit)
Current 20,162 38,613 40 (1,609)
Deferred (1,141) (17,063) 3,655 6,439
------- ------- ------- -------
Total income tax expense 19,021 21,550 3,695 4,830
------- ------- ------- -------
Net income $ 30,159 $ 30,164 $ 9,658 $ 6,470
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------------- ------------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income $ 30,159 $ 30,164 $ 9,658 $ 6,470
Other comprehensive income (loss),
before tax:
Unrealized holding gains (losses)
on investments arising during
period:
Unrealized holding gains
(losses) on investments 11,398 (140,670) 34,086 (26,576)
Adjustment to value of business
acquired (2,754) 16,683 771 3,730
Adjustment to deferred
insurance acquisition costs (1,955) 8,915 (2,062) 2,207
------- ------- ------- -------
Total unrealized holding gains
(losses) on investments
arising during period 6,689 (115,072) 32,795 (20,639)
------- ------- ------- -------
Less reclassification adjustments
for items included in net income:
Adjustment for (gains) losses
included in realized investment
gains (losses) (10,058) 13,039 (7,746) 5,072
Adjustment for amortization of
premium on fixed maturities
included in net investment
income (3,537) (9,022) (1,134) (2,197)
Adjustment for (gains) losses
included in amortization of
value of business acquired 187 (331) 160 267
Adjustment for (gains) losses
included in amortization of
insurance acquisition costs (1,756) 859 108 567
------- ------- ------- -------
Total reclassification
adjustments for items
included in net income (15,164) 4,545 (8,612) 3,709
------- ------- ------- -------
Other comprehensive income (loss),
before related income tax expense
(benefit) 21,853 (119,617) 41,407 (24,348)
Related income tax expense
(benefit) (1,100) (12,702) (546) 1,786
------- ------- ------- -------
Other comprehensive income (loss),
net of tax 22,953 (106,915) 41,953 (26,134)
------- ------- ------- -------
Comprehensive income (loss) $ 53,112 $ (76,751) $ 51,611 $ (19,664)
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30
-----------------
2000 1999
------ ------
<S> <C> <C>
Cash flows from operating activities
Net income $30,159 $30,164
Reconcilement of net income to net cash
provided (used):
Realized investment losses 823 10,787
Net change in trading account securities - (44,739)
Interest credited and other charges 111,866 119,646
Deferred insurance acquisition costs, net (65,743) (44,896)
Amortization of value of business acquired 12,426 12,189
Amortization of goodwill 9,558 9,558
Amortization of discount and premium on
investments 3,841 9,510
Amortization of other intangibles acquired 245 -
Deferred income taxes (1,141) (17,064)
Net change in current Federal income taxes (25,637) (54,254)
Benefits and premium taxes due related to
separate account bank-owned life insurance (1,880) 96,355
Other, net 4,578 9,078
------- -------
Net cash flow from operating activities 79,095 136,334
------- -------
Cash flows from investing activities
Cash from investments sold or matured:
Fixed maturities held to maturity 126,984 281,197
Fixed maturities sold prior to maturity 441,960 1,014,262
Equity securities 1,271 11,377
Mortgage loans, policy loans and other
invested assets 47,770 59,554
Cost of investments purchased or loans
originated:
Fixed maturities (329,197)(1,233,431)
Equity securities (1,264) (8,703)
Mortgage loans, policy loans and other
invested assets (36,093) (37,154)
Investment in subsidiaries (4,899) -
Short-term investments, net 9,637 25,432
Net change in receivable and payable
for securities transactions (3,601) 9,718
Net change in other assets (3,060) -
------- -------
Net cash from investing activities 249,508 122,252
------- -------
Cash flows from financing activities
Policyholder account balances:
Deposits 373,659 270,261
Withdrawals (677,693) (480,783)
Dividends paid to parent (20,000) (45,000)
Other 2,279 2,425
------- -------
Net cash from financing activities (321,755) (253,097)
------- -------
Net increase in cash 6,848 5,489
Cash at the beginning of period 12,015 13,486
------- -------
Cash at the end of the period $18,863 $18,975
======= =======
</TABLE>
7
<PAGE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
Kemper Investors Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
1. Kemper Investors Life Insurance Company ("KILICO") is incorporated under
the insurance laws of the State of Illinois. KILICO is licensed in the
District of Columbia and all states, except New York. KILICO is a
wholly-owned subsidiary of Kemper Corporation ("Kemper"), a nonoperating
holding company.
2. In the opinion of management, all necessary adjustments consisting of
normal recurring accruals have been made for a fair statement of the
results of KILICO for the periods included in these financial statements.
These financial statements should be read in conjunction with the
financial statements and related notes in the 1999 Annual Report on Form
10-K.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles.
3. KILICO, along with its affiliates Federal Kemper Life Assurance Company,
Zurich Life Insurance Company of America, Zurich Direct, Incorporated,
and Fidelity Life Association ("FLA"), a Mutual Legal Reserve Company
under common management, operates under the trade name Zurich Kemper
Life ("ZKL"). ZKL is segregated by Strategic Business Unit ("SBU").
The SBU concept has each SBU concentrate on a specific customer market.
The SBU is the focal point of ZKL because it is at the SBU level that ZKL
can clearly identify customer segments and then work to understand and
satisfy the needs of each customer. The contributions of ZKL's SBUs to
consolidated revenues, operating results and certain balance sheet data
pertaining thereto, are shown in the following tables on the basis of
generally accepted accounting principles. For purposes of this
disclosure, ZKL excludes FLA, as it is owned by its policyholders.
ZKL is segregated into the Life Brokerage, Financial Institutions
("Financial"), Retirement Solutions Group ("RSG")and Direct SBUs. The
SBUs are not managed at the legal entity level, but rather at the ZKL
level. ZKL's SBUs cross legal entity lines, as certain similar products
are sold by more than one legal entity.
9
<PAGE>
Summarized financial information for ZKL's SBUs are as follows:
<TABLE>
As of and for the period ending September 30, 2000:
(in thousands)
<CAPTION>
Life
Brokerage Financial RSG Direct Total
--------- --------- --- ------ -----
<S> <C> <C> <C> <C> <C>
Total revenues $258,228 $177,518 $117,428 $47,885 $601,059
======= ======= ======= ====== =======
Net income $26,403 $19,097 $8,399 $1,739 $55,638
====== ====== ===== ===== ======
Total assets $3,006,088 $11,677,390 $4,720,481 $222,184 $19,626,143
========= ========== ========= ======= ==========
<CAPTION>
Net
Revenue Income (Loss) Assets
------- ------------- ------
<S> <C> <C> <C>
Total revenue, net income and assets,
respectively, of ZKL from above: $601,059 $55,638 $19,626,143
Less:
Revenue, net income & assets of FKLA 241,637 26,729 3,129,517
Revenue, net income & assets of ZLICA 39,352 6,371 512,504
Revenue, net (loss) & assets of
Zurich Direct 34,727 (7,621) 10,801
Totals per KILICO's consolidated
financial statements $285,343 $30,159 $15,973,321
</TABLE>
<TABLE>
As of and for the period ending September 30, 1999:
(in thousands)
<CAPTION>
Life
Brokerage Financial RSG Direct Total
--------- --------- --- ------ -----
<S> <C> <C> <C> <C> <C>
Total revenues $264,940 $153,319 $100,180 $34,566 $553,005
======= ======= ======= ====== =======
Net income (loss) $26,751 $20,161 $7,743 $(644) $54,011
====== ====== ===== ==== ======
Total assets $3,099,557 $9,376,982 $4,282,726 $85,176 $16,844,441
========= ========= ========= ====== ==========
<CAPTION>
Net
Revenue Income (Loss) Assets
------- ------------- ------
<S> <C> <C> <C>
Total revenue, net income (loss)
and assets, respectively, of ZKL
from above: $553,005 $54,011 $16,844,441
Less:
Revenue, net income & assets of FKLA 227,015 22,258 3,222,738
Revenue, net income & assets of ZLICA 37,545 7,951 445,891
Revenue, net (loss) & assets of
Zurich Direct 28,334 (6,362) 4,129
Totals per KILICO's consolidated
financial statements $260,111 $30,164 $13,171,683
</TABLE>
10
<PAGE>
4. KILICO's financial statements as of September 30, 2000 include the
second and third quarter 2000 results of the following companies
purchased for $5.5 million on March 31, 2000:
* PMG Securities Corporation
* PMG Asset Management, Inc.
* PMG Life Agency, Inc., and
* PMG Marketing, Inc., (collectively "PMG")
These companies were primarily purchased for their specialization in the
target market of the RSG SBU.
5. On July 17, 2000, KILICO transferred $63.3 million in fixed maturities
and cash to fund the operations of its newly formed subsidiary, Zurich
Kemper Life Insurance Company of New York. Business is expected to
commence in the fourth quarter of 2000 or first quarter of 2001.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Kemper Investors Life Insurance Company and subsidiaries ("we", "our" or
"KILICO") recorded net income of $30.2 million in the first nine months of
both 2000 and 1999.
The following table reflects the components of net income:
<TABLE>
Net income:
(in millions)
<CAPTION>
Nine months ended
September 30
------------------
2000 1999
---- ----
<S> <C> <C>
Operating earnings before amortization of
goodwill and other intangibles $ 40.5 $46.8
Amortization of goodwill and other intangibles (9.8) (9.6)
Net realized capital losses (.5) (7.0)
---- ----
Net income $ 30.2 $30.2
==== ====
</TABLE>
The following table reflects the major components of net realized capital
gains and losses included in net income.
<TABLE>
Net realized capital gains (losses)
(in millions)
<CAPTION>
Nine months ended Three months ended
September 30 September 30
----------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fixed maturities $(4.7) $(9.4) $(.7) $(6.7)
Real estate-related 1.7 3.4 .1 -
Equity securities .2 1.0 .1 .1
Trading account securities-
realized gains - .3 - .1
Trading account securities-
holding losses - (7.1) - (1.4)
Other 2.0 1.0 2.0 -
----- ----- ----- -----
Realized investment gains
(losses) (.8) (10.8) 1.5 (7.9)
Income tax expense (benefit) (.3) (3.8) .5 (2.8)
----- ----- ----- -----
Net realized capital gains
(losses) $(.5) $(7.0) $ 1.0 $(5.1)
===== ===== ===== =====
</TABLE>
Operating earnings before amortization of goodwill decreased to $40.5
million in the first nine months of 2000, compared with $46.8 million in
the first nine months of 1999. This decrease was primarily due to:
* an increase in commissions and operating expenses, net of the deferral
of insurance acquisition costs
* an increase in the amortization of insurance acquisition costs
* an increase in taxes, licenses and fees, and
* an increase in claims incurred and other benefits, offset by
* an increase in other income
* an increase in separate account fees, and
* an increase in spread revenue (net investment income less interest
credited to policyholders)
12
<PAGE>
The following table reflects our sales:
<TABLE>
Sales
(in millions)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Annuities:
General account $371.3 $ 270.6 $ 138.1 $ 112.0
Separate account 609.2 323.2 209.5 108.1
----- ----- ----- -----
Total annuities 980.5 593.8 347.6 220.1
----- ----- ----- -----
Life insurance:
Separate account bank-owned life
insurance ("BOLI") 771.4 780.7 141.1 84.6
Separate account variable
universal life insurance 27.8 20.0 17.0 4.8
Term life 15.6 15.8 5.3 5.3
Interest-sensitive life .7 .8 .4 (.1)
----- ----- ----- -----
Total life 815.5 817.3 163.8 94.6
----- ----- ----- -----
Total sales $ 1,796.0 $ 1,411.1 $ 511.4 $ 314.7
===== ===== ===== =====
</TABLE>
Sales of annuity products consist of total deposits received, which are not
recorded as revenue within the consolidated statements of operations.
General account fixed annuity sales increased $100.7 million in the first
nine months of 2000, compared with the first nine months of 1999. Separate
account variable annuity sales increased $286.0 million in the first nine
months of 2000, compared with the first nine months of 1999. The increase
in general account and separate account sales was primarily due to continued
strong sales of our variable annuity product introduced in the second half
of 1998 that offers both a variable option and a fixed option, including
dollar cost averaging.
Sales of variable annuities increase administrative fees earned and pose
minimal investment risk, to the extent that policyholders allocate net
premium to one or more subaccounts that invest in underlying investment
funds that invest in stocks and bonds.
The slight decrease in BOLI sales in 2000 was primarily due to the nature
of the BOLI product - high dollar volume per sale, low frequency of sales.
Spread revenue increased in the first nine months of 2000, compared with
the same period in 1999, due to a smaller decrease in investment income than
in interest credited to policyholders. The decrease in investment income
was primarily due to a decrease in cash and invested assets from the 1999
levels, reflecting the surrender and withdrawal activity of 1999 and 2000
and the dividends paid to Kemper Corporation in 2000 and 1999. Also
contributing to this decrease in cash and invested assets are the ongoing
exchanges from the fixed to the variable option of in-force annuity
policies, primarily reflecting the dollar cost averaging option mentioned
above. Somewhat mitigating these factors was the reinvestment of 1999 and
2000 sales proceeds, maturities and prepayments at higher yields due to
funds being directed to higher yielding securities, and the overall
increasing interest rate environment during 1999 and the first half of 2000.
The decrease in interest credited was primarily due to a decrease in
policyholder liabilities due to surrender, withdrawal and exchange activity
in 1999 and 2000 and an overall decrease in crediting rates in 1999 and
2000.
13
<PAGE>
<TABLE>
Separate account fees and charges consist of the following as of
September 30, 2000 and 1999:
(in millions)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
----------------- -----------------
2000 1999 2000 1999
------ ------ ----- ------
<S> <C> <C> <C> <C>
Separate account fees on non-BOLI
variable life and annuities $ 47.6 $34.4 $16.5 $12.2
BOLI cost of insurance charges
and fees - direct 123.9 125.6 38.2 38.8
BOLI cost of insurance charges-
ceded<F1> (131.3) (123.3) ( 41.0) (39.6)
BOLI premium tax expense
loads<F2><F3> 15.3 12.7 2.4 1.3
------ ------ ------ -----
Total $ 55.5 $49.4 $16.1 $12.7
====== ====== ====== ======
-------------------
<FN>
<F1> Includes $11.2 million and $.7 million of cost of insurance charges
ceded related to appreciation of the BOLI funds withheld account
during 2000 and 1999, respectively.
<F2> There is a corresponding offset in taxes, licenses and fees.
<F3> No commissions were paid on BOLI.
</FN>
</TABLE>
Separate account fees on non-BOLI variable life and annuities increased
during the first nine months of 2000, compared with 1999, primarily due to
new sales during 1999 and 2000. Also contributing to this increase was an
increase in the market value of separate account assets during 1999, as the
fees are primarily asset based.
BOLI cost of insurance charges and fees decreased $9.7 million in the first
nine months of 2000, compared with 1999, primarily reflecting an increase in
the cost of insurance charges ceded on the mortality-rated BOLI contracts
related to appreciation of the BOLI funds withheld account. This variance
was more than offset by an increase in investment income earned on the
invested assets supporting the funds withheld account during 2000, compared
with 1999 and the trading account securities holding-losses incurred during
1999.
Other income increased $12.4 million in the first nine months of 2000,
compared with the same period in 1999. The increase was primarily due to
an increase in commission revenue from broker-dealer operations of
approximately $14.3 million during the first nine months of 2000, compared
with the first nine months of 1999. This increase was mainly attributable
to the inclusion of PMG's operating results effective April 1, 2000. The
increase in broker-dealer commission revenue was somewhat offset by an
increase in broker-dealer commission expense.
14
<PAGE>
<TABLE>
Policyholder surrenders, withdrawals and death benefits were as follows:
(in millions)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
----------------- -----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
General account $ 452.4 $ 415.4 $ 149.8 $ 145.3
Separate account 308.9 301.3 96.7 78.8
----- ----- ----- -----
Total $ 761.3 $ 716.7 $ 246.5 $ 224.1
===== ====== ===== ======
</TABLE>
Reflecting the current interest rate environment and other competitive
market factors, we adjust our crediting rates on interest-sensitive products
over time in order to manage spread revenue and policyholder surrender and
withdrawal activity. We can also improve spread revenue over time by
increasing investment income.
General account surrenders, withdrawals and death benefits increased $37.0
million in the first nine months of 2000, compared with the first nine
months of 1999, reflecting an increase in death benefits as well as an
increase in overall surrenders and withdrawals as investors seek
potentially higher returns from alternative investments.
Separate account surrenders, withdrawals and death benefits increased $7.6
million in the first nine months of 2000, compared with the first nine
months of 1999. Excluding a partial withdrawal of $39.8 million on a BOLI
contract in the first nine months of 1999, separate account surrenders,
withdrawals and death benefits increased $47.4 million in the first nine
months of 2000, compared with the same period in 1999. The increase is
primarily due to investors' desires to seek potentially higher returns from
alternative investments.
Claims and other policyholder benefits increased $2.9 million for the first
nine months of 2000, compared with the same period in 1999, primarily due
to more favorable mortality experience in 1999.
Taxes, licenses and fees increased during the first nine months of 2000,
compared with 1999, primarily reflecting premium taxes on BOLI. We
received a corresponding expense load related to these premium taxes in
separate account fees and other charges during the first nine months of
1999 and 2000.
Commissions expense and the deferral of insurance acquisition costs
increased in the first nine months of 2000, compared with the first nine
months of 1999, due to the higher level of sales, excluding BOLI.
Commission expense related to broker-dealer operations increased
approximately $12.4 million in the first nine months of 2000, compared with
the same period in 1999, primarily due to the inclusion of PMG's operating
results, as mentioned earlier.
Amortization of insurance acquisition costs increased $8.1 million in the
first nine months of 2000, compared with the first nine months of 1999,
primarily due to the increasing level of the deferred insurance acquisition
cost asset.
Operating expenses increased $11.3 million in the first nine months of 2000,
compared with the same period in 1999. This increase was primarily due to
an increase in salaries and related benefits, and data processing expenses
in the continued development of infrastructure to support various new
business initiatives. Also contributing to the increase is the inclusion
of PMG's operating expenses of approximately $1.3 million.
15
<PAGE>
16
<PAGE>
INVESTMENTS
Our principal investment strategy is to maintain a balanced, well-diversified
portfolio supporting the insurance contracts written. We make shifts in our
investment portfolio depending on, among other factors, the evaluation of risk
and return in various markets, consistency with our business strategy and
investment guidelines approved by the board of directors, the interest rate
environment, liability durations and changes in market and business
conditions.
<TABLE>
Invested assets and cash
(in millions)
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C> <C> <C>
Cash and short-term investments $ 52 1.4% $ 54 1.4%
Fixed maturities:
Investment grade:
NAIC <F1> Class 1 2,016 56.0 2,164 56.5
NAIC <F1> Class 2 912 25.3 994 25.9
Below investment grade:
Performing 124 3.4 118 3.1
Equity securities 62 1.7 62 1.6
Joint venture mortgage loans 67 1.9 67 1.8
Third-party mortgage loans 64 1.8 64 1.7
Other real estate-related investments 18 0.5 21 0.5
Policy loans 257 7.1 262 6.8
Other 27 0.9 25 0.7
----- ----- ----- -----
Total $3,599 100.0% $3,831 100.0%
===== ===== ===== =====
__________________________________________________________
<FN>
<F1> National Association of Insurance Commissioners ("NAIC").
-- Class 1 = A- and above
-- Class 2 = BBB- through BBB+
</FN>
</TABLE>
Fixed maturities
The fixed maturity investment portfolio, which is considered available for
sale, is carried at estimated fair value, with the aggregate unrealized
appreciation or depreciation being recorded as a component of accumulated
other comprehensive income (loss), net of any applicable income taxes. The
aggregate unrealized depreciation on fixed maturities at September 30, 2000
was $96.9 million, compared with $121.2 million at December 31, 1999. Fair
values are sensitive to movements in interest rates and other economic
developments and can be expected to fluctuate, at times significantly, from
period to period.
At September 30, 2000, investment-grade fixed maturities and cash and
short-term investments accounted for 82.7 percent of invested assets and
cash, compared with 83.8 percent at December 31, 1999.
At September 30, 2000, approximately 18.0 percent of investment-grade fixed
maturities were mortgage-backed securities, down from 20.0 percent at
December 31, 1999, due to sales and paydowns during 2000. We plan to continue
to reduce our holdings of such investments over time.
Approximately 15.9 percent of the investment-grade fixed maturities at
September 30, 2000 consisted of corporate asset-backed securities, compared
with 16.8 percent at December 31, 1999. The majority of investments in asset
backed securities were backed by home equity loans, commercial mortgage-backed
securities and collateralized loan and bond obligations.
17
<PAGE>
18
<PAGE>
Real estate-related investments
The $148.9 million real estate portfolio, consisting of joint venture and
third-party mortgage loans and other real estate-related investments,
constituted 4.2 percent of cash and invested assets at September 30, 2000,
compared with $151.6 million, or 4.0 percent, at December 31, 1999.
Real estate outlook
Loans to a master limited partnership (the "MLP") between subsidiaries of
Kemper and subsidiaries of Lumbermens Mutual Casualty Company, a former
affiliate, amounted to $55.6 million (net of reserves) at September 30, 2000.
The MLP's underlying investment primarily consists of a water development
project located in California's Sacramento River Valley. This project is
currently in the final stages of a permit process with various Federal and
California State agencies that will impact the long-term economic viability
of the project. Loans to the MLP were placed on nonaccrual status effective
January 1, 1999 to ensure that book value of the MLP did not increase over
net realizable value.
Troubled real estate-related investments are made up of loans on nonaccrual
status, before reserves and writedowns, totaling $94.6 million and $98.3
million at September 30, 2000 and December 31, 1999, respectively. We do not
accrue interest on real estate-related investments when it is judged that the
likelihood of interest collection is doubtful. Loans on nonaccrual status
after reserves and write-downs amounted to $72.6 million and $76.3 million at
September 30, 2000 and December 31, 1999, respectively.
Net investment income
Pre-tax net investment income totaled $193.6 million in the first nine months
of 2000, compared with $196.9 million in the first nine months of 1999.
Included in pre-tax net investment income is our share of operating gains and
losses from equity investments in real estate consisting of other income less
depreciation, interest and other expenses. Such operating results exclude
interest expense on loans by us that are on nonaccrual status.
Total foregone investment income before tax on nonaccrual real estate-related
investments was estimated at $7.0 million as of September 30, 2000 and $7.5
million for the same period in 1999.
Foregone investment income from the nonaccrual of real estate related
investments is net of our share of interest expense on these loans excluded
from our share of joint venture operating results. Any increase in
non-performing securities, and either worsening or stagnating real estate
conditions, would increase the expected adverse effect on future investment
income and realized investment results.
Interest rates
Interest rates rose slightly in the first half of 2000 before declining in the
third quarter. Declining interest rates contributed to a marginal decrease in
unrealized fixed maturity investment losses. Interest rate fluctuations can
cause significant fluctuations in both future investment income and future
realized and unrealized investment gains and losses.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We carefully monitor cash and short-term investments to maintain adequate
balances for timely payment of policyholder benefits, expenses, taxes and
policyholder's account balances. In addition, regulatory authorities
establish minimum liquidity and capital standards. The major ongoing sources
of liquidity are deposits for fixed annuities, investment income, premium
income, separate account fees, other operating revenue and cash provided from
maturing or sold investments.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders of KILICO held on
May 9, 2000, the following directors were elected:
Gale K. Caruso
William H. Bolinder
David A. Bowers
Eliane C. Frye
Gunther Gose
James E. Hohmann
ITEM 6. Exhibits and Reports on Form 8-K.
(a) EXHIBIT INDEX.
Exhibit No.
-----------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the three
months ended September 30, 2000.
21
<PAGE>
Kemper Investors Life Insurance Company
FORM 10-Q
For the fiscal period ended September 30, 2000
--------------------------------------------
SIGNATURES
Pursuant to the requirements 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.
Kemper Investors Life Insurance Company
(Registrant)
Date: November 13, 2000 By: /s/GALE K. CARUSO
---------------------------------
Gale K. Caruso
President, Chief Executive Officer
and Director
Date: November 13, 2000 By: /s/FREDERICK L. BLACKMON
---------------------------------
Frederick L. Blackmon
Executive Vice President and
Chief Financial Officer
22
<PAGE>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
[MULTIPLIER] 1,000
[PERIOD-TYPE] 9-MOS.
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-START] JAN-01-2000
[PERIOD-END] SEP-30-2000
[DEBT-HELD-FOR-SALE] 3,052,306
[DEBT-CARRYING-VALUE] 3,052,306
[DEBT-MARKET-VALUE] 3,052,306
[EQUITIES] 62,263
<MORTGAGES> 131,074
[REAL-ESTATE] 17,872
[TOTAL-INVEST] 3,579,892
[CASH] 18,863
[RECOVER-REINSURE] 273,150
[DEFERRED-ACQUISITION] 225,212
[TOTAL-ASSETS] 15,973,321
[POLICY-LOSSES] 3,490,119
[UNEARNED-PREMIUMS] 0
[POLICY-OTHER] 0
[POLICY-HOLDER-FUNDS] 465,906
[NOTES-PAYABLE] 0
[COMMON] 2,500
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 660,617
[TOTAL-LIABILITY-AND-EQUITY] 15,973,321
[PREMIUMS] 15,898
[INVESTMENT-INCOME] 193,640
[INVESTMENT-GAINS] (823)
[OTHER-INCOME] 76,628
[BENEFITS] 129,799
[UNDERWRITING-AMORTIZATION] 15,789
[UNDERWRITING-OTHER] 0
[INCOME-PRETAX] 49,180
[INCOME-TAX] 19,021
[INCOME-CONTINUING] 30,159
<DISCOUNTED> 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 30,159
[EPS-BASIC] 0
[EPS-DILUTED] 0
[RESERVE-OPEN] 0
[PROVISION-CURRENT] 0
[PROVISION-PRIOR] 0
[PAYMENTS-CURRENT] 0
[PAYMENTS-PRIOR] 0
[RESERVE-CLOSE] 0
[CUMULATIVE-DEFICIENCY] 0
23
