UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended March 31, 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 May 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 and 33-46881.
1
<PAGE>
KEMPER INVESTORS LIFE INSURANCE COMPANY
FORM 10-Q
PART I. FINANCIAL STATEMENTS PAGE NO.
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999.........................3
Consolidated Statements of Operations -
Three months ended March 31, 2000 and 1999...................4
Consolidated Statements of Comprehensive Income (Loss)Three
months ended March 31, 2000 and 1999.........................5
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999...................6
Notes to Consolidated Financial Statements........................7
Management's Discussion and Analysis
Results of Operations........................................9
Investments.................................................13
Liquidity and Capital Resources.............................15
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K........................16
Signatures.......................................................17
2
<PAGE>
<TABLE>
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
<CAPTION>
March 31 December 31
2000 1999
(unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (amortized cost:
March 31, 2000, $3,321,201;
December 31, 1999, $3,397,188) $ 3,192,585 $3,276,017
Equity securities (cost: March 31, 2000,
$65,466; December 31, 1999, $65,235) 62,546 61,592
Short-term investments 19,980 42,391
Joint venture mortgage loans 67,291 67,242
Third-party mortgage loans 63,787 63,875
Other real estate-related investments 19,541 20,506
Policy loans 258,576 261,788
Other invested assets 26,008 25,621
---------- ---------
Total investments 3,710,314 3,819,032
Cash 29,168 12,015
Accrued investment income 129,511 127,219
Goodwill 200,721 203,907
Value of business acquired 115,340 119,160
Deferred insurance acquisition costs 180,565 159,667
Deferred income taxes 85,045 93,502
Reinsurance recoverable 299,579 309,696
Receivable on sales of securities 3,500 3,500
Other assets and receivables 32,131 29,950
Assets held in separate accounts 10,124,499 9,778,068
---------- ---------
Total assets $14,910,373 $14,655,716
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits $3,624,968 $ 3,718,833
Other policyholder benefits and funds payable 464,328 457,328
Other accounts payable and liabilities 62,303 71,482
Liabilities related to separate accounts 10,124,499 9,778,068
---------- ---------
Total liabilities 14,276,098 14,025,711
---------- ---------
Commitments and contingent liabilities
Stockholder's equity:
Capital stock - $10 par value, authorized
300,000 shares; outstanding 250,000 shares 2,500 2,500
Additional paid-in capital 804,347 804,347
Accumulated other comprehensive loss (127,202) (120,819)
Retained deficit (45,370) (56,023)
---------- ---------
Total stockholder's equity 634,275 630,005
---------- ---------
Total liabilities and stockholder's
equity $ 14,910,373 $ 14,655,716
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Operations
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended
March 31
------------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUE
Net investment income $66,259 $65,693
Realized investment losses (2,120) (965)
Premium income 5,003 5,688
Separate account fees and charges 15,154 22,646
Other income 3,352 2,584
------- -------
Total revenue 87,648 95,646
------- -------
BENEFITS AND EXPENSES
Interest credited to policyholders 37,236 41,546
Claims incurred and other policyholder
benefits 4,991 3,173
Taxes, licenses and fees 2,805 12,731
Commissions 23,369 12,693
Operating expenses 14,429 10,766
Deferral of insurance acquisition costs (25,024) (14,325)
Amortization of insurance acquisition costs 4,148 2,813
Amortization of value of business acquired 4,140 4,960
Amortization of goodwill 3,186 3,186
------- -------
Total benefits and expenses 69,280 77,543
------- -------
Income before income tax expense 18,368 18,103
Income tax expense (benefit)
Current (623) 32,830
Deferred 8,338 (25,322)
------- -------
Total income tax expense 7,715 7,508
------- -------
Net income $10,653 $10,595
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
----- -----
<S> <C> <C>
Net income $10,653 $10,595
Other comprehensive income (loss), before tax:
Unrealized holding gains (losses) on investments
arising during period:
Unrealized holding gains (losses) on
investments (9,113) (40,358)
Adjustment to value of business acquired 213 4,251
Adjustment to deferred insurance acquisition costs (959) 2,139
-------- --------
Total unrealized holding gains (losses) on
investments arising during period (9,859) (33,968)
-------- --------
Less reclassification adjustments for items
included in net income:
Adjustment for (gains) losses included in
realized investment gains (losses) (1,155) 2,115
Adjustment for amortization of premium on fixed
maturities included in net investment income (1,353) (3,674)
Adjustment for (gains) losses included in
amortization of value of business acquired (106) (311)
Adjustment for (gains) losses included in
amortization of insurance acquisition costs (982) (22)
Total reclassification adjustments for items ------- -------
included in net income (3,596) (1,892)
------- -------
Other comprehensive loss, before related income
tax expense (benefit) (6,263) (32,076)
Related income tax expense (benefit) 120 (11,226)
------- -------
Other comprehensive loss, net of tax (6,383) (20,850)
------- -------
Comprehensive income (loss) $ 4,270 $(10,255)
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
------ ------
<S> <C> <C>
Cash flows from operating activities
Net income $10,653 $10,595
Reconcilement of net income to net cash provided
(used):
Realized investment (gains) losses 2,120 965
Net change in trading account securities - (18,011)
Interest credited and other charges 37,180 40,957
Deferred insurance acquisition costs, net (20,876) (11,512)
Amortization of value of business acquired 4,140 4,960
Amortization of goodwill 3,186 3,186
Amortization of discount and premium on investments 1,455 3,833
Deferred income taxes 8,336 (25,323)
Net change in current Federal income taxes (17,897) 6,708
Benefits and premium taxes due related to separate
account bank-owned life insurance 15,152 36,897
Other, net (10,579) 142
------- ------
Net cash flow from operating activities 32,870 53,397
------- -------
Cash flows from investing activities
Cash from investments sold or matured:
Fixed maturities held to maturity 26,759 128,690
Fixed maturities sold prior to maturity 209,812 158,279
Equity securities 1,104 732
Mortgage loans, policy loans and other invested
assets 12,969 16,586
Cost of investments purchased or loans originated:
Fixed maturities (164,218) (300,295)
Equity securities (1,257) -
Mortgage loans, policy loans and other invested
assets (8,261) (11,786)
Short-term investments, net 22,411 26,262
Net change in receivable and payable for securities
transactions - (742)
Net change in other assets (1,279) -
------- ------
Net cash from investing activities 98,040 17,726
------- ------
Cash flows from financing activities
Policyholder account balances:
Deposits 122,128 62,848
Withdrawals (243,055) (141,344)
Other 7,170 4,091
------- ------
Net cash from financing activities (113,757) (74,405)
------- -------
Net increase (decrease) in cash 17,153 (3,282)
Cash at the beginning of period 12,015 13,486
------- ------
Cash at the end of the period $29,168 $10,204
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
6
<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.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles.
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.
3. KILICO, along with its affiliates Federal Kemper Life Assurance Company,
Zurich Life Insurance Company of America, Fidelity Life Association (A
Mutual Legal Reserve Company)("FLA") and Zurich Direct, Inc. operate 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, 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.
7
<PAGE>
Summarized financial information for ZKL's SBUs are as follows:
<TABLE>
As of and for the period ending March 31, 2000:
(in thousands)
<CAPTION>
Life
Brokerage Financial RSG Direct Total
--------- --------- --- ------ -----
<S> <C> <C> <C> <C> <C>
Total revenues $85,902 $53,925 $36,550 $18,707 $195,084
====== ====== ====== ====== =======
Net income $4,895 $4,788 $3,704 $1,816 $15,203
===== ===== ===== ===== ======
Total assets $3,024,406 $10,619,740 $4,752,614 $165,744 $18,562,504
========= ========== ========= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Net
Revenue Income (Loss) Assets
------- ------------- ------
<S> <C> <C> <C>
Total revenue, net income(loss) and
assets, respectively, from above: $195,084 $15,203 $18,562,504
Less:
Revenue, net income & assets of FKLA 80,032 3,694 3,186,847
Revenue, net income & assets of ZLICA 13,553 1,794 458,777
Revenue, net (loss) & assets of Zurich
Direct 13,851 (938) 6,507
------- ------ ----------
Totals per KILICO's consolidated
financial statements $87,648 $10,653 $14,910,373
====== ====== ==========
</TABLE>
<TABLE>
As of and for the period ending March 31, 1999:
(in thousands)
<CAPTION>
Life
Brokerage Financial RSG Direct Total
--------- --------- --- ------ -----
<S> <C> <C> <C> <C> <C>
Total revenues $90,520 $57,285 $33,743 $8,955 $190,503
====== ====== ====== ===== =======
Net income (loss) $4,781 $6,716 $2,139 $(1,617) $12,019
===== ===== ===== ====== ======
Total assets $3,134,465 $8,946,914 $4,234,473 $54,234 $16,370,086
========= ========= ========= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
Net
Revenue Income (Loss) Assets
------- ------------- ------
<S> <C> <C> <C>
Total revenue, net income(loss) and
assets, respectively, from above: $190,503 $12,019 $16,370,086
Less:
Revenue, net income & assets of FKLA 75,584 3,060 2,968,386
Revenue, net income & assets of ZLICA 13,208 1,233 414,970
Revenue, net (loss) & assets of Zurich
Direct 6,065 (2,869) 3,059
------- ------ ----------
Totals per KILICO's consolidated
financial statements $95,646 $10,595 $12,983,671
====== ====== ==========
</TABLE>
4. On March 31, 2000, KILICO purchased, for $5.5 million, the following
related entities, all privately held New York corporations:
- PMG Securities Corporation
- PMG Asset Management, Inc.
- PMG Life Agency, Inc., and
- PMG Marketing, Inc.
These companies were primarily purchased for their specialization in the
target market of the RSG SBU.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
KILICO recorded net income of $10.7 million in the first quarter of 2000,
compared with net income of $10.6 million in the first quarter of 1999.
The following table reflects the components of net income:
<TABLE>
Net income:
(in millions)
<CAPTION>
Three months ended
March 31
------------------
2000 1999
---- ----
<S> <C> <C>
Operating earnings before amortization of goodwill $15.3 $14.4
Amortization of goodwill (3.2) (3.2)
Net realized capital losses (1.4) (.6)
---- ----
Net income $10.7 $10.6
==== ====
</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>
Three months ended
March 31
------------------
2000 1999
---- ----
<S> <C> <C>
Fixed maturities $ (2.3) $ (1.0)
Trading account securities-holding losses - (1.9)
Equity securities .1 .7
Real estate-related investments .1 1.3
---- ----
Realized investment losses (2.1) (.9)
Income tax benefit (.7) (.3)
---- ----
Net realized capital losses $ (1.4) $ (.6)
==== ====
</TABLE>
Operating earnings before amortization of goodwill increased to $15.3
million in the first quarter of 2000, compared with $14.4 million in the
first quarter of 1999. This increase was primarily due to:
- an increase in spread revenue (net investment income less interest
credited to policyholders)
- an increase in non-BOLI separate account fees, offset by
- an increase in commissions and operating expenses, net of the deferral
of insurance acquisition costs
- an increase in claims incurred and other policyholder benefits
9
<PAGE>
<TABLE>
Sales
(in millions)
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
------ ------
<S> <C> <C>
Annuities:
General account $123.3 $ 62.5
Separate account 179.2 95.6
----- ----
Total annuities 302.5 158.1
----- -----
Life insurance:
Separate account bank-owned life insurance ("BOLI") 112.8 667.2
Separate account variable universal life insurance 5.8 11.0
Term life 5.0 5.3
Interest-sensitive life .1 -
----- -----
Total life 123.7 683.5
----- -----
Total sales $ 426.2 $ 841.6
===== =====
</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 $60.8 million in the first
quarter of 2000, compared with the first quarter of 1999. Separate account
variable annuity sales increased $83.6 million in the first quarter of 2000,
compared with the first quarter of 1999. The increase in general account
and separate account sales was primarily due to continued strong sales of
KILICO's latest variable annuity product that offers both a variable option
and a fixed option, including dollar cost averaging.
Sales of variable annuities increase administrative fees earned, and they
pose minimal investment risk for KILICO, as policyholders allocate net
premium to one or more of several underlying investment funds which invest
in stocks and bonds.
The 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 three months of 2000, compared with
the same period in 1999, due to a decrease in interest credited to
policyholders and a modest increase in investment income. The increase in
investment income is primarily due to 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. This increase is offset by a decrease in cash
and invested assets from the 1999 levels, reflecting the surrender and
withdrawal activity of 1999 and the dividends paid to Kemper Corporation in
1999. Also contributing to this decrease in cash and invested assets is the
ongoing exchanges from the fixed to the variable option of in-force annuity
policies, primarily reflecting the dollar cost averaging option discussed
above. The decrease in interest credited was primarily due to a decrease in
policyholder liabilities due to surrender and withdrawal activity in 1999
and a decrease in crediting rates in 2000 and 1999.
10
<PAGE>
<TABLE>
Separate account fees and charges consist of the following as of March 31,
2000 and 1999:
(in millions)
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
------ ------
<S> <C> <C>
Separate account fees on non-BOLI variable $ 15.5 $ 10.7
life and annuities
BOLI cost of insurance charges and fees -
direct <F3> 44.0 46.5
BOLI cost of insurance charges - ceded <F1><F3> (46.2) (46.0)
BOLI premium tax expense loads <F2> 1.9 11.4
------ -----
Total $ 15.2 $ 22.6
====== ======
-------------------
<FN>
<F1> Includes $3.5 million and $(0.8) million of cost of insurance charges
ceded related to appreciation (depreciation) 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 quarter of 2000, compared with 1999, primarily due to new
sales during 1999 and 2000.
BOLI cost of insurance charges and fees decreased $2.7 million in the first
quarter of 2000, compared with 1999, primarily reflecting a decrease in the
net cost of insurance charges on the mortality-rated BOLI contracts.
BOLI premium tax expense loads decreased in 2000, compared with 1999, due to
the decrease in BOLI sales in 2000.
<TABLE>
Policyholder surrenders, withdrawals and death benefits were as follows:
(in millions)
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
------ ------
<S> <C> <C>
General account $157.1 $ 135.5
Separate account 104.9 115.0
------ -----
Total $262.0 $ 250.5
====== ======
</TABLE>
11
<PAGE>
Reflecting the current interest rate environment and other competitive market
factors, KILICO adjusts its crediting rates on interest-sensitive products
over time in order to manage spread revenue and policyholder surrender and
withdrawal activity. KILICO can also improve spread revenue over time by
increasing investment income.
General account surrenders, withdrawals and death benefits increased $21.6
million in the first quarter of 2000, compared with the first quarter of 1999,
reflecting an increase in claims as well as an increase in overall surrenders
and withdrawals.
Separate account surrenders, withdrawals and death benefits decreased $10.1
million in the first quarter of 2000, compared with the first quarter of 1999.
Contributing to this decrease is a partial withdrawal on a BOLI contract in
the first quarter of 1999 of $27.8 million.
Claims and other policyholder benefits increased $1.8 million in the first
quarter of 2000, compared with 1999, primarily due to increased death benefits
in excess of account values on universal life products.
Taxes, licenses and fees decreased during the first quarter of 2000, compared
with 1999, primarily reflecting premium taxes on BOLI. KILICO received a
corresponding expense load related to these premium taxes in separate account
fees and other charges during the first quarter of 1999 and 2000. Excluding
the taxes due on BOLI, taxes, licenses and fees amounted to $1.0 million for
the first quarter of 2000, compared with $1.3 million for the same period in
1999.
Commissions expense and the deferral of insurance acquisition costs increased
in the first quarter of 2000, compared with the first quarter of 1999, due to
the higher level of sales, excluding BOLI.
Operating expenses increased $3.7 million in the first quarter of 2000,
compared with the same period in 1999. The primary reason for this increase
was an increase in salaries and related benefits due to continued staffing
needs for various new business initiatives.
12
<PAGE>
INVESTMENTS
KILICO's principal investment strategy is to maintain a balanced, well-
diversified portfolio supporting the insurance contracts written. KILICO makes
shifts in its investment portfolio depending on, among other factors, its
evaluation of risk and return in various markets, consistency with KILICO's
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>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C> <C> <C>
Cash and short-term investments $ 49 1.3% $ 54 1.4%
Fixed maturities:
Investment grade:
NAIC <F1> Class 1 2,078 55.6 2,164 56.5
NAIC <F1> Class 2 1,005 26.9 994 25.9
Below investment grade:
Performing 110 2.9 118 3.1
Equity securities 63 1.7 62 1.6
Joint venture mortgage loans 67 1.8 67 1.8
Third-party mortgage loans 64 1.7 64 1.7
Other real estate-related investments 19 0.5 21 0.5
Policy loans 259 6.9 262 6.8
Other 26 0.7 25 0.7
----- ----- ----- ----
Total $3,740 100.0% $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
KILICO is carrying its fixed maturity investment portfolio, which it considers
available for sale, 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 March 31, 2000 was
$128.6 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 both March 31, 2000 and December 31, 1999, investment-grade fixed
maturities and cash and short-term investments accounted for 83.8 percent of
KILICO's invested assets and cash.
Approximately 18.4 percent of KILICO's investment-grade fixed maturities at
March 31, 2000 were mortgage-backed securities, down from 20.0 percent at
December 31, 1999, due to sales and paydowns during 2000. KILICO plans to
continue to reduce its holding of such investments over time.
Approximately 16.0 percent of KILICO's investment-grade fixed maturities at
March 31, 2000 consisted of corporate asset-backed securities, compared with
16.8 percent at December 31, 1999. The majority of KILICO's investments in
asset-backed securities were backed by home equity loans, commercial mortgage-
backed securities and manufactured housing loans.
13
<PAGE>
Real estate-related investments
The $150.6 million real estate portfolio held by KILICO, consisting of joint
venture and third-party mortgage loans and other real estate-related
investments, constituted 4.0 percent of cash and invested assets at March 31,
2000, compared with $151.6 million, or 4.0 percent, at December 31, 1999.
Real estate outlook
KILICO's loans to a master limited partnership (the "MLP") between
subsidiaries of Kemper and subsidiaries of Lumbermens, amounted to $55.5
million (net of reserves) at March 31, 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 non-accrual status effective January 1, 1999 to ensure that book
value of the MLP did not increase over net realizable value.
KILICO's only troubled real estate-related investments were loans on
nonaccrual status, before reserves and writedowns, totaling $97.4 million and
$98.3 million at March 31, 2000 and December 31, 1999, respectively. KILICO
does not accrue interest on real estate-related investments when it judges
that the likelihood of interest collection is doubtful. Loans on nonaccrual
status after reserves and write-downs amounted to $75.4 million and $76.3
million at March 31, 2000 and December 31, 1999, respectively.
Net investment income
KILICO's pre-tax net investment income totaled $66.3 million in the first
quarter of 2000, compared with $65.7 million in the first quarter of 1999.
Included in pre-tax net investment income is KILICO's 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 KILICO which are on nonaccrual status.
KILICO's total foregone investment income before tax, on both non-performing
fixed maturity investments and nonaccrual real estate-related investments was
as follows:
<TABLE>
Foregone investment income
(dollars in millions)
<CAPTION>
Three months ended
March 31
------------------
2000 1999
---- ----
<S> <C> <C>
Real estate-related investments $ 2.3 $ 2.6
---- ----
Total $2.3 $ 2.6
==== ====
</TABLE>
Foregone investment income from the nonaccrual of real estate related
investments is net of KILICO's share of interest expense on these loans
excluded from KILICO's 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
KILICO's future investment income and realized investment results.
14
<PAGE>
Interest rates
Interest rates rose in the first quarter of 2000, continuing the trend from
1999. Rising interest rates contributed to an increase 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.
LIQUIDITY AND CAPITAL RESOURCES
KILICO carefully monitors 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 KILICO's liquidity are deposits for
fixed annuities, investment income, premium income, separate account fees,
other operating revenue and cash provided from maturing or sold investments.
15
<PAGE>
PART II. OTHER INFORMATION
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 March 31, 2000.
16
<PAGE>
Kemper Investors Life Insurance Company
FORM 10-Q
For the fiscal period ended March 31, 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: May 12, 2000 By: /s/GALE K. CARUSO
---------------------------------
Gale K. Caruso
President, Chief Executive Officer and
Director
Date: May 12, 2000 By: /S/FREDERICK L. BLACKMON
--------------------------------
Frederick L. Blackmon
Sr. Vice President and
Chief Financial Officer
17
<PAGE>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
[MULTIPLIER] 1,000
[PERIOD-TYPE] 3-MOS.
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-START] JAN-01-2000
[PERIOD-END] MAR-31-2000
[DEBT-HELD-FOR-SALE] 3,192,585
[DEBT-CARRYING-VALUE] 3,192,585
[DEBT-MARKET-VALUE] 3,192,585
[EQUITIES] 62,546
<MORTGAGES> 131,078
[REAL-ESTATE] 19,541
[TOTAL-INVEST] 3,710,314
[CASH] 29,168
[RECOVER-REINSURE] 299,579
[DEFERRED-ACQUISITION] 180,565
[TOTAL-ASSETS] 14,910,373
[POLICY-LOSSES] 3,624,968
[UNEARNED-PREMIUMS] 0
[POLICY-OTHER] 0
[POLICY-HOLDER-FUNDS] 464,328
[NOTES-PAYABLE] 0
[COMMON] 2,500
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 631,775
[TOTAL-LIABILITY-AND-EQUITY] 14,910,373
[PREMIUMS] 5,003
[INVESTMENT-INCOME] 66,259
[INVESTMENT-GAINS] (2,120)
[OTHER-INCOME] 18,506
[BENEFITS] 42,227
[UNDERWRITING-AMORTIZATION] 4,148
[UNDERWRITING-OTHER] 0
[INCOME-PRETAX] 18,368
<INCOME-TAX) 7,715
[INCOME-CONTINUING] 10,653
<DISCOUNTED> 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 10,653
[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
18
