<PAGE> FORM 10-Q
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1996
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 33-64820
AMERICO LIFE, INC.
(Exact name of registrant as specified in its charter)
MISSOURI
(State of other jurisdiction of incorporation or organization)
43-1627599
(I.R.S. Employer Identification No.)
1055 BROADWAY
KANSAS CITY, MISSOURI 64105
(Address of principal executive offices)
(816) 391-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class and Title of Shares Outstanding
Capital Stock as of November 12, 1996
Common Stock, $1.00 Par Value 10,000
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands - unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(market: $800,807 and $832,417) $ 829,933 $ 808,909
Available for sale, at market
(amortized cost: $615,483 and $657,862) 606,414 673,949
Equity securities, at market
(cost: $26,184 and $27,989) 36,537 36,805
Investment in equity subsidiaries 46,846 49,035
Mortgage loans on real estate, net 199,073 220,418
Investment real estate, net 4,205 4,292
Policy loans 205,123 210,926
Other invested assets 13,077 10,300
Total investments 1,941,208 2,014,634
Cash and cash equivalents 88,920 58,996
Accrued investment income 24,257 23,889
Amounts receivable from reinsurers 142,210 97,924
Other receivables 16,038 11,442
Deferred policy acquisition costs 70,024 56,568
Present value of future profits acquired 181,499 163,660
Amounts due from affiliates 2,146 7,041
Other assets 26,827 25,651
Total assets $ 2,493,129 $2,459,805
LIABILITIES AND STOCKHOLDER'S EQUITY
Policyholder account balances $ 1,203,188 $1,140,535
Reserves for future policy benefits 676,146 683,899
Unearned policy revenues 30,496 26,875
Policy and contract claims 30,065 22,506
Other policyholder funds 85,192 92,707
Notes payable 133,370 133,451
Amounts payable to reinsurers 61,365 39,761
Deferred income taxes 40,455 43,033
Due to brokers 4,189 44,998
Other liabilities 40,664 41,277
Total liabilities 2,305,130 2,269,042
Stockholder's equity:
Common stock ($1 par value; 30,000 shares
authorized, 10,000 shares issued and
outstanding) 10 10
Additional paid-in capital 3,745 3,745
Net unrealized investment gains 32,504 46,204
Retained earnings 151,740 140,804
Total stockholder's equity 187,999 190,763
Commitments and contingencies
Total liabilities and stockholder's
equity $ 2,493,129 $2,459,805
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, except per share amounts - unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INCOME
Premiums and policy revenues $ 42,394 $ 34,829 $122,749 $ 100,498
Net investment income 49,401 39,205 136,060 109,265
Net realized investment
gains (losses) 822 (111) (437) (774)
Other income 455 7 904 137
Total income 93,072 73,930 259,276 209,126
BENEFITS AND EXPENSES
Policyholder benefits:
Death benefits 22,752 19,186 70,295 52,663
Interest credited on universal
life and annuity products 24,043 14,214 59,775 41,829
Other policyholder benefits 14,282 12,488 41,290 29,607
Change in reserves for future
policy benefits (4,501) (1,646) (12,589) (5,949)
Commissions 4,359 2,481 10,179 6,859
Amortization expense 8,299 5,768 21,651 17,807
Interest expense 3,062 2,948 9,110 7,574
Other operating expenses 12,718 10,914 40,707 33,654
Total benefits and expenses 85,014 66,353 240,418 184,044
Income before provision for
income taxes 8,058 7,577 18,858 25,082
Provision for income taxes 2,766 2,499 6,423 8,798
Net income $ 5,292 $ 5,078 $ 12,435 $ 16,284
Net income per common share $ 529.20 $ 507.80 $1,243.50 $1,628.40
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands - unaudited)
<TABLE>
<CAPTION>
Nine months
ended September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $ 12,435 $ 16,284
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 24,071 18,983
Deferred policy acquisition costs (14,743) (13,802)
Undistributed earnings of equity subsidiaries (3,812) (8,581)
Distribution of earnings from equity subsidiary 6,000 -
Amortization of unrealized gains (4,337) (5,585)
(Increase) decrease in assets:
Accrued investment income (368) (52)
Amounts receivable from reinsurers (44,286) (23,481)
Other receivables (4,596) (1,983)
Other assets, net of depreciation and
amortization (583) (1,262)
Increase (decrease) in liabilities:
Policyholder account balances (4,347) (5,032)
Reserves for future policy benefits and
unearned policy revenues (1,644) (10,893)
Policy and contract claims 7,559 (1,516)
Other policyholder funds (7,515) (1,501)
Amounts payable to reinsurers (8,778) (553)
Federal income taxes payable - (4,459)
Provision for deferred income taxes 4,874 (7,025)
Amounts due to affiliates 4,895 (1,887)
Other liabilities (612) 7,509
Net realized losses on investments sold 437 774
Amortization on bonds and mortgage loans 1,093 243
Other changes (3,894) (1,420)
Total adjustments (50,586) (61,523)
Net cash used by operating activities (38,151) (45,239)
Cash flows from investing activities
Purchases of fixed maturity investments (181,465) (289,771)
Purchases of other investments (17,409) (27,343)
Mortgage loans originated (1,254) (10,714)
Maturities or redemptions of fixed
maturity investments 16,812 65,425
Sales of fixed maturity investments:
Held to maturity - 5,915
Available for sale 181,684 200,733
Sales of other investments 17,437 2,558
Payment for subsidiary acquired, net of
cash acquired - (22,966)
Amount received from reinsurance transaction - 20,854
Repayments from mortgage loans 24,767 16,263
Change in due to brokers (40,809) -
Change in policy loans 5,803 396
Net cash provided (used) by investing
activities 5,566 (38,650)
</TABLE>
(continued)
See notes to consolidated financial statements
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(In Thousands - unaudited)
<TABLE>
<CAPTION>
Nine months
ended September 30,
1996 1995
<S> <C> <C>
Cash flows from financing activities
Receipts on universal life-type and annuity
policies credited to policyholder account
balances $ 140,026 $ 122,505
Return of policyholder account balances on
universal life-type and annuity policies (75,728) (82,006)
Notes payable issued - 21,000
Repayments of notes payable (289) (41)
Dividends paid (1,500) (2,000)
Net cash provided by financing activities 62,509 59,458
Net increase (decrease) in cash and cash equivalents 29,924 (24,431)
Cash and cash equivalents at beginning of period 58,996 110,766
Cash and cash equivalents at end of period $ 88,920 $ 86,335
Supplemental schedule of non-cash investing and financing
activities
Acquisition of subsidiary:
Fair value of assets acquired, net of cash
acquired $ 285,870
Liabilities assumed (251,002)
Notes payable issued to seller (11,902)
Payment for subsidiary acquired, net of cash acquired $ 22,966
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Nine Months Ended September 30, 1996 and 1995
(In Thousands, except per share amounts - unaudited)
The following notes should be read in conjunction with the notes to the
consolidated financial statements contained in the Americo Life, Inc.
("the Company") December 31, 1995 Form 10-K as filed with the Securities
and Exchange Commission.
1. ACCOUNTING POLICIES
The unaudited consolidated financial statements as of September 30, 1996
and for the three and nine months ended September 30, 1996 reflect all
adjustments, consisting of normal recurring adjustments, which are
necessary for a fair statement of financial position and results of
operations on a basis consistent with accounting principles described
fully in Note 1 of the Company's December 31, 1995 consolidated financial
statements. The results of operations for the three and nine months ended
September 30, 1996 and 1995 are not necessarily indicative of the results
experienced for the full year 1995, nor the results to be expected for the
full year 1996.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Certain amounts were reclassified in the September 30, 1995 financial
statements to conform to the 1996 presentation.
On January 1, 1996, the Company implemented Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of" (SFAS No. 121). SFAS No. 121
establishes accounting standards for the impairment of long lived assets,
certain identifiable intangibles and goodwill related to the assets to be
held and used and for long lived assets and certain identifiable intangibles
to be disposed of. Implementation of this new accounting standard did not
have a material impact on the consolidated financial statements of the
Company.
2. STOCKHOLDER'S EQUITY
Following are the components of net unrealized investment gains:
<TABLE>
Change in
Nine Months
Ended
Sept. 30, Dec. 31, Sept. 30,
1996 1995 1996
<S> <C> <C> <C>
Investment securities:
Fixed maturities available for sale $ (9,069) $ 16,087 $ (25,156)
Fixed maturities reclassified from
available for sale to held to
maturity 55,156 59,485 (4,329)
Equity securities 10,353 8,816 1,537
56,440 84,388 (27,948)
Effect on other balance sheet accounts:
Net effect on other balance sheet
accounts (7,811) (14,749) 6,938
Deferred income taxes (16,125) (23,435) 7,310
Net unrealized investment gains $ 32,504 $ 46,204 $ (13,700)
</TABLE>
During the nine months ended September 30, 1996, the Company paid dividends
to Financial Holding Corporation (FHC) totalling $1,500.
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Nine Months Ended September 30, 1996 and 1995
(In Thousands, except per share amounts - unaudited)
3. PRO FORMA FINANCIAL INFORMATION
The Company acquired all the outstanding common stock of The Victory Life
Insurance Company on July 10, 1995. The Company also acquired the insurance
business of the former parent of Victory Life, The Kansas Life Insurance
Company, through assumption reinsurance. The results of operations of the
acquired business is included in the Company's consolidated results of
operations from the date of the acquisition.
Summarized unaudited pro forma consolidated financial information of the
Company for the nine months ended September 30, 1995, assuming the
transactions had occurred on January 1, 1995 is as follows:
Total revenue $ 223,797
Net income 17,511
Net income per common share $ 1,750.10
4. SALE OF EQUITY SUBSIDIARY
On September 27, 1996, the Company's wholly-owned subsidiary, Great Southern
Life Insurance Company (Great Southern), agreed to sell its 50% interest in
GSSW, Limited Partnership (GSSW), a real estate holding company, for $48,000.
The sale is expected to close in December 1996. GSSW's carrying value as of
September 30, 1996 was $24,504. The Company's investment income from GSSW for
the nine months ended September 30, 1996 and 1995, was $3,549 and $5,558,
respectively.
5. REINSURANCE AGREEMENT
In February 1996, the Company entered into an agreement with Fremont General
Corporation to provide administrative services for certain life insurance and
annuity policies (28,000 at September 30, 1996) of Fremont Life Insurance
Company (Fremont Life). On July 2, 1996, the Company entered into several
agreements with Fremont Life and a third-party reinsurer ("the Reinsurer").
One of the agreements resulted in Fremont Life reinsuring certain of its
insurance liabilities to the Reinsurer on a coinsurance basis. Fremont Life
transferred approximately $405,000 of insurance liabilities and an equal
amount of assets to the Reinsurer and received a ceding commission of
$34,745. The Reinsurer entered into a modified coinsurance agreement to
reinsure certain risks on the same insurance policies to Great Southern.
The modified coinsurance agreement provides that the assets and insurance
liabilities related to the reinsured policies are to be retained by the
Reinsurer.
The Reinsurer will receive all statutory profits from the reinsured policies
until it has recovered the initial ceding commission. In the event the
modified coinsurance agreement is terminated, Great Southern is required to
reimburse the Reinsurer for the amount of the unrecovered ceding commission.
The Company accounted for its obligations under the modified coinsurance
agreement by recording a liability to the Reinsurer for the present value of
the payments projected to be paid to the Reinsurer. The Company recorded a
receivable from the Reinsurer equal to the statutory liabilities held by the
Reinsurer. The Company has netted the receivable from the Reinsurer against
its liability to the Reinsurer and has presented a net liability on its
balance sheet. The Company recorded a present value of future profits
acquired asset equal to its net liability at the inception of the agreement.
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Nine Months Ended September 30, 1996 and 1995
(In Thousands, except per share amounts - unaudited)
Great Southern also entered into reinsurance agreements with Fremont Life to
reinsure certain of Fremont Life's insurance and annuity policies on an
assumption basis. The policies will be assumed by Great Southern subject to
the coinsurance agreement in place between Fremont Life and the Reinsurer.
Upon completion of the assumption reinsurance transaction, Great Southern
will record the direct insurance liabilities and a related reinsurance
recoverable from the Reinsurer.
6. CONTINGENCIES
Great Southern is a defendant in a purported class action lawsuit brought on
May 13, 1996, in the 18th Judicial District Court (Parish of Pointe Coupee)
of the State of Louisiana, by two policyholders, Sharon K. Self and Johnnie
W. Self, claiming damages unspecified in amount, in connection with the sales
of certain life insurance policies. The Company intends to defend the suit
vigorously.
The Company removed the lawsuit to the United States District Court for the
Middle District of Louisiana, on the basis that a co-defendant insurance
agent was fraudulently joined for the purpose of defeating federal
jurisdiction. Plaintiffs filed a motion to remand the suit to Louisiana state
court, alleging that the removal to federal court was improper. On September
24, 1996, the United States District Court denied the motion to remand. The
petition alleges that plaintiffs and other Louisiana policyholders were
promised that policies would be completely paid-up within a certain number of
years or payments, and were misled by inaccurate illustrations and other
alleged misrepresentations and wrongful conduct. The plaintiffs seek
certification of a class of all Louisiana residents who purchased or were
named beneficiaries of the Company's whole and/or universal life policies
subsequent to 1981. The Company denies the allegations, including the
existence of a legitimate class, and believes that the allegations are
without merit. The suit is in its early stages.
The amount of any liability that may arise as a result of this suit, if any,
cannot be reasonably estimated at this time and no provision for loss has
been made in the accompanying financial statements.
<PAGE>
AMERICO LIFE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In 1995 and 1996, the Company entered into three transactions which affect the
comparability of the Company's results of operations for the three and nine
months ended September 30, 1996 and 1995. In July 1995, the Company acquired
all the outstanding common stock of The Victory Life Insurance Company (Victory
Life). The Company also reinsured all the insurance business of the former
parent of Victory Life, The Kansas Life Insurance Company (Kansas Life). The
insurance businesses of Victory Life and Kansas Life are collectively referred
to as Victory Life in the following discussion. The results of operations of
these businesses are included in the Company's results of operations for all
periods after the acquisition date.
In October 1995, in connection with administrative and marketing agreements the
Company entered into with The Ohio Casualty Insurance Company, The Ohio Life
insurance Company (Ohio Life), and an unaffiliated company ("the Reinsurer"),
the Reinsurer reinsured 100% of the insurance business from Ohio Life on a
coinsurance basis. At September 30, 1996, the insurance business of Ohio Life,
consisting primarily of annuities and universal life policies, had aggregate
insurance liabilities of $306.4 million. In July 1996, in connection with
administrative and marketing agreements entered into with Fremont General
Corporation and Fremont Life Insurance Company (Fremont Life), the Reinsurer
reinsured certain of the insuranceliabilities of Fremont Life on a coinsurance
basis. At September 30, 1996, the insurance liabilities reinsured from Fremont
Life, consisting primarily of annuities and universal life policies, totalled
$410.5 million.
The Reinsurer reinsured certain risks on the Ohio Life and Fremont Life
liabilities to Great Southern Life Insurance Company (Great Southern), a
wholly-owned subsidiary of the Company, on a modified coinsurance basis.
The invested assets related to the reinsured liabilities are owned by the
Reinsurer. The Company has offset the receivable from the Reinsurer against
its liabilities under the modified coinsurance agreements in the Company's
consolidated balance sheet. The effects of these modified coinsurance
agreements are included in the Company's results of operations for all periods
after the respective transaction closing dates. The reinsured insurance
liabilities of Ohio Life and Fremont Life are collectively referred to as
the Reinsured Blocks in the following discussion.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995. Income before provision for income taxes for the nine months ended
September 30, 1996 was $18.9 million compared to $25.1 million for the same
period in 1995. Changes in the individual income statement components from 1995
to 1996 primarily resulted from the effects of the inclusion of Victory Life and
the Reinsured Blocks in the Company's results of operations. Although Victory
Life and the Reinsured Blocks contributed to an increase in income before income
taxes from 1995 to 1996, this increase was offset by (i) an increase in death
benefits on the Company's historical business, (ii) reductions in investment
income caused by changes in expected prepayments on mortgage-backed securities
and lower income from equity subsidiaries, (iii) an increase in interest expense
and (iv) an increase in operating expenses associated with the Company's
expanded operations.
PREMIUMS AND POLICY REVENUES
Premiums and policy revenues increased to $122.7 million for the nine months
ended September 30, 1996 from $100.5 million for the nine months ended
September 30, 1995. Victory Life and the Reinsured Blocks contributed $28.6
million of premiums and policy revenues for the nine months ended September 30,
1996 and Victory Life contributed $3.4 million of premiums and policy revenues
for the nine months ended September 30, 1995. Excluding Victory Life and the
Reinsured Blocks, premiums and policy revenues decreased $3.0 million.
Traditional premiums decreased $2.2 million from the nine months ended September
30, 1995 to the nine months ended September 30, 1996. Traditional life premiums
will continue to decrease as the Company currently writes little new
traditional business. Additionally, policy revenues were $0.8 million lower in
the nine months ended September 30, 1996 compared to the same period in 1995
due to lower surrender charge income in 1996.
<PAGE>
NET INVESTMENT INCOME
Net investment income increased $26.8 million from the nine months ended
September 30, 1995 to the nine months ended September 30, 1996, primarily due
to increases in investment income from the Victory Life assets and the
Reinsured Blocks. This increase in investment income was offset by a $7.3
million reduction in investment income caused by (i) a decrease in income on
fixed maturity securities due to changes in expected prepayment rates, and (ii)
a decrease in income of equity subsidiaries of $4.7 million.
Management continually evaluates the expected prepayments of the mortgage-backed
securities ( MBS ) portfolio to more accurately reflect expected paydowns on the
securities as market interest rates change. During the nine months ended
September 30, 1996, expected prepayments of the portfolio were reduced as
interest rates increased. During the nine months ended September 30, 1995,
expected prepayments of the portfolio were increased as interest rates had
declined. As a result of changes in expected prepayments, amortization of
premiums and accretion of discounts were reduced in 1996 and accelerated in
1995. These changes resulted in a decrease in investment income of $1.1
million in 1996 and an increase in investment income of $1.4 million in 1995.
The decrease in income from equity subsidiaries from 1995 to 1996 resulted
from (i) a reduction in gains from sales of real estate properties by GSSW,
Limited Partnership (GSSW) in 1996 compared to 1995 and (ii) increased systems
development expenses incurred by Argus Health Systems, Inc. in 1996.
POLICYHOLDER BENEFITS
Policyholder benefits increased $40.6 million from the nine months ended
September 30, 1995 to the nine months ended September 30, 1996. Policyholder
benefits from Victory Life and the Reinsured Blocks were $44.6 million in 1996
and $5.0 million in 1995. Excluding Victory Life and the Reinsured Blocks,
policyholder benefits increased $1.0 million from 1995 to 1996. Death
benefits, excluding Victory Life and the Reinsured Blocks, were $7.1 million
higher for the nine months ended September 30, 1996 compared to the same
period in 1995. The reasons for the increase in death benefits are (i)
unusually high levels of death benefits relative to levels expected by the
Company in the first six months of 1996, and (ii) a small number of policies
with very large face amounts which had offsetting reserve releases. The high
level of death benefits did not continue during the third quarter of 1996.
The increased death benefits were also partially offset by the lower reserve
increases resulting from the decrease in traditional premiums from 1995 to
1996.
OTHER OPERATING EXPENSES
Other operating expenses totalled $40.7 million for the nine months ended
September 30, 1996 compared to $33.7 million for the same period in 1995.
The increase in other operating expenses from 1995 to 1996 primarily resulted
from expenses associated with servicing the policies of Victory Life and the
Reinsured Blocks in 1996. Other operating expenses also increased due to costs
associated with the Company's marketing efforts, primarily in connection with
the Ohio Life and Fremont Life marketing alliances. The Company expects a
reduction in operating expenses to result from the consolidation of the Victory
Life operations into the Company's Kansas City location in July 1996.
INTEREST EXPENSE
Interest expense totalled $9.1 million for the nine months ended September 30,
1996 compared to $7.6 million for the same period in 1995. Average outstanding
indebtness was $133.4 million with an average cost of 9.11% for the nine months
ended September 30, 1996 compared to an average outstanding balance of $110.7
million with an average cost of 9.12% for the same period in 1995. The
increase in average outstanding indebtedness from 1995 to 1996 resulted from
the issuance of $32.8 million of notes in connection with the acquisition of
Victory Life in July 1995. The unpaid principal outstanding on these notes
payable at September 30, 1996, was $32.7 million.
<PAGE>
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Income before provision for income taxes for the three months ended September
30, 1996 was $8.1 million compared to $7.6 million for the same period in 1995.
Changes in the individual income statement components from 1995 to 1996
primarily resulted from the inclusion of the Reinsured Blocks in the Company's
results of operations for the three months ended September 30, 1996. The
increase in income before income taxes from 1995 to 1996 was primarily due to
income before income taxes associated with the Reinsured Blocks, offset by (i)
a decrease in income from equity subsidiaries and (ii) an increase in other
operating expenses. These items and significant changes in individual income
statement components are discussed in more detail below.
PREMIUMS AND POLICY REVENUES
Premiums and policy revenues increased to $42.4 million for the three months
ended September 30, 1996 from $34.8 million for the three months ended
September 30, 1995. The Reinsured Blocks contributed $8.6 million of premiums
and policy revenues for the three months ended September 30, 1996. Excluding
the Reinsured Blocks, premiums and policy revenues decreased $1.0 million.
Traditional premiums decreased $1.0 million from the three months ended
September 30, 1995 to the three months ended September 30, 1996.
NET INVESTMENT INCOME
Net investment income increased $10.2 million for the three months ended
September 30, 1996 from the three months ended September 30, 1995, primarily
due to net investment income associated with the Reinsured Blocks in 1996.
This increase in net investment income was offset by a $2.9 million decrease
in income from equity subsidiaries in 1996 compared to 1995. The decrease
in income from equity subsidiaries from 1995 to 1996 resulted from (i) a
reduction in gains from sales of real estate properties by GSSW in 1996
compared to 1995 and (ii) increased systems development expenses incurred by
Argus Health Systems, Inc. in 1996.
POLICYHOLDER BENEFITS
Policyholder benefits increased $12.3 million from the three months ended
September 30, 1995 to the three months ended September 30, 1996. Policyholder
benefits from the Reinsured Blocks were $14.2 million for the three months
ended September 30, 1996. Excluding the Reinsured Blocks, policyholder
benefits decreased $1.9 million from 1995 to 1996, primarily due to lower
reserve increases resulting from the decrease in traditional premiums from
1995 to 1996.
OTHER OPERATING EXPENSES
Other operating expenses totalled $12.7 million for the three months ended
September 30, 1996 compared to $10.9 million for the same period in 1995.
The increase in other operating expenses from 1995 to 1996 primarily resulted
from expenses associated with servicing the policies of the Reinsured Blocks
in 1996. Other operating expenses also increased due to costs associated
with the Company's marketing efforts, primarily in connection with the Ohio
Life and Fremont Life marketing alliances.
INTEREST EXPENSE
Interest expense totalled $3.1 million for the three months ended September 30,
1996 compared to $2.9 million for the same period in 1995. Average outstanding
indebtness was $133.3 million with an average cost of 9.18% for the three
months ended September 30, 1996 compared to an average outstanding balance
of $130.4 million with an average cost of 9.05% for the same period in 1995.
The increase in average outstanding indebtedness from 1995 to 1996 resulted
from the issuance of $32.8 million of notes in connection with the
acquisition of Victory Life in July 1995.
<PAGE>
FINANCIAL RESOURCES AND LIQUIDITY
The changes occurring in the Company's consolidated balance sheet from December
31, 1995 to September 30, 1996 primarily reflect the normal operations of the
Company's life insurance subsidiaries.
The quality of the Company's investment in fixed maturity investments at
September 30, 1996 remained substantially unchanged from December 31, 1995.
Non-investment grade securities totalled less than 2.0% of the Company's total
fixed maturity investments at September 30, 1996. The Company has not made
any significant changes to its investment philosophy during 1996. Cash and
cash equivalents increased from $59.0 million at December 31, 1995 to $88.9
million at September 30, 1996, primarily resulting from the reinvestment of
repayments from fixed maturity securities into short-term investments.
In February 1996, GSSW, a 50%-owned subsidiary, made a cash distribution of $6.0
million to Great Southern. On September 27, 1996, Great Southern agreed to
sell its interest in GSSW for $48.0 million. The sale is expected to close
in December 1996 and will result in a gain of approximately $15.3 million after
income taxes. The Company's investment income from GSSW for the nine months
ended September 30, 1996 and 1995 was $3.5 million and $5.6 million,
respectively.
During the nine months ended September 30, 1996, the Company's net unrealized
investment gains decreased by $13.7 million. The decrease in net unrealized
investment gains during this period resulted from increasing interest rates
which decreased the market values of fixed maturity investment securities. The
components of the change during the nine months ended September 30, 1996 are
(in millions):
Gross unrealized investment gains $(27.9)
Effect on insurance assets and liabilities 6.9
Deferred income tax effect 7.3
$(13.7)
Great Southern is a defendant in a purported class action lawsuit brought by two
policyholders, claiming damages unspecified in amount, in connection with the
sales of certain life insurance policies. The petition alleges that plaintiffs
and other Louisiana policyholders were promised that policies would be
completely paid-up within a certain number of years or payments, and were
misled by inaccurate illustrations and other alleged misrepresentations and
wrongful conduct. For further discussion of this matter, see Note 6 to the
September 30, 1996 consolidated financial statements contained elsewhere in
this Form 10-Q.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Incorporated by
reference from:
2.1(a) (2) Stock Purchase Agreement dated as of March 5, 1995 by and
among Victory Financial Group, Inc., its wholly-owned
subsidiary, The Kansas Life Insurance Company and the
Registrant.
2.1(b) (3) Letter Agreement dated July 10, 1995 among Registrant and
Victory Financial Group, Inc. respecting certain
provisions of the Stock Purchase Agreement.
2.1(c) (3) Pledge and Escrow Agreement dated July 10, 1995 among the
Registrant, Victory Financial Group, Inc. and NationsBank
of Texas, N.A.
2.1(d) (3) Indemnity Agreement Respecting Mortgages (and other
matters) dated July 10, 1995 between Victory Financial
Group, Inc. and Registrant.
2.1(e) (3) Letter Agreement dated as of July 7, 1995 among
Registrant, The Victory Life Insurance Company and
Victory Financial Group, Inc. regarding estimated federal
income tax deposits.
2.2 (3) Reinsurance, Transfer and Assumption Agreement dated as of
July 5, 1995, between The Kansas Life Insurance Company
and National Farmers Union Life Insurance Company.
3.1 (1) Restated Articles of Incorporation, as amended, of the
Registrant.
3.2 (1) Bylaws, as amended, of the Registrant.
10.1(a) (4) Master Agreement dated February 26, 1996 among Fremont
Life Insurance Company, Fremont General Corp.,
the Registrant and Great Southern Life Insurance Company.
10.1(b) (5) First Amendment to Master Agreement dated as of July 1,
1996, among Fremont Life Insurance Company, Fremont
General Corp., Registrant and Great Southern Life
Insurance Company.
10.1(c) (5) Letter Agreement dated as of July 1, 1996, among Fremont
General Corp., Fremont Life Insurance Company, Registrant
and Great Southern Life Insurance Company.
10.1(d) (5) Services Agreement dated as of July 1, 1996, between
Registrant and Fremont Life Insurance Company.
10.1(e) (5) Assumption Reinsurance and Coinsurance Agreement
(Universal Life) dated as of July 1, 1996, between
Fremont Life Insurance Company and Great Southern Life
Insurance Company.
10.1(f) (5) Assumption Reinsurance and Coinsurance Agreement
(Annuities) dated as of July 1, 1996, between Fremont
Life Insurance Company and Great Southern Life Insurance
Company.
<PAGE>
ITEM 6.(a) continued
10.1(g) (5) Assignment and Assumption Agreement dated as of July 1,
1996, between Fremont Life Insurance Company and Great
Southern Life Insurance Company.
10.1(h) (5) Automatic Coinsurance Universal Life Reinsurance Agreement
dated as of December 31, 1995, between Fremont Life
Insurance Company and Employers Reassurance Corporation.
10.1(i) (5) Amendment No. 1 to the Automatic Coinsurance Universal
Life Reinsurance Agreement dated as of December 31, 1995,
between Employers Reassurance Corporation and Fremont Life
Insurance Company.
10.1(j) (5) Automatic Coinsurance Annuity Reinsurance Agreement dated
as of January 1 1996, between Employers Reassurance
Corporation and Fremont Life Insurance Company.
10.1(k) (5) Amendment No. 1 to the Automatic Coinsurance Annuity
Reinsurance Agreement dated as of January 1, 1996, between
Employers Reassurance Corporation and Fremont Life
Insurance Company.
10.1(l) (5) Escrow Agreement dated as of July 1, 1996, among Commerce
Bank, Employers Reassurance Corporation and Great Southern
Life Insurance Company.
10.1(m) (5) Modified Coinsurance Annuity Retrocession Agreement dated
as of January 1, 1996, between Employers Reassurance
Corporation and Great Southern Life Insurance Company.
10.1(n) (5) Modified Coinsurance Universal Life and Annuity
Retrocession Agreement dated as of December 31, 1995,
between Employers Reassurance Corporation and Great
Southern Life Insurance Company.
10.1(o) (5) Amendment No. 1 to the Investment Management Agreement
dated as of December 31, 1995, between Registrant and
Employers Reassurance Corporation.
27 Financial Data Schedule
(1) Registrant's Form S-4 (File No. 33-64820) filed September 22, 1993
(2) Registrant's March 31, 1995 Form 10-Q
(3) Registrant's Form 8-K dated as of July 10, 1995
(4) Registrant's March 31, 1996 Form 10-Q
(5) Registrant's June 30, 1996 Form 10-Q
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended September 30,
1996.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICO LIFE, INC.
BY: /s/ Gary E. Jenkins
Name: Gary E. Jenkins
Title: Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Date: November 13, 1996
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<PERIOD-END> SEP-30-1996
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