UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number 0-22404
ALLIED Life Financial Corporation
(Exact name of registrant as specified in its charter)
Iowa
(State or other jurisdiction of incorporation or organization)
42-1406716
(I.R.S. Employer Identification No.)
701 Fifth Avenue, Des Moines, Iowa
(Address of principal executive offices)
50391-2003
(Zip Code)
515-280-4211
(Registrant's telephone number, including area code)
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 outstanding shares of each of the issuer's classes of
common stock, as of November 1, 1997:
4,395,669 shares of Common Stock.
This document contains 16 pages.
<PAGE>
PART I
Item 1. Financial Statements
ALLIED Life Financial Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1997 1996
Assets
Investments
Fixed maturities
Held to maturity at amortized cost
(fair value $0 in 1997 and
$205,347,823 in 1996 - see note 6) $ -------- $199,208,835
Available for sale, at fair value
(amortized cost $722,608,206 in 1997
and $492,686,241 in 1996 - see note 6) 746,302,390 500,289,070
Equity securities at fair value 10,284,460 6,406,552
Mortgage loans on real estate 1,009,684 1,456,688
Policy loans 10,970,441 10,306,724
Other invested assets 3,200,017 3,751,415
Short-term investments, at cost 5,117,108 919,687
Total investments 776,884,100 722,338,971
Accrued investment income 11,467,744 9,738,060
Accounts receivable 900,487 607,737
Reinsurance ceded receivables 6,346,885 5,786,434
Current income taxes recoverable 147,968 -------
Deferred policy acquisition costs 88,822,454 92,417,588
Other assets 9,442,544 4,710,933
Total assets $894,012,182 $835,599,723
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
1
<PAGE>
ALLIED Life Financial Corporation Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1997 1996
Liabilities
Policy liabilities
Policyholder account balances
Annuity contracts $503,092,581 $467,504,991
Universal life contracts 193,246,785 182,726,695
Other 7,628,495 8,846,156
Future policy benefits 36,503,005 33,473,558
Policy and contract claims 3,843,756 3,735,623
Other policyholder funds 2,131,743 1,575,995
746,446,365 697,863,018
Checks drawn in excess of bank balances 1,985,748 3,163,318
Current income taxes payable -------- 940,576
Deferred income taxes 10,472,755 8,008,946
Indebtedness to affiliates (note 2) 3,785,006 2,188,068
Note payable (note 3) 15,340,000 20,470,000
Other liabilities 4,997,519 3,024,175
Total liabilities 783,027,393 735,658,101
Stockholders' equity
Preferred stock, no par value, issuable in series,
authorized 7,500,000 shares
6.75% Series, authorized 2,440,000 shares, issued and
outstanding of 2,254,056 in 1997 and 2,143,691 in 1996 24,456,507 23,259,047
ESOP Series, authorized 300,000 shares, issued
and outstanding of 106,332 in 1997 and 93,982 in 1996 1,555,020 1,327,186
Common stock, no par value, $1 stated value,
authorized 25,000,000 shares, issued and outstanding of
4,389,958 in 1997 and 4,497,238 in 1996 (note 5) 4,389,958 4,497,238
Additional paid-in capital (note 5) 44,847,974 46,596,171
Retained earnings 27,308,547 21,751,088
Unrealized appreciation of investments, net 8,426,783 2,510,892
Total stockholders' equity 110,984,789 99,941,622
Total liabilities and stockholders' equity $894,012,182 $835,599,723
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
2
<PAGE>
ALLIED Life Financial Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues
Insurance revenues
Policyholder assessments on
universal life contracts $ 5,514,761 $ 5,205,649 $ 16,327,976 $ 15,459,557
Surrender charges 765,062 501,338 1,989,811 1,697,709
Life insurance premiums 3,709,807 3,938,434 10,607,584 9,983,794
Other insurance income 1,373,468 1,033,109 3,950,104 2,725,356
Reinsurance premiums ceded (2,836,687) (2,059,834) (7,587,096) (6,327,458)
Total insurance revenues 8,526,411 8,618,696 25,288,379 23,538,958
Investment income 13,223,359 11,826,527 38,758,081 35,513,401
Realized investment gains (losses) 857,447 (48,532) 605,128 (193,006)
Other income 478,337 247,403 1,140,351 805,498
23,085,554 20,644,094 65,791,939 59,664,851
Benefits and Expenses
Policyholder benefits
Interest credited to policyholder
account balances
Annuity contracts 6,821,863 6,204,824 19,679,757 18,061,925
Universal life contracts 2,568,016 2,357,526 7,512,101 7,081,105
Other 138,058 100,855 353,488 272,624
Death benefits 3,404,794 3,543,015 8,289,260 7,906,412
Other policyholder benefits 1,312,179 2,373,358 3,855,735 5,805,959
Reinsurance recoveries (1,465,466) (1,618,997) (1,848,839) (3,601,772)
Total policyholder benefits 12,779,444 12,960,581 37,841,502 35,526,253
Amortization of deferred policy
acquisition costs 3,146,073 1,921,766 7,858,996 5,764,046
Commissions 1,069,295 889,565 2,953,592 2,366,136
Affiliated operating expenses 171,983 207,875 473,426 817,460
Other insurance operating expenses 1,681,965 1,555,593 5,220,016 4,396,960
18,848,760 17,535,380 54,347,532 48,870,855
Income before income taxes 4,236,794 3,108,714 11,444,407 10,793,996
Income Taxes
Current 2,291,969 976,385 4,534,348 3,451,253
Deferred (881,158) 26,894 (721,670) 75,913
1,410,811 1,003,279 3,812,678 3,527,166
Net Income $ 2,825,983 $ 2,105,435 $ 7,631,729 $ 7,266,830
Net income applicable to
common stock $ 2,393,128 $ 1,701,857 $ 6,352,881 $ 6,074,716
Earnings Per Common Share $ 0.55 $ 0.37 $ 1.43 $ 1.32
Weighted average number of
common shares outstanding 4,380,847 4,559,259 4,442,423 4,609,230
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
3
<PAGE>
ALLIED Life Financial Corpor ation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
September 30,
1997 1996
Cash Flow From Operating Activities
Net income $ 7,631,728 $ 7,266,830
Adjustments to reconcile net income to net cash provided by
operating activities
Policyholder assessments on universal life contracts (16,327,976) (15,459,557)
Surrender charges (1,989,811) (1,697,709)
Interest credited to policyholder account balances 27,545,346 25,415,654
Realized investment (gains) losses (605,128) 193,006
Change in
Accrued investment income (1,729,684) (1,968,861)
Reinsurance ceded receivables (560,451) 1,342,573
Deferred policy acquisition costs (4,735,434) (7,432,551)
Liabilities for future policy benefits 3,029,447 4,240,501
Policy and contract claims and other policyholder funds 663,881 384,716
Current income taxes (1,088,544) 568,554
Deferred income taxes (721,670) 75,913
Other, net (1,333,098) (708,100)
Net cash provided by operating activities 9,778,606 12,220,969
Cash Flows from Investing Activities
Purchase of fixed maturities held to maturity (7,593,891) (13,500,000)
Maturities, calls, and principal reductions of fixed maturities
held to maturity 8,022,208 34,425,618
Purchase of fixed maturities available for sale (164,465,487) (103,686,214)
Proceeds from sale of fixed maturities available for sale 109,456,992 31,635,277
Maturities, calls, and principal reductions of fixed maturities
available for sale 24,523,676 8,870,970
Purchase of equity securities (3,821,338) (1,513,190)
Proceeds from sale of equity securities 1,400,752 --------
Proceeds from repayment of mortgage loans 447,345 251,528
Change in other invested assets -------- (4,145,017)
Change in policy loans, net (663,717) (752,418)
Purchase of property, plant, and equipment (2,294,702) --------
Net cash used in investing activities (34,988,162) (48,413,446)
Cash Flows from Financing Activities
Change in checks drawn in excess of bank balances (1,177,571) (665,215)
Deposits to policyholder account balances 88,058,880 79,631,368
Withdrawals from policyholder account balances (51,928,195) (38,335,589)
Change in note payable, net (5,130,000) (3,125,000)
Change in note payable from affiliates 2,088,312 1,750,000
Proceeds from issuance of stock, net 850,490 359,445
Repurchase of stock (2,478,131) (2,541,250)
Dividends paid to stockholders (876,808) (736,341)
Net cash provided by financing activities 29,406,977 36,337,418
Net Increase in Cash and Short-term Investments 4,197,421 144,941
Cash and short-term investments at beginning of year 919,687 721,612
Cash and short-term investments at end of quarter $ 5,117,108 $ 866,553
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE>
ALLIED Life Financial Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
ALLIED Life Financial Corporation (the Company) and its subsidiaries on a
consolidated basis.
At September 30, 1997, ALLIED Mutual Insurance Company (ALLIED Mutual), an
affiliated property-casualty insurance company, controlled 56% of the voting
stock of the Company and the ALLIED Life Financial Corporation Employee Stock
Ownership Trust owned 2%. The remainder was owned by public stockholders.
The accompanying interim consolidated financial statements should be read in
conjunction with the following notes and with the Notes to Consolidated
Financial Statements included in the ALLIED Life Financial Corporation's Annual
Report on 10K for the year ended December 31, 1996. The interim consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles (GAAP) and include all adjustments which are in the
opinion of management necessary for a fair presentation of the results for the
interim periods. In the opinion of management, all such adjustments are of a
normal and recurring nature. All significant intercompany balances and
transactions have been eliminated.
(2) Transactions with Affiliates
The Company and its affiliates pool their excess cash pursuant to the
Intercompany Cash Concentration Fund Agreement. The fund, administered by AID
Finance Services, Inc. (an affiliate of the Company), also issues short-term
loans (30 days or less) to affiliated companies in accordance with the current
intercompany borrowing policy. At September 30, 1997, the Company had an
investment balance in the intercompany fund of $3,079,693. Pursuant to the
Agreement, AID Finance Services, Inc. receives a management fee of 5 basis
points which the fund participants pay in the form of an additional 0.05% in the
interest rate for borrowings and a 0.05% reduction in the interest rate on
invested funds.
The Company has various notes payable with ALLIED Mutual. At September 30, 1997
the outstanding balance of the notes payable was $3,705,660.
(3) Note Payable to Nonaffiliates
ALLIED Life Insurance Company, a wholly owned subsidiary, has a line of credit
agreement with the Federal Home Loan Bank (FHLB) to make available borrowings of
$25,000,000. Interest is payable at either an adjustable interest rate with the
interest rate set and charged daily on the outstanding advance amount or at a
fixed rate with the interest rate set at issuance. As of September 30, 1997,
borrowings on this line of credit agreement were $15,340,000 at an interest rate
of 6.49% per annum. All borrowings with the FHLB are secured by securities with
a carrying value of $29,945,173.
(4) New Accounting Standard
In February 1997, the Financial Accounting Standards Board (FASB) Issued
Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share".
SFAS 128 supersedes Opinion 15, "Earnings Per Share"
5
<PAGE>
ALLIED Life Financial Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (continued)
and specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS). It replaces the presentation of primary EPS and fully
diluted EPS with basic EPS and diluted EPS. Basic EPS includes the weighted
average number of common shares outstanding and excludes all dilutive
securities. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stocks were exercised or converted
into common stock. Diluted EPS is computed similarly to fully diluted EPS under
APB 15. Statement 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Management has determined that
the implementation will not have a material effect on its earnings per share
calculations.
(5) Stock Repurchase Program
Effective May 13, 1997, the Board of Directors approved a stock repurchase
program to acquire up to 150,000 shares of the Company common stock on the open
market pursuant to rule 10b-18 under the Securities Exchange Act of 1934. The
Company completed the program during the second quarter of 1997 and repurchased
and cancelled 150,000 shares at an average cost of $16.52 per share.
(6) Transfer of Securities to Available For Sale
Effective May 13, 1997, the Company transferred its remaining securities
classified as held to maturity ($196 million) to available for sale. In
accordance with SFAS 115 the Company now carries all of its securities at fair
value and as a result a $1.2 million increase to stockholders' equity was made.
The Company made the transfer to allow for more flexibility with regards to
selling securities from its investment portfolio. The Company has no intent of
putting future purchases in the held to maturity portfolio.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The following analysis of the consolidated results of operations and financial
condition of the Company should be read in conjunction with the interim
consolidated financial statements and related footnotes included elsewhere
herein, and with the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
ALLIED Life Financial Corporation is an insurance holding company formed by
ALLIED Mutual Insurance Company (ALLIED Mutual) in 1993. The financial
statements include the accounts of ALLIED Life Insurance Company (ALLIED Life),
ALLIED Life Brokerage Agency, Inc. (ALBA), and ALLIED Group Merchant Banking
Corporation (AGMB). ALLIED Life accounts for substantially all of the Company's
operations and sells primarily universal life insurance, term life insurance,
and annuity products.
The following table reflects ALLIED Life's production information and pretax
operating results excluding realized investment gains (losses) and related
amortization of deferred policy acquisition costs for the periods indicated.
Life Insurance Operations
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Dollars in thousands)
Production information
Life insurance
Face amount in force
Directly produced by agents
Universal Life $4,527,752 $4,263,599
Term life 4,464,484 4,090,843
Whole life 50,945 49,621
9,043,181 8,404,063
Other 380,282 376,255
$9,423,463 $8,780,318
Face amount of new life insurance sold
Directly produced by agents
Universal Life $ 131,121 $ 86,690 $ 430,467 $ 273,758
Term life 303,756 512,036 934,434 1,172,788
Whole life 1,248 1,233 5,727 3,392
436,125 599,959 1,370,628 1,449,938
Other 1,050 (2,821) 4,299 8,384
$ 437,175 $ 597,138 $ 1,374,927 $ 1,458,322
Termination rate
Universal Life 7.5% 5.9% 6.9% 6.5%
Term life 27.5% 18.2% 20.7% 17.6%
Annuities
Account balance $ 503,093 $ 450,679
First-year annuity premiums $ 22,268 $ 21,105 $ 55,225 $ 47,203
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Life Insurance Operations (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Dollars in thousands)
Profitability
Investment income $13,204 $11,818 $38,716 $35,482
Interest credited on
Annuities 6,822 6,205 19,680 18,062
Universal life 2,568 2,358 7,512 7,081
Other 138 100 353 273
Total interest expense 9,528 8,663 27,545 25,416
Investment spread 3,676 3,155 11,171 10,066
Fee income
Universal life charges 6,099 5,603 17,768 16,788
Annuity surrender charges 180 104 550 369
Total fee income 6,279 5,707 18,318 17,157
Other insurance income 2,247 2,911 6,971 6,382
Adjusted insurance revenues 12,202 11,773 36,460 33,605
Other expenses
Amortization of deferred policy
acquisition costs (1) 2,708 1,946 7,629 5,840
Renewal commissions 739 742 2,232 1,901
Other operating expenses 1,687 1,647 5,256 4,908
Total acquisition and operating
expenses 5,134 4,335 15,117 12,649
Death benefits, net 1,773 2,254 6,068 5,128
Other policyholder benefits, net 1,477 2,044 4,229 4,983
Total other expenses 8,384 8,633 25,414 22,760
Income before income taxes and realized
investment gains (losses) from
insurance operations $ 3,818 $ 3,140 $11,046 $10,845
<FN>
(1) Excludes amortization of deferred policy acquisition costs resulting from
net realized investment gains(losses).
</FN>
</TABLE>
RESULTS OF OPERATIONS
Consolidated revenues for the nine months ended September 30, 1997 were $65.8
million, a 10.3% increase over the $59.7 million reported for the first nine
months of 1996. Investment income rose 9.1% to $38.8 million from $35.5 million.
The company had realized investment gains of $605,000 in 1997 while in 1996 it
had realized investment losses of $193,000.
For the third quarter only, consolidated revenues grew 11.8% to $23.1 million in
1997 from $20.6 million in 1996. Investment income for the quarter grew 11.8% to
$13.2 million from $11.8 million. For the quarter the Company had realized
investment gains of $857,000 while for the third quarter 1996, the Company had
realized investment losses of $49,000.
8
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Operating income increased to $11.1 million from $10.9 million for the nine
months ended 1997 and 1996, respectively. Net income increased 5% to $7.6
million ($1.43 per common share) from $7.3 million ($1.32 per common share) for
the same time periods. Operating earnings per common share for the first nine
months of 1997 were $1.37 compared to $1.34 for the first nine months of 1996.
For the third quarter only, operating income increased 21.9% to $3.8 million
from $3.1 million. Net income increased to $2.8 million ($0.55 per common share)
from $2.1 million ($0.37 per common share) for the same time periods. Operating
earnings per common share for the third quarter of 1997 were $0.48 compared to
$0.38 for the third quarter of 1996.
Life Insurance Operations
The following analysis of life insurance operations should be read with
reference to the preceding tables.
Total life insurance in force grew 7.3% to $9.4 billion at September 30, 1997
from $8.8 billion at September 30, 1996. Term life insurance sales were down as
the market for this product line remains price competitive.
The face amount of new life insurance sold directly by agents through September
30, 1997 decreased 5.5% to $1.37 billion from $1.45 billion through September
30, 1996. The primary factor was a 20.3% decrease in the face amount of new term
life insurance sold to $934.4 million from $1.17 billion. For the third quarter
only, the face amount of new term life insurance sold decreased 40.7% to $303.8
million from $512 million. ALLIED Life continues to sell mainly ten and
twenty-year term policies within this product line.
The face amount of new universal life insurance sold directly by agents
increased 57.2% to $430.5 million through September 30, 1997 from $273.8 million
through September 30, 1996. For the third quarter only, the face amount of new
universal life insurance sold increased 51.3% to $131.1 million from $86.7
million. Universal life policyholder account balances were up 8.3% to $193.2
million from $178.4 million.
First-year annuity premiums increased 17% to $55.2 million through September 30,
1997 from $47.2 million through September 30, 1996. For the third quarter only,
first year annuity premiums increased 5.5% to $22.3 million from $21.1 million.
The total annuity account balance increased 11.6% to $503.1 million at September
30, 1997 from $450.7 million at September 30, 1996.
The increases in sales of universal life insurance and annuity premiums are the
result of the improved agent recruiting efforts of the Company. Year to date
they have signed 1,204 net new producer contracts, a 90.2% increase over 1996's
year to date total of 633.
Adjusted insurance revenues increased 8.5% to $36.5 million for the first nine
months of 1997 from $33.6 million for the first nine months of 1996. The growth
in life insurance in force and policyholder account balances permitted invested
assets, on a cost basis, to increase 9.5% to $750.1 million at September 30,
1997 from $685.1 million at September 30, 1996, allowing investment income to
increase by 9.1%. ALLIED Life's return on invested assets through September 30,
1997 decreased to 7.25% from 7.31% through September 30, 1996. Investment spread
for the first nine months of 1997 and 1996 grew to $11.2 million from $10.1
million. For the third quarter only, the investment spread grew to $3.7 million
from $3.2 million. Annual average interest-
9
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
credited rates on universal life contracts decreased to 5.32% from 5.44% and on
annuities decreased to 5.44% from 5.61%. The ratio of investment spread to
investment income increased to 28.9% from 28.4% despite the volatile interest
rate environment.
Amortization of deferred policy acquisition costs for the first nine months of
1997 and 1996 increased 30.6% to $7.6 million from $5.8 million. For the third
quarter only, amortization of deferred policy acquisition costs increased 39.1%
to $2.7 million from $1.9 million. Other operating expenses increased 7.1% to
$5.3 million from $4.9 million. For the third quarter only, other operating
expenses increased 2.4% to $1.7 million from $1.6 million.
Death benefits net of reinsurance for the first nine months of 1997 and 1996
increased 18.3% to $6.1 million ($0.72 per common share) from $5.1 million
($0.61 per common share). For the third quarter only, death benefits net of
reinsurance decreased 21.3% to $1.8 million ($0.22 per common share) from $2.3
million ($0.29 per common share). Other policyholder benefits net of reinsurance
decreased 15.1% to $4.2 million from $5 million. For the third quarter only,
they decreased 27.7% to $1.5 million from $2 million.
ALLIED Life's operating income through September 30, 1997 and 1996 increased
1.9% to $11 million from $10.8 million. For the third quarter only, operating
income increased 21.6% to $3.8 million from $3.1 million. For the year the
Company has experienced higher death benefits and amortization of deferred
policy acquisition costs. For the quarter, these were offset by higher
investment spread and fee income revenues and lower increases in other
policyholder benefits. Even though death benefits were higher for the year, they
were down substantially for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated
Life insurance companies generally produce a positive cash flow from operations.
Its adequacy is measured by the companies' liquidity. There should be sufficient
cash to meet benefit obligations to policyholders and normal operating expenses
as they are incurred and sufficient excess to help meet future policy benefit
payments and to write new business. ALLIED Life's liquidity position continued
to be favorable for the third quarter 1997. Cash inflows were at levels
sufficient to provide the grounds necessary to meet its obligations.
The Company's cash inflows consist primarily of deposits to policyholder account
balances, income from sales, maturities and calls of investments, and repayments
of investment principal. The Company's cash outflows primarily are related to
policyholder account withdrawals, investment purchases, policy acquisition
costs, policyholder benefits, and current operating expenses. These outflows
typically are met from normal annual premium and net investment cash inflows.
For the first nine months of 1997 the Company operations provided cash inflows
of $9.8 million and financing activities provided cash inflows of $29.4 million.
For the first nine months of 1996 it was $12.2 million and $36.3 million,
respectively. These inflows were used primarily to increase the Company's fixed
maturity investment portfolio.
Matching the investment portfolio maturities to the cash flow demands of the
insurance coverages being provided is an important consideration. The Company
continually monitors benefit and claims statistics to
10
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
project future cash requirements. As part of this monitoring process, the
Company performs cash-flow testing of its assets and liabilities under various
scenarios to evaluate the adequacy of reserves. In developing its investment
strategy, the Company establishes a level of cash and securities that when
combined with expected net cash inflows from operations, maturities of
fixed-maturity investments, principal payments on mortgage-backed securities,
and its insurance products is believed to be adequate to meet anticipated
short-term and long-term benefit and expense payment obligations.
A source of cash flows for the holding company is dividend payments from ALLIED
Life. Through the third quarter of 1997, the Company paid cash dividends on
common stock of $795,000. ALLIED Life paid to the Company dividends of $1.3
million to fund the Company's dividend requirements and its note payment on the
indebtedness to affiliates.
The Company has a line of credit agreement that provides additional liquidity.
The agreement makes $25 million available through March 13, 1998. Interest is
payable at a current rate upon issuance. From time to time, the Company has also
borrowed funds from its affiliates on an arms-length basis. At September 30,
1997, the Company had outstanding borrowings of $15.3 million under the line of
credit agreements and $3.7 million from affiliates.
Management anticipates that funds to meet the Company's short-term and long-term
capital expenditures, cash dividends, and operating cash needs will come from
existing capital and internally generated funds and believes the total is
adequate to meet expected cash obligations. As of September 30, 1997, the
Company had no material commitments for capital expenditures. As additional
capital needs arise, the Company will consider taking on additional debt or
issuing equity. Specific methods for meeting such needs will depend upon
financial market conditions at the time.
11
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) 10.43 Promissory Note dated October 28, 1997 between ALLIED Mutual Insurance
Company and ALLIED Life Financial Corporation.
Exhibit 11 - Statement re Computation of Per Share Earnings.
Exhibit 27 - Financial Data Schedule
(b) There were no reports filed on Form 8-K during the third quarter of 1997.
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.
ALLIED Life Financial Corporation
(Registrant)
Date: November 13, 1997 By: /s/ Wendell P. Crosser
Wendell P. Crosser, Vice President and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
12
PROMISSORY NOTE
No. 013102897 Des Moines, Iowa October 28, 1997 $ 2,500,000
For value received, the undersigned promises to pay, to the order of
ALLIED Mutual Insurance Company at its office in Des Moines, Iowa the sum of
Two Million Five HundredThousand Dollars, with quarterly interest and principal
payments beginning January 28, 1998 according to the attached loan amortization
schedule. Final payment shall be due on October 28, 2000. Interest shall accrue
at the rate of 6.50 % per annum from the date of loan and all interest shall be
computed under the commercial loan method on the basis of a 360 day year with no
penalty for prepayment and with a pro rata refund of any unearned finance
charge. Principal and interest not paid when due shall earn interest at the
rate of 1.5% per month during the period of delinquency.
ALLIED Life Financial Corporation
/s/ Wendell P. Crosser
By Wendell P. Crosser, Vice President
Exhibit 11
ALLIED Life Financial Corporation and Subsidiaries
Computation of Per Share Earnings
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Primary
Net income $2,825,982 $2,105,435 $7,631,729 $7,266,830
Preferred stock dividends (432,855) (403,578) (1,278,848) (1,192,114)
Adjusted net income $2,393,127 $1,701,857 $6,352,881 $6,074,716
Earnings per share $ 0.55 $ 0.37 $ 1.43 $ 1.32
Weighted average number of
common shares outstanding 4,380,847 4,559,259 4,442,423 4,609,230
Fully Diluted
Net income $2,825,982 $2,105,435 $7,631,729 $7,266,830
Preferred stock dividends (432,855) (403,578) (1,278,848) (1,192,114)
Adjusted net income $2,393,127 $1,701,857 $6,352,881 $6,074,716
Earnings per share $ 0.55 $ 0.37 $ 1.43 $ 1.32
Weighted average number of
common shares outstanding 4,380,847 4,559,259 4,442,423 4,609,230
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 746,302
<DEBT-CARRYING-VALUE> 746,302
<DEBT-MARKET-VALUE> 746,302
<EQUITIES> 10,284
<MORTGAGE> 1,010
<REAL-ESTATE> 0
<TOTAL-INVEST> 776,884
<CASH> 0
<RECOVER-REINSURE> 6,347
<DEFERRED-ACQUISITION> 88,822
<TOTAL-ASSETS> 894,012
<POLICY-LOSSES> 40,347
<UNEARNED-PREMIUMS> 84
<POLICY-OTHER> 2,048
<POLICY-HOLDER-FUNDS> 703,968
<NOTES-PAYABLE> 19,125
0
26,012
<COMMON> 4,390
<OTHER-SE> 80,583
<TOTAL-LIABILITY-AND-EQUITY> 894,012
5,359
<INVESTMENT-INCOME> 38,758
<INVESTMENT-GAINS> 605
<OTHER-INCOME> 21,070
<BENEFITS> 37,842
<UNDERWRITING-AMORTIZATION> 7,859
<UNDERWRITING-OTHER> 8,647
<INCOME-PRETAX> 11,444
<INCOME-TAX> 3,813
<INCOME-CONTINUING> 7,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,632
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
