1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported: May 18, 2001)
AMERUS GROUP CO.
(Exact Name of Registrant as Specified in Charter)
IOWA 000-30898 42-1458424
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
699 WALNUT STREET
DES MOINES, IOWA 50309-3948
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (515) 362-3600
2
On May 18, 2001, AmerUs Group Co. (the "Registrant") acquired all of
the issued and outstanding stock of Indianapolis Life Insurance Company and
filed with the Securities and Exchange Commission a Current Report on Form 8-K
regarding such acquisition on May 23, 2001 (the "Report"). The Registrant
omitted the financial statements and pro forma financial information required by
Item 7 (a) (1) - (2) of Form 8-K from the Report in accordance with Item 7 (a)
(4) and is filing such financial statements and pro forma financial information
for Indianapolis Life Insurance Company in this amendment to the Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
As permitted by Item 7 (a) (4) of Form 8-K, AmerUs hereby
files the required financial statements of Indianapolis Life Insurance Company
(ILICo).
Referenced below are financial statements and information which are
being filed as part of this Report.
Page Nos.
---------
Consolidated Financial Statements of Indianapolis Life
Insurance Company for the Years Ended December 31, 2000,
1999 and 1998, together with the report of Independent Auditors........ 1-26
Consolidated Balance Sheets
March 31, 2001 (Unaudited) and December 31, 2000....................... 27-28
Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31, 2001 and 2000..................... 29
Consolidated Statements of Policyowner's Surplus
For the Three Months Ended March 31, 2001 (Unaudited) and
the Year Ended December 31, 2000....................................... 30
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2001 and 2000..................... 31
Notes to Consolidated Financial Statements (Unaudited) ................ 32-33
Management's Discussion and Analysis of Results of
Operations and Financial Condition
For the Three Months Ended March 31, 2001 and 2000..................... 33-41
(b) Pro Forma Financial Information.
As permitted by Item 7 (b) (2) of Form 8-K, AmerUs hereby
files the required pro forma financial information.
(c) Exhibits
23.1 Consent of Independent Auditors
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
AMERUS GROUP CO.
By: /s/ Michael G. Fraizer
------------------------------------
Michael G. Fraizer
Executive Vice President &
Chief Financial Officer
Dated: July 23, 2001
4
ITEM 7a. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
CONSOLIDATED FINANCIAL STATEMENTS
Indianapolis Life Insurance Company and Subsidiaries
Years ended December 31, 2000, 1999 and 1998
with Report of Independent Auditors
5
Indianapolis Life Insurance Company and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 2000, 1999 and 1998
CONTENTS
Report of Independent Auditors................................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets...................................................2
Consolidated Statements of Income.............................................4
Consolidated Statements of Policyowners' Surplus..............................5
Consolidated Statements of Cash Flows.........................................6
Notes to Consolidated Financial Statements....................................7
6
Report of Independent Auditors
Board of Directors
Indianapolis Life Insurance Company
We have audited the accompanying consolidated balance sheets of Indianapolis
Life Insurance Company and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of income, policyowners' surplus and cash
flows each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Indianapolis Life
Insurance Company and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
February 28, 2001
1
7
Indianapolis Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31
2000 1999
--------------------------------------
ASSETS
Investments:
Fixed maturity securities:
Available for sale, at fair value $ 3,852,177,748 $ 4,083,679,362
Held to maturity, at amortized cost 227,084,246 252,226,207
Equity securities, at fair value 13,195,074 8,484,261
Mortgage loans 369,510,962 378,053,935
Policy loans 191,305,265 184,737,369
Other invested assets 10,021,712 12,248,011
Cash and cash equivalents 94,382,900 174,417,353
--------------------------------------
Total investments 4,757,677,907 5,093,846,498
Accrued investment income 57,431,558 65,417,285
Reinsurance recoverable 267,097,679 236,849,542
Deferred acquisition costs 351,575,420 328,711,527
Receivables and other assets 12,026,622 8,377,412
Federal income taxes 20,052,918 2,504,823
Property and equipment 29,809,203 23,826,898
Present value of future profits 7,959,364 10,293,213
Goodwill 17,701,533 12,841,316
Separate account assets 353,233,026 341,088,253
--------------------------------------
Total assets $ 5,874,565,230 $ 6,123,756,767
======================================
See accompanying notes.
2
8
DECEMBER 31
2000 1999
--------------------------------------
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves for future benefits $4,721,099,259 $5,039,879,222
Other policyowner funds 189,907,621 142,752,796
Accrued commissions and general expenses 8,089,063 8,658,801
Surplus notes 25,000,000 25,000,000
Other liabilities and reserves 138,431,218 157,076,129
Deferred federal income taxes 14,672,670 39,870,241
Separate account liabilities 353,233,026 341,088,253
--------------------------------------
Total liabilities 5,450,432,857 5,754,325,442
Minority interest in consolidated subsidiaries 105,655,458 71,657,673
Policyowners' surplus:
Accumulated other comprehensive income (loss) 325,552 (10,228,978)
Surplus 318,151,363 308,002,630
--------------------------------------
Total policyowners' surplus 318,476,915 297,773,652
--------------------------------------
Total liabilities and policyowners' surplus $5,874,565,230 $6,123,756,767
======================================
3
9
Indianapolis Life Insurance Company and Subidiaries
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
2000 1999 1998
----------------------------------------------------
REVENUES
Premiums $ 162,355,933 $165,234,240 $168,538,387
Policy and contract charges 76,766,251 64,466,246 44,452,479
Net investment income 273,251,144 256,904,634 194,081,412
Net realized capital gains 9,249,931 4,822,798 8,200,716
----------------------------------------------------
Total revenues 521,623,259 491,427,918 415,272,994
BENEFITS AND EXPENSES
Policy benefits 346,760,726 312,845,116 256,853,599
Underwriting, acquisition and insurance
expenses 103,575,055 139,539,808 92,636,739
Reorganization costs 12,928,485 907,299 -
Interest 2,165,000 2,165,000 2,165,000
Dividends to policyowners 30,124,666 32,981,886 32,348,774
----------------------------------------------------
Total benefits and expenses 495,553,932 488,439,109 384,004,112
----------------------------------------------------
Income before federal income taxes and minority
interest 26,069,327 2,988,809 31,268,882
Federal income taxes 11,637,338 1,592,549 8,636,298
----------------------------------------------------
Income before minority interest 14,431,989 1,396,260 22,632,584
Minority interest in consolidated subsidiaries 4,283,256 2,212,346 1,440,804
----------------------------------------------------
Net income (loss) $ 10,148,733 $ (816,086) $ 21,191,780
====================================================
See accompanying notes.
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10
Indianapolis Life Insurance Company and Subsidiaries
Consolidated Statements of Policyowners' Surplus
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE POLICYOWNERS'
INCOME (LOSS) SURPLUS SURPLUS
---------------------------------------------------
Balance at January 1, 1998 $ 17,803,911 $287,626,936 $ 305,430,847
Net income - 21,191,780 21,191,780
Change in net unrealized gains on available
for sale securities, net of deferred taxes 757,181 - 757,181
---------------
Comprehensive income 21,948,961
---------------------------------------------------
Balance at December 31, 1998 18,561,092 308,818,716 327,379,808
Net loss - (816,086) (816,086)
Change in net unrealized gains on available
for sale securities, net of deferred taxes (28,790,070) - (28,790,070)
---------------
Comprehensive loss (29,606,156)
---------------------------------------------------
Balance at December 31, 1999 (10,228,978) 308,002,630 297,773,652
Net income - 10,148,733 10,148,733
Change in net unrealized gains on available
for sale securities, net of deferred taxes 10,554,530 - 10,554,530
---------------
Comprehensive income 20,703,263
---------------------------------------------------
Balance at December 31, 2000 $ 325,552 $318,151,363 $ 318,476,915
===================================================
See accompanying notes.
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11
Indianapolis Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31
2000 1999 1998
------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 10,148,733 $ (816,086) $ 21,191,780
Minority interest in consolidated subsidiaries 4,283,256 2,212,346 1,440,804
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Amortization expense 2,629,025 2,692,182 3,216,228
Net realized capital gains (9,249,931) (4,822,798) (8,200,716)
Changes in operating assets and liabilities:
Current and deferred income taxes (5,993,239) (10,163,631) (2,505,567)
Deferred acquisition costs (77,896,053) (103,826,849) (95,711,160)
Amortization of deferred acquisition costs 49,146,028 53,448,031 38,570,727
Policyowner assessments on universal life (75,345,362) (64,466,196) (39,164,220)
Interest credited to policyowner accounts 57,864,320 50,005,468 44,785,497
Liabilities for future policy benefits 12,357,786 77,700,696 149,209,152
Policy, contract claims and other policyowner funds 48,479,136 21,640,545 9,895,239
Accrued investment income 7,988,685 (15,955,323) (17,017,725)
Reinsurance recoverable (317,393,069) 749,573,935 994,694,353
Other assets and liabilities (37,662,115) 101,557,491 (7,132,479)
------------------------------------------------------------
Net cash provided (used) by operating activities (330,642,800) 858,779,811 1,093,271,913
INVESTING ACTIVITIES
Proceeds from sales, calls or maturities:
Fixed maturities 2,274,213,588 875,168,492 431,355,518
Equity securities 9,315,752 20,827,171 2,068,161
Mortgage loans 17,475,361 27,788,245 30,065,959
Other invested assets 9,406,242 2,067,187 1,917,288
Purchases:
Fixed maturities (2,041,244,077) (2,026,527,626) (1,710,789,182)
Equity securities (18,871,752) (25,148,486) (22,719,732)
Mortgage loans (8,950,766) (50,217,045) (53,806,953)
Other invested assets (15,025,540) (4,007,884) (2,912,810)
Change in policy loans (6,567,896) 173,383 (2,772,983)
------------------------------------------------------------
Net cash provided (used) by investing activities 219,750,912 (1,179,876,563) (1,327,594,734)
FINANCING ACTIVITIES
Capital contributions from minority interest in subsidiaries 100,000,000 16,500,000 59,256,667
Purchase of minority interest in subsidiaries (77,240,539) - -
Deposits to policyowner accounts 204,337,552 337,967,494 408,894,932
Withdrawals from policyowner accounts (196,239,578) (140,334,352) (78,971,883)
------------------------------------------------------------
Net cash provided by financing activities 30,857,435 214,133,142 389,179,716
------------------------------------------------------------
Net increase (decrease) in cash (80,034,453) (106,963,610) 154,856,895
Cash and cash equivalents at beginning of year 174,417,353 281,380,963 126,524,068
------------------------------------------------------------
Cash and cash equivalents at end of year $ 94,382,900 $ 174,417,353 $ 281,380,963
============================================================
See accompanying notes.
6
12
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Indianapolis Life Insurance Company (the "Company") is incorporated in the State
of Indiana and is qualified to do business in forty-six states and the District
of Columbia. Being a mutual company, it is owned and operated exclusively for
the benefit of its policyowners. The Company's business consists primarily of
providing individual life and annuity policies. The consolidated financial
statements include the Company and its majority-owned subsidiary, The
Indianapolis Life Group of Companies, Inc. ("IL Group"). IL Group is a holding
company that owns IL Annuity and Insurance Company, Bankers Life Insurance
Company of New York, Western Security Life Insurance Company and IL Securities,
Inc.
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("GAAP"). All significant intercompany balances and transactions have been
eliminated.
Preparation of the consolidated financial statements requires management to make
estimates and assumptions that affect amounts reported in the consolidated
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The Company and its insurance subsidiaries also each prepare their financial
statements in conformity with accounting practices prescribed or permitted by
the Department of Insurance of the respective state of domicile, which practices
differ from GAAP, for the purpose of filing with regulatory authorities. The
Company's statutory surplus at December 31, 2000 and 1999 was $91,603,466 and
$102,608,552, respectively. The Company's statutory net income (loss), excluding
subsidiaries, for 2000, 1999 and 1998 was $1,221,337, ($11,483,379), and
$14,052,835, respectively.
In 1998, the National Association of Insurance Commissioners adopted codified
statutory accounting principles ("Codification"), which will be effective
January 1, 2001. Codification will result in changes to certain accounting
practices that the Company uses to prepare statutory-basis financial statements.
Management believes the impact of these changes will not result in a material
reduction in the Company's statutory-basis capital and surplus as of adoption.
7
13
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
Generally, the net assets of the Company's insurance subsidiaries available for
transfer to the Company are limited to the amounts that the insurance
subsidiaries' net assets of approximately $54,610,000 at December 31, 2000, as
determined in accordance with statutory accounting practices, exceed minimum
statutory capital requirements; however, payments of such amounts as dividends
may be subject to approval by regulatory authorities.
INVESTMENTS
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are reported at fair value
with unrealized gains and losses reported as a separate component of
policyowners' surplus. Fixed maturity securities which the Company has the
positive intent and ability to hold to maturity are categorized as
held-to-maturity and are reported at amortized cost. Equity securities are
classified as available-for-sale and carried at fair value.
Cash and cash equivalents include all highly liquid debt instruments which have
original maturities of three months or less, and are stated at cost which
approximates fair value.
Mortgage loans and policy loans are stated at aggregate unpaid balances.
Realized gains and losses on sale or maturity of investments are based on
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses.
DEFERRED ACQUISITION COSTS
Costs of acquiring new business which vary with and are primarily related to the
production of new business have been deferred to the extent that such costs are
deemed recoverable. Such costs include commissions, certain costs of policy
underwriting and issue and certain variable agency expenses. These costs are
amortized with interest as follows:
8
14
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
For participating whole life insurance products, over 30 years in
relation to the present value of estimated gross margins from expenses,
surrender gains, investments and mortality, discounted using the
expected investment yield.
For universal life-type policies and investment contracts, 30 years and
15 years, respectively, in relation to the present value of estimated
gross profits from surrender charges and investment, mortality and
expense margins, discounted using the interest rate credited to the
policy.
Recoverability of the unamortized balance of deferred policy acquisition costs
is evaluated regularly. For universal life-type contracts, investment contracts
and participating whole life policies, the accumulated amortization is adjusted
(increased or decreased) whenever there is a material change in the estimated
gross profits or gross margins expected over the life of a block of business in
order to maintain a consistent relationship between cumulative amortization and
the present value of gross profits or gross margins. For all contracts, the
unamortized asset balance is reduced by a charge to income when the present
value of future cash flows, net of policy liabilities, is not sufficient to
cover such asset balance.
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost, less allowances for
depreciation of $34,268,926 and $29,087,910 at December 31, 2000 and 1999,
respectively. Depreciation has been computed using the straight-line method at
rates based on estimated useful lives.
INTANGIBLE ASSETS
Present value of future profits has been recorded in connection with the
acquisition of subsidiaries. The initial value is based on the actuarially
determined present value of the projected future gross profits from the in-force
business acquired. The value of insurance in force purchased is amortized on a
constant yield basis over the estimated life of the insurance in force at the
date of acquisition in proportion to the emergence of profits over a period of
approximately 20 years. Accumulated amortization of present value of future
profits is $14,569,908 and $13,053,567 at December 31, 2000 and 1999,
respectively.
9
15
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS (CONTINUED)
Goodwill represents the excess of cost of acquisition of subsidiaries over the
fair value of net assets acquired and is amortized using the straight-line
method over 20 years. Accumulated amortization of goodwill is $5,362,428 and
$4,471,710 at December 31, 2000 and 1999, respectively.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are separately
administered, principally for variable annuity contracts, and for which the
contractholder, rather than the Company, bears the investment risk. Separate
account contractholders have no claim against the assets of the general account
of the Company. Separate account assets are reported at fair value. The
operations of the separate accounts are not included in the accompanying
consolidated financial statements.
POLICY RESERVES FOR FUTURE BENEFITS
Reserves for participating whole life policies are calculated using the net
level premium method and assumptions as to interest and mortality. The interest
rates and the mortality rates are those guaranteed in the calculation of cash
surrender values described in the contract. Deposit administration funds are
reserved using various rates as the interest credited generally fluctuates with
interest rate changes in the market place. Reserves for term life policies are
determined using the 1980 4% Commissioner's Reserve Valuation Method.
Reserves for universal life policies and investment contracts are the account
values (premiums and interest credits less mortality and expense charges) plus a
deferred revenue liability, if any, for excess first-year policyowner charges
and net unrealized gains (losses) on investments allocated to policyowners.
The Company waives deduction of deferred fractional premiums upon death of
insureds and returns any portion of the final premium beyond the date of death.
Surrender values are not promised in excess of the legally computed reserves.
10
16
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
Reinsurance premiums, expenses, recoveries and reserves related to reinsured
business are accounted for on bases consistent with those used in accounting for
the original policies issued and the terms of the reinsurance contracts, and
reported on a gross basis.
PREMIUMS AND RELATED BENEFITS AND EXPENSES
Premium income is recognized as revenue when due.
The dividend scales used for determination of dividends payable to policyowners
are approved by the Board of Directors. The liability for policy dividends
payable in the following year is estimated based on approved dividend scales and
historical experience and is charged to current operations. Participating
policies represent approximately 26% and 31% of the life insurance inforce at
December 31, 2000 and 1999, respectively, and approximately 64%, 71% and 77% of
premiums in 2000, 1999 and 1998, respectively.
THIRD-PARTY ADMINISTRATORS
The Company has contractual arrangements with three third-party administrators
to distribute and administer its annuity products. One of the third-party
administrators, Legacy Marketing Group, distributes and administers the majority
of this business.
COMPREHENSIVE INCOME
Comprehensive income is reported separately in policyowners' surplus and is
comprised of the results of operations and the change in a portion of unrealized
gains or losses in the Company's available-for-sale securities.
11
17
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
The Company's reclassification adjustment for 2000 and 1999 is as follows:
YEAR ENDED DECEMBER 31, 2000 GROSS TAX EFFECT NET
--------------------------------------------------------
Unrealized holding gains arising during year $ 46,671,175 $(16,334,911) $ 30,336,264
Reclassification adjustment for gains realized in net
income (39,618,087) 13,866,330 (25,751,757)
Allocated to future policy benefit reserves 7,741,674 (2,709,586) 5,032,088
Deferred acquisition costs valuation 1,442,977 (505,042) 937,935
--------------------------------------------------------
Change in net unrealized gains on available for sale
securities $ 16,237,738 $ (5,683,208) $ 10,554,530
========================================================
YEAR ENDED DECEMBER 31, 1999 GROSS TAX EFFECT NET
--------------------------------------------------------
Unrealized holding gains arising during year $ 88,171,160 $(30,859,906) $ 57,311,254
Reclassification adjustment for gains realized in net
income (10,949,979) 3,832,493 (7,117,486)
Allocated to future policy benefit reserves (113,900,988) 39,865,346 (74,035,642)
Deferred acquisition costs valuation (7,612,609) 2,664,413 (4,948,196)
--------------------------------------------------------
Change in net unrealized gains on available for sale
securities $ (44,292,416) $ 15,502,346 $(28,790,070)
========================================================
YEAR ENDED DECEMBER 31, 1998 GROSS TAX EFFECT NET
--------------------------------------------------------
Unrealized holding gains arising during year $ 138,646,372 $(48,526,230) $ 90,120,142
Reclassification adjustment for gains realized in net
income (21,935,229) 7,677,330 (14,257,899)
Allocated to future policy benefit reserves (86,663,175) 30,332,111 (56,331,064)
Deferred acquisition costs valuation (28,883,074) 10,109,076 (18,773,998)
--------------------------------------------------------
Change in net unrealized gains on available for sale
securities $ 1,164,894 $ (407,713) $ 757,181
========================================================
12
18
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Investments and Hedging Activities" (SFAS No. 133)
which is effective January 1, 2001. SFAS No. 133 defines derivative instruments
and provides comprehensive accounting and reporting standards for the
recognition and measurement of derivative and hedging activities. The Statement
requires all derivatives to be recorded in the balance sheet at fair value. The
impact of adopting SFAS No. 133 as of January 1, 2001 will be to reduce net
income in 2001 by approximately $1,000,000 and will be recorded as a cumulative
effect adjustment.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. AFFILIATION
At December 31, 1999, American United Life Insurance Company ("AUL"), an
Indiana-domiciled mutual life insurance company, and Legacy Marketing Group
("Legacy"), a third party administrator, owned 33% and 6%, respectively, of IL
Group.
On February 18, 2000, the Company entered into a definitive agreement with
AmerUs Group Co. ("AmerUs"), formerly American Mutual Holding Company and AmerUs
Life Holdings, Inc., which contemplates the ultimate combination of AmerUs and
the Company. The transaction, which includes demutualization by the Company, is
subject to various governmental and insurance department approvals and is
expected to be finalized during the second quarter of 2001. Under the agreement,
AmerUs initially acquired a 45% ownership interest in IL Group for $100,000,000,
and IL Group used the proceeds of the investment to repurchase the ownership
interests of AUL and Legacy in their entirety. The Company incurred costs
related to this reorganization of $12,928,485 and $907,299 in 2000 and 1999,
respectively.
13
19
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
3. INVESTMENTS
Fixed maturity and equity securities consist of the following at December 31:
2000
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
Available for sale:
Fixed maturity securities:
U.S. government and agencies $ 239,377,063 $ 8,140,200 $ 45,835 $ 247,471,428
Corporate 3,285,046,248 176,260,447 196,874,160 3,264,432,535
Asset backed securities 46,707,540 309,968 1,061,565 45,955,943
Mortgage backed securities 286,274,928 8,597,225 554,311 294,317,842
-------------------------------------------------------------------------
Total fixed maturity securities 3,857,405,779 193,307,840 198,535,871 3,852,177,748
Equity securities:
Preferred stock 2,093,905 21,595 461 2,115,039
Common stock 11,480,468 841,649 1,242,082 11,080,035
-------------------------------------------------------------------------
Total equity securities 13,574,373 863,244 1,242,543 13,195,074
-------------------------------------------------------------------------
$3,870,980,152 $ 194,171,084 $ 199,778,414 $3,865,372,822
=========================================================================
Held to maturity:
U.S. government and agencies $ 4,774,643 $ 192,624 $ - $ 4,967,267
Corporate 216,080,657 7,981,481 877,741 223,184,397
Asset backed securities - - - -
Mortgage backed securities 6,228,946 263,775 - 6,492,721
-------------------------------------------------------------------------
$ 227,084,246 $ 8,437,880 $ 877,741 $ 234,644,385
=========================================================================
14
20
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
3. INVESTMENTS (CONTINUED)
1999
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
Available for sale:
Fixed maturity securities:
U.S. government and agencies $ 190,185,642 $ 252,024 $ 5,485,691 $ 184,951,975
Corporate 3,442,292,423 274,177,787 173,901,920 3,542,568,290
Asset backed securities 55,987,689 50,116 1,821,998 54,215,807
Mortgage backed securities 303,425,996 3,785,185 5,267,891 301,943,290
-------------------------------------------------------------------------
Total fixed maturity securities 3,991,891,750 278,265,112 186,477,500 4,083,679,362
Equity securities:
Preferred stock 1,062,970 - 103,720 959,250
Common stock 7,574,702 607,955 657,646 7,525,011
-------------------------------------------------------------------------
Total equity securities 8,637,672 607,955 761,366 8,484,261
-------------------------------------------------------------------------
$4,000,529,422 $ 278,873,067 $ 187,238,866 $4,092,163,623
=========================================================================
Held to maturity:
U.S. government and agencies $ 5,181,652 $ 41,542 $ 108,440 $ 5,114,754
Corporate 238,901,798 3,918,262 5,686,435 237,133,625
Asset backed securities 166,633 657 - 167,290
Mortgage backed securities 7,976,124 - 234,217 7,741,907
-------------------------------------------------------------------------
$ 252,226,207 $ 3,960,461 $ 6,029,092 $ 250,157,576
=========================================================================
15
21
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
3. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturity securities at December 31,
2000, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------------------------------------------------------------------
Due in one year or less $ 56,744,135 $ 63,872,059 $ 15,529,585 $ 15,560,242
Due after one year through five
years 1,246,378,809 1,217,993,169 101,329,150 104,526,901
Due after five years through ten
years 894,811,508 875,750,030 56,848,324 59,000,840
Due after ten years 1,374,182,147 1,400,244,647 47,148,242 49,063,681
Mortgage-backed securities 286,274,928 294,317,843 6,228,945 6,492,721
-------------------------------------------------------------------------
$3,858,391,527 $3,852,177,748 $ 227,084,246 $ 234,644,385
=========================================================================
Net investment income consisted of the following:
2000 1999 1998
--------------------------------------------------------
Fixed maturity securities $235,723,904 $210,785,436 $148,322,043
Equity securities 120,995 165,680 97,018
Mortgage loans 31,716,045 32,708,068 29,697,737
Real estate - - 8,280
Policy loans 12,645,973 12,159,354 13,256,324
Short term investments 6,981,061 11,594,939 10,322,418
Other 4,291,792 7,259,596 4,183,019
--------------------------------------------------------
Gross investment income 291,479,770 274,673,073 205,886,839
Less investment expenses 18,228,626 17,768,439 11,805,427
--------------------------------------------------------
Net investment income $273,251,144 $256,904,634 $194,081,412
========================================================
16
22
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
3. INVESTMENTS (CONTINUED)
Net unrealized gains (losses) on available-for-sale securities are as follows:
DECEMBER 31
2000 1999
------------------------------------
Fixed maturities:
Gross unrealized gains $ 193,307,840 $ 278,265,112
Gross unrealized losses (198,535,871) (186,477,500)
------------------------------------
(5,228,031) 91,787,612
Equity securities:
Gross unrealized gains 863,244 607,955
Gross unrealized losses (1,242,543) (761,366)
------------------------------------
(379,299) (153,411)
Deferred income taxes 2,573,249 (34,640,881)
Allocated to future policy benefit reserves 5,032,088 (74,035,642)
Deferred acquisition costs and present value of future
profits valuation (1,368,014) 5,236,231
Minority interest in consolidated subsidiaries (304,441) 1,577,113
------------------------------------
$ 325,552 $ (10,228,978)
====================================
Proceeds from sales of available for sale securities during 2000, 1999 and 1998
were $2,147,082,063, $716,775,997 and $226,690,947, respectively. Gross gains of
$166,562,086, $27,245,476 and $20,437,597 and gross losses of $104,527,532,
$17,377,449 and $1,563,754 were realized in 2000, 1999 and 1998, respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. Net realized capital gains include write downs and changes
in the reserve for losses on mortgage loans and foreclosed real estate of
$(86,270), $232,548 and $248,135 for 2000, 1999, and 1998, respectively.
The Company has outstanding mortgage loan commitments at December 31, 2000, of
approximately $8,700,000.
17
23
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
4. FEDERAL INCOME TAXES
A reconciliation of federal income taxes computed at statutory tax rates to
federal income tax expense is as follows:
2000 1999 1998
--------------------------------------------------
Income tax computed at statutory tax rates $ 9,124,264 $ 1,046,038 $ 10,944,109
Demutualization expenses 4,766,156 - -
Mutual company differential earning amount - 2,637,919 (2,754,247)
Tax credits (1,966,357) (1,801,377) (1,383,442)
Amortization of goodwill 389,439 279,988 650,710
Dividend received deduction (741,932) (187,000) -
Other 65,768 (383,019) 1,179,168
--------------------------------------------------
Federal income taxes $ 11,637,338 $ 1,592,549 $ 8,636,298
==================================================
Federal income taxes consist of the following:
2000 1999 1998
--------------------------------------------------
Current taxes $ 308,297 $ 9,324,472 $ 14,380,161
Deferred taxes (credits) 11,329,041 (7,731,923) (5,743,863)
--------------------------------------------------
Total $ 11,637,338 $ 1,592,549 $ 8,636,298
==================================================
Significant components of the deferred tax assets (liabilities) at December 31,
2000 and 1999 are as follows:
2000 1999
---------------------------------
Insurance reserves $ 79,886,092 $ 86,202,023
Deferred policy acquisition costs (88,161,260) (79,514,798)
Unrealized depreciation (appreciation) of securities 1,896,101 (34,241,704)
Investments (3,875,604) (9,604,925)
Present value of future profits (2,275,336) (2,806,055)
Other (1,384,480) 930,471
---------------------------------
Total deferred tax liabilities (13,914,487) (39,034,988)
Valuation allowance (758,183) (835,253)
---------------------------------
Net deferred tax liabilities $(14,672,670) $(39,870,241)
=================================
18
24
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
4. FEDERAL INCOME TAXES (CONTINUED)
Valuation allowances have been recorded for operating losses, credit carryovers
and alternative minimum tax credit carryovers. The amount of the tax net
operating loss carryforwards are $1,592,754 at December 31, 2000. The operating
loss carryovers expire between 2012 and 2017.
The Company paid federal income taxes of $22,182,789, $13,839,934 and
$18,102,557 in 2000, 1999 and 1998, respectively and received refunds of
$4,424,205 and $3,257,067 in 2000 and 1999, respectively.
5. REINSURANCE
The Company has entered into reinsurance cession agreements with other insurance
companies to limit the net loss arising from large risks and maintain its
exposure to loss within its capital resources. The Company remains liable for
ceded risks in the event that reinsurers do not meet their obligations.
Management believes its reinsurers will meet their obligations under existing
contracts.
The effects of reinsurance on premiums were as follows:
2000 1999 1998
---------------------------------------------------
Reinsurance assumed $ 54,733,302 $ 47,600,550 $ 41,940,233
Reinsurance ceded (79,798,329) (71,099,915) (56,776,068)
Reinsurance recoveries on ceded reinsurance contracts were $34,159,587,
$28,126,006 and $23,457,066 during 2000, 1999 and 1998, respectively.
IL Annuity and Insurance Company has entered into modified coinsurance cession
agreements covering flexible premium deferred annuity policies distributed
through a third-party administrator. Future policy benefit reserves include
reinsurance payable of $1,987,574,940 and $2,279,437,605 at December 31, 2000
and 1999, respectively. Net realized capital gains are net of realized gains
allocated to the reinsurer of $44,898,593, $15,316,835 and $14,194,580 in
2000,1999 and 1998, respectively.
19
25
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
6. BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan, which generally
covers all qualified employees that have attained the age of twenty-one.
Benefits are based on years of service and compensation levels during
employment. All Plan assets consist primarily of deposit administration funds
and group annuity contracts held by the Company. Company contributions to the
Plan are computed actuarially and funded annually.
The Company's Board of Directors approved a special Early Retirement Window for
Plan participants, which was accompanied by a plan curtailment of benefits.
Individuals meeting certain employment status, service and age criteria as of an
effective date of December 31, 2000 were eligible for early retirement, all
which occurred on or before December 31, 2000. The actuarial valuation reflects
the financial effects on the Plan of both the curtailment and Early Retirement
Window. The financial impact on pension expense in 2000 as a result of the
curtailment and early retirement was approximately $3.7 million.
In addition to the Company's defined benefit plan, the Company offers retired
employees, retired full-time agents and eligible spouses and dependents certain
postretirement benefits such as medical, life, and dental insurance.
The most recent actuarial valuation date for pension benefits and postretirement
benefits was September 30 and December 31, respectively.
The reconciliation of the benefit obligation is as follows:
PENSION BENEFITS
2000 1999 1998
-------------------------------------------------
Benefit obligation at beginning of year $32,910,998 $31,443,397 $26,371,315
Service cost 1,673,086 1,593,714 1,224,152
Interest cost 2,221,492 2,043,821 1,845,992
Actuarial (gain) loss (3,525,928) (1,129,236) 3,013,204
Benefits paid (1,008,593) (1,040,698) (1,011,266)
Additional obligation resulting from
curtailment and window 2,693,040 - -
-------------------------------------------------
Benefit obligation at end of year $34,964,095 $32,910,998 $31,443,397
=================================================
20
26
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
6. BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFITS
2000 1999 1998
--------------------------------------------------
Benefit obligation at beginning of year $ 8,330,104 $6,717,388 $6,450,925
Service cost 252,424 281,668 229,772
Interest cost 501,152 558,538 437,536
Actuarial (gain) loss (1,322,396) 1,200,682 -
Benefits paid (404,262) (428,172) (400,845)
--------------------------------------------------
Benefit obligation at end of year $ 7,357,022 $8,330,104 $6,717,388
==================================================
The changes in pension plan assets were as follows:
PENSION BENEFITS
2000 1999 1998
--------------------------------------------------
Fair value of plan assets at beginning of year $27,588,103 $25,191,760 $23,046,044
Actual return on plan assets 1,885,328 1,790,758 1,681,535
Employer contributions 542,810 1,608,017 1,473,610
Benefits paid (1,160,574) (1,002,432) (1,009,429)
Additional benefits paid resulting from retirement
window (520,478) - -
--------------------------------------------------
Fair value of plan assets at end of year $28,335,189 $27,588,103 $25,191,760
==================================================
The reconciliation of the funded status to the net benefit cost recognized is as
follows:
PENSION BENEFITS
2000 1999 1998
--------------------------------------------------
Funded status ($3,415,388) ($5,322,895) ($6,251,637)
Unfunded additional benefits resulting from
curtailment and retirement window (3,213,518) - -
Unrecognized net loss 518,799 4,101,140 5,154,917
Unrecognized transition obligation 1,048,358 1,248,046 1,404,052
--------------------------------------------------
Prepaid (accrued) benefit cost at December 31 ($5,061,749) $ 26,291 $ 307,332
==================================================
21
27
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
6. BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFITS
2000 1999 1998
-------------------------------------------------
Funded status ($7,357,022) ($8,330,104) ($6,717,388)
Unrecognized net loss 367,866 834,481 1,512,229
Unrecognized prior service cost 773,994 435,809 (1,486,994)
-------------------------------------------------
Accrued benefit cost at December 31 ($6,215,162) ($7,059,814) ($6,692,153)
=================================================
The weighted average assumptions used in calculating the accrued liabilities are
as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS
2000 1999 1998 2000 1999 1998
----------------------------- -----------------------------
Discount rate 7.50% 6.75% 6.50% 7.50% 7.25% 7.00%
Rate of compensation increase 4.50% 4.50% 4.50% 5.00% 5.00% 5.00%
Expected rate of return on plan assets 8.00% 8.00% 8.00% - - -
The assumed health care cost trend rate used in measuring the postretirement
benefit obligations were as follows:
2000
Under age 65 7.8% with an assumed graded decrease to 5%
Over age 65 7.5% with an assumed graded decrease to 5%
1999
Under age 65 8.2% with an assumed graded decrease to 5%
Over age 65 7.8% with an assumed graded decrease to 5%
1998
Under age 65 8.6% with an assumed graded decrease to 5%
Over age 65 8.2% with an assumed graded decrease to 5%
22
28
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
6. BENEFIT PLANS (CONTINUED)
Below are the components of net periodic benefit cost:
PENSION BENEFITS
2000 1999 1998
------------------------------------------------
Service cost $ 1,673,086 $ 1,593,714 $ 1,224,152
Interest cost 2,185,916 2,008,426 1,809,049
Expected return on assets (2,206,693) (2,007,071) (1,832,667)
Amortization of unrecognized net loss 55,191 137,985 -
Amortization of transition obligation 156,006 156,006 156,006
------------------------------------------------
Net periodic benefit cost $ 1,863,506 $ 1,889,060 $ 1,356,540
================================================
POSTRETIREMENT BENEFITS
2000 1999 1998
------------------------------------------------
Service cost $ 252,424 $ 281,668 $ 229,772
Interest cost 501,152 558,538 437,536
Amortization of unrecognized prior service cost (79,002) (169,106) (288,005)
Amortization of unrecognized net loss 82,387 124,733 144,909
------------------------------------------------
Net periodic benefit cost $ 756,961 $ 795,833 $ 524,212
================================================
The Company sponsors a salary reduction/savings plan for employees as defined by
Section 401(k) of the Internal Revenue Code. Participants may contribute on a
pre-tax basis from 1% to 15% of their eligible earnings up to a maximum amount
as permitted by law. Voluntary employee contributions are matched at an amount
equal to 50% of the first 3% of each participant's contribution. Contributions
made by the Company totaled $251,154, $271,307 and $282,510 for 2000, 1999 and
1998, respectively. Other liabilities and reserves include $12,910,540 and
$11,915,375 at December 31, 2000 and 1999, respectively, relating to the plan.
The Company has a defined contribution pension plan covering substantially all
of the agents. Company contributions are based on agent compensation and are
funded annually; contributions for 2000, 1999 and 1998 were $146,955, $202,000
and $266,000, respectively. Other policyowner funds include $12,511,470 and
$13,631,072 at December 31, 2000 and 1999, respectively, relating to the plan.
23
29
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
6. BENEFIT PLANS (CONTINUED)
The Company also sponsors a deferred compensation plan for agents and a separate
deferred compensation plan for officers and directors. Other liabilities and
reserves include $7,382,615 and $5,797,227 at December 31, 2000 and 1999,
respectively, relating to these plans. The deferred compensation plans are
contributory and nonqualified.
7. SURPLUS NOTES
Any payment of interest and repayment of principal on the surplus notes may be
paid only out of the Company's earnings, subject to approval by the Indiana
Department of Insurance. A summary of the terms of these surplus notes follows:
ACCRUED
ANNUAL INTEREST
DATE INTEREST AMOUNT INTEREST AT DATE OF
ISSUED RATE OF NOTES PAID DECEMBER 31 MATURITY
-----------------------------------------------------------------------------------------------------------
May 8, 1996 8.66% $25,000,000 $2,165,000 $541,250 April 1, 2011
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in pending and threatened litigation of the character
incidental to the business transacted. Management believes that the conclusion
of the litigation will not have a material adverse affect on the Company's
financial position or results of operations.
During 1999, the Company reached an agreement to settle a market conduct class
action lawsuit. The terms of the agreement call for the Company to make payments
of cash, policy credits or additional death benefits to owners of eligible
policies. These costs, plus legal expenses, total approximately $21,284,500 (net
of taxes of $11,460,885) and were recognized in 1999.
24
30
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Cash and cash equivalents, accrued investment income and policy loans:
The carrying amounts reported in the accompanying balance sheets for
these financial instruments approximate their fair values.
Fixed maturity and equity securities: Fair values of bonds and stocks
are based on quoted market prices where available. For bonds not
actively traded, fair values are estimated using values obtained from
independent pricing services, or in the case of private placements, by
discounting expected future cash flow using a current market rate
applicable to the yield, credit quality and maturity of the
investments.
Mortgage loans: The fair value of mortgage loans was estimated by
discounting the future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings for
similar maturities.
Investment-type contracts: The fair value of deferred annuities is
believed to approximate the cash surrender value. The carrying amounts
of other investment-type contracts approximate their fair value.
Surplus notes: The fair value of surplus notes are estimated using
values obtained from an independent pricing service based on the bid
price of the notes on the given date.
25
31
Indianapolis Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2000
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and fair values of the Company's financial instruments at
December 31, are as follows:
2000 1999
----------------------------------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------------------------------------------------------------------
ASSETS:
Fixed maturity securities:
Available for sale $3,852,177,748 $3,852,177,748 $4,083,679,362 $4,083,679,362
Held to maturity 227,084,246 234,644,385 252,226,207 250,157,576
Equity securities 13,195,074 13,195,074 8,484,261 8,484,261
Mortgage loans 369,510,962 385,097,702 378,053,935 382,843,780
LIABILITIES:
Deferred annuities 2,896,324,342 2,788,664,311 3,268,272,248 3,087,879,171
Surplus notes 25,000,000 27,027,500 25,000,000 25,906,250
The fair values of the Company's liabilities for insurance contracts other than
investment-type contracts are not required to be disclosed. However, the
estimated fair values for all insurance liabilities are taken into consideration
in the Company's overall management of interest rate risk, which minimizes
exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance contracts.
26
32
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
2001 2000
---------------------------
(unaudited)
Assets
Investments:
Fixed maturity securities:
Available for sale, at fair value $1,464,167 $3,852,178
Trading, at fair value 2,314,428 -
Held to maturity, at amortized cost 225,268 227,084
Equity securities, at fair value 10,772 13,195
Mortgage loans 371,442 369,511
Policy loans 193,745 191,305
Other invested assets 16,388 10,022
Cash and cash equivalents 120,107 94,383
---------------------------
Total investments 4,716,317 4,757,678
Accrued investment income 51,190 57,432
Reinsurance recoverable 344,428 267,098
Deferred acquisition costs 359,073 351,575
Receivables and other assets 4,107 12,026
Federal income taxes 530 20,053
Property and equipment 33,269 29,809
Present value of future profits 9,491 7,959
Goodwill 17,415 17,702
Separate account assets 315,691 353,233
---------------------------
Total assets $5,851,511 $5,874,565
===========================
See accompanying notes.
27
33
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, December 31,
2001 2000
---------------------------
(unaudited)
Liabilities and policyowners' surplus
Liabilities:
Policy reserves for future benefits $4,695,748 $4,721,099
Other policyowner funds 201,441 189,908
Accrued commissions and general expenses 4,884 8,089
Surplus notes 25,000 25,000
Other liabilities and reserves 156,141 138,431
Deferred federal income taxes 21,562 14,673
Separate account liabilities 315,691 353,233
---------------------------
Total liabilities 5,420,467 5,450,433
Minority interest in consolidated subsidiaries 106,629 105,655
Policyowners' surplus:
Accumulated other comprehensive income 5,173 326
Surplus 319,242 318,151
---------------------------
Total policyowners' surplus 324,415 318,477
---------------------------
Total liabilities and policyowners' surplus $5,851,511 $5,874,565
===========================
28
34
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands)
(unaudited)
Three Months Ended
March 31,
2001 2000
--------------------------
Revenues
Premiums $ 42,351 $ 43,643
Policy and contract charges 19,910 16,895
Net investment income 64,005 68,393
Realized/unrealized gains (losses) on investments (13,798) 5,990
--------------------------
Total revenues 112,468 134,921
Benefits and expenses
Policy benefits 80,186 83,270
Underwriting, acquisition and insurance
expenses 20,306 30,383
Reorganization Costs 783 1,934
Interest 541 541
Dividends to policyowners 8,085 8,139
--------------------------
Total benefits and expenses 109,901 124,267
--------------------------
Income before federal income taxes and minority
interest 2,567 10,654
Federal income taxes 926 3,982
Minority interest in consolidated subsidiaries 55 1,343
--------------------------
Income before cumulative effect of change in
accounting for derivatives 1,586 5,329
Cumulative effect of change in accounting for
derivatives, net of tax and minority interest (495) -
--------------------------
Net income $ 1,091 $ 5,329
==========================
See accompanying notes.
29
35
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF POLICYOWNERS' SURPLUS
($ in thousands)
Accumulated
Other Total
Comprehensive Policyowners'
Income (Loss) Surplus Surplus
-------------------------------------------------
Balance at December 31, 1999 $ (10,229) $ 308,003 $ 297,774
Net income - 10,148 10,148
Change in net unrealized gains on available
for sale securities, net of deferred taxes 10,555 - 10,555
-------------------------------------------------
Comprehensive income 10,555 10,148 20,703
-------------------------------------------------
Balance at December 31, 2000 326 318,151 318,477
(2001 unaudited)
Net income - 1,586 1,586
Change in accounting for derivatives - (495) (495)
Transfer related to unrealized loss on
available-for-sale securities reclassified to
trading 9 - 9
Change in net unrealized gains on available
for sale securities, net of deferred taxes 4,838 - 4,838
-------------------------------------------------
Comprehensive income 4,847 1,091 5,938
-------------------------------------------------
Balance at March 31, 2001 $ 5,173 $ 319,242 $ 324,415
=================================================
See accompanying notes.
30
36
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
Three Months Ended March 31,
2001 2000
----------------------------
Operating activities
Net income $ 1,091 $ 5,329
Minority interest in consolidated subsidiaries 55 1,343
Cumulative effect of change in accounting for derivatives 495 -
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Amortization expense 323 393
Realized/unrealized gains (losses) on investments 13,798 (5,990)
Changes in operating assets and liabilities:
Current and deferred income taxes 15,458 5,962
Deferred acquisition costs (24,928) (23,511)
Amortization of deferred acquisition costs 12,079 16,143
Policyowner assessments on universal life (19,910) (16,895)
Interest credited to policyowner accounts 3,266 12,804
Liabilities for future policy benefits 135,213 (59,115)
Policy, contract claims and other policyowner funds 7,961 10,658
Accrued investment income 6,242 900
Reinsurance recoverable (209,798) 19,012
Fixed maturity securities held for trading purposes 137,141 -
Other assets and liabilities 11,648 (2,066)
----------------------------
Net cash provided (used) by operating activities 90,134 (35,033)
Investing activities
Proceeds from sales, calls or maturities:
Fixed maturities 628,534 278,370
Equity securities 2,060 21
Mortgage loans 5,756 7,724
Other invested assets 1,206 186
Purchases:
Fixed maturities (709,486) (326,566)
Equity securities (449) (1,410)
Mortgage loans (7,939) (10,198)
Other invested assets (3,178) (3,521)
Change in policy loans (2,440) (345)
----------------------------
Net cash provided (used) by investing activities (85,936) (55,739)
Financing activities
Investment from minority interest in subsidiaries - 100,000
Purchase of minority interest in subsidiaries - (77,241)
Deposits to policyowner accounts 67,448 68,748
Withdrawals from policyowner accounts (45,922) (45,581)
----------------------------
Net cash provided by financing activities 21,526 45,926
----------------------------
Net increase (decrease) in cash 25,724 (44,846)
Cash and cash equivalents at beginning of year 94,383 174,417
----------------------------
Cash and cash equivalents at end of year $ 120,107 $ 129,571
============================
See accompanying notes.
31
37
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2001
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP) for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for annual financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. All adjustments were of a normal recurring nature, unless
otherwise noted in Management's Discussion and Analysis and the Notes to
Financial Statements. Operating results for the three months ended March 31,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001 (see further discussion in Management's Discussion
and Analysis). For further information, refer to the 2000 consolidated financial
statements and footnotes thereto.
(2) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138, which requires
that all derivative instruments, including certain derivative instruments
embedded in other contracts, be reported on the balance sheet at fair value.
Accounting for gains and losses resulting from changes in the values of
derivatives is dependent upon the use of the derivative and its qualification
for special hedge accounting. In accordance with the provisions of SFAS No. 133,
the Company recorded a transition adjustment as of January 1, 2001, upon
adoption of the standard to recognize its derivative instruments at fair value
resulting in a pre-tax reduction to income of $1.4 million ($0.5 million net of
tax and minority interest). The reduction to income, which is classified as a
"cumulative effect of change in accounting for derivatives, net of tax and
minority interest" in the Consolidated Statements of Income, is attributable to
adjustments to fair value for certain fixed annuity products.
The Company has three fixed annuity products that credit interest based
on a total return strategy. Under the total return strategy, the policyowner is
allowed to allocate their premium payments to different asset classes within the
Company's general account. The annuity contract is credited with an interest
rate equal to the total return on the general account assets to which the
selected strategy is linked, less certain charges. The total return adjustment
is paid when a policyholder accesses the funds. The Company guarantees a minimum
return of premium plus approximately 3% interest per annum over the life of the
contract. The general account assets backing the total return strategy of these
products are fixed maturity securities and are designated by the Company as held
for trading. Both the trading securities held by the Company and the annuity
contracts are valued at fair value. The change in fair value for the trading
securities is included in realized/unrealized gains (losses) on investments and
the change in fair value of the annuity contracts is included in policyowner
benefits in the Consolidated Statements of Income.
During the first quarter of 2001, realized/unrealized gains (losses) on
investments included an unrealized loss of $16.0 million from the change in fair
value on trading securities. Policyowner benefits included an offsetting
adjustment from fair value changes in total return strategy annuity contracts of
$3.4 million.
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The following table summarizes the impact on net income of adopting
SFAS No. 133 in the cumulative effect of change in accounting for derivatives as
of January 1, 2001, and the market value adjustments on trading securities and
derivatives in the first quarter of 2001:
Cumulative Effect of
Change in Accounting Three Months
for Derivatives Ended
January 1, 2001 March 31, 2001
---------------------- ----------------
Fixed maturity securities held for trading $ - $ (15,998)
Total return strategy fixed annuity liabilities (5,571) 3,382
Deferred policy acquisition cost amortization impact
of net adjustments 4,185 8,886
---------------------- ----------------
Pre-tax (loss) (1,386) (3,730)
Income taxes 485 1,306
Minority interest 406 1,091
---------------------- ----------------
Net (loss) $ (495) $ (1,333)
====================== ================
The after-tax loss of $1.3 million for the three months ended March 31,
2001 includes $0.5 million of after-tax loss related to the initial
reclassification of the fixed maturity securities from available-for-sale to
trading.
(3) REORGANIZATION AND BUSINESS COMBINATION
The Company was formerly a mutual insurance company that was owned by
individuals and entities who held insurance policies or annuity contracts issued
by the Company (Members). On May 18, 2001, the Company converted to a stock form
and AmerUs acquired 100% of the stock from the ILICO Members for an amount of
cash, policy credits and shares of AmerUs common stock equal to the value of 9.3
million shares of AmerUs common stock (the "Combination"). The purchase price
totaled approximately $326 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
MARCH 31, 2001
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Selected Consolidated Financial and Operating Data and Consolidated Financial
Statements and related notes.
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NATURE OF OPERATIONS
Indianapolis Life Insurance Company (ILICO) is an insurance company
engaged in the business of marketing, underwriting and distributing individual
life and annuity products. ILICO is incorporated in the State of Indiana and
conducts business in 46 states and the District of Columbia. As of March 31,
2001, ILICO owned a 55% interest (100% of the outstanding voting common stock)
in The Indianapolis Life Group of Companies, Inc. (ILGC). AmerUs Group Co.
(AmerUs) owned the remaining 45% interest (100% of the outstanding nonvoting
common stock) in ILGC. ILGC is a holding company that owns four principal
subsidiaries: IL Annuity and Insurance Company (IL Annuity), Bankers Life
Insurance Company of New York (Bankers), Western Security Life Insurance Company
(Western) and IL Securities, Inc. (IL Securities). The consolidated financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations include the accounts and operations of ILICO, ILGC, IL
Annuity, Bankers, Western and IL Securities (collectively the Company). The
Company has two reportable operating segments: Life Insurance and Annuities. The
Life Insurance segment's primary product offerings consist of whole life,
universal life and term life insurance policies. The primary product offerings
of the Annuity segment are fixed and variable annuities.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with GAAP, premium revenues reported for traditional life
insurance products are recognized as revenues when due. Future policy benefits
and policy acquisition costs are recognized as expenses over the life of the
policy by means of a provision for future policy benefits and amortization of
deferred policy acquisition costs. Interest sensitive life insurance premiums
and annuity deposits received are reflected as increases in liabilities for
policyowner account balances and not as revenues. Revenues reported for interest
sensitive life and annuity products consist of policy charges for the cost of
insurance, administration charges and surrender charges assessed against
policyowner account balances. Surrender benefits paid relating to interest
sensitive life insurance policies and annuity products are reflected as
decreases in liabilities for policyowner account balances and not as expenses.
Amounts for interest credited to interest sensitive life and annuity policyowner
account balances are reported as expenses in the financial statements. The
Company receives investment income earned from the funds deposited into account
balances by interest sensitive life and annuity policyowners, the majority of
which is passed through to such policyowners in the form of interest credited or
a total return adjustment.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as deferred policy acquisition costs, are deferred to the
extent that such costs are deemed collectible. The method of amortizing deferred
policy acquisition costs for life insurance product varies, dependent upon
whether the contract is participating or non-participating. Participating
contracts are those which are expected to pay dividends to policyowners in
proportion to their relative contribution to the Company's statutory surplus.
Non-participating traditional life insurance deferred policy acquisition costs
are amortized over the premium-paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated premium
revenues using assumptions consistent with those used in computing policy
benefit reserves. Deferred acquisition costs for participating and interest
sensitive policies are amortized as an expense primarily in proportion to
expected profits or margins from such policies. This amortization is adjusted
when current or estimated future gross profits or margins on the underlying
policies vary from previous estimates. For example, the amortization of deferred
policy acquisition costs is accelerated when policy terminations are higher than
originally estimated or when investments supporting the policies are sold at a
gain prior to their anticipated maturity. Death and other policyowner benefits
reflect exposure to mortality risk and fluctuate from period to period based on
the level of claims incurred within insurance retention limits. The
profitability of the Company is primarily affected by expense levels, interest
spread results (i.e., the
34
40
excess of investment earnings over the interest credited to policyowners) and
fluctuations in mortality, persistency and other policyowner benefits. The
Company has the ability to mitigate adverse experience through adjustments to
credited interest rates, policyowner dividends or cost of insurance charges.
ADJUSTED NET OPERATING INCOME
The following table reflects net income adjusted to eliminate certain
items (net of applicable income taxes and minority interest) which management
believes do not necessarily indicate overall operating trends. For example, net
realized capital gains or losses on investments, excluding gains or losses on
convertible preferred stocks and bonds that are considered core earnings, are
eliminated. Net realized capital gains or losses on investments may be realized
at the sole discretion of management and are often realized in accordance with
tax planning strategies. Therefore, net realized capital gains or losses do not
reflect the Company's ongoing earnings capacity. Different items are likely to
occur in each period presented and others may have different opinions as to
which items may warrant adjustment. Adjusted net operating income is the basis
used by the Company in assessing its overall performance. Adjusted net operating
income as described here may not be comparable to similarly titled measures
reported by other companies. The adjusted net operating income shown below does
not constitute net income computed in accordance with GAAP.
For the Three Months Ended
March 31,
2001 2000
----------------------------
($ in thousands)
Net Income $ 1,091 $ 5,329
Net non-core realized (gains) losses (A) (214) (58)
Net effect of accounting differences
from the adoption of SFAS 133 (B) 1,333 -
Net amortization of deferred policy
acquisition costs due to non-core
realized gains or losses (C) 38 41
Reorganization costs (D) 705 1,257
Cumulative effect of change in
accounting for derivatives (E) 495 -
----------------------------
Adjusted Net Operating Income $ 3,448 $ 6,569
============================
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41
(A) Represents total realized gains or losses on investments less core realized
gains or losses (defined as gains or losses on the convertible preferred stock
and bond portfolio) adjusted for income taxes and minority interest on such
amounts. Non-core realized gains or losses may vary widely between periods. Such
amounts are determined by management's timing of individual transactions and do
not necessarily correspond to the underlying operating trends.
(B) Represents the net effect of the accounting differences during the quarter
resulting from the Company's adoption of SFAS No. 133, adjusted for income taxes
and minority interests. The accounting differences consist of market value
adjustments on trading securities and certain annuity contracts, and the
associated change in amortization of deferred acquisition costs resulting from
such adjustments.
(C) Represents amortization of deferred policy acquisition costs on the non-core
realized gains or losses that are included in product margins, adjusted for
income taxes and minority interest on such amounts.
(D) Represents costs directly related to the Company's demutualization adjusted
for income taxes. These costs consist primarily of legal, actuarial and
consulting expenses.
(E) Represents the cumulative effect of change in accounting for derivatives,
net of income taxes and minority interest, as of January 1, 2001, the initial
date of application SFAS No. 133.
Adjusted net operating income decreased $3.2 million to $3.4 million
for the first quarter of 2001 compared to $6.6 million for the first quarter of
2000. The decrease in adjusted net operating income was primarily due to
decreased investment results not fully offset by lower policy benefits. The
changes in adjusted net operating income are analyzed further in the results of
operations discussion.
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RESULTS OF OPERATIONS
The Company has two reportable operating segments: Life Insurance and
Annuities. The following table sets forth information regarding the Company's
sales activity by product:
Three Months Ended
March 31,
($ in thousands) 2001 2000
--------------------------
Life Premiums:
Traditional life insurance:
Whole life $ 256 $ 385
Term life 860 2,303
Interest sensitive life:
Whole life 7,196 5,661
Universal life 3,945 4,568
--------------------------
Sub-total 12,257 12,917
Reinsurance assumed 707 1,381
Reinsurance ceded (1,547) (2,296)
--------------------------
Total life premiums,
net of reinsurance (1) $ 11,417 $ 12,002
==========================
Annuity Premiums:
Fixed $ 28,597 $ 97,976
Variable 10,483 21,864
--------------------------
Sub-total 39,080 119,840
Reinsurance assumed - -
Reinsurance ceded (9,129) (60,966)
--------------------------
Total annuity premiums,
net of reinsurance (2) $ 29,951 $ 58,874
==========================
(1) Annualized premiums
(2) Annuity collected premium 1st year
Total direct life insurance sales as measured by annualized premiums
decreased $0.6 million to $12.3 million for the three months ended March 31,
2001, compared to $12.9 million for the same period in 2000. The Company has
shifted its focus from traditional life products to interest sensitive products
which resulted in a decline in traditional whole life and term premiums of $1.5
million in 2001 as compared to 2000 and an increase in interest sensitive life
premiums between the periods of $0.9 million. As expected, term life sales
declined by sixty percent from first quarter 2000, as last year's sales were
temporarily boosted by higher consumer demand in anticipation of impacts to term
product pricing from insurance industry regulatory changes taking effect January
1, 2000.
The Company also private labels various whole life, term and interest
sensitive life products. The products are issued by the Company's private label
partners and then assumed in whole or in part by the Company. Sales through the
private label distribution channel, shown as Reinsurance assumed in
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43
the above table, totaled $0.7 million for 2001 compared to $1.4 million for the
same period in 2000. The decline in private label distribution sales between
periods was primarily attributable to the reduced consumer demand for term
products discussed previously and the loss of one private label partner. The
Company has added two new private label partners who commenced production during
the first quarter of 2001 that are anticipated to more than offset the
discontinued partner's production.
Annuity sales declined $80.7 million to $39.1 million for the three
months ended March 31, 2001, compared to $119.8 million for the same period in
2000. The majority of the Company's annuity sales are fixed annuity sales that
are primarily produced by one independent marketing organization, Legacy
Marketing Group (LMG). The Company has marketed two fixed annuity products,
VisionMark and VisionMark II, through Legacy Marketing Group, each of which is
based on a total return strategy and allow the policyowner to allocate their
premium payments to different asset classes within the Company's general
account. Under the total return strategy, the annuity contract is credited with
an interest rate equal to the total return on the general account assets to
which the selected strategy is linked less certain charges. This total return
adjustment is paid when a policyholder accesses the funds. The Company
guarantees a minimum return of premium plus approximately 3% interest per annum
over the life of the contract. The Company has reinsured approximately 80% of
the VisionMark product and 70% of the VisionMark II. Both contracts are
reinsured on a modified coinsurance basis. LMG produced approximately $1.3
billion and $1.5 billion of fixed annuities for the Company in 1999 and 1998,
respectively. A variety of factors, including general market conditions,
increased competition in the marketplace, product performance and delays in the
introduction of new product, substantially reduced sales of fixed annuity
products through LMG in 2000 to $195.0 million. Sales of fixed annuities by LMG
for the first three months of 2001 were $21.1 million compared to $90.2 million
for the first three months of 2000. This resulted in a corresponding decline in
reinsurance ceded to $9.1 million for the first three months of 2001 from $61.0
million for the first three months of 2000. With the introduction of a third
generation fixed annuity product, VisionMark Advantage, during January, 2001, it
is anticipated that fixed annuity sales through LMG during 2001 will be
approximately $200 million.
A summary of the Company's revenue follows:
Three Months Ended
March 31,
($ in thousands) 2001 2000
---------------------------
Premiums $ 42,351 $ 43,643
Policy and contract charges 19,910 16,895
Net investment income 64,005 68,393
Realized/unrealized gains (losses)
on investments (13,798) 5,990
---------------------------
Total $ 112,468 $ 134,921
===========================
Premiums were $42.4 million for the three months ended March 31, 2001,
compared to $43.6 million for the same period in 2000. Premiums primarily
consist of traditional term and participating product premiums. The decrease in
premiums in 2001 as compared to 2000 was primarily due to the shift in sales
focus from these traditional products to interest sensitive life products. As
explained previously, interest sensitive life insurance premiums are reflected
as increases in liabilities for policyowner account balances and the revenues on
these products are reflected as policy charges, which are discussed below. This
shift in sales focus is expected to continue in future periods.
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44
Policy and contract charges increased $3.0 million to $19.9 million for
the three months ended March 31, 2001, compared to $16.9 million for the same
period in 2000. Policy and contract charges primarily consist of charges for the
cost of insurance, administrative charges and surrender charges assessed on
interest sensitive life and annuity product policyowner account balances. The
growth in interest sensitive life product sales increased policy and contract
charges by approximately $1.8 million. Annuity surrenders were higher in the
first quarter of 2001 as compared to the first quarter 2000, increasing policy
and contract charges by approximately $1.3 million. Annuity results are driven
by the large block of total return strategy fixed annuity policies discussed
previously. The market performance of these assets declined for the three months
ended March 31, 2001, and this contributed to an increase in the withdrawal rate
on the fixed annuity block from 13.5% in 2000 to 17.6% in 2001. To combat the
higher withdrawal rate, the Company is in the process of implementing an
enhanced conservation program targeted to start during the third quarter of
2001. In addition, the Company is utilizing new investment managers to improve
product performance.
Net investment income was $64.0 million for the three months ended
March 31, 2001, compared to $68.4 million for the same period in 2000. The
decrease of $4.4 million in 2001 was primarily attributable to lower average
invested assets. Average invested assets decreased approximately $365.4 million
to $4,737.0 million for the first quarter of 2001 from $5,102.4 million for the
first quarter of 2000, primarily due to increased surrenders of the Company's
fixed annuity business. Partially offsetting this decrease in average invested
assets was a higher effective yield. The effective yield of the investment
portfolio increased 4 basis points to 5.40% for the three months ended March 31,
2001, compared to 5.36% for the same period in 2000. The increase in yield
primarily resulted from higher investment yields on assets acquired in 2001
versus the portfolio yield in the prior period. The effective yield of the
portfolio is lower than would typically be expected due to the Company's high
percentage of convertible bonds in its investment portfolio. The convertible
bonds back a majority of the Company's total return strategy fixed annuity
products. While convertible bonds typically result in lower investment income,
they provide the potential for higher total returns through realized capital
gains, which are included in the total return adjustment to the annuity
policyholders.
Total realized/unrealized gains (losses) on investments were a net loss
of $13.8 million for the first quarter of 2001 compared to a net gain of $6.0
million for the same period a year ago. The significant change between periods
is primarily driven by the Company's adoption of SFAS No. 133, which resulted in
a $16.0 million unrealized loss on investments for the first quarter of 2001. In
connection with adopting SFAS No. 133, the Company reclassified the fixed
maturity securities that back its total return strategy fixed annuity products
from available-for-sale to trading. SFAS No. 133 requires the Company to adjust
to market the total return strategy fixed annuity contracts. By classifying the
assets that back these products as trading, the Company also records a market
value adjustment on these assets which offsets a portion of the market value
change on the liabilities. The corresponding market value adjustment on the
liability side was a $3.4 million reduction in the total return strategy fixed
annuity liabilities which is reflected in the "Policy benefits" line of the
Consolidated Statements of Income. In addition, there was an $8.9 million
reduction in deferred policy acquisition cost amortization due to the impact
these two market value adjustments had on gross margins. Partially offsetting
the $16.0 million unrealized loss incurred during the quarter on the trading
portfolio were $2.2 million of realized gains on investments. In comparison,
there were $6.0 million of realized gains on investments a year ago. The level
of realized gains and losses will fluctuate from period to period depending on
the prevailing interest rate and economic environment and the timing of the sale
of investments.
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A summary of the Company's benefits and expenses follows:
Three Months Ended
March 31,
($ in thousands) 2001 2000
----------------------------
Policy benefits $ 80,186 $ 83,270
Underwriting, acquisition
and insurance expenses 12,089 13,847
Amortization of deferred policy
acquisition costs 8,217 16,536
Reorganization costs 783 1,934
Interest 541 541
Dividends to policyowners 8,085 8,139
----------------------------
Total $ 109,901 $ 124,267
============================
Policy benefits decreased $3.1 million to $80.2 million for the quarter
ended March 31, 2001, compared to $83.3 million for the same period in 2000.
Policy benefits primarily consist of death and surrender benefits and changes in
reserves on traditional products, death benefits in excess of account value and
interest credited on policyowner account balances for interest sensitive and
annuity products, and modified coinsurance reinsurance interest payments. As
discussed previously, the Company's adoption of SFAS No. 133 also impacted this
line item and contributed to the decline in policy benefits between first
quarter periods. In accordance with SFAS No. 133, the Company adjusted the total
return strategy fixed annuity contracts to market which, based on the economic
environment, resulted in a $3.4 million reduction in reserve balances. In
addition, the decrease in average annuity account balances due to increased
surrenders also decreased the amount of interest credited included in policy
benefits. Annuity spreads remained constant between first quarter periods at 255
basis points. Partially offsetting these reductions to policy benefits was
slightly higher mortality expense as compared to a year ago and increased
interest credited on interest sensitive life policies. The weighted average
crediting rate on interest sensitive life products was 5.9% for the first
quarter of 2001 compared to 5.6% for the same period in 2000.
Underwriting, acquisition and insurance expenses decreased $1.7 million
to $12.1 million for the three months ended March 31, 2001, compared to $13.8
million for the same period in 2000. The reduction in 2001 expenses was
primarily attributable to decreased consulting and actuarial expenses. Partially
offsetting this decline in expenses was $1.8 million of legal settlement costs
incurred in the first quarter of 2001.
Amortization of deferred policy acquisition costs was $8.2 million for
the quarter ended March 31, 2001, compared to $16.5 million for the same period
in 2000. Deferred policy acquisition costs are generally amortized in proportion
to gross margins. As discussed previously, due to the impact the market value
adjustments made to trading securities and annuity liabilities in accordance
with SFAS Nos. 133 had on gross margins, amortization of deferred policy
acquisition costs was reduced by approximately $8.9 million.
Reorganization expenses, which consist primarily of legal, actuarial
and consulting expenses relating to the Company's demutualization, decreased to
$0.8 million for the first three months of 2001 as
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46
compared to $1.9 million for the first three months of 2000. The 2000 period
expense was higher due to outside consultant expenses incurred in relation to
the Company's demutualization during that period.
Interest expense was $0.5 million for both of the three month periods
ended March 31, 2001 and 2000. Interest expense for both periods reflected three
months of interest expense on the Company's $25.0 million, 8.66% outstanding
surplus note, due on April 1, 2011.
Dividends to policyowners were $8.1 million for both of the three
months ended March 31, 2001 and 2000.
Income before federal income taxes and minority interest was $2.6
million for the three months ended March 31, 2001 compared to income before
federal income taxes and minority interest of $10.7 million for the same period
in 2000. The adoption of SFAS No. 133 resulted in a decline of approximately
$3.7 million in income before federal income taxes and minority interest as
compared to a year ago. In addition, the reduction in realized gains on
investments and net investment income discussed previously, partially offset by
reduced legal, actuarial, and consulting expenses, contributed to the remaining
decrease in pre-tax income between first quarter periods.
Federal income tax expense was $0.9 million for the three months ended
March 31, 2001, compared to $4.0 million for the same period in 2000. The
effective income tax rate was 36.1% and 37.4% for the first quarter of 2001 and
2000, respectively. These rates are above the effective corporate tax rate of
35% primarily due to certain non-deductible expenses associated with the
Company's reorganization. In addition, during the first three months of 2000,
there was a $1.0 million charge for policy reserves which was not deductible for
tax purposes and, therefore, contributed to the higher effective tax rate for
that period.
Minority interest represents the minority stockholder's ownership
percentage share of consolidated net income of ILICO's subsidiary, ILGC. The
minority stockholder ownership percentage was 45.0% for both the three months
ended March 31, 2001 and 2000. The minority interest in consolidated
subsidiaries' share of net income for the first three months was $0.1 million
for 2001 and $1.3 million for 2000 consistent with the lower income levels in
2001.
The Company adopted SFAS No. 133 as of January 1, 2001. In accordance
with the provisions of this statement, the Company has recorded the difference
between the previous carrying amounts of its derivative instruments and the fair
value of its derivative instruments, as of the initial application date, as the
effect of a change in accounting principle. The gross difference between
carrying amounts and fair value amounts of the Company's derivative instruments
was a reduction to income of approximately $5.6 million. The deferred policy
acquisition cost amortization impact from the derivative adjustments was
approximately $4.2 million, the income tax benefit was $0.5 million, and the
minority interest portion was $0.4 million, resulting in the net cumulative
effect of change in accounting for derivatives of $0.5 million.
Net income was $1.1 million for the three months ended March 31, 2001,
compared to net income of $5.3 million for the same period in 2000. As discussed
above, the Company adopted SFAS No. 133 effective January 1, 2001, which had a
cumulative effect of reducing net income by $0.5 million. Excluding this
one-time cumulative effect, net income decreased by $3.7 million. As discussed
previously, the accounting changes from SFAS No. 133, along with lower
investment income and realized gains, primarily resulted in the reduction in net
income between first quarter periods.
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ITEM 7b. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following tables show financial information after giving effect to
the Combination as though it had occurred on an earlier date (which we refer to
as "pro forma" information). In the Combination, ILICO eligible Members receive
AmerUs common stock, cash and policy credits. The value of the aggregate payment
is equal to the value of 9.3 million shares of AmerUs common stock. The
following pro forma financial information also reflects that AmerUs, as part of
the Combination, made a preliminary investment of $100 million in ILGC, of which
$77.2 million was used by ILGC to repurchase its former minority interest (stock
held by two other investors), with the remainder retained in ILGC as additional
capital. The financial information is provided as of March 31, 2001, and for the
three months ended March 31, 2001 and for the year ended 2000. In presenting the
pro forma balance sheet information, we assumed that the Combination had
occurred March 31, 2001. In presenting the pro forma income statement
information for March 31, 2001 and 2000, we assumed that the Combination had
occurred as of January 1, 2000. The pro forma information gives effect to the
Combination under the purchase method of accounting in accordance with GAAP.
We expect that we will incur transaction and integration charges as a
result of combining the companies. The pro forma information, while helpful in
illustrating the financial characteristics of the combined company under one set
of assumptions, does not reflect these expenses and, accordingly, does not
attempt to predict or suggest future results. It also does not necessarily
reflect what the historical results of the combined company would have been had
the Combination occurred on January 1, 2000, or any other date.
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AMERUS GROUP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2001
($ IN MILLIONS)
----------- ---------- ----------- -----------
Pro Forma
for the
AmerUs ILICO Combination Combination
Historical Historical with ILICO with ILICO
----------- ---------- ----------- -----------
ASSETS:
Investments:
Securities available for sale at fair value:
Fixed maturity securities $ 8,612.2 $ 1,464.2 $ 11.4 (B) $ 10,087.8
Equity securities 162.2 10.8 (106.6) (C) 62.9
(3.5) (H)
Short-term investments 13.2 - - 13.2
Fixed maturity securities held for trading at fair value 36.5 2,314.4 - 2,350.9
Fixed maturity securities held to maturity at amortized cost 225.3 - 225.3
Loans 563.6 371.4 4.0 (B) 939.0
Real estate 1.9 0.7 0.2 (B) 2.8
Policy loans 311.1 193.7 - 504.8
Other investments 294.9 15.7 - 310.6
----------- ---------- ----------- -----------
Total investments 9,995.6 4,596.2 (94.5) 14,497.3
----------- ---------- ----------- -----------
Cash and cash equivalents 44.5 120.1 (10.7) (A) 149.7
(4.2) (H)
Accrued investment income 123.4 51.2 - 174.6
Premiums, fees and other receivables 8.1 4.1 - 12.2
Reinsurance receivables 8.9 344.4 - 353.3
Deferred policy acquisition costs 423.3 359.1 (359.1) (D) 423.3
Value of business acquired 430.6 9.5 229.5 (E) 669.6
Goodwill 186.4 17.4 (17.4) (F) 186.4
Premises and equipment, net 55.3 33.3 1.8 (B) 90.4
Other assets 517.6 0.5 - 518.1
Separate account assets - 315.7 - 315.7
----------- ---------- ----------- -----------
Total Assets $ 11,793.7 $ 5,851.5 $ (254.6) $ 17,390.6
=========== ========== =========== ===========
LIABILITIES:
Policy reserves and policyowner funds $ 10,037.2 $ 4,897.2 $ (33.4) (B) $ 14,901.0
Other liabilities 682.8 182.6 (21.4) (G) 844.0
Notes and contracts payable - 25.0 - 25.0
Separate account liabilities - 315.7 - 315.7
----------- ---------- ----------- -----------
Total Liabilities 10,720.0 5,420.5 (54.8) 16,085.7
----------- ---------- ----------- -----------
MINORITY INTEREST - 106.6 (106.6) (C) -
COMPANY OBLIGATED MANDITORILY REDEEMABLE
PREFERRED CAPITAL SECURITIES 197.7 - - 197.7
STOCKHOLDERS' EQUITY
Common stock, $1 stated value, 39,018,217 shares
assumed outstanding March 31, 2001 on a pro forma basis 30.0 - 9.0 (A) 39.0
Additional paid-in capital 810.1 - 222.2 (A) 1,032.3
Unearned compensation (0.1) - - (0.1)
Accumulated other comprehensive income 19.0 5.2 (5.2) (A) 19.0
Unallocated ESOP shares (0.7) - - (0.7)
Retained earnings 17.7 - - 17.7
Unassigned surplus - 319.2 (319.2) (A) -
----------- ---------- ----------- -----------
Total Stockholders' Equity 876.0 324.4 (93.2) 1,107.2
----------- ---------- ----------- -----------
Total Liabilities and Equity $ 11,793.7 $ 5,851.5 $ (254.6) $ 17,390.6
=========== ========== =========== ===========
Book value per share $ 29.20 $ 28.39
Share used in the calculation of book value per share (in millions) 30.0 39.0
(The Accompanying Notes are an integral part of this
Unaudited Pro Forma Consolidated Balance Sheet)
43
49
AMERUS GROUP
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2001
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
----------- ---------- ----------- -----------
Pro Forma
for the
AmerUs ILICO Combination Combination
Historical Historical with ILICO with ILICO
----------- ---------- ----------- -----------
Revenues
Insurance premiums $ 66.6 $ 42.4 $ - $ 109.0
Universal life and annuity product charges 24.3 19.9 - 44.2
Net investment income 181.1 64.0 (1.5) (I) 243.6
Realized/unrealized gains (losses) on investments (39.8) (13.8) 2.5 (J) (51.1)
Other income 10.3 - - 10.3
----------- ---------- ----------- -----------
242.5 112.5 1.0 356.0
----------- ---------- ----------- -----------
Operating Expenses
Policyowner benefits 129.9 80.2 - 210.1
Underwriting, acquisition, and insurance expenses 31.3 12.1 (0.2) (M) 43.2
Reorganization costs - 0.8 - 0.8
Amortization of deferred policy acquisition costs & VOBA 25.3 8.2 (1.8) (E) 31.7
Dividends to policyowners 19.2 8.1 - 27.3
----------- ---------- ----------- -----------
205.7 109.4 (2.0) 313.1
----------- ---------- ----------- -----------
Income from continuing operations before interest
expense, income taxes and minority interest 36.8 3.1 3.0 42.9
Interest expense 7.3 0.5 - 7.8
----------- ---------- ----------- -----------
Income before income taxes and minority interest 29.5 2.6 3.0 35.1
Income tax (expense) (10.0) (0.9) (0.9) (N) (11.8)
Minority interest - (0.1) 0.1 (I) -
----------- ---------- ----------- -----------
Net income from continuing operations $ 19.5 $ 1.6 $ 2.2 $ 23.3
=========== ========== =========== ===========
Net income from continuing operations per share (O):
Basic $ 0.65 $ 0.60
Diluted $ 0.64 $ 0.59
Share used in the calculation of net income from continuing
operations per share (in millions) (O):
Basic 30.0 39.0
Diluted 30.4 39.4
(The Accompanying Notes are an integral part of this
Unaudited Pro Forma Consolidated Statement of Income)
44
50
AMERUS GROUP
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
----------- ---------- ----------- -----------
Pro Forma
for the
AmerUs ILICO Combination Combination
Historical Historical with ILICO with ILICO
----------- ---------- ----------- -----------
Revenues
Insurance premiums $ 88.9 $ 162.4 $ - $ 251.3
Universal life and annuity product charges 87.5 76.8 (3.4) (K) 160.9
Net investment income 586.6 273.2 (9.2) (I) 850.6
Realized gains (losses) on investments (8.6) 9.2 - 0.6
Other income 34.5 - - 34.5
Contribution from Closed Block 24.5 - - 24.5
----------- ---------- ----------- -----------
813.4 521.6 (12.6) 1,322.4
----------- ---------- ----------- -----------
Operating Expenses
Policyowner benefits 451.2 346.8 (0.3) (L) 797.7
Underwriting, acquisition, and insurance expenses 122.1 60.9 (0.9) (M) 182.1
Reorganization costs 11.3 12.9 - 24.2
Amortization of deferred policy acquisition costs and VOBA 77.8 42.7 (14.1) (E) 106.4
Dividends to policyowners 6.0 30.1 - 36.1
----------- ---------- ----------- -----------
668.4 493.4 (15.3) 1,146.5
----------- ---------- ----------- -----------
Income from continuing operations before interest
expense, income taxes and minority interest 145.0 28.2 2.7 175.9
Interest expense 29.7 2.2 - 31.9
----------- ---------- ----------- -----------
Income before income taxes and minority interest 115.3 26.0 2.7 144.0
Income tax (expense) (42.5) (11.6) (0.5) (N) (54.6)
Minority interest (21.7) (4.3) 4.3 (I) (21.7)
----------- ---------- ----------- -----------
Net income from continuing operations $ 51.1 $ 10.1 $ 6.5 $ 67.7
=========== ========== =========== ===========
Net income from continuing operations per share (O):
Basic $ 2.44 $ 2.26
Diluted $ 2.43 $ 2.25
Share used in the calculation of net income from continuing
operations per share (in millions) (O):
Basic 20.9 29.9
Diluted 21.0 30.0
(The Accompanying Notes are an integral part of this
Unaudited Pro Forma Consolidated Statement of Income)
45
51
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(A) Giving effect to the Combination under purchase accounting, the
total purchase cost of ILICO will be allocated to the assets and liabilities
acquired based on the relative fair values as of the effective date of the
Combination, with any excess of the fair value of the assets acquired less the
fair value of the liabilities assumed over the purchase price recorded as a
reduction of non-current assets (value of business acquired). The cost
allocations, primarily related to value of business acquired, investments,
policy reserves and policyowner funds, and other liabilities are based on
studies which are not yet completed. Accordingly, the final allocations may
differ from the amounts reflected here due to interest rate fluctuations,
operating experience, and results of operations through the date of closing.
Although the final allocations may differ, the pro forma financial statements
reflect AmerUs' best estimate based on currently available information and the
differences between the current and final allocations are not expected to be
material.
The average closing price of AmerUs common stock used in this pro forma
data is $25.6875 per share, which represents the average of the closing prices
of AmerUs Common Stock on the date of the announcement of the amended terms of
the Combination, two days preceding, and two days succeeding the announcement.
The Combination agreement calls for payment to ILICO's eligible Members
of shares of AmerUs common stock, cash and policy credits equal in value to the
value of at least 9.3 million shares of AmerUs common stock. Under the terms of
the Combination agreement, AmerUs is committed at a minimum to distribute cash
and policy credits equivalent to the value of approximately 300,000 shares of
its common stock to ILICO's eligible Members. The Combination consideration
consists of cash equal to the value of the minimum share amount of approximately
300,000 shares at a fair value of $35.63 per share and 9.0 million shares of
AmerUs common stock. The fair value per share of $35.63 represents the average
of the closing prices of the AmerUs common stock on the transaction closing date
of May 18, 2001 and nine days succeeding the transaction closing date. In
addition, the Combination consideration includes the preliminary investment
AmerUs made in ILGC of $77.2 million and the costs of the Combination.
The purchase price and additional capital contribution in accordance
with the terms of the Combination are as follows:
Common stock at $1.00 stated value $ 9.0
Additional paid-in capital 222.2
--------
Total value of common stock exchanged, 9 million shares at $25.687 per share $ 231.2
Cash paid to ILICO's eligible Members, equivalent to 300,000 shares at $35.63 per share 10.7
Cash paid to acquire minority interest 77.2
Costs of the combination 7.7
--------
Total purchase price $ 326.8
Additional cash capital contribution to ILGC 22.8
--------
Total investment in ILICO $ 349.6
========
46
52
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
After issuance of 9.0 million shares of AmerUs common stock as Member
consideration, AmerUs would have 39,018,217 shares of common stock outstanding
on a pro forma basis.
The allocation of the purchase price of ILICO is as follows (in millions):
Investments (including cash and short-term investments) $ 4,725.3
Receivables and other assets 435.3
Value of business acquired 239.0
Separate account assets 315.7
Policyowner reserves and funds (4,863.8)
Other liabilities (161.2)
Debt (25.0)
Separate account liabilities (315.7)
---------
Total investment in ILICO $ 349.6
=========
The historical components of ILICO's equity have been eliminated in
accordance with purchase accounting. In addition, common stock is adjusted to
reflect the assumed number of shares issued in conjunction with the Combination,
amounting to $9.0 million. Additional paid-in capital is also adjusted, based on
the assumptions, for the excess of the Member consideration exchanged over the
stated value of the AmerUs common stock, amounting to $222.2 million.
(B) Under purchase accounting, ILICO's assets and liabilities are
required to be adjusted to their estimated fair value. The estimated fair value
of the assets and liabilities has been determined by AmerUs based on available
information as follows:
Fixed maturities and equity securities: fair values for bonds are based
on quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate applicable to
the yield, credit quality, and maturity of the investments. The fair values for
preferred and common stocks are based on quoted market prices.
Loans: for all performing fixed interest rate loans, the estimated net
cash flows to maturity were discounted to derive an estimated market value. The
discount rate used was based on the individual loan's remaining weighted average
life and a basis point spread based on the market conditions for the type of
loan and credit quality. These spreads were over the March 31, 2001, United
States Treasury yield curve. Performing variable rate commercial loans and
residential loans were valued at the current outstanding balance. Loans which
have been restructured, in foreclosure, significantly delinquent or are to
affiliates were valued primarily at the lower of the estimated net cash flows to
maturity discounted at a market rate of interest or the current outstanding
principal balance.
Real estate, premises and equipment: fair value is based on estimated
appraised value.
Policy reserves and policyowner funds: fair value is equal to the
historical GAAP amounts for these items, with the exception that the unearned
reserve liability has been eliminated.
47
53
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(C) Represents the elimination of the carrying amount as of March 31,
2001 of the AmerUs preliminary investment in ILGC.
(D) Represents the elimination of the unamortized balance of deferred
policy acquisition costs (DAC).
(E) Value of the insurance business acquired (VOBA) reflects the
estimated fair value of the business in force and represents the portion of the
cost to acquire ILICO that is allocated to the value of the right to receive
future cash flows from the life insurance and annuity contracts existing as of
the assumed date of the acquisition, reduced by the excess of the fair value of
the assets acquired less the fair value of the liabilities assumed over the
purchase price. This reduction amounted to approximately $8.0 million, resulting
in a net VOBA asset of $239 million. Amortization is recognized in proportion to
expected future gross profits over periods between 20 and 30 years and is based
on the average interest crediting rates which range from 2.5% to 7.4% for 2001
and over the next five years. The estimated amortization for the next five years
is as follows (in millions):
2001 $ 24.3
2002 $ 20.0
2003 $ 19.2
2004 $ 18.8
2005 $ 18.0
The Condensed Consolidated Statements of Income for the three months
ended March 31, 2001 and the year ended December 31, 2000 reflect the reduction
in DAC amortization due to the elimination of the DAC asset at the assumed
effective date of the Combination, offset by the addition of VOBA amortization
from the VOBA asset established at the assumed effective date of the
Combination.
(F) Represents the elimination of the unamortized balance of goodwill
at the assumed effective date of the Combination.
(G) Represents various liabilities assumed in connection with the
Combination and the net impact on the deferred tax liability as a result of the
purchase accounting adjustments as follows (in millions):
Deferred income taxes on purchase accounting adjustments $ (27.6)
Establish liability for employment and severance agreements 6.2
--------
$ (21.4)
========
(H) Represents estimated transaction costs, primarily investment
banking and legal fees. Of the estimated total transaction costs of $7.7
million, approximately $3.5 million had been paid and capitalized prior to March
31, 2001. The remaining $4.2 million of estimated transaction costs are shown as
a reduction in cash.
48
54
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(I) Represents the following adjustments to net investment income as a
result of the Combination and purchase accounting adjustments (in millions):
Three Months
Ended Year Ended
March 31, December 31,
2001 2000
------------ ------------
Reduction of net investment income from change in carrying value
of the investment portfolio at the assumed effective date of the
Combination $ (1.2) $ (3.4)
Elimination of the earnings on the cash paid to ILICO's Eligible
Members and the cash paid for the costs of the Combination,
based upon a rate of 5% per annum (0.2) (0.9)
Elimination of the earnings on AmerUs' preliminary investment
in ILICO included in AmerUs' historical net investment income (0.1) (4.3)
Elimination of the earnings on the cash paid by ILGC to repurchase
its former minority interest, based upon a rate of 7% per annum - (0.6)
------------ ------------
$ (1.5) $ (9.2)
============ ============
(J) Represents the reduction in unrealized losses on trading
investments due to market value adjustments to the investment portfolio at the
assumed effective date of the Combination. This adjustment only applies to the
three month period ended March 31, 2001 due to the Company's adoption of SFAS
133 on January 1, 2001.
(K) Represents the reduction of product charges due to the elimination
of unearned revenues at the assumed effective date of the Combination. The
unearned revenues are eliminated due to their inclusion in the determination of
the value of the business acquired. This adjustment only applies to the year
ended December 31, 2000 due to the Company's adoption of SFAS 133 on January 1,
2001.
(L) Represents the reduction in policyowner benefits resulting from
decreased investment income as previously discussed and the increase in
policyowner reserves at the assumed effective date of the Combination due to
market value adjustments to the investment portfolio. This adjustment only
applies to the year ended December 31, 2000 due to the Company's adoption of
SFAS 133 on January 1, 2001.
49
55
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(M) Includes the effects of increased depreciation of $0.1 million and
$0.2 million for the three months ended March 31, 2001 and the year ended
December 31, 2000, respectively, on the write-up of the ILICO home office
premises calculated over 30 years on the straight-line method and the decreased
goodwill amortization of $0.3 million and $1.1 million for the three months
ended March 31, 2001 and the year ended December 31, 2000, respectively, due to
the elimination of historical goodwill.
(N) Represents the income tax effects on the net pro forma adjustments
based upon a 35% effective tax rate and the elimination of the mutual company
differential earnings tax of $0.1 million for the year ended December 31, 2000.
(O) The basic earnings per share calculation reflects net income from
continuing operations divided by the weighted average number of shares
outstanding for the three months ended March 31, 2001 and the year ended
December 31, 2000, assuming that 9 million shares of AmerUs common stock were
issued January 1, 2000 in connection with the Combination. The diluted earnings
per share amount is calculated in the same manner with the weighted average
number of shares outstanding increased for the dilutive effect of options,
warrants, stock appreciation rights.
50