##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-15166
 AMERUS GROUP CO.
  IOWA
    
    42-1458424(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)699 Walnut Street Des Moines, Iowa
    
    50309-3948(Address of principal executive offices)
    
    (Zip code)
 (515) 362-3600
 þ o
  þ o o
 o þ




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##### 



INDEX
 Page No.PART I  FINANCIAL INFORMATION
    
    
    4Item 1.
    
    Financial Statements
    
    
    4Consolidated Balance Sheets September 30, 2006 (Unaudited) and December 31, 2005
    
    
    4Consolidated Statements of Income (Unaudited) For the Three and Nine Months Ended September 30, 2006 and 2005
    
    
    6Consolidated Statements of Comprehensive Income (Unaudited) For the Three and Nine Months Ended September 30, 2006 and 2005
    
    
    7Consolidated Statements of Stockholders Equity For the Nine Months Ended September 30, 2006
(Unaudited) and the Year Ended December 31, 2005
    
    
    8Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2006 and 2005
    
    
    9Notes to Consolidated Financial Statements (Unaudited)
    
    
    11Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4.
    
    Controls and Procedures
    
    
    45PART II  OTHER INFORMATION
    
    
    46Item 1.
    
    Legal Proceedings
    
    
    46Item 1A.
    
    Risk Factors
    
    
    47Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    49Item 6.
    
    Exhibits
    
    
    49Signatures
    
    
    
    
    50Index to Exhibits
    
    
    
    
    51Amendment to the Amended and Restated Credit AgreementComputation of Ratio of Earnings to Fixed ChargesCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  2




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##### Table of Contents



SAFE HARBOR STATEMENT
   3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AMERUS GROUP CO.
 
   September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)AssetsInvestments:Securities available-for-sale at fair value:Fixed maturity securities
    
    $
    17,482,586
    
    
    $
    16,727,933Equity securities
    
    
    98,169
    
    
    
    75,658Short-term investments
    
    
    19,877
    
    
    
    9,998Securities held-for-trading purposes at fair value:Fixed maturity securities
    
    
    1,255,897
    
    
    
    1,414,225Equity securities
    
    
    4,058
    
    
    
    2,358Short-term investments
    
    
    2,480
    
    
    
    Mortgage loans
    
    
    1,018,752
    
    
    
    976,135Policy loans
    
    
    502,303
    
    
    
    483,441Other investments
    
    
    433,898
    
    
    
    347,552Total investments
    
    
    20,818,020
    
    
    
    20,037,300Cash and cash equivalents
    
    
    549,527
    
    
    
    600,160Accrued investment income
    
    
    256,251
    
    
    
    237,221Premiums, fees and other receivables
    
    
    35,913
    
    
    
    40,667Income taxes receivable
    
    
    17,328
    
    
    
    9,005Reinsurance receivables
    
    
    743,622
    
    
    
    730,532Deferred policy acquisition costs
    
    
    2,073,309
    
    
    
    1,755,159Deferred sales inducements
    
    
    338,250
    
    
    
    261,322Value of business acquired
    
    
    334,513
    
    
    
    356,949Goodwill
    
    
    229,670
    
    
    
    228,869Property and equipment
    
    
    47,356
    
    
    
    44,467Other assets
    
    
    315,314
    
    
    
    306,655Separate account assets
    
    
    202,366
    
    
    
    221,694Total assets
    
    $
    25,961,439
    
    
    $
    24,830,000
  4




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##### Table of Contents



AMERUS GROUP CO.
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)Liabilities and Stockholders EquityLiabilities:Policy reserves and policyowner funds:Future life and annuity policy benefits
    
    $
    20,127,049
    
    
    $
    19,486,854Policyowner funds
    
    
    1,996,940
    
    
    
    1,483,87322,123,989
    
    
    
    20,970,727Accrued expenses and other liabilities
    
    
    449,226
    
    
    
    500,858Payable for collateral under securities lending and other
transactions
    
    
    508,561
    
    
    
    474,561Dividends payable to policyowners
    
    
    234,932
    
    
    
    278,839Policy and contract claims
    
    
    48,017
    
    
    
    66,137Deferred income taxes
    
    
    87,725
    
    
    
    58,818Notes payable
    
    
    582,997
    
    
    
    556,051Separate account liabilities
    
    
    202,366
    
    
    
    221,694Total liabilities
    
    
    24,237,813
    
    
    
    23,127,685Stockholders equity:Preferred Stock, no par value, 20,000,000 shares
authorized, no shares issued and outstanding in 2006 and
6,000,000 shares issued and outstanding in 2005
    
    
    
    
    
    
    144,830Common Stock, no par value, 230,000,000 shares authorized;
51,904,999 shares issued and 43,058,995 shares outstanding
in 2006; 46,675,811 shares issued and 38,612,874 shares
outstanding in 2005
    
    
    51,905
    
    
    
    46,676Additional paid-in capital  common stock
    
    
    1,387,426
    
    
    
    1,231,533Accumulated other comprehensive loss
    
    
    (62,251
    )
    
    
    (3,612
    )Unearned compensation
    
    
    
    
    
    
    (3,783
    )Retained earnings
    
    
    733,524
    
    
    
    604,747Treasury stock, at cost (8,846,004 shares in 2006 and
8,062,937 shares in 2005)
    
    
    (386,978
    )
    
    
    (318,076
    )Total stockholders equity
    
    
    1,723,626
    
    
    
    1,702,315Total liabilities and stockholders equity
    
    $
    25,961,439
    
    
    $
    24,830,000
  5




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##### Table of Contents



AMERUS GROUP CO.
 
 
 For The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005(unaudited)Revenues:Insurance premiums
    
    $
    51,268
    
    
    $
    54,603
    
    
    $
    159,611
    
    
    $
    178,150Product charges
    
    
    70,525
    
    
    
    64,939
    
    
    
    207,327
    
    
    
    178,610Net investment income
    
    
    290,651
    
    
    
    278,641
    
    
    
    862,941
    
    
    
    824,392Realized/unrealized capital
gains (losses)
    
    
    71,509
    
    
    
    23,362
    
    
    
    59,289
    
    
    
    (19,316
    )Other income
    
    
    12,446
    
    
    
    11,487
    
    
    
    37,331
    
    
    
    35,272496,399
    
    
    
    433,032
    
    
    
    1,326,499
    
    
    
    1,197,108Benefits and expenses:Policyowner benefits
    
    
    357,510
    
    
    
    211,211
    
    
    
    740,293
    
    
    
    624,997Underwriting, acquisition and
other expenses
    
    
    41,259
    
    
    
    40,854
    
    
    
    124,482
    
    
    
    119,881Litigation following class
certification, net
    
    
    3,179
    
    
    
    9,380
    
    
    
    3,179
    
    
    
    9,380Amortization of deferred policy
acquisition costs and value of
business acquired
    
    
    37,244
    
    
    
    58,714
    
    
    
    152,526
    
    
    
    146,515Dividends to policyowners
    
    
    16,369
    
    
    
    18,770
    
    
    
    52,785
    
    
    
    70,637455,561
    
    
    
    338,929
    
    
    
    1,073,265
    
    
    
    971,410Income from continuing operations
    
    
    40,838
    
    
    
    94,103
    
    
    
    253,234
    
    
    
    225,698Interest expense
    
    
    9,148
    
    
    
    7,725
    
    
    
    26,578
    
    
    
    23,696Early extinguishment of debt
    
    
    
    
    
    
    19,082
    
    
    
    
    
    
    
    19,082Income before income tax expense
    
    
    31,690
    
    
    
    67,296
    
    
    
    226,656
    
    
    
    182,920Income tax expense
    
    
    12,260
    
    
    
    28,677
    
    
    
    78,338
    
    
    
    47,246Net income
    
    
    19,430
    
    
    
    38,619
    
    
    
    148,318
    
    
    
    135,674Dividends on preferred stock
    
    
    2,718
    
    
    
    
    
    
    
    8,156
    
    
    
    Loss on redemption of preferred stock
    
    
    11,385
    
    
    
    
    
    
    
    11,385
    
    
    
    Net income available to common
stockholders
    
    $
    5,327
    
    
    $
    38,619
    
    
    $
    128,777
    
    
    $
    135,674Net income available to common
stockholders per common share:Basic
    
    $
    0.13
    
    
    $
    1.00
    
    
    $
    3.28
    
    
    $
    3.47Diluted
    
    $
    0.12
    
    
    $
    0.91
    
    
    $
    3.06
    
    
    $
    3.17Weighted average common shares
outstanding:Basic
    
    
    40,672,524
    
    
    
    38,488,294
    
    
    
    39,309,376
    
    
    
    39,102,190Diluted
    
    
    42,903,211
    
    
    
    42,525,870
    
    
    
    42,090,818
    
    
    
    42,743,043
  6




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##### Table of Contents



AMERUS GROUP CO.
 
 
 For The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005(unaudited)Net income
    
    $
    19,430
    
    
    $
    38,619
    
    
    $
    148,318
    
    
    $
    135,674Other comprehensive income (loss), before tax:Unrealized gains (losses) on securities:Unrealized holding gains (losses) arising during period
    
    
    230,966
    
    
    
    (159,768
    )
    
    
    (111,032
    )
    
    
    (140,019
    )Reclassification adjustment for losses included in net
income
    
    
    10,516
    
    
    
    1,597
    
    
    
    20,494
    
    
    
    3,032Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    325
    
    
    
    Other comprehensive income (loss), before tax
    
    
    241,482
    
    
    
    (158,171
    )
    
    
    (90,213
    )
    
    
    (136,987
    )Income tax (expense) benefit related to items of other
comprehensive income
    
    
    (84,518
    )
    
    
    55,360
    
    
    
    31,574
    
    
    
    47,946Other comprehensive income (loss), net of taxes
    
    
    156,964
    
    
    
    (102,811
    )
    
    
    (58,639
    )
    
    
    (89,041
    )Comprehensive income (loss)
    
    $
    176,394
    
    
    $
    (64,192
    )
    
    $
    89,679
    
    
    $
    46,633
  7




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##### Table of Contents



AMERUS GROUP CO.
 
 
 Additional
    
    
    AccumulatedPaid-In
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalPreferred
    
    
    
    
    
    
    Capital
    
    
    Comprehensive
    
    
    Unearned
    
    
    Retained
    
    
    Treasury
    
    
    Stockholders'Stock
    
    
    Common Stock
    
    
    Common Stock
    
    
    Income (Loss)
    
    
    Compensation
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance at December
31, 2004
    
    $
    
    
    
    $
    44,226
    
    
    $
    1,198,379
    
    
    $
    114,670
    
    
    $
    (1,238
    )
    
    $
    431,911
    
    
    $
    (164,479
    )
    
    $
    1,623,4692005:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,179
    
    
    
    
    
    
    
    191,179Net
unrealized
loss on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118,034
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118,034
    )Net
unrealized
loss on
derivatives
designated as
cash flow
hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (248
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (248
    )Issuance of
preferred
stock, net of
costs
    
    
    144,830
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144,830Conversion of
OCEANs
    
    
    
    
    
    
    1,675
    
    
    
    9,069
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,744Stock issued
under various
incentive
plans, net of
forfeitures
    
    
    
    
    
    
    775
    
    
    
    24,085
    
    
    
    
    
    
    
    (2,545
    )
    
    
    
    
    
    
    958
    
    
    
    23,273Purchase of
treasury
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154,555
    )
    
    
    (154,555
    )Dividends
declared on
preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,417
    )
    
    
    
    
    
    
    (2,417
    )Dividends
declared on
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,926
    )
    
    
    
    
    
    
    (15,926
    )Balance at December
31, 2005
    
    
    144,830
    
    
    
    46,676
    
    
    
    1,231,533
    
    
    
    (3,612
    )
    
    
    (3,783
    )
    
    
    604,747
    
    
    
    (318,076
    )
    
    
    1,702,3152006 (unaudited):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148,318
    
    
    
    
    
    
    
    148,318Net
unrealized
loss on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,665
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,665
    )Net
unrealized
loss on
derivatives
designated as
cash flow
hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,185
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,185
    )Costs for
issuance of
preferred
stock
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )Conversion of
PRIDES
    
    
    
    
    
    
    4,886
    
    
    
    138,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143,519Stock issued
under various
incentive
plans, net of
forfeitures
    
    
    
    
    
    
    343
    
    
    
    21,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,797
    )
    
    
    8,589Purchase of
treasury
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,317
    )
    
    
    (56,317
    )Sale of
treasury
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212
    
    
    
    212Dividends
declared on
preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,156
    )
    
    
    
    
    
    
    (8,156
    )Redemption of
preferred
stock
    
    
    (144,774
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,385
    )
    
    
    
    
    
    
    (156,159
    )Reclassification of
unearned
compensation
under SFAS
123R
    
    
    
    
    
    
    
    
    
    
    (3,783
    )
    
    
    
    
    
    
    3,783
    
    
    
    
    
    
    
    
    
    
    
    Minimum
pension
liability
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211Balance at
September 30, 2006
    
    $
    
    
    
    $
    51,905
    
    
    $
    1,387,426
    
    
    $
    (62,251
    )
    
    $
    
    
    
    $
    733,524
    
    
    $
    (386,978
    )
    
    $
    1,723,626
  8




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##### Table of Contents



AMERUS GROUP CO.
 
 
 For The Nine Months Ended September 30,2006
    
    2005(unaudited)Cash flows from operating activitiesNet income
    
    $
    148,318
    
    
    $
    135,674Adjustments to reconcile net income to net
cash provided by operating activities:Early extinguishment of debt
    
    
    
    
    
    
    19,082Product charges
    
    
    (207,327
    )
    
    
    (178,610
    )Interest credited to policyowner account
balances
    
    
    387,273
    
    
    
    387,072Change in option value of indexed products and
market value adjustments on total return
strategy annuities
    
    
    76,930
    
    
    
    (19,403
    )Realized/unrealized capital (gains) losses
    
    
    (59,289
    )
    
    
    19,316DAC and VOBA amortization
    
    
    152,526
    
    
    
    146,515Deferred sales inducements amortization
    
    
    18,682
    
    
    
    17,671DAC and VOBA capitalized
    
    
    (376,435
    )
    
    
    (369,807
    )Change in:Accrued investment income
    
    
    (19,030
    )
    
    
    (12,460
    )Reinsurance receivables
    
    
    (79,704
    )
    
    
    (86,658
    )Securities held-for-trading purposes:Fixed maturities
    
    
    197,435
    
    
    
    227,204Equity securities
    
    
    (1,699
    )
    
    
    15,413Short-term investments
    
    
    (2,480
    )
    
    
    Liabilities for future policy benefits
    
    
    (94,716
    )
    
    
    (119,360
    )Accrued expenses and other liabilities
    
    
    (51,280
    )
    
    
    46,245Policy and contract claims and other
policyowner funds
    
    
    494,437
    
    
    
    45,791Income taxes:Current
    
    
    (12,422
    )
    
    
    (25,500
    )Deferred
    
    
    60,455
    
    
    
    (6,735
    )Other, net
    
    
    31,363
    
    
    
    20,387Net cash provided by operating activities
    
    
    663,037
    
    
    
    261,837Cash flows from investing activities:Purchase of fixed maturities available-for-sale
    
    
    (4,334,938
    )
    
    
    (3,981,632
    )Proceeds from sale of fixed maturities
available-for-sale
    
    
    2,382,643
    
    
    
    1,522,642Maturities, calls and principal reductions of
fixed maturities available-for-sale
    
    
    956,170
    
    
    
    1,140,514Purchase of equity securities
    
    
    (32,809
    )
    
    
    (7,340
    )Proceeds from sale of equity securities
    
    
    9,780
    
    
    
    6,212Change in short-term investments, net
    
    
    (9,263
    )
    
    
    3,860Purchase of mortgage loans
    
    
    (152,428
    )
    
    
    (181,113
    )
 9




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##### Table of Contents



AMERUS GROUP CO.
 For The Nine Months Ended September 30,2006
    
    2005(unaudited)Proceeds from repayment and sale of mortgage loans
    
    
    108,821
    
    
    
    77,165Purchase of other invested assets
    
    
    (236,293
    )
    
    
    (104,497
    )Proceeds from sale of other invested assets
    
    
    168,097
    
    
    
    153,479Change in policy loans, net
    
    
    (18,862
    )
    
    
    2,956Other assets, net
    
    
    (10,551
    )
    
    
    (9,890
    )Net cash used in investing activities
    
    
    (1,169,633
    )
    
    
    (1,377,644
    )Cash flows from financing activities:Deposits to policyowner account balances
    
    
    2,408,501
    
    
    
    2,448,422Withdrawals from policyowner account balances
    
    
    (1,948,217
    )
    
    
    (1,325,088
    )Change in debt, net
    
    
    26,947
    
    
    
    587Change in payable for collateral under securities
lending and other transactions
    
    
    34,000
    
    
    
    117,400Dividends to preferred shareholders
    
    
    (8,156
    )
    
    
    Redemption of preferred stock
    
    
    (156,159
    )
    
    
    Stock issued under various incentive plans, net of
forfeitures
    
    
    8,589
    
    
    
    22,471Purchase of treasury stock, net
    
    
    (56,105
    )
    
    
    (150,728
    )Excess tax benefits on share-based compensation
    
    
    4,098
    
    
    
    Proceeds from issuance of senior notes
    
    
    
    
    
    
    297,522Proceeds from issuance of preferred stock
    
    
    
    
    
    
    145,310Conversion of PRIDES to common stock
    
    
    143,519
    
    
    
    Retirement of OCEANs
    
    
    
    
    
    
    (204,720
    )Debt and preferred stock issuance costs
    
    
    (1,054
    )
    
    
    Retirement of senior notes
    
    
    
    
    
    
    (125,000
    )Net cash provided by financing activities
    
    
    455,963
    
    
    
    1,226,176Net (decrease) increase in cash
    
    
    (50,633
    )
    
    
    110,369Cash and cash equivalents at beginning of period
    
    
    600,160
    
    
    
    478,441Cash and cash equivalents at end of period
    
    $
    549,527
    
    
    $
    588,810Supplemental disclosure of cash activities:Interest paid
    
    $
    30,756
    
    
    $
    17,321Income taxes paid
    
    $
    22,877
    
    
    $
    67,466Supplemental disclosure of non-cash operating activities:Capitalization of deferred sales inducements
    
    $
    84,364
    
    
    $
    87,663
  10




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##### Table of Contents



AMERUS GROUP CO.
 
 
 (1) CONSOLIDATION AND BASIS OF PRESENTATION
    (2) MERGER AGREEMENT
   11




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##### Table of Contents



(3) SHARE-BASED COMPENSATION
 Adoption of SFAS 123R
   For The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005($ in thousands, except share data)Net income available to common stockholders, as reported
    
    $
    5,327
    
    
    $
    38,619
    
    
    $
    128,777
    
    
    $
    135,674Add: 2005 stock-based compensation expense included in
reported net income, net of related tax effects
    
    
    
    
    
    
    1,439
    
    
    
    
    
    
    
    2,185Deduct: 2005 total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    
    
    
    
    (1,027
    )
    
    
    
    
    
    
    (2,780
    )2006 actual and 2005 pro forma net income available
to common stockholders
    
    $
    5,327
    
    
    $
    39,031
    
    
    $
    128,777
    
    
    $
    135,079Earnings per common share:Basic  as reported
    
    $
    0.13
    
    
    $
    1.00
    
    
    $
    3.28
    
    
    $
    3.47Basic  pro forma
    
    $
    0.13
    
    
    $
    1.01
    
    
    $
    3.28
    
    
    $
    3.45Diluted  as reported
    
    $
    0.12
    
    
    $
    0.91
    
    
    $
    3.06
    
    
    $
    3.17Diluted  pro forma
    
    $
    0.12
    
    
    $
    0.92
    
    
    $
    3.06
    
    
    $
    3.16
  12




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##### Table of Contents



General
    Stock Option Plans
   Nine Months Ended September 30, 2006WeightedNumber
    
    
    averageof
    
    
    exerciseshares
    
    
    priceOutstanding, beginning of period
    
    
    2,754,287
    
    
    $
    32.00Granted at market price
    
    
    326,500
    
    
    
    59.86Exercised
    
    
    (269,017
    )
    
    
    25.15Forfeited
    
    
    (5,900
    )
    
    
    Outstanding, end of period
    
    
    2,805,870
    
    
    $
    35.67Exercisable, end of period
    
    
    1,973,606
    
    
    $
    30.83
 13




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##### Table of Contents



Options OutstandingWeighted
    
    
    WeightedRange
    
    
    
    
    
    Remaining
    
    
    average
    
    
    averageof exercise
    
    
    
    
    
    options
    
    
    contractual
    
    
    exerciseprices
    
    
    
    
    
    outstanding
    
    
    life in years
    
    
    price18.30 - 24.40
    
    
    
    
    
    
    389,930
    
    
    
    3.0
    
    
    $
    20.9424.40 - 30.50
    
    
    
    
    
    
    896,418
    
    
    
    4.9
    
    
    
    28.4030.50 - 36.60
    
    
    
    
    
    
    237,084
    
    
    
    4.1
    
    
    
    34.2036.60 - 42.70
    
    
    
    
    
    
    680,305
    
    
    
    6.2
    
    
    
    37.9942.70 - 48.80
    
    
    
    
    
    
    253,133
    
    
    
    8.3
    
    
    
    46.7048.80 - 54.90
    
    
    
    
    
    
    18,000
    
    
    
    9.0
    
    
    
    51.6454.90 - 61.00
    
    
    
    
    
    
    331,000
    
    
    
    9.3
    
    
    
    59.752,805,870
    
    
    
    5.8
    
    
    $
    35.67
  Options ExercisableWeightedRange
    
    
    
    
    
    
    
    
    
    
    
    
    
    averageof exercise
    
    
    
    
    
    
    
    
    
    Options
    
    
    exerciseprices
    
    
    
    
    
    
    
    
    
    exercisable
    
    
    price18.30 - 24.40
    
    
    
    
    
    
    
    
    
    
    389,930
    
    
    $
    20.9424.40 - 30.50
    
    
    
    
    
    
    
    
    
    
    769,338
    
    
    
    28.6630.50 - 36.60
    
    
    
    
    
    
    
    
    
    
    225,915
    
    
    
    34.1736.60 - 42.70
    
    
    
    
    
    
    
    
    
    
    533,620
    
    
    
    38.0942.70 - 48.80
    
    
    
    
    
    
    
    
    
    
    49,803
    
    
    
    46.5148.80 - 54.90
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    51.2954.90 - 61.00
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    57.401,973,606
    
    
    $
    30.83
   14




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##### Table of Contents



2006
    
    
    2005Expected Volatility
    
    
    24.64
    %
    
    
    30.11
    %Risk-free Interest Rate
    
    
    4.68
    %
    
    
    4.31
    %Dividend Yield
    
    
    0.66
    %
    
    
    0.88
    %Weighted average fair value of options granted
    
    $
    19.44
    
    
    $
    20.25
 Non-vested Stock
  Nine Months Ended September 30, 2006WeightedNumber
    
    
    averageof
    
    
    grantshares
    
    
    priceOutstanding, beginning of
period
    
    
    48,277
    
    
    $
    39.57Granted at market price
    
    
    10,262
    
    
    
    58.64Exercised
    
    
    (2,000
    )
    
    
    32.00Forfeited
    
    
    
    
    
    
    Outstanding, end of period
    
    
    56,539
    
    
    $
    42.91Compensation expense ($ in thousands)
    
    
    
    
    
    $
    301
 Non-vested Stock Units
  15




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##### Table of Contents



Stock Appreciation Rights
  Nine Months Ended September 30, 2006Number
    
    
    Weightedof
    
    
    averageshares
    
    
    exercise priceOutstanding, beginning of period
    
    
    51,755
    
    
    $
    34.77Granted at market price
    
    
    9,500
    
    
    
    60.09Exercised
    
    
    (5,218
    )
    
    
    32.85Forfeited
    
    
    
    
    
    
    Outstanding, end of period
    
    
    56,037
    
    
    $
    39.17Compensation expense ($ in thousands)
    
    
    
    
    
    $
    478
 Long-term Incentive Plan
  Management Incentive Payment Deferral Plan
  16




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##### Table of Contents



Agent Bonus Plan
  (4) EARNINGS PER SHARE
 SM SM
   17




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##### Table of Contents



For The Three Months Ended September 30,2006
    
    2005Number of
    
    Per Share
    
    
    
    
    
    Number of
    
    Per ShareNet Income
    
    Shares
    
    Amount
    
    Net Income
    
    Shares
    
    Amount($ in thousands, except share data)Basic EPSNet income available to common
stockholders from continuing
operations
    
    $
    5,327
    
    
    
    40,673
    
    
    $
    0.13
    
    
    $
    38,619
    
    
    
    38,488
    
    
    $
    1.00Effect of dilutive securitiesEquity compensation
    
    
    
    
    
    
    859
    
    
    
    
    
    
    
    
    
    
    
    949
    
    
    
    (0.02
    )PRIDES
    
    
    
    
    
    
    1,371
    
    
    
    (0.01
    )
    
    
    
    
    
    
    1,970
    
    
    
    (0.05
    )OCEANs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,119
    
    
    
    (0.02
    )Diluted EPS
    
    $
    5,327
    
    
    
    42,903
    
    
    $
    0.12
    
    
    $
    38,619
    
    
    
    42,526
    
    
    $
    0.91
  For The Nine Months Ended September 30,2006
    
    2005Number of
    
    Per Share
    
    
    
    
    
    Number of
    
    Per ShareNet Income
    
    Shares
    
    Amount
    
    Net Income
    
    Shares
    
    Amount($ in thousands, except share data)Basic EPSNet income available
to common
stockholders from
continuing
operations
    
    $
    128,777
    
    
    
    39,309
    
    
    $
    3.28
    
    
    $
    135,674
    
    
    
    39,102
    
    
    $
    3.47Effect of dilutive securitiesEquity compensation
    
    
    
    
    
    
    754
    
    
    
    (0.06
    )
    
    
    
    
    
    
    895
    
    
    
    (0.07
    )PRIDES
    
    
    
    
    
    
    2,028
    
    
    
    (0.16
    )
    
    
    
    
    
    
    1,684
    
    
    
    (0.14
    )OCEANs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,062
    
    
    
    (0.09
    )Diluted EPS
    
    $
    128,777
    
    
    
    42,091
    
    
    $
    3.06
    
    
    $
    135,674
    
    
    
    42,743
    
    
    $
    3.17
 (5) CLOSED BLOCK
   18




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##### Table of Contents



September 30,
    
    December 31,2006
    
    2005($ in thousands)Liabilities:Future life and annuity policy benefits
    
    $
    2,731,718
    
    
    $
    2,765,095Policyowner funds
    
    
    7,013
    
    
    
    7,835Accrued expenses and other liabilities
    
    
    11,439
    
    
    
    6,420Dividends payable to policyowners
    
    
    150,848
    
    
    
    154,793Policy and contract claims
    
    
    12,698
    
    
    
    17,986Policyowner dividend obligation
    
    
    76,498
    
    
    
    116,684Total Liabilities
    
    
    2,990,214
    
    
    
    3,068,813Assets:Fixed maturity securities available-for-sale at fair value
    
    
    1,932,794
    
    
    
    1,916,052Mortgage loans
    
    
    50,629
    
    
    
    60,541Policy loans
    
    
    334,294
    
    
    
    331,561Cash and cash equivalents
    
    
    2,201
    
    
    
    63,506Accrued investment income
    
    
    31,965
    
    
    
    32,972Premiums and fees receivable
    
    
    53,981
    
    
    
    58,778Total Assets
    
    
    2,405,864
    
    
    
    2,463,410Maximum future earnings to be recognized from assets and
liabilities of the Closed Block
    
    $
    584,350
    
    
    $
    605,403
  For The Three Months Ended September 30,2006
    
    2005($ in thousands)Operations:Insurance premiums
    
    $
    35,972
    
    
    $
    37,582Product charges
    
    
    1,409
    
    
    
    1,472Net investment income
    
    
    35,513
    
    
    
    35,393Realized gains ( losses) on investments
    
    
    121
    
    
    
    (650
    )Policyowner benefits
    
    
    (49,071
    )
    
    
    (47,174
    )Underwriting, acquisition and other expenses
    
    
    (842
    )
    
    
    (785
    )Dividends to policyowners
    
    
    (14,514
    )
    
    
    (17,066
    )Contribution from the Closed Block before
income taxes
    
    $
    8,588
    
    
    $
    8,772
  For The Nine Months Ended September 30,2006
    
    2005($ in thousands)Operations:Insurance premiums
    
    $
    111,344
    
    
    $
    122,467Product charges
    
    
    4,527
    
    
    
    4,618Net investment income
    
    
    107,114
    
    
    
    110,173Realized losses on investments
    
    
    (1,997
    )
    
    
    (560
    )Policyowner benefits
    
    
    (143,722
    )
    
    
    (142,577
    )Underwriting, acquisition and other expenses
    
    
    (3,881
    )
    
    
    (1,973
    )Dividends to policyowners
    
    
    (46,851
    )
    
    
    (65,057
    )Contribution from the Closed Block before
income taxes
    
    $
    26,534
    
    
    $
    27,091
 19




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##### Table of Contents



(6) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
   Nine Months Ended September 30, 2006Total Return
    
    
    IndexedProducts
    
    
    Products
    
    
    Other
    
    
    Total($ in thousands)Fixed maturity securities held-for-trading
    
    $
    13,770
    
    
    $
    
    
    
    $
    220
    
    
    $
    13,990Options
    
    
    
    
    
    
    65,970
    
    
    
    1
    
    
    
    65,971Market value adjustment to liabilities
    
    
    (14,394
    )
    
    
    (64,150
    )
    
    
    1,614
    
    
    
    (76,930
    )Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183DAC and deferred sales inducements
amortization
of impact of net adjustments above
    
    
    (107
    )
    
    
    (2,299
    )
    
    
    
    
    
    
    (2,406
    )Pre-tax total
    
    
    (731
    )
    
    
    (479
    )
    
    
    2,018
    
    
    
    808Income taxes
    
    
    256
    
    
    
    168
    
    
    
    (706
    )
    
    
    (282
    )After-tax total
    
    $
    (475
    )
    
    $
    (311
    )
    
    $
    1,312
    
    
    $
    526
  Nine Months Ended September 30, 2005Total Return
    
    
    IndexedProducts
    
    
    Products
    
    
    Other
    
    
    Total($ in thousands)Fixed maturity securities held-for-trading
    
    $
    (11,842
    )
    
    $
    
    
    
    $
    (3,077
    )
    
    $
    (14,919
    )Options
    
    
    
    
    
    
    (1,723
    )
    
    
    18
    
    
    
    (1,705
    )Market value adjustment to liabilities
    
    
    2,912
    
    
    
    13,535
    
    
    
    2,956
    
    
    
    19,403Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    112DAC and deferred sales inducements
amortization
of impact of net adjustments above
    
    
    824
    
    
    
    (5,531
    )
    
    
    
    
    
    
    (4,707
    )Pre-tax total
    
    
    (8,106
    )
    
    
    6,281
    
    
    
    9
    
    
    
    (1,816
    )Income taxes
    
    
    2,837
    
    
    
    (2,198
    )
    
    
    (3
    )
    
    
    636After-tax total
    
    $
    (5,269
    )
    
    $
    4,083
    
    
    $
    6
    
    
    $
    (1,180
    )
 20




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##### Table of Contents



(7) EQUITY TRANSACTIONS
  (8) FEDERAL INCOME TAXES
  (9) COMMITMENTS AND CONTINGENCIES
  21




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22




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##### Table of Contents



(10) EMPLOYEE BENEFIT PLANS
  Nine Months Ended September 30,2006
    
    
    2005($ in thousands)Components of net periodic benefit cost:Service cost
    
    $
    799
    
    
    $
    235Interest cost
    
    
    4,598
    
    
    
    4,416Expected return on plan assets
    
    
    (3,656
    )
    
    
    (3,647
    )Amortization of prior service
cost
    
    
    (103
    )
    
    
    66Amortizaton of actuarial loss
    
    
    506
    
    
    
    535Total expense
    
    $
    2,144
    
    
    $
    1,605
 (11) ACCOUNTING DEVELOPMENTS
   23




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##### Table of Contents



(12) OPERATING SEGMENTS
      1)
    
    Realized/unrealized gains and losses on open block assets.2)
    
    Market value changes and amortization of assets and liabilities associated with
the accounting for derivatives, such as:
 
    
    Unrealized gains and losses on open block options and securities held
for trading.
    
    Change in option value of indexed products and market value adjustments
on total return strategy annuities.
    
    Cash flow hedge amortization.
 3)
    
    Amortization of deferred policy acquisition costs (DAC) and value of business
acquired (VOBA) related to the unrealized and realized gains and losses on the open
block investments and the derivative adjustments.4)
    
    Amortization of deferred sales inducements related to the unrealized and
realized gains and losses on the open block investments and the derivative adjustments5)
    
    Other income from non-insurance operations.6)
    
    Litigation accruals following class certification, net of insurance recoveries.7)
    
    Merger costs associated with proposed merger with Aviva plc.8)
    
    Interest expense.9)
    
    Early extinguishment of debt.10)
    
    Income tax expense.
  24




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25




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Three Months Ended September 30, 2006Protection
    
    
    Accumulation
    
    
    
    
    
    
    TotalProducts
    
    
    Products
    
    
    All Other
    
    
    ConsolidatedRevenues:Insurance premiums
    
    $
    49,916
    
    
    $
    1,168
    
    
    $
    184
    
    
    $
    51,268Product charges
    
    
    54,176
    
    
    
    16,349
    
    
    
    
    
    
    
    70,525Net investment income
    
    
    89,086
    
    
    
    200,328
    
    
    
    1,237
    
    
    
    290,651Realized/unrealized gains on closed block investments
    
    
    122
    
    
    
    
    
    
    
    
    
    
    
    122Other income:Income from Independent Marketing Organizations
    
    
    
    
    
    
    8,017
    
    
    
    
    
    
    
    8,017Other
    
    
    902
    
    
    
    2,641
    
    
    
    886
    
    
    
    4,429194,202
    
    
    
    228,503
    
    
    
    2,307
    
    
    
    425,012Benefits and expenses:Policyowner benefits
    
    
    91,617
    
    
    
    131,119
    
    
    
    412
    
    
    
    223,148Underwriting, acquisition, and other expenses:Operating expenses
    
    
    18,773
    
    
    
    9,815
    
    
    
    5,574
    
    
    
    34,162Expenses from Independent Marketing Organizations
    
    
    
    
    
    
    5,707
    
    
    
    
    
    
    
    5,707Amortization of DAC and VOBA
    
    
    25,009
    
    
    
    28,655
    
    
    
    
    
    
    
    53,664Dividends to policyowners
    
    
    16,368
    
    
    
    1
    
    
    
    
    
    
    
    16,369151,767
    
    
    
    175,297
    
    
    
    5,986
    
    
    
    333,050Segment pre-tax operating income
    
    $
    42,435
    
    
    $
    53,206
    
    
    $
    (3,679
    )
    
    
    91,962Realized/unrealized losses on open block assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,999
    )Unrealized gains on open block options and trading
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,386Change in option value of indexed
products and market value adjustments on
total return strategy annuities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139,271
    )Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129Amortization of DAC and VOBA due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,420Amortization of deferred sales inducements due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,780Litigation following class certification, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,179
    )Merger costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,390
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,838Interest (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,148
    )Income tax (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,260
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,430Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,718
    )Loss on redemption of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,385
    )Net income available to common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,327
 26




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##### Table of Contents



Three Months Ended September 30, 2005Protection
    
    
    Accumulation
    
    
    
    
    
    
    TotalProducts
    
    
    Products
    
    
    All Other
    
    
    ConsolidatedRevenues:Insurance premiums
    
    $
    53,535
    
    
    $
    727
    
    
    $
    341
    
    
    $
    54,603Product charges
    
    
    51,350
    
    
    
    13,589
    
    
    
    
    
    
    
    64,939Net investment income
    
    
    88,930
    
    
    
    189,332
    
    
    
    379
    
    
    
    278,641Realized/unrealized losses on closed
block investments
    
    
    (650
    )
    
    
    
    
    
    
    
    
    
    
    (650
    )Other income:Income from Independent Marketing Organizations
    
    
    
    
    
    
    7,331
    
    
    
    
    
    
    
    7,331Other
    
    
    879
    
    
    
    2,551
    
    
    
    566
    
    
    
    3,996194,044
    
    
    
    213,530
    
    
    
    1,286
    
    
    
    408,860Benefits and expenses:Policyowner benefits
    
    
    87,918
    
    
    
    130,529
    
    
    
    (387
    )
    
    
    218,060Underwriting, acquisition, and other expenses:Operating expenses
    
    
    19,473
    
    
    
    7,230
    
    
    
    8,278
    
    
    
    34,981Expenses from Independent Marketing Organizations
    
    
    
    
    
    
    5,873
    
    
    
    
    
    
    
    5,873Amortization of DAC and VOBA
    
    
    27,598
    
    
    
    22,030
    
    
    
    
    
    
    
    49,628Dividends to policyowners
    
    
    18,769
    
    
    
    1
    
    
    
    
    
    
    
    18,770153,758
    
    
    
    165,663
    
    
    
    7,891
    
    
    
    327,312Segment pre-tax operating income
    
    $
    40,286
    
    
    $
    47,867
    
    
    $
    (6,605
    )
    
    
    81,548Realized/unrealized losses on open block assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (793
    )Unrealized gains on open block options and trading
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,805Change in option value of indexed products and market
value adjustments on total return strategy annuities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,814Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Amortization of DAC and VOBA due to open block gains
and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,086
    )Litigation following class certification, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,380
    )Other income from non-insurance operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,103Interest (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,725
    )Early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,082
    )Income tax (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,677
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,619Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income available to common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    38,619
 27




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##### Table of Contents



Nine Months Ended September 30, 2006Protection
    
    
    Accumulation
    
    
    
    
    
    
    TotalProducts
    
    
    Products
    
    
    All Other
    
    
    ConsolidatedRevenues:Insurance premiums
    
    $
    156,844
    
    
    $
    2,568
    
    
    $
    199
    
    
    $
    159,611Product charges
    
    
    160,534
    
    
    
    46,793
    
    
    
    
    
    
    
    207,327Net investment income
    
    
    266,645
    
    
    
    594,261
    
    
    
    2,035
    
    
    
    862,941Realized/unrealized losses on closed block investments
    
    
    (1,996
    )
    
    
    
    
    
    
    
    
    
    
    (1,996
    )Other income:Income from Independent Marketing Organizations
    
    
    
    
    
    
    24,223
    
    
    
    
    
    
    
    24,223Other
    
    
    2,659
    
    
    
    7,924
    
    
    
    2,525
    
    
    
    13,108584,686
    
    
    
    675,769
    
    
    
    4,759
    
    
    
    1,265,214Benefits and expenses:Policyowner benefits
    
    
    277,081
    
    
    
    384,715
    
    
    
    273
    
    
    
    662,069Underwriting, acquisition, and other expenses:Operating expenses
    
    
    54,538
    
    
    
    28,633
    
    
    
    21,804
    
    
    
    104,975Expenses from Independent Marketing Organizat ions
    
    
    
    
    
    
    18,117
    
    
    
    
    
    
    
    18,117Amortization of DAC and VOBA
    
    
    72,917
    
    
    
    81,761
    
    
    
    
    
    
    
    154,678Dividends to policyowners
    
    
    52,783
    
    
    
    2
    
    
    
    
    
    
    
    52,785457,319
    
    
    
    513,228
    
    
    
    22,077
    
    
    
    992,624Segment pre-tax operating income
    
    $
    127,367
    
    
    $
    162,541
    
    
    $
    (17,318
    )
    
    
    272,590Realized/unrealized losses on open block assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,676
    )Unrealized gains on open block options and
trading investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,961Change in option value of indexed
products and market value adjustments on
total return strategy annuities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,930
    )Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183Amortization of DAC and VOBA due to open block gains and
losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,152Amortization of deferred sales inducements due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,477
    )Litigation following class certification, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,179
    )Merger costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,390
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    253,234Interest (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,578
    )Income tax (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78,338
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148,318Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,156
    )Loss on redemption of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,385
    )Net income available to common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    128,777
 28




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##### Table of Contents



Nine Months Ended September 30, 2005Protection
    
    
    Accumulation
    
    
    
    
    
    
    TotalProducts
    
    
    Products
    
    
    All Other
    
    
    ConsolidatedRevenues:Insurance premiums
    
    $
    174,587
    
    
    $
    2,263
    
    
    $
    1,300
    
    
    $
    178,150Product charges
    
    
    139,073
    
    
    
    39,537
    
    
    
    
    
    
    
    178,610Net investment income
    
    
    268,799
    
    
    
    554,531
    
    
    
    1,062
    
    
    
    824,392Realized/unrealized losses on closed block investments
    
    
    (560
    )
    
    
    
    
    
    
    
    
    
    
    (560
    )Other income:Income from Independent Marketing Organizations
    
    
    
    
    
    
    23,495
    
    
    
    
    
    
    
    23,495Other
    
    
    2,597
    
    
    
    7,755
    
    
    
    1,630
    
    
    
    11,982584,496
    
    
    
    627,581
    
    
    
    3,992
    
    
    
    1,216,069Benefits and expenses:Policyowner benefits
    
    
    256,293
    
    
    
    388,152
    
    
    
    67
    
    
    
    644,512Underwriting, acquisition, and other expenses:Operating expenses
    
    
    57,352
    
    
    
    21,391
    
    
    
    21,762
    
    
    
    100,505Expenses from Independent Marketing Organizations
    
    
    
    
    
    
    19,376
    
    
    
    
    
    
    
    19,376Amortization of DAC and VOBA
    
    
    74,576
    
    
    
    68,236
    
    
    
    
    
    
    
    142,812Dividends to policyowners
    
    
    70,633
    
    
    
    4
    
    
    
    
    
    
    
    70,637458,854
    
    
    
    497,159
    
    
    
    21,829
    
    
    
    977,842Segment pre-tax operating income
    
    $
    125,642
    
    
    $
    130,422
    
    
    $
    (17,837
    )
    
    
    238,227Realized/unrealized losses on open block assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,133
    )Unrealized losses on open block options and trading
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,623
    )Change in option value of indexed
products and market value adjustments on
total return strategy annuities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,403Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112Amortization of DAC and VOBA due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,703
    )Litigation following class certification, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,380
    )Other income from non-insurance operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (205
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225,698Interest (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,696
    )Early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,082
    )Income tax (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,246
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,674Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income available to common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    135,674
 29




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##### Table of Contents



Item 2. Managements Discussion And Analysis Of Financial Condition And Results Of Operations
  PROPOSED MERGER
    NATURE OF OPERATIONS
  30




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##### Table of Contents



FINANCIAL HIGHLIGHTS
  For The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006

    2005
    
    2006

    2005($ in thousands, except share data)Segment pre-tax operating income:Protection Products
    
    $
    42,435
    
    
    $
    40,286
    
    
    $
    127,367
    
    
    $
    125,642Accumulation Products
    
    
    53,206
    
    
    
    47,867
    
    
    
    162,541
    
    
    
    130,422Other operations
    
    
    (3,679
    )
    
    
    (6,605
    )
    
    
    (17,318
    )
    
    
    (17,837
    )Total se gment pre-tax operating income
    
    
    91,962
    
    
    
    81,548
    
    
    
    272,590
    
    
    
    238,227Non-segment expense, net (A)
    
    
    72,532
    
    
    
    42,929
    
    
    
    124,272
    
    
    
    102,553Net income
    
    
    19,430
    
    
    
    38,619
    
    
    
    148,318
    
    
    
    135,674Dividends on preferred stock
    
    
    2,718
    
    
    
    
    
    
    
    8,156
    
    
    
    Loss on redemption of preferred stock
    
    
    11,385
    
    
    
    
    
    
    
    11,385
    
    
    
    Net income available to common stockholders
    
    $
    5,327
    
    
    $
    38,619
    
    
    $
    128,777
    
    
    $
    135,674Diluted net income available to common
stockholders per common share
    
    $
    0.12
    
    
    $
    0.91
    
    
    $
    3.06
    
    
    $
    3.17
 September 30,
    
    December 31,2006
    
    2005Total assets
    
    $
    25,961,439
    
    
    $
    24,830,000Stockholders equity
    
    $
    1,723,626
    
    
    $
    1,702,315
 
 (A)
    
    Non-segment expense, net consists primarily of open block
realized/unrealized gains and losses, derivative related market value
adjustments, litigation following class certification, merger costs, interest
expense, early extinguishment of debt, and income taxes.    31




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##### Table of Contents



PROTECTION PRODUCTS
  For The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006

    2005
    
    2006
    2005($ in thousands)Revenues:Insurance premiums
    
    $
    49,916
    
    
    $
    53,535
    
    
    $
    156,844
    
    
    $
    174,587Product charges
    
    
    54,176
    
    
    
    51,350
    
    
    
    160,534
    
    
    
    139,073Net investment income
    
    
    89,086
    
    
    
    88,930
    
    
    
    266,645
    
    
    
    268,799Realized gains (losses) on closed block investments
    
    
    122
    
    
    
    (650
    )
    
    
    (1,996
    )
    
    
    (560
    )Other income
    
    
    902
    
    
    
    879
    
    
    
    2,659
    
    
    
    2,597Total revenues
    
    
    194,202
    
    
    
    194,044
    
    
    
    584,686
    
    
    
    584,496Benefits and expenses:Policyowner benefits
    
    
    91,617
    
    
    
    87,918
    
    
    
    277,081
    
    
    
    256,293Underwriting, acquisition and other expenses
    
    
    18,773
    
    
    
    19,473
    
    
    
    54,538
    
    
    
    57,352Amortization of DAC and VOBA, net of open block
gain/loss adjustment
    
    
    25,009
    
    
    
    27,598
    
    
    
    72,917
    
    
    
    74,576Dividends to policyowners
    
    
    16,368
    
    
    
    18,769
    
    
    
    52,783
    
    
    
    70,633Total benefits and expenses
    
    
    151,767
    
    
    
    153,758
    
    
    
    457,319
    
    
    
    458,854Pre-tax operating income  Protection Products segment
    
    $
    42,435
    
    
    $
    40,286
    
    
    $
    127,367
    
    
    $
    125,642
  Sales.
 32




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##### Table of Contents



Sales Activity by ProductFor The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006

    2005
    
    2006

    2005($ in thousands)Traditional life insurance:Interest-sensitive whole life
    
    $
    61
    
    
    $
    159
    
    
    $
    223
    
    
    $
    392Term and other life
    
    
    1,501
    
    
    
    2,835
    
    
    
    4,633
    
    
    
    9,241Universal life:Flexible premium without no lapse guarantee
    
    
    733
    
    
    
    2,651
    
    
    
    2,110
    
    
    
    10,913Single premium
    
    
    23
    
    
    
    
    
    
    
    68
    
    
    
    Indexed life:Flexible premium without no lapse guarantee
    
    
    23,816
    
    
    
    17,694
    
    
    
    68,826
    
    
    
    48,703Flexible premium with no lapse guarantee
    
    
    6,335
    
    
    
    3,386
    
    
    
    16,406
    
    
    
    9,955Fixed premium excess interest whole life
    
    
    397
    
    
    
    2,843
    
    
    
    2,286
    
    
    
    7,473Single premium
    
    
    658
    
    
    
    
    
    
    
    2,075
    
    
    
    Total
    
    $
    33,524
    
    
    $
    29,568
    
    
    $
    96,627
    
    
    $
    86,677
  Premiums and Product Charges.
  Persistency.
 Net Investment Income.
 Mortality and Benefit Expense.
 33




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##### Table of Contents



Underwriting, Acquisition and Other Expenses.
 Amortization of DAC and VOBA.
 Dividends to Policyowners.
  ACCUMULATION PRODUCTS
  34




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##### Table of Contents



For The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006

    2005
    
    2006

    2005($ in thousands)Revenues:Immediate annuity and supplementary contract premiums
    
    $
    1,168
    
    
    $
    727
    
    
    $
    2,568
    
    
    $
    2,263Product charges
    
    
    16,349
    
    
    
    13,589
    
    
    
    46,793
    
    
    
    39,537Net investment income
    
    
    200,328
    
    
    
    189,332
    
    
    
    594,261
    
    
    
    554,531Other income
    
    
    2,641
    
    
    
    2,551
    
    
    
    7,924
    
    
    
    7,755Total revenues
    
    
    220,486
    
    
    
    206,199
    
    
    
    651,546
    
    
    
    604,086Benefits and expenses:Policyowner benefits
    
    
    131,119
    
    
    
    130,529
    
    
    
    384,715
    
    
    
    388,152Underwriting, acquisition and other expenses
    
    
    9,815
    
    
    
    7,230
    
    
    
    28,633
    
    
    
    21,391Amortization of DAC and VOBA
    
    
    28,655
    
    
    
    22,030
    
    
    
    81,761
    
    
    
    68,236Dividends to policyowners
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    4Total benefits and expenses
    
    
    169,590
    
    
    
    159,790
    
    
    
    495,111
    
    
    
    477,783IMO Operations:Other income
    
    
    8,017
    
    
    
    7,331
    
    
    
    24,223
    
    
    
    23,495Other expenses
    
    
    5,707
    
    
    
    5,873
    
    
    
    18,117
    
    
    
    19,376Net IMO operating income
    
    
    2,310
    
    
    
    1,458
    
    
    
    6,106
    
    
    
    4,119Pre-tax operating income  Accumulation Products segment
    
    $
    53,206
    
    
    $
    47,867
    
    
    $
    162,541
    
    
    $
    130,422
  Deposits.
 Deposits by ProductFor The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006

    2005
    
    2006

    2005($ in thousands)AnnuitiesDeferred fixed annuities:Traditional fixed annuities
    
    $
    49,988
    
    
    $
    52,917
    
    
    $
    132,791
    
    
    $
    191,277Indexed annuities
    
    
    637,017
    
    
    
    632,875
    
    
    
    1,699,182
    
    
    
    1,778,971Variable annuities
    
    
    397
    
    
    
    864
    
    
    
    1,481
    
    
    
    2,002Total direct annuities
    
    
    687,402
    
    
    
    686,656
    
    
    
    1,833,454
    
    
    
    1,972,250Funding agreements
    
    
    436,000
    
    
    
    
    
    
    
    610,666
    
    
    
    26,200Total
    
    
    1,123,402
    
    
    
    686,656
    
    
    
    2,444,120
    
    
    
    1,998,450Reinsurance ceded
    
    
    (335
    )
    
    
    (1,883
    )
    
    
    (1,373
    )
    
    
    (6,117
    )Total deposits, net of reinsurance
    
    $
    1,123,067
    
    
    $
    684,773
    
    
    $
    2,442,747
    
    
    $
    1,992,333
  35




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##### Table of Contents



Product Charges.
 Persistency.
 Product Spread.
 For The Rolling Four Quarters Ended September 30,2006
    
    
    2005Asset earned rate
    
    
    5.70
    %
    
    
    5.73
    %Liability credited rate
    
    
    3.39
    %
    
    
    3.58
    %Product spread
    
    
    2.31
    %
    
    
    2.15
    %
   36




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##### Table of Contents



Underwriting, Acquisition and Other Expenses.
 Amortization of DAC and VOBA.
 IMO Operations.
 OTHER
  37




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##### Table of Contents



INCOME STATEMENT RECONCILIATION
  For The Three Months Ended September 30,
    
    For The Nine Months Ended September 30,2006

    2005
    
    2006

    2005($ in thousands)
    
    ($ in thousands)Segment pre-tax operating income:Protection Products
    
    $
    42,435
    
    
    $
    40,286
    
    
    $
    127,367
    
    
    $
    125,642Accumulation Products
    
    
    53,206
    
    
    
    47,867
    
    
    
    162,541
    
    
    
    130,422Other operations
    
    
    (3,679
    )
    
    
    (6,605
    )
    
    
    (17,318
    )
    
    
    (17,837
    )Total segment pre-tax operating income
    
    
    91,962
    
    
    
    81,548
    
    
    
    272,590
    
    
    
    238,227Non-segment items  increases (decreases) to income:Realized and unrealized gains (losses) on assets and liabilities:Realized/unrealized losses on open block assets
    
    
    (10,999
    )
    
    
    (793
    )
    
    
    (18,676
    )
    
    
    (2,133
    )Unrealized gains (losses) on open block options and
trading investments
    
    
    82,386
    
    
    
    24,805
    
    
    
    79,961
    
    
    
    (16,623
    )Change in option value of indexed products
and market value adjustments on total return
strategy annuities
    
    
    (139,271
    )
    
    
    6,814
    
    
    
    (76,930
    )
    
    
    19,403Cash flow hedge amortization
    
    
    129
    
    
    
    35
    
    
    
    183
    
    
    
    112(Amortization) restoration of DAC and VOBA due to
open block gains and losses and market value adjustments
    
    
    16,420
    
    
    
    (9,086
    )
    
    
    2,152
    
    
    
    (3,703
    )(Amortization) restoration of deferred sales inducements due
to open block gains and losses and market value adjustments
    
    
    4,780
    
    
    
    
    
    
    
    (1,477
    )
    
    
    Litigation following class certification, net
    
    
    (3,179
    )
    
    
    (9,380
    )
    
    
    (3,179
    )
    
    
    (9,380
    )Merger costs
    
    
    (1,390
    )
    
    
    
    
    
    
    (1,390
    )
    
    
    Other income (loss) from non-insurance operations
    
    
    
    
    
    
    160
    
    
    
    
    
    
    
    (205
    )Income from continuing operations
    
    
    40,838
    
    
    
    94,103
    
    
    
    253,234
    
    
    
    225,698Interest expense
    
    
    (9,148
    )
    
    
    (7,725
    )
    
    
    (26,578
    )
    
    
    (23,696
    )Early extinguishment of debt
    
    
    
    
    
    
    (19,082
    )
    
    
    
    
    
    
    (19,082
    )Income tax expense
    
    
    (12,260
    )
    
    
    (28,677
    )
    
    
    (78,338
    )
    
    
    (47,246
    )Net income
    
    
    19,430
    
    
    
    38,619
    
    
    
    148,318
    
    
    
    135,674Dividends on preferred stock
    
    
    (2,718
    )
    
    
    
    
    
    
    (8,156
    )
    
    
    Loss on redemption of preferred stock
    
    
    (11,385
    )
    
    
    
    
    
    
    (11,385
    )
    
    
    Net income available to common stockholders
    
    $
    5,327
    
    
    $
    38,619
    
    
    $
    128,777
    
    
    $
    135,674
 Realized and Unrealized Gains (Losses) on Assets and Liabilities.
  38




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##### Table of Contents



Litigation
Following Class Certification, Net.
 Merger Costs.
 Early Extinguishment of Debt.
 Income Tax Expense.
 Loss on Redemption of Preferred Stock.
 39




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ACCOUNTING DEVELOPMENTS
    LIQUIDITY AND CAPITAL RESOURCES
 AmerUs Group Co.
   40




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41




---



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Insurance Subsidiaries
      42




---



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43




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      44




---



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3 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    Cash Flows
    
    
    Fair Value($ in millions)Fixed maturity securities
available-for-sale
    
    $
    223
    
    
    $
    975
    
    
    $
    1,143
    
    
    $
    963
    
    
    $
    735
    
    
    $
    1,306
    
    
    $
    12,240
    
    
    $
    17,585
    
    
    $
    17,483Average interest rate
    
    
    8.0
    %
    
    
    6.1
    %
    
    
    6.1
    %
    
    
    6.1
    %
    
    
    5.9
    %
    
    
    5.9
    %
    
    
    5.9
    %Fixed maturity securities
held-for-trading purposes
    
    $
    20
    
    
    $
    216
    
    
    $
    247
    
    
    $
    126
    
    
    $
    109
    
    
    $
    152
    
    
    $
    386
    
    
    $
    1,256
    
    
    $
    1,256Average interest rate
    
    
    3.0
    %
    
    
    2.9
    %
    
    
    2.9
    %
    
    
    3.7
    %
    
    
    2.8
    %
    
    
    3.9
    %
    
    
    4.5
    %Mortgage loans
    
    $
    16
    
    
    $
    58
    
    
    $
    72
    
    
    $
    65
    
    
    $
    74
    
    
    $
    105
    
    
    $
    629
    
    
    $
    1,019
    
    
    $
    1,026Average interest rate
    
    
    6.6
    %
    
    
    6.7
    %
    
    
    6.7
    %
    
    
    6.7
    %
    
    
    6.6
    %
    
    
    6.6
    %
    
    
    6.4
    %Total
    
    $
    259
    
    
    $
    1,249
    
    
    $
    1,462
    
    
    $
    1,154
    
    
    $
    918
    
    
    $
    1,563
    
    
    $
    13,255
    
    
    $
    19,860
    
    
    $
    19,765
      
 Item 4. Controls and Procedures
  45




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
     46




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##### Table of Contents



Item 1A. Risk Factors
 Business uncertainties and contractual restrictions could lead to adverse effects on our business
and operating results prior to completion of the planned Merger with Aviva plc.
  If we are unable to complete the planned Merger, our business, financial condition, operating
results and stock price could suffer.
  47




---



##### Table of Contents




    
    we would remain liable for significant costs relating to the planned Merger,
including, among others, legal, accounting, financial advisory and financial
printing expenses;
 
    
    an announcement that we have abandoned the planned Merger could trigger a
decline in our stock price, to the extent that our stock price reflects a market
assumption that we will complete the Merger; and
 
    
    we may be required to pay a termination fee of $90 million plus expense
reimbursements of up to $12.5 million if the Merger Agreement is terminated under
certain circumstances.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Unregistered
Equity Securities Sold
  Equity Securities Purchased
  (c) Total number
    
    
    (d) Maximum numberof shares (or
    
    
    (or approximate dollar(a) Total
    
    
    (b) Average
    
    
    units) purchased
    
    
    value) of sharesnumber of
    
    
    price paid
    
    
    as part of publicly
    
    
    (or units) that mayshares (or units)
    
    
    per share
    
    
    announced plans
    
    
    yet be purchased underPeriod
    
    purchased (1)
    
    
    (or units)
    
    
    or programs
    
    
    the plans or programs (2)01/01/2006-01/31/2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    3,465,50002/01/2006-02/28/2006
    
    
    32,000
    
    
    
    59.96
    
    
    
    32,000
    
    
    
    3,433,50003/01/2006-03/31/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,433,50004/01/2006-04/30/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,433,50005/01/2006-05/31/2006
    
    
    599,398
    (3)
    
    
    58.65
    
    
    
    599,398
    
    
    
    2,834,10206/01/2006-06/30/2006
    
    
    99,625
    (3)
    
    
    58.65
    
    
    
    99,625
    
    
    
    2,734,47707/01/2006-07/31/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,734,47708/01/2006-08/31/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,734,47709/01/2006-09/30/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,734,477Total
    
    
    731,023
    
    
    
    58.71
    
    
    
    731,023
 
 (1)
    
    Does not include shares withheld from employee stock awards to satisfy applicable tax
withholding obligations.(2)
    
    On June 24, 2005, our board of directors authorized a repurchase program of up to 6
million shares of our outstanding common stock. The program replaced and terminated a previous
program which authorized repurchase of up to 3 million shares. There is no expiration date
for this program. In connection with the Merger Agreement, Avivas consent is required for any
future common stock purchases.(3)
    
    Includes 599,398 shares purchased in connection with an accelerated stock buyback program on
May 4, 2006, and an additional 99,625 shares received with the final settlement of the
program on June 13, 2006. 48




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  
 
 Item 6. Exhibits
  49




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##### Table of Contents



SIGNATURES
  DATED: November 1, 2006
    
    AMERUS GROUP CO.By
    
    /s/ Melinda S. UrionMelinda S. Urion

Executive Vice President,Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Brenda J. CushingBrenda J. CushingSenior Vice President and Controller(Principal Accounting Officer)
 50




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##### Table of Contents



AMERUS GROUP CO. AND SUBSIDIARIES
 
 INDEX TO EXHIBITS
 ExhibitNo.
    
    Description2.1
    
    Agreement and Plan of Merger by and among Aviva plc, Libra Acquisition Corporation and AmerUs
Group, filed as Exhibit 2.1 on Form 8-K dated July 12, 2006 is hereby incorporated by
reference.3.1
    
    Amended and Restated Articles of Incorporation of the Registrant filed as Exhibit 3.1 on Form
10-Q, on November 8, 2005, is hereby incorporated by reference.3.2
    
    Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.2 on Form 10-Q, dated
August 6, 2004, is hereby incorporated by reference.10.1*
    
    First Amendment dated
October 30, 2006 to the Amended and Restated Credit Agreement
dated June 16, 2006.11.1
    
    Statement Re: Computation of Per Share Earnings is included in note 3 to the consolidated
financial statements.12*
    
    Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends.31.1*
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13(a)-15(e) or
Rule 15(d)-15(e).31.2*
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13(a)-15(e) or
Rule 15(d)-15(e).32.1*
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.32.2*
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.
 
 *
    
    included herein 51