##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 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
June 30, 2006 (Unaudited) and December 31, 2005
    
    
    4Consolidated Statements of Income (Unaudited)
For the Three and Six Months Ended June 30, 2006 and 2005
    
    
    6Consolidated Statements of Comprehensive Income (Unaudited)
For the Three and Six Months Ended June 30, 2006 and 2005
    
    
    7Consolidated Statements of Stockholders Equity
For the Six Months Ended June 30, 2006 (Unaudited) and
the Year Ended December 31, 2005
    
    
    8Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 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
    
    
    43Item 4. Controls and Procedures
    
    
    44PART II  OTHER INFORMATION
    
    
    45Item 1. Legal Proceedings
    
    
    45Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    47Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    48Item 6. Exhibits
    
    
    48Signatures
    
    
    49Index to Exhibits
    
    
    50Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock DividendsCertification of CEOCertification of CFOCertification of CEOCertification of CFO
  2




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SAFE HARBOR STATEMENT
   3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AMERUS GROUP CO.
 
 
 June 30,
    
    
    December 31,2006
    
    
    2005(unaudited)AssetsInvestments:Securities available-for-sale at fair value:Fixed maturity securities
    
    $
    16,201,102
    
    
    $
    16,727,933Equity securities
    
    
    80,119
    
    
    
    75,658Short-term investments
    
    
    9,999
    
    
    
    9,998Securities held-for-trading purposes at fair value:Fixed maturity securities
    
    
    1,276,341
    
    
    
    1,414,225Equity securities
    
    
    4,143
    
    
    
    2,358Short-term investments
    
    
    3,962
    
    
    
    Mortgage loans
    
    
    988,008
    
    
    
    976,135Policy loans
    
    
    500,410
    
    
    
    483,441Other investments
    
    
    425,004
    
    
    
    347,552Total investments
    
    
    19,489,088
    
    
    
    20,037,300Cash and cash equivalents
    
    
    491,229
    
    
    
    600,160Accrued investment income
    
    
    236,155
    
    
    
    237,221Premiums, fees and other receivables
    
    
    35,855
    
    
    
    40,667Income taxes receivable
    
    
    25,477
    
    
    
    9,005Reinsurance receivables
    
    
    745,907
    
    
    
    730,532Deferred policy acquisition costs
    
    
    2,134,740
    
    
    
    1,755,159Deferred sales inducements
    
    
    340,675
    
    
    
    261,322Value of business acquired
    
    
    356,674
    
    
    
    356,949Goodwill
    
    
    229,670
    
    
    
    228,869Property and equipment
    
    
    46,398
    
    
    
    44,467Other assets
    
    
    312,851
    
    
    
    306,655Separate account assets
    
    
    209,605
    
    
    
    221,694Total assets
    
    $
    24,654,324
    
    
    $
    24,830,000
  4




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##### Table of Contents



AMERUS GROUP CO.
 June 30,
    
    
    December 31,2006
    
    
    2005(unaudited)Liabilities and Stockholders EquityLiabilities:Policy reserves and policyowner funds:Future life and annuity policy benefits
    
    $
    19,690,434
    
    
    $
    19,486,854Policyowner funds
    
    
    1,584,548
    
    
    
    1,483,87321,274,982
    
    
    
    20,970,727Accrued expenses and other liabilities
    
    
    438,726
    
    
    
    500,858Payable for collateral under securities lending and other
transactions
    
    
    391,468
    
    
    
    474,561Dividends payable to policyowners
    
    
    160,874
    
    
    
    278,839Policy and contract claims
    
    
    50,329
    
    
    
    66,137Deferred income taxes
    
    
    3,191
    
    
    
    58,818Notes payable
    
    
    564,744
    
    
    
    556,051Separate account liabilities
    
    
    209,605
    
    
    
    221,694Total liabilities
    
    
    23,093,919
    
    
    
    23,127,685Stockholders equity:Preferred Stock, no par value, 20,000,000 shares
authorized, 6,000,000 shares issued and
outstanding in 2006 and 2005
    
    
    144,774
    
    
    
    144,830Common Stock, no par value, 230,000,000 shares
authorized; 46,944,310 shares issued and
38,137,344 shares outstanding in 2006;
46,675,811 shares issued and 38,612,874 shares
outstanding in 2005
    
    
    46,944
    
    
    
    46,676Additional paid-in capital  common stock
    
    
    1,244,023
    
    
    
    1,231,533Accumulated other comprehensive loss
    
    
    (219,214
    )
    
    
    (3,612
    )Unearned compensation
    
    
    
    
    
    
    (3,783
    )Retained earnings
    
    
    728,197
    
    
    
    604,747Treasury stock, at cost (8,806,966 shares in 2006
and 8,062,937 shares in 2005)
    
    
    (384,319
    )
    
    
    (318,076
    )Total stockholders equity
    
    
    1,560,405
    
    
    
    1,702,315Total liabilities and stockholders equity
    
    $
    24,654,324
    
    
    $
    24,830,000
  5




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##### Table of Contents



AMERUS GROUP CO.
 
 
 For The Three Months Ended June 30,
    
    For The Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005(unaudited)Revenues:Insurance premiums
    
    $
    54,845
    
    
    $
    61,001
    
    
    $
    108,343
    
    
    $
    123,547Product charges
    
    
    68,740
    
    
    
    54,638
    
    
    
    136,802
    
    
    
    113,671Net investment income
    
    
    286,972
    
    
    
    277,040
    
    
    
    572,290
    
    
    
    545,751Realized/unrealized capital gains (losses)
    
    
    (62,865
    )
    
    
    6,266
    
    
    
    (12,220
    )
    
    
    (42,678
    )Other income
    
    
    11,968
    
    
    
    11,229
    
    
    
    24,885
    
    
    
    23,785359,660
    
    
    
    410,174
    
    
    
    830,100
    
    
    
    764,076Benefits and expenses:Policyowner benefits
    
    
    170,791
    
    
    
    244,203
    
    
    
    382,783
    
    
    
    413,786Underwriting, acquisition and other expenses
    
    
    42,255
    
    
    
    38,419
    
    
    
    83,223
    
    
    
    79,027Amortization of deferred policy acquisition costs
and value of business acquired
    
    
    46,762
    
    
    
    35,058
    
    
    
    115,282
    
    
    
    87,801Dividends to policyowners
    
    
    17,683
    
    
    
    31,864
    
    
    
    36,416
    
    
    
    51,867277,491
    
    
    
    349,544
    
    
    
    617,704
    
    
    
    632,481Income from continuing operations
    
    
    82,169
    
    
    
    60,630
    
    
    
    212,396
    
    
    
    131,595Interest expense
    
    
    8,765
    
    
    
    8,191
    
    
    
    17,430
    
    
    
    15,971Income before income tax expense
    
    
    73,404
    
    
    
    52,439
    
    
    
    194,966
    
    
    
    115,624Income tax expense
    
    
    25,431
    
    
    
    16,872
    
    
    
    66,078
    
    
    
    18,569Net income
    
    
    47,973
    
    
    
    35,567
    
    
    
    128,888
    
    
    
    97,055Dividends on preferred stock
    
    
    2,719
    
    
    
    
    
    
    
    5,438
    
    
    
    Net income available to common stockholders
    
    $
    45,254
    
    
    $
    35,567
    
    
    $
    123,450
    
    
    $
    97,055Net income available to common stockholders per common share:Basic
    
    $
    1.18
    
    
    $
    0.91
    
    
    $
    3.20
    
    
    $
    2.46Diluted
    
    $
    1.09
    
    
    $
    0.83
    
    
    $
    2.96
    
    
    $
    2.27Weighted average common shares outstanding:Basic
    
    
    38,487,501
    
    
    
    39,264,504
    
    
    
    38,616,506
    
    
    
    39,412,211Diluted
    
    
    41,417,538
    
    
    
    42,751,912
    
    
    
    41,702,996
    
    
    
    42,845,240
  6




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##### Table of Contents



AMERUS GROUP CO.
 
 
 For The Three Months Ended June 30,
    
    For The Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005(unaudited)Net income
    
    $
    47,973
    
    
    $
    35,567
    
    
    $
    128,888
    
    
    $
    97,055Other comprehensive income (loss), before tax:Unrealized gains (losses) on securities:Unrealized holding
gains (losses)
arising during
period
    
    
    (162,388
    )
    
    
    143,592
    
    
    
    (341,998
    )
    
    
    20,050Reclassification
adjustment for
losses included in
net income
    
    
    8,030
    
    
    
    860
    
    
    
    9,978
    
    
    
    1,134Minimum pension
liability
adjustment
    
    
    
    
    
    
    
    
    
    
    325
    
    
    
    Other comprehensive income (loss), before tax
    
    
    (154,358
    )
    
    
    144,452
    
    
    
    (331,695
    )
    
    
    21,184Income tax (expense) benefit related to items
of other comprehensive income
    
    
    54,025
    
    
    
    (50,558
    )
    
    
    116,093
    
    
    
    (7,414
    )Other comprehensive income (loss), net of
taxes
    
    
    (100,333
    )
    
    
    93,894
    
    
    
    (215,602
    )
    
    
    13,770Comprehensive income (loss)
    
    $
    (52,360
    )
    
    $
    129,461
    
    
    $
    (86,714
    )
    
    $
    110,825
  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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128,888
    
    
    
    
    
    
    
    128,888Net unrealized loss on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (215,741
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (215,741
    )Net unrealized loss on derivatives
designated as cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )Costs for issuance of preferred stock
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )Stock issued under various incentive
plans, net of forfeitures
    
    
    
    
    
    
    268
    
    
    
    16,273
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,926
    )
    
    
    6,615Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,317
    )
    
    
    (56,317
    )Dividends declared on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,438
    )
    
    
    
    
    
    
    (5,438
    )Reclassification of unearned compensation
under SFAS 123R
    
    
    
    
    
    
    
    
    
    
    (3,783
    )
    
    
    
    
    
    
    3,783
    
    
    
    
    
    
    
    
    
    
    
    Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211Balance at June 30, 2006
    
    $
    144,774
    
    
    $
    46,944
    
    
    $
    1,244,023
    
    
    $
    (219,214
    )
    
    $
    
    
    
    $
    728,197
    
    
    $
    (384,319
    )
    
    $
    1,560,405
  8




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##### Table of Contents



AMERUS GROUP CO.
 
   For The Six Months Ended June 30,2006
    
    2005(unaudited)Cash flows from operating activitiesNet income
    
    $
    128,888
    
    
    $
    97,055Adjustments to reconcile net income to net cash
provided by operating activities:Product charges
    
    
    (136,802
    )
    
    
    (113,671
    )Interest credited to policyowner account
balances
    
    
    261,170
    
    
    
    251,539Change in option value of indexed products
and market value adjustments on total
return strategy annuities
    
    
    (62,341
    )
    
    
    (12,589
    )Realized/unrealized capital losses
    
    
    12,220
    
    
    
    42,678DAC and VOBA amortization
    
    
    115,282
    
    
    
    87,801Deferred sales inducements amortization
    
    
    18,075
    
    
    
    10,902DAC and VOBA capitalized
    
    
    (241,021
    )
    
    
    (242,496
    )Change in:Accrued investment income
    
    
    1,066
    
    
    
    (3,314
    )Reinsurance receivables
    
    
    (57,460
    )
    
    
    (66,884
    )Securities held-for-trading purposes:Fixed maturities
    
    
    150,923
    
    
    
    127,774Equity securities
    
    
    (1,785
    )
    
    
    15,413Short-term investments
    
    
    (3,962
    )
    
    
    Liabilities for future policy benefits
    
    
    (70,597
    )
    
    
    (85,412
    )Accrued expenses and other liabilities
    
    
    (61,783
    )
    
    
    38,553Policy and contract claims and other
policyowner funds
    
    
    84,357
    
    
    
    49,261Income taxes:Current
    
    
    (18,583
    )
    
    
    (39,595
    )Deferred
    
    
    60,439
    
    
    
    (15,671
    )Other, net
    
    
    19,668
    
    
    
    18,016Net cash provided by operating activities
    
    
    197,754
    
    
    
    159,360Cash flows from investing activities:Purchase of fixed maturities available-for-sale
    
    
    (2,354,309
    )
    
    
    (2,507,941
    )Proceeds from sale of fixed maturities available-for-sale
    
    
    1,556,153
    
    
    
    1,078,389Maturities, calls and principal reductions of
fixed maturities available-for-sale
    
    
    500,476
    
    
    
    702,208Purchase of equity securities
    
    
    (13,906
    )
    
    
    (3,986
    )Proceeds from sale of equity securities
    
    
    10,180
    
    
    
    4,625Change in short-term investments, net
    
    
    1,420
    
    
    
    (8,381
    )Purchase of mortgage loans
    
    
    (84,548
    )
    
    
    (122,181
    )
 9




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##### Table of Contents



AMERUS GROUP CO.
 For The Six Months Ended June 30,2006
    
    2005(unaudited)Proceeds from repayment and sale of mortgage loans
    
    
    71,968
    
    
    
    56,446Purchase of other invested assets
    
    
    (145,999
    )
    
    
    (65,358
    )Proceeds from sale of other invested assets
    
    
    103,252
    
    
    
    46,699Change in policy loans, net
    
    
    (16,969
    )
    
    
    700Other assets, net
    
    
    (7,128
    )
    
    
    (3,403
    )Net cash used in investing activities
    
    
    (379,410
    )
    
    
    (822,183
    )Cash flows from financing activities:Deposits to policyowner account balances
    
    
    1,537,106
    
    
    
    1,610,235Withdrawals from policyowner account balances
    
    
    (1,335,898
    )
    
    
    (867,110
    )Change in debt, net
    
    
    (306
    )
    
    
    482Change in payable for collateral under securities
lending and other transactions
    
    
    (83,093
    )
    
    
    132,600Dividends to preferred shareholders
    
    
    (5,438
    )
    
    
    Stock issued under various incentive plans, net of
forfeitures
    
    
    6,615
    
    
    
    7,804Purchase of treasury stock
    
    
    (56,317
    )
    
    
    (24,584
    )Excess tax benefits on share-based compensation
    
    
    2,110
    
    
    
    Debt and preferred stock issuance costs
    
    
    (1,054
    )
    
    
    Retirement of senior notes
    
    
    
    
    
    
    (125,000
    )Proceeds from revolving credit agreement
    
    
    9,000
    
    
    
    100,000Net cash provided by financing activities
    
    
    72,725
    
    
    
    834,427Net (decrease) increase in cash
    
    
    (108,931
    )
    
    
    171,604Cash and cash equivalents at beginning of period
    
    
    600,160
    
    
    
    478,441Cash and cash equivalents at end of period
    
    $
    491,229
    
    
    $
    650,045Supplemental disclosure of cash activities:Interest paid
    
    $
    17,354
    
    
    $
    16,942Income taxes paid
    
    $
    19,240
    
    
    $
    69,904Supplemental disclosure of non-cash operating activities:Capitalization of deferred sales inducements
    
    $
    53,029
    
    
    $
    54,618
  10




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##### Table of Contents



AMERUS GROUP CO.
 
   (1) CONSOLIDATION AND BASIS OF PRESENTATION
    (2) SHARE-BASED COMPENSATION
 Adoption of SFAS 123R
  11




---



##### Table of Contents



For The Three Months Ended June 30,
    
    For The Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005($ in thousands, except share data)Net income available to
common stockholders, as
reported
    
    $
    45,254
    
    
    $
    35,567
    
    
    $
    123,450
    
    
    $
    97,055Add: 2005 stock-based
compensation expense
included in
reported net income,
net of related tax
effects
    
    
    
    
    
    
    193
    
    
    $
    
    
    
    
    1,306Deduct: 2005 total
stock-based employee
compensation
expense determined
under fair value
based method
for all awards, net
of related tax
effects
    
    
    
    
    
    
    (749
    )
    
    
    
    
    
    
    (2,521
    )2006 actual and 2005 pro
forma net income available
to common stockholders
    
    $
    45,254
    
    
    $
    35,011
    
    
    $
    123,450
    
    
    $
    95,840Earnings per common share:Basic  as reported
    
    $
    1.18
    
    
    $
    0.91
    
    
    $
    3.20
    
    
    $
    2.46Basic  pro forma
    
    $
    1.18
    
    
    $
    0.89
    
    
    $
    3.20
    
    
    $
    2.43Diluted  as reported
    
    $
    1.09
    
    
    $
    0.83
    
    
    $
    2.96
    
    
    $
    2.27Diluted  pro forma
    
    $
    1.09
    
    
    $
    0.82
    
    
    $
    2.96
    
    
    $
    2.24
  General
   12




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##### Table of Contents



Stock Option Plans
   Six Months Ended June 30, 2006WeightedNumber
    
    
    averageof
    
    
    exerciseshares
    
    
    priceOutstanding, beginning of period
    
    
    2,754,287
    
    
    $
    32.00Granted at market price
    
    
    321,500
    
    
    
    59.81Exercised
    
    
    (197,285
    )
    
    
    26.97Forfeited
    
    
    (3,000
    )
    
    
    53.57Outstanding, end of period
    
    
    2,875,502
    
    
    $
    35.44Exercisable, end of period
    
    
    2,038,438
    
    
    $
    30.65
  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
    
    
    414,930
    
    
    
    3.2
    
    
    $
    20.9124.40 - 30.50
    
    
    925,350
    
    
    
    5.1
    
    
    
    28.3930.50 - 36.60
    
    
    251,584
    
    
    
    4.4
    
    
    
    34.2136.60 - 42.70
    
    
    684,505
    
    
    
    6.4
    
    
    
    37.9942.70 - 48.80
    
    
    254,133
    
    
    
    8.5
    
    
    
    46.7048.80 - 54.90
    
    
    16,500
    
    
    
    9.2
    
    
    
    51.4854.90 - 61.00
    
    
    328,500
    
    
    
    9.6
    
    
    
    59.762,875,502
    
    
    
    5.9
    
    
    $
    35.44
  Options ExercisableWeightedRange
    
    
    
    
    
    averageof exercise
    
    Options
    
    
    exerciseprices
    
    exercisable
    
    
    price18.30 - 24.40
    
    
    414,930
    
    
    $
    20.9124.40 - 30.50
    
    
    797,270
    
    
    
    28.6430.50 - 36.60
    
    
    238,915
    
    
    
    34.2036.60 - 42.70
    
    
    537,420
    
    
    
    38.0942.70 - 48.80
    
    
    49,903
    
    
    
    46.512,038,438
    
    
    $
    30.65
   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
  Six Months Ended June 30, 2006WeightedNumber
    
    
    averageof
    
    
    exerciseshares
    
    
    priceOutstanding, beginning of period
    
    
    48,277
    
    
    $
    39.57Granted at market price
    
    
    7,080
    
    
    
    58.57Outstanding, end of period
    
    
    55,357
    
    
    $
    42.00Compensation expense ($ in thousands)
    
    
    
    
    
    $
    206
 Non-vested Stock Units
  15




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##### Table of Contents



Stock Appreciation Rights
  Six Months Ended June 30, 2006Number
    
    
    Weightedof
    
    
    averageshares
    
    
    valueOutstanding, beginning of period
    
    
    51,755
    
    
    $
    34.77Granted at market price
    
    
    9,500
    
    
    
    60.09Exercised
    
    
    (4,218
    )
    
    
    32.27Outstanding, end of period
    
    
    57,037
    
    
    $
    39.17Compensation expense ($ in
thousands)
    
    
    
    
    
    $
    131
 Long-term Incentive Plan
  Management Incentive Payment Deferral Plan
  16




---



##### Table of Contents



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




---



##### Table of Contents



For The Three Months Ended June 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
    
    $
    45,254
    
    
    
    38,488
    
    
    $
    1.18
    
    
    $
    35,567
    
    
    
    39,265
    
    
    $
    0.91Effect of dilutive securitiesEquity compensation
    
    
    
    
    
    
    672
    
    
    
    (0.02
    )
    
    
    
    
    
    
    833
    
    
    
    (0.01
    )PRIDES
    
    
    
    
    
    
    2,258
    
    
    
    (0.07
    )
    
    
    
    
    
    
    1,579
    
    
    
    (0.04
    )OCEANs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075
    
    
    
    (0.03
    )Diluted EPS
    
    $
    45,254
    
    
    
    41,418
    
    
    $
    1.09
    
    
    $
    35,567
    
    
    
    42,752
    
    
    $
    0.83
 For The Six Months Ended June 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
    
    $
    123,450
    
    
    
    38,617
    
    
    $
    3.20
    
    
    $
    97,055
    
    
    
    39,412
    
    
    $
    2.46Effect of dilutive securitiesEquity compensation
    
    
    
    
    
    
    730
    
    
    
    (0.05
    )
    
    
    
    
    
    
    859
    
    
    
    (0.04
    )PRIDES
    
    
    
    
    
    
    2,356
    
    
    
    (0.19
    )
    
    
    
    
    
    
    1,541
    
    
    
    (0.09
    )OCEANs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,033
    
    
    
    (0.06
    )Diluted EPS
    
    $
    123,450
    
    
    
    41,703
    
    
    $
    2.96
    
    
    $
    97,055
    
    
    
    42,845
    
    
    $
    2.27
 (4) CLOSED BLOCK
   18




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##### Table of Contents



June 30,
    
    December 31,2006
    
    2005($ in thousands)Liabilities:Future life and annuity policy benefits
    
    $
    2,740,595
    
    
    $
    2,765,095Policyowner funds
    
    
    7,408
    
    
    
    7,835Accrued expenses and other liabilities
    
    
    7,352
    
    
    
    6,420Dividends payable to policyowners
    
    
    152,314
    
    
    
    154,793Policy and contract claims
    
    
    13,658
    
    
    
    17,986Policyowner dividend obligation
    
    
    1,018
    
    
    
    116,684Total Liabilities
    
    
    2,922,345
    
    
    
    3,068,813Assets:Fixed maturity securities available-for-sale at fair value
    
    
    1,854,774
    
    
    
    1,916,052Mortgage loans
    
    
    52,481
    
    
    
    60,541Policy loans
    
    
    333,646
    
    
    
    331,561Other investments
    
    
    1,918
    
    
    
    Cash and cash equivalents
    
    
    7,636
    
    
    
    63,506Accrued investment income
    
    
    33,163
    
    
    
    32,972Premiums and fees receivable
    
    
    48,060
    
    
    
    58,778Total Assets
    
    
    2,331,678
    
    
    
    2,463,410Maximum future earnings to be recognized from assets and
liabilities of the Closed Block
    
    $
    590,667
    
    
    $
    605,403
 For The Three Months Ended June 30,2006
    
    2005($ in thousands)Operations:Insurance premiums
    
    $
    38,023
    
    
    $
    42,998Product charges
    
    
    1,508
    
    
    
    1,445Net investment income
    
    
    35,998
    
    
    
    40,361Realized losses on investments
    
    
    (1,056
    )
    
    
    (40
    )Policyowner benefits
    
    
    (48,625
    )
    
    
    (45,282
    )Underwriting, acquisition and other expenses
    
    
    (1,544
    )
    
    
    (631
    )Dividends to policyowners
    
    
    (15,461
    )
    
    
    (29,823
    )Contribution from the Closed Block before income taxes
    
    $
    8,843
    
    
    $
    9,028
 For The Six Months Ended June 30,2006
    
    2005($ in thousands)Operations:Insurance premiums
    
    $
    75,372
    
    
    $
    84,885Product charges
    
    
    3,118
    
    
    
    3,146Net investment income
    
    
    71,601
    
    
    
    74,780Realized gains (losses) on investments
    
    
    (2,118
    )
    
    
    90Policyowner benefits
    
    
    (94,651
    )
    
    
    (95,403
    )Underwriting, acquisition and other expenses
    
    
    (3,039
    )
    
    
    (1,188
    )Dividends to policyowners
    
    
    (32,337
    )
    
    
    (47,991
    )Contribution from the Closed Block before income taxes
    
    $
    17,946
    
    
    $
    18,319
 19




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##### Table of Contents



(5) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
   Six Months Ended June 30, 2006Total Return
    
    
    IndexedProducts
    
    
    Products
    
    
    Other
    
    
    Total($ in thousands)Fixed maturity securities held-for-trading
    
    $
    2,289
    
    
    $
    
    
    
    $
    (2,483
    )
    
    $
    (194
    )Options
    
    
    
    
    
    
    (2,228
    )
    
    
    (3
    )
    
    
    (2,231
    )Market value adjustment to liabilities
    
    
    (2,089
    )
    
    
    60,181
    
    
    
    4,248
    
    
    
    62,340Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    54DAC and deferred sales inducements amortization of impact of net adjustments above
    
    
    (1,205
    )
    
    
    (20,520
    )
    
    
    
    
    
    
    (21,725
    )Pre-tax total
    
    
    (1,005
    )
    
    
    37,433
    
    
    
    1,816
    
    
    
    38,244Income taxes
    
    
    351
    
    
    
    (13,101
    )
    
    
    (635
    )
    
    
    (13,385
    )After-tax total
    
    $
    (654
    )
    
    $
    24,332
    
    
    $
    1,181
    
    
    $
    24,859
 Six Months Ended June 30, 2005Total Return
    
    
    IndexedProducts
    
    
    Products
    
    
    Other
    
    
    Total($ in thousands)Fixed maturity securities held-for-trading
    
    $
    (12,388
    )
    
    $
    
    
    
    $
    (992
    )
    
    $
    (13,380
    )Options
    
    
    
    
    
    
    (28,068
    )
    
    
    20
    
    
    
    (28,048
    )Market value adjustment to liabilities
    
    
    2,431
    
    
    
    10,119
    
    
    
    39
    
    
    
    12,589Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    77DAC and deferred sales inducements amortization of impact of net adjustments above
    
    
    991
    
    
    
    4,579
    
    
    
    
    
    
    
    5,570Pre-tax total
    
    
    (8,966
    )
    
    
    (13,370
    )
    
    
    (856
    )
    
    
    (23,192
    )Income taxes
    
    
    3,138
    
    
    
    4,679
    
    
    
    300
    
    
    
    8,117After-tax total
    
    $
    (5,828
    )
    
    $
    (8,691
    )
    
    $
    (556
    )
    
    $
    (15,075
    )
 20




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##### Table of Contents



(6) FEDERAL INCOME TAXES
  (7) COMMITMENTS AND CONTINGENCIES
   21




---



##### Table of Contents



(8) EMPLOYEE BENEFIT PLANS
  Six Months Ended June 30,2006
    
    
    2005($ in thousands)Components of net periodic benefit cost:Service cost
    
    $
    533
    
    
    $
    157Interest cost
    
    
    3,065
    
    
    
    2,944Expected return on plan assets
    
    
    (2,438
    )
    
    
    (2,431
    )Amortization of prior service cost
    
    
    (69
    )
    
    
    44Amortizaton of actuarial loss
    
    
    338
    
    
    
    356Total expense
    
    $
    1,429
    
    
    $
    1,070
 22




---



##### Table of Contents



(9) ACCOUNTING DEVELOPMENTS
  (10) 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)
    
    Interest expense.
 23




---



##### Table of Contents



7)
    
    Income tax expense.
    24




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##### Table of Contents



Three Months Ended June 30, 2006Protection
    
    
    Accumulation
    
    
    
    
    
    
    TotalProducts
    
    
    Products
    
    
    All Other
    
    
    ConsolidatedRevenues:Insurance premiums
    
    $
    54,284
    
    
    $
    458
    
    
    $
    103
    
    
    $
    54,845Product charges
    
    
    51,239
    
    
    
    17,501
    
    
    
    
    
    
    
    68,740Net investment income
    
    
    89,253
    
    
    
    197,276
    
    
    
    443
    
    
    
    286,972Realized/unrealized losses on closed
block investments
    
    
    (1,056
    )
    
    
    
    
    
    
    
    
    
    
    (1,056
    )Other income:Income from Independent Marketing Organizations
    
    
    
    
    
    
    7,607
    
    
    
    
    
    
    
    7,607Other
    
    
    886
    
    
    
    2,663
    
    
    
    812
    
    
    
    4,361194,606
    
    
    
    225,505
    
    
    
    1,358
    
    
    
    421,469Benefits and expenses:Policyowner benefits
    
    
    95,052
    
    
    
    125,921
    
    
    
    184
    
    
    
    221,157Underwriting, acquisition, and other expenses:Operating expenses
    
    
    18,614
    
    
    
    9,394
    
    
    
    8,725
    
    
    
    36,733Expenses from Independent Marketing Organizations
    
    
    
    
    
    
    5,522
    
    
    
    
    
    
    
    5,522Amortization of DAC and VOBA
    
    
    17,548
    
    
    
    31,405
    
    
    
    
    
    
    
    48,953Dividends to policyowners
    
    
    17,682
    
    
    
    1
    
    
    
    
    
    
    
    17,683148,896
    
    
    
    172,243
    
    
    
    8,909
    
    
    
    330,048Segment pre-tax operating income
    
    $
    45,710
    
    
    $
    53,262
    
    
    $
    (7,551
    )
    
    
    91,421Realized/unrealized losses on open block assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,508
    )Unrealized losses on open block options and
trading investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54,301
    )Change in option value of indexed
products and market value adjustments on
total return strategy annuities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,198Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Amortization of DAC and VOBA due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,191Amortization of deferred sales inducements due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (858
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,169Interest (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,765
    )Income tax (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,431
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,973Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,719
    )Net income available to common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    45,254
 25




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##### Table of Contents



Three Months Ended June 30, 2005Protection
    
    
    Accumulation
    
    
    
    
    
    
    TotalProducts
    
    
    Products
    
    
    All Other
    
    
    ConsolidatedRevenues:Insurance premiums
    
    $
    59,569
    
    
    $
    1,056
    
    
    $
    376
    
    
    $
    61,001Product charges
    
    
    40,646
    
    
    
    13,992
    
    
    
    
    
    
    
    54,638Net investment income
    
    
    92,983
    
    
    
    183,553
    
    
    
    504
    
    
    
    277,040Realized/unrealized losses on closed
block investments
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    (40
    )Other income:Income from Independent Marketing Organizations
    
    
    
    
    
    
    7,153
    
    
    
    
    
    
    
    7,153Other
    
    
    857
    
    
    
    2,663
    
    
    
    544
    
    
    
    4,064194,015
    
    
    
    208,417
    
    
    
    1,424
    
    
    
    403,856Benefits and expenses:Policyowner benefits
    
    
    79,174
    
    
    
    132,895
    
    
    
    427
    
    
    
    212,496Underwriting, acquisition, and other expenses:Operating expenses
    
    
    19,486
    
    
    
    6,901
    
    
    
    6,460
    
    
    
    32,847Expenses from Independent Marketing Organizations
    
    
    
    
    
    
    5,572
    
    
    
    
    
    
    
    5,572Amortization of DAC and VOBA
    
    
    22,107
    
    
    
    21,159
    
    
    
    
    
    
    
    43,266Dividends to policyowners
    
    
    31,862
    
    
    
    2
    
    
    
    
    
    
    
    31,864152,629
    
    
    
    166,529
    
    
    
    6,887
    
    
    
    326,045Segment pre-tax operating income
    
    $
    41,386
    
    
    $
    41,888
    
    
    $
    (5,463
    )
    
    
    77,811Realized/unrealized losses on open block assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,517
    )Unrealized losses on open block options and
trading investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,823Change in option value of indexed
products and market value adjustments on
total return strategy annuities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,745
    )Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Amortization of DAC and VOBA due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,208Other income from non-insurance operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,630Interest (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,191
    )Income tax (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,872
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,567Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income available to common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    35,567
 26




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##### Table of Contents



Six Months Ended June 30, 2006Protection
    
    
    Accumulation
    
    
    
    
    
    
    TotalProducts
    
    
    Products
    
    
    All Other
    
    
    ConsolidatedRevenues:Insurance premiums
    
    $
    106,928
    
    
    $
    1,400
    
    
    $
    15
    
    
    $
    108,343Product charges
    
    
    106,358
    
    
    
    30,444
    
    
    
    
    
    
    
    136,802Net investment income
    
    
    177,559
    
    
    
    393,933
    
    
    
    798
    
    
    
    572,290Realized/unrealized losses on closed
block investments
    
    
    (2,118
    )
    
    
    
    
    
    
    
    
    
    
    (2,118
    )Other income:Income from Independent Marketing Organizations
    
    
    
    
    
    
    16,206
    
    
    
    
    
    
    
    16,206Other
    
    
    1,757
    
    
    
    5,283
    
    
    
    1,639
    
    
    
    8,679390,484
    
    
    
    447,266
    
    
    
    2,452
    
    
    
    840,202Benefits and expenses:Policyowner benefits
    
    
    185,464
    
    
    
    253,596
    
    
    
    (139
    )
    
    
    438,921Underwriting, acquisition, and other expenses:Operating expenses
    
    
    35,765
    
    
    
    18,818
    
    
    
    16,230
    
    
    
    70,813Expenses from Independent Marketing Organizations
    
    
    
    
    
    
    12,410
    
    
    
    
    
    
    
    12,410Amortization of DAC and VOBA
    
    
    47,908
    
    
    
    53,106
    
    
    
    
    
    
    
    101,014Dividends to policyowners
    
    
    36,415
    
    
    
    1
    
    
    
    
    
    
    
    36,416305,552
    
    
    
    337,931
    
    
    
    16,091
    
    
    
    659,574Segment pre-tax operating income
    
    $
    84,932
    
    
    $
    109,335
    
    
    $
    (13,639
    )
    
    
    180,628Realized/unrealized losses on open block assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,677
    )Unrealized losses on open block options and
trading investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,425
    )Change in option value of indexed
products and market value adjustments on
total return strategy annuities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,341Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54Amortization of DAC and VOBA due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,268
    )Amortization of deferred sales inducements due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,257
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212,396Interest (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,430
    )Income tax (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,078
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128,888Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,438
    )Net income available to common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    123,450
 27




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##### Table of Contents



Six Months Ended June 30, 2005Protection
    
    
    Accumulation
    
    
    
    
    
    
    TotalProducts
    
    
    Products
    
    
    All Other
    
    
    ConsolidatedRevenues:Insurance premiums
    
    $
    121,052
    
    
    $
    1,536
    
    
    $
    959
    
    
    $
    123,547Product charges
    
    
    87,723
    
    
    
    25,948
    
    
    
    
    
    
    
    113,671Net investment income
    
    
    179,869
    
    
    
    365,199
    
    
    
    683
    
    
    
    545,751Realized/unrealized gains on closed
block investments
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    90Other income:Income from Independent Marketing Organizations
    
    
    
    
    
    
    16,164
    
    
    
    
    
    
    
    16,164Other
    
    
    1,718
    
    
    
    5,204
    
    
    
    1,064
    
    
    
    7,986390,452
    
    
    
    414,051
    
    
    
    2,706
    
    
    
    807,209Benefits and expenses:Policyowner benefits
    
    
    168,375
    
    
    
    257,623
    
    
    
    454
    
    
    
    426,452Underwriting, acquisition, and other expenses:Operating expenses
    
    
    37,879
    
    
    
    14,161
    
    
    
    13,484
    
    
    
    65,524Expenses from Independent Marketing Organizations
    
    
    
    
    
    
    13,503
    
    
    
    
    
    
    
    13,503Amortization of DAC and VOBA
    
    
    46,978
    
    
    
    46,206
    
    
    
    
    
    
    
    93,184Dividends to policyowners
    
    
    51,864
    
    
    
    3
    
    
    
    
    
    
    
    51,867305,096
    
    
    
    331,496
    
    
    
    13,938
    
    
    
    650,530Segment pre-tax operating income
    
    $
    85,356
    
    
    $
    82,555
    
    
    $
    (11,232
    )
    
    
    156,679Realized/unrealized losses on open block assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,340
    )Unrealized losses on open block options and
trading investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,428
    )Change in option value of indexed
products and market value adjustments on
total return strategy annuities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,589Cash flow hedge amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77Amortization of DAC and VOBA due to open
block gains and losses and market value adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,383Other income from non-insurance operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (365
    )Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131,595Interest (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,971
    )Income tax (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,569
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,055Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income available to common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    97,055
 28




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##### Table of Contents



(11) SUBSEQUENT EVENT
   29




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##### Table of Contents



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




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##### Table of Contents



FINANCIAL HIGHLIGHTS
  For The Three Months Ended June 30,
    
    For The Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005($ in thousands, except share data)Segment pre-tax operating income:Protection Products
    
    $
    45,710
    
    
    $
    41,386
    
    
    $
    84,932
    
    
    $
    85,356Accumulation Products
    
    
    53,262
    
    
    
    41,888
    
    
    
    109,335
    
    
    
    82,555Other operations
    
    
    (7,551
    )
    
    
    (5,463
    )
    
    
    (13,639
    )
    
    
    (11,232
    )Total segment pre-tax operating income
    
    
    91,421
    
    
    
    77,811
    
    
    
    180,628
    
    
    
    156,679Non-segment expense, net (A)
    
    
    43,448
    
    
    
    42,244
    
    
    
    51,740
    
    
    
    59,624Net income
    
    
    47,973
    
    
    
    35,567
    
    
    
    128,888
    
    
    
    97,055Dividends on preferred stock
    
    
    2,719
    
    
    
    
    
    
    
    5,438
    
    
    
    Net income available to common stockholders
    
    $
    45,254
    
    
    $
    35,567
    
    
    $
    123,450
    
    
    $
    97,055Diluted net income available to common stockholders
per common share
    
    $
    1.09
    
    
    $
    0.83
    
    
    $
    2.96
    
    
    $
    2.27
 June 30,
    
    December 31,2006
    
    2005Total assets
    
    $
    24,654,324
    
    
    $
    24,830,000Stockholders equity
    
    $
    1,560,405
    
    
    $
    1,702,315
 
 (A)
    
    Non-segment expense, net consists primarily of open block realized/unrealized gains and losses,
derivative related market value adjustments, interest expense and income taxes.    31




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##### Table of Contents



PROTECTION PRODUCTS
  For The Three Months Ended June 30,
    
    For The Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005($ in thousands)Revenues:Insurance premiums
    
    $
    54,284
    
    
    $
    59,569
    
    
    $
    106,928
    
    
    $
    121,052Product charges
    
    
    51,239
    
    
    
    40,646
    
    
    
    106,358
    
    
    
    87,723Net investment income
    
    
    89,253
    
    
    
    92,983
    
    
    
    177,559
    
    
    
    179,869Realized gains (losses) on closed block investments
    
    
    (1,056
    )
    
    
    (40
    )
    
    
    (2,118
    )
    
    
    90Other income
    
    
    886
    
    
    
    857
    
    
    
    1,757
    
    
    
    1,718Total revenues
    
    
    194,606
    
    
    
    194,015
    
    
    
    390,484
    
    
    
    390,452Benefits and expenses:Policyowner benefits
    
    
    95,052
    
    
    
    79,174
    
    
    
    185,464
    
    
    
    168,375Underwriting, acquisition and other expenses
    
    
    18,614
    
    
    
    19,486
    
    
    
    35,765
    
    
    
    37,879Amortization of DAC and VOBA, net of open block gain/loss adjustment
    
    
    17,548
    
    
    
    22,107
    
    
    
    47,908
    
    
    
    46,978Dividends to policyowners
    
    
    17,682
    
    
    
    31,862
    
    
    
    36,415
    
    
    
    51,864Total benefits and expenses
    
    
    148,896
    
    
    
    152,629
    
    
    
    305,552
    
    
    
    305,096Pre-tax operating income  Protection Products segment
    
    $
    45,710
    
    
    $
    41,386
    
    
    $
    84,932
    
    
    $
    85,356
  Sales.
 32




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##### Table of Contents



Sales Activity by ProductFor The Three Months Ended June 30,
    
    For The Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005($ in thousands)Traditional life insurance:Interest-sensitive whole life
    
    $
    96
    
    
    $
    127
    
    
    $
    162
    
    
    $
    233Term and other life
    
    
    1,672
    
    
    
    3,348
    
    
    
    3,132
    
    
    
    6,405Universal life:Flexible premium without no lapse guarantee
    
    
    686
    
    
    
    3,390
    
    
    
    1,377
    
    
    
    8,261Single premium
    
    
    45
    
    
    
    
    
    
    
    45
    
    
    
    Indexed life:Flexible premium without no lapse guarantee
    
    
    23,495
    
    
    
    17,548
    
    
    
    45,010
    
    
    
    31,009Flexible premium with no lapse guarantee
    
    
    5,606
    
    
    
    3,715
    
    
    
    10,071
    
    
    
    6,570Fixed premium excess interest whole life
    
    
    641
    
    
    
    2,921
    
    
    
    1,889
    
    
    
    4,631Single premium
    
    
    1,050
    
    
    
    
    
    
    
    1,417
    
    
    
    Total
    
    $
    33,291
    
    
    $
    31,049
    
    
    $
    63,103
    
    
    $
    57,109
  Premiums and Product Charges.
  Persistency.
 Net Investment Income.
 33




---



##### Table of Contents



Mortality and Benefit Expense.
 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 June 30,
    
    For The Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005($ in thousands)Revenues:Immediate annuity and supplementary contract premiums
    
    $
    458
    
    
    $
    1,056
    
    
    $
    1,400
    
    
    $
    1,536Product charges
    
    
    17,501
    
    
    
    13,992
    
    
    
    30,444
    
    
    
    25,948Net investment income
    
    
    197,276
    
    
    
    183,553
    
    
    
    393,933
    
    
    
    365,199Other income
    
    
    2,663
    
    
    
    2,663
    
    
    
    5,283
    
    
    
    5,204Total revenues
    
    
    217,898
    
    
    
    201,264
    
    
    
    431,060
    
    
    
    397,887Benefits and expenses:Policyowner benefits
    
    
    125,921
    
    
    
    132,895
    
    
    
    253,596
    
    
    
    257,623Underwriting, acquisition and other expenses
    
    
    9,394
    
    
    
    6,901
    
    
    
    18,818
    
    
    
    14,161Amortization of DAC and VOBA
    
    
    31,405
    
    
    
    21,159
    
    
    
    53,106
    
    
    
    46,206Dividends to policyowners
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    3Total benefits and expenses
    
    
    166,721
    
    
    
    160,957
    
    
    
    325,521
    
    
    
    317,993IMO Operations:Other income
    
    
    7,607
    
    
    
    7,153
    
    
    
    16,206
    
    
    
    16,164Other expenses
    
    
    5,522
    
    
    
    5,572
    
    
    
    12,410
    
    
    
    13,503Net IMO operating income
    
    
    2,085
    
    
    
    1,581
    
    
    
    3,796
    
    
    
    2,661Pre-tax operating income  Accumulation Products segment
    
    $
    53,262
    
    
    $
    41,888
    
    
    $
    109,335
    
    
    $
    82,555
  Deposits.
 Deposits by ProductFor The Three Months Ended June 30,
    
    
    For The Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005($ in thousands)AnnuitiesDeferred fixed annuities:Traditional fixed annuities
    
    $
    45,582
    
    
    $
    69,478
    
    
    $
    82,803
    
    
    $
    138,360Indexed annuities
    
    
    582,059
    
    
    
    643,026
    
    
    
    1,062,165
    
    
    
    1,146,096Variable annuities
    
    
    491
    
    
    
    593
    
    
    
    1,084
    
    
    
    1,138Total direct annuities
    
    
    628,132
    
    
    
    713,097
    
    
    
    1,146,052
    
    
    
    1,285,594Funding agreements
    
    
    174,666
    
    
    
    26,200
    
    
    
    174,666
    
    
    
    26,200Total
    
    
    802,798
    
    
    
    739,297
    
    
    
    1,320,718
    
    
    
    1,311,794Reinsurance ceded
    
    
    (813
    )
    
    
    (2,264
    )
    
    
    (1,038
    )
    
    
    (4,234
    )Total deposits, net of reinsurance
    
    $
    801,985
    
    
    $
    737,033
    
    
    $
    1,319,680
    
    
    $
    1,307,560
 35




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##### Table of Contents



Product Charges.
 Persistency.
 Product Spread.
 For The Rolling Four Quarters Ended June 30,2006
    
    
    2005Asset earned rate
    
    
    5.71
    %
    
    
    5.76
    %Liability credited rate
    
    
    3.46
    %
    
    
    3.58
    %Product spread
    
    
    2.25
    %
    
    
    2.18
    %
   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 June 30,
    
    For The Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005($ in thousands)
    
    ($ in thousands)Segment pre-tax operating income:Protection Products
    
    $
    45,710
    
    
    $
    41,386
    
    
    $
    84,932
    
    
    $
    85,356Accumulation Products
    
    
    53,262
    
    
    
    41,888
    
    
    
    109,335
    
    
    
    82,555Other operations
    
    
    (7,551
    )
    
    
    (5,463
    )
    
    
    (13,639
    )
    
    
    (11,232
    )Total segment pre-tax operating income
    
    
    91,421
    
    
    
    77,811
    
    
    
    180,628
    
    
    
    156,679Non-segment items  increases (decreases) to income:Realized and unrealized gains (losses) on assets and liabilities:Realized/unrealized gains (losses) on open block assets
    
    
    (7,508
    )
    
    
    (1,517
    )
    
    
    (7,677
    )
    
    
    (1,340
    )Unrealized gains (losses) on open block options and
trading investments
    
    
    (54,301
    )
    
    
    7,823
    
    
    
    (2,425
    )
    
    
    (41,428
    )Change in option value of indexed products
and market value adjustments on total return
strategy annuities
    
    
    51,198
    
    
    
    (31,745
    )
    
    
    62,341
    
    
    
    12,589Cash flow hedge amortization
    
    
    26
    
    
    
    38
    
    
    
    54
    
    
    
    77(Amortization) restoration of DAC and VOBA due to
open block gains and losses and market value adjustments
    
    
    2,191
    
    
    
    8,208
    
    
    
    (14,268
    )
    
    
    5,383(Amortization) restoration of deferred sales inducements due
to open block gains and losses and market value adjustments
    
    
    (858
    )
    
    
    
    
    
    
    (6,257
    )
    
    
    Other income (loss) from non-insurance operations
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    (365
    )Income from continuing operations
    
    
    82,169
    
    
    
    60,630
    
    
    
    212,396
    
    
    
    131,595Interest expense
    
    
    (8,765
    )
    
    
    (8,191
    )
    
    
    (17,430
    )
    
    
    (15,971
    )Income tax expense
    
    
    (25,431
    )
    
    
    (16,872
    )
    
    
    (66,078
    )
    
    
    (18,569
    )Net income
    
    
    47,973
    
    
    
    35,567
    
    
    
    128,888
    
    
    
    97,055Dividends on preferred stock
    
    
    (2,719
    )
    
    
    
    
    
    
    (5,438
    )
    
    
    Net income available to common stockholders
    
    $
    45,254
    
    
    $
    35,567
    
    
    $
    123,450
    
    
    $
    97,055
 Realized and Unrealized Gains (Losses) on Assets and Liabilities.
   38




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##### Table of Contents



Income Tax Expense.
 ACCOUNTING DEVELOPMENTS
   LIQUIDITY AND CAPITAL RESOURCES
 AmerUs Group Co.
   39




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##### Table of Contents



40




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##### Table of Contents



Insurance Subsidiaries
      41




---



##### Table of Contents



42




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      43




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##### Table of Contents



6 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    Cash Flows
    
    
    Fair Value($ in millions)Fixed maturity securities
available-for-sale
    
    $
    397
    
    
    $
    930
    
    
    $
    1,058
    
    
    $
    871
    
    
    $
    723
    
    
    $
    1,234
    
    
    $
    11,628
    
    
    $
    16,841
    
    
    $
    16,201Average interest rate
    
    
    7.2
    %
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    6.1
    %
    
    
    5.8
    %
    
    
    5.9
    %
    
    
    5.9
    %Fixed maturity securities
held-for-trading purposes
    
    $
    40
    
    
    $
    195
    
    
    $
    235
    
    
    $
    128
    
    
    $
    120
    
    
    $
    145
    
    
    $
    413
    
    
    $
    1,276
    
    
    $
    1,276Average interest rate
    
    
    5.1
    %
    
    
    2.8
    %
    
    
    2.9
    %
    
    
    3.5
    %
    
    
    2.7
    %
    
    
    3.6
    %
    
    
    4.3
    %Mortgage loans
    
    $
    31
    
    
    $
    58
    
    
    $
    72
    
    
    $
    64
    
    
    $
    72
    
    
    $
    104
    
    
    $
    587
    
    
    $
    988
    
    
    $
    965Average interest rate
    
    
    6.7
    %
    
    
    6.8
    %
    
    
    6.8
    %
    
    
    6.7
    %
    
    
    6.7
    %
    
    
    6.6
    %
    
    
    6.4
    %Total
    
    $
    468
    
    
    $
    1,183
    
    
    $
    1,365
    
    
    $
    1,063
    
    
    $
    915
    
    
    $
    1,483
    
    
    $
    12,628
    
    
    $
    19,105
    
    
    $
    18,442
      
 Item 4. Controls and Procedures
  44




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
     45




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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.
  
    
    we would remain liable for significant costs relating to the planned Merger,
including, among others, legal, accounting, financial advisory and financial
printing expenses;
 46




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##### Table of Contents




    
    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
  (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
    
    
    
    2,734,477Total
    
    
    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. 47




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  Election of David A. Arledge
 For:
    
    
    26,083,694Withheld:
    
    
    259,612
 Election of John W. Norris Jr.
 For:
    
    
    25,942,129Withheld:
    
    
    401,177
 Election of John A. Wing
 For:
    
    
    26,074,621Withheld:
    
    
    268,685
 Amended and Restated 2003 Stock Incentive Plan
 For:
    
    
    19,082,352Against:
    
    
    3,952,530Abstaining:
    
    
    917,436
 Ratification of Ernst & Young LLP
 For:
    
    
    25,240,866Against:
    
    
    963,636Abstaining:
    
    
    138,804
  
 Item 6. Exhibits
  48




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##### Table of Contents



SIGNATURES
  DATED: August 2, 2006
    
    AMERUS GROUP CO.By
    
    /s/ Melinda S. UrionMelinda S. UrionExecutive Vice President,Chief Financial Officer and Treasurer(Principal Financial Officer)By
    
    /s/ Brenda J. CushingBrenda J. CushingSenior Vice President and Controller(Principal Accounting Officer)
 49




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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.4.1
    
    Remarketing Agreement among AmerUs Group Co., U.S. Bank National Association (as successor to
Wachovia Bank, National Association), Citigroup Global Markets Inc. and Goldman, Sachs & Co.,
filed as Exhibit 99.1 on Form 8-K dated May 11, 2006 is hereby incorporated by reference.10.1
    
    Amended and Restated 2003 Stock Incentive Plan, filed as Exhibit 99.1 on Form 8-K dated May
4, 2006 is hereby incorporated by reference.10.2
    
    Accelerated Share Repurchase Agreement between AmerUs Group Co. and Citibank, N.A., filed as
Exhibit 99.2 on Form 8-K dated May 4, 2006 is hereby incorporated by reference.10.3
    
    Amended and Restated Credit Agreement, filed as Exhibit 10.1 on Form 8-K dated June 16, 2006
is hereby incorporated by reference.10.4
    
    Employment Agreement by and between AmerUs Group Co. and Thomas C. Godlasky, filed as Exhibit
10.1 on Form 8-K dated July 12, 2006 is hereby incorporated by reference.10.5
    
    Employment Agreement by and between AmerUs Group Co. and Gregory D. Boal, filed as Exhibit
10.2 on Form 8-K dated July 12, 2006 is hereby incorporated by reference.10.6
    
    Employment Agreement by and between AmerUs Group Co. and Brian J. Clark, filed as Exhibit
10.3 on Form 8-K dated July 12, 2006 is hereby incorporated by reference.10.7
    
    Employment Agreement by and between AmerUs Group Co. and Mark V. Heitz, filed as Exhibit 10.4
on Form 8-K dated July 12, 2006 is hereby incorporated by reference.10.8
    
    Employment Agreement by and between AmerUs Group Co. and Gary R. McPhail, filed as Exhibit
10.5 on Form 8-K dated July 12, 2006 is hereby incorporated by reference.11.1
    
    Statement Re: Computation of Per Share Earnings is included in note 16 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 50