##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




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Form 10-K

þ Annual Report Pursuant to
Section 13 or 15(d)



For the fiscal year ended December 31, 2004

or

o Transition Report
Pursuant to Section 13 or 15(d) of the



For the transition period from

to

Commission File Number: 001-15166



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AmerUs Group Co.

(Exact name of Registrant as specified in its
charter)

|                                                                                |  |                                                   
|------------------------------------------------------------------------------- |  | --------------------------------------------------
|Iowa(State or other jurisdiction of
    incorporation or organization)          |  | 42-1458424(I.R.S. Employer Identification
    No.)
|699 Walnut Street, Des Moines, Iowa(Address of principal executive
    offices) |  | 50309-3948(Zip code)                              

Registrants telephone number, including
area code (515) 362-3600



---

Securities registered pursuant to
Section 12(b) of the Act:

|                            |  |                        
|--------------------------- |  | -----------------------
|                            |  | Name of Each Exchange  
|Title of Each Class         |  | on Which Registered    
|                            |  |                        
|Common Stock (no par value) |  | New York Stock Exchange
|Income PRIDESSM             |  | New York Stock Exchange

Securities registered pursuant to
Section 12(g) of the Act: None

Indicate by check mark whether the Registrant
(1) has filed all reports to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days.     Yes x                 No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Aggregate market value of voting stock held by
non-affiliates of the Registrant as of June 30, 2004:
$1,616,433,854

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act)     Yes x                 No o

Number of shares outstanding of each of the
Registrants classes of common stock on March 3, 2005
was as follows:

|             |  |                  
|------------ |  | -----------------
|Common Stock |  | 39,438,368 shares

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrants definitive
proxy statement for the annual meeting of shareholders to be
held April 28, 2005 are incorporated by reference into
Part III of this Form 10-K.





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TABLE OF CONTENTS

|                                                        |  |                                                                                                                       |     |  |    | 
|------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | --- |  | -- | 
|Part I                                                 
|Item 1.                                                 |  | Business                                                                                                              |     |  | 2  | 
|Item 2.                                                 |  | Properties                                                                                                            |     |  | 18 | 
|Item 3.                                                 |  | Legal Proceedings                                                                                                     |     |  | 18 | 
|Item 4.                                                 |  | Submission of Matters to a
    Vote of Security Holders                                                               |     |  | 19 | 
|                                                       
|Part II                                                
|Item 5.                                                 |  | Market for Registrants
    Common Equity, Related Stockholder Matters, and Issuer Purchases
    of Equity Securities |     |  | 19 | 
|Item 6.                                                 |  | Selected Financial Data                                                                                               |     |  | 22 | 
|Item 7.                                                 |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operation                              |     |  | 23 | 
|Item 7A.                                                |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                        |     |  | 55 | 
|Item 8.                                                 |  | Financial Statements and
    Supplementary Data                                                                       |     |  | 56 | 
|Item 9.                                                 |  | Change in and Disagreements
    with Accountants on Accounting and Financial Disclosure                               |     |  | 57 | 
|Item 9A.                                                |  | Controls and Procedures                                                                                               |     |  | 57 | 
|Item 9B                                                 |  | Other Information                                                                                                     |     |  | 59 | 
|                                                       
|Part III                                               
|Item 10.                                                |  | Directors and Executive
    Officers of the Registrant                                                                |     |  | 59 | 
|Item 11.                                                |  | Executive Compensation                                                                                                |     |  | 59 | 
|Item 12.                                                |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters                |     |  | 59 | 
|Item 13.                                                |  | Certain Relationships and
    Related Transactions                                                                    |     |  | 59 | 
|Item 14.                                                |  | Principal Accounting Fees
    and Services                                                                            |     |  | 60 | 
|                                                       
|Part IV                                                
|Item 15.                                                |  | Exhibits, Financial
    Statement Schedules                                                                           |     |  | 60 | 
|                                                        |  |                                                                                                                       |     |  |    | 
|Index to Exhibits                                       |  |                                                                                                                       | 61  | 
|                                                        |  |                                                                                                                       |     |  |    | 
|Signatures                                              |  |                                                                                                                       | 66  | 
|                                                        |  |                                                                                                                       |     |  |    | 
|Power of Attorney                                       |  |                                                                                                                       | 66  | 
|                                                        |  |                                                                                                                       |     |  |    | 
|Index to Consolidated Financial Statements              |  |                                                                                                                       | F-1 | 
|                                                        |  |                                                                                                                       |     |  |    | 
|Index to Consolidated Financial Statement
    Schedules |  |                                                                                                                       | S-1 | 
|Exhibit 10.34                                          
|Exhibit 10.35                                          
|Computation of Ratios of Earnings to Fixed Charges     
|List of Subsidiaries                                   
|Consent of Ernst & Young LLP                           
|Certification of Chief Executive Officer               
|Certification of Chief Financial Officer               
|Certification of Chief Executive Officer               
|Certification of Chief Financial Officer               



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SAFE HARBOR STATEMENT

This Annual Report on Form 10-K, including
the Managements Discussion and Analysis of Financial
Condition and Results of Operations, contains statements which
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including
statements relating to trends in operations and financial
results and the business and the products of the Registrant and
its subsidiaries, as well as other statements including words
such as anticipate, believe,
plan, estimate, expect,
intend, and other similar expressions.
Forward-looking statements are made based upon managements
current expectations and beliefs concerning future developments
and their potential effects on the Company. Such forward-looking
statements are not guarantees of future performance. Factors
that may cause our actual results to differ materially from
those contemplated by these forward-looking statements include,
among others, the following possibilities: (a) general
economic conditions and other factors, including prevailing
interest rate levels and stock and bond market performance,
which may affect our ability to sell our products, the market
value of our investments and the lapse rate and profitability of
policies; (b) our ability to achieve anticipated levels of
operational efficiencies and cost-saving initiatives and to meet
cash requirements based upon projected liquidity sources;
(c) customer response to new products, distribution
channels and marketing initiatives; (d) mortality,
morbidity, and other factors which may affect the profitability
of our insurance products; (e) our ability to develop and
maintain effective risk management policies and procedures and
to maintain adequate reserves for future policy benefits and
claims; (f) changes in the federal income tax and other
federal laws, regulations, and interpretations, including
federal regulatory measures that may significantly affect the
insurance business including limitations on antitrust immunity,
minimum solvency requirements, and changes to the tax advantages
offered by life insurance and annuity products or programs with
which they are used; (g) increasing competition in the sale
of insurance and annuities and the recruitment of sales
representatives; (h) regulatory changes, interpretations,
initiatives or pronouncements, including those relating to the
regulation of insurance companies and the regulation and sale of
their products and the programs in which they are used;
(i) our ratings and those of our subsidiaries by
independent rating organizations which we believe are
particularly important to the sale of our products; (j) the
performance of our investment portfolios; (k) the impact of
changes in standards of accounting; (l) our ability to
integrate the business and operations of acquired entities;
(m) expected protection products and accumulation products
margins; (n) the impact of anticipated investment
transactions; and (o) litigation or regulatory
investigations or examinations.

There can be no assurance that other factors not
currently anticipated by us will not materially and adversely
affect our results of operations. You are cautioned not to place
undue reliance on any forward-looking statements made by us or
on our behalf. Forward-looking statements speak only as of the
date the statement was made. We undertake no obligation to
update or revise any forward-looking statement.

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PART I






|        |         
|------- | --------
|ITEM 1. | Business

Web Access to Reports

We make our periodic and current reports filed or
furnished pursuant to section 13(a) or 15(d) of the
Securities Exchange Act of 1934, available, free of charge at
our website as soon as reasonably practicable after such reports
are filed electronically with or furnished to the
U.S. Securities and Exchange Commission. Our internet
website address to obtain such filings is www.amerus.com.

Definitions

When used in this document, the terms
AmerUs, we, our and
us refer to AmerUs Group Co. (including American
Mutual Holding Company and AmerUs Life Holdings, Inc. as
predecessor entities of AmerUs Group Co.), an Iowa corporation,
and our consolidated subsidiaries, unless otherwise specified or
indicated by the context.

General

We are a holding company whose subsidiaries are
primarily engaged in the business of marketing, underwriting and
distributing a broad range of individual life, annuity and
insurance deposit products to individuals and businesses in all
50 states, the District of Columbia and the
U.S. Virgin Islands. We have two reportable operating
segments: protection products and accumulation products. The
primary offerings of the protection products segment are
interest-sensitive whole life, term life, universal life and
equity indexed life insurance policies. The primary offerings of
the accumulation products segment are individual fixed annuities
(comprised of traditional fixed annuities and equity indexed
annuities) and funding agreements.

We were founded in 1896 as the mutual insurer
Central Life Assurance Company. In 1996, we became the first
Mutual Insurance Holding Company in the United States, or MIHC,
a structure that allows mutuals to access the public equity
markets, which AmerUs did in 1997 with its initial public
offering. In 2000, AmerUs reorganized its MIHC structure through
a full demutualization and became a 100% public stock company.

We have had positive organic growth in our
businesses. We have also successfully executed a series of
strategic acquisitions that have helped generate sales growth,
as well as balance our product and geographic distribution. The
following is a summary of these acquisitions and the benefits
created:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 1994, Central Life Assurance Company and
    American Mutual Life Insurance Co. merged providing us with
    significant scale in our life insurance operations. The merger
    resulted in our becoming one of the 25 largest mutual insurers
    in America at that time.                                                                                                                        
|
| |  | In October 1997, the acquisition of Delta Life
    Corporation launched our annuity business. At the time of the
    acquisition, Delta Life had about $2.0 billion in assets
    and specialized in single-premium deferred annuity and equity
    indexed annuity products.                                                                                                                         
|
| |  | In December 1997, we acquired AmVestors Financial
    Corporation, predecessor to AmerUs Annuity Group Co., which
    specialized in the sale of individual fixed annuity products.
    The acquisition further strengthened our presence in asset
    accumulation and retirement and savings markets.                                                                                               
|
| |  | In 2001, we acquired Indianapolis Life Insurance
    Company, an Indiana life insurance company, and its subsidiaries
    which had approximately $6 billion in consolidated assets
    at the time of the acquisition. The acquisition allowed us to
    strengthen our life insurance business and ultimately provided
    us with a better balance of annuity and life insurance product
    sales.

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Subsidiaries

We have four main direct subsidiaries: AmerUs
Life Insurance Company, or ALIC, an Iowa life insurance company;
AmerUs Annuity Group Co., or AAG, a Kansas corporation; AmerUs
Capital Management Group, Inc., or ACM, an Iowa corporation; and
ILICO Holdings, Inc., an Indiana corporation.

AAG owns, directly or indirectly, two Kansas life
insurance companies: American Investors Life Insurance Company,
Inc., or American; and Financial Benefit Life Insurance Company,
or FBL. On December 31, 2002, Delta Life and Annuity
Company was merged into American.

ILICO Holdings, Inc., has one wholly-owned
subsidiary, Indianapolis Life Insurance Company, or ILIC, an
Indiana life insurance company. ILIC has two wholly-owned
subsidiaries: Bankers Life Insurance Company of New York, or
Bankers Life, a New York life insurance company; and IL
Securities, Inc., an Indiana corporation. When used in this
document, the term ILICO refers to ILICO Holdings,
Inc. and its consolidated subsidiaries.

Organization as of December 31,
2004

(Organizational Chart)

Reorganization

We were formerly known as American Mutual Holding
Company, or AMHC and were a mutual insurance holding company,
with our principal asset being a 58% interest in AmerUs Life
Holdings, Inc., or ALHI. Public stockholders owned the remaining
42% interest in ALHI with their interest referred to as minority
interest. ALHI was a holding company which directly or
indirectly owned ALIC and American, its principal life insurance
subsidiaries. On September 20, 2000, we converted to stock
form, changed our name to AmerUs Group Co. and acquired the
minority interest of ALHI by issuing our common stock in
exchange for the outstanding shares of ALHI held by the public.
The value of the stock exchange was approximately
$298 million and ALHI was merged into us simultaneously
with the stock exchange.

Prior to our conversion to a stock company, which
is referred to as a demutualization, we were owned by
individuals and entities who held insurance policies or annuity
contracts issued by ALIC. Such individuals and entities were
considered members. In connection with our demutualization, we
distributed cash, policy credits and our newly issued common
stock to those members in exchange for their membership
interests. The value of the distribution totaled approximately
$792 million.

The acquisition of the minority interest of ALHI
by us was accounted for as a purchase and 42% of the book value
of the assets and liabilities of ALHI was adjusted to market
value as of the acquisition date. Approximately 42% of the ALHI
earnings for our fiscal periods prior to the acquisition date
are deducted from our results of operations on the line titled
minority interest in our consolidated statements of
income. From the acquisition date forward, our results of
operations include 100% of such earnings.

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Closed Block

We have established two closed blocks of
policies: (a) the first on June 30, 1996 in connection
with the reorganization of ALIC from a mutual company to a stock
company, and (b) the second on March 31, 2000 in
connection with the reorganization of ILIC from a mutual company
to a stock company (collectively, the closed block). Insurance
policies which had a dividend scale in effect as of each closed
block establishment date were included in the closed block. The
closed block was designed to give reasonable assurance to owners
of insurance policies that, after the reorganizations of ALIC
and ILIC, assets would be available to maintain the dividend
scales and interest credits in effect prior to the
reorganization, if the experience underlying such scales and
crediting continued. The assets, including revenue therefrom,
allocated to the closed block will accrue solely to the benefit
of the owners of policies included in the closed block until the
closed block no longer exists. We will continue to pay
guaranteed benefits under all policies, including policies
included in the closed block, in accordance with their terms. In
the event that the closed blocks assets are insufficient
to meet the benefits of the closed blocks guaranteed
benefits, general assets would be utilized to meet the
contractual benefits of the closed blocks policyowners.

Dispositions

ILIC previously owned The Indianapolis Life Group
of Companies, Inc., or IL Group. IL Group owned Bankers Life, IL
Securities, Inc., IL Annuity, and Western Security Life
Insurance Company, or WSLIC, an Arizona life insurance company.
Effective on March 5, 2002, IL Group was dissolved and its
four wholly-owned subsidiaries became direct subsidiaries of
ILIC. In addition, on March 29, 2002, WSLIC was sold with
its insurance business transferred to ILIC prior to the sale.
The sale of the corporate organization and insurance licenses
resulted in a gain of approximately $1.9 million which is
included in realized gains and losses on investments for the
year ended December 31, 2002. IL Annuity was merged into
ILIC effective June 30, 2003 as part of a restructuring
plan. See further discussion in note 16 to the consolidated
financial statements.

In November 2003, we entered into an agreement to
sell our residential financing operations. The assets,
liabilities and results of operations of the residential
financing operations have been classified as discontinued
operations. The sale was completed in January 2004, resulting in
an after-tax gain of $3.9 million. See further discussion
in note 20 to the consolidated financial statements.

Financial Information

Our consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States, or GAAP. See note 1 to the
consolidated financial statements for additional information
about GAAP and our significant accounting policies.

We measure our profit or loss and total assets by
operating segments. We have two reportable operating segments:
protection products and accumulation products. See a further
discussion of our operating segments in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operation.

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Protection Products Segment

Products

Our protection products segment consists of
individual fixed life insurance premiums from traditional life
insurance products, universal life insurance products and equity
indexed life insurance products. Sales are presented as
annualized premium which is in accordance with industry
practice, and represent the amount of new business sold during
the period. Sales are a performance metric which we use to
measure the productivity of our distribution network and for
compensation of sales and marketing employees and agents. The
following table summarizes annualized premium by life insurance
product:

|                                 |                               |                                  |         |         |  |      |         |         |  |  |         |         | 
|-------------------------------- | ----------------------------- | -------------------------------- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------- | ------- | 
|                                 |                               |                                 
|                                 |                               | Sales Activity by Product       
|                                 |                               | For the Years Ended December 31,
|                                 |                               |                                 
|                                 |                               | 2004                             |         | 2003    |  | 2002
|                                 |                               |                                  |         |         |  |     
|                                 |                               |                                 
|                                 |                               | ($ in thousands)                
|Traditional life insurance:      |                               |                                  |         |         |  |      |         |         |  |  |         |        
|                                 | Interest-sensitive whole life |                                  | $       | 6,230   |  |      | $       | 19,691  |  |  | $       | 30,622  | 
|                                 | Term and other life           |                                  |         | 13,878  |  |      |         | 14,824  |  |  |         | 20,626  | 
|Universal life                   |                               |                                  | 29,326  |         |  |      | 32,476  |         |  |  | 32,570  |        
|Equity indexed life              |                               |                                  | 74,629  |         |  |      | 51,644  |         |  |  | 45,843  |        
|                                 |                               |                                  |         |         |  |      |         |         |  |  |         |        
|Direct                           |                               |                                  | 124,063 |         |  |      | 118,635 |         |  |  | 129,661 |        
|Private label term life premiums |                               |                                  |        |         |  |      | 4,206   |         |  |  | 8,970   |        
|                                 |                               |                                  |         |         |  |      |         |         |  |  |         |        
|                                 | Total                         |                                  | $       | 124,063 |  |      | $       | 122,841 |  |  | $       | 138,631 | 
|                                 |                               |                                  |         |         |  |      |         |         |  |  |         |        

Traditional Life Insurance
Products.Traditional life insurance
products include interest-sensitive whole life and term life
insurance products.

Interest-sensitive whole life insurance provides
benefits for the life of the insured. However, this product has
cash value accumulation that is interest sensitive and responds
to current interest and mortality rates. These products are used
in several markets, the largest of which is the pension plan
market. Lower interest-sensitive whole life sales were
experienced in 2004 and 2003, as compared to each prior year,
due to the development of an equity indexed product, our shift
in sales focus to equity indexed products and uncertainty in
government tax policy and regulation. For the year ended
December 31, 2004, sales of interest-sensitive whole life
products represented 5% of direct sales for individual life
insurance products sold.

Term and other life insurance include term life
and whole life insurance products. Term life provides life
insurance protection for a specific time period (which generally
can be renewed at an increased premium). Such policies are
mortality-based and offer no cash accumulation feature. Term
life insurance is a highly competitive and quickly changing
market. The reduction in term and other life sales in 2003
compared to 2002 was primarily a result of our ceasing to take
new applications for sales of whole life insurance on
December 31, 2002. Term and other life insurance sales have
declined to approximately 11% of our total sales in 2004.

In prior years, ILIC had distributed term
products primarily through strategic alliances with private
label partners. Under private label arrangements, ILIC
manufactured products that were distributed through field forces
of other life insurance companies, its private label partners.
Following a strategic decision to exit the private label
business, ILIC reached an agreement with its joint venture
partners to cease new business processing during 2003. In
keeping with contractual obligations, ILIC continues to service
in-force business for existing joint venture partners.

Universal Life Insurance
Products.We offer universal life
insurance products, which provide flexible benefits for the
insured. Within product limits and state regulations,
policyowners may vary the amount and timing of premiums and the
amount of the death benefit of their policies and keep the
policies in force, as long as there are sufficient policy funds
available to cover all policy charges for the next coverage
period. Premiums, net of specified expenses, are credited to the
policy, as is interest, generally at a rate determined from time
to time by us. Specific charges are made against the policy for
the cost of insurance and for expenses. We invest

5



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the premiums we receive from the sale of
universal life insurance products in our investment portfolio.
Our gross margin from these products is the yield we earn on our
investment portfolio plus the internal product charges less
interest credited to policies and less mortality and other
expenses.


Sales of universal life decreased in 2004
compared to the prior periods due to the popularity of our
equity indexed life products. The weighted average crediting
rate for universal life insurance liabilities was 4.62% for the
year 2004, 4.96% for the year 2003 and 5.39% for the year 2002.
The crediting rate has been lowered as a result of reduced
investment yields associated with the declining interest rate
environment. For the year ended December 31, 2004, sales of
universal life insurance products represented 24% of direct
sales for individual life insurance products sold.

Equity Indexed Life
Products.We also offer equity indexed
life insurance products which are a type of universal life or
interest-sensitive whole life product that allows the
policyowner to elect an interest earnings strategy for a portion
of the account value. Earnings are credited based in part on
increases in the appropriate indices, primarily the
Standard & Poors 500 Composite Stock
Index®(collectively, S&P 500 Index), excluding
dividends. The earnings credit is subject to a participation
rate and an annual cap. Our gross margin on our equity indexed
life products is similar to that of our universal life and
interest-sensitive whole life insurance products. However, due
to the equity indexed earnings strategies, we invest a portion
of the premiums we receive from the sale of these products in
call options. We may affect the cost of the call options by
adjusting interest crediting parameters that are provided for in
the policy. Our return on the call options is generally
expected, in a growing equity market, to correspond to the
earnings we are contractually bound to credit on the equity
indexed strategies. The remainder of the premium is invested in
our investment portfolio to support the contractual minimum
guarantees that may come into effect if the equity index
declines. The structure of our product, together with the
allocation of our equity indexed life product premiums between
call options and our investment portfolio, are intended to
provide for a positive gross margin in both increasing and
decreasing equity markets. At December 31, 2004, the
account value of equity indexed life products totaled
$364.3 million of which approximately 82% is invested in
equity indexed strategies.

Equity indexed life insurance sales increased in
2004 and 2003 following our focus on the marketing of this
product beginning in 2000. We are a leading writer of equity
indexed life products in the United States. Sales of the equity
indexed life product, as a percentage of direct sales, was
approximately 60% in 2004.

6



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Collected premiums are measured in accordance
with industry practice, and represent the amount of premiums
received during the period. Collected premiums are a performance
metric which we use to measure the productivity of our
distribution network and for compensation of sales and marketing
employees and agents. The following table sets forth our
collected life insurance premiums, including collected premiums
associated with the closed block, for the periods indicated:

|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |          |         |         | 
|----------------------------------------- | -------------------- | -------------------------------- | ------- | -------- | ------- | ------- | ------- | -------- | ------- | ------- | ------- | -------- | ------- | ------- | 
|                                          |                      |                                 
|                                          |                      | Collected Premiums by Product   
|                                          |                      | For The Years Ended December 31,
|                                          |                      |                                 
|                                          |                      | 2004                             |         | 2003     |         | 2002   
|                                          |                      |                                  |         |          |         |        
|                                          |                      |                                 
|                                          |                      | ($ in thousands)                
|Individual life premiums collected:       |                      |                                  |         |          |         |         |         |          |         |         |         |         
|                                          | Traditional life:    |                                  |         |          |         |         |         |          |         |         |         |          |        
|                                          |                      | First year and single            |         | $        | 92,354  |         |         | $        | 116,252 |         |         | $        | 149,740 |        
|                                          |                      | Renewal                          |         |          | 333,255 |         |         |          | 343,067 |         |         |          | 344,715 |        
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         
|                                          |                      |                                  | Total   |          |         | 425,609 |         |          |         | 459,319 |         |          |         | 494,455 | 
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         
|                                          | Universal life:      |                                  |         |          |         |         |         |          |         |         |         |          |        
|                                          |                      | First year and single            |         |          | 93,848  |         |         |          | 94,158  |         |         |          | 75,761  |        
|                                          |                      | Renewal                          |         |          | 138,579 |         |         |          | 132,833 |         |         |          | 128,869 |        
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         
|                                          |                      |                                  | Total   |          |         | 232,427 |         |          |         | 226,991 |         |          |         | 204,630 | 
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         
|                                          | Equity-indexed life: |                                  |         |          |         |         |         |          |         |         |         |          |        
|                                          |                      | First year and single            |         |          | 118,535 |         |         |          | 84,478  |         |         |          | 78,797  |        
|                                          |                      | Renewal                          |         |          | 62,061  |         |         |          | 35,344  |         |         |          | 14,526  |        
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         
|                                          |                      |                                  | Total   |          |         | 180,596 |         |          |         | 119,822 |         |          |         | 93,323  | 
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         
|Total individual life                     |                      |                                  | 838,632 |          |         |         | 806,132 |          |         |         | 792,408 |         
|                                          | Reinsurance assumed  |                                  |         | 45,266   |         |         |         | 49,706   |         |         |         | 48,664   |        
|                                          | Reinsurance ceded    |                                  |         | (227,862 | )       |         |         | (187,860 | )       |         |         | (220,589 | )      
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         
|Total individual life, net of reinsurance |                      | $                                | 656,036 |          |         | $       | 667,978 |          |         | $       | 620,483 |         
|                                          |                      |                                  |         |          |         |         |         |          |         |         |         |         

Individual life insurance premiums collected
before reinsurance increased in 2004 and 2003 as a result of
increased equity indexed sales, which were partially offset by
lower traditional life collected premiums.

ALIC has reinsurance arrangements that have
reduced its retention to 10% of the net amount at risk on any
one policy not to exceed company retention limits for the
majority of policies issued from July 1, 1996 through
December 31, 1999, and for all new business commencing
January 1, 2000. ALICs retention limits on any one
life vary by age and rating table and are generally between
$150,000 and $500,000. ALIC also has a reinsurance agreement
covering approximately 90% of the closed block net amount at
risk not previously reinsured. In addition, ALIC entered into an
indemnity reinsurance agreement effective December 31, 2001
covering universal life policies of the open block issued prior
to July 1, 1996, that was subsequently replaced by another
indemnity reinsurance agreement effective October 1, 2002,
covering 90% of the net amount at risk not previously reinsured
of any one policy. ALIC entered into an 80% statutory modified
coinsurance quota share and coinsurance agreement covering
certain individual life policies of the closed block effective
December 31, 2002. That agreement was terminated
January 1, 2004. As a result of these agreements, ceded
reinsurance premium for ALIC was $96.9 million in 2004,
$77.9 million in 2003 and $127.3 million in 2002.

ILIC entered into a statutory reinsurance
agreement to cover 100% quota share of retained net amounts at
risk for certain open block and closed block policies in force
at December 31, 2002, which was amended by an indemnity
reinsurance agreement effective July 1, 2003. Ceded premium
from ILICO amounted to $131.0 million in 2004,
$109.8 million in 2003 and $93.3 million in 2002.
ILICOs reinsurance agreements effectively reduce
ILICOs retention limit to between $150,000 and $500,000.

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The following table sets forth information
regarding our life insurance in force for each date presented.
Protection products face amounts in force is a performance
measure utilized by investors, analysts and the Company to
assess the Companys position in the industry.

|                     |                    |                                    |   |            |  |      |   |            |  |  |   |            | 
|-------------------- | ------------------ | ---------------------------------- | - | ---------- |  | ---- | - | ---------- |  |  | - | ---------- | 
|                     |                    |                                   
|                     |                    | Individual Life Insurance in Force
|                     |                    | As of December 31,                
|                     |                    |                                   
|                     |                    | 2004                               |   | 2003       |  | 2002
|                     |                    |                                    |   |            |  |     
|                     |                    |                                   
|                     |                    | ($ in thousands)                  
|Traditional life     |                    |                                    |   |            |  |      |   |            |  |  |   |           
|                     | Number of policies |                                    |   | 433,011    |  |      |   | 446,961    |  |  |   | 451,933    | 
|                     | GAAP life reserves |                                    | $ | 3,551,648  |  |      | $ | 3,465,853  |  |  | $ | 3,236,223  | 
|                     | Face amounts       |                                    | $ | 67,769,000 |  |      | $ | 70,904,000 |  |  | $ | 64,302,000 | 
|Universal life       |                    |                                    |   |            |  |      |   |            |  |  |   |           
|                     | Number of policies |                                    |   | 142,370    |  |      |   | 145,525    |  |  |   | 147,469    | 
|                     | GAAP life reserves |                                    | $ | 1,587,787  |  |      | $ | 1,517,227  |  |  | $ | 1,425,746  | 
|                     | Face amounts       |                                    | $ | 19,848,000 |  |      | $ | 20,780,000 |  |  | $ | 19,095,000 | 
|Equity-indexed life  |                    |                                    |   |            |  |      |   |            |  |  |   |           
|                     | Number of policies |                                    |   | 46,350     |  |      |   | 35,133     |  |  |   | 23,679     | 
|                     | GAAP life reserves |                                    | $ | 364,282    |  |      | $ | 224,874    |  |  | $ | 126,821    | 
|                     | Face amounts       |                                    | $ | 9,918,000  |  |      | $ | 6,878,000  |  |  | $ | 4,574,000  | 
|Total life insurance |                    |                                    |   |            |  |      |   |            |  |  |   |           
|                     | Number of policies |                                    |   | 621,731    |  |      |   | 627,619    |  |  |   | 623,081    | 
|                     | GAAP life reserves |                                    | $ | 5,503,717  |  |      | $ | 5,207,954  |  |  | $ | 4,788,790  | 
|                     | Face amounts       |                                    | $ | 97,535,000 |  |      | $ | 98,562,000 |  |  | $ | 87,971,000 | 



| |                     
| | --------------------
| | Distribution Systems

Our subsidiaries sell life insurance in all
50 states, the District of Columbia and the
U.S. Virgin Islands. The states with the highest geographic
concentration of sales, based on statutory premiums in 2004, are
California, Florida, Illinois, Iowa, Minnesota, New York, Texas
and Wisconsin. These states account for approximately 54% of our
statutory premiums.

Our target customers are individuals in the
middle and upper income brackets and small businesses. We market
our life insurance products on a national basis primarily
through a Career Marketing Organization (CMOs) system, a
Personal Producing General Agent (PPGA) distribution
system, Independent Marketing Organizations (IMOs) and a New
York distribution system. We currently employ 19 regional vice
presidents who are responsible for supervising these
distribution systems within their assigned geographic regions.

Under the CMO system, a contractual arrangement
is entered into with the CMO for the sale of insurance products
by the CMOs agents. The CMO agents are primarily
compensated by receiving a percentage of the first year
commissions and renewal commissions on premiums subsequently
collected on that business. In addition, the CMO agents receive
certain retirement benefits and incentive trips.

The CMOs are independent contractors and are
generally responsible for the expenses of their operations,
including office and overhead expenses and the recruiting,
selection, contracting, training and development of agents in
their agencies. As of December 31, 2004, we had 66 CMO
general agents in 28 states, through which approximately
1,150 agents sell our products. While agents in the CMO system
are non-exclusive, most use our products for a majority of their
new business.

Under the PPGA system, we contract primarily with
individuals who are experienced individual agents or who head a
small group of experienced individual agents. These individuals
are independent contractors and are responsible for all of their
own expenses. These individuals often sell products for other
insurance companies, and may offer selected products we offer
rather than our full line of insurance products. The PPGA system
is comprised of approximately 1,100 PPGA general agents, with
approximately 4,100 agents.

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PPGAs are compensated by commissions on first
year and renewal premiums collected on business written by
themselves and the agents in their units.


We have also developed programs to sell life
insurance through select IMOs. The customers targeted and the
products sold are similar to those of the CMO and PPGA systems.

Under the IMO system, a contractual arrangement
is entered into with an IMO to promote our insurance products to
their network of agents and brokers. The IMO receives a
commission and override commission on the business produced. We
currently have approximately 90 IMOs under contract.

The New York distribution system is comprised of
a combination of IMOs and PPGAs in the tri-state area, which
primarily focus on the state of New York. There were
approximately 5,700 agents in the New York distribution system.

During 2004, no single distribution organization
(CMO, PPGA, IMO, or New York) accounted for more than 7% of
total direct sales.

Accumulation Products Segment



| |         
| | --------
| | Products

Our accumulation products segment primary
offerings consist of individual fixed annuities and funding
agreements. Annuities provide for the payment of periodic
benefits over a specified time period. Benefits may commence
immediately or may be deferred to a future date. Fixed annuities
generally are backed by a general investment account and
credited with a rate of return that is periodically reset.
Funding agreements are arrangements for which we receive deposit
funds and for which we agree to repay the deposit and a
contractual return for the duration of the contract.

Deposits are presented as collected premiums,
which are measured in accordance with industry practice, and
represent the amount of new business sold during the period.
Deposits are a performance metric which we use to measure the
productivity of our distribution network and for compensation of
sales and marketing employees and agents. Our annuity deposits
consisted of approximately 17% from traditional annuity products
and approximately 83% from equity indexed annuity products in
2004. Funding agreement deposits totaled $85 million in
2004 and $875 million in 2002. The following table sets
forth deposits for the periods indicated:

|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |           |           | 
|---------------------------------- | ------------------------- | -------------------------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                   |                           |                                 
|                                   |                           | Deposits by Product             
|                                   |                           | For The Years Ended December 31,
|                                   |                           |                                 
|                                   |                           | 2004                             |           | 2003      |           | 2002
|                                   |                           |                                  |           |           |           |     
|                                   |                           |                                 
|                                   |                           | ($ in thousands)                
|Annuities                          |                           |                                  |           |           |           |      |           |           |           |   |           |          
|                                   | Deferred fixed annuities: |                                  |           |           |           |      |           |           |           |   |           |           |          
|                                   |                           | Traditional fixed annuities      |           | $         | 312,652   |      |           | $         | 443,220   |   |           | $         | 1,099,872 | 
|                                   |                           | Equity indexed annuities         |           |           | 1,527,587 |      |           |           | 1,311,409 |   |           |           | 683,819   | 
|                                   | Variable annuities        |                                  |           | 2,805     |           |      |           | 3,254     |           |   |           | 6,230     |          
|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |          
|                                   | Total annuities           |                                  |           | 1,843,044 |           |      |           | 1,757,883 |           |   |           | 1,789,921 |          
|Funding agreements                 |                           |                                  | 85,000    |           |           |      |          |           |           |   | 875,000   |          
|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |          
|                                   |                           | Total                            |           |           | 1,928,044 |      |           |           | 1,757,883 |   |           |           | 2,664,921 | 
|Reinsurance assumed                |                           |                                  |          |           |           |      |          |           |           |   |          |          
|Reinsurance ceded                  |                           |                                  | (10,054   | )         |           |      | (25,080   | )         |           |   | (60,916   | )        
|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |          
|Total deposits, net of reinsurance |                           | $                                | 1,917,990 |           |           | $    | 1,732,803 |           |           | $ | 2,604,005 |          
|                                   |                           |                                  |           |           |           |      |           |           |           |   |           |          

Traditional Annuity
Products.We offer a variety of
interest rate crediting strategies on our traditional annuity
products. At December 31, 2004, the account value of
traditional annuities totaled $6.5 billion of which
approximately 94% have minimum guarantee rates ranging from 3%
to 4%. For traditional annuities with an account value of
$4.7 billion, the credited rate was equal to the minimum
guarantee rate, and as a

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result, the credited rate cannot be lowered. We
also offer an interest rate crediting strategy that credits the
policy with a return generally based upon the interest rates it
earns on assets supporting the respective policies less
management fees. Traditional annuities with an account value of
$1.2 billion had a multi-year guarantee for which the
credited rate cannot be decreased until the end of the
multi-year period. At the end of the multi-year period, we will
have the ability to lower the crediting rate to the minimum
guaranteed rate by an average of approximately 275 basis
points. The remaining multi-year period is generally either one
or two years. Due to these limitations on the ability to lower
interest crediting rates and the potential for additional credit
defaults and lower reinvestment rates on investments, we could
experience spread compression in future periods.


We invest the deposits we receive from
traditional annuity product sales in our investment portfolio.
We call the difference between the yield we earn on our
investment portfolio and the interest we credit on our
traditional annuities our product spread. The product spread is
a major driver of the profitability of our traditional annuity
products.

Traditional annuity deposits decreased
$130.6 million and $656.7 million in 2004 and 2003,
respectively, as compared to the prior year periods as we slowed
traditional annuity sales due to the low interest rate
environment and as we have shifted our sales focus to equity
indexed products.

Equity Indexed
Annuities.We offer equity indexed
annuity products that provide various interest crediting
strategies, including strategies linked to equity and investment
grade bond indices. For deposits allocated to indexed crediting
strategies, interest is credited to these products based in part
on the increases in the applicable indices, less any applicable
fees and subject to any applicable caps. Similar to our
traditional annuity products, we invest the deposits we receive
from equity indexed annuity product sales in our investment
portfolio. At December 31, 2004, the GAAP reserves of
equity indexed annuities totaled $5.6 billion which provide
guaranteed rates based on a cumulative floor over the term of
the product. In addition, for deposits allocated to equity
indexed crediting strategies, we use a portion of the deposits
to purchase call options. We may affect the cost of the call
options by adjusting interest crediting parameters that are
provided for in the policy. Our return on the call options is
generally expected, in a growing equity market, to correspond to
the earnings we are contractually bound to credit on the equity
indexed strategies. The remainder of the deposit is invested in
our investment portfolio to support the contractual minimum
guarantees that may come into effect if the equity index
declines. At December 31, 2004, approximately 47% of the
equity indexed annuities are invested in equity indexed
strategies with the remainder invested in bonds or other fixed
type investments. The product spread on deposits allocated to
our equity indexed strategy is computed as:



| |                                               
| | ----------------------------------------------
| | The yield we earn on our investment portfolio,
| | Less the cost of the call options,            
| | Less any interest credited to policyowners,   
| | Equals product spread.                        

The product spread is a major driver of
profitability of our equity indexed annuity products. The
structure of our product, together with the allocation of our
equity indexed strategy deposits between call options and our
investment portfolio, is intended to provide for a positive
product spread in both increasing and decreasing equity markets.

Equity indexed annuity sales increased in 2004
and 2003 as compared to the prior year periods due to its
popularity with consumers and agents. In the third quarter of
2002, we entered into a new modified coinsurance reinsurance
agreement to cede 25% of certain equity indexed annuity products
which amounted to $10.1 million, $25.1 million, and
$56.2 million ceded premium in 2004, 2003, and 2002,
respectively.

Variable Annuities.Through our acquisition of ILICO, we obtained a variable annuity
product line. In the first quarter of 2002, we ceased new sales
of these products, except for new policies issued as part of
existing employer-sponsored qualified plan contracts. All new
sales were discontinued effective September 30, 2002.
Amounts in 2004 and 2003 represent deposits collected on
existing business. Our agents are encouraged to make new sales
of variable annuities through the Ameritas Joint Venture. As
these sales are through the joint venture, they do not appear in
our direct sales amounts. See the discussion related to this
joint venture in

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the Ameritas Joint Venture section.
The assets and liabilities related to the direct variable
annuities are shown on the consolidated balance sheets as
separate account assets and separate account
liabilities.


Funding Agreements.We placed primarily fixed rate funding agreements totaling
$85 million and $875 million in 2004 and 2002,
respectively. Funding agreements are insurance contracts for
which we receive deposit funds and for which we agree to repay
the deposit and a contractual return for the duration of the
contract. In December 2003, a $250 million funding
agreement was terminated. Total funding agreements outstanding
as of December 31, 2004, amounted to $960 million
compared to $875 million outstanding at December 31,
2003.

The following table sets forth information
regarding fixed annuities in force for each date presented:

|                         |                       |                    |   |            |  |      |   |            |  |  |   |            | 
|------------------------ | --------------------- | ------------------ | - | ---------- |  | ---- | - | ---------- |  |  | - | ---------- | 
|                         |                       |                   
|                         |                       | Annuities in Force
|                         |                       | As of December 31,
|                         |                       |                   
|                         |                       | 2004               |   | 2003       |  | 2002
|                         |                       |                    |   |            |  |     
|                         |                       |                   
|                         |                       | ($ in thousands)  
|Deferred fixed annuities |                       |                    |   |            |  |      |   |            |  |  |   |           
|                         | Number of policies    |                    |   | 162,489    |  |      |   | 176,280    |  |  |   | 181,581    | 
|                         | GAAP annuity reserves |                    | $ | 6,780,234  |  |      | $ | 7,257,387  |  |  | $ | 7,579,869  | 
|Equity-indexed annuities |                       |                    |   |            |  |      |   |            |  |  |   |           
|                         | Number of policies    |                    |   | 110,488    |  |      |   | 91,550     |  |  |   | 76,863     | 
|                         | GAAP annuity reserves |                    | $ | 5,551,184  |  |      | $ | 4,439,836  |  |  | $ | 3,724,598  | 
|Total fixed annuities    |                       |                    |   |            |  |      |   |            |  |  |   |           
|                         | Number of policies    |                    |   | 272,977    |  |      |   | 267,830    |  |  |   | 258,444    | 
|                         | GAAP annuity reserves |                    | $ | 12,331,418 |  |      | $ | 11,697,223 |  |  | $ | 11,304,467 | 



| |                     
| | --------------------
| | Distribution Systems

We sell annuities in all 50 states, the
District of Columbia and the U.S. Virgin Islands. The
states with the highest geographic concentration of sales, based
on statutory premiums in 2004, are California, Florida,
Michigan, North Carolina, Ohio, Pennsylvania and Texas. These
states account for approximately 50% of our statutory premiums.

We direct our marketing efforts towards the asset
accumulation, conservative savings and retirement markets. We
market our annuity products on a national basis primarily
through networks of independent agents. The independent agents
are supervised by regional vice presidents and regional
directors or IMOs. At December 31, 2004, we had
approximately 15,000 independent agents licensed to sell our
annuity products. In addition, the Preferred Producer agency and
PPGA systems discussed previously are utilized to market certain
annuity products.

Our IMOs consist principally of 10 contracted
organizations, including four wholly-owned organizations and one
organization which principally sell our proprietary products.
The IMOs are responsible for recruiting, servicing and educating
agents in an effort to promote our products. The IMOs receive an
override commission based on the business produced by their
agents. Our wholly-owned and proprietary organizations accounted
for approximately 79% of our annuity sales in 2004. We do not
have exclusive agency agreements with our agents and we believe
most of these agents sell products similar to ours for other
insurance companies.

Ameritas Joint Venture

We participate in a joint venture, the Ameritas
Joint Venture, with Ameritas Life Insurance Corp. (or Ameritas)
through ALICs 34% ownership interest in AMAL Corporation
(or AMAL), a Nebraska corporation. AMAL Corporations
operations are conducted through Ameritas Variable Life
Insurance Company, (or AVLIC), Ameritas Investment Corp. (or
AIC), and The Advisors Group, Inc. (or TAG), its three
wholly-owned subsidiaries. AVLIC is licensed to conduct business
in 47 states and the District of

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Columbia. AIC and TAG are registered
broker-dealers. Our partner in the Ameritas Joint Venture,
Ameritas, is a Nebraska mutual life insurance company which has
been in existence for more than 100 years.


Our investment in the Ameritas Joint Venture
provides access to a line of existing variable life insurance
and annuity products while providing a lower-cost entry into an
established business, helping to eliminate significant start-up
costs and allowing for immediate potential earnings.

The Ameritas Joint Venture offers, through AVLIC,
fixed annuity products, flexible premium and single premium
variable universal life insurance products, and variable
annuities. Variable products provide for allocation of funds to
a general account or to one or more separate accounts under
which the owner bears the investment risk. Through AVLICs
fund managers, owners of variable annuities and life insurance
policies are able to choose from a range of investment funds
offered by each manager. Under the current terms of the joint
venture agreement, ALIC and Ameritas direct their new variable
annuities and variable life insurance through the Ameritas Joint
Venture.

The variable life insurance products and the
fixed and variable annuities offered by the Ameritas Joint
Venture are distributed through our CMOs, PPGA systems and one
IMO, as well as through the distribution systems of Ameritas and
AVLIC.

ALIC and Ameritas each have guaranteed the
policyholder obligations of AVLIC. The guarantee of each party
is joint and several, and will remain in effect until certain
conditions are met. As of December 31, 2004, AMAL
Corporation had total consolidated assets of $184.2 million
and total consolidated shareholders equity of
$173.5 million on a GAAP basis. AVLIC had
$3,198.3 million of insurance in force and
$110.2 million in surplus as of December 31, 2004, on
a statutory basis.

Competition

We operate in a highly competitive industry. We
compete with numerous life insurance companies and other
entities including banks and other financial institutions, many
of which have greater financial and other resources. We believe
that the principal competitive factors in the sale of insurance
products are product features, price, commission structure,
perceived stability of the insurer, financial strength ratings,
value-added service and name recognition. Many other companies
are capable of competing for sales in our target markets
(including companies that do not presently compete in such
markets). Our ability to compete for sales is dependent upon our
ability to successfully address the competitive factors.

We are the national leader in market share of
equity indexed life production and are the fourteenth largest
fixed life company in the United States. We also rank fifth
nationally in equity indexed annuity sales and sixth nationally
in fixed annuity sales through independent agents. The rankings
are as of December 31, 2004, and are based on industry
information from Advantage Compendium (formerly The Advantage
Group) and LIMRA International.

In addition to competing for sales, we compete
for qualified agents and brokers to distribute products. Strong
competition exists among insurance companies for agents and
brokers with demonstrated ability. We believe that the bases of
competition for the services of such agents and brokers are
commission structure, support services, prior relationships and
the strength of an insurers products. Although we believe
that we have good relationships with our agents and brokers, our
ability to compete will depend on our continued ability to
attract and retain qualified persons.

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##### Table of Contents



Ratings

Ratings with respect to financial strength are an
increasingly important factor in establishing the competitive
position of insurance companies. The following are the ratings
as of March 1, 2005 for our major insurance subsidiaries
currently writing new business:

|             |  |                |                   |             |  |        |                              |  |  |  |               | 
|------------ |  | -------------- | ----------------- | ----------- |  | ------ | ---------------------------- |  |  |  | ------------- | 
|Company      |  | Rating Service |                   | Rating Type |  | Rating
|             |  |                |                   |             |  |       
|American     |  |                | Standard & Poors |             |  |        | insurer financial strength   |  |  |  | A+ (strong)   | 
|American     |  |                | A. M. Best        |             |  |        | financial condition          |  |  |  | A (excellent) | 
|American     |  |                | Moodys           |             |  |        | insurance financial strength |  |  |  | A3 (good)     | 
|ALIC         |  |                | Standard & Poors |             |  |        | insurer financial strength   |  |  |  | A+ (strong)   | 
|ALIC         |  |                | A. M. Best        |             |  |        | financial condition          |  |  |  | A (excellent) | 
|ALIC         |  |                | Moodys           |             |  |        | insurance financial strength |  |  |  | A3 (good)     | 
|Bankers Life |  |                | Standard & Poors |             |  |        | insurer financial strength   |  |  |  | A+ (strong)   | 
|Bankers Life |  |                | A. M. Best        |             |  |        | financial condition          |  |  |  | A (excellent) | 
|ILICO        |  |                | Standard & Poors |             |  |        | insurer financial strength   |  |  |  | A+ (strong)   | 
|ILICO        |  |                | A. M. Best        |             |  |        | financial condition          |  |  |  | A (excellent) | 
|ILICO        |  |                | Moodys           |             |  |        | insurance financial strength |  |  |  | A3 (good)     | 

One of our insurance subsidiaries, FBL, is not
currently writing new business. The ratings for FBL were a
Standard & Poors rating of BBB+ (good) and
an A.M. Best rating of B+ (very good).

Standard & Poors ratings for
insurance companies range from AAA to R.
Standard & Poors indicates that A+
ratings are assigned to companies that have demonstrated strong
financial security. A.M. Bests ratings for insurance
companies range from A++ to S. A.M. Best
indicates that an A rating is assigned to those
companies that in A.M. Bests opinion have achieved
superior performance when compared to the norms of the life
insurance industry and have demonstrated a strong ability to
meet their policyowner and other contractual obligations.
Moodys ratings for insurance companies range from
Aaa to C. Moodys indicates that
A3 ratings are assigned to companies that have
factors related to security of principal and interest which are
considered adequate; however, elements are present which may
suggest a susceptibility to impairment in the future. In
evaluating a companys financial and operating performance,
these rating agencies review a companys profitability,
leverage and liquidity, book of business, adequacy and soundness
of reinsurance, quality and estimated market value of assets,
adequacy of policy reserves, experience and competency of
management and other factors. Such ratings are neither a rating
of securities nor a recommendation to buy, hold or sell any
security, including our common stock and they may be subject to
revision or withdrawal at any time by the relevant rating
agency. You should evaluate each rating independently of any
other rating.

On June 21, 2004, Moodys Investor
Services changed the rating outlook for our insurance
subsidiaries that it rates to stable from negative. On
October 19, 2004, Standard & Poors
re-affirmed our current A+ rating and our stable outlook. Also,
on November 12, 2004, A.M. Best Company changed the rating
outlook for all of our insurance subsidiaries to stable from
negative. The changes occurred as part of Moodys,
Standard & Poors, and A.M. Bests
assessments of their current life insurers ratings given
the current operating environment. A negative outlook indicates
that if certain trends continue or worsen, the rating agencies
believe the insurance subsidiaries ratings may have to be
adjusted downward. On February 15, 2005, Moodys
Investor Services changed the rating outlook for the Company and
its insurance and other subsidiaries that it rates to negative
from stable as a result of uncertainties in connection with a
lawsuit filed by the California Attorney General. On
February 17, 2005, Standard & Poors
announced that our ratings would be unaffected by this lawsuit.

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Insurance Underwriting

We follow detailed, uniform underwriting
practices and procedures in our insurance business which are
designed to assess risks before issuing coverage to qualified
applicants. We have professional underwriters who evaluate
policy applications on the basis of information provided by
applicants and others.

Reinsurance

In accordance with industry practices, we
reinsure portions of our life insurance exposure with
unaffiliated insurance companies under traditional indemnity
reinsurance arrangements. Such reinsurance arrangements are in
accordance with standard reinsurance practices within the
industry. We enter into these arrangements to assist in
diversifying risks and to limit the maximum loss on risks that
exceed policy retention limits. Indemnity reinsurance does not
fully discharge our obligation to pay claims on business we
reinsure. As the ceding company, we remain responsible for
policy claims to the extent the reinsurer fails to pay such
claims. We continually monitor the creditworthiness of our
primary reinsurers, and have experienced no material reinsurance
recoverability problems in recent years.

For accounting purposes, premiums and expenses in
the income statement are reported net of reinsurance ceded.
Future life and annuity policy benefits, policyowner funds and
other related assets and liabilities are not reduced for
reinsurance ceded in the balance sheet, rather a reinsurance
receivable is established for such balance sheet items.

We reinsure mortality risk on individual life
insurance policies. Our retention is generally between $150,000
and $500,000 on any single life depending on the respective age
and rating table. We also reinsure certain annuity business
primarily on a modified coinsurance basis. Beginning in the
fourth quarter of 2004, we entered into new reinsurance
agreements that for certain new universal life products, we
retain the first $500,000, we reinsure 50% of the coverage
between $500,000 and $1,500,000, and then fully reinsure the
coverage in excess of $1,500,000. We increased our retention
levels as a result of our favorable mortality experience and the
overall increase in prices in the reinsurance market.

At December 31, 2004 and 2003, we ceded life
insurance with a face amount of $77.4 billion with 31
unaffiliated reinsurers and life insurance with a face amount of
$75.3 billion with 39 unaffiliated reinsurers,
respectively. Ceded life insurance was approximately 79% and 77%
of direct and assumed life insurance in force at
December 31, 2004 and 2003, respectively. The following is
a summary of our principal life reinsurers as of
December 31, 2004:

|                                               |  |               |      |           |  |             |  |  |    |  
|---------------------------------------------- |  | ------------- | ---- | --------- |  | ----------- |  |  | -- | -
|                                               |  |               |      |           |  | % of total 
|                                               |  | Face          |      | A.M. Best |  | face amount
|Reinsurer                                      |  | amount ceded  |      | rating    |  | reinsured  
|                                               |  |               |      |           |  |            
|                                               |  | (in billions) |      |           |  |            
|Swiss Re Life & Health America,
    Inc.       |  | $             | 23.7 |           |  | A+          |  |  | 34 | %
|RGA Reinsurance Company                        |  |               | 19.7 |           |  | A+          |  |  | 25 |  
|Transamerica Occidental Life Insurance Company |  |               | 14.1 |           |  | A+          |  |  | 18 |  
|Allianz Life Insurance Company                 |  |               | 4.3  |           |  | A           |  |  | 6  |  
|Employers Reassurance Corporation              |  |               | 4.2  |           |  | A-          |  |  | 5  |  
|Scottish Re Group Limited                      |  |               | 4.1  |           |  | A-          |  |  | 5  |  
|Generali USA Life Reinsurance Company          |  |               | 3.3  |           |  | A           |  |  | 4  |  

14



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##### Table of Contents



At December 31, 2004 and 2003, we ceded
traditional and equity indexed annuities having reserves of
$1.0 billion and $1.2 billion, respectively. The
following is a summary of our principal annuity reinsurers as of
December 31, 2004:

|                                               |  |                |     |           |  |             |    |  |  |  |    |  
|---------------------------------------------- |  | -------------- | --- | --------- |  | ----------- | -- |  |  |  | -- | -
|                                               |  |                |     |           |  | % of total 
|                                               |  |                |     | A.M. Best |  | face amount
|Reinsurer                                      |  | Reserves ceded |     | rating    |  | reinsured  
|                                               |  |                |     |           |  |            
|                                               |  | (in billions)  |     |           |  |            
|Transamerica Occidental Life Insurance Company |  | $              | 0.6 |           |  |             | A+ |  |  |  | 60 | %
|RGA Reinsurance Company                        |  |                | 0.3 |           |  |             | A+ |  |  |  | 30 |  

Employees

As of December 31, 2004, we had
1,114 full-time employees. None of these employees are
covered by a collective bargaining agreement and we believe that
our relations with our employees are satisfactory.

Government Regulation

We are subject to a variety of state and federal
laws and regulations as well as oversight by regulatory bodies.

We are regulated by the states in which our
insurance subsidiaries are domiciled and/or transact business.
State insurance and other laws generally establish supervisory
agencies with broad administrative and supervisory powers
related to granting and revoking licenses, transacting business,
regulating the payment of dividends to stockholders,
establishing guaranty fund associations, licensing agents,
approving policy forms, regulating sales practices, establishing
reserve requirements, prescribing the form and content of
required financial statements and reports, determining the
reasonableness and adequacy of statutory capital and surplus,
and regulating the type and amount of investments permitted.
Every state in which our insurance companies are licensed
administers a guaranty fund, which provides for assessments of
licensed insurers for the protection of policyowners of
insolvent insurance companies. Assessments can be partially
recovered through a reduction in future premium taxes in some
states. Risk-based capital, or RBC, standards for life insurance
companies were adopted by the National Association of Insurance
Commissioners, known as the NAIC, and require insurance
companies to calculate and report for statutory basis financial
statements information under a risk-based capital formula. The
RBC requirements are intended to allow insurance regulators
to identify at an early stage inadequately capitalized insurance
companies based upon the types and mixtures of risks inherent in
such companies operations. The formula includes components
for asset risk, liability risk, interest rate exposure and other
factors. As of December 31, 2004, each of our life
insurance companies RBC levels was in excess of
authorized control level RBC thresholds established by
insurance regulators.

Although the federal government generally does
not directly regulate the insurance business, federal
initiatives and changes in federal law can often have a material
impact on our business in a variety of ways. Our products and
sales practices are impacted by federal laws and regulations,
such as those related to taxation and securities. Current and
proposed federal measures that may significantly affect the
insurance business include limitations on antitrust immunity,
minimum solvency requirements, changes to the tax advantages of
life insurance and annuity products or the programs with which
they are used, new savings and dividend proposals and the
removal of barriers restricting banks from engaging in the
insurance and mutual fund business.

Regulatory bodies may periodically make inquiries
and conduct examinations concerning our compliance with
insurance and other laws, such as those regulating the marketing
and sale of our products. We cooperate with these regulators in
conducting such inquiries and examinations in the ordinary
course of our business.

15



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##### Table of Contents



Executive Officers of the Company

The following provides information about AmerUs
Group Co.s executive officers:

|                   |  |     |    |       |  |                                                                                                                                                                     
|------------------ |  | --- | -- | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name of Individual |  | Age |    | Title
|                   |  |     |    |      
|Roger K. Brooks    |  |     | 67 |       |  | Chairman of the Board of Directors and Chief
    Executive Officer of AmerUs Group Co.                                                                              
|Thomas C. Godlasky |  |     | 49 |       |  | Director and President and Chief Operating
    Officer of AmerUs Group Co.                                                                                          
|Gregory D. Boal    |  |     | 46 |       |  | Executive Vice President and Chief Investment
    Officer of AmerUs Group Co.                                                                                       
|Brian J. Clark     |  |     | 39 |       |  | Executive Vice President and Chief Product
    Officer of AmerUs Group Co.                                                                                          
|Mark V. Heitz      |  |     | 52 |       |  | President and Chief Executive Officer of AmerUs
    Annuity Group, American Investors Life Insurance Company, Inc.,
    and Financial Benefit Life Insurance Company
|Gary R. McPhail    |  |     | 56 |       |  | President and Chief Executive Officer of AmerUs
    Life Insurance Company and Indianapolis Life Insurance Company                                                  
|Melinda S. Urion   |  |     | 51 |       |  | Executive Vice President, Chief Financial Officer
    and Treasurer of AmerUs Group Co.                                                                             



| |                                        
| | ---------------------------------------
| | ROGER K. BROOKS  Des Moines,
    Iowa.

Chairman and chief executive officer of AmerUs
Group Co. since May 1997, president from May 1997 to November
2003, and president and chief executive officer from its
formation in July 1996 to May 1997. Previously, Mr. Brooks
was the chief executive officer of predecessor or affiliated
companies since 1974. He is a director of AMAL. Mr. Brooks
has been a director of AmerUs Group Co. since its formation in
July 1996, and previously served as a director of predecessor or
affiliated companies since 1971. His current term expires in May
2007.



| |                                           
| | ------------------------------------------
| | THOMAS C. GODLASKY  Des Moines,
    Iowa.

President and chief operating officer of AmerUs
Group Co. since November 2003 and executive vice president and
chief investment officer of AmerUs Group Co. and predecessor or
affiliated companies from January 1995 to November 2003.
Mr. Godlasky had also been president of AmerUs Capital
Management from January 1998 to November 2003. From February
1988 to January 1995, he was manager of the Fixed Income and
Derivatives Department of Providian Corporation, Louisville,
Kentucky. He is a director of AMAL, AVLIC and AIC, wholly-owned
subsidiaries of AMAL. Mr. Godlasky has been a director of
AmerUs Group Co. since November 2003. His current term expires
in May 2007.



| |                                        
| | ---------------------------------------
| | GREGORY D. BOAL  Des Moines,
    Iowa.

Executive vice president of AmerUs Group Co. and
president and chief investment officer of AmerUs Capital
Management since November 2003 and executive vice president of
AmerUs Group Co. since June 2003. Prior to joining AmerUs Group
Co. in June 2003, he was managing director at Deutsche Bank
Asset Management in New York, New York beginning in June 2002.
From January 2000 to June 2002 Mr. Boal was managing
director at Zurich Scudder Investments in Chicago, Illinois
(following Zurich Scudder Investments acquisition of ABN
AMRO Asset Management (USA)). From January 1997 to January 2000
Mr. Boal was director of fixed investments at ABN AMRO
Asset Management (USA).

16



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##### Table of Contents





| |                                       
| | --------------------------------------
| | BRIAN J. CLARK  Des Moines,
    Iowa.

Executive vice president and chief product
officer of AmerUs Group Co. since November 2003 and senior vice
president and chief product officer from August 2001 to November
2003. Mr. Clark has been with AmerUs Group Co. since 1988
and has previously served ALIC as chief financial officer and as
senior vice president in various departments and functions,
including product development, product management and asset and
liability management.



| |                                    
| | -----------------------------------
| | MARK V. HEITZ  Topeka,
    Kansas.

President and chief executive officer of AAG,
American and FBL, Topeka, Kansas since December 1997.
Previously, Mr. Heitz served as the president, general
counsel and director of AAG from December 1986 until December
1997. Mr. Heitz also served as president, general counsel
and director of American from October 1986 until December 1997.



| |                                        
| | ---------------------------------------
| | GARY R. McPHAIL  Des Moines,
    Iowa.

President and chief executive officer of ALIC
since May 1997 and president and chief executive officer of
ILICO since October 2001. Mr. McPhail was executive vice
president  marketing and individual operations of New
York Life Insurance Company, New York, New York, from July 1995
to November 1996. From June 1990 to July 1995, he was president
of Lincoln National Sales Corporation, Fort Wayne, Indiana.
Mr. McPhail is a director of AMAL, AIC and AVLIC.



| |                                         
| | ----------------------------------------
| | MELINDA S. URION  Des Moines,
    Iowa.

Executive vice president, chief financial officer
and treasurer of AmerUs Group Co. since March 2002. Prior to
joining AmerUs Group Co., she was senior vice president and
chief financial officer at Fortis Financial Group, Woodbury,
Minnesota, from December 1997 to April 2001. From July 1988 to
November 1997, Ms. Urion served in various accounting and
executive positions with American Express Financial Corp,
Minneapolis, Minnesota, including senior vice president of
finance and chief financial officer from November 1995 to
November 1997. Ms. Urion is a director of AVLIC.

Code of Ethics

We have adopted a Code of Ethics for Senior
Financial Officers (Ethics Code) which summarizes long-standing
principles of conduct applicable to our principal executive
officer, principal financial officer, and principal accounting
officer (collectively, Financial Officers), to ensure our
business is conducted with integrity and in compliance with the
law. A copy of our Ethics Code can be found on our website
located at www.amerus.com. Any change to, or waiver of,
this Ethics Code for Financial Officers must be disclosed
promptly to our shareholders by a Form 8-K filing or by
publishing a statement on our website.

17



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##### Table of Contents








|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

The following table summarizes the properties we
lease and own at December 31, 2004:

|                                             |                              |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                    
|-------------------------------------------- | ---------------------------- | ------------------------ |  | ------------ |  | -------- |  | ------------- |  | ----------- |  | ------------------------ |  |  |  | ------ |  |  |  | ------- |  | ------------------ | -----------------------------------
|                                             |                              |                          |  |              |  |         
|                                             |                              | Square Feet Occupied by: |  |              |  |         
|                                             |                              |                          |  |              |  |         
|                                             |                              | Protection               |  | Accumulation |  |          |  | Leased to     |  | Total       |  |                         
|Property Address                             |                              | Products                 |  | Products     |  | Other(1) |  | Third Parties |  | Square Feet |  | Use of Other Square Feet
|                                             |                              |                          |  |              |  |          |  |               |  |             |  |                         
|Properties leased from unaffiliated parties: |                              |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                   
|                                             | 699 Walnut Street            |                          |  |             |  |          |  |              |  |             |  | 69,000                   |  |  |  |       |  |  |  | 69,000  |  |                    | Executive offices and corporate    
|                                             | Des Moines, Iowa             |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    | operations                         
|                                            
|                                             | 611 Fifth Avenue             |                          |  | 62,000       |  |          |  | 2,000         |  |             |  | 56,000                   |  |  |  |       |  |  |  | 120,000 |  |                    | Technology, corporate opera-       
|                                             | Des Moines, Iowa             |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    | tions and cafeteria facilities     
|                                            
|                                             | 65 Froehlich Farms Boulevard |                          |  | 15,000       |  |          |  | 3,000         |  |             |  | 8,000                    |  |  |  |       |  |  |  | 26,000  |  |                    | Technology and cafeteria facilities
|                                             | Woodbury, New York           |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                    
|                                            
|                                             | 9200 Keystone,               |                          |  | 15,000       |  |          |  |              |  |             |  |                         |  |  |  |       |  |  |  | 15,000  |  |                    |                                    
|                                             | Suite 800                    |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                    
|                                             | Indianapolis, Indiana        |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                    
|                                            
|                                             | Various                      |                          |  |             |  |          |  |              |  |             |  | 39,000                   |  |  |  |       |  |  |  | 39,000  |  |                    | Corporate operations, records      
|                                             |                              |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  | and supply storage
|Properties owned:                            |                              |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                   
|                                             | 555 South Kansas             |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                    
|                                             | Avenue                       |                          |  |             |  |          |  | 60,000        |  |             |  |                         |  |  |  | 45,000 |  |  |  | 105,000 |  |                    |                                    
|                                             | Topeka, Kansas               |                          |  |              |  |          |  |               |  |             |  |                          |  |  |  |        |  |  |  |         |  |                    |                                    



---



|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(1) | Other includes shared services that are utilized
    by both protection products and accumulation products segments.






|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS

In recent years, the life insurance industry,
including the Company and its subsidiaries, have been subject to
an increase in litigation pursued on behalf of purported classes
of insurance purchasers, questioning the conduct of insurers in
the marketing of their products. The Company is routinely
involved in litigation and other proceedings, including class
actions, reinsurance claims and regulatory proceedings arising
in the ordinary course of its business. Some of these claims and
legal actions are in jurisdictions where juries are given
substantial latitude in assessing damages, including punitive
and exemplary damages. In addition, regulatory bodies, such as
state insurance departments and attorneys general, periodically
make inquiries and conduct examinations concerning the
Companys compliance with insurance and other laws. The
Company responds to such inquiries and cooperates with
regulatory examinations in the ordinary course of business.

Currently, the Company and/or certain of its
subsidiaries are defendants in class action lawsuits brought in
California state courts on behalf of purchasers of insurance
products and related services. These class action lawsuits
relate to the use of purportedly inappropriate sales techniques
and products for the senior citizen market. The plaintiffs in
these lawsuits are seeking a variety of damages including
restitution of all surrender charge penalties, injunctive
relief, punitive and other indirect damages and attorneys fees.
Additionally, on February 10, 2005, the California Attorney
General and the California Commissioner of Insurance filed a
complaint in California Superior Court for the County of Los
Angeles against certain of the Companys subsidiaries,
including Family First Advanced Estate Planning and Family First
Insurance Services, and certain third parties alleging conduct
similar to that alleged in the class actions. The complaint
alleges, among other things, that the defendants engaged in the
unauthorized practice of law, claims related to the suitability
of the products for, and the manner in which they were sold to,
the senior citizen market and other violations of
Californias insurance laws. The plaintiffs seek civil
penalties, restitution, injunctive relief and other relief

18



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##### Table of Contents



and damages. The Company believes it has
appropriate defenses against these lawsuits and intends to
vigorously defend its position.


The Companys pending litigation (including
without limitation the proceedings described in the immediately
preceding paragraph) is subject to many uncertainties, and given
its complexity and scope, the outcomes cannot be predicted.
Given these uncertainties, the Company is unable to estimate the
possible loss or range of loss that may result from the
Companys pending litigation. It is possible that the
Companys results of operations or cash flow in a
particular quarterly or annual period could be materially
affected by an ultimate unfavorable resolution of pending
litigation and regulatory matters depending, in part, upon the
results of operations or cash flow for such period. Although no
assurances can be given and no determinations can be made at
this time, the Company believes that the ultimate liability, if
any, with respect to the Companys pending claims and legal
actions, would have no material effect on its operations and
financial position.






|        |                                                        
|------- | -------------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS

None.




PART II






|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY,
    RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
    SECURITIES

Our common stock is listed and traded on the New
York Stock Exchange (NYSE) under the symbol
AMH. The following table sets forth, for the periods
indicated, the high and low sales prices per share of AmerUs
Group Co. common stock as quoted on the NYSE and the dividends
per share declared during such quarter.

|               |  |                     |       |     |  |           |       |  |  |   |      | 
|-------------- |  | ------------------- | ----- | --- |  | --------- | ----- |  |  | - | ---- | 
|               |  |                    
|               |  | AmerUs Common Stock
|               |  |                    
|               |  | High                |       | Low |  | Dividends
|               |  |                     |       |     |  |          
|2003           |  |                     |       |     |  |           |       |  |  |   |      | 
|First Quarter  |  | $                   | 30.70 |     |  | $         | 22.94 |  |  | $ | 0.00 | 
|Second Quarter |  | $                   | 28.41 |     |  | $         | 24.44 |  |  | $ | 0.00 | 
|Third Quarter  |  | $                   | 35.89 |     |  | $         | 27.70 |  |  | $ | 0.00 | 
|Fourth Quarter |  | $                   | 38.00 |     |  | $         | 34.48 |  |  | $ | 0.40 | 
|2004           |  |                     |       |     |  |           |       |  |  |   |      | 
|First Quarter  |  | $                   | 41.00 |     |  | $         | 34.73 |  |  | $ | 0.00 | 
|Second Quarter |  | $                   | 41.70 |     |  | $         | 36.73 |  |  | $ | 0.00 | 
|Third Quarter  |  | $                   | 41.51 |     |  | $         | 37.31 |  |  | $ | 0.00 | 
|Fourth Quarter |  | $                   | 45.68 |     |  | $         | 38.60 |  |  | $ | 0.40 | 

Holders

As of March 3, 2005, the number of holders
of record of each class of common equity was as follows:

|             |  |           |         | 
|------------ |  | --------- | ------- | 
|             |  | Number of
|             |  | Holders  
|             |  |          
|Common stock |  |           | 106,256 | 

Recent Sales of Unregistered
Securities

On March 6, 2002, we issued and sold in a
private placement $185 million aggregate original principal
amount of optionally convertible equity-linked accreting notes
(OCEANs). The OCEANs are senior subordinated debt and were
issued and sold in an original principal amount of
$1,000 per OCEAN, with a

19



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##### Table of Contents



principal amount at maturity of $1,270 per
OCEAN. On December 15, 2004, the Company exchanged the
existing OCEANs, which were previously all convertible into
shares of the Companys common stock, into new OCEANs which
are convertible into a combination of cash and shares of common
stock. The exchanged OCEANs are convertible if the sale price of
the common stock exceeds $47.85 per share for at least 20
trading days in a 30 day period or in certain other limited
circumstances. Upon conversion, cash is to be paid equal to the
accreted principal amount and shares are to be issued for the
difference between the total conversion value and the accreted
principal amount. The total conversion value generally is equal
to the lesser of the accreted principal amount or $1,100 divided
by an initial conversion (subject to adjustment) of
$37.60 per share multiplied by the volume weighted average
price of the Companys common stock for the ten day trading
period before conversion. The maturity date of the OCEANs is
March 6, 2032. The OCEANs will have an aggregate principal
amount at maturity of $235 million. Each $1,000 original
principal amount OCEAN was exchanged for an equal original
principal amount OCEAN and an exchange fee of $2.50. All of the
$185 million existing OCEANs were exchanged for the new
OCEANs.


The offer to exchange the OCEANs was exempt from
the registration requirements of the Securities Act of 1933, as
amended (the Securities Act). We relied on section 3(a)(9)
of the Securities Act which provides an exemption from
registration for exchanges of securities by an issuer with its
existing security holders exclusively where no commission or
other remuneration is paid or given directly or indirectly for
soliciting such an exchange.

Issuer Purchases of Equity
Securities

The following table sets forth information
regarding purchases of equity securities for 2004:

|                      |  |                  |         |             |  |                     |       |                        |  |  |         |  |  |  |           | 
|--------------------- |  | ---------------- | ------- | ----------- |  | ------------------- | ----- | ---------------------- |  |  | ------- |  |  |  | --------- | 
|                      |  |                  |         |             |  | (c) Total number    |       | (d) Maximum number    
|                      |  |                  |         |             |  | of shares (or       |       | (or approximate dollar
|                      |  | (a) Total        |         | (b) Average |  | units) purchased    |       | value) of shares (or  
|                      |  | number of shares |         | price paid  |  | as part of publicly |       | units) that may yet be
|                      |  | (or units)       |         | per share   |  | announced plans     |       | purchased under the   
|Period                |  | purchased(1)     |         | (or units)  |  | or programs         |       | plans or programs(2)  
|                      |  |                  |         |             |  |                     |       |                       
|01/01/2004-01/31/2004 |  |                  |        |             |  | $                   |      |                        |  |  |        |  |  |  | 2,271,900 | 
|02/01/2004-02/29/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,271,900 | 
|03/01/2004-03/31/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,271,900 | 
|04/01/2004-04/30/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,271,900 | 
|05/01/2004-05/31/2004 |  |                  | 244,400 | (2)         |  |                     | 37.45 |                        |  |  | 244,400 |  |  |  | 2,027,500 | 
|06/01/2004-06/30/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,027,500 | 
|07/01/2004-07/31/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,027,500 | 
|08/01/2004-08/31/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,027,500 | 
|09/01/2004-09/30/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,027,500 | 
|10/01/2004-10/31/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,027,500 | 
|11/01/2004-11/30/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,027,500 | 
|12/01/2004-12/31/2004 |  |                  |        |             |  |                     |      |                        |  |  |        |  |  |  | 2,027,500 | 
|                      |  |                  |         |             |  |                     |       |                        |  |  |         |  |  |  |           | 
|Total                 |  |                  | 244,400 |             |  | $                   | 37.45 |                        |  |  | 244,400 |  |  |  |           | 
|                      |  |                  |         |             |  |                     |       |                        |  |  |         |  |  |  |           | 



---



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include shares withheld from employee
    stock awards to satisfy applicable tax withholding obligations.                                                                         
|   
|(2) | In August 2002, our board of directors authorized
    a repurchase program of up to 3 million shares of our
    outstanding common stock. There is no expiration date for this
    program.

20



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##### Table of Contents



Equity Compensation Plan Information

The following table sets forth information
regarding our equity compensation plans as of December 31,
2004:

|                                                                  |       |                         |           |                      |  |                          |       |       |  |  |           |           | 
|----------------------------------------------------------------- | ----- | ----------------------- | --------- | -------------------- |  | ------------------------ | ----- | ----- |  |  | --------- | --------- | 
|                                                                  |       |                         |           |                      |  | (c) Number of securities
|                                                                  |       | (a) Number of           |           |                      |  | remaining available for 
|                                                                  |       | securities              |           |                      |  | future issuance under   
|                                                                  |       | to be issued upon       |           | (b) Weighted average |  | equity compensation     
|                                                                  |       | exercise of outstanding |           | exercise price of    |  | plans (excluding        
|                                                                  |       | options, warrants and   |           | outstanding options, |  | securities reflected in 
|Plan Category                                                     |       | rights                  |           | warrants and rights  |  | column (a))             
|                                                                  |       |                         |           |                      |  |                         
|Equity compensation plans approved by security
    holders        |       |                         | 4,217,685 |                      |  | $                        | 24.38 |       |  |  | 1,076,030 |          
|Equity compensation plans not approved by
    security holders(1) |       |                         | 78,400    |                      |  |                          | 31.16 |       |  |  | 21,600    |          
|                                                                  |       |                         |           |                      |  |                          |       |       |  |  |           |          
|                                                                  | Total |                         |           | 4,296,085            |  |                          | $     | 24.51 |  |  |           | 1,097,630 | 
|                                                                  |       |                         |           |                      |  |                          |       |       |  |  |           |          



---



|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes stock appreciation rights under the
    Non-Employee Plan which may be paid in cash or Company common
    stock. The Companys practice has been to pay such awards
    in cash on exercise thereof.

Equity Compensation Plans not Approved by
Security Holders

On February 12, 1999, the Company adopted
the AmerUs Group Co. Non-Employee Stock Option Plan
(Non-Employee Plan) to give agents of the Company and/or its
subsidiaries who make significant contributions to the success
of the Company and/or its subsidiaries an interest in the
Companys performance. Under the Non-Employee Plan,
participants may receive stock options and/or stock appreciation
rights. On exercise of stock appreciation rights, a participant
may be paid in cash or stock, at the discretion of the Company.

Dividends

We have declared and paid an annual dividend of
$0.40 per share of common stock in 2002 through 2004. The
declaration and payment of dividends in the future is subject to
the discretion of the Board of Directors and will be dependent
upon the financial condition, results of operations, cash
requirements, future prospects, regulatory restrictions on the
payment of dividends by the life insurance subsidiaries and
other factors deemed relevant by the Board of Directors.

Under our revolving credit agreement, we are
prohibited from paying dividends on common stock in excess of an
amount equal to 3% of the consolidated net worth as of the last
day of the preceding fiscal year.

In connection with the 8.85% Capital Securities,
Series A (the Capital Securities), issued in
1997 by AmerUs Capital I, a subsidiary trust, we have
agreed not to declare or pay any dividends on the Companys
capital stock (including the common stock) during any period for
which we elect to extend interest payments on our junior
subordinated debentures, except for stock dividends where the
dividend stock is the same stock as that on which the dividend
is being paid. Dividends on our capital stock cannot be paid
until all accrued interest on the Capital Securities has been
paid. The Capital Securities have an outstanding principal
balance of $50.8 million at December 31, 2004.

In connection with the OCEANs, we have agreed,
with certain limited exceptions, not to declare or pay dividends
on or make distributions with respect to our capital stock
during any period in which we have deferred stated interest on
the OCEANs.

On May 28, 2003, we issued $125 million
of PRIDESSM. In connection with the PRIDES, we have
agreed, with certain limited exceptions, not to declare or pay
dividends on or make distributions with respect to our capital
stock during any period in which we have deferred contract
adjustment payments to holders of the PRIDES.

21



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##### Table of Contents



As a holding company, our principal assets
consist of all of the outstanding shares of the common stock of
our life insurance subsidiaries. Our ongoing ability to pay
dividends to shareholders and meet other obligations, including
operating expenses and any debt service, primarily depends upon
the receipt of sufficient funds from our life insurance
subsidiaries in the form of dividends or interest payments.

Based on statutory insurance regulations and 2003
results, our insurance subsidiaries could have paid
approximately $77 million in dividends in 2004 without
obtaining regulatory approval. Our subsidiaries paid to us
approximately $15 million in dividends in 2004. Based on
2004 results, our subsidiaries can pay an estimated
$186 million in dividends in 2005 without obtaining
regulatory approval.






|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

The following table sets forth certain financial
and operating data of the Company.

|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |       |       |         | 
|----------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | --------------------------- | ----- | ------- | ------- | - | ------- | ------- | ------- | - | ----- | ------- | ------- | - | ----- | ----- | ------- | - | ----- | ----- | ------- | 
|                                    |                                                                 |                                           
|                                    |                                                                 | As of or for the Year Ended December 31,  
|                                    |                                                                 |                                           
|                                    |                                                                 | 2004                                       |                             | 2003  |         | 2002    |   | 2001(A) |         | 2000   
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |        
|                                    |                                                                 |                                           
|                                    |                                                                 | ($ in millions, except share data)        
|Consolidated Income Statement Data: |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    | Revenues:                                                       |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |       |      
|                                    |                                                                 | Insurance premiums                         |                             | $     | 267.7   |         |   | $       | 297.2   |         |   | $     | 351.3   |         |   | $     | 305.9 |         |   | $     | 266.2 |        
|                                    |                                                                 | Product charges                            |                             |       | 220.5   |         |   |         | 181.4   |         |   |       | 144.5   |         |   |       | 146.1 |         |   |       | 99.9  |        
|                                    |                                                                 | Net investment income                      |                             |       | 1,037.4 |         |   |         | 1,001.9 |         |   |       | 1,001.3 |         |   |       | 873.2 |         |   |       | 699.5 |        
|                                    |                                                                 | Realized/unrealized capital gains (losses) |                             |       | 18.1    |         |   |         | 131.3   |         |   |       | (149.9  | )       |   |       | (90.6 | )       |   |       | (29.0 | )      
|                                    |                                                                 | Other income                               |                             |       | 71.4    |         |   |         | 68.3    |         |   |       | 68.5    |         |   |       | 45.7  |         |   |       | 35.0  |        
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    |                                                                 |                                            | Total revenues              |       |         | 1,615.1 |   |         |         | 1,680.1 |   |       |         | 1,415.7 |   |       |       | 1,280.3 |   |       |       | 1,071.6 | 
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    | Benefits and expenses:                                          |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |       |      
|                                    |                                                                 | Policyowner benefits                       |                             |       | 888.7   |         |   |         | 953.9   |         |   |       | 879.8   |         |   |       | 757.5 |         |   |       | 627.4 |        
|                                    |                                                                 | Total insurance and other expenses         |                             |       | 385.0   |         |   |         | 358.4   |         |   |       | 316.4   |         |   |       | 278.6 |         |   |       | 224.5 |        
|                                    |                                                                 | Dividends to policyowners                  |                             |       | 81.1    |         |   |         | 98.4    |         |   |       | 104.9   |         |   |       | 98.9  |         |   |       | 74.3  |        
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    |                                                                 |                                            | Total benefits and expenses |       |         | 1,354.8 |   |         |         | 1,410.7 |   |       |         | 1,301.1 |   |       |       | 1,135.0 |   |       |       | 926.2   | 
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    | Income from continuing operations                               |                                            |                             | 260.3 |         |         |   | 269.4   |         |         |   | 114.6 |         |         |   | 145.3 |       |         |   | 145.4 |      
|                                    | Interest expense                                                |                                            |                             | 32.1  |         |         |   | 30.2    |         |         |   | 25.5  |         |         |   | 26.0  |       |         |   | 29.7  |      
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    | Income before tax expense and minority interest                 |                                            |                             | 228.2 |         |         |   | 239.2   |         |         |   | 89.1  |         |         |   | 119.3 |       |         |   | 115.7 |      
|                                    | Income tax expense                                              |                                            |                             | 39.0  |         |         |   | 78.6    |         |         |   | 28.3  |         |         |   | 39.5  |       |         |   | 42.5  |      
|                                    | Minority interest                                               |                                            |                             |      |         |         |   |        |         |         |   |      |         |         |   |      |       |         |   | 21.7  |      
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    | Net income from continuing operations                           |                                            |                             | 189.2 |         |         |   | 160.6   |         |         |   | 60.8  |         |         |   | 79.8  |       |         |   | 51.5  |      
|                                    | Discontinued operations (net of tax):                           |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |       |      
|                                    |                                                                 | Income (loss) from discontinued operations |                             |       |        |         |   |         | 1.8     |         |   |       | 2.1     |         |   |       | 1.3   |         |   |       | 0.3   |        
|                                    |                                                                 | Gain on sale of discontinued operations    |                             |       | 3.9     |         |   |         |        |         |   |       |        |         |   |       |      |         |   |       |      |        
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    | Net income before cumulative effect of change in
    accounting |                                            |                             | 193.1 |         |         |   | 162.4   |         |         |   | 62.9  |         |         |   | 81.1  |       |         |   | 51.8  |      
|                                    | Cumulative effect of change in accounting, net of
    tax       |                                            |                             | (0.5  | )       |         |   | (1.3    | )       |         |   |      |         |         |   | (8.2  | )     |         |   |      |      
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      
|                                    | Net income                                                      |                                            | $                           | 192.6 |         |         | $ | 161.1   |         |         | $ | 62.9  |         |         | $ | 72.9  |       |         | $ | 51.8  |      
|                                    |                                                                 |                                            |                             |       |         |         |   |         |         |         |   |       |         |         |   |       |       |         |   |      

22



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##### Table of Contents



|                                 |                                                                     |                                          |   |          |      |      |   |          |      |      |   |          |      |  |   |          |      |  |   |          |      | 
|-------------------------------- | ------------------------------------------------------------------- | ---------------------------------------- | - | -------- | ---- | ---- | - | -------- | ---- | ---- | - | -------- | ---- |  | - | -------- | ---- |  | - | -------- | ---- | 
|                                 |                                                                     |                                         
|                                 |                                                                     | As of or for the Year Ended December 31,
|                                 |                                                                     |                                         
|                                 |                                                                     | 2004                                     |   | 2003     |      | 2002 |   | 2001(A)  |      | 2000
|                                 |                                                                     |                                          |   |          |      |      |   |          |      |     
|                                 |                                                                     |                                         
|                                 |                                                                     | ($ in millions, except share data)      
|                                 | Net income from continuing operations per
    share(B):             |                                          |   |          |      |      |   |          |      |      |   |          |      |  |   |          |      |  |   |          |     
|                                 |                                                                     | Basic                                    |   | $        | 4.81 |      |   | $        | 4.10 |      |   | $        | 1.52 |  |   | $        | 2.16 |  |   | $        | 2.46 | 
|                                 |                                                                     | Diluted                                  |   | $        | 4.60 |      |   | $        | 4.05 |      |   | $        | 1.50 |  |   | $        | 2.13 |  |   | $        | 2.44 | 
|                                 | Weighted average number of shares outstanding (in
    millions)(B): |                                          |   |          |      |      |   |          |      |      |   |          |      |  |   |          |      |  |   |          |     
|                                 |                                                                     | Basic                                    |   |          | 39.3 |      |   |          | 39.2 |      |   |          | 40.0 |  |   |          | 36.9 |  |   |          | 20.9 | 
|                                 |                                                                     | Diluted                                  |   |          | 41.1 |      |   |          | 39.6 |      |   |          | 40.4 |  |   |          | 37.5 |  |   |          | 21.0 | 
|                                 | Dividends declared per common share                                 |                                          | $ | 0.40     |      |      | $ | 0.40     |      |      | $ | 0.40     |      |  | $ | 0.40     |      |  | $ | 0.40     |     
|Consolidated Balance Sheet Data: |                                                                     |                                          |   |          |      |      |   |          |      |      |   |          |      |  |   |          |      |  |   |         
|                                 | Total invested assets                                               |                                          | $ | 19,186.3 |      |      | $ | 17,984.3 |      |      | $ | 16,932.5 |      |  | $ | 15,052.4 |      |  | $ | 9,606.8  |     
|                                 | Total assets                                                        |                                          | $ | 23,170.9 |      |      | $ | 21,583.7 |      |      | $ | 20,293.7 |      |  | $ | 18,299.2 |      |  | $ | 11,471.5 |     
|                                 | Notes payable                                                       |                                          | $ | 571.2    |      |      | $ | 621.9    |      |      | $ | 511.4    |      |  | $ | 384.6    |      |  | $ | 413.3    |     
|                                 | Total liabilities                                                   |                                          | $ | 21,547.4 |      |      | $ | 20,173.9 |      |      | $ | 19,030.7 |      |  | $ | 17,060.6 |      |  | $ | 10,643.5 |     
|                                 | Total stockholders equity                                          |                                          | $ | 1,623.5  |      |      | $ | 1,409.8  |      |      | $ | 1,262.9  |      |  | $ | 1,238.5  |      |  | $ | 828.0    |     
|Other Operating Data:            |                                                                     |                                          |   |          |      |      |   |          |      |      |   |          |      |  |   |          |      |  |   |         
|                                 | Ratio of earnings to fixed charges(C)                               |                                          |   | 1.40     |      |      |   | 1.40     |      |      |   | 1.19     |      |  |   | 1.33     |      |  |   | 1.28     |     



---



|    |                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------
|(A) | Financial data for 2001 includes the results for
    ILICO, subsequent to the acquisition date of May 18, 2001.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | Our predecessor, AMHC, was originally formed in
    1996 as a mutual holding company and therefore, had no shares of
    common stock outstanding until its demutualization on
    September 20, 2000. On September 20, 2000, we
    distributed 17.4 million shares of common stock to our
    former members and exchanged our common stock for the
    12.6 million shares of common stock held by the public in
    ALHI, our former subsidiary and another of our predecessor
    entities, on a one-for-one basis. Our operating income for 2000
    presented above primarily reflects the operating income of ALHI.
    Therefore, net income from continuing operations per share was
    calculated based on the number of shares of stock we owned of
    ALHI through September 20, 2000. Since then, net income
    from continuing operations per share has been calculated based
    on the shares of our common stock actually outstanding.
|   
|(C) |  | For purposes of computing the ratio of earnings
    to fixed charges, earnings consist of income from
    operations before income taxes and fixed charges. Fixed
    charges consist of interest credited on annuity and
    universal life contracts and interest expense on debt and
    amortization of debt expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATION

The following analysis of the consolidated
financial condition and results of operation of AmerUs Group Co.
should be read in conjunction with the Selected Financial Data
and Consolidated Financial Statements and related notes. We are
incorporating by reference Item 1. Business
information into Managements Discussion and Analysis of
Financial Condition and Results of Operations section.

23



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##### Table of Contents



Nature of Operations

See Item 1 Business for
information regarding the nature of our operations.

Financial Highlights

Our financial highlights are as follows:

|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |         |         | 
|--------------------------------- | --------------------- | -------------------------------------- | ---------- | ------- | ------- | ---- | ---------- | ------- | ------- | - | ---------- | ------- | ------- | 
|                                  |                       |                                       
|                                  |                       | For The Years Ended December 31,      
|                                  |                       |                                       
|                                  |                       | 2004                                   |            | 2003    |         | 2002
|                                  |                       |                                        |            |         |         |     
|                                  |                       |                                       
|                                  |                       | ($ in thousands, except share data)   
|Segment pre-tax operating income: |                       |                                        |            |         |         |      |            |         |         |   |            |        
|                                  | Protection Products   |                                        | $          | 140,212 |         |      | $          | 128,290 |         |   | $          | 129,739 |        
|                                  | Accumulation Products |                                        |            | 163,883 |         |      |            | 130,890 |         |   |            | 120,655 |        
|                                  | Other operations      |                                        |            | (19,309 | )       |      |            | (7,725  | )       |   |            | (6,622  | )      
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |        
|                                  |                       | Total segment pre-tax operating income |            |         | 284,786 |      |            |         | 251,455 |   |            |         | 243,772 | 
|Non-segment expense, net(A)       |                       |                                        | 92,144     |         |         |      | 90,308     |         |         |   | 180,906    |        
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |        
|                                  | Net income            |                                        | $          | 192,642 |         |      | $          | 161,147 |         |   | $          | 62,866  |        
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |        
|Diluted net income per share      |                       | $                                      | 4.68       |         |         | $    | 4.07       |         |         | $ | 1.56       |        
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |        
|Total assets                      |                       | $                                      | 23,170,869 |         |         | $    | 21,583,688 |         |         | $ | 20,293,665 |        
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |        
|Stockholders equity              |                       | $                                      | 1,623,469  |         |         | $    | 1,409,811  |         |         | $ | 1,262,948  |        
|                                  |                       |                                        |            |         |         |      |            |         |         |   |            |        



---



|    |                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Non-segment expense, net consists primarily of
    open block realized/unrealized gains and losses, derivative
    related market value adjustments, reinsurance adjustments,
    non-insurance operations, restructuring costs, interest expense,
    income taxes, discontinued operations and cumulative effect of
    change in accounting.

Operating segment income increased for the
protection products segment in 2004 compared to 2003 primarily
as a result of increased open block margins and lower operating
expenses. Operating segment income decreased for the protection
products segment in 2003 compared to 2002 primarily as a result
of lower net investment income and the continued decrease in
closed block operating income. The continued shift in our
business from traditional fixed annuities to higher margin
equity indexed annuities and more assets under management
increased accumulation products segment earnings in 2004 and
2003 compared to the respective years. The increased operating
segment income in 2004 for the protection products and
accumulation products segments was partially reduced by higher
other operations losses resulting primarily from
additional holding company expenses.

Net income increased in 2004 compared to 2003
primarily as a result of higher operating segment income,
reductions in income tax accruals and deferred income tax asset
valuation allowances, and the gain on the sale of our
residential financing subsidiary. The increase was partially
offset by realized and unrealized losses on assets. Net income
increased in 2003 compared to 2002 primarily due to increased
realized gains on open block investments and increased net
unrealized gains from market value adjustments on trading
securities, derivatives and equity indexed contracts.

Total assets increased $1.6 billion in 2004
primarily as a result of net cash received from collected
premiums and deposits, positive cash flows from operating
activities and the utilization of securities lending and
borrowing arrangements. Liabilities increased primarily due to
policy reserves and policyowner funds which increased due to the
higher volume of insurance in force and additional securities
lending and borrowing arrangements. Stockholders equity
increased $213.7 million during 2004 primarily as a result
of 2004 net income of $192.6 million, stock issued
under incentive plans amounting to $15.8 million and
additional unrealized gains on available-for-sale investments of
$34.0 million. The unrealized gains included in accumulated
other comprehensive income are presented after related
adjustments to DAC, VOBA,

24



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##### Table of Contents



capitalized bonus interest, closed block
policyowner dividend obligation, unearned revenue reserves and
deferred income taxes. The additions to equity were reduced by
treasury stock purchases which decreased equity
$9.2 million and dividends declared in the fourth quarter
of 2004 which decreased equity $15.7 million.


Segment Income

We have two operating segments: Protection
Products and Accumulation Products. We use the same accounting
policies and procedures to measure operating segment income as
we use to measure consolidated income from operations with the
exception of the elimination of certain items which management
believes are not necessarily indicative of overall operating
trends. These items are as follows:



| |    |                                                                                                                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------
| | 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 equity 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) | Demutualization costs.                                                                                                                                                                                                         
|
| | 5) | Restructuring costs.                                                                                                                                                                                                           
|
| | 6) | Certain reinsurance adjustments.                                                                                                                                                                                               
|
| | 7) | Other income from non-insurance operations.                                                                                                                                                                                    
|
| | 8) | Interest expense.                                                                                                                                                                                                              
|
| | 9) | Income tax expense.                                                                                                                                                                                                            

10) Income from discontinued operations.

11) Cumulative effect of changes in
accounting.

These items will fluctuate from period to period
depending on the prevailing interest rate and economic
environment or are not part of the core insurance operations. As
a result, management believes they do not reflect the ongoing
earnings capacity of our operating segments.

Protection Products

Our protection products segment primarily
consists of interest-sensitive whole life, term life, universal
life and equity indexed life insurance policies. These products
are marketed on a national basis primarily through CMOs, PPGA
system and IMOs. Included in the protection products segment is
the closed block of ALIC and the closed block of ILIC,
established when the companies reorganized from mutual companies
to stock companies. When protection products are sold, we invest
the premiums we receive in our investment portfolio and
establish a liability representing our commitment to the
policyholder. We manage investment spread by seeking to maximize
the return on these invested assets, consistent with our
asset/liability and credit quality policies. We enter into
reinsurance arrangements in order to reduce the effects of
mortality risk and the statutory capital strain from writing new
business. All income statement line items are presented net of
reinsurance amounts. Protection products in force totaled
$97.5 billion at December 31, 2004, $98.6 billion
at December 31, 2003 and $88.0 billion at
December 31, 2002. Protection products in force is a
performance

25



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##### Table of Contents



measure utilized by investors, analysts and the
Company to assess the Companys position in the industry. A
summary of our protection products segment operations follows:


|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |         |         |         | 
|---------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                           |                                                                          |                                 
|                                                           |                                                                          | For The Years Ended December 31,
|                                                           |                                                                          |                                 
|                                                           |                                                                          | 2004                             |         | 2003    |         | 2002
|                                                           |                                                                          |                                  |         |         |         |     
|                                                           |                                                                          |                                 
|                                                           |                                                                          | ($ in thousands)                
|Revenues:                                                  |                                                                          |                                  |         |         |         |      |         |         |         |   |         |        
|                                                           | Insurance premiums                                                       |                                  | $       | 263,050 |         |      | $       | 290,707 |         |   | $       | 341,602 |        
|                                                           | Product charges                                                          |                                  |         | 167,585 |         |      |         | 138,215 |         |   |         | 103,145 |        
|                                                           | Net investment income                                                    |                                  |         | 333,477 |         |      |         | 321,532 |         |   |         | 335,111 |        
|                                                           | Realized gains (losses) on closed block
    investments                  |                                  |         | (1,693  | )       |      |         | 9,326   |         |   |         | (2,400  | )      
|                                                           | Other income                                                             |                                  |         | 3,573   |         |      |         | 4,224   |         |   |         | 4,026   |        
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |         |        
|                                                           |                                                                          | Total revenues                   |         |         | 765,992 |      |         |         | 764,004 |   |         |         | 781,484 | 
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |         |        
|Benefits and expenses:                                     |                                                                          |                                  |         |         |         |      |         |         |         |   |         |        
|                                                           | Policyowner benefits                                                     |                                  |         | 379,749 |         |      |         | 387,068 |         |   |         | 403,293 |        
|                                                           | Underwriting, acquisition and other expenses                             |                                  |         | 73,750  |         |      |         | 76,042  |         |   |         | 80,319  |        
|                                                           | Amortization of DAC and VOBA, net of open block
    gain/loss adjustment |                                  |         | 91,193  |         |      |         | 74,211  |         |   |         | 63,267  |        
|                                                           | Dividends to policyowners                                                |                                  |         | 81,088  |         |      |         | 98,393  |         |   |         | 104,866 |        
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |         |        
|                                                           |                                                                          | Total benefits and expenses      |         |         | 625,780 |      |         |         | 635,714 |   |         |         | 651,745 | 
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |         |        
|Pre-tax operating income  Protection
    Products segment |                                                                          | $                                | 140,212 |         |         | $    | 128,290 |         |         | $ | 129,739 |        
|                                                           |                                                                          |                                  |         |         |         |      |         |         |         |   |         |        

Pre-tax operating income from our protection
products increased 9% in 2004 and decreased 1% in 2003 compared
to the respective prior years. The increase in 2004 was
primarily due to higher open block product margins and lower
operating expenses. Higher product margins increased open block
operating income in 2003 compared to 2002; however, the
declining closed block glide path (see Dividends to Policyowners
for additional information) offset the open block operating
income. The key drivers of our protection products business
include sales, persistency, net investment income, mortality and
expenses.

Sales, Premiums and Product
Charges.Sales are a key driver of our
business as they are a leading indicator of future revenue
trends to emerge in segment operating income. As shown in the
Sales Activity by Product table presented in Item 1
Business  Protection Products Segment, direct
first year annualized premiums increased 5% in 2004 compared to
2003 and decreased 9% in 2003 compared to 2002. The increase in
2004 resulted from higher equity indexed life product sales as
we continue to focus our marketing efforts on this product. The
equity indexed life product allows the policyowner to elect an
earnings strategy for a portion of the account value whereby
earnings are credited based primarily on increases in the
S&P 500 Index, excluding dividends. The earnings credit is
subject to a participation rate and an annual cap. Sales of
equity indexed life products were $74.6 million in 2004 as
compared to $51.6 million in 2003 and $45.8 million in
2002. We are the leading writer of equity indexed life products
in the United States. The increase in 2004 was partially offset
by decreased traditional and universal life insurance product
sales due to our continued shift in sales focus to equity
indexed products and uncertainty in government tax policy and
regulation. The decrease in 2003 resulted from lower traditional
and universal life insurance product sales as we re-priced our
products and discontinued our par whole life product. The lower
traditional and universal sales were partially offset by
increased equity indexed life sales.

We recognize premiums on traditional life
insurance policies as revenues when the premiums are due.
Amounts received as payments for universal life and equity
indexed life insurance policies are not recorded as premium
revenue, but are instead recorded as a policyholder liability.
Revenues from the universal life and equity indexed life
policies consist of charges for the cost of insurance, policy
administration and policy surrender and are shown as product
charges. All revenue is reported net of reinsurance ceded.

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Insurance premium revenue in 2004 and 2003 was
lower than the respective prior years primarily due to lower
sales of traditional products, additional premiums ceded and a
decline in closed block in force business.

Persistency.Persistency, which we measure in terms of a lapse rate, is a key
driver of our business as it refers to the policies which remain
in our block of business. A low lapse rate means higher
persistency indicating more business is remaining in force to
generate future revenues. Annualized lapse rates were 6.7% in
2004 compared to 6.5% in 2003 and 7.3% in 2002. Our persistency
experience remained within our pricing assumptions.

Net Investment
Income.Net investment income is a key
driver of our business as it reflects earnings on our invested
assets. Net investment income increased in 2004 and decreased in
2003 compared to the respective prior years. The increase in
2004 was primarily due to growth in average protection products
assets which were approximately $318 million higher than
2003. The decrease in net investment income in 2003 was due to
low interest rates and increased prepayments of mortgage-backed
securities. The earned rate of the investment portfolio was
6.44% in 2004 compared to 6.63% in 2003 and 7.22% in 2002. The
decrease in rates in 2004 and 2003 was primarily a result of the
continued low interest rate environment.

Mortality and Benefit
Expense.Mortality is a key driver of
our business as it impacts the amount of our benefit expense. We
utilize reinsurance to reduce the effects of mortality risk.
Although we experienced unfavorable mortality in 2004 as
compared to 2003, our experience remained within our pricing
assumptions. In addition, we had increased reinsurance
recoveries in 2004 and 2003, which reduce benefit expense, as a
result of additional reinsurance arrangements.

Underwriting, Acquisition and Other
Expenses.Underwriting, acquisition
and other expenses are a key driver of our business as they are
costs of our operations. Expenses decreased in 2004 and 2003
compared to the respective prior years primarily due to lower
operating expenses resulting from the restructuring activities
that took place in 2003 and prior years to integrate the ILICO
life operations and also due to increased reimbursement from
reinsurers of non-deferrable commission and expense allowances,
as more policies are subject to reinsurance.

Amortization of DAC and
VOBA.The amortization of DAC and VOBA
are expense items which increased in 2004 and 2003 as compared
to the respective prior years. DAC and VOBA are generally
amortized in proportion to policy gross margins which increased
in both years, resulting in higher amortization expense.

Dividends to
Policyowners.In addition to basic
policyowner dividends, dividend expense includes increases or
decreases to the closed block policyowner dividend obligation
liability carried on the consolidated balance sheet. The actual
results of the closed block are adjusted to equal the expected
earnings based on the actuarial calculation at the time of
formation of the closed block (which we refer to as the closed
block glide path). The adjustment to have the closed block
operating results equal the closed block glide path is made to
dividend expense. If the actual results for the period exceed
the closed block glide path, increased dividend expense is
recorded as a policyowner dividend obligation to reduce the
actual closed block results. For actual results less than the
closed block glide path, dividend expense is reduced to increase
the actual closed block results. As a result of this accounting
treatment, operating earnings from the closed block only include
the predetermined closed block glide path.

Dividend expense decreased for 2004 and 2003
compared to the respective prior years. The decreases were
primarily due to reduced closed block earnings, resulting from
lower closed block revenues and net investment income as the
closed block in force business continues to decline, and from
closed block dividend reductions.

Outlook.We expect
to continue to shift our sales to higher return products, in
particular the equity indexed life products. We also expect to
continue to realize operating efficiencies as we continue to
centralize our administrative functions.

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Accumulation Products

Our accumulation products segment primary
offerings consist of individual fixed annuities and funding
agreements. The fixed annuities are marketed on a national basis
primarily through IMOs and independent brokers. Similar to our
protection products segment, we invest the premiums we receive
from accumulation product deposits in our investment portfolio
and establish a liability representing our commitment to the
policyowner. We manage product spread by seeking to maximize the
return on our invested assets consistent with our
asset/liability management and credit quality policies. When
appropriate, we periodically reset the interest rates credited
to our policyowner liability. Accumulation products reserves
totaled $12.3 billion at December 31, 2004,
$11.7 billion at December 31, 2003 and
$11.3 billion at December 31, 2002. A summary of our
accumulation products segment operations follows:

|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------------------ | --------------------------------------------------------- | -------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                             |                                                           |                                 
|                                                             |                                                           | For the Years Ended December 31,
|                                                             |                                                           |                                 
|                                                             |                                                           | 2004                             |         | 2003    |         | 2002
|                                                             |                                                           |                                  |         |         |         |     
|                                                             |                                                           |                                 
|                                                             |                                                           | ($ in thousands)                
|Revenues:                                                    |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             | Immediate annuity and supplementary contract
    premiums |                                  | $       | 2,602   |         |      | $       | 4,114   |         |   | $       | 8,702   |        
|                                                             | Product charges                                           |                                  |         | 52,969  |         |      |         | 43,139  |         |   |         | 41,349  |        
|                                                             | Net investment income                                     |                                  |         | 697,363 |         |      |         | 672,141 |         |   |         | 660,470 |        
|                                                             | Other income                                              |                                  |         | 10,730  |         |      |         | 11,635  |         |   |         | 11,778  |        
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             |                                                           | Total revenues                   |         |         | 763,664 |      |         |         | 731,029 |   |         |         | 722,299 | 
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|Benefits and expenses:                                       |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|Policyowner benefits                                         |                                                           |                                  | 472,208 |         |         |      | 491,932 |         |         |   | 498,294 |        
|Underwriting, acquisition and other expenses                 |                                                           |                                  | 27,225  |         |         |      | 29,423  |         |         |   | 34,040  |        
|Amortization of DAC and VOBA                                 |                                                           |                                  | 104,602 |         |         |      | 89,196  |         |         |   | 83,407  |        
|Dividends to policyowners                                    |                                                           |                                  | 4       |         |         |      |        |         |         |   |        |        
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             |                                                           | Total benefits and expenses      |         |         | 604,039 |      |         |         | 610,551 |   |         |         | 615,741 | 
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|IMO Operations:                                              |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             | Other income                                              |                                  |         | 53,482  |         |      |         | 50,214  |         |   |         | 48,642  |        
|                                                             | Other expenses                                            |                                  |         | 49,224  |         |      |         | 39,802  |         |   |         | 34,545  |        
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|                                                             |                                                           | Net IMO operating income (loss)  |         |         | 4,258   |      |         |         | 10,412  |   |         |         | 14,097  | 
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        
|Pre-tax operating income  Accumulation
    Products segment |                                                           | $                                | 163,883 |         |         | $    | 130,890 |         |         | $ | 120,655 |        
|                                                             |                                                           |                                  |         |         |         |      |         |         |         |   |         |        

Pre-tax operating income from our accumulation
products operations increased 25% in 2004 and 8% in 2003
compared to the respective prior years. The 2004 increase was
primarily due to higher assets under management and improved
product spreads. The 2003 increase was primarily due to higher
assets under management which were reduced by decreased product
spreads. The increases for both years were partially offset by
lower contributions from IMO operations. The drivers of
profitability in our accumulation products business are
deposits, persistency, product spread, expenses and IMO
operations.

Deposits.Deposits
are a key driver of our business as this is a measure which
represents collected premiums to be deposited to policyowner
accounts for which we will earn a future product spread.
Deposits are presented as collected premiums, which are measured
in accordance with industry practice, and represent the amount
of new business sold during the period. Deposits are a
performance metric which we use to measure the productivity of
our distribution network and for compensation of sales and
marketing employees and agents. As shown in the Deposits by
Product table presented in Item 1
Business  Accumulation Products Segment, total
annuity deposits increased 5% in 2004 compared to 2003 and
decreased 2% in 2003 as compared to 2002. The increase in 2004
was driven by our promotion of equity indexed products. The
decrease in 2003 was primarily a result of the slowing of our
traditional annuity sales due to the low interest rate

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environment as we focused sales on our higher
returning equity indexed products. The reduced traditional
annuity sales offset the increase in equity indexed products.


We placed fixed rate funding agreements totaling
$85 million in 2004 and $875 million in 2002. Funding
agreements are insurance contracts for which we receive deposit
funds and for which we agree to repay the deposit and a
contractual return for the duration of the contract. In December
2003, a $250 million funding agreement originally placed in
1999 was terminated. Total funding agreements outstanding as of
December 31, 2004 amounted to $960 million compared to
$875 million outstanding at December 31, 2003.

The deposits we receive on accumulation products
are not recorded as revenue but instead as a policyowner
liability. Surrender charges collected on accumulation products
are recorded as revenue and shown as a product charge. Product
charges increased in 2004 and 2003 as compared to the respective
prior years due to the growth in the business.

Persistency.Persistency, which we measure in terms of a withdrawal rate, is
a key driver of our business as it refers to the policies which
remain in our block of business. A low withdrawal rate reflects
higher persistency indicating more business is remaining in
force to generate future revenues. Withdrawals represent funds
taken out of accumulation products by policyowners not including
those due to the death of policyowners. Annuity withdrawal rates
without internal replacements continued to improve in 2004 as
compared to 2003 and 2002 and amounted to 8.5%, 9.5% and 10.6%,
respectively. Annuity withdrawals without internal replacements
totaled $1,118.1 million in 2004, $1,196.9 million in
2003 and $1,288.2 million in 2002. Our withdrawal
experience remained within our pricing assumptions.

Product Spread.Product spread is a key driver of our business as it measures
the difference between the income earned on our invested assets
and the rate which we credit to policyowners, with the
difference reflected as segment operating income. Asset earned
rates and liability crediting rates were as follows for our
annuity products:

|                        |                |                                  |      |      |   |      |      |      |   |  |      |      |  
|----------------------- | -------------- | -------------------------------- | ---- | ---- | - | ---- | ---- | ---- | - |  | ---- | ---- | -
|                        |                |                                 
|                        |                | For The Years Ended December 31,
|                        |                |                                 
|                        |                | 2004                             |      | 2003 |   | 2002
|                        |                |                                  |      |      |   |     
|Asset earned rate       |                |                                  | 5.78 | %    |   |      | 5.91 | %    |   |  | 6.58 | %   
|Liability credited rate |                |                                  | 3.55 | %    |   |      | 3.93 | %    |   |  | 4.48 | %   
|                        |                |                                  |      |      |   |      |      |      |   |  |      |     
|                        | Product spread |                                  |      | 2.23 | % |      |      | 1.98 | % |  |      | 2.10 | %
|                        |                |                                  |      |      |   |      |      |      |   |  |      |     

The product spread increased 25 basis points
to 223 basis points in 2004 compared to 2003 and decreased
12 basis points to 198 basis points in 2003 compared
to 2002. Liability crediting rates on traditional annuities were
lowered throughout 2003 and 2004 to correspond with the decline
in investment yields caused by lower rates on new and reinvested
funds. As described in the Traditional Annuity Products and
Equity Indexed Annuities sections presented in Item 1
Business  Accumulation Products Segment, the
annuity products have various differentials between the credited
rate and minimum guarantee rate, including some which have no
differential, and as such cannot be lowered. Additionally, some
traditional annuities have multi-year interest rate guarantees
for which the credited rate cannot be decreased until the end of
the multi-year period. Due to these limitations on the ability
to lower interest crediting rates and the potential for credit
defaults and lower reinvestment rates on investments, we could
experience spread compression in future periods.

We also earn a spread on our funding agreements.
Funding agreement income less associated interest expense
totaled $6.8 million in 2004, $11.1 million in 2003,
and $6.1 million in 2002. The 2004 decrease was due to the
termination of a $250 million funding agreement during the
fourth quarter of 2003. The 2003 increase was due to the
$875 million of funding agreements placed throughout 2002.

Underwriting, Acquisition and Other
Expenses.Underwriting, acquisition
and other expenses are a key driver of our business as they
represent costs of our operations. Expenses in 2004 and 2003
decreased compared to the respective prior years due primarily
to continued process improvements to enhance operating
efficiencies and lower fees associated with a declining block of
annuity business processed by a third party administrator.

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IMO Operations.IMO
operations are a key driver of our business as the earnings from
the IMOs can be a significant component of the accumulation
products segment operating income. IMOs have contractual
arrangements to promote our insurance products in their networks
of agents and brokers. Additionally, they also contract with
third party insurance companies. We own five such IMOs. The
income from IMO operations primarily represents annuity
commissions received by our IMOs from those third party
insurance companies. Net IMO operating income decreased
$6.2 million in 2004 and $3.7 million in 2003 compared
to the respective prior years due to changes in distribution
strategies and higher operating expenses, including litigation
costs in 2004.

Outlook.We
anticipate increased product sales from our IMOs but decreased
product sales from other distribution channels as we manage our
sales in this current low interest rate environment. We also
expect to continue the shift of our product mix to higher return
products, in particular the equity indexed annuity products. We
will continue to manage our spreads as we strive for our desired
profitability in this economic environment.

Other

The other operations consist of our non-core
lines of business outside of protection and accumulation
products. These lines of business include holding company
revenues and expenses, operations of our real estate management
subsidiary, and accident and health insurance. The pre-tax
operating loss of our other operations increased in 2004
compared to 2003 primarily due to increased holding company
expenses, such as Sarbanes-Oxley internal control regulations,
the OCEANs exchange and succession activities in 2004, and lower
investment income of our real estate management subsidiary.

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Income Statement Reconciliation

A reconciliation of our segment pre-tax operating
income to net income as shown in our consolidated statements of
income follows:

|                                                          |                                                                       |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |         |          |         | 
|--------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | -------- | ------- | 
|                                                          |                                                                       |                                                                                                                      
|                                                          |                                                                       | For the Years Ended December 31,                                                                                     
|                                                          |                                                                       |                                                                                                                      
|                                                          |                                                                       | 2004                                                                                                                  |                                        | 2003    |         | 2002   
|                                                          |                                                                       |                                                                                                                       |                                        |         |         |        
|                                                          |                                                                       |                                                                                                                      
|                                                          |                                                                       | ($ in thousands)                                                                                                     
|Segment pre-tax operating income:                         |                                                                       |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |        
|                                                          | Protection Products                                                   |                                                                                                                       | $                                      | 140,212 |         |         | $       | 128,290 |         |         | $       | 129,739 |         
|                                                          | Accumulation Products                                                 |                                                                                                                       |                                        | 163,883 |         |         |         | 130,890 |         |         |         | 120,655 |         
|                                                          | Other operations                                                      |                                                                                                                       |                                        | (19,309 | )       |         |         | (7,725  | )       |         |         | (6,622  | )       
|                                                          |                                                                       |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |        
|                                                          |                                                                       |                                                                                                                       | Total segment pre-tax operating income |         |         | 284,786 |         |         |         | 251,455 |         |         |          | 243,772 | 
|Non-segment items  increases
    (decreases) to income:  |                                                                       |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |        
|                                                          | Realized and unrealized gains (losses) on assets
    and liabilities: |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |         |         
|                                                          |                                                                       | Realized/unrealized gains (losses) on open block
    assets                                                           |                                        |         | (36,786 | )       |         |         | 32,196  |         |         |         | (102,310 | )      
|                                                          |                                                                       | Unrealized gains (losses) on open block options
    and trading investments                                           |                                        |         | 56,547  |         |         |         | 89,769  |         |         |         | (45,209  | )      
|                                                          |                                                                       | Change in option value of equity indexed products
    and market value adjustments on total return strategy annuities |                                        |         | (35,652 | )       |         |         | (65,741 | )       |         |         | 28,759   |        
|                                                          |                                                                       | Cash flow hedge amortization                                                                                          |                                        |         | (908    | )       |         |         | (3,827  | )       |         |         | (4,351   | )      
|                                                          |                                                                       | Amortization of DAC and VOBA due to open block
    realized/unrealized gains and losses                               |                                        |         | (9,068  | )       |         |         | (16,257 | )       |         |         | 15,002   |        
|                                                          | Reinsurance adjustments                                               |                                                                                                                       |                                        |        |         |         |         | 3,854   |         |         |         |        |         
|                                                          | Demutualization costs                                                 |                                                                                                                       |                                        |        |         |         |         |        |         |         |         | (1,186  | )       
|                                                          | Restructuring costs                                                   |                                                                                                                       |                                        |        |         |         |         | (23,294 | )       |         |         | (21,225 | )       
|                                                          | Other income from non-insurance operations                            |                                                                                                                       |                                        | 1,495   |         |         |         | 1,237   |         |         |         | 1,392   |         
|                                                          |                                                                       |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |        
|                                                          |                                                                       |                                                                                                                       | Income from continuing operations      |         |         | 260,414 |         |         |         | 269,392 |         |         |          | 114,644 | 
|Interest expense                                          |                                                                       |                                                                                                                       | (32,120                                | )       |         |         | (30,154 | )       |         |         | (25,487 | )      
|Income tax expense                                        |                                                                       |                                                                                                                       | (39,041                                | )       |         |         | (78,610 | )       |         |         | (28,375 | )      
|                                                          |                                                                       |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |        
|                                                          |                                                                       |                                                                                                                       | Net income from continuing operations  |         |         | 189,253 |         |         |         | 160,628 |         |         |          | 60,782  | 
|Income from discontinued operations, net of tax           |                                                                       |                                                                                                                       | 3,899                                  |         |         |         | 1,815   |         |         |         | 2,084   |        
|Cumulative effect of change in accounting, net of
    tax |                                                                       |                                                                                                                       | (510                                   | )       |         |         | (1,296  | )       |         |         |        |        
|                                                          |                                                                       |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |        
|                                                          |                                                                       |                                                                                                                       | Net income                             |         | $       | 192,642 |         |         | $       | 161,147 |         |         | $        | 62,866  | 
|                                                          |                                                                       |                                                                                                                       |                                        |         |         |         |         |         |         |         |         |        

Realized and Unrealized Gains (Losses) on
Assets and Liabilities.Realized gains
(losses) on open block investments will fluctuate from period to
period depending on the prevailing interest rates, the economic
environment and the timing of investment sales and credit
events. As part of managing our invested assets, we routinely
sell securities and realize gains and losses. During 2004, we
sold our Indianapolis, Indiana office building. We had
previously listed this building with a real estate broker in
2003 as part of our restructuring plan and recorded a pre-tax
impairment loss of $7.7 million at that time (see further
discussion in Restructuring Costs). The sale of the building in
2004 resulted in a pre-tax loss of $11.8 million. Realized
gains on open block investments in 2003 included
$12.1 million of gains on sales of investments previously
impaired and written-down in 2002 or 2003, primarily American
Airlines, Dynegy Holdings, Intermedia Communications and NRG
Northeast Generating. Realized gains (losses) on open block
investments in 2002 consisted primarily of realized losses and
writedowns on investments related to Dynegy Holdings, Green Tree
Financial, National Century, NRG Northeast Generating, Trenwick
Group, United Airlines, US Air and WorldCom Inc.

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Unrealized gains (losses) on open block options
and trading investments also will fluctuate from period to
period depending on prevailing interest rates, the economic
environment, the timing of investment sales and credit events.
We use options to hedge our equity indexed products. In
accounting for derivatives, we adjust our options to market
value, which, due to the economic environment and stock market
conditions, resulted in an unrealized gain of $48.0 million
in 2004, an unrealized gain of $62.9 million in 2003 and an
unrealized loss of $40.0 million in 2002. In addition, we
also have trading securities that back our total return strategy
traditional annuity products. The market value adjustment on the
trading securities resulted in an unrealized gain of
$8.5 million in 2004, a gain of $26.8 million in 2003
and a loss of $5.2 million in 2002. Most of the unrealized
gains and losses on the options and trading securities are
offset by similar adjustments to the option portion of the
equity indexed product reserves and to the total return strategy
annuity reserves. The reserve adjustments are reflected in
policyowner benefits expense in the consolidated statements of
income and are included in the fair value change as additional
expense of $35.7 million in 2004 and $65.7 million in
2003, and reduced expense of $28.8 million in 2002.

The fair value change in options embedded within
our equity indexed products and the fair value changes on our
total return strategy traditional annuity contracts are being
recorded at fair value. As previously discussed, these fair
value changes are offset by similar adjustments to unrealized
gains (losses) on investments related to the fair value changes
on the options that hedge the equity indexed products and on the
trading securities that back the total return strategy products.

Reinsurance
Adjustments.Reinsurance related
adjustments in 2003 consist of the release of an
$8.2 million liability in conjunction with the settlement
and amendment of a reinsurance arrangement and a
$4.3 million true-up of pre-2003 reinsurance settlements
under a reinsurance arrangement between ILICs open block
and closed block.

Demutualization
Costs.The 2002 demutualization costs
are primarily for commissions, postage and printing under a
commission-free program required by ILICs demutualization
which allowed shareholders with less than one hundred shares to
redeem their shares for cash or to purchase additional shares,
commission-free, to reach a holding of at least one hundred
shares. Since these costs are not ongoing, they have been
excluded from our segment results.

Restructuring Costs.Restructuring costs relate to our consolidation of various
functions in connection with a restructuring of our protection
products and accumulation products operations and investment
activities which began in the third quarter of 2001. The
objective of the restructuring plan was to eliminate duplicative
functions for all business units and to reduce on-going
operating costs. Corporate administrative functions were
transitioned so they are performed primarily in Des Moines,
Iowa. Protection products administration processes were
transitioned so they are performed in Des Moines; Woodbury, New
York; or outsourced. Accumulation products functions were
transitioned to Topeka, Kansas. Investment activities were
restructured to eliminate certain real estate management
services which have been outsourced.

The restructuring charges expensed in 2003
included pre-tax severance and termination benefits of
$3.0 million related to the termination of approximately
ten positions and for severance accrual adjustments and other
pre-tax costs of $20.3 million primarily related to the
impairment loss on the Indianapolis office building, expenses
associated with the merger of IL Annuity into ILIC, and systems
conversion costs. The restructuring charges expensed in 2002
included pre-tax severance and termination benefits of
$9.5 million related to the elimination of approximately
240 positions and other pre-tax costs of $11.7 million
primarily related to systems conversion and relocation of
employees. Charges for all restructuring activities were
completed in 2003.

Interest Expense.Interest expense increased in 2004 and 2003 as compared to the
respective prior years. The increases were primarily due to
interest associated with the PRIDES securities of
$143.8 million issued in the second quarter of 2003.

Income Tax Expense.The effective income tax rate for 2004 varied from the
prevailing corporate rate primarily as a result of reductions in
the income tax accrual and deferred tax asset valuation
allowances. The accrual reduction amounting to $3.7 million
in 2004 represents an overpayment of tax in prior years for which

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a refund is expected. There were also accrual
reductions of $16.7 million in 2004, for the release of
provisions originally established for potential tax adjustments
which have been settled or eliminated. In addition, the deferred
tax asset valuation allowance was reduced $16.4 million in
2004 as a result of the realization of capital loss carry
forwards. The effective income tax rate for 2003 and 2002 varied
from the prevailing corporate rate primarily due to tax exempt
income.


Discontinued
Operations.In November 2003, we
entered into an agreement to sell our residential financing
operations. The results of the residential financing operations
have been classified as discontinued operations. The sale was
completed in January 2004, resulting in an after-tax gain of
$3.9 million.

Change in
Accounting.Effective January 1,
2004, we adopted Statement of Position 03-1 (SOP 03-1),
Accounting and Reporting by Insurance Enterprises for
Certain Non-Traditional Long Duration Insurance Contracts and
for Separate Accounts, resulting in the establishment of
additional policy reserve liabilities for fees charged for
insurance benefit features which are assessed in a manner that
is expected to result in profits in earlier years and losses in
subsequent years. The total effect of adopting SOP 03-1
(including reinsurance recoverables) as of January 1, 2004,
amounted to a decrease of $0.8 million ($0.5 million
after-tax) in net income which has been reflected as a
cumulative effect of a change in accounting.

The Financial Accounting Standards Boards
Derivatives Implementation Group issued SFAS 133
Implementation Issue No. B36, Embedded Derivatives:
Bifurcation of a Debt Instrument that Incorporates both Interest
Rate Risk and Credit Risk Exposures that are Unrelated or Only
Partially Related to the Creditworthiness of the Issuer of that
Instrument, or DIG Issue B36. DIG Issue B36 applies to
modified coinsurance and coinsurance with funds withheld
arrangements where interest is determined by reference to a pool
of fixed maturity assets or a total return debt index. DIG Issue
B36 considers the reinsurers receivable from the ceding
company to contain an embedded derivative that must be
bifurcated and accounted for separately under SFAS 133. We
adopted DIG Issue B36 on October 1, 2003, which included
the reclassification of certain securities supporting the
products being reinsured from available-for-sale to held for
trading. The net cumulative effect of the change in accounting
for DIG Issue B36 after income taxes was an expense of
$1.3 million in 2003.

Liquidity and Capital Resources



| |                 
| | ----------------
| | AmerUs Group Co.

As a holding company, AmerUs Group Co.s
cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest from income on
loans and advances to subsidiaries (including a surplus note
issued to us by ALIC), investment income on our assets and fees
which we charge our subsidiaries, offset by the expenses
incurred for debt service, salaries and other expenses.

The payment of dividends by our insurance
subsidiaries is regulated under various state laws. Generally,
under the various state statutes, our insurance
subsidiaries dividends may be paid only from the earned
surplus arising from their respective businesses and must
receive the prior approval of the respective state regulator to
pay any dividend that would exceed certain statutory
limitations. The current statutes generally limit any dividend,
together with dividends paid out within the preceding
12 months, to the greater of (i) 10% of the respective
companys policyowners statutory surplus as of the
preceding year end or (ii) the statutory net gain from
operations for the previous calendar year. Generally, the
various state laws give the state regulators discretion to
approve or disapprove requests for dividends in excess of these
limits. Based on these limitations and 2003 results, our life
insurance subsidiaries could have paid us an estimated
$77 million in dividends in 2004 without obtaining
regulatory approval. Our subsidiaries paid us approximately
$15 million in 2004. Based on 2004 results, our
subsidiaries can pay an estimated $186 million in dividends
without obtaining regulatory approval during 2005. We also
consider risk-based capital levels, capital and liquidity
operating needs, and other factors prior to paying dividends
from the insurance subsidiaries.

We generated cash flows from operating activities
of $930.4 million, $394.9 million and
$920.1 million for the years ended December 31, 2004,
2003, and 2002, respectively. Operating cash flows were
primarily used to increase our investment portfolio.

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We have a $200 million revolving credit
facility (which we refer to as the Revolving Credit Agreement)
with a syndicate of lenders. As of December 31, 2004, there
was no outstanding loan balance under the facility. The
Revolving Credit Agreement provides for typical events of
default and covenants with respect to the conduct of business
and requires the maintenance of various financial levels and
ratios. Among other covenants, we (a) cannot have a
leverage ratio greater than 0.35:1.0, (b) cannot have an
interest coverage ratio less than 2.50:1.0, (c) are
prohibited from paying cash dividends on common stock in excess
of an amount equal to 3% of consolidated net worth as of the
last day of the preceding fiscal year, (d) must cause our
insurance subsidiaries to maintain certain levels of risk-based
capital, and (e) are prohibited from incurring additional
indebtedness for borrowed money in excess of certain limits
typical for such lines of credit. We closely monitor all of
these covenants to ensure continued compliance.

On May 28, 2003, we issued $125 million
of PRIDES securities and on December 15, 2004 we exchanged
$185 million of aggregate original principal amount of
OCEANs as previously discussed in Item 5- Market for
Registrants Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities, which portions
are incorporated herein by reference.

The Company has several options for deploying
excess capital, including supporting higher sales growth,
reducing debt levels, pursuing acquisitions and buying back
common stock. Our Board of Directors approved a stock purchase
program effective August 9, 2002, under which we may
purchase up to three million shares of our common stock at such
times and under such conditions, as we deem advisable. The
purchases may be made in the open market or by such other means
as we determine to be appropriate, including privately
negotiated purchases. The purchase program supercedes all prior
purchase programs. We plan to fund the purchase program from a
combination of our internal sources, dividends from insurance
subsidiaries and the Revolving Credit Agreement. Approximately
2.0 million shares remain available for repurchase under
this program. There were 244,400 shares purchased in 2004
for $9.2 million. Holding company cash was utilized to
purchase the shares.

We manage liquidity on a continuing basis. One
way is to minimize our need for capital. We accomplish this by
attempting to use our capital as efficiently as possible and by
developing capital-efficient products in our insurance
subsidiaries. We also manage our mix of sales by focusing on the
more capital-efficient products. In addition, we use reinsurance
agreements, where cost-effective, to reduce capital strain in
the insurance subsidiaries. We also focus on optimizing the
consolidated capital structure to properly balance the levels
and sources of borrowing and the issuance of equity securities.



| |                       
| | ----------------------
| | Insurance Subsidiaries

The sources of cash of our insurance subsidiaries
consist primarily of premium receipts; deposits to policyowner
account balances; and income from investments, sales, maturities
and calls of investments and repayments of investment principal.
The uses of cash are primarily related to withdrawals of
policyowner account balances, investment purchases, payment of
policy acquisition costs, payment of policyowner benefits,
payment of debt, income taxes and current operating expenses.
Insurance companies generally produce a positive cash flow from
operations, as measured by the amount by which cash flows are
adequate to meet benefit obligations to policyowners and normal
operating expenses as they are incurred. The remaining cash flow
is generally used to increase the asset base to provide funds to
meet the need for future policy benefit payments and for writing
new business.

Management believes that the current level of
cash and available-for-sale, held for trading and short-term
securities, combined with expected net cash inflows from
operations, maturities of fixed maturity investments, principal
payments on mortgage-backed securities and sales of its
insurance products, will be adequate to meet the anticipated
short-term cash obligations of the insurance subsidiaries.

Matching the investment portfolio maturities to
the cash flow demands of the type of insurance being provided is
an important consideration for each type of protection product
and accumulation product. We continuously monitor benefits and
surrenders to provide projections of future cash requirements.
As part of this monitoring process, we perform cash flow testing
of assets and liabilities under various scenarios to evaluate
the adequacy of reserves. In developing our investment strategy,
we establish a level of cash and

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securities which, combined with expected net cash
inflows from operations and maturities and principal payments on
fixed maturity investment securities, are believed adequate to
meet anticipated short-term and long-term benefit and expense
payment obligations. There can be no assurance that future
experience regarding benefits and surrenders will be similar to
historic experience since withdrawal and surrender levels are
influenced by such factors as the interest rate environment and
general economic conditions and the claims-paying and financial
strength ratings of the insurance subsidiaries.


We take into account asset/liability management
considerations in the product development and design process.
Contract terms for the interest-sensitive products include
surrender and withdrawal provisions which mitigate the risk of
losses due to early withdrawals. These provisions generally do
one or more of the following: limit the amount of penalty-free
withdrawals, limit the circumstances under which withdrawals are
permitted, or assess a surrender charge or market value
adjustment relating to the underlying assets.

In addition to the interest-sensitive products,
our insurance subsidiaries have issued funding agreements
totaling $960 million outstanding as of December 31,
2004, consisting primarily of six to ten year fixed rate
insurance contracts. The assets backing the funding agreements
are legally segregated and are not subject to claims that arise
out of any other business of the insurance subsidiaries. The
funding agreements are further backed by the general account
assets of the insurance subsidiaries. The segregated assets and
liabilities are included with general account assets in the
financial statements. The funding agreements may not be
cancelled by the holders unless there is a default under the
agreement, but the insurance subsidiaries may terminate the
agreement at any time. During 2003, a $250 million funding
agreement which was placed in 1999 was terminated by us.

We also have variable separate account assets and
liabilities representing funds that are separately administered,
principally for variable annuity contracts, and for which the
contractholder bears the investment risk. Separate account
assets and liabilities are reported at fair value and amounted
to $249 million at December 31, 2004. Separate account
contractholders have no claim against the assets of the general
account. The operations of the separate accounts are not
included in the accompanying consolidated financial statements.

Through their respective memberships in the
Federal Home Loan Banks (FHLB) of Des Moines and
Topeka, ALIC and American are eligible to borrow under
variable-rate short term fed funds arrangements to provide
additional liquidity. These borrowings are secured and interest
is payable at the current rate at the time of each advance.
There were no borrowings outstanding under these arrangements at
December 31, 2004. In addition, ALIC has long-term fixed
rate advances from the FHLB outstanding of $12.6 million at
December 31, 2004.

The insurance subsidiaries may also obtain
liquidity through sales of investments. The investment portfolio
as of December 31, 2004, had a carrying value of
$19.2 billion, including closed block investments.

The level of capital in the insurance companies
is regulated by risk-based capital formulas and is monitored by
rating agencies. In order to maintain appropriate capital
levels, it may be necessary from time to time for AmerUs Group
Co. to provide additional capital to the insurance companies.

We participate in a securities lending program
whereby certain fixed maturity securities from the investment
portfolio are loaned to other institutions for a short period of
time. We receive a fee in exchange for the loan of securities
and require initial collateral equal to 102 percent, with
an on-going level of 100 percent, of the market value of
the loaned securities to be separately maintained. Securities
with a market value of approximately $342.6 million and
$154.6 million were on loan under the program and we were
liable for cash collateral under our control of approximately
$351.7 million and $158.8 million at December 31,
2004 and 2003, respectively. The collateral held under the
securities lending program has been included in cash and cash
equivalents in the consolidated balance sheet and the obligation
to return the collateral upon the return of the loaned
securities has been included in accrued expenses and other
liabilities.

We may also enter into securities borrowing
arrangements from time to time whereby we borrow securities from
other institutions and pay a fee. Securities borrowed amounted
to $138.2 million and none at

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December 31, 2004, and 2003, respectively,
and are also included in accrued expenses and other liabilities
in the consolidated balance sheet.


At December 31, 2004, the statutory capital
and surplus of the insurance subsidiaries was approximately
$1,046 million. Management believes that each insurance
company has statutory capital which provides adequate risk based
capital that exceeds required levels.

In the future, in addition to cash flows from
operations and borrowing capacity, the insurance subsidiaries
may obtain their required capital from AmerUs Group Co.

Off-Balance Sheet Arrangements



| |                      
| | ---------------------
| | Guarantee Obligations

Certain partnership investments provide for
commitments of future capital, loans or guarantees. We have
obligations to make future capital contributions to various
partnerships of up to $0.5 million at December 31,
2004. We also have commitments to extend credit for mortgages
totaling $36.6 million at December 31, 2004. In
addition, at December 31, 2004, we had loan guarantees
which totaled $1.5 million. ALIC and its joint venture
partner are contingently liable in the event AVLIC cannot meet
its obligations. At December 31, 2004, AVLIC had statutory
assets of $2,441.6 million, liabilities of
$2,331.4 million and surplus of $110.2 million.

We are contingently liable for the portion of the
policies reinsured under existing reinsurance agreements in the
event the reinsurance companies are unable to pay their portion
of any reinsured claim. Management believes that any liability
from this contingency is unlikely. However, to limit the
possibility of such losses, we evaluate the financial condition
of reinsurers and monitor concentration of credit risk.



| |                                                       
| | ------------------------------------------------------
| | Summary of Contractual Obligations and
    Commitments

Our contractual obligations primarily consist of
amounts owed for annuity and other non-life insurance payments,
notes payable, operating lease commitments, interest payable and
securities lending and borrowing obligations. A summary of
obligations are as follows for each of the five years ending
December 31, 2004:

|                                                 |       |                        |            |            |  |      |           |           |  |      |           |           |  |            |           |           |  |   |           |           |  |   |           |           |  |   |           |           | 
|------------------------------------------------ | ----- | ---------------------- | ---------- | ---------- |  | ---- | --------- | --------- |  | ---- | --------- | --------- |  | ---------- | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                                 |       |                       
|                                                 |       | Payments due by period
|                                                 |       |                       
|Obligation                                       |       | Total                  |            | 2005       |  | 2006 |           | 2007      |  | 2008 |           | 2009      |  | Thereafter
|                                                 |       |                        |            |            |  |      |           |           |  |      |           |           |  |           
|                                                 |       |                       
|                                                 |       | ($ in thousands)      
|Notes payable                                    |       | $                      | 571,155    |            |  | $    | 126,051   |           |  | $    | 991       |           |  | $          | 1,063     |           |  | $ | 144,891   |           |  | $ | 987       |           |  | $ | 297,172   |          
|Operating leases                                 |       |                        | 18,705     |            |  |      | 6,876     |           |  |      | 5,255     |           |  |            | 5,132     |           |  |   | 872       |           |  |   | 570       |           |  |   |          |          
|Interest payable(1)                              |       |                        | 6,800      |            |  |      | 6,800     |           |  |      |          |           |  |            |          |           |  |   |          |           |  |   |          |           |  |   |          |          
|Securities lending and borrowing obligations(1)  |       |                        | 490,756    |            |  |      | 490,756   |           |  |      |          |           |  |            |          |           |  |   |          |           |  |   |          |           |  |   |          |          
|Annuity and other non-life insurance payments(2) |       |                        | 13,820,338 |            |  |      | 1,152,357 |           |  |      | 1,854,753 |           |  |            | 1,733,327 |           |  |   | 1,447,563 |           |  |   | 1,289,027 |           |  |   | 6,343,311 |          
|Purchase obligations                             |       |                        |           |            |  |      |          |           |  |      |          |           |  |            |          |           |  |   |          |           |  |   |          |           |  |   |          |          
|Other liabilites                                 |       |                        |           |            |  |      |          |           |  |      |          |           |  |            |          |           |  |   |          |           |  |   |          |           |  |   |          |          
|                                                 |       |                        |            |            |  |      |           |           |  |      |           |           |  |            |           |           |  |   |           |           |  |   |           |           |  |   |           |          
|                                                 | Total |                        | $          | 14,907,754 |  |      | $         | 1,782,840 |  |      | $         | 1,860,999 |  |            | $         | 1,739,522 |  |   | $         | 1,593,326 |  |   | $         | 1,290,584 |  |   | $         | 6,640,483 | 
|                                                 |       |                        |            |            |  |      |           |           |  |      |           |           |  |            |           |           |  |   |           |           |  |   |           |           |  |   |           |          



---



|    |                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The obligation is included in accrued expenses
    and other liabilities on the consolidated balance sheet.                                                                                                                                                   
|   
|(2) | Represents future payments for annuities and
    other non-life insurance obligations. Such obligations are
    included in the determination of reserves and are included in
    policy reserves and policyowner funds on the consolidated
    balance sheet.

Critical Accounting Policies

The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of

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contingent assets and liabilities. The valuation
of financial instruments, accounting for derivatives and
amortization of DAC and VOBA are considered our critical
accounting policies due to their subjective nature and
significance to the financial statements.




| |                                       
| | --------------------------------------
| | Valuation of Financial
    Instruments

A significant portion of our assets are carried
at fair value, primarily securities available-for-sale,
securities held for trading purposes and derivative financial
instruments. Market values are based on quoted market prices
where available.

Securities in our portfolio with a carrying value
of approximately $1,820 million and $1,605 million at
December 31, 2004 and 2003, respectively, do not have
readily determinable market prices. Valuation techniques vary by
security type and availability of market data. Fair values for
securities which do not have a readily available market price
are determined by: 1) a matrix process that uses a current
market spread added to an applicable treasury rate to discount
expected future cash flows applicable to the coupon rate, credit
quality, industry sector and term of the investment;
2) independent third party sources or recent transactions
in similar securities, or 3) internally prepared valuations
incorporating standard valuation techniques. Certain market
conditions that could impact the valuation of securities include
credit ratings, business climate, economic environment, industry
trends, and regulatory and legal risks/events, among others. All
such investments are classified as available-for-sale. Our
ability to liquidate our positions in these securities will be
impacted to a significant degree by the lack of an actively
traded market, and we may not be able to dispose of these
investments in a timely manner. Although we believe our
estimates reasonably reflect the fair value of those securities,
our key assumptions about the risk-free interest rates, risk
premiums, performance of underlying collateral (if any), and
other factors may not be realized in the event of an actual sale.

Securities are also reviewed to identify
potential impairments. In determining if and when a decline in
market value below amortized cost is other-than-temporary
(referred to as OTTI), we evaluate the market conditions,
offering prices, trends of earnings, price multiples and other
key measures for our investments in marketable equity securities
and debt instruments. For fixed maturity securities, our intent
and ability to hold securities is also considered. When such a
decline in value is deemed to be other-than-temporary, we
recognize an impairment loss in the current period net income to
the extent of the decline. For additional information regarding
our evaluation of OTTI, see the section titled
Investments  Impairment.

Investments in mortgage loans, real estate,
policy loans and other investments are monitored for possible
impairment. If it is determined that collection of all amounts
due under the contractual terms is doubtful or carrying values
exceed the fair value of underlying collateral, such investments
are considered impaired and the asset carrying value is adjusted
or a valuation allowance is established.



| |                           
| | --------------------------
| | Accounting for Derivatives

We hold derivative financial instruments to hedge
growth in policyowner liabilities for certain protection and
accumulation products and to hedge market risk for fixed income
investments. These derivatives qualify for hedge accounting or
are considered economic hedges as discussed in detail in
note 4 to our consolidated financial statements.

Hedge accounting results when we designate and
document the hedging relationships involving derivative
instruments. Economic hedging instruments are those instruments
whose change in fair value acts as a natural hedge against the
change in fair value of hedged assets or liabilities with both
changes wholly or partially being offset in earnings.

To hedge equity market risk, we primarily use
S&P 500 Index call options to hedge the growth in interest
credited to the customer as provided by our equity indexed
products. We may also use interest rate swaps or options to
manage our fixed products risk profile. Generally, credit
default swaps are coupled with a bond to synthetically create an
instrument cheaper than an equivalent investment traded in the
cash market.

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We have not changed our methods of calculating
the fair values of derivatives or the underlying assumptions.
The fair values of these derivatives will change over time as
cash receipts and payments are made and as market conditions
change.

Our derivative instruments are not subject to a
multiple or use of leverage on the underlying price index. We do
not believe we are exposed to more than a nominal amount of
credit risk in our interest rate or equity hedges as the
counterparties are established, well-capitalized financial
institutions. Information about the fair values, notional
amounts, and contractual terms of these instruments can be found
in note 4 to our consolidated financial statements and the
section titled Quantitative and Qualitative Disclosures
About Market Risk.



| |                             
| | ----------------------------
| | Amortization of DAC and VOBA

We generally amortize DAC based on a percentage
of our expected gross margins (EGMs) over the life of the
policies. Our estimated EGMs are computed based on assumptions
related to the underlying policies written, including the lives
of the underlying policies, growth rate of the assets supporting
the liabilities, and level of expenses necessary to maintain the
policies over their entire life. We amortize DAC by estimating
the present value of the EGMs over the lives of the insurance
policies and then calculate a percentage of the policy
acquisition cost deferred as compared to the present value of
the EGMs. That percentage is used to amortize the DAC such that
the amount amortized over the life of the policies results in a
constant percentage of amortization when related to the actual
and future gross margins.

Because the EGMs are only an estimate of the
profits we expect to recognize from these policies, the EGMs are
adjusted annually to take into consideration the actual gross
profits to date and any changes in the remaining expected future
gross margins. When EGMs are adjusted, we also adjust the
amortization of the deferred policy acquisition costs amount to
maintain a constant percentage over the entire life of the
policies.

We amortize the VOBA based on the incidence of
the EGMs from insurance contracts using the interest rate
credited to the underlying policies. The EGMs are based on
actuarially determined projections of future premium receipts,
mortality, surrenders, operating expenses, changes in insurance
liabilities, investment yields on the assets retained to support
the policy liabilities and other factors. These projections take
into account all factors known or expected by management. The
actual gross margins may vary from expected levels due to
differences in renewal premium, investment spread, investment
gains or losses, mortality and morbidity costs and other factors.

Investment Portfolio



| |        
| | -------
| | General

We maintain a diversified portfolio of
investments which is supervised by an experienced in-house staff
of investment professionals. Sophisticated asset/liability
management techniques are employed in order to achieve
competitive yields, while maintaining risk at acceptable levels.
The asset portfolio is segmented by liability type, with
tailored investment strategies for specific product lines.
Investment policies and significant individual investments are
subject to approval by the Board of Directors and are overseen
by the Investment and Risk Management Committee of our Board of
Directors. Management regularly monitors individual assets and
asset groups, in addition to monitoring the overall asset mix.
In addition, the Investment and Risk Management Committee review
investment guidelines and monitor internal controls.



| |                    
| | -------------------
| | Investment Strategy

Our investment philosophy is to employ an
integrated asset/liability management approach with separate
investment portfolios for specific product lines, such as
traditional life, universal life, equity indexed life,
traditional annuities, equity indexed annuities, variable
annuities and funding agreements to generate attractive
risk-adjusted returns on capital. Essential to this philosophy
is coordinating investments in the investment portfolio with
product strategies, focusing on risk-adjusted returns and
identifying and evaluating associated business risks.

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Investment strategies have been established based
on the specific characteristics of each product line. The
portfolio investment strategies establish asset duration,
quality and other guidelines. Analytical systems are utilized to
establish an optimal asset mix for each line of business. We
seek to manage the asset/liability mismatch and the associated
interest rate risk through active management of the investment
portfolio. Financial, actuarial, investment, product development
and product marketing professionals work together throughout the
product development, introduction and management phases to
jointly develop and implement product features, initial and
renewal crediting strategies, and investment strategies based on
extensive modeling of a variety of factors under a number of
interest rate scenarios.



| |                
| | ---------------
| | Invested Assets

Our diversified portfolio of investments includes
public and private fixed maturity securities and commercial
mortgage loans. Our objective is to maintain a high-quality,
diversified fixed maturity securities portfolio that produces a
yield and total return that supports the various product line
liabilities and our earnings goals.

The following table summarizes invested assets by
asset category as of December 31, 2004 and 2003:

|                          |         |                              |          |          |          |          |       |       |      |   |          |          |          |  |       |      |      |  
|------------------------- | ------- | ---------------------------- | -------- | -------- | -------- | -------- | ----- | ----- | ---- | - | -------- | -------- | -------- |  | ----- | ---- | ---- | -
|                          |         |                             
|                          |         | Invested Assets December 31,
|                          |         |                             
|                          |         |                              |          |         
|                          |         | 2004                         |          | 2003    
|                          |         |                              |          |         
|                          |         | Carrying                     |          | % of     |          | Carrying |       | % of 
|                          |         | Value                        |          | Total    |          | Value    |       | Total
|                          |         |                              |          |          |          |          |       |      
|                          |         |                             
|                          |         | ($ in millions)             
|Fixed maturity securities |         |                              |          |          |          |          |       |       |      |   |          |          |          |  |       |     
|                          | Public  |                              | $        | 15,147.6 |          |          |       | 79.0  | %    |   | $        | 14,094.2 |          |  |       | 78.4 | %   
|                          | Private |                              |          | 2,217.2  |          |          |       | 11.5  | %    |   |          | 1,940.3  |          |  |       | 10.8 | %   
|                          |         |                              |          |          |          |          |       |       |      |   |          |          |          |  |       |     
|                          |         | Subtotal                     |          |          | 17,364.8 |          |       |       | 90.5 | % |          |          | 16,034.5 |  |       |      | 89.2 | %
|Equity securities         |         |                              | 92.5     |          |          |          | 0.5   | %     |      |   | 76.5     |          |          |  | 0.4   | %   
|Mortgage loans            |         |                              | 865.7    |          |          |          | 4.5   | %     |      |   | 968.6    |          |          |  | 5.4   | %   
|Policy loans              |         |                              | 486.1    |          |          |          | 2.5   | %     |      |   | 494.6    |          |          |  | 2.7   | %   
|Other investments         |         |                              | 374.2    |          |          |          | 2.0   | %     |      |   | 381.0    |          |          |  | 2.1   | %   
|Short-term investments    |         |                              | 3.0      |          |          |          | 0.0   | %     |      |   | 29.1     |          |          |  | 0.2   | %   
|                          |         |                              |          |          |          |          |       |       |      |   |          |          |          |  |       |     
|Total invested assets     |         | $                            | 19,186.3 |          |          |          | 100.0 | %     |      | $ | 17,984.3 |          |          |  | 100.0 | %   
|                          |         |                              |          |          |          |          |       |       |      |   |          |          |          |  |       |     



| |                          
| | -------------------------
| | Fixed Maturity Securities

The fixed maturity securities portfolio consists
primarily of investment grade corporate fixed maturity
securities, high-quality mortgage-backed securities
(MBS) and United States government and agency obligations.
As of December 31, 2004, fixed maturity securities were
$17,364.8 million, or 90.5% of the carrying value of
invested assets with public and private fixed maturity
securities constituting $15,147.6 million, or 87.2%, and
$2,217.2 million, or 12.8%, respectively, of total fixed
maturity securities, respectively.

39



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##### Table of Contents



The following table summarizes the composition of
the fixed maturity securities by category as of
December 31, 2004 and 2003:

|                                          |                          |                                          |          |          |  |          |      |          |   |   |          |          |  |  |      |       |  
|----------------------------------------- | ------------------------ | ---------------------------------------- | -------- | -------- |  | -------- | ---- | -------- | - | - | -------- | -------- |  |  | ---- | ----- | -
|                                          |                          |                                         
|                                          |                          | Composition of Fixed Maturity Securities
|                                          |                          | December 31,                            
|                                          |                          |                                         
|                                          |                          |                                          |          |         
|                                          |                          | 2004                                     |          | 2003    
|                                          |                          |                                          |          |         
|                                          |                          | Carrying                                 |          | %        |  | Carrying |      | %       
|                                          |                          | Value                                    |          | of Total |  | Value    |      | of Total
|                                          |                          |                                          |          |          |  |          |      |         
|                                          |                          |                                         
|                                          |                          | ($ in millions)                         
|U.S. government/agencies                  |                          | $                                        | 548.4    |          |  |          | 3.2  | %        |   | $ | 816.8    |          |  |  | 5.1  | %    
|State and political subdivisions          |                          |                                          | 66.0     |          |  |          | 0.4  | %        |   |   | 67.1     |          |  |  | 0.4  | %    
|Foreign government bonds                  |                          |                                          | 118.6    |          |  |          | 0.7  | %        |   |   | 128.5    |          |  |  | 0.8  | %    
|Corporate bonds                           |                          |                                          | 12,359.0 |          |  |          | 71.2 | %        |   |   | 10,994.3 |          |  |  | 68.5 | %    
|Redeemable preferred stocks               |                          |                                          | 40.2     |          |  |          | 0.2  | %        |   |   | 173.7    |          |  |  | 1.1  | %    
|Indexed debt instruments                  |                          |                                          | 564.7    |          |  |          | 3.3  | %        |   |   | 396.1    |          |  |  | 2.5  | %    
|Asset-backed bonds                        |                          |                                          | 528.1    |          |  |          | 3.0  | %        |   |   | 470.2    |          |  |  | 2.9  | %    
|Collateralized mortgage-backed securities |                          |                                          | 1,119.2  |          |  |          | 6.4  | %        |   |   | 973.0    |          |  |  | 6.1  | %    
|Mortgage-backed securities:               |                          |                                          |          |          |  |          |      |          |   |   |          |          |  |  |      |      
|                                          | U.S. government/agencies |                                          |          | 1,824.1  |  |          |      | 10.5     | % |   |          | 1,909.2  |  |  |      | 11.9  | %
|                                          | Non-government/agencies  |                                          |          | 196.5    |  |          |      | 1.1      | % |   |          | 105.6    |  |  |      | 0.7   | %
|                                          |                          |                                          |          |          |  |          |      |          |   |   |          |          |  |  |      |      
|                                          | Subtotal-MBS             |                                          |          | 2,020.6  |  |          |      | 11.6     | % |   |          | 2,014.8  |  |  |      | 12.6  | %
|                                          |                          |                                          |          |          |  |          |      |          |   |   |          |          |  |  |      |      
|                                          | Total                    |                                          | $        | 17,364.8 |  |          |      | 100.0    | % |   | $        | 16,034.5 |  |  |      | 100.0 | %
|                                          |                          |                                          |          |          |  |          |      |          |   |   |          |          |  |  |      |      

40



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##### Table of Contents



The following table summarizes fixed maturity
securities by remaining maturity as of December 31, 2004:

Remaining Maturity of Fixed Maturity
Securities

|                   |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |      |       |  
|------------------ | ------------------------------ | --------------- | - | -------- | -------- | ---------- |  | -------- | ----- | - | - | ---- | ---- |  |  | ---- | ----- | -
|                   |                                | Carrying        |   | %        |          | Unrealized |  | %       
|                   |                                | Value           |   | of Total |          | Loss       |  | of Total
|                   |                                |                 |   |          |          |            |  |         
|                   |                                |                
|                   |                                | ($ in millions)
|Available-for-Sale |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|Due:               |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|                   | In one year or less (2005)     |                 | $ | 526.9    |          |            |  | 3.4      | %     |   | $ |     |      |  |  | 0.0  | %    
|                   | One to five years (2006-2010)  |                 |   | 2,899.5  |          |            |  | 18.5     | %     |   |   | 4.0  |      |  |  | 8.1  | %    
|                   | Five to 10 years (2011-2015)   |                 |   | 6,086.8  |          |            |  | 38.9     | %     |   |   | 20.3 |      |  |  | 41.1 | %    
|                   | 10 to 20 years (2016-2025)     |                 |   | 1,816.1  |          |            |  | 11.6     | %     |   |   | 14.2 |      |  |  | 28.7 | %    
|                   | Over 20 years (2026 and after) |                 |   | 2,407.6  |          |            |  | 15.4     | %     |   |   | 7.0  |      |  |  | 14.2 | %    
|                   |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|                   |                                | Subtotal        |   |          | 13,736.9 |            |  |          | 87.8  | % |   |      | 45.5 |  |  |      | 92.1  | %
|                   | Mortgage-backed securities     |                 |   | 1,909.8  |          |            |  | 12.2     | %     |   |   | 3.9  |      |  |  | 7.9  | %    
|                   |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|                   |                                | Total           |   | $        | 15,646.7 |            |  |          | 100.0 | % |   | $    | 49.4 |  |  |      | 100.0 | %
|                   |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|Held-for-Trading   |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|Due:               |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|                   | In one year or less (2005)     |                 | $ | 34.0     |          |            |  | 2.0      | %     |   |   |      |      |  |  |      |      
|                   | One to five years (2006-2010)  |                 |   | 441.9    |          |            |  | 25.7     | %     |   |   |      |      |  |  |      |      
|                   | Five to 10 years (2011-2015)   |                 |   | 320.8    |          |            |  | 18.7     | %     |   |   |      |      |  |  |      |      
|                   | 10 to 20 years (2016-2025)     |                 |   | 492.7    |          |            |  | 28.7     | %     |   |   |      |      |  |  |      |      
|                   | Over 20 years (2026 and after) |                 |   | 317.9    |          |            |  | 18.5     | %     |   |   |      |      |  |  |      |      
|                   |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|                   |                                | Subtotal        |   |          | 1,607.3  |            |  |          | 93.6  | % |   |      |      |  |  |      |       |  
|                   | Mortgage-backed securities     |                 |   | 110.8    |          |            |  | 6.4      | %     |   |   |      |      |  |  |      |      
|                   |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     
|                   |                                | Total           |   | $        | 1,718.1  |            |  |          | 100.0 | % |   |      |      |  |  |      |       |  
|                   |                                |                 |   |          |          |            |  |          |       |   |   |      |      |  |  |     

The portfolio of investment grade fixed maturity
securities is diversified by number and type of issuers. As of
December 31, 2004, investment grade fixed maturity
securities included the securities of 903 issuers, with 2,656
different issues of securities. No non-government/agency issuer
represents more than 1% of investment grade fixed maturity
securities.

Below-investment grade fixed maturity securities
as of December 31, 2004, included the securities of 322
issuers representing 7.0% of total invested assets, with the
largest being a $29.9 million investment.

41



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##### Table of Contents



As of December 31, 2004, 83.5% of total
invested assets were investment grade fixed maturity securities.
The following table sets forth the credit quality, by NAIC
designation and Standard & Poors rating
equivalents, of fixed maturity securities as of
December 31, 2004:

Fixed Maturity Securities By NAIC
Designation

|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |         |   |  |   |          |   |  |   |          |   |  |  |      |  
|---------------------------- | ----- | ---------------------------------------- | -------- | --------------- |  | ------- | ------- | -------- |  | ----- | ------- | -------- |  | ----- | ------- | - |  | - | -------- | - |  | - | -------- | - |  |  | ---- | -
|                             |       |                                          |          |                 |  |         |         |         
|                             |       |                                          |          | Public          |  | Private |         | Total   
|                             |       |                                          |          |                 |  |         |         |         
|NAIC                         |       |                                          |          | Carrying        |  | % of    |         | Carrying |  | % of  |         | Carrying |  | % of 
|Designation                  |       | Standard & Poors Equivalent Designation |          | Value           |  | Total   |         | Value    |  | Total |         | Value    |  | Total
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |      
|                             |       |                                          |          |                
|                             |       |                                          |          | ($ in millions)
|                             | 1     |                                          |          | A- or higher    |  | $       | 9,643.2 |          |  |       | 63.7    | %        |  | $     | 1,134.2 |   |  |   | 51.1     | % |  | $ | 10,777.4 |   |  |  | 62.1 | %
|                             | 2     |                                          |          | BBB- to BBB+    |  |         | 4,274.0 |          |  |       | 28.2    | %        |  |       | 968.8   |   |  |   | 43.7     | % |  |   | 5,242.8  |   |  |  | 30.2 | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |         |   |  |   |          |   |  |   |          |   |  |  |      |  
|Total investment grade       |       |                                          | 13,917.2 |                 |  |         | 91.9    | %        |  |       | 2,103.0 |          |  |       | 94.8    | % |  |   | 16,020.2 |   |  |   | 92.3     | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |         |   |  |   |          |   |  |   |          |   |  |  |      |  
|                             | 3     |                                          |          | BB- to BB+      |  |         | 779.4   |          |  |       | 5.1     | %        |  |       | 72.4    |   |  |   | 3.3      | % |  |   | 851.8    |   |  |  | 4.9  | %
|                             | 4     |                                          |          | B- to B+        |  |         | 424.8   |          |  |       | 2.8     | %        |  |       | 36.0    |   |  |   | 1.6      | % |  |   | 460.8    |   |  |  | 2.6  | %
|                             | 5 & 6 |                                          |          | CCC+ or lower   |  |         | 26.2    |          |  |       | 0.2     | %        |  |       | 5.8     |   |  |   | 0.3      | % |  |   | 32.0     |   |  |  | 0.2  | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |         |   |  |   |          |   |  |   |          |   |  |  |      |  
|Total below investment grade |       |                                          | 1,230.4  |                 |  |         | 8.1     | %        |  |       | 114.2   |          |  |       | 5.2     | % |  |   | 1,344.6  |   |  |   | 7.7      | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |         |   |  |   |          |   |  |   |          |   |  |  |      |  
|Total                        |       | $                                        | 15,147.6 |                 |  |         | 100.0   | %        |  | $     | 2,217.2 |          |  |       | 100.0   | % |  | $ | 17,364.8 |   |  |   | 100.0    | %
|                             |       |                                          |          |                 |  |         |         |          |  |       |         |          |  |       |         |   |  |   |          |   |  |   |          |   |  |  |      |  

The following table summarizes fixed maturity
securities by Standard & Poors or equivalent
rating, including unrealized losses, at December 31, 2004:

Fixed Maturity Securities by
Standard & Poors or Equivalent Rating

|                             |       |                                          |          |                 |  |       |          |            |  |       |      |   |  |   |       |   |  |  |      |  
|---------------------------- | ----- | ---------------------------------------- | -------- | --------------- |  | ----- | -------- | ---------- |  | ----- | ---- | - |  | - | ----- | - |  |  | ---- | -
|NAIC                         |       |                                          |          | Carrying        |  | % of  |          | Unrealized |  | % of 
|Designation                  |       | Standard & Poors Equivalent Designation |          | Value           |  | Total |          | Loss       |  | Total
|                             |       |                                          |          |                 |  |       |          |            |  |      
|                             |       |                                          |          |                
|                             |       |                                          |          | ($ in millions)
|                             | 1     |                                          |          | A- or higher    |  | $     | 10,777.4 |            |  |       | 62.1 | % |  | $ | 34.0  |   |  |  | 68.8 | %
|                             | 2     |                                          |          | BBB- to BBB+    |  |       | 5,242.8  |            |  |       | 30.1 | % |  |   | 10.9  |   |  |  | 22.1 | %
|                             |       |                                          |          |                 |  |       |          |            |  |       |      |   |  |   |       |   |  |  |      |  
|Total investment grade       |       |                                          | 16,020.2 |                 |  |       | 92.2     | %          |  |       | 44.9 |   |  |   | 90.9  | %
|                             |       |                                          |          |                 |  |       |          |            |  |       |      |   |  |   |       |   |  |  |      |  
|                             | 3     |                                          |          | BB- to BB+      |  |       | 851.8    |            |  |       | 4.9  | % |  |   | 2.4   |   |  |  | 4.9  | %
|                             | 4     |                                          |          | B- to B+        |  |       | 460.8    |            |  |       | 2.7  | % |  |   | 1.8   |   |  |  | 3.6  | %
|                             | 5 & 6 |                                          |          | CCC+ or lower   |  |       | 32.0     |            |  |       | 0.2  | % |  |   | 0.3   |   |  |  | 0.6  | %
|                             |       |                                          |          |                 |  |       |          |            |  |       |      |   |  |   |       |   |  |  |      |  
|Total below investment grade |       |                                          | 1,344.6  |                 |  |       | 7.8      | %          |  |       | 4.5  |   |  |   | 9.1   | %
|                             |       |                                          |          |                 |  |       |          |            |  |       |      |   |  |   |       |   |  |  |      |  
|Total                        |       | $                                        | 17,364.8 |                 |  |       | 100.0    | %          |  | $     | 49.4 |   |  |   | 100.0 | %
|                             |       |                                          |          |                 |  |       |          |            |  |       |      |   |  |   |       |   |  |  |      |  

MBS investments are mortgage-related securities
including collateralized mortgage obligations (CMOs) and
pass-through mortgage securities. Asset-backed securities are
both residential and non-residential including exposure to home
equity loans, home improvement loans, manufactured housing loans
as well as securities backed by loans on automobiles, credit
cards, and other collateral or collateral bond obligations. As
of December 31, 2004, asset-backed residential mortgages
totaled $259.9 million or 1.4% of total invested assets. As
of December 31, 2004, residential mortgage pass-through and
CMOs totaled $2,020.6 million or 10.5% of total invested
assets. As of December 31, 2004, $1,824.1 million or
90.3% of MBS were from government sponsored enterprises. Other
MBS were $196.5 million or 9.7% of MBS as of
December 31, 2004. Management believes that the quality of
assets in the MBS portfolio is generally high, with 99.5% of
such assets representing agency backed or AAA rated
securities. Collateralized mortgage backed securities (or CMBS)
totaled $1,119.2 million or 5.8% of total invested assets
as of December 31, 2004.

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##### Table of Contents





| |            
| | -----------
| | Derivatives

Interest rate swaps and options are primarily
used to reduce exposure to changes in interest rates and to
manage duration mismatches. Call options are primarily used to
hedge equity indexed products. Credit default swaps are coupled
with a bond to synthetically create an investment cheaper than
the equivalent instrument traded in the cash market. Although we
are subject to the risk that counterparties will fail to
perform, credit standings of counterparties are monitored
regularly. We only enter into transactions with counterparties
rated at least AA or for which a collateral
agreement is in place. We are also subject to the risk
associated with changes in the value of contracts. However, such
adverse changes in value generally are offset by changes in the
value of the items being hedged. The notional principal amounts
of the swaps and options, which represent the extent of our
involvement in such contracts but not the risk of loss, at
December 31, 2004, amounted to $4,097.6 million. The
interest rate swaps had a carrying value of a net receivable
position of $0.4 million at December 31, 2004. The
credit default swaps had a carrying value of a net receivable
position of $0.5 million at December 31, 2004. The
carrying value of options amounted to $160.0 million at
December 31, 2004. For each of these derivatives, the
carrying value is equal to fair value as of December 31,
2004. The derivatives are reflected as other investments on the
consolidated financial statements. The net amount payable or
receivable from interest rate and credit default swaps are
accrued as an adjustment to interest income. Effective
October 1, 2003, we adopted DIG Issue B36. See note 4
to the consolidated financial statements for further discussion
of the impact of adopting DIG B36.



| |               
| | --------------
| | Mortgage Loans

As of December 31, 2004, mortgage loans in
the investment portfolio were $865.7 million, or 4.5% of
the aggregate carrying value of invested assets. As of
December 31, 2004, commercial mortgage loans and
residential mortgage loans comprised 99.9% and 0.1%,
respectively, of total mortgage loans. Commercial mortgage loans
consist primarily of fixed-rate mortgage loans. As of
December 31, 2004, we held 713 individual commercial
mortgage loans with an average balance of $1.2 million.

As of December 31, 2004, there were no loans
in the loan portfolio classified as delinquent or in
foreclosure. As of the same date, there were no loans classified
as restructured. During 2004, we had three foreclosures.



| |      
| | -----
| | Other

As previously discussed in Liquidity and Capital
Resources, we participate in a securities lending program and
also securities borrowing arrangements.

We held $486.1 million of policy loans on
individual insurance products as of December 31, 2004.
Policy loans are permitted to the extent of a policys
contractual limits and are fully collateralized by policy cash
values. As of December 31, 2004, we held equity securities
of $92.5 million of which the largest holding was Federal
Home Loan Bank common stock totaling $62.4 million.

We held $377.2 million of other invested
assets (including short-term investments) on December 31,
2004. Other invested assets consist primarily of our Ameritas
Joint Venture investment, various other joint ventures and
limited partnership investments and derivatives.



| |                                       
| | --------------------------------------
| | Structured Securities
    Arrangements

We hold investments in indexed debt instruments
(IDIs) in which the principal is initially partially defeased by
an obligation of a third party financial institution
(institution) collateralized by U.S. Treasuries which
will accrete to 50% of the original principal amount of the IDIs
at maturity. The balance of the principal amount due at maturity
is subject to a dynamic defeasance mechanism, which should
provide a return of the initial investment. The instruments
issued by the institutions are linked to the performance of a
hedge fund or fund of funds. The annual income on these
investments will be equal to the quarterly distribution of the
hedge fund or fund of funds plus the change in the present value
of anticipated distributions to be received at maturity and will
be included in net investment income. Over the life of the IDIs,
the income will be a

43



---



##### Table of Contents



function of the cumulative performance of the
linked hedge fund or fund of funds and the return on any
defeased portion of the investment. The quarterly distribution
paid, if any, reduces the amount of future participation in the
performance of the linked hedge fund or fund of funds. At
maturity, the Company will take delivery of the referenced hedge
fund interests and cash or U.S. Treasuries equal to the
portion of the instruments that have been defeased, the total of
which should equal or exceed the instruments principal
amount. The investment purpose of these instruments is to enable
the Company to obtain the return as if they had invested in
hedge funds or fund of funds with dynamic principal protection.
The instruments as of December 31, 2004 carried an A rating
or better by Fitch. The carrying value of IDIs was
$564.7 million and $396.1 million at December 31,
2004 and 2003, respectively.




| |            
| | -----------
| | Impairments

Our evaluation of OTTIs for fixed income
securities follows a three-step process: 1) screen and
identify; 2) assess and document; 3) recommend and
approve. In identifying potential OTTIs, we screen for all
securities that have a fair value less than 80% of amortized
cost. In addition, we monitor securities for general credit
issues that have been identified and included on a watch list
which may result in the potential impairment list including
other securities that have a fair value at or greater than 80%
of amortized cost. For asset backed securities, an impairment
loss is established if the fair value of the security is less
than amortized cost and there is an adverse change in estimated
cash flows from the cash flows previously projected.

The list of securities identified is subject to a
formal assessment to determine if an impairment is other than
temporary. Management makes certain assumptions or judgments in
its assessment of potentially impaired securities including but
not limited to:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | Industry characteristics and trends, company to
    industry profile, quality of management                                
|
| |  | Financial conditions and trends including
    strength of balance sheet and financial liquidity                            
|
| |  | Significant events affecting the company and/or
    industry                                                               
|
| |  | Viability of the business model incorporating an
    evaluation of default probability and associated recoverable
    value
|
| |  | Length of time the fair value was below 80% of
    amortized cost                                                          
|
| |  | Ability and intent to retain the investment to
    maturity or for a sufficient period of time for it to recover           

If the determination is that the security is
OTTI, it is written down to fair value. The write-down is
reviewed and approved by senior management. The difference
between amortized cost and fair value is charged to net income.

When actively traded market prices are not
available, fair values are determined using present value or
other standard valuation techniques such as earnings multiples
and asset valuations. The fair value determinations are made at
a specific point in time based on then available market
information and judgments about the financial instruments.
Factors considered in determining fair value include: coupon
rate, term, collateral (if any), industry sector outlook, credit
rating, expectations regarding going concern status, timing and
amounts of expected future cash flows among other factors.

There are risks and uncertainties inherent in the
process of monitoring impairments and determining if an
impairment is OTTI. Risks may include 1) the credit
characteristics change affecting the creditors ability to
meet all of its contractual obligations; 2) the economic
outlook may be worse than expected or impact the credit more
than anticipated; 3) accuracy of information provided by
issuers could affect valuations; and 4) new information may
change our intent to hold the security to maturity. Any of these
items could result in a charge to net income in the future.

44



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##### Table of Contents



The following table lists material investment
impairments exceeding $3 million in 2004, 2003 and 2002.
The write-downs occurred due to creditor and/or issue specific
circumstances.

Material Impairments

|                                          |  |                 |      |               |  |                                                                                       |  |                                                                                                                                                                
|----------------------------------------- |  | --------------- | ---- | ------------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                          |  | Impairment Loss |      |               |  | Impact on Other                                                                      
|General Description                       |  | ($ in millions) |      | Circumstances |  | Material Investments                                                                 
|                                          |  |                 |      |               |  |                                                                                      
|2004                                      |  |                 |      |               |  |                                                                                       |  |                                                                                                                                                                
|Major US Airline                          |  | $               | 3.0  |               |  | High probability of restructuring and threat of
    bankruptcy                        |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|2003                                      |  |                 |      |               |  |                                                                                       |  |                                                                                                                                                                
|Major US Airline                          |  | $               | 11.6 |               |  | High probability of restructuring and threat of
    bankruptcy                        |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|Merchant Energy Generator                 |  |                 | 3.6  |               |  | High probability of restructuring and threat of
    bankruptcy                        |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|2002                                      |  |                 |      |               |  |                                                                                       |  |                                                                                                                                                                
|Large telecommunication company           |  | $               | 17.7 |               |  | Materially inaccurate financial statements and
    imminent default or bankruptcy     |  | Credit specific issues with no impact on other
    material investments                                                                                        
|Securitized medical receivables           |  |                 | 14.5 |               |  | Materially inaccurate financial statements and
    default event                      |  | Alleged credit specific fraud and default issues
    with no impact on other material investments                                                              
|Merchant energy generator and distributor |  |                 | 11.3 |               |  | Significant off-balance sheet liabilities and
    high probability of a restructuring |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|Collateralized Debt Obligation            |  |                 | 8.0  |               |  | Adverse change in cash flows on underlying
    portfolios                             |  | Specific collateral and structure issues with no
    impact on other material investments                                                                      
|Property and casualty insurance company   |  |                 | 7.7  |               |  | Rating downgrade and announced suspension of
    interest payments                    |  | Credit specific issues with no impact on other
    material investments                                                                                        
|Merchant energy generator                 |  |                 | 7.4  |               |  | Default on interest payment                                                           |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|Securitized manufactured housing loans    |  |                 | 7.2  |               |  | Suspension of guarantee payments related to
    manufactured housing                  |  | Credit specific issues with no impact on other
    material investments                                                                                        
|Major US airline                          |  |                 | 5.7  |               |  | Bankruptcy and lease rejection                                                        |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down
|Northeast electric energy generator       |  |                 | 3.4  |               |  | Default on interest payment                                                           |  | Negative industry trends with analysis done on an
    issue-by-issue basis concluding no impact on other material
    investments other than those written down

45



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##### Table of Contents



The following tables present unrealized losses
for fixed maturity securities at December 31, 2004 and 2003
by investment category and industry sector:

Composition of Fixed Maturity
Securities

|                                          |                          |                   |          |         |  |            |       |         |   |   |      |     |  |  |       |     |  
|----------------------------------------- | ------------------------ | ----------------- | -------- | ------- |  | ---------- | ----- | ------- | - | - | ---- | --- |  |  | ----- | --- | -
|                                          |                          |                  
|                                          |                          | December 31, 2004
|                                          |                          |                  
|                                          |                          | Carrying          |          |         |  | Unrealized |       |        
|                                          |                          | Value             |          | % Total |  | Losses     |       | % Total
|                                          |                          |                   |          |         |  |            |       |        
|                                          |                          |                  
|                                          |                          | ($ in millions)  
|U.S. government/agencies                  |                          | $                 | 548.4    |         |  |            | 3.2   | %       |   | $ | 1.2  |     |  |  | 2.4   | %  
|State and political subdivisions          |                          |                   | 66.0     |         |  |            | 0.4   | %       |   |   | 0.7  |     |  |  | 1.4   | %  
|Foreign government bonds                  |                          |                   | 118.6    |         |  |            | 0.7   | %       |   |   | 0.1  |     |  |  | 0.2   | %  
|Corporate bonds                           |                          |                   | 12,359.0 |         |  |            | 71.2  | %       |   |   | 29.1 |     |  |  | 59.0  | %  
|Redeemable preferred stocks               |                          |                   | 40.2     |         |  |            | 0.2   | %       |   |   |     |     |  |  |      |    
|Indexed debt instruments                  |                          |                   | 564.7    |         |  |            | 3.3   | %       |   |   | 9.0  |     |  |  | 18.2  | %  
|Asset-backed bonds                        |                          |                   | 528.1    |         |  |            | 3.0   | %       |   |   | 1.2  |     |  |  | 2.4   | %  
|Collateralized mortgage-backed securities |                          |                   | 1,119.2  |         |  |            | 6.4   | %       |   |   | 4.2  |     |  |  | 8.5   | %  
|Mortgage-backed securities:               |                          |                   |          |         |  |            |       |         |   |   |      |     |  |  |       |    
|                                          | U.S. government/agencies |                   |          | 1,824.1 |  |            |       | 10.5    | % |   |      | 3.6 |  |  |       | 7.3 | %
|                                          | Non-government           |                   |          | 196.5   |  |            |       | 1.1     | % |   |      | 0.3 |  |  |       | 0.6 | %
|                                          |                          |                   |          |         |  |            |       |         |   |   |      |     |  |  |       |    
|                                          | Subtotal-MBS             |                   |          | 2,020.6 |  |            |       | 11.6    | % |   |      | 3.9 |  |  |       | 7.9 | %
|                                          |                          |                   |          |         |  |            |       |         |   |   |      |     |  |  |       |    
|Total                                     |                          |                   | 17,364.8 |         |  |            | 100.0 | %       |   |   | 49.4 |     |  |  | 100.0 | %  
|                                          |                          |                   |          |         |  |            |       |         |   |   |      |     |  |  |       |    

|                                          |                          |                   |          |         |  |            |       |         |   |   |       |     |  |  |       |     |  
|----------------------------------------- | ------------------------ | ----------------- | -------- | ------- |  | ---------- | ----- | ------- | - | - | ----- | --- |  |  | ----- | --- | -
|                                          |                          |                  
|                                          |                          | December 31, 2003
|                                          |                          |                  
|                                          |                          | Carrying          |          |         |  | Unrealized |       |        
|                                          |                          | Value             |          | % Total |  | Losses     |       | % Total
|                                          |                          |                   |          |         |  |            |       |        
|                                          |                          |                  
|                                          |                          | ($ in millions)  
|U.S. government/agencies                  |                          | $                 | 816.8    |         |  |            | 5.1   | %       |   | $ | 1.7   |     |  |  | 1.4   | %  
|State and political subdivisions          |                          |                   | 67.1     |         |  |            | 0.4   | %       |   |   | 1.4   |     |  |  | 1.2   | %  
|Foreign governments                       |                          |                   | 128.5    |         |  |            | 0.8   | %       |   |   | 0.3   |     |  |  | 0.2   | %  
|Corporate bonds                           |                          |                   | 10,994.3 |         |  |            | 68.5  | %       |   |   | 57.8  |     |  |  | 48.7  | %  
|Redeemable preferred stocks               |                          |                   | 173.7    |         |  |            | 1.1   | %       |   |   | 37.1  |     |  |  | 31.3  | %  
|Indexed debt instruments                  |                          |                   | 396.1    |         |  |            | 2.5   | %       |   |   | 8.3   |     |  |  | 7.0   | %  
|Asset-backed bonds                        |                          |                   | 470.2    |         |  |            | 2.9   | %       |   |   | 1.5   |     |  |  | 1.2   | %  
|Collateralized mortgage-backed securities |                          |                   | 973.0    |         |  |            | 6.1   | %       |   |   | 2.7   |     |  |  | 2.3   | %  
|Mortgage-backed securities:               |                          |                   |          |         |  |            |       |         |   |   |       |     |  |  |       |    
|                                          | U.S. government/agencies |                   |          | 1,909.2 |  |            |       | 11.9    | % |   |       | 7.9 |  |  |       | 6.7 | %
|                                          | Non-government           |                   |          | 105.6   |  |            |       | 0.7     | % |   |       |    |  |  |       |    |  
|                                          |                          |                   |          |         |  |            |       |         |   |   |       |     |  |  |       |    
|                                          | Subtotal-MBS             |                   |          | 2,014.8 |  |            |       | 12.6    | % |   |       | 7.9 |  |  |       | 6.7 | %
|                                          |                          |                   |          |         |  |            |       |         |   |   |       |     |  |  |       |    
|Total                                     |                          |                   | 16,034.5 |         |  |            | 100.0 | %       |   |   | 118.7 |     |  |  | 100.0 | %  
|                                          |                          |                   |          |         |  |            |       |         |   |   |       |     |  |  |       |    

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##### Table of Contents



|                       |          |                   |         |          |  |            |      |         |   |   |      |      |  |  |      |       |  
|---------------------- | -------- | ----------------- | ------- | -------- |  | ---------- | ---- | ------- | - | - | ---- | ---- |  |  | ---- | ----- | -
|                       |          |                  
|                       |          | December 31, 2004
|                       |          |                  
|                       |          | Carrying          |         |          |  | Unrealized |      |        
|                       |          | Value             |         | % Total  |  | Loss       |      | % Total
|                       |          |                   |         |          |  |            |      |        
|                       |          |                  
|                       |          | ($ in millions)  
|Basic industry         |          | $                 | 916.9   |          |  |            | 5.3  | %       |   | $ | 2.9  |      |  |  | 5.9  | %    
|Capital goods          |          |                   | 902.3   |          |  |            | 5.2  | %       |   |   | 1.4  |      |  |  | 2.8  | %    
|Communications         |          |                   | 1,304.2 |          |  |            | 7.5  | %       |   |   | 2.9  |      |  |  | 5.9  | %    
|Consumer cyclical      |          |                   | 1,247.6 |          |  |            | 7.2  | %       |   |   | 2.1  |      |  |  | 4.3  | %    
|Consumer non-cyclical  |          |                   | 1,691.2 |          |  |            | 9.7  | %       |   |   | 4.5  |      |  |  | 9.1  | %    
|Energy                 |          |                   | 1,059.9 |          |  |            | 6.1  | %       |   |   | 1.3  |      |  |  | 2.6  | %    
|Technology             |          |                   | 229.0   |          |  |            | 1.3  | %       |   |   | 0.7  |      |  |  | 1.4  | %    
|Transportation         |          |                   | 539.7   |          |  |            | 3.1  | %       |   |   | 2.3  |      |  |  | 4.7  | %    
|Industrial other       |          |                   | 146.9   |          |  |            | 0.9  | %       |   |   | 0.4  |      |  |  | 0.8  | %    
|Utilities              |          |                   | 1,795.0 |          |  |            | 10.3 | %       |   |   | 4.5  |      |  |  | 9.1  | %    
|Financial institutions |          |                   | 2,704.5 |          |  |            | 15.6 | %       |   |   | 14.3 |      |  |  | 28.9 | %    
|                       |          |                   |         |          |  |            |      |         |   |   |      |      |  |  |      |      
|                       | Subtotal |                   |         | 12,537.2 |  |            |      | 72.2    | % |   |      | 37.3 |  |  |      | 75.5  | %
|Other                  |          |                   | 4,827.6 |          |  |            | 27.8 | %       |   |   | 12.1 |      |  |  | 24.5 | %    
|                       |          |                   |         |          |  |            |      |         |   |   |      |      |  |  |      |      
|                       | Total    |                   | $       | 17,364.8 |  |            |      | 100.0   | % |   | $    | 49.4 |  |  |      | 100.0 | %
|                       |          |                   |         |          |  |            |      |         |   |   |      |      |  |  |      |      

|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |       |  
|---------------------- | -------- | ----------------- | ------- | -------- |  | ---------- | ---- | ------- | - | - | ---- | ----- |  |  | ---- | ----- | -
|                       |          |                  
|                       |          | December 31, 2003
|                       |          |                  
|                       |          | Carrying          |         |          |  | Unrealized |      |        
|                       |          | Value             |         | % Total  |  | Loss       |      | % Total
|                       |          |                   |         |          |  |            |      |        
|                       |          |                  
|                       |          | ($ in millions)  
|Basic industry         |          | $                 | 756.0   |          |  |            | 4.7  | %       |   | $ | 5.6  |       |  |  | 4.7  | %    
|Capital goods          |          |                   | 865.0   |          |  |            | 5.4  | %       |   |   | 4.0  |       |  |  | 3.4  | %    
|Communications         |          |                   | 1,124.7 |          |  |            | 7.0  | %       |   |   | 8.6  |       |  |  | 7.2  | %    
|Consumer cyclical      |          |                   | 981.5   |          |  |            | 6.1  | %       |   |   | 2.3  |       |  |  | 1.9  | %    
|Consumer non-cyclical  |          |                   | 1,701.8 |          |  |            | 10.6 | %       |   |   | 7.5  |       |  |  | 6.3  | %    
|Energy                 |          |                   | 965.5   |          |  |            | 6.0  | %       |   |   | 2.3  |       |  |  | 1.9  | %    
|Technology             |          |                   | 245.7   |          |  |            | 1.5  | %       |   |   | 0.6  |       |  |  | 0.5  | %    
|Transportation         |          |                   | 462.7   |          |  |            | 2.9  | %       |   |   | 5.9  |       |  |  | 5.0  | %    
|Industrial other       |          |                   | 154.5   |          |  |            | 1.0  | %       |   |   | 0.4  |       |  |  | 0.3  | %    
|Utilities              |          |                   | 1,548.0 |          |  |            | 9.7  | %       |   |   | 12.0 |       |  |  | 10.1 | %    
|Financial institutions |          |                   | 2,427.9 |          |  |            | 15.2 | %       |   |   | 52.0 |       |  |  | 44.0 | %    
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      
|                       | Subtotal |                   |         | 11,233.3 |  |            |      | 70.1    | % |   |      | 101.2 |  |  |      | 85.3  | %
|Other                  |          |                   | 4,801.2 |          |  |            | 29.9 | %       |   |   | 17.5 |       |  |  | 14.7 | %    
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      
|                       | Total    |                   | $       | 16,034.5 |  |            |      | 100.0   | % |   | $    | 118.7 |  |  |      | 100.0 | %
|                       |          |                   |         |          |  |            |      |         |   |   |      |       |  |  |      |      

47



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##### Table of Contents



The following table provides a summary of
unrealized losses for fixed maturity securities which identifies
the length of time the securities have continually been in an
unrealized loss position as of December 31, 2004 and 2003:

AFS Unrealized Loss as a Percentage of
Amortized Cost

|                                           |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|------------------------------------------ |  | ------------------ | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ---- | 
|                                           |  |                   
|                                           |  | December 31, 2004 
|                                           |  |                   
|                                           |  |                   
|                                           |  | ($ in millions)   
|                                           |  |                    |         |             |  |                     |      |           
|                                           |  | Less than 7 months |         | 7-12 months |  | More than 12 months |      | Total     
|                                           |  |                    |         |             |  |                     |      |           
|                                           |  |                    |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                           |  | Fair               |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|                                           |  | value              |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                           |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Total Temporarily Impaired
    Securities: |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|Corporate bonds                            |  | $                  | 1,094.3 |             |  | $                   | 8.5  |            |  | $     | 396.1 |            |  | $     | 7.7  |            |  | $ | 379.8 |  |  | $ | 12.9 |  |  | $ | 1,870.2 |  |  | $ | 29.1 | 
|U.S. government bonds                      |  |                    | 37.0    |             |  |                     | 0.2  |            |  |       | 47.4  |            |  |       | 1.0  |            |  |   | 0.4   |  |  |   |     |  |  |   | 84.8    |  |  |   | 1.2  | 
|State and political subdivisions           |  |                    |        |             |  |                     |     |            |  |       | 1.5   |            |  |       |     |            |  |   | 18.0  |  |  |   | 0.7  |  |  |   | 19.5    |  |  |   | 0.7  | 
|Foreign government bonds                   |  |                    | 12.4    |             |  |                     |     |            |  |       | 1.9   |            |  |       |     |            |  |   | 0.2   |  |  |   |     |  |  |   | 14.5    |  |  |   |     | 
|Asset-backed bonds                         |  |                    | 75.8    |             |  |                     | 0.2  |            |  |       | 49.5  |            |  |       | 0.9  |            |  |   | 5.5   |  |  |   | 0.1  |  |  |   | 130.8   |  |  |   | 1.2  | 
|Collateralized mortgage-backed securities  |  |                    | 257.6   |             |  |                     | 2.4  |            |  |       | 76.6  |            |  |       | 1.6  |            |  |   | 8.5   |  |  |   | 0.3  |  |  |   | 342.7   |  |  |   | 4.3  | 
|Mortgage-backed securities                 |  |                    | 287.3   |             |  |                     | 1.0  |            |  |       | 115.4 |            |  |       | 1.5  |            |  |   | 104.6 |  |  |   | 1.5  |  |  |   | 507.3   |  |  |   | 4.0  | 
|Indexed debt instruments                   |  |                    |        |             |  |                     |     |            |  |       | 242.5 |            |  |       | 2.5  |            |  |   | 239.5 |  |  |   | 6.5  |  |  |   | 482.0   |  |  |   | 9.0  | 
|Equity securities                          |  |                    | 0.3     |             |  |                     | 0.2  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 0.3     |  |  |   | 0.2  | 
|Short-term investments                     |  |                    | 12.9    |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 12.9    |  |  |   |     | 
|                                           |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|Total                                      |  | $                  | 1,777.6 |             |  | $                   | 12.5 |            |  | $     | 930.9 |            |  | $     | 15.2 |            |  | $ | 756.5 |  |  | $ | 22.0 |  |  | $ | 3,465.0 |  |  | $ | 49.7 | 
|                                           |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 

|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|----------------------------------------- |  | ------------------ | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ---- | 
|                                          |  |                    |         |             |  |                     |      |           
|                                          |  | Less than 7 months |         | 7-12 months |  | More than 12 months |      | Total     
|                                          |  |                    |         |             |  |                     |      |           
|                                          |  |                    |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                          |  | Fair               |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|                                          |  | value              |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Less Than 20% Loss Position:              |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|Corporate bonds                           |  | $                  | 1,094.3 |             |  | $                   | 8.5  |            |  | $     | 396.1 |            |  | $     | 7.7  |            |  | $ | 375.7 |  |  | $ | 11.8 |  |  | $ | 1,866.1 |  |  | $ | 28.0 | 
|U.S. government bonds                     |  |                    | 37.0    |             |  |                     | 0.2  |            |  |       | 47.4  |            |  |       | 1.0  |            |  |   | 0.4   |  |  |   |     |  |  |   | 84.8    |  |  |   | 1.2  | 
|State and political subdivisions          |  |                    |        |             |  |                     |     |            |  |       | 1.5   |            |  |       |     |            |  |   | 18.0  |  |  |   | 0.7  |  |  |   | 19.5    |  |  |   | 0.7  | 
|Foreign government bonds                  |  |                    | 12.4    |             |  |                     |     |            |  |       | 1.9   |            |  |       |     |            |  |   | 0.2   |  |  |   |     |  |  |   | 14.5    |  |  |   |     | 
|Asset-backed bonds                        |  |                    | 75.8    |             |  |                     | 0.2  |            |  |       | 49.5  |            |  |       | 0.9  |            |  |   | 5.5   |  |  |   | 0.1  |  |  |   | 130.8   |  |  |   | 1.2  | 
|Collateralized mortgage-backed securities |  |                    | 257.6   |             |  |                     | 2.4  |            |  |       | 76.6  |            |  |       | 1.6  |            |  |   | 8.5   |  |  |   | 0.3  |  |  |   | 342.7   |  |  |   | 4.3  | 
|Mortgage-backed securities                |  |                    | 287.3   |             |  |                     | 1.0  |            |  |       | 115.4 |            |  |       | 1.5  |            |  |   | 104.6 |  |  |   | 1.5  |  |  |   | 507.3   |  |  |   | 4.0  | 
|Indexed debt instruments                  |  |                    |        |             |  |                     |     |            |  |       | 242.5 |            |  |       | 2.5  |            |  |   | 239.5 |  |  |   | 6.5  |  |  |   | 482.0   |  |  |   | 9.0  | 
|Short-term investments                    |  |                    | 12.9    |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 12.9    |  |  |   |     | 
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|Total                                     |  | $                  | 1,777.3 |             |  | $                   | 12.3 |            |  | $     | 930.9 |            |  | $     | 15.2 |            |  | $ | 752.4 |  |  | $ | 20.9 |  |  | $ | 3,460.6 |  |  | $ | 48.4 | 
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 

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|                       |  |                    |     |             |  |                     |     |            |  |       |   |            |  |            |   |            |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|---------------------- |  | ------------------ | --- | ----------- |  | ------------------- | --- | ---------- |  | ----- | - | ---------- |  | ---------- | - | ---------- |  | - | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- | 
|                       |  |                    |     |             |  |                     |     |           
|                       |  | Less than 7 months |     | 7-12 months |  | More than 12 months |     | Total     
|                       |  |                    |     |             |  |                     |     |           
|                       |  |                    |     | Gross       |  |                     |     | Gross      |  |       |   | Gross      |  |            |   | Gross     
|                       |  | Fair               |     | unrealized  |  | Fair                |     | unrealized |  | Fair  |   | unrealized |  |            |   | unrealized
|                       |  | value              |     | loss        |  | value               |     | loss       |  | value |   | loss       |  | Fair value |   | loss      
|                       |  |                    |     |             |  |                     |     |            |  |       |   |            |  |            |   |           
|20%-50% Loss Position: |  |                    |     |             |  |                     |     |            |  |       |   |            |  |            |   |            |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|Corporate bonds        |  | $                  |    |             |  | $                   |    |            |  | $     |  |            |  | $          |  |            |  | $ | 4.1 |  |  | $ | 1.1 |  |  | $ | 4.1 |  |  | $ | 1.1 | 
|Equity securities      |  |                    | 0.3 |             |  |                     | 0.2 |            |  |       |  |            |  |            |  |            |  |   |    |  |  |   |    |  |  |   | 0.3 |  |  |   | 0.2 | 
|                       |  |                    |     |             |  |                     |     |            |  |       |   |            |  |            |   |            |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|Total                  |  | $                  | 0.3 |             |  | $                   | 0.2 |            |  | $     |  |            |  | $          |  |            |  | $ | 4.1 |  |  | $ | 1.1 |  |  | $ | 4.4 |  |  | $ | 1.3 | 
|                       |  |                    |     |             |  |                     |     |            |  |       |   |            |  |            |   |            |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 

There are no securities that were in more than a
50% loss position at December 31, 2004.

AFS Unrealized Loss as a Percentage of
Amortized Cost

|                                           |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|------------------------------------------ |  | ------------------ | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ----- | 
|                                           |  |                   
|                                           |  | December 31, 2003 
|                                           |  |                   
|                                           |  |                   
|                                           |  | ($ in millions)   
|                                           |  |                    |         |             |  |                     |      |           
|                                           |  | Less than 7 months |         | 7-12 months |  | More than 12 months |      | Total     
|                                           |  |                    |         |             |  |                     |      |           
|                                           |  |                    |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                           |  | Fair               |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|                                           |  | value              |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                           |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Total Temporarily Impaired
    Securities: |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|Corporate bonds                            |  | $                  | 1,618.3 |             |  | $                   | 31.3 |            |  | $     | 275.5 |            |  | $     | 15.8 |            |  | $ | 118.0 |  |  | $ | 10.6 |  |  | $ | 2,011.8 |  |  | $ | 57.7  | 
|U.S. government bonds                      |  |                    | 156.5   |             |  |                     | 1.7  |            |  |       | 0.4   |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 156.9   |  |  |   | 1.7   | 
|State and political subdivisions           |  |                    | 18.8    |             |  |                     | 1.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 18.8    |  |  |   | 1.4   | 
|Foreign government bonds                   |  |                    | 51.2    |             |  |                     | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 1.3   |  |  |   |     |  |  |   | 52.5    |  |  |   | 0.3   | 
|Asset-backed bonds                         |  |                    | 74.1    |             |  |                     | 0.5  |            |  |       | 4.6   |            |  |       |     |            |  |   | 18.5  |  |  |   | 1.0  |  |  |   | 97.2    |  |  |   | 1.5   | 
|Collateralized mortgage-backed securities  |  |                    | 227.9   |             |  |                     | 2.7  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 227.9   |  |  |   | 2.7   | 
|Mortgage-backed securities                 |  |                    | 598.1   |             |  |                     | 5.2  |            |  |       | 135.8 |            |  |       | 2.7  |            |  |   | 0.2   |  |  |   |     |  |  |   | 734.1   |  |  |   | 7.9   | 
|Indexed debt instruments                   |  |                    | 240.9   |             |  |                     | 3.7  |            |  |       | 157.6 |            |  |       | 4.6  |            |  |   |      |  |  |   |     |  |  |   | 398.5   |  |  |   | 8.3   | 
|Redeemable preferred stock                 |  |                    |        |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   | 104.6 |  |  |   | 37.1 |  |  |   | 104.6   |  |  |   | 37.1  | 
|Equity securities                          |  |                    |        |             |  |                     |     |            |  |       | 0.8   |            |  |       | 0.2  |            |  |   | 0.3   |  |  |   | 0.2  |  |  |   | 1.1     |  |  |   | 0.4   | 
|Short-term investments                     |  |                    | 3.7     |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 3.7     |  |  |   |      | 
|                                           |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|Total                                      |  | $                  | 2,989.5 |             |  | $                   | 46.8 |            |  | $     | 574.7 |            |  | $     | 23.3 |            |  | $ | 242.9 |  |  | $ | 48.9 |  |  | $ | 3,807.1 |  |  | $ | 119.0 | 
|                                           |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 

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|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|----------------------------------------- |  | ------------------ | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | --- |  |  | - | ------- |  |  | - | ---- | 
|                                          |  |                    |         |             |  |                     |      |           
|                                          |  | Less than 7 months |         | 7-12 months |  | More than 12 months |      | Total     
|                                          |  |                    |         |             |  |                     |      |           
|                                          |  |                    |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                          |  | Fair               |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|                                          |  | value              |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Less Than 20% Loss Position:              |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|Corporate bonds                           |  | $                  | 1,618.3 |             |  | $                   | 31.3 |            |  | $     | 275.5 |            |  | $     | 15.8 |            |  | $ | 109.8 |  |  | $ | 8.2 |  |  | $ | 2,003.6 |  |  | $ | 55.3 | 
|U.S. government bonds                     |  |                    | 156.5   |             |  |                     | 1.7  |            |  |       | 0.4   |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 156.9   |  |  |   | 1.7  | 
|State and political subdivisions          |  |                    | 18.8    |             |  |                     | 1.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 18.8    |  |  |   | 1.4  | 
|Foreign government bonds                  |  |                    | 51.2    |             |  |                     | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 1.3   |  |  |   |    |  |  |   | 52.5    |  |  |   | 0.3  | 
|Asset-backed bonds                        |  |                    | 74.1    |             |  |                     | 0.5  |            |  |       | 4.6   |            |  |       |     |            |  |   | 18.5  |  |  |   | 1.0 |  |  |   | 97.2    |  |  |   | 1.5  | 
|Collateralized mortgage-backed securities |  |                    | 227.9   |             |  |                     | 2.7  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 227.9   |  |  |   | 2.7  | 
|Mortgage-backed securities                |  |                    | 598.1   |             |  |                     | 5.2  |            |  |       | 135.8 |            |  |       | 2.7  |            |  |   | 0.2   |  |  |   |    |  |  |   | 734.1   |  |  |   | 7.9  | 
|Indexed debt instruments                  |  |                    | 240.9   |             |  |                     | 3.7  |            |  |       | 157.6 |            |  |       | 4.6  |            |  |   |      |  |  |   |    |  |  |   | 398.5   |  |  |   | 8.3  | 
|Equity securities                         |  |                    |        |             |  |                     |     |            |  |       | 0.8   |            |  |       | 0.2  |            |  |   |      |  |  |   |    |  |  |   | 0.8     |  |  |   | 0.2  | 
|Short-term investments                    |  |                    | 3.7     |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 3.7     |  |  |   |     | 
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|Total                                     |  | $                  | 2,989.5 |             |  | $                   | 46.8 |            |  | $     | 574.7 |            |  | $     | 23.3 |            |  | $ | 129.8 |  |  | $ | 9.2 |  |  | $ | 3,694.0 |  |  | $ | 79.3 | 
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 

|                           |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|-------------------------- |  | ------------------ | - | ----------- |  | ------------------- | - | ---------- |  | ----- | - | ---------- |  | ----- | - | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ----- |  |  | - | ---- | 
|                           |  |                    |   |             |  |                     |   |           
|                           |  | Less than 7 months |   | 7-12 months |  | More than 12 months |   | Total     
|                           |  |                    |   |             |  |                     |   |           
|                           |  |                    |   | Gross       |  |                     |   | Gross      |  |       |   | Gross      |  |       |   | Gross     
|                           |  | Fair               |   | unrealized  |  | Fair                |   | unrealized |  | Fair  |   | unrealized |  | Fair  |   | unrealized
|                           |  | value              |   | loss        |  | value               |   | loss       |  | value |   | loss       |  | value |   | loss      
|                           |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |           
|20%-50% Loss Position:     |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|Corporate bonds            |  | $                  |  |             |  | $                   |  |            |  | $     |  |            |  | $     |  |            |  | $ | 8.2   |  |  | $ | 2.4  |  |  | $ | 8.2   |  |  | $ | 2.4  | 
|Redeemable preferred stock |  |                    |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   | 104.6 |  |  |   | 37.1 |  |  |   | 104.6 |  |  |   | 37.1 | 
|Equity securities          |  |                    |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   | 0.3   |  |  |   | 0.2  |  |  |   | 0.3   |  |  |   | 0.2  | 
|                           |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|Total                      |  | $                  |  |             |  | $                   |  |            |  | $     |  |            |  | $     |  |            |  | $ | 113.1 |  |  | $ | 39.7 |  |  | $ | 113.1 |  |  | $ | 39.7 | 
|                           |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 

There are no securities that were in more than a
50% loss position at December 31, 2003.

There were no individual material securities with
unrealized losses exceeding $3 million at December 31,
2004. The following table identifies the type, carrying value
and unrealized loss of individual material securities with
unrealized losses exceeding $3 million at December 31,
2003:

Material Unrealized Losses

|                            |  |                   |       |            |  |   |     | 
|--------------------------- |  | ----------------- | ----- | ---------- |  | - | --- | 
|                            |  |                  
|                            |  | Year Ended       
|                            |  | December 31, 2003
|                            |  |                  
|                            |  | Market            |       | Unrealized
|General Description         |  | Value             |       | Loss      
|                            |  |                   |       |           
|                            |  |                  
|                            |  | ($ in millions)  
|Government Sponsored Entity |  | $                 | 313.0 |            |  | $ | 3.5 | 
|Government Sponsored Entity |  |                   | 355.0 |            |  |   | 3.5 | 

In addition to the above listing, at
December 31, 2004 and 2003, securities with a market value
of $482.0 million and $500.7 million and unrealized
loss position of $9.0 million and $45.4 million,
respectively, were principal protected. These securities
included underlying holdings that provided for a return of
principal through maturity of zero coupon bonds from a highly
rated issuer or a principal guarantee from a highly rated
company. These securities along with the securities in the above
listing of unrealized losses did not meet the criteria as
described in our other-than-temporary process for impairment
determination. As a result, there was no realized loss for these
securities. Unrealized gains or losses may not represent future
gains or losses that will

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be realized. These unrealized gains or losses are
subject to fluctuation, reflective of such things as volatile
financial markets, interest rate movements, credit spread
changes and sale decisions.


The following table presents, for securities sold
during 2004, 2003 and 2002, the amount of material losses
exceeding $3 million recorded and the fair value at the
sales date:

Material Realized Losses

|                                       |  |                              |       |              |  |              |      |             |  |  |                 |  |  |  |                | 
|-------------------------------------- |  | ---------------------------- | ----- | ------------ |  | ------------ | ---- | ----------- |  |  | --------------- |  |  |  | -------------- | 
|                                       |  |                             
|                                       |  | Year Ended December 31, 2004
|                                       |  |                             
|                                       |  |                              |       | Time in      |  | Time in     
|                                       |  | Proceeds/                    |       | Realized     |  | Months Below |      | Months< 80%
|General Description                    |  | Market Value                 |       | Loss on Sale |  | Book         |      | of Book    
|                                       |  |                              |       |              |  |              |      |            
|                                       |  |                              |       |              |  |             
|                                       |  | ($ in millions)              |       |              |  |             
|Equity Indexed Notes                   |  | $                            | 108.1 |              |  | $            | 35.6 |             |  |  | Over 12  months |  |  |  | Over 12 months | 
|Global Communications Service Provider |  |                              | 29.5  |              |  |              | 5.1  |             |  |  | 7 to 12  months |  |  |  | 7 to 12 months | 

|                                       |  |                              |         |              |  |              |     |             |  |  |                  |  |  |  |                  | 
|-------------------------------------- |  | ---------------------------- | ------- | ------------ |  | ------------ | --- | ----------- |  |  | ---------------- |  |  |  | ---------------- | 
|                                       |  |                             
|                                       |  | Year Ended December 31, 2003
|                                       |  |                             
|                                       |  |                              |         | Time in      |  | Time in     
|                                       |  | Proceeds/                    |         | Realized     |  | Months Below |     | Months< 80%
|General Description                    |  | Market Value                 |         | Loss on Sale |  | Book         |     | of Book    
|                                       |  |                              |         |              |  |              |     |            
|                                       |  |                             
|                                       |  | ($ in millions)             
|US Treasury                            |  | $                            | 1,082.6 |              |  | $            | 9.9 |             |  |  | 6 months or less |  |  |  | 6 months or less | 
|Securitized manufactured housing loans |  |                              | 31.8    |              |  |              | 6.3 |             |  |  | Over 12 months   |  |  |  | 7 to 12 months   | 
|Collateralized debt obligation         |  |                              | 136.3   |              |  |              | 5.7 |             |  |  | Over 12 months   |  |  |  | 6 months or less | 
|Government sponsored entity            |  |                              | 860.7   |              |  |              | 5.5 |             |  |  | 6 months or less |  |  |  | 6 months or less | 
|Foreign oil revenue financing entity   |  |                              | 49.4    |              |  |              | 4.4 |             |  |  | 7 to 12 months   |  |  |  | 6 months or less | 
|Major United States airline            |  |                              | 49.4    |              |  |              | 4.2 |             |  |  | Over 12 months   |  |  |  | 6 months or less | 
|Collateralized debt obligation         |  |                              | 31.7    |              |  |              | 4.1 |             |  |  | 6 months or less |  |  |  | 6 months or less | 
|Aircraft securitization                |  |                              | 25.7    |              |  |              | 4.0 |             |  |  | Over 12 months   |  |  |  | 7 to 12 months   | 
|Electric generator                     |  |                              | 20.3    |              |  |              | 4.0 |             |  |  | 7 to 12 months   |  |  |  | 6 months or less | 
|Natural gas supplier                   |  |                              | 42.3    |              |  |              | 3.9 |             |  |  | 7 to 12 months   |  |  |  | 6 months or less | 
|Healthcare service provider            |  |                              | 20.3    |              |  |              | 3.8 |             |  |  | 7 to 12 months   |  |  |  | 6 months or less | 
|Major United States airline            |  |                              | 21.5    |              |  |              | 3.7 |             |  |  | Over 12 months   |  |  |  | 6 months or less | 
|Major United States airline            |  |                              | 17.0    |              |  |              | 3.4 |             |  |  | Over 12 months   |  |  |  | 7 to 12 months   | 
|Government sponsored entity            |  |                              | 493.3   |              |  |              | 3.3 |             |  |  | 6 months or less |  |  |  | 6 months or less | 

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|                                               |  |                              |       |              |  |              |      |             |  |  |                  |  |  |  |                  | 
|---------------------------------------------- |  | ---------------------------- | ----- | ------------ |  | ------------ | ---- | ----------- |  |  | ---------------- |  |  |  | ---------------- | 
|                                               |  |                             
|                                               |  | Year Ended December 31, 2002
|                                               |  |                             
|                                               |  |                              |       | Time in      |  | Time in     
|                                               |  | Proceeds/                    |       | Realized     |  | Months Below |      | Months< 80%
|General Description                            |  | Market Value                 |       | Loss on Sale |  | Book         |      | of Book    
|                                               |  |                              |       |              |  |              |      |            
|                                               |  |                             
|                                               |  | ($ in millions)             
|Large telecommunications company               |  | $                            | 2.6   |              |  | $            | 17.8 |             |  |  | 6 months or less |  |  |  | 6 months or less | 
|Securities manafactured housing loans          |  |                              | 2.5   |              |  |              | 9.6  |             |  |  | Over 12 months   |  |  |  | 6 months or less | 
|Multinational energy transmissions distributor |  |                              | 4.6   |              |  |              | 7.4  |             |  |  | Over 12 months   |  |  |  | 7 to 12 months   | 
|Media conglomerate                             |  |                              | 24.4  |              |  |              | 6.6  |             |  |  | 7 to 12 months   |  |  |  | 6 months or less | 
|US Treasury                                    |  |                              | 619.3 |              |  |              | 6.3  |             |  |  | 6 months or less |  |  |  | 6 months or less | 
|Independent power producer                     |  |                              | 4.0   |              |  |              | 6.0  |             |  |  | Over 12 months   |  |  |  | 7 to 12 months   | 
|Large telecommunications company               |  |                              | 28.0  |              |  |              | 5.4  |             |  |  | Over 12 months   |  |  |  | 7 to 12 months   | 
|Canadian telecommunications company            |  |                              | 18.1  |              |  |              | 5.2  |             |  |  | 7 to 12 months   |  |  |  | 6 months or less | 
|Telecommunications company                     |  |                              | 0.9   |              |  |              | 4.1  |             |  |  | Over 12 months   |  |  |  | 7 to 12 months   | 
|Energy pipeline company                        |  |                              | 8.4   |              |  |              | 3.9  |             |  |  | 7 to 12 months   |  |  |  | 6 months or less | 
|Energy pipeline company                        |  |                              | 12.4  |              |  |              | 3.7  |             |  |  | 6 months or less |  |  |  | 6 months or less | 
|Merchant energy generator/distributor          |  |                              | 6.4   |              |  |              | 3.5  |             |  |  | 7 to 12 months   |  |  |  | 6 months or less | 
|Energy pipeline company                        |  |                              | 6.9   |              |  |              | 3.1  |             |  |  | 6 months or less |  |  |  | 6 months or less | 

The decision to sell certain securities within
the overall context of our portfolio management strategies can
result in losses as previously shown. This may include required
exposure reductions due to internal credit limits, total rate of
return strategies, capital reserve objectives, asset allocation
decisions and hedging activities. However, no decisions have
been made as of December 31, 2004, which result in material
losses.

Effects of Inflation and Interest Rate
Changes

Management does not believe that inflation has
had a material effect on the consolidated results of operations.

Interest rate changes may have temporary effects
on the sale and profitability of the protection products and
accumulation products offered. For example, if interest rates
rise, competing investments (such as annuities or life insurance
products offered by competitors, certificates of deposit, mutual
funds, and similar instruments) may become more attractive to
potential purchasers of our products until we increase the
interest rate credited to owners of our protection products and
accumulation products. In contrast, as interest rates fall, we
attempt to adjust credited rates to compensate for the
corresponding decline in reinvestment rates. We monitor interest
rates and sell annuities and life insurance policies that permit
flexibility to make interest rate changes as part of management
of interest spreads. However, the profitability of our products
is based upon persistency, mortality and expenses, as well as
interest rate spreads.

We manage our investment portfolio in part to
reduce exposure to interest rate fluctuations. In general, the
market value of our fixed maturity portfolio increases or
decreases in an inverse relationship with fluctuations in
interest rates, and net investment income increases or decreases
in a direct relationship with interest rate changes.

We have developed an asset/liability management
approach with separate investment portfolios for major product
lines such as traditional life, universal life, equity indexed
life, traditional annuities, equity indexed annuities, variable
annuities and funding agreements. Investment strategies have
been established based on the specific characteristics of each
product line. The portfolio investment strategies establish
asset duration, quality and other guidelines. Analytical systems
are utilized to establish an optimal asset mix for each line of
business. We seek to manage the asset/liability mismatch and the
associated interest rate risk through active management of the
investment portfolio. Financial, actuarial, investment, product
development and product marketing professionals work together
throughout the product development, introduction and management
phases to jointly develop and implement product features,
initial and renewal crediting strategies, and

52



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investment strategies based on extensive modeling
of a variety of factors under a number of interest rate
scenarios.


In force reserves and the assets allocated to
each segment are modeled on a regular basis to analyze projected
cash flows under a variety of economic scenarios. The result of
this modeling is used to modify asset allocation, investment
portfolio duration and renewal crediting strategies. We invest
in derivatives to hedge against the effects of interest rate
fluctuations or to hedge growth in policyowner liabilities for
certain life and annuity products and funding agreements. For a
further discussion and disclosure of the nature and extent of
the use of derivatives, see note 4 to the consolidated
financial statements.

Federal Income Tax Matters

Generally, AmerUs Group and our non-life
subsidiaries file a consolidated federal income tax return. The
life insurance subsidiaries file separate federal income tax
returns, except for ILIC and Bankers Life which together began
filing a consolidated tax return in 2002. The separate return
method is used to compute the provision for allocating federal
income taxes. Deferred income tax assets and liabilities are
determined based on differences among the financial reporting
and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws.

Emerging Accounting Matters



| |         
| | --------
| | SOP 03-1

Effective January 1, 2004, the Company
adopted Statement of Position 03-1, Accounting and
Reporting by Insurance Enterprises for Certain Non-Traditional
Long-Duration Insurance Contracts and for Separate
Accounts, (SOP 03-1) issued by the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants. The adoption of SOP 03-1 resulted in
establishing additional policy reserve liabilities for fees
charged for insurance benefit features which are assessed in a
manner that is expected to result in profits in earlier years
and losses in subsequent years. The total effect of adopting SOP
03-1 (including reinsurance recoverables) as of
January  1, 2004, amounted to a decrease of
$0.8 million ($0.5 million after-tax) in net income
which has been reflected as a cumulative effect of a change in
accounting. The basic and diluted earnings per common share for
the change in accounting amounted to $0.01 for 2004.

In addition, the adoption of SOP 03-1 established
guidance for the accounting and presentation of costs related to
sales inducements. There was no change to the Companys
method of accounting for sales inducements; however, the
capitalized costs are now separately disclosed in the
consolidated balance sheet and the related amortization expense
is included in policyowner benefits in the consolidated
statement of income. Prior to 2004, the capitalized costs were
included in DAC and the amortization expense was included in the
amortization of DAC. The 2003 amounts have been reclassified to
conform with the 2004 presentation.



| |          
| | ---------
| | EITF 03-1

In March 2004, the Emerging Issues Task Force of
the Financial Accounting Standards Board (FASB) reached a
final consensus on Issue 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments, (EITF 03-1). EITF 03-1 established
impairment models for determining whether to record impairment
losses associated with investments in certain equity and debt
securities. It also required income to be accrued on a
level-yield basis following an impairment of debt securities,
where reasonable estimates of the timing and amount of future
cash flows can be made. EITF 03-1 indicated that, although
not presumptive, a pattern of selling investments prior to the
forecasted recovery may call into question an investors
intent to hold the security until its value recovers.
EITF 03-1 was to be effective for reporting periods
beginning after June 15, 2004; however, in September 2004,
the effective date of these provisions was delayed until the
finalization of a FASB Staff Position (FSP) to provide
further guidance on this topic.

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| |          
| | ---------
| | EITF 04-8

In September 2004, the EITF reached a final
consensus on Issue 04-8, The Effect of Contingently
Convertible Debt on Diluted Earnings per Share,
(EITF 04-8). EITF 04-8 requires that contingently
convertible debt be included in diluted earnings per share, if
dilutive, regardless of whether the market price trigger has
been met. The EITF is effective for periods ending after
December  15, 2004 with the determination of the
dilutive effect upon adoption to be based on the form of the
instrument as it existed at the end of the quarter of adoption.
This EITF applied to our OCEANs. During the fourth quarter of
2004, we exchanged the OCEANs which changed the securitys
conversion provisions. Previously, the OCEANs were to all be
converted to shares of our common stock; however, the exchanged
OCEANs provide for cash to be paid equal to the accreted
principal value and shares of our common stock issued for the
conversion value in excess of the accreted principal amount. We
applied the restatement provisions of EITF 04-8 based on
the new form of the exchanged OCEANs which resulted in no change
in previously reported diluted earnings per share for 2002 or
2003.



| |         
| | --------
| | FSP 97-1

In June 2004, the FASB issued Financial Staff
Position FAS 97-1, Situations in Which Paragraphs of
FASB Statement No. 97 Permit or Require Accrual of an
Unearned Revenue Liability, (FSP 97-1). FSP 97-1 clarifies
that SOP 03-1 did not restrict the recording of a liability for
unearned revenue as defined in accordance with
paragraphs 17(b) and 20 of SFAS 97, Accounting
and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of
Investments, to only those situations where profits are
followed by expected losses. FSP 97-1 was effective for periods
beginning after June 18, 2004. The adoption of FSP 97-1 did
not have an effect on our consolidated financial position or
results of operations in 2004.



| |          
| | ---------
| | FSP 106-2

In May 2004, the FASB issued Financial Staff
Position FAS 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug
Improvement and Modernization Act of 2003, (FSP 106-2).
FSP 106-2 requires sponsors of a post-retirement health care
plan that provides retiree prescription drug benefit to reflect
the provisions of the Medicare Prescription Drug Improvement and
Modernization Act of 2003 (the Medicare Act) in determining
post-retirement benefit cost for the first annual or interim
period beginning after June 15, 2004. We have determined
that the drug benefits provided under our post-retirement
benefits program for Medicare eligible retirees are not
actuarially equivalent to the benefit established by the
Medicare Act, and therefore we will not be eligible to receive
the federal subsidy. As a result, there was no effect on our
consolidated financial position or results of operations in 2004.



| |          
| | ---------
| | SFAS 123R

In December 2004, the FASB issued a revision to
SFAS 123, Share-Based Payment, (SFAS 123R)
which is a revision of SFAS 123, Accounting for
Stock-Based Compensation, (SFAS 123). SFAS 123R
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income
statement based on fair values. Pro forma disclosure of fair
value information is no longer an alternative. The statement is
effective in the first interim or annual period beginning after
June 15, 2005. Adoption is to be made using either the
modified prospective method or the modified retrospective
method. The modified prospective method recognizes cost based on
the requirements for all share-based payments granted after the
effective date and for awards granted prior to the effective
date that remain unvested prior to the effective date. The
modified retrospective method includes the requirements of the
modified prospective method but also permits restatement of
financial statements based on pro forma amounts previously
recognized under SFAS 123. Restatement can either be for
all prior periods presented or prior interim periods of the year
of adoption. Early adoption is permitted. We continue to
evaluate the impacts and timing of adopting SFAS 123R. We
currently disclose the pro forma impacts of recognizing fair
value as permitted by SFAS 123 in note 1 to the
consolidated financial statements. That disclosure reflects our
estimate of 2004 expense for share-based payments of
approximately $4.0 million (after-tax).

54



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|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

The main objectives in managing our investment
portfolios and our insurance subsidiaries are to maximize
investment income and total investment returns while minimizing
credit risks in order to provide maximum support to the
insurance underwriting operations. Investment strategies are
developed based on many factors including asset liability
management, regulatory requirements, fluctuations in interest
rates and consideration of other market risks. Investment
decisions are centrally managed by investment professionals
based on guidelines established by management and approved by
the boards of directors.

Market risk represents the potential for loss due
to adverse changes in the fair value of financial instruments.
The market risks related to our financial instruments primarily
relate to the investment portfolio, which exposes us to risks
related to interest rates, credit quality and prepayment
variation. Analytical tools and monitoring systems are in place
to assess each of these elements of market risk.

Interest rate risk is the price sensitivity of a
fixed income security to changes in interest rates. Management
views these potential changes in price within the overall
context of asset and liability management. Actuarial
professionals estimate the payout pattern of our liabilities,
primarily lapses, to determine duration, which is the present
value of the fixed income investment portfolios after
consideration of the duration of these liabilities and other
factors, which management believes mitigates the overall effect
of interest rate risk.

For variable and equity indexed products,
profitability on the portion of the policyowners account
balance invested in the fixed general account option, if any, is
also affected by the spreads between interest yields on
investments and rates credited to the policies. For the variable
products, the policyholder assumes essentially all the
investment earnings risk for the portion of the account balance
invested in the separate accounts. For the equity indexed
products, we purchase primarily call options that are designed
to match the return owed to contract holders who elect to
participate in one or more market indices. Profitability on the
portion of the equity indexed products tied to market indices is
significantly impacted by the spread on interest earned on
investments and the sum of (1) the cost of underlying call
options purchased to match the returns owed to contract holders
and (2) the minimum interest guarantees owed to the
contract holder, if any. Profitability on the equity indexed
products is also impacted by changes in the fair value of the
embedded option which provides the contract holder the right to
participate in market index returns after the next anniversary
date of the contract. This impacts profitability as we primarily
purchase one-year call options to fund the returns owed to the
contract holders at the inception of each contract year. This
practice matches with the contract holders rights to
switch to different indices on each anniversary date. The value
of the forward starting options embedded in the equity indexed
products can fluctuate with changes in assumptions as to future
volatility of the market indices, risk free interest rates,
market returns and the lives of the contracts.

55



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The following table provides information about
our fixed maturity investments and mortgage loans for both our
trading and other than trading portfolios at December 31,
2004. The table presents amortized cost and related weighted
average interest rates by expected maturity dates. The amortized
cost approximates the cash flows of principal amounts in each of
the periods. The cash flows are based on the earlier of the call
date or the maturity date or, for mortgage-backed securities,
expected payment patterns. Actual cash flows could differ from
the expected amounts.

Expected Cash Flows

|                                                        |       |      |       |       |  |      |     |       |  |      |       |            |  |          |       |       |  |   |     |       |  |   |       |        |  |   |        |        |  |   |        |        | 
|------------------------------------------------------- | ----- | ---- | ----- | ----- |  | ---- | --- | ----- |  | ---- | ----- | ---------- |  | -------- | ----- | ----- |  | - | --- | ----- |  | - | ----- | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                        |       |      |       |       |  |      |     |       |  |      |       |            |  | Expected |       |      
|                                                        |       |      |       |       |  |      |     |       |  |      |       |            |  | Cash     |       | Fair 
|                                                        |       | 2005 |       | 2006  |  | 2007 |     | 2008  |  | 2009 |       | Thereafter |  | Flows    |       | Value
|                                                        |       |      |       |       |  |      |     |       |  |      |       |            |  |          |       |      
|Fixed maturity securities available-for-sale            |       | $    | 1,119 |       |  | $    | 903 |       |  | $    | 1,080 |            |  | $        | 1,180 |       |  | $ | 931 |       |  | $ | 9,888 |        |  | $ | 15,101 |        |  | $ | 15,647 |       
|Average interest rate                                   |       |      | 6.3   | %     |  |      | 6.5 | %     |  |      | 6.3   | %          |  |          | 5.9   | %     |  |   | 6.0 | %     |  |   | 5.8   | %      |  |   |        |        |  |   |        |       
|Fixed maturity securities held for trading
    purposes |       | $    | 142   |       |  | $    | 128 |       |  | $    | 199   |            |  | $        | 248   |       |  | $ | 254 |       |  | $ | 747   |        |  | $ | 1,718  |        |  | $ | 1,718  |       
|Average interest rate                                   |       |      | 3.4   | %     |  |      | 3.1 | %     |  |      | 3.3   | %          |  |          | 3.0   | %     |  |   | 2.2 | %     |  |   | 3.7   | %      |  |   |        |        |  |   |        |       
|Mortgage loans                                          |       | $    | 55    |       |  | $    | 59  |       |  | $    | 56    |            |  | $        | 69    |       |  | $ | 65  |       |  | $ | 562   |        |  | $ | 866    |        |  | $ | 910    |       
|Average interest rate                                   |       |      | 7.3   | %     |  |      | 7.4 | %     |  |      | 7.4   | %          |  |          | 7.3   | %     |  |   | 7.3 | %     |  |   | 7.1   | %      |  |   |        |        |  |   |        |       
|                                                        |       |      |       |       |  |      |     |       |  |      |       |            |  |          |       |       |  |   |     |       |  |   |       |        |  |   |        |        |  |   |        |       
|                                                        | Total |      | $     | 1,316 |  |      | $   | 1,090 |  |      | $     | 1,335      |  |          | $     | 1,497 |  |   | $   | 1,250 |  |   | $     | 11,197 |  |   | $      | 17,685 |  |   | $      | 18,275 | 
|                                                        |       |      |       |       |  |      |     |       |  |      |       |            |  |          |       |       |  |   |     |       |  |   |       |        |  |   |        |        |  |   |        |       

In accordance with our strategy of minimizing
credit quality risk, we consistently invest in high quality
marketable securities. Fixed maturity securities are comprised
of U.S. Treasury, government agency, mortgage-backed and
corporate securities. Approximately 62% of fixed maturity
securities are issued by the U.S. Treasury or
U.S. government agencies or are rated A or better by
Moodys, Standard and Poors, or the NAIC. Less than
8% of the bond portfolio is below investment grade. Fixed
maturity securities have an average life of approximately
8.6 years.

Prepayment risk refers to the changes in
prepayment patterns that can either shorten or lengthen the
expected timing of the principal repayments and thus the average
life and the effective yield of a security. Such risk exists
primarily within the portfolio of mortgage-backed securities.
Management monitors such risk regularly. We invest primarily in
those classes of mortgage-backed securities that have average or
lower prepayment risk.

Our use of derivatives is generally limited to
hedging purposes and has principally consisted of using interest
rate swaps, options and futures. These instruments, viewed
separately, subject us to varying degrees of market and credit
risk. However when used for hedging, the expectation is that
these instruments would reduce overall market risk. Credit risk
arises from the possibility that counterparties may fail to
perform under the terms of the contracts. See note 4 of the
consolidated financial statements for additional information
about our derivative positions.

Equity price risk is the potential loss arising
from changes in the value of equity securities. In general,
equities have more year-to-year price variability than
intermediate term grade bonds. However, returns over longer time
frames have been consistently higher.

All of the above risks are monitored on an
ongoing basis. A combination of in-house systems and proprietary
models and externally licensed software are used to analyze
individual securities as well as each portfolio. These tools
provide the portfolio managers with information to assist them
in the evaluation of the market risks of the portfolio.






|        |                                                
|------- | -----------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA

The consolidated financial statements begin on
page F-1. Reference is made to the Index to Financial Statements
on page F-1 herein.

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##### Table of Contents



Additional financial statement schedules begin on
page S-1. Reference is made to the Index to Financial
Statement Schedules on page S-1 herein.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
    ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.






|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Based upon their evaluation as of the end of the
    period covered by this Annual Report on Form 10-K, our
    Chief Executive Officer and Chief Financial Officer have
    concluded that our disclosure controls and procedures as defined
    in Rule 13a-15(e) under the Securities Exchange Act of
    1934, as amended, are effective for recording, processing,
    summarizing and reporting the information we are required to
    disclose in our reports filed under such act.
|   
|(b) | There was no change in our internal control over
    financial reporting during our last fiscal quarter that has
    materially affected, or is reasonably likely to materially
    affect, our internal control over financial reporting.                                                                                                                                                                                                                                                



| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal
    Control Over Financial Reporting

The management of AmerUs Group Co. is responsible
for establishing and maintaining adequate internal control over
financial reporting as described in Rule 13a-15(f) under
the Securities Exchange Act of 1934. Our internal control over
financial reporting is a process designed under the supervision
of our Chief Executive Officer and Chief Financial Officer to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of our financial
statements for external purposes in conformity with accounting
principles generally accepted in the United States.

As of December 31, 2004, management assessed
the effectiveness of our internal control over financial
reporting based on the criteria for effective internal control
over financial reporting established in Internal
Control  Integrated Framework, issued by the
Committee of Sponsoring Organizations (COSO) of the
Treadway Commission. Based on the assessment, management
determined that we maintained effective internal control over
financial reporting as of December 31, 2004 based on those
criteria.

Ernst & Young LLP, the independent
registered public accounting firm that audited the consolidated
financial statements included in this Annual Report on
Form 10-K, has issued an attestation report on
managements assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2004. The report, which expresses unqualified
opinions on managements assessment and on the
effectiveness of our internal control over financial reporting
as of December 31, 2004, is included in this Item under the
heading Report of Independent Registered Public Accounting
Firm on Internal Control over Financial Reporting.

57



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| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Report of Independent Registered Public
    Accounting Firm on Internal Control over Financial
    Reporting

The Board of Directors and Stockholders

AmerUs Group Co.


We have audited managements assessment,
included in the accompanying Managements Report on
Internal Control over Financial Reporting,that AmerUs
Group Co. maintained effective internal control over financial
reporting as of December 31, 2004, based on criteria
established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). AmerUs Group Co.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based
on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

A companys internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.

In our opinion, managements assessment that
AmerUs Group Co. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, AmerUs Group Co. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO
criteria.

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the accompanying consolidated balance sheets as
of December 31, 2004 and 2003, and the related consolidated
statements of income, comprehensive income, changes in
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2004 of AmerUs Group
Co. and our report dated February 25, 2005 expressed an
unqualified opinion thereon.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Des Moines, Iowa

February 25, 2005


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|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION

None.




PART III

The Notice of 2005 Annual Meeting of Shareholders
and Proxy Statement (the Proxy Statement), which, when filed
pursuant to Regulation 14A under the Securities Exchange
Act of 1934, is incorporated by reference in this Annual Report
on Form 10-K pursuant to General Instruction G(3) of
Form 10-K, provides the information required under
Part III.






|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT



| |     |                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Information concerning directors of AmerUs Group
    Co. appears in the Proxy Statement, under Election of
    Directors. This portion of the Proxy Statement is
    incorporated herein by reference.                                                                                                         
|
| | (b) | For information with respect to Executive
    Officers, see Part I of this Annual Report on
    Form 10-K, under Executive Officers of the
    Company.                                                                                                                                                        
|
| | (c) | Information concerning Section 16(a)
    beneficial ownership reporting compliance appears in the Proxy
    Statement, under Section 16(a) Beneficial Ownership
    Reporting Compliance. This portion of the Proxy Statement
    is incorporated herein by reference.                                         
|
| | (d) | Information concerning the identification of the
    audit committee and the audit committee financial expert appears
    in the Proxy Statement, under Board and Corporate
    Governance Matters. This portion of the Proxy Statement is
    incorporated herein by reference.                               
|
| | (e) | Information describing any material changes to
    the procedures by which security holders may recommend nominees
    to the board of directors appears in the Proxy Statement, under
    Board and Corporate Governance Matters. This portion
    of the Proxy Statement is incorporated herein by reference.



| |     |                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (f) | For information with respect to the
    Companys code of ethics that applies to the principal
    executive officer, principal financial officer, and principal
    accounting officer, see Part I of this Annual Report on
    Form 10-K, under Code of Ethics.






|         |                        
|-------- | -----------------------
|ITEM 11. | EXECUTIVE COMPENSATION.

Information with respect to executive
compensation appears in the Proxy Statement, under
Executive Compensation and Related Information. This
portion of the Proxy Statement is incorporated herein by
reference.






|         |                                                                                                    
|-------- | ---------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
    OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Information with respect to security ownership of
certain beneficial owners and management and related stockholder
matters appears in the Proxy Statement, under Beneficial
Ownership of Common Stock and Executive Compensation
and Related Information. This portion of the Proxy
Statement is incorporated herein by reference.






|         |                                                    
|-------- | ---------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS.

Information with respect to certain relationships
and related transactions appears in the Proxy Statement, under
Certain Transactions and Relationships. This portion
of the Proxy Statement is incorporated herein by reference.

59



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##### Table of Contents








|         |                                            
|-------- | -------------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND
    SERVICES.

Information with respect to principal accounting
fees and services appears in the Proxy Statement, under
Report of the Audit Committee of the Board of
Directors. This portion of the Proxy Statement is
incorporated herein by reference.




PART IV






|         |                                            
|-------- | -------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT
    SCHEDULES

1. Financial Statements. Reference is made
to the Index on page F-1 of the report.

2. Financial Statement Schedules. Reference
is made to the Index on page S-1 of the report.

3. Exhibits. Reference is made to the Index
to Exhibits on page 61 of the report.

60



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##### Table of Contents



AMERUS GROUP CO. AND SUBSIDIARIES



INDEX TO EXHIBITS


|        |   |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | - | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|No.     |   | Description
|        |   |            
|        | 2 | .1          |  | Combination and Investment Agreement, dated
    February 18, 2000, among American Mutual Holding Company,
    AmerUs Life Holdings, Inc., Indianapolis Life Insurance Company
    and The Indianapolis Life Group of Companies, Inc., filed as
    Exhibit 2.1 to AmerUs Life Holdings, Inc.s report on
    Form 8-K/A on March 6, 2000, is hereby incorporated by
    reference.                                                                    
|       
|        | 2 | .2          |  | Purchase Agreement, dated as of February 18,
    2000, by and between American Mutual Holding Company and AmerUs
    Life Holdings, Inc., filed as Exhibit 2.5 on Form 10-K,
    dated March 8, 2000, is hereby incorporated by reference.                                                                                                                                                                                                            
|       
|        | 2 | .3          |  | Agreement and Plan of Merger, dated
    December 17, 1999, by and between American Mutual Holding
    Company and AmerUs Life Holdings, Inc., filed as
    Exhibit 2.6 on Form 10-K, dated March 8, 2000, is
    hereby incorporated by reference.                                                                                                                                                                                                    
|       
|        | 2 | .4          |  | Amendment No. 1 to Agreement and Plan of
    Merger, dated February 18, 2000, by and between American
    Mutual Holding Company and AmerUs Life Holdings, Inc., filed as
    Exhibit 2.7 on Form 10-K, dated March 8, 2000, is
    hereby incorporated by reference.                                                                                                                                                                                 
|       
|        | 2 | .5          |  | Letter Agreement, dated December 17, 1999,
    by and between American Mutual Holding Company and AmerUs Life
    Holdings, Inc., filed as Exhibit 2.8 on Form 10-K, dated
    March 8, 2000, is hereby incorporated by reference.                                                                                                                                                                                                                    
|       
|        | 2 | .6          |  | Notification Agreement, dated as of
    February 18, 2000, by and among American Mutual Holding
    Company, AmerUs Life Holdings, Inc. and Bankers Trust Company,
    filed as Exhibit 2.9 on Form 10-K, dated March 8,
    2000, is hereby incorporated by reference.                                                                                                                                                                               
|       
|        | 2 | .7          |  | Amendment No. 2 to Agreement and Plan of
    Merger, dated April 3, 2000, by and between American Mutual
    Holding Company and AmerUs Life Holdings, Inc., filed as
    Exhibit 2.10 on Form 10-Q, dated May 15, 2000, is
    hereby incorporated by reference.                                                                                                                                                                                     
|       
|        | 2 | .8          |  | Amendment No. 1 to the Purchase Agreement,
    dated April 3, 2000, by and between American Mutual Holding
    Company and AmerUs Life Holdings, Inc., filed as
    Exhibit 2.11 on Form 10-Q, dated May 15, 2000, is
    hereby incorporated by reference.                                                                                                                                                                                           
|       
|        | 2 | .9          |  | Amendment to Combination and Investment Agreement
    dated February 18, 2000 among American Mutual Holding
    Company, AmerUs Life Holdings, Inc., Indianapolis Life Insurance
    Company and The Indianapolis Life Group of Companies, Inc.,
    dated September 18, 2000, filed as Exhibit 2.2 to
    Form 8-K12G3 of the Registrant dated September 21,
    2000, is hereby incorporated by reference.                                          
|       
|        | 2 | .10         |  | Stock Purchase Agreement, dated January 1,
    2002, by and among AmerUs Annuity Group Co., and the
    Stockholders of Family First Advanced Estate Planning and Family
    First Insurance Services, files as Exhibit 2.13 on Form
    10-Q dated August 12, 2002, is hereby incorporated by
    reference.                                                                                                                                         
|       
|        | 3 | .1          |  | Articles of Amendment to the Amended and Restated
    Articles of Incorporation of the Registrant filed as
    Exhibit 3.1 on Form 10-Q, dated August 6, 2004 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          |  | Amended and Restated Trust Agreement dated as of
    February 3, 1997 among AmerUs Life Holdings, Inc.,
    Wilmington Trust Company, as property trustee, and the
    administrative trustees named therein (AmerUs Capital I business
    trust), filed as Exhibit 3.6 to the registration statement
    of AmerUs Life Holdings, Inc. and AmerUs Capital I on
    Form S-1, Registration Number 333-13713, is hereby
    incorporated by reference.
|       
|        | 4 | .2          |  | Indenture dated as of February 3, 1997
    between AmerUs Life Holdings, Inc. and Wilmington Trust Company
    relating to the Companys 8.85% Junior Subordinated
    Debentures, Series A, filed as Exhibit 4.1 to the
    registration statement of AmerUs Life Holdings, Inc. and AmerUs
    Capital I on Form S-1, Registration Number, 333-13713, is
    hereby incorporated by reference.                                                      

61



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|        |   |             |  |                                                                                                                                                                                                                                                                                                                                                                                             
|------- | - | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|No.     |   | Description
|        |   |            
|       
|        | 4 | .3          |  | Guaranty Agreement dated as of February 3,
    1997 between AmerUs Life Holdings, Inc., as guarantor, and
    Wilmington Trust Company, as trustee, relating to the 8.85%
    Capital Securities, Series A, issued by AmerUs
    Capital I, filed as Exhibit 4.4 to the registration
    statement on Form S-1, Registration Number, 333-13713, is
    hereby incorporated by reference.    
|       
|        | 4 | .4          |  | Certificate of Trust of AmerUs Capital III
    filed as Exhibit 4.7 to the registration statement of
    AmerUs Life Holdings, Inc., AmerUs Capital II and AmerUs
    Capital III, on Form S-3 (No. 333-50249), is hereby
    incorporated by reference.                                                                                                                                    
|       
|        | 4 | .5          |  | Senior Indenture, dated as of June 16, 1998,
    by and between AmerUs Life Holdings, Inc. and First Union
    National Bank, as Indenture Trustee, relating to the AmerUs Life
    Holdings, Inc.s 6.95% Senior Notes, filed as
    Exhibit 4.14 on Form 10-Q, dated August 13, 1998, is
    hereby incorporated by reference.                                                            
|       
|        | 4 | .6          |  | Subordinated Indenture, dated as of July 27,
    1998, by and between AmerUs Life Holdings, Inc. and First Union
    National Bank, as Indenture Trustee, relating to AmerUs Life
    Holdings, Inc.s 6.86% Junior Subordinated Deferrable
    Interest Debentures, filed as Exhibit 4.15 on Form 10-Q,
    dated August 13, 1998, is hereby incorporated by reference.                    
|       
|        | 4 | .7          |  | First Supplement to Indenture dated
    February 3, 1997 among American Mutual Holding Company,
    AmerUs Life Holdings, Inc. and Wilmington Trust Company as
    Trustee, relating to the Companys 8.85% Junior
    Subordinated Debentures, Series A, dated September 20,
    2000, filed as Exhibit 4.14 on Form 10-Q dated
    November 14, 2000, is hereby incorporated by reference.
|       
|        | 4 | .8          |  | Assignment and Assumption Agreement to Amended
    and Restated Trust Agreement, dated February 3, 1997
    between American Mutual Holding Company and AmerUs Life
    Holdings, Inc., dated September 20, 2000, filed as
    Exhibit 4.15 on Form 10-Q dated November 14, 2000, is
    hereby incorporated by reference.                                                                  
|       
|        | 4 | .9          |  | Assignment and Assumption to Guaranty Agreement,
    dated February 3, 1997 between American Mutual Holding
    Company and AmerUs Life Holdings, Inc., dated September 20,
    2000, filed as Exhibit 4.16 on Form 10-Q, dated
    November 14, 2000, is hereby incorporated by reference.                                                                                                 
|       
|        | 4 | .10         |  | First Supplement to Senior Indenture dated
    June 16, 1998, relating to AmerUs Life Holdings,
    Inc.s 6.95% Senior Notes, among American Mutual
    Holding Company, AmerUs Life Holdings, Inc. and First Union
    National Bank, as Trustee, dated September 20, 2000, filed
    as Exhibit 4.23 on Form 10-Q, dated November 14, 2000,
    is hereby incorporated by reference.     
|       
|        | 4 | .11         |  | Indenture dated as of March 6, 2002 between
    AmerUs Group Co. and BNY Midwest Trust Company, as Trustee,
    filed as Exhibit 4.1 on form 8-K/A, dated February 28,
    2002, is hereby incorporated by reference.                                                                                                                                                                       
|       
|        | 4 | .12         |  | Form of Purchase Contract Agreement between
    AmerUs Group Co. and Wachovia Bank, National Association
    (formerly known as First Union National Bank), as Purchase
    Contract Agent, filed as Exhibit 4.1 on Form 8-A12B, dated
    May 22, 2003, is hereby incorporated by reference.                                                                                               
|       
|        | 4 | .13         |  | Form of Pledge Agreement among AmerUs Group Co.,
    BNY Midwest Trust Company, as Collateral Agent, Custodial Agent
    and Securities Intermediary and Wachovia Bank, National
    Association (formerly known as First Union National Bank), as
    Purchase Contract Agent, filed as Exhibit 4.2 on Form
    8-A12B dated May 22, 2003, is hereby incorporated by
    reference.        
|       
|        | 4 | .14         |  | Form of Remarketing Agreement among AmerUs Group
    Co., Wachovia Bank, National Association (formerly known as
    First Union National Bank), as Purchase Contract Agent, and the
    Remarketing Agent named therein, filed as Exhibit 4.3 on
    Form 8-A12B dated May 22, 2003, is hereby incorporated by
    reference.                                                              
|       
|        | 4 | .15         |  | Form of Income PRIDES (included in
    Exhibit 4.1 as Exhibit A thereto), filed as
    Exhibit 4.1 on Form 8-A12B, dated May 22, 2003, is
    hereby incorporated by reference.                                                                                                                                                                                                             
|       
|        | 4 | .16         |  | Officers Certificate attaching form of
    Senior Notes initially due 2008, filed as Exhibit 4.7 on
    Form 8-A12B, dated May 22, 2003, is hereby incorporated by
    reference.                                                                                                                                                                                                          
|       
|        | 4 | .17         |  | Indenture dated as of December 15, 2004
    between AmerUs Group Co. and BNY Midwest Trust Company, as
    Trustee, filed as Exhibit 4.1 on Form 8-K, dated
    December 15, 2004, is hereby incorporated by reference.                                                                                                                                                                     

62



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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|       
|        | 4  | .18         |  | Form of Optionally Convertible Equity-Linked
    Accreting Note (OCEANsSM) due March 6, 2032,
    filed as Exhibit 4.2 on Form 8-K, dated December 15,
    2004, is hereby incorporated by reference.                                                                                                                                                                                                                                       
|       
|        | 10 | .1          |  | Joint Venture Agreement, dated as of
    June 30, 1996, between American Mutual Insurance Company
    and Ameritas Life Insurance Corp., filed as Exhibit 10.2 on
    Form 10-K, dated March 25, 1998, is hereby incorporated by
    reference.                                                                                                                                                                                             
|       
|        | 10 | .2          |  | Management and Administration Service Agreement,
    dated as of April 1, 1996, among American Mutual Life
    Insurance Company, Ameritas Variable Life Insurance Company and
    Ameritas Life Insurance Corp., filed as Exhibit 10.3 to the
    registration statement of AmerUs Life Holdings, Inc. on
    Form S-1, Registration Number 333-12239, is hereby
    incorporated by reference.                                            
|       
|        | 10 | .3          |  | AmerUs Life Holdings, Inc. Executive Stock
    Purchase Plan, dated November 13, 1998, filed as
    Exhibit 4.11 to the registration statement of AmerUs Life
    Holdings, Inc. on Form S-8, Registration
    Number 333-72237, is hereby incorporated by reference.                                                                                                                                                                       
|       
|        | 10 | .4          |  | Management Incentive Plan, filed as
    Exhibit 10.9 to the registration statement of AmerUs Life
    Holdings, Inc. on Form S-1, Registration
    Number 333-12239, is hereby incorporated by reference.                                                                                                                                                                                                                                   
|       
|        | 10 | .5          |  | AmerUs Life Insurance Company Performance Share
    Plan, filed as Exhibit 10.10 to the registration statement
    of AmerUs Life Holdings, Inc. on Form S-1, Registration
    Number 333-12239, is hereby incorporated by reference.                                                                                                                                                                                                       
|       
|        | 10 | .6          |  | AmerUs Life Stock Incentive Plan, filed as
    Exhibit 10.11 to the registration statement of AmerUs Life
    Holdings, Inc. on Form S-1, Registration
    Number 333-12239, is hereby incorporated by reference.                                                                                                                                                                                                                           
|       
|        | 10 | .7          |  | AmerUs Life Non-Employee Director Stock Plan,
    filed as Exhibit 10.13 to the registration statement of
    AmerUs Life Holdings, Inc. on Form S-1, Registration
    Number 333-12239, is hereby incorporated by reference.                                                                                                                                                                                                               
|       
|        | 10 | .8          |  | Form of Indemnification Agreement executed with
    directors and certain named executive officers, filed as
    Exhibit 10.33 to the registration statement of AmerUs Life
    Holdings, Inc. on Form S-1, Registration
    Number 333-12239, is hereby incorporated by reference.                                                                                                                                                         
|       
|        | 10 | .9          |  | AmVestors Financial Corporation 1996 Incentive
    Stock Option Plan, filed as Exhibit (4)(a) to Registration
    Statement of AmVestors Financial Corporation on Form S-8,
    Registration Number 333-14571 dated October 21, 1996,
    is hereby incorporated by reference.                                                                                                                                                              
|       
|        | 10 | .10         |  | Open Line of Credit Application and Terms
    Agreement, dated March 5, 1999, between Federal Home
    Loan Bank of Des Moines and AmerUs Life Insurance Company,
    filed as Exhibit 10.34 on Form 10-Q dated May 14,
    1999, is hereby incorporated by reference.                                                                                                                                                                      
|       
|        | 10 | .11         |  | Form of Reimbursement Agreement, dated
    February 15, 1999, among AmerUs Life Holdings, Inc. and
    certain named executive officers, filed as Exhibit 10.40 on
    Form 10-Q dated May 14, 1999, is hereby incorporated by
    reference.                                                                                                                                                                                               
|       
|        | 10 | .12         |  | 1999 Non-Employee Stock Option Plan, dated
    April 19, 1999, filed on Form S-3, Registration
    Number 333-72643, is hereby incorporated by reference.                                                                                                                                                                                                                                                                                   
|       
|        | 10 | .13         |  | Irrevocable Standby Letter of Credit Application
    and Terms Agreement, dated February 1, 2000, between
    Federal Home Loan Bank of Des Moines and AmerUs Life
    Insurance Company, filed as Exhibit 10.45 on Form 10-K,
    dated March 8, 2000, is hereby incorporated by reference.                                                                                                                                                
|       
|        | 10 | .14         |  | Investment Advisory Agreements, dated as of
    February 18, 2000, by and between Indianapolis Life
    Insurance Company, Bankers Life Insurance Company of New York,
    IL Annuity and Insurance Company and AmerUs Capital Management
    Group, Inc. filed as Exhibits 10.1,10.3, 10.4 and 10.2,
    respectively, to AmerUs Life Holdings, Inc.s report on
    Form 8-K/A on March 6, 2000, are hereby incorporated by
    reference.
|       
|        | 10 | .15         |  | Advance, Pledge and Security Agreement, dated
    April 12, 2000, by and between the Federal Home
    Loan Bank of Topeka and American Investors Life Insurance
    Company, Inc., filed as Exhibit 10.48 on Form 10-Q, dated
    May 15, 2000, is hereby incorporated by reference.                                                                                                                                                        
|       
|        | 10 | .16         |  | Institutional Custody Agreement, dated
    April 12, 2000, by and between the Federal Home
    Loan Bank of Topeka and American Investors Life Insurance
    Company, Inc., filed as Exhibit 10.49 on Form 10-Q, dated
    May 15, 2000, is hereby incorporated by reference.                                                                                                                                                               

63



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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|       
|        | 10 | .17         |  | Line of Credit Application, dated April 12,
    2000, by and between the Federal Home Loan Bank of Topeka
    and American Investors Life Insurance Company, Inc., filed as
    Exhibit 10.50 on Form 10-Q, dated May 15, 2000,
    is hereby incorporated by reference.                                                                                                                                                                                                  
|       
|        | 10 | .18         |  | Agreement for Advances, Pledge and Security
    Agreement, dated March 12, 1992, by and between Central
    Life Assurance Company and the Federal Home Loan Bank of
    Des Moines, filed as Exhibit 10.53 on Form 10-Q, dated
    May 15, 2000, is hereby incorporated by reference.                                                                                                                                                                                    
|       
|        | 10 | .19         |  | Agreement for Advances, Pledge and Security
    Agreement, dated September 1, 1995, by and between American
    Vanguard Life Insurance Company and the Federal Home
    Loan Bank of Des Moines, filed as Exhibit 10.54 on
    Form 10-Q, dated May 15, 2000, is hereby incorporated
    by reference.                                                                                                                                                                   
|       
|        | 10 | .20         |  | AmerUs Group Co. 2000 Stock Incentive Plan, dated
    November 15, 2000, filed as Exhibit 99.9 to the
    registration statement of AmerUs Group Co. on Form S-8,
    Registration Number 333-50030, is hereby incorporated by
    reference.                                                                                                                                                                                                                             
|       
|        | 10 | .21         |  | Credit Agreement dated December 8, 2003,
    among AmerUs Group Co., Various Lending Institutions, the Bank
    of New York, Bank One, NA, Fleet National Bank and Mellon Bank,
    N.A. as Co-Syndication Agents and J P Morgan Chase Bank as
    Administrative Agent, filed as Exhibit 10.29 on
    Form 10-K dated March 12, 2004 is hereby incorporated
    by reference.                                                                                            
|       
|        | 10 | .22         |  | Consent dated as of March 15, 2002, among
    AmerUs Group Co., the lending institutions party hereto, The
    Bank of New York, Mellon Bank N.A. and Fleet National Bank as
    Co-Arrangers and JPMorgan Chase Bank as Administrative Agent and
    Co-Arranger, filed as Exhibit 10.36 on Form 10-Q dated
    May 14, 2002, is hereby incorporated by reference.                                                                                                       
|       
|        | 10 | .23         |  | Amendment No. 1 to Joint Venture Agreement,
    dated April 1, 2002, by and between Ameritas Life Insurance
    Corp. and AmerUs Life Insurance Company filed as
    Exhibit 10.37 on Form 10-Q dated August 12, 2002
    is hereby incorporated by reference.                                                                                                                                                                                                            
|       
|        | 10 | .24         |  | Distribution Commitment Agreement for Variable
    Business, dated April 1, 2002, by and between AmerUs Group
    Co. and Ameritas Variable Life Insurance Company filed as
    Exhibit 10.38 on Form 10-Q dated August 12, 2002
    is hereby incorporated by reference.                                                                                                                                                                                                 
|       
|        | 10 | .25         |  | Amendment No. 4 to Facility Agreement dated
    February 12, 1999 by and among AmerUs Group Co. and Bank
    One, NA (f/k/a The First National Bank of Chicago), dated
    June 30, 2002 filed as Exhibit 10.39 on Form 10-Q
    dated August 12, 2002 is hereby incorporated by reference.                                                                                                                                                                               
|       
|        | 10 | .26         |  | Employment Agreement, dated as of
    September 19, 1997, among Mark V. Heitz, AmVestors
    Financial Corporation, American Investors Life Insurance
    Company, Inc., AmVestors Investors Group, Inc. and American
    Investors Sale Group, Inc. filed as Exhibit 99.3 to the
    registration statement of the Registrant on Form S-4,
    Registration Number 333-40065, is incorporated by reference.                                                              
|       
|        | 10 | .27         |  | First Amendment to Employment Agreement, dated as
    of April 15, 1999, to the Employment Agreement dated as of
    September 19, 1997, among Mark V. Heitz, AmVestors
    Financial Corporation, American Investors Life Insurance
    Company, Inc., AmVestors Investment Group, Inc., American
    Investors Sales Group, Inc., and AmerUs Life Holdings, Inc.,
    filed as Exhibit 99.4 on Form 10-Q dated
    August 13, 1999, is hereby incorporated by reference.
|       
|        | 10 | .28         |  | All*AmerUs Supplemental Executive Retirement Plan
    filed as Exhibit 4.3 to the registration statement on
    Form S-8, Registration Number 333-101961, is hereby
    incorporated by reference.                                                                                                                                                                                                                                                                        
|       
|        | 10 | .29         |  | Form of Supplemental Benefit Agreement, dated
    February 3, 2003, among AmerUs Group Co. and certain named
    executive officers, filed as Exhibit 10.1 on Form 10-Q
    dated May 15, 2003 is hereby incorporated by reference.                                                                                                                                                                                                                                       
|       
|        | 10 | .30         |  | Tax Allocation and Indemnification Agreement
    dated as of July 1, 2000, filed as Exhibit 10.2 on
    Form 10-Q dated May 15, 2003 is hereby incorporated by
    reference.                                                                                                                                                                                                                                                                                             
|       
|        | 10 | .31         |  | AmerUs Group Co. 2003 Stock Incentive Plan as
    amended, filed as Exhibit 10.43 on Form 10-K dated
    March 12, 2004 is hereby incorporated by reference.                                                                                                                                                                                                                                                                                                              
|       
|        | 10 | .32         |  | AmerUs Group Co. MIP Deferral Plan, filed as
    Exhibit 4.3 on Form S-8 dated June 27, 2003, is
    hereby incorporated by reference.                                                                                                                                                                                                                                                                                                                                    

64



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##### Table of Contents



|        |     |             |  |                                                                                                                                                                                                                                        
|------- | --- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|No.     |     | Description
|        |     |            
|       
|        | 10  | .33         |  | Form of Stock Option Agreement for Employees
    Award Plan, dated February 11, 2005, filed as
    Exhibit 99.1 on Form 8-K dated February 17, 2005
    is hereby incorporated by reference.                                           
|       
|        | 10  | .34*        |  | Amended and Restated All*AmerUs Excess Benefit
    Plan.                                                                                                                                                                               
|       
|        | 10  | .35*        |  | Post-Retirement Consulting and Noncompetition
    Agreement between AmerUs Group Co. and Roger K. Brooks
    effective December 31, 2005.                                                                                              
|       
|        | 11  | .1*         |  | Statement Re: Computation of Per Share Earnings
    is included in note 17 to the consolidated financial
    statements.                                                                                                               
|       
|        | 12* |             |  | Computation of Ratios of Earnings to Fixed
    Charges.                                                                                                                                                                                
|       
|        | 20  | .1          |  | Offering Circular dated November 16, 2004,
    to Exchange Optionally Convertible Equity-Linked Accreting Notes
    (OCEANsSM) filed as Exhibit 20.1 on
    Form 8-K, dated December 15, 2004, is hereby
    incorporated by reference.
|       
|        | 21  | .1*         |  | List of Subsidiaries of the Registrant.                                                                                                                                                                                                
|       
|        | 23  | .1*         |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                          
|       
|        | 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

65



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                     
| | ------------------------------------
| | AMERUS GROUP CO.                    
|
| | /s/ ROGER K. BROOKS                 
| |                                     
| | Roger K. Brooks                     
| | Chairman and Chief Executive Officer

Date: March 7, 2005

POWER OF ATTORNEY

We, the undersigned officers and directors of
AmerUs Group Co., hereby severally and individually constitute
and appoint Melinda S. Urion, Brenda J. Cushing and James A.
Smallenberger, and each of them, the true and lawful attorneys
and agents of each of us to execute in the name, place and stead
of each of us (individually and in any capacity stated below)
any and all amendments to this Annual Report on Form 10-K
and all instruments necessary or advisable in connection
therewith and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have the power
to act with or without the others and to have full power and
authority to do and perform in the name and on behalf of each of
the undersigned every act whatsoever necessary or advisable to
be done on the premises as fully and to all intents and purposes
as any of the undersigned might or could do in person, and we
hereby ratify and confirm our signatures as they may be signed
by said attorneys and agents or each of them to any and all such
amendments and instruments.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                                         |  |                                                                                                   |  |               |  | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | ------------- |  | 
|                                         |  |                                                                                                   |  |              
|                                        
|/s/ ROGER K. BROOKSRoger K. Brooks       |  | Chairman and Chief Executive Officer (principal
    executive officer) and Director               |  | March 7, 2005
|                                        
|/s/ THOMAS C. GODLASKYThomas C. Godlasky |  | President and Chief Operating Officer and Director                                                |  | March 7, 2005
|                                        
|/s/ MELINDA S. URIONMelinda S. Urion     |  | Executive Vice President, Chief Financial Officer
    and Treasurer (principal financial officer) |  | March 7, 2005
|                                        
|/s/ BRENDA J. CUSHINGBrenda J. Cushing   |  | Senior Vice President and Controller (principal
    accounting officer)                           |  | March 7, 2005
|                                        
|John R. Albers                           |  | Director                                                                                          |  |              
|                                        
|/s/ DAVID A. ARLEDGEDavid A. Arledge     |  | Director                                                                                          |  | March 7, 2005

66



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##### Table of Contents



|                                               |  |          |  |               |  | 
|---------------------------------------------- |  | -------- |  | ------------- |  | 
|                                               |  |          |  |              
|                                              
|/s/ ALECIA A. DECOUDREAUXAlecia A. DeCoudreaux |  | Director |  | March 7, 2005
|                                              
|/s/ THOMAS F. GAFFNEYThomas F. Gaffney         |  | Director |  | March 7, 2005
|                                              
|Louis A. Holland                               |  | Director |  |              
|                                              
|/s/ JOHN W. NORRIS, JR.John W. Norris, Jr.     |  | Director |  | March 7, 2005
|                                              
|Ward M. Klein                                  |  | Director |  |              
|                                              
|/s/ ANDREW J. PAINE, JR.Andrew J. Paine, Jr.   |  | Director |  | March 7, 2005
|                                              
|/s/ JACK C. PESTERJack C. Pester               |  | Director |  | March 7, 2005
|                                              
|Heidi L. Steiger                               |  | Director |  |              
|                                              
|/s/ STEPHEN STROMEStephen Strome               |  | Director |  | March 7, 2005
|                                              
|/s/ JOHN A. WINGJohn A. Wing                   |  | Director |  | March 7, 2005
|                                              
|/s/ F. A. WITTERN, JR.F. A. Wittern, Jr.       |  | Director |  | March 7, 2005

67



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##### Table of Contents



AMERUS GROUP CO.



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS


|                                                                                                             |  |  |                   | 
|------------------------------------------------------------------------------------------------------------ |  |  | ----------------- | 
|Report of Independent
    Registered Public Accounting Firm                                                  |  |  | F-2               | 
|Consolidated Balance Sheets
    as of December 31, 2004 and 2003                                             |  |  | F-3 through F-4   | 
|Consolidated Statements of
    Income for the Years Ended December 31, 2004, 2003 and
    2002               |  |  | F-5               | 
|Consolidated Statements of
    Comprehensive Income for the Years Ended December 31, 2004,
    2003 and 2002 |  |  | F-6               | 
|Consolidated Statements of
    Stockholders Equity for the Years Ended December 31,
    2004, 2003 and 2002 |  |  | F-7               | 
|Consolidated Statements of
    Cash Flows for the Years Ended December 31, 2004, 2003 and
    2002           |  |  | F-8 through F-9   | 
|Notes to Consolidated
    Financial Statements                                                               |  |  | F-10 through F-60 | 

Separate financial statements of subsidiaries not
consolidated and 50% or less owned persons accounted for by the
equity method have been omitted because they do not individually
constitute a significant subsidiary.

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders

AmerUs Group Co.


We have audited the accompanying consolidated
balance sheets of AmerUs Group Co. as of December 31, 2004
and 2003, and the related consolidated statements of income,
comprehensive income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2004. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of AmerUs Group Co. as of
December 31, 2004 and 2003, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles.

We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of AmerUs Group Co.s
internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 25, 2005 expressed an
unqualified opinion thereon.

As described in note 1 to the consolidated
financial statements, in 2004 the Company changed its method of
accounting for certain non-traditional long-duration insurance
contracts, in 2003 the Company changed its method of accounting
for embedded derivatives associated with certain reinsurance
agreements and in 2002 the Company changed its method of
accounting for goodwill and other intangibles.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Des Moines, Iowa

February 25, 2005


F-2



---



##### Table of Contents



AMERUS GROUP CO.



CONSOLIDATED BALANCE SHEETS


($ in thousands)


|                                     |                                                         |                           |                   |         |            |            |           |         |            |            | 
|------------------------------------ | ------------------------------------------------------- | ------------------------- | ----------------- | ------- | ---------- | ---------- | --------- | ------- | ---------- | ---------- | 
|                                     |                                                         |                          
|                                     |                                                         | December 31,             
|                                     |                                                         |                          
|                                     |                                                         | 2004                      |                   | 2003   
|                                     |                                                         |                           |                   |        
|Assets                              
|Investments:                         |                                                         |                           |                   |         |            |            |           |        
|                                     | Securities available-for-sale at fair value:            |                           |                   |         |            |            |           |         |           
|                                     |                                                         | Fixed maturity securities |                   | $       | 15,646,653 |            |           | $       | 13,944,961 |           
|                                     |                                                         | Equity securities         |                   |         | 77,024     |            |           |         | 74,890     |           
|                                     |                                                         | Short-term investments    |                   |         | 2,979      |            |           |         | 28,556     |           
|                                     | Securities held for trading purposes at fair
    value: |                           |                   |         |            |            |           |         |           
|                                     |                                                         | Fixed maturity securities |                   |         | 1,718,125  |            |           |         | 2,089,502  |           
|                                     |                                                         | Equity securities         |                   |         | 15,468     |            |           |         | 1,652      |           
|                                     |                                                         | Short-term investments    |                   |         |           |            |           |         | 591        |           
|                                     | Mortgage loans                                          |                           |                   | 865,733 |            |            |           | 968,572 |           
|                                     | Policy loans                                            |                           |                   | 486,071 |            |            |           | 494,646 |           
|                                     | Other investments                                       |                           |                   | 374,240 |            |            |           | 380,915 |           
|                                     |                                                         |                           |                   |         |            |            |           |        
|                                     |                                                         |                           | Total investments |         |            | 19,186,293 |           |         |            | 17,984,285 | 
|Cash and cash equivalents            |                                                         |                           | 478,441           |         |            |            | 274,150   |        
|Accrued investment income            |                                                         |                           | 222,294           |         |            |            | 205,492   |        
|Premiums, fees and other receivables |                                                         |                           | 39,688            |         |            |            | 42,761    |        
|Reinsurance receivables              |                                                         |                           | 666,493           |         |            |            | 663,452   |        
|Deferred policy acquisition costs    |                                                         |                           | 1,248,009         |         |            |            | 1,021,856 |        
|Capitalized bonus interest           |                                                         |                           | 137,538           |         |            |            | 98,274    |        
|Value of business acquired           |                                                         |                           | 374,792           |         |            |            | 419,582   |        
|Goodwill                             |                                                         |                           | 226,291           |         |            |            | 224,075   |        
|Property and equipment               |                                                         |                           | 46,114            |         |            |            | 48,849    |        
|Other assets                         |                                                         |                           | 296,409           |         |            |            | 311,305   |        
|Separate account assets              |                                                         |                           | 248,507           |         |            |            | 261,657   |        
|Assets of discontinued operations    |                                                         |                           |                  |         |            |            | 27,950    |        
|                                     |                                                         |                           |                   |         |            |            |           |        
|                                     |                                                         |                           | Total assets      |         | $          | 23,170,869 |           |         | $          | 21,583,688 | 
|                                     |                                                         |                           |                   |         |            |            |           |        

See accompanying notes to consolidated financial
statements.

F-3



---



##### Table of Contents



AMERUS GROUP CO.



CONSOLIDATED BALANCE
SHEETS (Continued)


($ in thousands)


|                                         |                                                                                                                                                                                                                   |                                         |                                            |           |            |            |            |           |            |            | 
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------------------------ | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | 
|                                         |                                                                                                                                                                                                                   |                                        
|                                         |                                                                                                                                                                                                                   | December 31,                           
|                                         |                                                                                                                                                                                                                   |                                        
|                                         |                                                                                                                                                                                                                   | 2004                                    |                                            | 2003     
|                                         |                                                                                                                                                                                                                   |                                         |                                            |          
|Liabilities and Stockholders
    Equity
|Liabilities:                             |                                                                                                                                                                                                                   |                                         |                                            |           |            |            |            |          
|                                         | Policy reserves and policyowner funds:                                                                                                                                                                            |                                         |                                            |           |            |            |            |           |           
|                                         |                                                                                                                                                                                                                   | Future life and annuity policy benefits |                                            | $         | 17,923,329 |            |            | $         | 16,994,255 |           
|                                         |                                                                                                                                                                                                                   | Policyowner funds                       |                                            |           | 1,419,762  |            |            |           | 1,306,160  |           
|                                         |                                                                                                                                                                                                                   |                                         |                                            |           |            |            |            |          
|                                         |                                                                                                                                                                                                                   |                                         | 19,343,091                                 |           |            |            | 18,300,415 |          
|                                         | Accrued expenses and other liabilities                                                                                                                                                                            |                                         |                                            | 837,514   |            |            |            | 459,240   |           
|                                         | Dividends payable to policyowners                                                                                                                                                                                 |                                         |                                            | 322,037   |            |            |            | 321,233   |           
|                                         | Policy and contract claims                                                                                                                                                                                        |                                         |                                            | 70,465    |            |            |            | 58,880    |           
|                                         | Income taxes payable                                                                                                                                                                                              |                                         |                                            | 9,299     |            |            |            | 50,274    |           
|                                         | Deferred income taxes                                                                                                                                                                                             |                                         |                                            | 145,332   |            |            |            | 80,861    |           
|                                         | Notes payable                                                                                                                                                                                                     |                                         |                                            | 571,155   |            |            |            | 621,896   |           
|                                         | Separate account liabilities                                                                                                                                                                                      |                                         |                                            | 248,507   |            |            |            | 261,657   |           
|                                         | Liabilities of discontinued operations                                                                                                                                                                            |                                         |                                            |          |            |            |            | 19,421    |           
|                                         |                                                                                                                                                                                                                   |                                         |                                            |           |            |            |            |          
|                                         |                                                                                                                                                                                                                   |                                         | Total liabilities                          |           |            | 21,547,400 |            |           |            | 20,173,877 | 
|Stockholders equity:                    |                                                                                                                                                                                                                   |                                         |                                            |           |            |            |            |          
|                                         | Preferred Stock, no par value,
    20,000,000 shares authorized, none issued                                                                                                                                      |                                         |                                            |          |            |            |            |          |           
|                                         | Common Stock, no par value,
    230,000,000 shares authorized; 44,225,902 shares
    issued and 39,400,663 shares outstanding in 2004;
    43,836,608 shares issued and 39,194,602 shares
    outstanding in 2003 |                                         |                                            | 44,226    |            |            |            | 43,836    |           
|                                         | Additional paid-in capital                                                                                                                                                                                        |                                         |                                            | 1,198,379 |            |            |            | 1,184,237 |           
|                                         | Accumulated other comprehensive income                                                                                                                                                                            |                                         |                                            | 114,670   |            |            |            | 84,519    |           
|                                         | Unearned compensation                                                                                                                                                                                             |                                         |                                            | (1,238    | )          |            |            | (1,361    | )         
|                                         | Retained earnings                                                                                                                                                                                                 |                                         |                                            | 431,911   |            |            |            | 255,006   |           
|                                         | Treasury stock, at cost (4,825,239 shares in
    2004 and 4,642,006 shares in 2003)                                                                                                                               |                                         |                                            | (164,479  | )          |            |            | (156,426  | )         
|                                         |                                                                                                                                                                                                                   |                                         |                                            |           |            |            |            |          
|                                         |                                                                                                                                                                                                                   |                                         | Total stockholders equity                 |           |            | 1,623,469  |            |           |            | 1,409,811  | 
|                                         |                                                                                                                                                                                                                   |                                         |                                            |           |            |            |            |          
|                                         |                                                                                                                                                                                                                   |                                         | Total liabilities and stockholders equity |           | $          | 23,170,869 |            |           | $          | 21,583,688 | 
|                                         |                                                                                                                                                                                                                   |                                         |                                            |           |            |            |            |          

See accompanying notes to consolidated financial
statements.

F-4



---



##### Table of Contents



AMERUS GROUP CO.



CONSOLIDATED STATEMENTS OF INCOME


($ in thousands, except share data)


|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |            |  
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------------------- | --------- | ---------- |  | ---- | --------- | ---------- |  | - | --------- | ---------- | -
|                                                                |                                                                                      |                                 
|                                                                |                                                                                      | For The Years Ended December 31,
|                                                                |                                                                                      |                                 
|                                                                |                                                                                      | 2004                             |           | 2003       |  | 2002
|                                                                |                                                                                      |                                  |           |            |  |     
|Revenues:                                                       |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                | Insurance premiums                                                                   |                                  | $         | 267,666    |  |      | $         | 297,188    |  |   | $         | 351,300    |  
|                                                                | Product charges                                                                      |                                  |           | 220,554    |  |      |           | 181,354    |  |   |           | 144,494    |  
|                                                                | Net investment income                                                                |                                  |           | 1,037,447  |  |      |           | 1,001,914  |  |   |           | 1,001,257  |  
|                                                                | Realized/unrealized capital gains (losses)                                           |                                  |           | 18,068     |  |      |           | 131,291    |  |   |           | (149,919   | )
|                                                                | Other income                                                                         |                                  |           | 71,381     |  |      |           | 68,298     |  |   |           | 68,513     |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                |                                                                                      |                                  | 1,615,116 |            |  |      | 1,680,045 |            |  |   | 1,415,645 |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Benefits and expenses:                                          |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                | Policyowner benefits                                                                 |                                  |           | 888,696    |  |      |           | 953,834    |  |   |           | 879,785    |  
|                                                                | Underwriting, acquisition and other expenses                                         |                                  |           | 180,051    |  |      |           | 155,468    |  |   |           | 162,267    |  
|                                                                | Demutualization costs                                                                |                                  |           |           |  |      |           |           |  |   |           | 1,186      |  
|                                                                | Restructuring costs                                                                  |                                  |           |           |  |      |           | 23,294     |  |   |           | 21,225     |  
|                                                                | Amortization of deferred policy acquisition costs
    and value of business acquired |                                  |           | 204,863    |  |      |           | 179,664    |  |   |           | 131,672    |  
|                                                                | Dividends to policyowners                                                            |                                  |           | 81,092     |  |      |           | 98,393     |  |   |           | 104,866    |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                |                                                                                      |                                  | 1,354,702 |            |  |      | 1,410,653 |            |  |   | 1,301,001 |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Income from continuing operations                               |                                                                                      |                                  | 260,414   |            |  |      | 269,392   |            |  |   | 114,644   |           
|Interest expense                                                |                                                                                      |                                  | 32,120    |            |  |      | 30,154    |            |  |   | 25,487    |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Income before income tax expense                                |                                                                                      |                                  | 228,294   |            |  |      | 239,238   |            |  |   | 89,157    |           
|Income tax expense                                              |                                                                                      |                                  | 39,041    |            |  |      | 78,610    |            |  |   | 28,375    |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Net income from continuing operations                           |                                                                                      |                                  | 189,253   |            |  |      | 160,628   |            |  |   | 60,782    |           
|Income from discontinued operations, net of tax                 |                                                                                      |                                  | 3,899     |            |  |      | 1,815     |            |  |   | 2,084     |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Net income before cumulative effect of change in
    accounting |                                                                                      |                                  | 193,152   |            |  |      | 162,443   |            |  |   | 62,866    |           
|Cumulative effect of change in accounting, net of
    tax       |                                                                                      |                                  | (510      | )          |  |      | (1,296    | )          |  |   |          |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Net income                                                      |                                                                                      | $                                | 192,642   |            |  | $    | 161,147   |            |  | $ | 62,866    |           
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Net income from continuing operations per common
    share:     |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                | Basic                                                                                |                                  | $         | 4.81       |  |      | $         | 4.10       |  |   | $         | 1.52       |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                | Diluted                                                                              |                                  | $         | 4.60       |  |      | $         | 4.05       |  |   | $         | 1.50       |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Net income per common share:                                    |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                | Basic                                                                                |                                  | $         | 4.90       |  |      | $         | 4.11       |  |   | $         | 1.57       |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                | Diluted                                                                              |                                  | $         | 4.68       |  |      | $         | 4.07       |  |   | $         | 1.56       |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|Weighted average common shares outstanding:                     |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                | Basic                                                                                |                                  |           | 39,334,798 |  |      |           | 39,175,924 |  |   |           | 39,972,328 |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           
|                                                                | Diluted                                                                              |                                  |           | 41,135,188 |  |      |           | 39,618,217 |  |   |           | 40,398,378 |  
|                                                                |                                                                                      |                                  |           |            |  |      |           |            |  |   |           |           

See accompanying notes to consolidated financial
statements.

F-5



---



##### Table of Contents



AMERUS GROUP CO.



CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME


($ in thousands)


|                                               |                                                                       |                                                                                 |         |         |        |      |         |        |        |   |         |         |          |  
|---------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------- | ------- | ------ | ---- | ------- | ------ | ------ | - | ------- | ------- | -------- | -
|                                               |                                                                       |                                                                                
|                                               |                                                                       | For The Years Ended December 31,                                               
|                                               |                                                                       |                                                                                
|                                               |                                                                       | 2004                                                                            |         | 2003    |        | 2002
|                                               |                                                                       |                                                                                 |         |         |        |     
|                                               |                                                                       |                                                                                
|Net income                                     |                                                                       | $                                                                               | 192,642 |         |        | $    | 161,147 |        |        | $ | 62,866  |        
|Other comprehensive income (loss), before tax: |                                                                       |                                                                                 |         |         |        |      |         |        |        |   |         |        
|                                               | Unrealized gains (losses) on securities:                              |                                                                                 |         |         |        |      |         |        |        |   |         |         |         
|                                               |                                                                       | Unrealized holding gains (losses) arising during
    period                     |         |         | 88,450 |      |         |        | 35,051 |   |         |         | 17,324   |  
|                                               |                                                                       | Less: Reclassification adjustment for gains
    (losses) included in net income |         |         | 35,559 |      |         |        | 28,210 |   |         |         | (101,261 | )
|                                               |                                                                       | Minimum pension liability adjustment                                            |         |         | (6,505 | )    |         |        | (4,993 | ) |         |         | (1,888   | )
|                                               |                                                                       |                                                                                 |         |         |        |      |         |        |        |   |         |        
|                                               | Other comprehensive income, before tax                                |                                                                                 |         | 46,386  |        |      |         | 1,848  |        |   |         | 116,697 |         
|                                               | Income tax expense related to items of other
    comprehensive income |                                                                                 |         | (16,235 | )      |      |         | (647   | )      |   |         | (40,844 | )       
|                                               |                                                                       |                                                                                 |         |         |        |      |         |        |        |   |         |        
|                                               |                                                                       |                                                                                 | 30,151  |         |        |      | 1,201   |        |        |   | 75,853  |        
|                                               | Amounts attributable to change in accounting for
    derivatives      |                                                                                 |         |        |        |      |         | (5,204 | )      |   |         |        |         
|                                               |                                                                       |                                                                                 |         |         |        |      |         |        |        |   |         |        
|                                               | Other comprehensive income (loss), net of taxes                       |                                                                                 |         | 30,151  |        |      |         | (4,003 | )      |   |         | 75,853  |         
|                                               |                                                                       |                                                                                 |         |         |        |      |         |        |        |   |         |        
|Comprehensive income                           |                                                                       | $                                                                               | 222,793 |         |        | $    | 157,144 |        |        | $ | 138,719 |        
|                                               |                                                                       |                                                                                 |         |         |        |      |         |        |        |   |         |        

See accompanying notes to consolidated financial
statements.

F-6



---



##### Table of Contents



AMERUS GROUP CO.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


For the Years Ended December 31, 2004,
2003 and 2002


($ in thousands)


|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|------------------------------------------------------------------------------------------------ |  | ------ | ------ | ---------- |  | ------------- | --------- | ------------ |  | ----------- | ------- | -------- |  | -------- | ------ | ------------- |  | - | ------ | - |  | - | ------- | - |  | - | -------- | - |  | - | --------- | -
|                                                                                                 |  |        |        |            |  | Accumulated   |           |              |  |             |         |          |  |          |        |              
|                                                                                                 |  |        |        | Additional |  | Other         |           |              |  | Unallocated |         |          |  |          |        | Total        
|                                                                                                 |  | Common |        | Paid-In    |  | Comprehensive |           | Unearned     |  | ESOP        |         | Retained |  | Treasury |        | Stockholders
|                                                                                                 |  | Stock  |        | Capital    |  | Income        |           | Compensation |  | Shares      |         | Earnings |  | Stock    |        | Equity       
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |              
|                                                                                                 |  |       
|Balance at December 31, 2001                                                                     |  | $      | 43,506 |            |  | $             | 1,177,688 |              |  | $           | 12,669  |          |  | $        | (727   | )             |  | $ | (224   | ) |  | $ | 62,187  |   |  | $ | (56,582  | ) |  | $ | 1,238,517 |  
|2002:                                                                                            |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | 62,866  |   |  |   |         |   |  |   | 62,866    |  
|Net unrealized gain on securities                                                                |  |        |       |            |  |               |          |              |  |             | 73,646  |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 73,646    |  
|Net unrealized gain on derivatives designated as
    cash flow hedges                            |  |        |       |            |  |               |          |              |  |             | 3,434   |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 3,434     |  
|Stock issued under various incentive plans, net
    of forfeitures                               |  |        | 150    |            |  |               | 5,730     |              |  |             |        |          |  |          | 269    |               |  |   |       |   |  |   |        |   |  |   | 1        |   |  |   | 6,150     |  
|Stock issued under exercise of warrants                                                          |  |        |       |            |  |               | (3,802    | )            |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   | 12,205   |   |  |   | 8,403     |  
|Purchase of ESOP shares and treasury stock                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   | (2,522 | ) |  |   |        |   |  |   | (112,116 | ) |  |   | (114,638  | )
|Dividends declared on common stock                                                               |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | (15,536 | ) |  |   |         |   |  |   | (15,536   | )
|Allocation of shares in leveraged ESOP                                                           |  |        |       |            |  |               | 30        |              |  |             |        |          |  |          |       |               |  |   | 1,303  |   |  |   |        |   |  |   |         |   |  |   | 1,333     |  
|Minimum pension liability adjustment                                                             |  |        |       |            |  |               |          |              |  |             | (1,227  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (1,227    | )
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Balance at December 31, 2002                                                                     |  |        | 43,656 |            |  |               | 1,179,646 |              |  |             | 88,522  |          |  |          | (458   | )             |  |   | (1,443 | ) |  |   | 109,517 |   |  |   | (156,492 | ) |  |   | 1,262,948 |  
|2003:                                                                                            |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | 161,147 |   |  |   |         |   |  |   | 161,147   |  
|Net unrealized gain on securities                                                                |  |        |       |            |  |               |          |              |  |             | 1,971   |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 1,971     |  
|Net unrealized gain on derivatives designated as
    cash flow hedges                            |  |        |       |            |  |               |          |              |  |             | 2,476   |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 2,476     |  
|Change in accounting transfer of unrealized gain
    on available-for-sale securities to trading |  |        |       |            |  |               |          |              |  |             | (5,204  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (5,204    | )
|Stock issued under various incentive plans, net
    of forfeitures                               |  |        | 180    |            |  |               | 11,717    |              |  |             |        |          |  |          | (903   | )             |  |   |       |   |  |   |        |   |  |   | 66       |   |  |   | 11,060    |  
|PRIDES purchase contract adjustments and
    allocated fees and expenses                         |  |        |       |            |  |               | (7,280    | )            |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (7,280    | )
|Purchase of treasury stock                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   |          |  
|Dividends declared on common stock                                                               |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | (15,658 | ) |  |   |         |   |  |   | (15,658   | )
|Allocation of shares in leveraged ESOP                                                           |  |        |       |            |  |               | 154       |              |  |             |        |          |  |          |       |               |  |   | 1,443  |   |  |   |        |   |  |   |         |   |  |   | 1,597     |  
|Minimum pension liability adjustment                                                             |  |        |       |            |  |               |          |              |  |             | (3,246  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (3,246    | )
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Balance at December 31, 2003                                                                     |  |        | 43,836 |            |  |               | 1,184,237 |              |  |             | 84,519  |          |  |          | (1,361 | )             |  |   |       |   |  |   | 255,006 |   |  |   | (156,426 | ) |  |   | 1,409,811 |  
|2004:                                                                                            |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | 192,642 |   |  |   |         |   |  |   | 192,642   |  
|Net unrealized gain on securities                                                                |  |        |       |            |  |               |          |              |  |             | 33,959  |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 33,959    |  
|Net unrealized gain on derivatives designated as
    cash flow hedges                            |  |        |       |            |  |               |          |              |  |             | 420     |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | 420       |  
|Stock issued under various incentive plans, net
    of forfeitures                               |  |        | 390    |            |  |               | 14,142    |              |  |             |        |          |  |          | 123    |               |  |   |       |   |  |   |        |   |  |   | 1,100    |   |  |   | 15,755    |  
|Purchase of treasury stock                                                                       |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   |        |   |  |   | (9,153   | ) |  |   | (9,153    | )
|Dividends declared on common stock                                                               |  |        |       |            |  |               |          |              |  |             |        |          |  |          |       |               |  |   |       |   |  |   | (15,737 | ) |  |   |         |   |  |   | (15,737   | )
|Minimum pension liability adjustment                                                             |  |        |       |            |  |               |          |              |  |             | (4,228  | )        |  |          |       |               |  |   |       |   |  |   |        |   |  |   |         |   |  |   | (4,228    | )
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  
|Balance at December 31, 2004                                                                     |  | $      | 44,226 |            |  | $             | 1,198,379 |              |  | $           | 114,670 |          |  | $        | (1,238 | )             |  | $ |       |   |  | $ | 431,911 |   |  | $ | (164,479 | ) |  | $ | 1,623,469 |  
|                                                                                                 |  |        |        |            |  |               |           |              |  |             |         |          |  |          |        |               |  |   |        |   |  |   |         |   |  |   |          |   |  |   |           |  

See accompanying notes to consolidated financial
statements.

F-7



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##### Table of Contents



AMERUS GROUP CO.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


($ in thousands)


|                                                                                      |                                                                                                                       |                                                            |                        |          |          |         |             |          |          |          |            |          |          |         |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------- | -------- | -------- | ------- | ----------- | -------- | -------- | -------- | ---------- | -------- | -------- | ------- | -
|                                                                                      |                                                                                                                       |                                                           
|                                                                                      |                                                                                                                       | For The Years Ended December 31,                          
|                                                                                      |                                                                                                                       |                                                           
|                                                                                      |                                                                                                                       | 2004                                                       |                        | 2003     |          | 2002   
|                                                                                      |                                                                                                                       |                                                            |                        |          |          |        
|                                                                                      |                                                                                                                       |                                                           
|Cash flows from operating activities                                                  |                                                                                                                       |                                                            |                        |          |          |         |             |          |          |          |            |         
|Net income                                                                            |                                                                                                                       | $                                                          | 192,642                |          |          | $       | 161,147     |          |          | $        | 62,866     |         
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                                                       |                                                            |                        |          |          |         |             |          |          |          |            |         
|                                                                                      | Cumulative effect of change in accounting                                                                             |                                                            |                        | 510      |          |         |             | 1,296    |          |          |            |         |         
|                                                                                      | Gain on sale of discontinued operations                                                                               |                                                            |                        | (3,899   | )        |         |             |         |          |          |            |         |         
|                                                                                      | Product charges                                                                                                       |                                                            |                        | (220,554 | )        |         |             | (181,354 | )        |          |            | (144,494 | )       
|                                                                                      | Interest credited to policyowner account balances                                                                     |                                                            |                        | 487,579  |          |         |             | 472,881  |          |          |            | 492,781  |         
|                                                                                      | Change in option value of equity indexed products
    and market value adjustments on total return strategy annuities |                                                            |                        | 35,652   |          |         |             | 65,741   |          |          |            | (28,759  | )       
|                                                                                      | Realized/unrealized capital (gains) losses                                                                            |                                                            |                        | (18,068  | )        |         |             | (131,291 | )        |          |            | 149,919  |         
|                                                                                      | DAC and VOBA amortization                                                                                             |                                                            |                        | 204,863  |          |         |             | 179,664  |          |          |            | 131,672  |         
|                                                                                      | DAC and VOBA capitalized                                                                                              |                                                            |                        | (390,236 | )        |         |             | (357,348 | )        |          |            | (366,509 | )       
|                                                                                      | Change in:                                                                                                            |                                                            |                        |          |          |         |             |          |          |          |            |          |         
|                                                                                      |                                                                                                                       | Accrued investment income                                  |                        |          | (16,802  | )       |             |          | (19,832  | )        |            |          | (11,422  | )      
|                                                                                      |                                                                                                                       | Reinsurance receivables                                    |                        |          | (77,765  | )       |             |          | 279,552  |          |            |          | (129,638 | )      
|                                                                                      |                                                                                                                       | Securities held for trading purposes:                      |                        |          |          |         |             |          |          |          |            |          |          |        
|                                                                                      |                                                                                                                       |                                                            | Fixed maturities       |          |          | 394,090 |             |          |          | (219,310 | )          |          |          | 321,836 |  
|                                                                                      |                                                                                                                       |                                                            | Equity securities      |          |          | (13,899 | )           |          |          | (1,606   | )          |          |          | 12,013  |  
|                                                                                      |                                                                                                                       |                                                            | Short-term investments |          |          | 579     |             |          |          | (596     | )          |          |          | 4,221   |  
|                                                                                      |                                                                                                                       | Liabilities for future policy benefits                     |                        |          | (189,635 | )       |             |          | (243,613 | )        |            |          | 446,437  |        
|                                                                                      |                                                                                                                       | Accrued expenses and other liabilities                     |                        |          | 371,880  |         |             |          | 181,595  |          |            |          | (40,684  | )      
|                                                                                      |                                                                                                                       | Policy and contract claims and other policyowner
    funds |                        |          | 129,060  |         |             |          | 111,374  |          |            |          | 30,769   |        
|                                                                                      |                                                                                                                       | Income taxes:                                              |                        |          |          |         |             |          |          |          |            |          |          |        
|                                                                                      |                                                                                                                       |                                                            | Current                |          |          | (43,546 | )           |          |          | (11,051  | )          |          |          | 14,837  |  
|                                                                                      |                                                                                                                       |                                                            | Deferred               |          |          | 48,492  |             |          |          | 66,849   |            |          |          | (24,363 | )
|                                                                                      | Other, net                                                                                                            |                                                            |                        | 39,444   |          |         |             | 40,785   |          |          |            | (1,428   | )       
|                                                                                      |                                                                                                                       |                                                            |                        |          |          |         |             |          |          |          |            |         
|                                                                                      | Net cash provided by operating activities                                                                             |                                                            |                        | 930,387  |          |         |             | 394,883  |          |          |            | 920,054  |         
|                                                                                      |                                                                                                                       |                                                            |                        |          |          |         |             |          |          |          |            |         
|Cash flows from investing
    activities:                                             |                                                                                                                       |                                                            |                        |          |          |         |             |          |          |          |            |         
|Purchase of fixed maturities available-for-sale                                       |                                                                                                                       |                                                            | (5,624,235             | )        |          |         | (10,430,571 | )        |          |          | (8,269,367 | )       
|Proceeds from sale of fixed maturities
    available-for-sale                         |                                                                                                                       |                                                            | 2,525,792              |          |          |         | 7,467,468   |          |          |          | 5,736,480  |         
|Maturities, calls and principal reductions of
    fixed maturities available-for-sale |                                                                                                                       |                                                            | 1,389,431              |          |          |         | 2,354,539   |          |          |          | 959,293    |         
|Purchase of equity securities                                                         |                                                                                                                       |                                                            | (47,509                | )        |          |         | (12,721     | )        |          |          | (66,408    | )       
|Proceeds from sale of equity securities                                               |                                                                                                                       |                                                            | 47,093                 |          |          |         | 14,926      |          |          |          | 771        |         
|Change in short-term investments, net                                                 |                                                                                                                       |                                                            | 26,233                 |          |          |         | (108        | )        |          |          | (17,216    | )       
|Purchase of mortgage loans                                                            |                                                                                                                       |                                                            | (133,673               | )        |          |         | (202,721    | )        |          |          | (64,416    | )       

F-8



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##### Table of Contents



AMERUS GROUP CO.


CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

($ in thousands)


|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |            |  
|----------------------------------------------------------------------------- | ----------------------------------------- | -------------------------------- | ---------- | ---------- | - | ---- | ---------- | -------- | - | - | ---------- | ---------- | -
|                                                                              |                                           |                                 
|                                                                              |                                           | For The Years Ended December 31,
|                                                                              |                                           |                                 
|                                                                              |                                           | 2004                             |            | 2003       |   | 2002
|                                                                              |                                           |                                  |            |            |   |     
|Proceeds from repayment and sale of mortgage loans                            |                                           |                                  | 244,702    |            |   |      | 123,033    |          |   |   | 130,855    |           
|Purchase of real estate and other invested assets                             |                                           |                                  | (84,769    | )          |   |      | (323,676   | )        |   |   | (28,872    | )         
|Proceeds from sale of real estate and other
    invested assets               |                                           |                                  | 131,162    |            |   |      | 328,002    |          |   |   | 61,661     |           
|Change in policy loans, net                                                   |                                           |                                  | 8,576      |            |   |      | 2,107      |          |   |   | 9,565      |           
|Proceeds from sale of discontinued operations                                 |                                           |                                  | 15,000     |            |   |      |           |          |   |   |           |           
|Other assets, net                                                             |                                           |                                  | 7,740      |            |   |      | (9,800     | )        |   |   | 4,684      |           
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|                                                                              | Net cash used in investing activities     |                                  |            | (1,494,457 | ) |      |            | (689,522 | ) |   |            | (1,542,970 | )
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|Cash flows from financing
    activities:                                     |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|Deposits to policyowner account balances                                      |                                           |                                  | 2,404,255  |            |   |      | 2,220,545  |          |   |   | 2,180,925  |           
|Withdrawals from policyowner account balances                                 |                                           |                                  | (1,576,963 | )          |   |      | (1,825,472 | )        |   |   | (1,630,869 | )         
|Change in debt, net                                                           |                                           |                                  | (49,796    | )          |   |      | (61,596    | )        |   |   | (38,703    | )         
|Dividends to shareholders                                                     |                                           |                                  | (15,737    | )          |   |      | (15,658    | )        |   |   | (15,536    | )         
|Stock issued under various incentive plans, net
    of forfeitures            |                                           |                                  | 15,755     |            |   |      | 11,060     |          |   |   | 14,553     |           
|Purchase of treasury stock                                                    |                                           |                                  | (9,153     | )          |   |      |           |          |   |   | (114,638   | )         
|Proceeds from issuance of OCEANs                                              |                                           |                                  |           |            |   |      |           |          |   |   | 179,593    |           
|Proceeds from issuance of PRIDES                                              |                                           |                                  |           |            |   |      | 135,701    |          |   |   |           |           
|Retirement of company-obligated mandatorily
    redeemable capital securities |                                           |                                  |           |            |   |      |           |          |   |   | (20,805    | )         
|Adoption and allocation of shares in leveraged
    ESOP                       |                                           |                                  |           |            |   |      | 1,597      |          |   |   | 1,333      |           
|Transfer of pension obligation to trustee                                     |                                           |                                  |           |            |   |      |           |          |   |   | (9,481     | )         
|Other, net                                                                    |                                           |                                  |           |            |   |      |           |          |   |   | (220       | )         
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|                                                                              | Net cash provided by financing activities |                                  |            | 768,361    |   |      |            | 466,177  |   |   |            | 546,152    |  
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|                                                                              | Net increase in cash                      |                                  |            | 204,291    |   |      |            | 171,538  |   |   |            | (76,764    | )
|Cash and cash equivalents at beginning of period                              |                                           |                                  | 274,150    |            |   |      | 102,612    |          |   |   | 179,376    |           
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|Cash and cash equivalents at end of period                                    |                                           | $                                | 478,441    |            |   | $    | 274,150    |          |   | $ | 102,612    |           
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|Supplemental disclosure of cash
    activities:                               |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|Interest paid                                                                 |                                           | $                                | 30,965     |            |   | $    | 32,516     |          |   | $ | 25,408     |           
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|Income taxes paid                                                             |                                           | $                                | 31,510     |            |   | $    | 25,422     |          |   | $ | 22,351     |           
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|Supplemental disclosure of non-cash operating
    activities:                 |                                           |                                  |            |            |   |      |            |          |   |   |            |           
|Capitalization of bonus interest                                              |                                           | $                                | 60,495     |            |   | $    | 43,454     |          |   | $ | 42,119     |           
|                                                                              |                                           |                                  |            |            |   |      |            |          |   |   |            |           

See accompanying notes to consolidated financial
statements.

F-9



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##### Table of Contents



AMERUS GROUP CO.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(1) SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Nature of Operations

AmerUs Group Co. (Company) is a holding company
whose subsidiaries are primarily engaged in the business of
marketing, underwriting and distributing a broad range of
individual life, annuity and insurance deposit products to
individuals and businesses in all 50 states, the District
of Columbia and the U.S. Virgin Islands. The Company has
two reportable operating segments: protection products and
accumulation products. The primary offerings of the protection
products segment are interest-sensitive whole life, term life,
universal life and equity indexed life insurance policies.
Equity indexed life is a type of universal life or
interest-sensitive whole life product. The primary offerings of
the accumulation products segment are individual fixed
annuities, including traditional fixed annuities and equity
indexed annuities, and insurance contracts issued through
funding agreements.

Consolidation and Basis of
Presentation

The accompanying consolidated financial
statements of the Company and its wholly-owned subsidiaries have
been prepared in conformity with accounting principles generally
accepted in the United States (GAAP) which, as to the
insurance company subsidiaries, differ from statutory accounting
practices prescribed or permitted by regulatory authorities.

The accompanying consolidated financial
statements include the accounts and operations of the Company
and its wholly-owned subsidiaries, principally, AmerUs Life
Insurance Company (ALIC), AmerUs Annuity Group Co. and its
subsidiaries (collectively, AAG, formerly AmVestors Financial
Corporation (AmVestors)), AmerUs Capital Management Group, Inc.
(ACM), and ILICO Holdings, Inc., the holding company of
Indianapolis Life Insurance Company (ILIC) and its
subsidiaries (collectively, ILICO). All significant intercompany
transactions and balances have been eliminated in consolidation.

Effective on March 29, 2002, Western
Security Life Insurance Company, a subsidiary of ILIC, was sold.
The insurance business of Western Security Life Insurance
Company was transferred to ILIC prior to the sale. The sale of
the corporate organization and insurance licenses resulted in a
gain of approximately $1.9 million which is included in
realized gains.

Certain amounts in the 2003 and 2002 financial
statements have been reclassified to conform to the 2004
financial statement presentation.

The preparation of consolidated financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. The valuation of financial instruments, derivatives,
and amortization of deferred policy acquisition costs and value
of business acquired are areas which involve a high degree of
estimation to determine their reported amounts. These areas are
described in more detail in the following policies.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company
includes cash and amounts due from other financial institutions
and interest-bearing deposits in other financial institutions
purchased with original maturities of three months or less in
cash and cash equivalents. Amounts of interest-bearing deposits
included as cash equivalents at December 31, 2004 and 2003
were $144.1 million and $123.6 million, respectively.

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Closed Block

The Company has established two Closed Blocks of
policies: (1) on June 30, 1996 in connection with the
reorganization of ALIC from a mutual company to a stock company,
and (2) on March 31, 2000 in connection with the
reorganization of ILIC from a mutual company to a stock company
(collectively, the Closed Block). Insurance policies which had a
dividend scale in effect as of each Closed Block establishment
date were included in the Closed Block. The Closed Block was
designed to give reasonable assurance to owners of insurance
policies that, after the reorganization of ALIC and ILIC, assets
would be available to maintain the dividend scales and interest
credits in effect prior to the reorganization, if the experience
underlying such scales and crediting continues. The assets,
including revenue therefrom, allocated to the Closed Block will
accrue solely to the benefit of the owners of policies included
in the Closed Block until the Closed Block no longer exists. The
Company will continue to pay guaranteed benefits under all
policies, including policies included in the Closed Block, in
accordance with their terms. In the event that the Closed
Blocks assets were insufficient to meet the benefits of
the Closed Blocks guaranteed benefits, general assets
would be utilized to meet the contractual benefits of the Closed
Blocks policyholders.

A policyowner dividend obligation is required to
be established for earnings in the Closed Block that are not
available to shareholders. A model of the Closed Block was
established to produce the pattern of expected earnings in the
Closed Block. If actual cumulative earnings of the Closed Block
are greater than the expected cumulative earnings of the Closed
Block, only the expected cumulative earnings will be recognized
in income with the excess recorded as a policyowner dividend
obligation. This policyowner dividend obligation represents
undistributed accumulated earnings that will be paid to Closed
Block policyowners as additional policyowner dividends unless
offset by future performance of the Closed Block that is less
favorable than originally expected. If actual cumulative
performance is less favorable than expected, only actual
earnings will be recognized in income.

Investments

Investments in fixed maturity securities, equity
securities and short-term investments that are to be held for
indefinite periods of time are reported as securities
available-for-sale and are reported in the accompanying
consolidated financial statements at fair value. Any valuation
changes resulting from changes in the fair value of these
securities are reflected as a component of stockholders
equity. These unrealized gains or losses in stockholders
equity are reported net of taxes and adjustments to deferred
policy acquisition costs (DAC), value of business acquired
(VOBA), capitalized bonus interest and policy reserves. Fixed
maturity securities, equity securities and short-term
investments that are bought and held principally to back our
total return strategy fixed annuity products are reported as
held for trading securities and are carried at fair value with
unrealized gains or losses reported in net income. Premiums and
discounts on fixed maturity securities are amortized or accreted
over the life of the related security as an adjustment to yield
using the effective interest method. The accreted carrying value
of investments in structured securities that can be
contractually prepaid or settled in a way that substantially all
of an investment may not be recovered is determined by updating
the estimate for the amount and timing of cash flows with
resulting adjustments in the accretable yield accounted for
prospectively. Should this estimate of cash flows reflect an
adverse change from an immediately preceding estimate, an
other-than-temporary impairment (OTTI) is deemed to have
occurred and, accordingly, the structured security is written
down to fair value with the change reflected in net income. For
loan-backed and structured securities included in fixed maturity
securities, income is recognized using a constant effective
yield based on currently anticipated cash flows.

Securities are also reviewed to identify
potential impairments. In determining if and when a decline in
market value below amortized cost is other-than-temporary, we
evaluate the market conditions, offering prices, trends of
earnings, price multiples, and other key measures for our
investments in marketable equity securities and debt
instruments. For fixed maturity securities, our intent and
ability to hold securities is also

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

considered. When such a decline in value is
deemed to be other-than-temporary, we recognize an impairment
loss in the current period net income to the extent of the
decline.

Market values of fixed maturity securities are
reported based on quoted market prices, where available. Market
values of fixed maturity securities not actively traded in a
liquid market are estimated by comparison to similar securities
with quoted prices when possible. Otherwise, the most recent
purchases and sales of similar unquoted securities, independent
broker quotes or internally prepared valuations are used to
estimate fair value. Internally prepared valuations use a matrix
calculation assuming a spread (based on interest rates and a
risk assessment of the bonds) over U.S. Treasury bonds.
Market values of redeemable preferred stocks and equity
securities are based on the latest quoted market prices, or for
those not readily marketable, generally at values which are
representative of the market values of comparable issues.

Loans are stated at cost less amortized discounts
and allowances for possible losses. Policy loans are stated at
their aggregate unpaid balances. Investments in loans are
considered impaired when the Company determines that collection
of all amounts due under the contractual terms is doubtful or
carrying values exceed the fair value of applicable underlying
collateral or assets. The Company adjusts such assets to their
estimated net realizable value at the point at which it
determines an impairment is other than temporary. Interest
income on impaired mortgage loans is recognized when cash is
received. In addition, the Company establishes a specific
valuation allowance for loans when they are considered to be
impaired.

The Company has issued funding agreements
totaling $960 million outstanding as of December 31,
2004, consisting primarily of six to ten year fixed rate
insurance contracts. The assets backing the funding agreements
are legally segregated and are not subject to claims that arise
out of any other business of the insurance subsidiaries. The
funding agreements are further backed by the general account
assets of the insurance companies. The segregated assets and
liabilities are included with general account assets in the
financial statements. The funding agreements may not be
cancelled by the holders unless there is a default under the
agreements, but the Company may terminate the agreements at any
time. The Company issued a $250 million floating rate
funding agreement in 1999. Under the transaction, a five-year
floating rate insurance contract was issued to a commercial
paper conduit which was swapped to a fixed-rate. The
$250 million funding agreement was terminated in December
2003.

Other long-term investments include investments
in partnerships, derivatives and other investments. Investments
in partnerships in which the Companys ownership percentage
exceeds 3% and joint ventures are generally accounted for under
the equity method whereby the Company initially records the
investment at cost. Subsequently, the Company increases or
decreases the carrying amount of the investment for its share of
income or loss of the investee. Investments in partnerships in
which the Companys ownership percentage is less than 3%
are generally accounted for under the cost method whereby
dividends received by the investee are recognized as income. The
Company is primarily a limited partner in such investments.
These investments are shown as other investments and totaled
approximately $36.8 million and $52.2 million at
December 31, 2004 and 2003, respectively. Derivatives are
primarily carried at fair value. Other investments are generally
carried at amortized cost.

Realized gains and losses are included in
earnings and are determined using the specific identification
method.

Derivative Instruments and Hedging
Activities

The Company uses financial instruments, primarily
options, futures and swaps to reduce its exposure to changes in
interest rates and to manage duration mismatches. The Company
also uses call options to hedge equity indexed products. The use
of these financial instruments modifies the exposure of these
risks with the intent to reduce the risk and variability to the
Company. Although the Company is subject to the risk that

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

counterparties will fail to perform, credit
standings of counterparties are monitored regularly. The Company
is not a party to leveraged derivatives. Derivative instruments
are included in other investments.

On the date a derivative contract is entered
into, the Company designates the derivative as either (1) a
hedge of a recognized asset or liability or an unrecognized firm
commitment (a fair value hedge), (2) a hedge of a
forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized asset or liability (a
cash flow hedge), or (3) a natural hedging instrument whose
change in fair value is recognized to act as an economic hedge
against changes in the values of the hedged item and which does
not meet the accounting hedge criteria for SFAS 133 (a
natural hedge).

For fair value hedges, both the effective and
ineffective portion of the changes in the fair value of the
derivative, along with the gain or loss on the hedged item that
is attributable to the hedged risk, are recorded in earnings and
reported net in the consolidated statements of income. The
effective portion of the changes in the fair value of a
derivative that is designated as a cash flow hedge is recorded
in AOCI. When the hedged cash transaction is realized, the gain
or loss included in AOCI is reported net in the consolidated
statements of income with the hedged cash transaction item. In
addition, the ineffective portion of the changes in the fair
value of derivatives designated as cash flow hedges are reported
in net investment income in the consolidated statements of
income. For derivatives designated as a natural hedge, changes
in fair value are classified as realized/unrealized gains
(losses) on investments in the consolidated statement of income.

The Company documents its hedge relationships,
including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and
strategies for undertaking the hedge transaction. Free standing
derivatives are recorded in the consolidated balance sheets at
fair value in other investments and option derivatives embedded
in equity indexed products are marked to fair value and
classified in the consolidated balance sheets as policy
reserves and policyowner funds. This process includes
linking derivatives that are designated as hedges of specific
assets, liabilities, firm commitments or forecasted
transactions. The Company also formally assesses at inception
and at least quarterly thereafter, whether the derivatives that
are used in hedging transactions, other than natural hedges, are
highly effective in offsetting changes in either the fair value
or cash flows of the hedged item. When a determination is made
that a derivative ceases to be a highly effective hedge, the
Company will discontinue hedge accounting for the derivative.

To manage interest rate risk, the Company entered
into interest rate swaps that effectively fixed the interest
payments of a floating rate funding agreement liability and
other interest swaps that hedged market risk from fixed income
securities. These interest rate swap agreements were accounted
for as cash flow and fair value hedges, respectively. Generally
credit default swaps are coupled with a bond to synthetically
create an investment cheaper than the equivalent instrument
traded in the cash market. The Company may use additional
derivative instruments for hedging purposes.

Deferred Policy Acquisition Costs

Certain commissions, policy issue and
underwriting costs, and other variable costs incurred to acquire
or renew traditional life insurance, universal life insurance,
equity indexed life and annuity products are deferred. The
method of amortizing DAC for traditional life insurance products
varies, dependent upon whether the contract is participating or
non-participating. Participating contracts are those which are
expected to pay dividends to policyowners in proportion to their
relative contribution to the Companys statutory surplus.
DAC for participating traditional life insurance is generally
amortized over the life of the policies in proportion to the
present value of estimated gross margins. Non-participating
traditional life insurance DAC is amortized over the
premium-paying period of the related policies in proportion to
the ratio of annual premium revenues to total anticipated
premium revenues using assumptions consistent with those used in
computing policy benefit reserves. For universal life insurance
and annuity products, DAC is generally amortized in proportion
to the present value of estimated gross margins from surrender
charges and investment, mortality, and expense

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

margins. The effect on the cumulative
amortization of DAC for revisions in estimated future gross
margins on participating traditional life, universal life, and
annuity products is reflected in the period such estimates are
revised. The DAC asset is also adjusted for the impact on
estimated gross margins of net unrealized gains and losses on
securities supporting such products.

Capitalized Bonus Interest

Bonus interest offered on certain annuity
products is recognized as a policyowner liability as the sales
inducement is accrued and credited to the policyowners
account. Bonus interest is capitalized as an asset if it is
explicitly identified in the contract at inception, is
incremental to amounts credited on similar contracts without
sales inducements and is higher than the contracts
expected ongoing crediting rates for periods after the
inducement period. The amortization of capitalized bonus
interest is expensed to policyowner benefits in proportion to
the present value of estimated gross margins similar to DAC.

Value of Business Acquired

The portion of the purchase price from insurance
companies allocated to the right to receive future cash flows
from insurance contracts existing at the date of the acquisition
is referred to as VOBA. This cost of policies purchased
represents the actuarially determined present value of the
projected future gross margins from the acquired policies.

The expected future gross margins used in
determining such value are based on actuarially determined
projections of future premium receipts, mortality, surrenders,
operating expenses, changes in insurance liabilities, investment
yields on the assets retained to support the policy liabilities
and other factors. These projections take into account all
factors known or expected at the valuation date, based on the
judgment of management. The actual experience on purchased
business may vary from projections due to differences in renewal
premium, investment spread, investment gains or losses,
mortality and morbidity costs and other factors.

The discount rate used to determine the value of
policies purchased is the rate of return required in order to
invest in the business being acquired. Factors in determining
this rate include the cost of capital required to fund the
acquisition; the acquired companys compatibility with
other Company activities that may impact future gross margins;
the complexity of the acquired company; and recent discount
rates used by others to determine valuations to acquire similar
blocks of business.

VOBA is amortized based on the incidence of the
expected gross margins using the interest rate credited to the
underlying policies. If gross margins differ from expectations,
the amortization of the VOBA is adjusted. The VOBA asset is
adjusted for the impact on estimated gross margins of net
unrealized gains and losses on securities supporting the
underlying business. Each year, the recoverability of the VOBA
is evaluated and if the evaluation indicates that the existing
insurance liabilities, together with the present value of future
gross margins from the blocks of business acquired, is
insufficient to recover the VOBA, the difference is charged to
expense as an additional write-off of the VOBA.

Goodwill

Goodwill represents the excess of the amount paid
to acquire a company over the fair value of its net assets.
Goodwill is tested for impairment on an annual basis as of
October 1, and between annual tests if indicators of
potential impairment exist, using a fair-value-based approach.
No impairment of goodwill has been identified during any period
presented.

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Property and Equipment

Property and equipment is recorded at cost and is
depreciated principally under the straight-line method over the
estimated useful lives of the assets.

Separate Account

Separate account assets and liabilities represent
funds that are separately administered, principally for variable
annuity contracts, and for which the contractholder, rather than
the Company, bears the investment risk. Separate account
contractholders have no claim against the assets of the general
funds of the Company. Separate account assets are reported at
fair value. The operations of the separate accounts are not
included in the accompanying consolidated financial statements.

Recognition of Revenues

Premiums for traditional life insurance products
(including those products with fixed and guaranteed premiums and
benefits and which consist principally of whole life insurance
policies and certain annuities with life contingencies) are
recognized as revenues when due. For limited payment life
insurance policies, premiums are recorded as income when due
with any excess profit deferred and recognized over the expected
lives of the contracts. Amounts received as payments for
universal life insurance policies (including equity indexed life
products), annuity products (including deferred annuities,
equity indexed annuities and annuities without life
contingencies) and funding agreements are not recorded as
premium revenue. Revenues for such contracts consist of policy
charges for the cost of insurance, policy administration
charges, and surrender charges assessed against policyowner
account balances during the period. All insurance-related
revenue is reported net of reinsurance ceded.

Future Policy Benefits

The liability for future policy benefits for
traditional life insurance is computed using the net level
method, utilizing the guaranteed interest and mortality rates
used in calculating cash surrender values as described in the
contracts. Reserve interest assumptions range from
2.0 percent to 7.5 percent. The weighted average
interest rate for all traditional life policy reserves was
4.46 percent in 2004 and 2003 and 4.60 percent in
2002. Policy benefit claims are charged to expense in the period
that the claims are incurred. All insurance-related benefits,
losses, and expenses are reported net of reinsurance ceded.

Future policy benefit reserves for universal life
insurance, equity indexed life, annuity products and funding
agreements are computed under a retrospective deposit method and
represent policy account balances before applicable surrender
charges. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of
related policy account balances. The weighted average interest
crediting rates for universal life products were
4.62 percent in 2004, 4.96 percent in 2003 and
5.39 percent in 2002. The range of interest crediting rates
for annuity products, excluding bonus interest payouts, was 3.00
to 7.20 percent in 2004, 2003, and 2002. The weighted
average interest rate for fixed-rate and floating-rate funding
agreements was 4.48 and 2.66 in 2004, and 4.69 and 1.17 in 2003,
and 4.69 percent and 2.01 percent in 2002,
respectively. An additional liability is established for
universal life contracts with death or other insurance benefit
features which is determined using an equally-weighted range of
scenarios with respect to investment returns, policyowner
lapses, benefit election rates, premium payment patterns and
mortality. The additional liability represents the present value
of future expected benefits based on current product assumptions.

Unearned revenue reserves are established for
fees charged for insurance benefit features which are assessed
in a manner that is expected to result in higher profits in
earlier years followed by lower profits or

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

losses in subsequent years. The excess charges
are deferred and amortized to income over the period benefited
using the same assumptions and factors to amortize DAC.

The Company has equity indexed life and annuity
products that guarantee the return of principal to the customer
and credit interest based on certain indices, primarily the
Standard & Poors 500 Composite Stock Price Index
® (S&P 500 Index). A portion of the premium from each
customer is invested in investment grade fixed income securities
and is intended to cover the minimum guaranteed value due the
customer at the end of the term. A portion of the premium is
used to purchase call options to hedge the growth in interest
credited to the customer as a direct result of increases in the
related indices. The amounts to be paid or received pursuant to
these agreements are accrued and recognized in income over the
life of the agreements. Both call options held by the Company
and the options embedded in the policy, which the Company has
designated as a natural hedge, are valued at fair value. The
change in fair value for the call options is included in
realized/unrealized gains (losses) on investments and the change
in fair value of the embedded options is included in policyowner
benefits in the consolidated statements of income.

The Company has certain products that credit
interest based on a total return strategy. Under the total
return strategy, the policyowner is allowed to allocate their
premium payments to different asset classes within the
Companys general account assets to which the selected
strategy is linked, less certain charges. The total return
adjustment is paid when a policyowner accesses the funds. The
Company guarantees a minimum return of premium plus
approximately 3% interest per annum over the life of the
contract. The general account assets backing the total return
strategy of these products are fixed maturity securities and are
designated by the Company as held for trading. Both the trading
securities held by the Company and the product contracts are
valued at fair value. The change in fair value for the trading
securities is included in realized/unrealized gains (losses) on
investments and the change in fair value of the contracts is
included in policyowner benefits in the consolidated statements
of income.

Reinsurance

The Company enters into reinsurance agreements
with other companies in the normal course of business. The
Company may assume reinsurance or cede reinsurance to other
companies. Assets and liabilities related to reinsurance ceded
are reported on a gross basis. Premiums and expenses are
reported net of reinsurance ceded. The Company is contingently
liable for the portion of the policies reinsured under each of
its existing reinsurance agreements in the event the reinsurance
companies are unable to pay their portion of any reinsured
claim. Management believes that any liability from this
contingency is unlikely. However, to limit the possibility of
such losses, the Company evaluates the financial condition of
its reinsurers and monitors concentration of credit risk.

Participating Policies

Participating policies entitle the policyowners
to receive dividends based on actual interest, mortality,
morbidity, and expense experience for the related policies.
These dividends are distributed to the policyowners through an
annual dividend using current dividend scales which are approved
by the board of directors. Approximately 44 percent in 2004
and 52 percent in 2003 of traditional life policies are
currently paying dividends. Traditional life policies represent
approximately 69 percent in 2004 and 72 percent in
2003 of the Companys individual life policies in force
(based on face amounts).

Stock-Based Compensation

At December 31, 2004, the Company has
stock-based employee compensation plans, which are described
more fully in note 13. The Company primarily accounts for
those plans under the recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based
employee compensation cost is reflected in net income, as all
options granted

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

under those plans had an exercise price equal to
the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income
and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123, Accounting for
Stock-Based Compensation, to stock-based employee
compensation:

|                                                                                                                                                    |  |                                     |         |      |  |      |         |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                                                                                    |  |                                    
|                                                                                                                                                    |  | Years Ended December 31,           
|                                                                                                                                                    |  |                                    
|                                                                                                                                                    |  | 2004                                |         | 2003 |  | 2002
|                                                                                                                                                    |  |                                     |         |      |  |     
|                                                                                                                                                    |  |                                    
|                                                                                                                                                    |  | ($ in thousands, except share data)
|Net income, as reported                                                                                                                             |  | $                                   | 192,642 |      |  | $    | 161,147 |   |  | $ | 62,866 |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |  |                                     | (3,986  | )    |  |      | (4,087  | ) |  |   | (5,094 | )
|                                                                                                                                                    |  |                                     |         |      |  |      |         |   |  |   |        |  
|Pro forma net income                                                                                                                                |  | $                                   | 188,656 |      |  | $    | 157,060 |   |  | $ | 57,772 |  
|                                                                                                                                                    |  |                                     |         |      |  |      |         |   |  |   |        |  
|Earnings per share:                                                                                                                                 |  |                                     |         |      |  |      |         |   |  |   |        |  
|Basic  as reported                                                                                                                                 |  | $                                   | 4.90    |      |  | $    | 4.11    |   |  | $ | 1.57   |  
|                                                                                                                                                    |  |                                     |         |      |  |      |         |   |  |   |        |  
|Basic  pro forma                                                                                                                                   |  | $                                   | 4.80    |      |  | $    | 4.01    |   |  | $ | 1.45   |  
|                                                                                                                                                    |  |                                     |         |      |  |      |         |   |  |   |        |  
|Diluted  as reported                                                                                                                               |  | $                                   | 4.68    |      |  | $    | 4.07    |   |  | $ | 1.56   |  
|                                                                                                                                                    |  |                                     |         |      |  |      |         |   |  |   |        |  
|Diluted  pro forma                                                                                                                                 |  | $                                   | 4.59    |      |  | $    | 3.96    |   |  | $ | 1.43   |  
|                                                                                                                                                    |  |                                     |         |      |  |      |         |   |  |   |        |  

Guaranty Fund Assessments

The Company is subject to insurance guaranty laws
in the states in which it writes business. These laws provide
for assessments against insurance companies for the benefit of
policyowners and claimants in the event of insolvency of other
life insurance companies. As of December 31, 2004 and 2003,
the Company has accrued for the gross amount of guaranty fund
assessments for known insolvencies and has established an other
asset for assessments expected to be recovered through future
premium tax offsets.

Income Taxes

Generally, the Company and its non-life insurance
subsidiaries file a consolidated federal income tax return. The
life insurance subsidiaries file separate federal income tax
returns, except for ILIC and Bankers Life Insurance Company of
New York which together file a consolidated tax return beginning
in 2002. In prior years, the life insurance subsidiaries filed
separate federal income tax returns. The separate return method
is used to compute the Companys provision for allocating
federal income taxes. Deferred income tax assets and liabilities
are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes
in stockholders equity during a period except those
resulting from investments by and distributions to stockholders.
Other comprehensive income (loss) excludes net realized
investment gains included in net income which merely represent
transfers from unrealized to realized gains and losses. Such
amounts totaled $35.6 million, $28.2 million and
($101.3) million in 2004, 2003 and 2002, respectively

Earnings Per Share

Basic earnings per share of common stock are
computed by dividing net income by the weighted-average number
of common shares outstanding during the period. Diluted earnings
per share assumes the issuance of

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

common shares applicable to stock options,
warrants, PRIDESSM and the Companys Optionally
Convertible Equity-linked Accreting Notes (OCEANsSM)
and is calculated using the treasury stock method.

Diluted earnings per share applicable to the
Companys PRIDESSM securities are determined
using the treasury stock method as it is currently anticipated
that holders of the PRIDES are more likely to tender cash in the
future for the securities forward contract. The PRIDES
added 833,715 shares and 72,151 shares to the diluted
earnings per share calculation for the years ended 2004 and
2003, respectively. See further discussion of the PRIDES in
note 8.

Diluted earnings per share applicable to the
Companys OCEANsSM are determined using the
guidance of the Financial Accounting Standards Boards
Emerging Issues Task Force Issue 04-8 (EITF 04-8),
The Effect of Contingently Convertible Debt on Diluted
Earnings per Share, which was effective for periods ending
after December 15, 2004. EITF 04-8 requires diluted
earnings per share to be computed following the guidance of EITF
90-19, Convertible Bonds with Issuer Option to Settle for
Cash upon Conversion, for securities such as the OCEANs
which are considered to be Instrument C securities.
The conversion spread portion of an Instrument C security should
be included in diluted earnings per share based on the number of
shares that would be required to be delivered if the instrument
had been converted at the end of the period. The OCEANs added
294,008 shares for the diluted earnings per share
calculation for the year ended December 31, 2004 and added
no shares for the years ended December 31, 2003 and 2002.
EITF 04-8 required restatement of diluted earnings per
share for all periods presented; however, there was no change to
diluted earnings per share for 2003 or 2002. See further
discussion of the OCEANs in note 8.

Accounting Changes

Effective January 1, 2004, the Company
adopted Statement of Position 03-1 (SOP 03-1), Accounting
and Reporting by Insurance Enterprises for Certain
Non-Traditional Long-Duration Insurance Contracts and for
Separate Accounts, issued by the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants. The adoption of SOP 03-1 resulted in
establishing additional policy reserve liabilities for fees
charged for insurance benefit features which are assessed in a
manner that is expected to result in profits in earlier years
and losses in subsequent years. The total effect of adopting SOP
03-1 (including reinsurance recoverables) as of
January  1, 2004 and the establishment of reinsurance
recoveries, amounted to a decrease of $0.8 million
($0.5 million after-tax) in net income which has been
reflected as a cumulative effect of a change in accounting. The
basic and diluted earnings per common share for the change in
accounting amounted to $.01 for 2004.

In addition, the adoption of SOP 03-1 established
guidance for the accounting and presentation of costs related to
sales inducements. There was no change to the Companys
method of accounting for sales inducements; however, the
capitalized costs are now separately disclosed in the
consolidated balance sheet and the related amortization expense
is included in policyowner benefits in the consolidated
statement of income. Prior to 2004, the capitalized costs were
included in deferred policy acquisition costs and the
amortization expense was included in the amortization of
deferred policy acquisition costs. The 2003 amounts have been
reclassified to conform with the 2004 presentation.

The Financial Accounting Standards Boards
Derivatives Implementation Group issued SFAS 133
Implementation Issue No. B36, Embedded Derivatives:
Bifurcation of a Debt Instrument that Incorporates both Interest
Rate Risk and Credit Risk Exposures that are Unrelated or Only
Partially Related to the Creditworthiness of the Issuer of that
Instrument, or DIG Issue B36. DIG Issue B36 applies to
modified coinsurance and coinsurance with funds withheld
arrangements where interest is determined by reference to a pool
of fixed maturity assets or a total return debt index. DIG Issue
B36 considers the reinsurers receivable from the ceding
company to contain an embedded derivative that must be
bifurcated and accounted for separately under SFAS 133. The
Company adopted DIG Issue B36 on October 1, 2003. See
note 4 for additional information regarding the adoption of
DIG Issue B36.

F-18



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Effective January 1, 2002, the Company
adopted SFAS 142, Goodwill and Other Intangible
Assets. SFAS 142 adopts a nonamortization,
impairment  only model for the Companys
goodwill and indefinite-lived intangible assets. This includes a
more stringent impairment test methodology for measuring and
recognizing impairment losses. The Company accordingly
discontinued amortization of goodwill on January 1, 2002.

Emerging Accounting Matters



| |          
| | ---------
| | EITF 03-1

In March 2004, the Emerging Issues Task Force of
the Financial Accounting Standards Board (FASB) reached a
final consensus on Issue 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments, (EITF 03-1). EITF 03-1 established
impairment models for determining whether to record impairment
losses associated with investments in certain equity and debt
securities. It also required income to be accrued on a
level-yield basis following an impairment of debt securities,
where reasonable estimates of the timing and amount of future
cash flows can be made. EITF 03-1 indicated that, although
not presumptive, a pattern of selling investments prior to the
forecasted recovery may call into question an investors
intent to hold the security until its value recovers.
EITF 03-1 was to be effective for reporting periods
beginning after June 15, 2004; however, in September 2004,
the effective date of these provisions was delayed until the
finalization of a FASB Staff Position (FSP) to provide
further guidance on this topic.



| |          
| | ---------
| | EITF 04-8

In September 2004, the EITF reached a final
consensus on Issue 04-8, The Effect of Contingently
Convertible Debt on Diluted Earnings per Share,
(EITF 04-8). EITF 04-8 requires that contingently
convertible debt be included in diluted earnings per share, if
dilutive, regardless of whether the market price trigger has
been met. The EITF is effective for periods ending after
December  15, 2004 with the determination of the
dilutive effect upon adoption to be based on the form of the
instrument as it existed at the end of the quarter of adoption.
This EITF applied to the Companys OCEANs. During the
fourth quarter of 2004, the Company exchanged the OCEANs which
changed the securitys conversion provisions. Previously,
the OCEANs were to all be converted to shares of the
Companys common stock; however, the exchanged OCEANs
provide for cash to be paid equal to the accreted principal
value and shares of the Companys common stock issued for
the conversion value in excess of the accreted principal amount.
The Company applied the restatement provisions of EITF 04-8
based on the new form of the exchanged OCEANs which resulted in
no change in previously reported diluted earnings per share for
2002 or 2003.



| |         
| | --------
| | FSP 97-1

In June 2004, the FASB issued Financial Staff
Position FAS 97-1, Situations in Which Paragraphs of
FASB Statement No. 97 Permit or Require Accrual of an
Unearned Revenue Liability, (FSP 97-1). FSP 97-1 clarifies
that SOP 03-1 did not restrict the recording of a liability for
unearned revenue as defined in accordance with
paragraphs 17(b) and 20 of SFAS 97, Accounting
and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of
Investments, to only those situations where profits are
followed by expected losses. FSP 97-1 was effective for periods
beginning after June 18, 2004. The adoption of FSP 97-1 did
not have an effect on the consolidated financial position or
results of operations in 2004.



| |          
| | ---------
| | FSP 106-2

In May 2004, the FASB issued Financial Staff
Position FAS 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug
Improvement and Modernization Act of 2003,

F-19



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(FSP 106-2). FSP 106-2 requires sponsors of a
post-retirement health care plan that provides retiree
prescription drug benefit to reflect the provisions of the
Medicare Prescription Drug Improvement and Modernization Act of
2003 (the Medicare Act) in determining post-retirement benefit
cost for the first annual or interim period beginning after
June 15, 2004. The Company has determined that the drug
benefits provided under the post-retirement benefits program for
Medicare eligible retirees are not actuarially equivalent to the
benefit established by the Medicare Act, and therefore the
Company will not be eligible to receive the federal subsidy. As
a result, there was no effect on the consolidated financial
position or result of operations in 2004.



| |          
| | ---------
| | SFAS 123R

In December 2004, the FASB issued a revision to
SFAS 123, Share-Based Payment, (SFAS 123R)
which is a revision of SFAS 123, Accounting for
Stock-Based Compensation, (SFAS 123). SFAS 123R
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income
statement based on fair values. Pro forma disclosure of fair
value information is no longer an alternative. The statement is
effective in the first interim or annual period beginning after
June 15, 2005. Adoption is to be made using either the
modified prospective method or the modified retrospective
method. The modified prospective method recognizes cost based on
the requirements for all share-based payments granted after the
effective date and for awards granted prior to the effective
date that remain unvested prior to the effective date. The
modified retrospective method includes the requirements of the
modified prospective method but also permits restatement of
financial statements based on pro forma amounts previously
recognized under SFAS 123. Restatement can either be for
all prior periods presented or prior interim periods of the year
of adoption. Early adoption is permitted. We continue to
evaluate the impacts and timing of adopting SFAS 123R. We
currently disclose the pro forma impacts of recognizing fair
value as permitted by SFAS 123 in note 1 to the
consolidated financial statements. That disclosure reflects the
Companys estimate of 2004 expense for share-based payments
of approximately $4.0 million (after-tax).

F-20



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |             
|--- | ------------
|(2) | CLOSED BLOCK

The Closed Block is presented on a pre-tax basis
and accordingly does not include current or deferred taxes.
Summarized financial information of the Closed Block as of
December 31, 2004, 2003 and 2002 and for the years then
ended is as follows:

|                                                                                             |                   |                  |           |           |  |      |           |           |  |   |           |           | 
|-------------------------------------------------------------------------------------------- | ----------------- | ---------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                                                                             |                   | 2004             |           | 2003      |  | 2002
|                                                                                             |                   |                  |           |           |  |     
|                                                                                             |                   |                 
|                                                                                             |                   | ($ in thousands)
|Liabilities:                                                                                 |                   |                  |           |           |  |      |           |           |  |   |           |          
|Future life and annuity policy benefits                                                      |                   | $                | 2,804,222 |           |  | $    | 2,845,365 |           |  | $ | 2,840,041 |          
|Policyowner funds                                                                            |                   |                  | 8,096     |           |  |      | 9,232     |           |  |   | 4,400     |          
|Accrued expenses and other liabilities                                                       |                   |                  | 32,140    |           |  |      | 44,473    |           |  |   | 44,295    |          
|Dividends payable to policyowners                                                            |                   |                  | 161,475   |           |  |      | 173,703   |           |  |   | 147,177   |          
|Policy and contract claims                                                                   |                   |                  | 14,705    |           |  |      | 22,694    |           |  |   | 10,390    |          
|Policyowner dividend obligation                                                              |                   |                  | 152,975   |           |  |      | 134,386   |           |  |   | 118,623   |          
|                                                                                             |                   |                  |           |           |  |      |           |           |  |   |           |          
|                                                                                             | Total Liabilities |                  |           | 3,173,613 |  |      |           | 3,229,853 |  |   |           | 3,164,926 | 
|                                                                                             |                   |                  |           |           |  |      |           |           |  |   |           |          
|Assets:                                                                                      |                   |                  |           |           |  |      |           |           |  |   |           |          
|Fixed maturity securities available-for-sale at
    fair value                               |                   |                  | 2,028,790 |           |  |      | 2,027,177 |           |  |   | 1,970,659 |          
|Mortgage loans                                                                               |                   |                  | 70,686    |           |  |      | 80,170    |           |  |   | 90,872    |          
|Policy loans                                                                                 |                   |                  | 335,573   |           |  |      | 346,823   |           |  |   | 354,784   |          
|Other investments                                                                            |                   |                  | 34        |           |  |      |          |           |  |   | 1,047     |          
|Cash and cash equivalents                                                                    |                   |                  | 8,473     |           |  |      | 3,492     |           |  |   | 6,178     |          
|Accrued investment income                                                                    |                   |                  | 32,637    |           |  |      | 32,629    |           |  |   | 30,726    |          
|Premiums and fees receivable                                                                 |                   |                  | 59,369    |           |  |      | 55,134    |           |  |   | 16,999    |          
|Other assets                                                                                 |                   |                  | 17        |           |  |      | 17        |           |  |   | 23,917    |          
|                                                                                             |                   |                  |           |           |  |      |           |           |  |   |           |          
|                                                                                             | Total Assets      |                  |           | 2,535,579 |  |      |           | 2,545,442 |  |   |           | 2,495,182 | 
|                                                                                             |                   |                  |           |           |  |      |           |           |  |   |           |          
|Maximum future earnings to be recognized from
    assets and liabilities of the Closed Block |                   | $                | 638,034   |           |  | $    | 684,411   |           |  | $ | 669,744   |          
|                                                                                             |                   |                  |           |           |  |      |           |           |  |   |           |          

F-21



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                      |  |                  |          |      |  |      |          |   |  |   |          |  
|--------------------------------------------------------------------- |  | ---------------- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                                      |  | 2004             |          | 2003 |  | 2002
|                                                                      |  |                  |          |      |  |     
|                                                                      |  |                 
|                                                                      |  | ($ in thousands)
|Change in policyowner dividend
    obligation:                        |  |                  |          |      |  |      |          |   |  |   |          |  
|Balance at beginning of year                                          |  | $                | 134,386  |      |  | $    | 118,623  |   |  | $ | 61,486   |  
|Impact on net income before income taxes                              |  |                  | 2,795    |      |  |      | 8,345    |   |  |   | (287     | )
|Unrealized investment gains                                           |  |                  | 15,794   |      |  |      | 7,418    |   |  |   | 57,424   |  
|                                                                      |  |                  |          |      |  |      |          |   |  |   |          |  
|Balance at end of year                                                |  | $                | 152,975  |      |  | $    | 134,386  |   |  | $ | 118,623  |  
|                                                                      |  |                  |          |      |  |      |          |   |  |   |          |  
|Operations:                                                           |  |                  |          |      |  |      |          |   |  |   |          |  
|Insurance premiums                                                    |  | $                | 193,313  |      |  | $    | 211,966  |   |  | $ | 265,586  |  
|Product charges                                                       |  |                  | 5,190    |      |  |      | 9,789    |   |  |   | 8,750    |  
|Net investment income                                                 |  |                  | 146,545  |      |  |      | 151,769  |   |  |   | 157,928  |  
|Realized gains (losses) on investments                                |  |                  | (1,693   | )    |  |      | 9,326    |   |  |   | (2,400   | )
|Policyowner benefits                                                  |  |                  | (225,408 | )    |  |      | (251,872 | ) |  |   | (284,821 | )
|Underwriting, acquisition and other expenses                          |  |                  | (4,896   | )    |  |      | (4,114   | ) |  |   | (4,843   | )
|Dividends to policyowners                                             |  |                  | (76,256  | )    |  |      | (87,388  | ) |  |   | (95,443  | )
|                                                                      |  |                  |          |      |  |      |          |   |  |   |          |  
|Contribution from the Closed Block before income
    taxes            |  | $                | 36,795   |      |  | $    | 39,476   |   |  | $ | 44,757   |  
|                                                                      |  |                  |          |      |  |      |          |   |  |   |          |  
|Maximum future earnings from Closed Block
    assets and liabilities: |  |                  |          |      |  |      |          |   |  |   |          |  
|Beginning of year                                                     |  | $                | 684,411  |      |  | $    | 669,744  |   |  | $ | 715,611  |  
|Pretax contribution from the Closed Block                             |  |                  | (36,795  | )    |  |      | (39,476  | ) |  |   | (44,757  | )
|Federal income taxes funded by the Closed Block                       |  |                  | (9,582   | )    |  |      | 54,143   |   |  |   | 14,553   |  
|Acquisition of Closed Block and related adjustment                    |  |                  |         |      |  |      |         |   |  |   | (15,663  | )
|                                                                      |  |                  |          |      |  |      |          |   |  |   |          |  
|Balance at end of year                                                |  | $                | 638,034  |      |  | $    | 684,411  |   |  | $ | 669,744  |  
|                                                                      |  |                  |          |      |  |      |          |   |  |   |          |  

F-22



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |            
|--- | -----------
|(3) | INVESTMENTS

Investment Assets

The Companys investments at
December 31, 2004 and 2003, classified as securities
available-for-sale, are summarized as follows:

|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |        |  |        |            |            | 
|--------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ---------- | ---------- | ---------- | ----- | ---------- | ------- |  | --- | ------ | ------ |  | ------ | ---------- | ---------- | 
|                                              |                                           |                                          
|                                              |                                           | 2004                                     
|                                              |                                           |                                          
|                                              |                                           |                                           |        | Gross      |            | Gross      |       |           
|                                              |                                           | Amortized                                 |        | unrealized |            | unrealized |       |           
|                                              |                                           | cost                                      |        | gains      |            | losses     |       | Fair value
|                                              |                                           |                                           |        |            |            |            |       |           
|                                              |                                           |                                          
|                                              |                                           | ($ in thousands)                         
|Fixed maturity securities available-for-sale: |                                           |                                           |        |            |            |            |       |            |         |  |     |        |        |  |        |           
|                                              | Corporate bonds                           |                                           | $      | 10,585,934 |            |            | $     | 527,780    |         |  | $   | 29,123 |        |  | $      | 11,084,591 |           
|                                              | U.S. government bonds                     |                                           |        | 283,064    |            |            |       | 5,181      |         |  |     | 1,186  |        |  |        | 287,059    |           
|                                              | State and political subdivisions          |                                           |        | 63,818     |            |            |       | 1,801      |         |  |     | 692    |        |  |        | 64,927     |           
|                                              | Foreign government bonds                  |                                           |        | 110,337    |            |            |       | 5,124      |         |  |     | 89     |        |  |        | 115,372    |           
|                                              | Asset-backed bonds                        |                                           |        | 509,059    |            |            |       | 10,620     |         |  |     | 1,228  |        |  |        | 518,451    |           
|                                              | Collateralized mortgage-backed securities |                                           |        | 1,088,296  |            |            |       | 17,660     |         |  |     | 4,258  |        |  |        | 1,101,698  |           
|                                              | Mortgage-backed securities                |                                           |        | 1,889,249  |            |            |       | 24,522     |         |  |     | 3,937  |        |  |        | 1,909,834  |           
|                                              | Indexed debt instruments                  |                                           |        | 571,965    |            |            |       | 1,728      |         |  |     | 8,973  |        |  |        | 564,720    |           
|                                              | Redeemable preferred stock                |                                           |        | 1          |            |            |       |           |         |  |     |       |        |  |        | 1          |           
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |        |  |        |           
|                                              |                                           | Total fixed maturities available-for-sale |        | $          | 15,101,723 |            |       | $          | 594,416 |  |     | $      | 49,486 |  |        | $          | 15,646,653 | 
|Equity securities available-for-sale          |                                           |                                           | 74,769 |            |            |            | 2,468 |            |         |  | 213 |        |        |  | 77,024 |           
|Short-term investments available-for-sale     |                                           |                                           | 2,951  |            |            |            | 51    |            |         |  | 23  |        |        |  | 2,979  |           
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |        |  |        |           
|                                              |                                           | Total available-for-sale securities       |        | $          | 15,179,443 |            |       | $          | 596,935 |  |     | $      | 49,722 |  |        | $          | 15,726,656 | 
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |        |  |        |           

|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |           |            | 
|--------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ---------- | ---------- | ---------- | ----- | ---------- | ------- |  | --- | ------ | ------- |  | ------ | --------- | ---------- | 
|                                              |                                           |                                          
|                                              |                                           | 2003                                     
|                                              |                                           |                                          
|                                              |                                           |                                           |        | Gross      |            | Gross      |       |           
|                                              |                                           | Amortized                                 |        | unrealized |            | unrealized |       |           
|                                              |                                           | Cost                                      |        | gains      |            | losses     |       | Fair value
|                                              |                                           |                                           |        |            |            |            |       |           
|                                              |                                           |                                          
|                                              |                                           | ($ in thousands)                         
|Fixed maturity securities available-for-sale: |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |          
|                                              | Corporate bonds                           |                                           | $      | 9,041,015  |            |            | $     | 500,180    |         |  | $   | 57,809 |         |  | $      | 9,483,386 |           
|                                              | U.S. government bonds                     |                                           |        | 484,829    |            |            |       | 17,131     |         |  |     | 1,653  |         |  |        | 500,307   |           
|                                              | State and political subdivisions          |                                           |        | 64,574     |            |            |       | 2,844      |         |  |     | 1,431  |         |  |        | 65,987    |           
|                                              | Foreign government bonds                  |                                           |        | 123,360    |            |            |       | 5,474      |         |  |     | 291    |         |  |        | 128,543   |           
|                                              | Asset-backed bonds                        |                                           |        | 447,390    |            |            |       | 13,563     |         |  |     | 1,448  |         |  |        | 459,505   |           
|                                              | Collateralized mortgage-backed securities |                                           |        | 931,824    |            |            |       | 21,874     |         |  |     | 2,694  |         |  |        | 951,004   |           
|                                              | Mortgage-backed securities                |                                           |        | 1,835,775  |            |            |       | 27,657     |         |  |     | 7,950  |         |  |        | 1,855,482 |           
|                                              | Indexed debt instruments                  |                                           |        | 404,383    |            |            |       |           |         |  |     | 8,258  |         |  |        | 396,125   |           
|                                              | Redeemable preferred stock                |                                           |        | 141,752    |            |            |       | 1          |         |  |     | 37,131 |         |  |        | 104,622   |           
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |          
|                                              |                                           | Total fixed maturities available-for-sale |        |            | 13,474,902 |            |       |            | 588,724 |  |     |        | 118,665 |  |        |           | 13,944,961 | 
|Equity securities available-for-sale          |                                           |                                           | 72,796 |            |            |            | 2,468 |            |         |  | 374 |        |         |  | 74,890 |          
|Short-term investments available-for-sale     |                                           |                                           | 27,882 |            |            |            | 675   |            |         |  | 1   |        |         |  | 28,556 |          
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |          
|                                              |                                           | Total available-for-sale securities       |        | $          | 13,575,580 |            |       | $          | 591,867 |  |     | $      | 119,040 |  |        | $         | 14,048,407 | 
|                                              |                                           |                                           |        |            |            |            |       |            |         |  |     |        |         |  |        |          

F-23



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The amortized cost and estimated fair value of
investments in available-for-sale fixed maturity securities at
December 31, 2004, are summarized by stated maturity as
follows:

|                                     |                            |                  |            |            |  |   |            |           | 
|------------------------------------ | -------------------------- | ---------------- | ---------- | ---------- |  | - | ---------- | --------- | 
|                                     |                            | Amortized        |            |           
|                                     |                            | cost             |            | Fair value
|                                     |                            |                  |            |           
|                                     |                            |                 
|                                     |                            | ($ in thousands)
|Fixed maturities available-for-sale: |                            |                  |            |            |  |   |            |          
|                                     | Due in 2005                |                  | $          | 518,302    |  |   | $          | 526,889   | 
|                                     | Due in 2006 - 2010         |                  |            | 2,759,526  |  |   |            | 2,899,486 | 
|                                     | Due in 2011 - 2015         |                  |            | 5,868,693  |  |   |            | 6,086,765 | 
|                                     | Due after 2015             |                  |            | 4,065,953  |  |   |            | 4,223,679 | 
|                                     | Mortgage-backed securities |                  |            | 1,889,249  |  |   |            | 1,909,834 | 
|                                     |                            |                  |            |            |  |   |            |          
|                                     |                            | $                | 15,101,723 |            |  | $ | 15,646,653 |          
|                                     |                            |                  |            |            |  |   |            |          

The foregoing data is based on the stated
maturities of the securities. Actual maturities will differ for
some securities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

The Company holds fixed maturities
available-for-sale investments in indexed debt instruments
(IDIs) in which the principal is initially partially defeased by
an obligation of a third party financial institution
(institution) collateralized by U.S. Treasuries which
will accrete to 50% of the original principal amount of the IDIs
at maturity. The balance of the principal amount due at maturity
is subject to a dynamic defeasance mechanism, which should
provide a return of the initial investment. The instruments
issued by the institutions are linked to the performance of a
hedge fund or fund of funds. The annual income on these
investments will be equal to the quarterly distribution of the
hedge fund or fund of funds plus the change in the present value
of anticipated distributions to be received at maturity and will
be included in net investment income. Over the life of the IDIs,
the income will be a function of the cumulative performance of
the linked hedge fund or fund of funds and the return on any
defeased portion of the investment. The quarterly distribution
paid, if any, reduces the amount of future participation in the
performance of the linked hedge fund or fund of funds. At
maturity, the Company will take delivery of the referenced hedge
fund interests and cash or U.S. Treasuries equal to the
portion of the instruments that have been defeased, the total of
which should equal or exceed the instruments principal
amount. The investment purpose of these instruments is to enable
the Company to obtain the return as if they had invested in
hedge funds or fund of funds with dynamic principal protection.
The instruments as of December 31, 2004 carried an A rating
or better by Fitch.

Included in equity securities available-for-sale
is Federal Home Loan Bank (FHLB) capital stock
amounting to $62.4 million and $58.1 million at
December 31, 2004 and 2003, respectively. As a member of
the FHLB, the Company is required to own the capital stock to
utilize various FHLB financing and other services.

At December 31, 2004 and 2003, investments
in fixed maturity securities with a carrying amount of
$37.1 million and $39.6 million, respectively, were on
deposit with state insurance departments to satisfy regulatory
requirements.

At December 31, 2004 and 2003, the Company
held investments with JP Morgan Chase & Co. amounting
to $175.2 million and $89.4 million, respectively,
Bear Stearns Company amounting to $163.1 million and
$170.7 million, respectively, and AG Deutsche Bank
amounting to $161.7 million and $159.8 million,
respectively. The investments are primarily IDIs and exceeded
10% of stockholders equity.

The Company participates in a securities lending
program whereby certain fixed maturity securities from the
investment portfolio are loaned to other institutions for a
short period of time. The Company receives a fee

F-24



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

in exchange for the loan of securities and
requires initial collateral equal to 102 percent of the
market value of the loaned securities to be separately
maintained. Securities with a market value of
$342.6 million and $154.6 million were on loan under
the program and the Company has cash collateral under its
control of $351.7 million and $158.8 million at
December 31, 2004 and 2003, respectively. The collateral
held under the securities lending program has been included in
cash and cash equivalents in the consolidated balance sheet and
the obligation to return the collateral upon the return of the
loaned securities has been included in accrued expenses and
other liabilities.

The Company enters into securities borrowing
arrangements from time to time whereby the Company borrows
securities from other institutions and pays a fee. Securities
borrowed amounted to $138.2 million and none at
December 31, 2004 and 2003, respectively, and are also
included in accrued expenses and other liabilities in the
consolidated balance sheet.

Other investments include investments which are
carried on the equity method of accounting. Distributions from
such equity method investments amounted to $0.6 million,
$1.5 million and $0.8 million in 2004, 2003 and 2002,
respectively.

Major categories of investment income are
summarized as follows:

|                          |  |                          |           |      |  |      |           |  |  |   |           | 
|------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                          |  |                         
|                          |  | Years ended December 31,
|                          |  |                         
|                          |  | 2004                     |           | 2003 |  | 2002
|                          |  |                          |           |      |  |     
|                          |  |                         
|                          |  | ($ in thousands)        
|Fixed maturity securities |  | $                        | 924,146   |      |  | $    | 874,185   |  |  | $ | 880,112   | 
|Equity securities         |  |                          | 723       |      |  |      | 817       |  |  |   | 304       | 
|Mortgage Loans            |  |                          | 69,144    |      |  |      | 74,739    |  |  |   | 77,592    | 
|Policy loans              |  |                          | 30,147    |      |  |      | 30,473    |  |  |   | 31,170    | 
|Other                     |  |                          | 30,761    |      |  |      | 36,846    |  |  |   | 25,392    | 
|                          |  |                          |           |      |  |      |           |  |  |   |           | 
|Gross investment income   |  |                          | 1,054,921 |      |  |      | 1,017,060 |  |  |   | 1,014,570 | 
|Investment expenses       |  |                          | 17,474    |      |  |      | 15,146    |  |  |   | 13,313    | 
|                          |  |                          |           |      |  |      |           |  |  |   |           | 
|Net investment income     |  | $                        | 1,037,447 |      |  | $    | 1,001,914 |  |  | $ | 1,001,257 | 
|                          |  |                          |           |      |  |      |           |  |  |   |           | 

F-25



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Realized and Unrealized Gains
(Losses)

Realized and unrealized gains and losses on
investments and provisions for loan losses are summarized as
follows:

|                                                                      |                           |                          |        |      |         |        |        |   |          |         |         |   |          |          |  
|--------------------------------------------------------------------- | ------------------------- | ------------------------ | ------ | ---- | ------- | ------ | ------ | - | -------- | ------- | ------- | - | -------- | -------- | -
|                                                                      |                           |                         
|                                                                      |                           | Years ended December 31,
|                                                                      |                           |                         
|                                                                      |                           | 2004                     |        | 2003 |         | 2002  
|                                                                      |                           |                          |        |      |         |       
|                                                                      |                           |                         
|                                                                      |                           | ($ in thousands)        
|Available-for-sale securities:                                        |                           |                          |        |      |         |        |        |   |          |         |         |  
|                                                                      | Fixed maturity securities |                          |        |      |         |        |        |   |          |         |         |   |         
|                                                                      |                           | Gross realized gains     |        | $    | 27,374  |        |        | $ | 184,996  |         |         | $ | 141,687  |         
|                                                                      |                           | Gross realized losses    |        |      | (66,700 | )      |        |   | (143,097 | )       |         |   | (236,063 | )       
|                                                                      | Equity securities         |                          |        |      |         |        |        |   |          |         |         |   |         
|                                                                      |                           | Gross realized gains     |        |      | 1,555   |        |        |   | 89       |         |         |   | 418      |         
|                                                                      |                           | Gross realized losses    |        |      |        |        |        |   | (211     | )       |         |   | (155     | )       
|Other investments                                                     |                           |                          | (7,358 | )    |         |        | (8,979 | ) |          |         | (12,474 | )
|Reduction in provision for loan losses                                |                           |                          | 6,650  |      |         |        | 8,723  |   |          |         | 1,877   |  
|Realized/unrealized gains/(losses) on swaps                           |                           |                          | (2,620 | )    |         |        | 3,852  |   |          |         | 2,674   |  
|Realized/unrealized gains/(losses) on option
    assets               |                           |                          | 50,634 |      |         |        | 59,098 |   |          |         | (42,942 | )
|Realized/unrealized gains/(losses) on held for
    trading securities |                           |                          | 8,533  |      |         |        | 26,820 |   |          |         | (4,941  | )
|                                                                      |                           |                          |        |      |         |        |        |   |          |         |         |  
|                                                                      |                           |                          | Total  |      | $       | 18,068 |        |   | $        | 131,291 |         |   | $        | (149,919 | )
|                                                                      |                           |                          |        |      |         |        |        |   |          |         |         |  

The unrealized appreciation
(depreciation) on invested assets available-for-sale is
reported as a separate component of stockholders equity,
reduced by adjustments to DAC, VOBA, future life and annuity
policy benefits, and a provision for deferred income taxes.
Unrealized appreciation (depreciation) attributable to the
Closed Block amounting to $124.7 million at
December 31, 2004, $108.9 million at December 31,
2003 and $101.4 million at December 31, 2002 has been
included in dividends payable to policyowners.

A summary of the components of the net unrealized
appreciation (depreciation) on invested assets carried at
fair value and other components of accumulated other
comprehensive income is as follows:

|                                                   |                           |                  |          |         |  |   |          |         | 
|-------------------------------------------------- | ------------------------- | ---------------- | -------- | ------- |  | - | -------- | ------- | 
|                                                   |                           |                 
|                                                   |                           | December 31,    
|                                                   |                           |                 
|                                                   |                           | 2004             |          | 2003   
|                                                   |                           |                  |          |        
|                                                   |                           |                 
|                                                   |                           | ($ in thousands)
|Unrealized appreciation (depreciation):            |                           |                  |          |         |  |   |          |        
|Available-for-sale securities:                     |                           |                  |          |         |  |   |          |        
|                                                   | Fixed maturity securities |                  | $        | 544,930 |  |   | $        | 470,059 | 
|                                                   | Equity securities         |                  |          | 2,255   |  |   |          | 2,094   | 
|                                                   | Short-term investments    |                  |          | 28      |  |   |          | 674     | 
|Other investments                                  |                           |                  | 1,030    |         |  |   | 496      |        
|Adjustments for assumed change in amortization of: |                           |                  |          |         |  |   |          |        
|DAC, capitalized bonus interest, and VOBA          |                           |                  | (233,210 | )       |  |   | (223,121 | )      
|Policy reserves and policyowner funds              |                           |                  | 2,765    |         |  |   | (1,109   | )      
|Minimum pension liability adjustment               |                           |                  | (16,973  | )       |  |   | (10,468  | )      
|Policyowner dividend obligation                    |                           |                  | (124,655 | )       |  |   | (108,860 | )      
|Deferred income taxes                              |                           |                  | (61,500  | )       |  |   | (45,246  | )      
|                                                   |                           |                  |          |         |  |   |          |        
|                                                   |                           | $                | 114,670  |         |  | $ | 84,519   |        
|                                                   |                           |                  |          |         |  |   |          |        

F-26



---



##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The change in unrealized appreciation
(depreciation) on fixed maturity securities was an increase
of $74.9 million, an increase of $8.9 million and an
increase of $325.0 million for the years ended
December 31, 2004, 2003 and 2002, respectively; the
corresponding amounts for equity securities was an increase of
$0.2 million, an increase of $1.4 million and an
increase of $0.4 million, respectively.

The following table shows gross unrealized losses
and fair value, aggregated by investment category and length of
time the individual securities have been in a continuous loss
position, at December 31, 2004:

|                                          |  |                                                       |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|----------------------------------------- |  | ----------------------------------------------------- | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ---- | 
|                                          |  |                                                      
|                                          |  | AFS Unrealized Loss as a Percentage of Amortized Cost
|                                          |  | December 31, 2004                                    
|                                          |  |                                                      
|                                          |  |                                                      
|                                          |  | ($ in millions)                                      
|                                          |  |                                                       |         |             |  |                     |      |           
|                                          |  | Less than 7 months                                    |         | 7-12 months |  | More than 12 months |      | Total     
|                                          |  |                                                       |         |             |  |                     |      |           
|                                          |  |                                                       |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                          |  | Fair                                                  |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|Total Temporarily Impaired Securities:    |  | value                                                 |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                          |  |                                                       |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Corporate bonds                           |  | $                                                     | 1,094.3 |             |  | $                   | 8.5  |            |  | $     | 396.1 |            |  | $     | 7.7  |            |  | $ | 379.8 |  |  | $ | 12.9 |  |  | $ | 1,870.2 |  |  | $ | 29.1 | 
|U.S. government bonds                     |  |                                                       | 37.0    |             |  |                     | 0.2  |            |  |       | 47.4  |            |  |       | 1.0  |            |  |   | 0.4   |  |  |   |     |  |  |   | 84.8    |  |  |   | 1.2  | 
|State and political subdivisions          |  |                                                       |        |             |  |                     |     |            |  |       | 1.5   |            |  |       |     |            |  |   | 18.0  |  |  |   | 0.7  |  |  |   | 19.5    |  |  |   | 0.7  | 
|Foreign government bonds                  |  |                                                       | 12.4    |             |  |                     |     |            |  |       | 1.9   |            |  |       |     |            |  |   | 0.2   |  |  |   |     |  |  |   | 14.5    |  |  |   |     | 
|Asset-backed bonds                        |  |                                                       | 75.8    |             |  |                     | 0.2  |            |  |       | 49.5  |            |  |       | 0.9  |            |  |   | 5.5   |  |  |   | 0.1  |  |  |   | 130.8   |  |  |   | 1.2  | 
|Collateralized mortgage-backed securities |  |                                                       | 257.6   |             |  |                     | 2.4  |            |  |       | 76.6  |            |  |       | 1.6  |            |  |   | 8.5   |  |  |   | 0.3  |  |  |   | 342.7   |  |  |   | 4.3  | 
|Mortgage-backed securities                |  |                                                       | 287.3   |             |  |                     | 1.0  |            |  |       | 115.4 |            |  |       | 1.5  |            |  |   | 104.6 |  |  |   | 1.5  |  |  |   | 507.3   |  |  |   | 4.0  | 
|Indexed debt instruments                  |  |                                                       |        |             |  |                     |     |            |  |       | 242.5 |            |  |       | 2.5  |            |  |   | 239.5 |  |  |   | 6.5  |  |  |   | 482.0   |  |  |   | 9.0  | 
|Equity securities                         |  |                                                       | 0.3     |             |  |                     | 0.2  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 0.3     |  |  |   | 0.2  | 
|Short-term investments                    |  |                                                       | 12.9    |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 12.9    |  |  |   |     | 
|                                          |  |                                                       |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|Total                                     |  | $                                                     | 1,777.6 |             |  | $                   | 12.5 |            |  | $     | 930.9 |            |  | $     | 15.2 |            |  | $ | 756.5 |  |  | $ | 22.0 |  |  | $ | 3,465.0 |  |  | $ | 49.7 | 
|                                          |  |                                                       |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 

|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|----------------------------------------- |  | ------------------ | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ---- | 
|                                          |  |                    |         |             |  |                     |      |           
|                                          |  | Less than 7 months |         | 7-12 months |  | More than 12 months |      | Total     
|                                          |  |                    |         |             |  |                     |      |           
|                                          |  |                    |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                          |  | Fair               |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|Less Than 20% Loss Position:              |  | value              |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Corporate bonds                           |  | $                  | 1,094.3 |             |  | $                   | 8.5  |            |  | $     | 396.1 |            |  | $     | 7.7  |            |  | $ | 375.7 |  |  | $ | 11.8 |  |  | $ | 1,866.1 |  |  | $ | 28.0 | 
|U.S. government bonds                     |  |                    | 37.0    |             |  |                     | 0.2  |            |  |       | 47.4  |            |  |       | 1.0  |            |  |   | 0.4   |  |  |   |     |  |  |   | 84.8    |  |  |   | 1.2  | 
|State and political subdivisions          |  |                    |        |             |  |                     |     |            |  |       | 1.5   |            |  |       |     |            |  |   | 18.0  |  |  |   | 0.7  |  |  |   | 19.5    |  |  |   | 0.7  | 
|Foreign government bonds                  |  |                    | 12.4    |             |  |                     |     |            |  |       | 1.9   |            |  |       |     |            |  |   | 0.2   |  |  |   |     |  |  |   | 14.5    |  |  |   |     | 
|Asset-backed bonds                        |  |                    | 75.8    |             |  |                     | 0.2  |            |  |       | 49.5  |            |  |       | 0.9  |            |  |   | 5.5   |  |  |   | 0.1  |  |  |   | 130.8   |  |  |   | 1.2  | 
|Collateralized mortgage-backed securities |  |                    | 257.6   |             |  |                     | 2.4  |            |  |       | 76.6  |            |  |       | 1.6  |            |  |   | 8.5   |  |  |   | 0.3  |  |  |   | 342.7   |  |  |   | 4.3  | 
|Mortgage-backed securities                |  |                    | 287.3   |             |  |                     | 1.0  |            |  |       | 115.4 |            |  |       | 1.5  |            |  |   | 104.6 |  |  |   | 1.5  |  |  |   | 507.3   |  |  |   | 4.0  | 
|Indexed debt instruments                  |  |                    |        |             |  |                     |     |            |  |       | 242.5 |            |  |       | 2.5  |            |  |   | 239.5 |  |  |   | 6.5  |  |  |   | 482.0   |  |  |   | 9.0  | 
|Short-term investments                    |  |                    | 12.9    |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 12.9    |  |  |   |     | 
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 
|Total                                     |  | $                  | 1,777.3 |             |  | $                   | 12.3 |            |  | $     | 930.9 |            |  | $     | 15.2 |            |  | $ | 752.4 |  |  | $ | 20.9 |  |  | $ | 3,460.6 |  |  | $ | 48.4 | 
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |      | 

F-27



---



##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                       |  |                    |     |             |  |                     |     |            |  |       |   |            |  |       |   |            |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|---------------------- |  | ------------------ | --- | ----------- |  | ------------------- | --- | ---------- |  | ----- | - | ---------- |  | ----- | - | ---------- |  | - | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- | 
|                       |  |                    |     |             |  |                     |     |           
|                       |  | Less than 7 months |     | 7-12 months |  | More than 12 months |     | Total     
|                       |  |                    |     |             |  |                     |     |           
|                       |  |                    |     | Gross       |  |                     |     | Gross      |  |       |   | Gross      |  |       |   | Gross     
|                       |  | Fair               |     | unrealized  |  | Fair                |     | unrealized |  | Fair  |   | unrealized |  | Fair  |   | unrealized
|20%-50% Loss Position: |  | value              |     | loss        |  | value               |     | loss       |  | value |   | loss       |  | value |   | loss      
|                       |  |                    |     |             |  |                     |     |            |  |       |   |            |  |       |   |           
|Corporate bonds        |  | $                  |    |             |  | $                   |    |            |  | $     |  |            |  | $     |  |            |  | $ | 4.1 |  |  | $ | 1.1 |  |  | $ | 4.1 |  |  | $ | 1.1 | 
|Equity securities      |  |                    | 0.3 |             |  |                     | 0.2 |            |  |       |  |            |  |       |  |            |  |   |    |  |  |   |    |  |  |   | 0.3 |  |  |   | 0.2 | 
|                       |  |                    |     |             |  |                     |     |            |  |       |   |            |  |       |   |            |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|Total                  |  | $                  | 0.3 |             |  | $                   | 0.2 |            |  | $     |  |            |  | $     |  |            |  | $ | 4.1 |  |  | $ | 1.1 |  |  | $ | 4.4 |  |  | $ | 1.3 | 
|                       |  |                    |     |             |  |                     |     |            |  |       |   |            |  |       |   |            |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 

There were no available-for-sale securities that
were in more than a 50% loss position at December 31, 2004.

The following table shows gross unrealized losses
and fair value, aggregated by investment category and length of
time the individual securities have been in a continuous loss
position, at December 31, 2003:

|                                          |  |                                                       |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|----------------------------------------- |  | ----------------------------------------------------- | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ------- |  |  | - | ----- | 
|                                          |  |                                                      
|                                          |  | AFS Unrealized Loss as a Percentage of Amortized Cost
|                                          |  | December 31, 2003                                    
|                                          |  |                                                      
|                                          |  |                                                      
|                                          |  | ($ in millions)                                      
|                                          |  |                                                       |         |             |  |                     |      |           
|                                          |  | Less than 7 months                                    |         | 7-12 months |  | More than 12 months |      | Total     
|                                          |  |                                                       |         |             |  |                     |      |           
|                                          |  |                                                       |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                          |  | Fair                                                  |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|Total Temporarily Impaired Securities:    |  | value                                                 |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                          |  |                                                       |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Corporate bonds                           |  | $                                                     | 1,618.3 |             |  | $                   | 31.3 |            |  | $     | 275.5 |            |  | $     | 15.8 |            |  | $ | 118.0 |  |  | $ | 10.6 |  |  | $ | 2,011.8 |  |  | $ | 57.7  | 
|U.S. government bonds                     |  |                                                       | 156.5   |             |  |                     | 1.7  |            |  |       | 0.4   |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 156.9   |  |  |   | 1.7   | 
|State and political subdivisions          |  |                                                       | 18.8    |             |  |                     | 1.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 18.8    |  |  |   | 1.4   | 
|Foreign government bonds                  |  |                                                       | 51.2    |             |  |                     | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 1.3   |  |  |   |     |  |  |   | 52.5    |  |  |   | 0.3   | 
|Asset-backed bonds                        |  |                                                       | 74.1    |             |  |                     | 0.5  |            |  |       | 4.6   |            |  |       |     |            |  |   | 18.5  |  |  |   | 1.0  |  |  |   | 97.2    |  |  |   | 1.5   | 
|Collateralized mortgage-backed securities |  |                                                       | 227.9   |             |  |                     | 2.7  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 227.9   |  |  |   | 2.7   | 
|Mortgage-backed securities                |  |                                                       | 598.1   |             |  |                     | 5.2  |            |  |       | 135.8 |            |  |       | 2.7  |            |  |   | 0.2   |  |  |   |     |  |  |   | 734.1   |  |  |   | 7.9   | 
|Indexed debt instruments                  |  |                                                       | 240.9   |             |  |                     | 3.7  |            |  |       | 157.6 |            |  |       | 4.6  |            |  |   |      |  |  |   |     |  |  |   | 398.5   |  |  |   | 8.3   | 
|Redeemable preferred stock                |  |                                                       |        |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   | 104.6 |  |  |   | 37.1 |  |  |   | 104.6   |  |  |   | 37.1  | 
|Equity securities                         |  |                                                       |        |             |  |                     |     |            |  |       | 0.8   |            |  |       | 0.2  |            |  |   | 0.3   |  |  |   | 0.2  |  |  |   | 1.1     |  |  |   | 0.4   | 
|Short-term investments                    |  |                                                       | 3.7     |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |     |  |  |   | 3.7     |  |  |   |      | 
|                                          |  |                                                       |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 
|Total                                     |  | $                                                     | 2,989.5 |             |  | $                   | 46.8 |            |  | $     | 574.7 |            |  | $     | 23.3 |            |  | $ | 242.9 |  |  | $ | 48.9 |  |  | $ | 3,807.1 |  |  | $ | 119.0 | 
|                                          |  |                                                       |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |      |  |  |   |         |  |  |   |       | 

F-28



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|----------------------------------------- |  | ------------------ | ------- | ----------- |  | ------------------- | ---- | ---------- |  | ----- | ----- | ---------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | --- |  |  | - | ------- |  |  | - | ---- | 
|                                          |  |                    |         |             |  |                     |      |           
|                                          |  | Less than 7 months |         | 7-12 months |  | More than 12 months |      | Total     
|                                          |  |                    |         |             |  |                     |      |           
|                                          |  |                    |         | Gross       |  |                     |      | Gross      |  |       |       | Gross      |  |       |      | Gross     
|                                          |  | Fair               |         | unrealized  |  | Fair                |      | unrealized |  | Fair  |       | unrealized |  | Fair  |      | unrealized
|Less Than 20% Loss Position:              |  | value              |         | loss        |  | value               |      | loss       |  | value |       | loss       |  | value |      | loss      
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |           
|Corporate bonds                           |  | $                  | 1,618.3 |             |  | $                   | 31.3 |            |  | $     | 275.5 |            |  | $     | 15.8 |            |  | $ | 109.8 |  |  | $ | 8.2 |  |  | $ | 2,003.6 |  |  | $ | 55.3 | 
|U.S. government bonds                     |  |                    | 156.5   |             |  |                     | 1.7  |            |  |       | 0.4   |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 156.9   |  |  |   | 1.7  | 
|State and political subdivisions          |  |                    | 18.8    |             |  |                     | 1.4  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 18.8    |  |  |   | 1.4  | 
|Foreign government bonds                  |  |                    | 51.2    |             |  |                     | 0.3  |            |  |       |      |            |  |       |     |            |  |   | 1.3   |  |  |   |    |  |  |   | 52.5    |  |  |   | 0.3  | 
|Asset-backed bonds                        |  |                    | 74.1    |             |  |                     | 0.5  |            |  |       | 4.6   |            |  |       |     |            |  |   | 18.5  |  |  |   | 1.0 |  |  |   | 97.2    |  |  |   | 1.5  | 
|Collateralized mortgage-backed securities |  |                    | 227.9   |             |  |                     | 2.7  |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 227.9   |  |  |   | 2.7  | 
|Mortgage-backed securities                |  |                    | 598.1   |             |  |                     | 5.2  |            |  |       | 135.8 |            |  |       | 2.7  |            |  |   | 0.2   |  |  |   |    |  |  |   | 734.1   |  |  |   | 7.9  | 
|Indexed debt instruments                  |  |                    | 240.9   |             |  |                     | 3.7  |            |  |       | 157.6 |            |  |       | 4.6  |            |  |   |      |  |  |   |    |  |  |   | 398.5   |  |  |   | 8.3  | 
|Equity securities                         |  |                    |        |             |  |                     |     |            |  |       | 0.8   |            |  |       | 0.2  |            |  |   |      |  |  |   |    |  |  |   | 0.8     |  |  |   | 0.2  | 
|Short-term investments                    |  |                    | 3.7     |             |  |                     |     |            |  |       |      |            |  |       |     |            |  |   |      |  |  |   |    |  |  |   | 3.7     |  |  |   |     | 
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 
|Total                                     |  | $                  | 2,989.5 |             |  | $                   | 46.8 |            |  | $     | 574.7 |            |  | $     | 23.3 |            |  | $ | 129.8 |  |  | $ | 9.2 |  |  | $ | 3,694.0 |  |  | $ | 79.3 | 
|                                          |  |                    |         |             |  |                     |      |            |  |       |       |            |  |       |      |            |  |   |       |  |  |   |     |  |  |   |         |  |  |   |      | 

|                           |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|-------------------------- |  | ------------------ | - | ----------- |  | ------------------- | - | ---------- |  | ----- | - | ---------- |  | ----- | - | ---------- |  | - | ----- |  |  | - | ---- |  |  | - | ----- |  |  | - | ---- | 
|                           |  |                    |   |             |  |                     |   |           
|                           |  | Less than 7 months |   | 7-12 months |  | More than 12 months |   | Total     
|                           |  |                    |   |             |  |                     |   |           
|                           |  |                    |   | Gross       |  |                     |   | Gross      |  |       |   | Gross      |  |       |   | Gross     
|                           |  | Fair               |   | unrealized  |  | Fair                |   | unrealized |  | Fair  |   | unrealized |  | Fair  |   | unrealized
|20%-50% Loss Position:     |  | value              |   | loss        |  | value               |   | loss       |  | value |   | loss       |  | value |   | loss      
|                           |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |           
|Corporate bonds            |  | $                  |  |             |  | $                   |  |            |  | $     |  |            |  | $     |  |            |  | $ | 8.2   |  |  | $ | 2.4  |  |  | $ | 8.2   |  |  | $ | 2.4  | 
|Redeemable preferred stock |  |                    |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   | 104.6 |  |  |   | 37.1 |  |  |   | 104.6 |  |  |   | 37.1 | 
|Equity securities          |  |                    |  |             |  |                     |  |            |  |       |  |            |  |       |  |            |  |   | 0.3   |  |  |   | 0.2  |  |  |   | 0.3   |  |  |   | 0.2  | 
|                           |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 
|Total                      |  | $                  |  |             |  | $                   |  |            |  | $     |  |            |  | $     |  |            |  | $ | 113.1 |  |  | $ | 39.7 |  |  | $ | 113.1 |  |  | $ | 39.7 | 
|                           |  |                    |   |             |  |                     |   |            |  |       |   |            |  |       |   |            |  |   |       |  |  |   |      |  |  |   |       |  |  |   |      | 

There were no available-for-sale securities that
were in more than a 50% loss position at December 31, 2003.

The evaluation of OTTI for fixed income
securities follows a three-step process of 1) screen and
identify; 2) assess and document; 3) recommend and
approve. In identifying potential OTTIs, all securities
that have a fair value less than 80% of amortized cost are
screened. In addition, we monitor securities for general credit
issues that have been identified and included on a watch list
which may result in the potential impairment list including
other securities that have a fair value at or greater than 80%
of amortized cost. For asset backed securities, an impairment
loss is established if the fair value of the security is less
than amortized costs and there is an adverse change in estimated
cash flows from the cash flows previously projected.

The list of securities identified is subject to a
formal assessment to determine if an impairment is other than
temporary. Management makes certain assumptions or judgments in
its assessment of potentially impaired securities including but
not limited to:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | Industry characteristics and trends, company to
    industry profile, quality of management                                
|
| |  | Financial conditions and trends including
    strength of balance sheet and financial liquidity                            
|
| |  | Significant events affecting the company and/or
    industry                                                               
|
| |  | Viability of the business model incorporating an
    evaluation of default probability and associated recoverable
    value
|
| |  | Length of time the fair value was below 80% of
    amortized cost                                                          
|
| |  | Ability and intent to retain the investment to
    maturity or for a sufficient period of time for it to recover           

F-29



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

If the determination is that the security is
OTTI, it is written down to fair value. The write-down is
reviewed and approved by senior management. The difference
between amortized cost and fair value is charged to net income.

During 2004 and 2003, the Company has recorded
impairments on four issuers and twelve issuers of investments
which were considered to be OTTI amounting to $6.4 million
and $21.0 million, respectively.

Variable Interest Entities

The following is a description of those interests
for which the Company is considered the primary beneficiary as
well as those for which the Company is not the primary
beneficiary. If an enterprise is considered to be a primary
beneficiary, the variable interest entity is consolidated.



| |                                     
| | ------------------------------------
| | Interests as Primary
    Beneficiary

At December 31, 2004 and 2003, the Company
had investments in limited partnerships, for which the Company
provides indirect management functions to a non-registered
investment company that invests in convertible securities, which
have been consolidated rather than carried as equity method
investments. Consolidation of the investments resulted in an
increase in total assets, primarily fixed maturity securities,
and total liabilities, primarily other liabilities, of
$69.3 million and $62.5 million at December 31,
2004 and 2003, respectively. There was no change in
stockholders equity or net income in either year. There is
no recourse to the Company by creditors of the partnerships.



| |                                         
| | ----------------------------------------
| | Interests Not as Primary
    Beneficiary

The Company holds residual interests in
structures that contain first and second lien residential
mortgages. The purpose of these structures is to provide a form
of financing for the lender. The investments were made in 1999,
2000 and 2001. At December 31, 2003, the total assets of
these structures were $168.6 million and the Companys
maximum exposure to loss was its carrying value of the residual
interests, which was $9.2 million. The residual interests
were liquidated in 2004.



|    |                                                  
|--- | -------------------------------------------------
|(4) | DERIVATIVE INSTRUMENTS AND HEDGING
    ACTIVITIES

The Companys outstanding derivative
positions shown in notional or contract amounts, along with
their carrying value and estimated fair values, are summarized
as follows:

|                     |  |                   |           |          |  |            |         |  |  |   |         | 
|-------------------- |  | ----------------- | --------- | -------- |  | ---------- | ------- |  |  | - | ------- | 
|                     |  |                  
|                     |  | December 31, 2004
|                     |  |                  
|                     |  | Notional          |           | Carrying |  |           
|                     |  | amount            |           | value    |  | Fair Value
|                     |  |                   |           |          |  |           
|                     |  |                  
|                     |  | ($ in thousands) 
|Interest rate swaps  |  | $                 | 782,500   |          |  | $          | 453     |  |  | $ | 453     | 
|Credit default swaps |  |                   | 115,000   |          |  |            | 536     |  |  |   | 536     | 
|Options              |  |                   | 3,200,051 |          |  |            | 159,997 |  |  |   | 159,997 | 
|                     |  |                   |           |          |  |            |         |  |  |   |         | 
|                     |  | $                 | 4,097,551 |          |  | $          | 160,986 |  |  | $ | 160,986 | 
|                     |  |                   |           |          |  |            |         |  |  |   |         | 

F-30



---



##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                     |  |                   |           |          |  |            |         |  |  |   |         | 
|-------------------- |  | ----------------- | --------- | -------- |  | ---------- | ------- |  |  | - | ------- | 
|                     |  |                  
|                     |  | December 31, 2003
|                     |  |                  
|                     |  | Notional          |           | Carrying |  |           
|                     |  | amount            |           | value    |  | Fair value
|                     |  |                   |           |          |  |           
|                     |  |                  
|                     |  | ($ in thousands) 
|Interest rate swaps  |  | $                 | 616,500   |          |  | $          | 3,166   |  |  | $ | 3,166   | 
|Credit default swaps |  |                   | 150,000   |          |  |            | 599     |  |  |   | 599     | 
|Options              |  |                   | 1,836,783 |          |  |            | 134,942 |  |  |   | 134,942 | 
|                     |  |                   |           |          |  |            |         |  |  |   |         | 
|                     |  | $                 | 2,603,283 |          |  | $          | 138,707 |  |  | $ | 138,707 | 
|                     |  |                   |           |          |  |            |         |  |  |   |         | 

The following table shows the maturities of
derivative products as of December 31, 2004:

|                      |                  |                                                   |   |           |   |      |   |         |   |      |   |         |   |      |   |        |   |      |   |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |       |   |  |   |       |  
|--------------------- | ---------------- | ------------------------------------------------- | - | --------- | - | ---- | - | ------- | - | ---- | - | ------- | - | ---- | - | ------ | - | ---- | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | - |  | - | ----- | - |  | - | ----- | -
|                      |                  |                                                  
|                      |                  | Maturity Schedule by Year for Derivative Products
|                      |                  |                                                  
|                      |                  | 2005                                              |   | 2006      |   | 2007 |   | 2008    |   | 2009 |   | 2010    |   | 2011 |   | 2012   |   | 2013 |   | 2014  
|                      |                  |                                                   |   |           |   |      |   |         |   |      |   |         |   |      |   |        |   |      |   |       
|                      |                  |                                                  
|                      |                  | ($ in thousands)                                 
|Interest rate swaps:  |                  |                                                   |   |           |   |      |   |         |   |      |   |         |   |      |   |        |   |      |   |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |       |   |  |   |      
|                      | Notional amount  |                                                   | $ | 90,000    |   |      | $ |        |   |      | $ | 187,000 |   |      | $ |       |   |      | $ | 25,000 |   |  | $ | 225,000 |   |  | $ |       |   |  | $ | 252,000 |   |  | $ |      |   |  | $ | 3,500 |  
|Weighted average:     |                  |                                                   |   |           |   |      |   |         |   |      |   |         |   |      |   |        |   |      |   |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |       |   |  |   |      
|                      | Receive rate (A) |                                                   |   | 2.903     | % |      |   | 3.021   | % |      |   | 3.021   | % |      |   | 2.785  | % |      |   | 2.785  | % |  |   | 2.724   | % |  |   | 3.924  | % |  |   | 3.924   | % |  |   | 2.079 | % |  |   | 2.079 | %
|                      | Pay rate (A)     |                                                   |   | 2.460     | % |      |   | 2.660   | % |      |   | 2.660   | % |      |   | 2.333  | % |      |   | 2.333  | % |  |   | 2.325   | % |  |   | 3.962  | % |  |   | 3.962   | % |  |   | 4.790 | % |  |   | 4.790 | %
|Credit default swaps: |                  |                                                   |   |           |   |      |   |         |   |      |   |         |   |      |   |        |   |      |   |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |       |   |  |   |      
|                      | Notional amount  |                                                   | $ | 30,000    |   |      | $ | 10,000  |   |      | $ | 15,000  |   |      | $ | 20,000 |   |      | $ | 40,000 |   |  | $ |        |   |  | $ |       |   |  | $ |        |   |  | $ |      |   |  | $ |      |  
|Weighted average:     |                  |                                                   |   |           |   |      |   |         |   |      |   |         |   |      |   |        |   |      |   |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |       |   |  |   |      
|                      | Receive rate (B) |                                                   |   | 0.518     | % |      |   | 0.405   | % |      |   | 0.423   | % |      |   | 0.391  | % |      |   | 0.401  | % |  |   |        |   |  |   |       |   |  |   |        |   |  |   |      |   |  |   |      |  
|Options:              |                  |                                                   |   |           |   |      |   |         |   |      |   |         |   |      |   |        |   |      |   |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |       |   |  |   |      
|                      | Notional amount  |                                                   | $ | 2,442,448 |   |      | $ | 660,126 |   |      | $ | 11,158  |   |      | $ | 6,997  |   |      | $ | 5,905  |   |  | $ | 19,420  |   |  | $ | 21,067 |   |  | $ | 23,232  |   |  | $ | 9,698 |   |  | $ |      |  



---



|    |                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | The actual variable rates in the agreements are
    based on one-month LIBOR, three-month LIBOR or various credit
    indices, and the table assumes that such rates will remain
    constant at December 31, 2004, levels. To the extent that
    actual rates change, the variable interest rate information will
    change accordingly.



|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(B) | The actual rates in the agreements are fixed
    based on the amount of risk assumed at the time of the
    transaction.

During 2004, 2003 and 2002, realized/unrealized
gains (losses) on investments included an unrealized gain of
$48.0 million, an unrealized gain of $62.9 million and
an unrealized loss of $40.0 million, respectively, from the
change in fair value on call options used as a natural hedge of
embedded options within equity indexed products. Additionally,
an unrealized gain has been recognized amounting to
$8.5 million, an unrealized gain of $26.8 million and
an unrealized loss of $5.2 million for 2004, 2003, and
2002, respectively, from the change in fair value on the trading
securities backing the total return strategy products.
Policyowner benefits included an offsetting adjustment to
contract liabilities for fair value changes in options embedded
within the equity indexed products and fair value changes on
total return strategy annuity contracts amounting to an increase
in expense of $35.7 million, an increase in expense of
$65.7 million, and a decrease in expense of
$28.8 million in 2004, 2003 and 2002, respectively.

In 2002, the Company undesignated two interest
rate swap hedges and is now amortizing the net loss for those
hedges in accumulated other comprehensive income
(AOCI) into earnings over the remaining life of the swaps,
which amounted to $0.9 million, $3.8 million, and
$4.4 million expense in 2004, 2003 and 2002, respectively.
In addition, AOCI included an unrealized gain for interest rate
swaps which are used as a cash flow hedge to hedge floating rate
funding agreement liabilities. The net change in AOCI, including
amortization related to the discontinued hedges, amounted to
$0.4 million, $2.5 million and $3.4 million in
2004, 2003 and 2002, respectively. At December 31, 2004,
AOCI included $0.3 million of remaining

F-31



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

derivative gains associated with the undesignated
swaps. The Company estimates that less than $0.1 million
after-tax of derivative losses will be reclassified into
earnings within the next twelve months.

The following table summarizes the income (loss)
impact of the market value adjustment on trading securities and
derivatives and the cash flow hedge amortization:

|                                                 |                 |                              |        |               |   |       |         |        |  |   |        |      |   |   |         |        | 
|------------------------------------------------ | --------------- | ---------------------------- | ------ | ------------- | - | ----- | ------- | ------ |  | - | ------ | ---- | - | - | ------- | ------ | 
|                                                 |                 |                             
|                                                 |                 | Year Ended December 31, 2004
|                                                 |                 |                             
|                                                 |                 | Total Return                 |        | Equity Linked |   |      
|                                                 |                 | Products                     |        | Products      |   | Other |         | Total 
|                                                 |                 |                              |        |               |   |       |         |       
|                                                 |                 |                             
|                                                 |                 | ($ in thousands)            
|Fixed maturity securities held for trading       |                 | $                            | 7,522  |               |   | $     |        |        |  | $ | 1,011  |      |   | $ | 8,533   |       
|Options                                          |                 |                              |       |               |   |       | 50,082  |        |  |   | (2,068 | )    |   |   | 48,014  |       
|Market value adjustment to liabilities           |                 |                              | (9,291 | )             |   |       | (27,657 | )      |  |   | 1,296  |      |   |   | (35,652 | )     
|Cash flow hedge amortization                     |                 |                              |       |               |   |       |        |        |  |   | (908   | )    |   |   | (908    | )     
|DAC amortization impact of net adjustments above |                 |                              | 103    |               |   |       | (8,595  | )      |  |   |       |      |   |   | (8,492  | )     
|                                                 |                 |                              |        |               |   |       |         |        |  |   |        |      |   |   |         |       
|                                                 | Pre-tax total   |                              |        | (1,666        | ) |       |         | 13,830 |  |   |        | (669 | ) |   |         | 11,495 | 
|Income taxes                                     |                 |                              | 583    |               |   |       | (4,840  | )      |  |   | 234    |      |   |   | (4,023  | )     
|                                                 |                 |                              |        |               |   |       |         |        |  |   |        |      |   |   |         |       
|                                                 | After-tax total |                              | $      | (1,083        | ) |       | $       | 8,990  |  |   | $      | (435 | ) |   | $       | 7,472  | 
|                                                 |                 |                              |        |               |   |       |         |        |  |   |        |      |   |   |         |       

|                                                 |                 |                              |         |               |  |       |         |       |  |   |        |       |  |   |         |        | 
|------------------------------------------------ | --------------- | ---------------------------- | ------- | ------------- |  | ----- | ------- | ----- |  | - | ------ | ----- |  | - | ------- | ------ | 
|                                                 |                 |                             
|                                                 |                 | Year Ended December 31, 2003
|                                                 |                 |                             
|                                                 |                 | Total Return                 |         | Equity Linked |  |      
|                                                 |                 | Products                     |         | Products      |  | Other |         | Total
|                                                 |                 |                              |         |               |  |       |         |      
|                                                 |                 |                             
|                                                 |                 | ($ in thousands)            
|Fixed maturity securities held for trading       |                 | $                            | 24,593  |               |  | $     |        |       |  | $ | 2,227  |       |  | $ | 26,820  |       
|Options                                          |                 |                              |        |               |  |       | 58,711  |       |  |   | 4,238  |       |  |   | 62,949  |       
|Market value adjustment to liabilities           |                 |                              | (17,894 | )             |  |       | (50,454 | )     |  |   | 2,607  |       |  |   | (65,741 | )     
|Cash flow hedge amortization                     |                 |                              |        |               |  |       |        |       |  |   | (3,827 | )     |  |   | (3,827  | )     
|DAC amortization impact of net adjustments above |                 |                              | 751     |               |  |       | (4,563  | )     |  |   | (3,231 | )     |  |   | (7,043  | )     
|                                                 |                 |                              |         |               |  |       |         |       |  |   |        |       |  |   |         |       
|                                                 | Pre-tax total   |                              |         | 7,450         |  |       |         | 3,694 |  |   |        | 2,014 |  |   |         | 13,158 | 
|Income taxes                                     |                 |                              | (2,607  | )             |  |       | (1,293  | )     |  |   | (705   | )     |  |   | (4,605  | )     
|                                                 |                 |                              |         |               |  |       |         |       |  |   |        |       |  |   |         |       
|                                                 | After-tax total |                              | $       | 4,843         |  |       | $       | 2,401 |  |   | $      | 1,309 |  |   | $       | 8,553  | 
|                                                 |                 |                              |         |               |  |       |         |       |  |   |        |       |  |   |         |       

|                                                 |                 |                              |         |               |   |       |         |        |   |   |        |        |   |   |         |         |  
|------------------------------------------------ | --------------- | ---------------------------- | ------- | ------------- | - | ----- | ------- | ------ | - | - | ------ | ------ | - | - | ------- | ------- | -
|                                                 |                 |                             
|                                                 |                 | Year Ended December 31, 2002
|                                                 |                 |                             
|                                                 |                 | Total Return                 |         | Equity Linked |   |      
|                                                 |                 | Products                     |         | Products      |   | Other |         | Total 
|                                                 |                 |                              |         |               |   |       |         |       
|                                                 |                 |                             
|                                                 |                 | ($ in thousands)            
|Fixed maturity securities held for trading       |                 | $                            | (4,349  | )             |   | $     |        |        |   | $ | (841   | )      |   | $ | (5,190  | )      
|Options                                          |                 |                              |        |               |   |       | (42,693 | )      |   |   | 2,674  |        |   |   | (40,019 | )      
|Market value adjustment to liabilities           |                 |                              | (10,816 | )             |   |       | 39,595  |        |   |   | (20    | )      |   |   | 28,759  |        
|Cash flow hedge amortization                     |                 |                              |        |               |   |       |        |        |   |   | (4,351 | )      |   |   | (4,351  | )      
|DAC amortization impact of net adjustments above |                 |                              | (789    | )             |   |       | (1,418  | )      |   |   | 488    |        |   |   | (1,719  | )      
|                                                 |                 |                              |         |               |   |       |         |        |   |   |        |        |   |   |         |        
|                                                 | Pre-tax total   |                              |         | (15,954       | ) |       |         | (4,516 | ) |   |        | (2,050 | ) |   |         | (22,520 | )
|Income taxes                                     |                 |                              | 5,584   |               |   |       | 1,581   |        |   |   | 717    |        |   |   | 7,882   |        
|                                                 |                 |                              |         |               |   |       |         |        |   |   |        |        |   |   |         |        
|                                                 | After-tax total |                              | $       | (10,370       | ) |       | $       | (2,935 | ) |   | $      | (1,333 | ) |   | $       | (14,638 | )
|                                                 |                 |                              |         |               |   |       |         |        |   |   |        |        |   |   |         |        

F-32



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Financial Accounting Standards Boards
Derivatives Implementation Group issued DIG Issue B36 which
applies to modified coinsurance and coinsurance with funds
withheld arrangements where interest is determined by reference
to a pool of fixed maturity assets or a total return debt index.
Such arrangements in which funds are withheld by the ceding
insurer cause the reinsurer to recognize a receivable from the
ceding insurer as well as a liability representing reserves for
the insurance coverage assumed under the reinsurance
arrangements. The terms of the ceding companys payable
provide for the future payment of principal plus a rate of
return on either its general account assets or a specified block
of those assets which is typically composed of fixed-rate debt
securities. DIG Issue B36 considers the payable from the ceding
company to contain an embedded derivative that must be
bifurcated and accounted for separately under SFAS 133. We
adopted DIG Issue B36 on October  1, 2003, which
included establishing an embedded derivative liability of
$6.5 million and the reclassification of certain securities
supporting the products being reinsured from available-for-sale
to held for trading. The net cumulative effect of the change in
accounting for DIG Issue B36 was a decrease of $2.0 million
($1.3 million after-tax) in net income and a decrease of
$5.2 million in accumulated other comprehensive income
(AOCI), net of tax. The basic and diluted earnings per common
share for the cumulative effect of the change in accounting for
derivatives in accordance with DIG Issue B36 amounted to $0.03
for 2003.

(5) MORTGAGE LOANS

Mortgage loans consisted of the following:

|                            |  |                  |         |      |  |   |         |  
|--------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | -
|                            |  |                 
|                            |  | December 31,    
|                            |  |                 
|                            |  | 2004             |         | 2003
|                            |  |                  |         |     
|                            |  |                 
|                            |  | ($ in thousands)
|Single-family real estate   |  | $                | 381     |      |  | $ | 122,486 |  
|Multi-family real estate    |  |                  | 83,528  |      |  |   | 76,151  |  
|Commercial real estate      |  |                  | 780,660 |      |  |   | 775,338 |  
|Commercial                  |  |                  | 1,164   |      |  |   | 1,247   |  
|                            |  |                  |         |      |  |   |         |  
|                            |  |                  | 865,733 |      |  |   | 975,222 |  
|Allowance for credit losses |  |                  |        |      |  |   | (6,650  | )
|                            |  |                  |         |      |  |   |         |  
|                            |  | $                | 865,733 |      |  | $ | 968,572 |  
|                            |  |                  |         |      |  |   |         |  

The Company manages its credit risk associated
with these loans by diversifying its mortgage portfolio by
property type and geographic location and by seeking favorable
loan to value ratios on secured properties. At December 31,
2004, the states with the highest concentration of mortgage
loans were Texas, Florida, California and Ohio with carrying
values of $137.2 million, $115.4 million,
$93.6 million and $50.7 million, respectively.

The amounts the Company will ultimately realize
from these loans could differ materially from their carrying
values because of future developments affecting the underlying
collateral or the borrowers ability to repay the loans and
leases. As of December 31, 2004, there were no material
commitments to lend additional funds to customers whose loans
were classified as nonaccrual or restructured.

No mortgage loan on any one individual property
exceeded $9.0 million at December 31, 2004 and 2003.

F-33



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Provisions for losses are summarized as follows:

|                                            |  |                          |        |      |  |      |        |   |  |   |        |  
|------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                            |  |                         
|                                            |  | Years ended December 31,
|                                            |  |                         
|                                            |  | 2004                     |        | 2003 |  | 2002
|                                            |  |                          |        |      |  |     
|                                            |  |                         
|                                            |  | ($ in thousands)        
|Balance at beginning of year                |  | $                        | 6,650  |      |  | $    | 15,373 |   |  | $ | 17,250 |  
|Reduction in provision for loan losses, net |  |                          | (6,650 | )    |  |      | (8,723 | ) |  |   | (1,877 | )
|                                            |  |                          |        |      |  |      |        |   |  |   |        |  
|Balance at end of year                      |  | $                        |       |      |  | $    | 6,650  |   |  | $ | 15,373 |  
|                                            |  |                          |        |      |  |      |        |   |  |   |        |  



|    |                                  
|--- | ---------------------------------
|(6) | DEFERRED POLICY ACQUISITION COSTS

A summary of the policy acquisition costs
deferred and amortized are as follows:

|                                                 |  |                          |           |      |  |      |           |   |  |   |         |  
|------------------------------------------------ |  | ------------------------ | --------- | ---- |  | ---- | --------- | - |  | - | ------- | -
|                                                 |  |                         
|                                                 |  | Years ended December 31,
|                                                 |  |                         
|                                                 |  | 2004                     |           | 2003 |  | 2002
|                                                 |  |                          |           |      |  |     
|                                                 |  |                         
|                                                 |  | ($ in thousands)        
|Balance at beginning of year                     |  | $                        | 1,140,528 |      |  | $    | 897,762   |   |  | $ | 621,233 |  
|Policy acquisition costs deferred                |  |                          | 384,342   |      |  |      | 348,130   |   |  |   | 346,916 |  
|Policy acquisition costs amortized               |  |                          | (132,571  | )    |  |      | (105,364  | ) |  |   | (59,805 | )
|Reclassification of deferred VOBA expense        |  |                          |          |      |  |      |          |   |  |   | (10,582 | )
|Amortization impact of adopting SOP 03-1         |  |                          | 2,185     |      |  |      |          |   |  |   |        |  
|                                                 |  |                          |           |      |  |      |           |   |  |   |         |  
|                                                 |  |                          | 1,394,484 |      |  |      | 1,140,528 |   |  |   | 897,762 |  
|Unrealized gain on available-for-sale securities |  |                          | (146,475  | )    |  |      | (118,672  | ) |  |   | (87,545 | )
|                                                 |  |                          |           |      |  |      |           |   |  |   |         |  
|Balance at end of year                           |  | $                        | 1,248,009 |      |  | $    | 1,021,856 |   |  | $ | 810,217 |  
|                                                 |  |                          |           |      |  |      |           |   |  |   |         |  



|    |                           
|--- | --------------------------
|(7) | VALUE OF BUSINESS ACQUIRED

A summary of VOBA established and amortized is as
follows:

|                                                 |  |                          |         |      |  |      |         |   |  |   |          |  
|------------------------------------------------ |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                 |  |                         
|                                                 |  | Years ended December 31,
|                                                 |  |                         
|                                                 |  | 2004                     |         | 2003 |  | 2002
|                                                 |  |                          |         |      |  |     
|                                                 |  |                         
|                                                 |  | ($ in thousands)        
|Balance at beginning of the year                 |  | $                        | 506,845 |      |  | $    | 571,926 |   |  | $ | 614,028  |  
|VOBA established during the year                 |  |                          | 5,895   |      |  |      | 9,219   |   |  |   | 19,183   |  
|Amortization of VOBA asset                       |  |                          | (72,292 | )    |  |      | (74,300 | ) |  |   | (71,867  | )
|Reclassification from deferred DAC expense       |  |                          |        |      |  |      |        |   |  |   | 10,582   |  
|                                                 |  |                          |         |      |  |      |         |   |  |   |          |  
|                                                 |  |                          | 440,448 |      |  |      | 506,845 |   |  |   | 571,926  |  
|Unrealized gain on available-for-sale securities |  |                          | (65,656 | )    |  |      | (87,263 | ) |  |   | (117,767 | )
|                                                 |  |                          |         |      |  |      |         |   |  |   |          |  
|Balance at end of year                           |  | $                        | 374,792 |      |  | $    | 419,582 |   |  | $ | 454,159  |  
|                                                 |  |                          |         |      |  |      |         |   |  |   |          |  

Amortization is recognized in proportion to
expected future gross margins over a 20 year period and is
based on the average interest crediting rates which range from
3.18% to 5.96% for 2004 and over the next five years. Interest
accrued on the unamortized VOBA amounted to $26.4 million,
$30.8 million and $32.1 million in 2004, 2003 and
2002, respectively, which is netted with the VOBA amortization
expense.

F-34



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The estimated amortization for in force business
for the next five years is as follows ($ in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|     |  |  
|2005 |  | $ | 56,687 | 
|2006 |  |   | 50,814 | 
|2007 |  |   | 47,235 | 
|2008 |  |   | 43,141 | 
|2009 |  |   | 38,598 | 



|    |              
|--- | -------------
|(8) | NOTES PAYABLE

Notes payable consist of the following:

|                                                                                                                                                                                                                                                     |  |                  |         |      |  |   |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | 
|                                                                                                                                                                                                                                                     |  |                 
|                                                                                                                                                                                                                                                     |  | December 31,    
|                                                                                                                                                                                                                                                     |  |                 
|                                                                                                                                                                                                                                                     |  | 2004             |         | 2003
|                                                                                                                                                                                                                                                     |  |                  |         |     
|                                                                                                                                                                                                                                                     |  |                 
|                                                                                                                                                                                                                                                     |  | ($ in thousands)
|Optionally Convertible Equity-linked Accreting
    Notes due on March 6, 2032(A)                                                                                                                                                                     |  |                  | 189,212 |      |  |   | 187,723 | 
|PRIDES notes(B)                                                                                                                                                                                                                                      |  |                  | 143,750 |      |  |   | 143,750 | 
|Senior notes bearing interest at 6.95% due June,
    2005                                                                                                                                                                                            |  |                  | 125,000 |      |  |   | 125,000 | 
|AmerUs Capital I 8.85% Capital Securities
    Series A due February 1, 2027(C)                                                                                                                                                                       |  |                  | 50,755  |      |  |   | 50,755  | 
|Revolving credit agreement(D)                                                                                                                                                                                                                        |  |                  |        |      |  |   | 27,000  | 
|Surplus notes bearing interest at 8.66% due on
    April 11, 2011(E)                                                                                                                                                                                 |  |                  | 25,000  |      |  |   | 25,000  | 
|Federal Home Loan Bank community investment
    long-term and short-term advances with a weighted average
    interest rate of 6.38% at December 31, 2004 and 3.04% at
    December 31, 2003, maturing at various dates through
    June 12, 2012(F) |  |                  | 12,588  |      |  | $ | 36,873  | 
|Other notes bearing interest at rates ranging
    from 3.00% to 8.75% due from 2012 to 2028                                                                                                                                                          |  |                  | 24,850  |      |  |   | 25,795  | 
|                                                                                                                                                                                                                                                     |  |                  |         |      |  |   |         | 
|                                                                                                                                                                                                                                                     |  | $                | 571,155 |      |  | $ | 621,896 | 
|                                                                                                                                                                                                                                                     |  |                  |         |      |  |   |         | 



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | On March 6, 2002, the Company issued
    $185 million aggregate original principal amount of OCEANs.
    The OCEANs are senior subordinated debt and were issued and sold
    in an original principal amount of $1,000 per OCEAN, with a
    principal amount at maturity of $1,270 per OCEAN. The
    maturity date of the OCEANs is March 6, 2032. The OCEANs
    will have aggregate principal amount at maturity of
    $235 million. In 2004, the Company exchanged the OCEANs,
    which were previously all convertible into shares of the
    Companys common stock, to being convertible into a
    combination of cash and shares of common stock. Upon conversion,
    cash is to be paid equal to the accreted principal amount and
    shares are to be issued for the difference between the total
    conversion value and the accreted principal amount. The total
    conversion value is equal to the accreted principal amount
    divided by an initial conversion price (subject to adjustment)
    of $37.60 per share multiplied by the volume weighted
    average price of the Companys common stock for the ten day
    trading period before conversion. The yield on the OCEANs
    (without taking into account contingent interest) is
    3.83% per annum compounded semiannually through
    March 6, 2007 and 2.28% per annum compounded
    semiannually from March 6, 2007 through maturity. A portion
    of the yield is paid semiannually at a rate of 2.00% per
    annum on the issue price. The difference between the yield and
    the interest paid is accreted to the OCEANs principal. In
    addition, contingent interest will be paid quarterly based on
    the regular cash dividend on the Companys common stock.
    The Company has agreed, with certain limited exceptions, not to
    declare or pay dividends on or make distributions with respect
    to the Companys capital stock during any period in which
    the stated interest on the OCEANs has been deferred.

F-35



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | On May 28, 2003, the Company issued
    $125.0 million of PRIDES which were registered on
    Form S-3 filed with the Securities and Exchange Commission.
    On June 5, 2003, the underwriters exercised their over-
    allotment option in full and the Company issued an additional
    $18.8 million of PRIDES. The PRIDES initially consist of a
    $25 senior note and a contract requiring the holder to purchase
    the Companys common stock. The note has a minimum term of
    4.75 years, which may be extended by the Company in certain
    circumstances. The PRIDES have quarterly payments of interest at
    an annual rate of 5.5% and quarterly contract adjustment
    payments at an annual rate of 0.75%, both payable on
    February 16, May 16, August 16, and November 16
    of each year, commencing August 16, 2003. Under the
    purchase contract, holders of each contract are required to
    purchase the Companys common stock on the settlement date
    of August 16, 2006 based on a specified settlement rate,
    which will vary according to the applicable market value of the
    Companys common stock at the settlement date. The value of
    the common stock to be issued upon settlement of each purchase
    contract will not exceed $25, the stated value of the PRIDES,
    unless the applicable market value of the Companys common
    stock (which is measured by the common stock price over a 20-day
    trading day period) increases to more than $33.80 per
    share. The present value of the contract adjustment payment,
    amounting to $2.9 million, has been reflected as an other
    liability with a corresponding charge to additional paid-in
    capital. Subsequent contract adjustment payments will be
    allocated between the liability and interest expense based on a
    constant rate over the life of the PRIDES. Expenses incurred
    with the offering were allocated between the senior notes and
    the purchase contracts. The expenses allocated to the senior
    notes, amounting to $0.8 million, have been capitalized and
    will be recognized as interest expense over the term of the
    notes. The expense allocated to the purchase contracts, totaling
    $4.4 million, was charged to additional paid-in capital.
    The Company has agreed, with certain limited exceptions, not to
    declare or pay dividends on or make distributions with respect
    to the Companys capital stock during any period in which
    the contract adjustment payments to holders have been deferred.
|   
|(C) |  | The Capital Securities were issued through a
    wholly-owned subsidiary trust, AmerUs Capital I. The sole asset
    of the trust is the junior subordinated debentures of the
    Company in the principal amount of $88.66 million with
    interest at 8.85% maturing February 1, 2027. The Company
    has fully and unconditionally guaranteed the obligation of the
    trust under the Capital Securities and is obligated to
    mandatorily redeem the securities on February 1, 2027. The
    Company may prepay the securities at anytime after
    February 1, 2007. On March 26, 2002,
    $20.8 million of the Capital Securities were repurchased
    which did not result in a material gain. Dividends on capital
    stock cannot be paid until all accrued interest on the Capital
    Securities has been paid. AmerUs Capital I is a finance
    subsidiary which was deconsolidated in accordance with
    FIN 46 in 2003, as the securities holders are considered
    the primary beneficiaries rather than AmerUs Group Co. The
    deconsolidation of AmerUs Capital I resulted in an increase in
    total assets and total liabilities of $2.7 million and no
    change in stockholders equity or net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(D) |  | The revolving credit agreement provides for a
    maximum borrowing of $200 million with the balance maturing
    in December 2007. The interest rate is variable; however, the
    Company may elect to fix the rate for periods from 30 days
    to six months. The loan agreement contains various financial and
    operating covenants which, among other things, limit future
    indebtedness and restrict the amount of future dividend payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(E) |  | Payment of interest and principal on the surplus
    note, may only be paid from ILICs earnings, subject to
    approval by the Indiana Department of Insurance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(F) |  | The Company has multiple credit arrangements with
    the Federal Home Loan Bank (FHLB). The carrying value of
    the securities pledged to the FHLB under all agreements was
    $13.2 million at December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-36



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Maturities of notes payable are as follows for
    each of the next five years are as follows ($ in thousands):

|                         |            |      |         |         |         | 
|------------------------ | ---------- | ---- | ------- | ------- | ------- | 
|Year ending December 31, |            |      |         |        
|                         |            | 2005 |         | $       | 126,051 | 
|                         |            | 2006 |         |         | 991     | 
|                         |            | 2007 |         |         | 1,063   | 
|                         |            | 2008 |         |         | 144,891 | 
|                         |            | 2009 |         |         | 987     | 
|                         | Thereafter |      |         | 297,172 |        
|                         |            |      |         |        
|                         |            | $    | 571,155 |        
|                         |            |      |         |        



|    |             
|--- | ------------
|(9) | INCOME TAXES

Comprehensive federal income tax expense
(benefit) is summarized as follows:

|                             |                                           |                          |        |        |   |      |        |        |   |   |        |        | 
|---------------------------- | ----------------------------------------- | ------------------------ | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | 
|                             |                                           |                         
|                             |                                           | Years ended December 31,
|                             |                                           |                         
|                             |                                           | 2004                     |        | 2003   |   | 2002
|                             |                                           |                          |        |        |   |     
|                             |                                           |                         
|                             |                                           | ($ in thousands)        
|Income tax expense (benefit) |                                           |                          |        |        |   |      |        |        |   |   |        |       
|                             | Continuing operations                     |                          | $      | 39,041 |   |      | $      | 78,610 |   |   | $      | 28,375 | 
|                             | Other comprehensive income                |                          |        | 16,235 |   |      |        | 647    |   |   |        | 40,844 | 
|                             | Cumulative effect of change in accounting |                          |        | (275   | ) |      |        | (698   | ) |   |        |       | 
|                             | Discontinued operations                   |                          |        | 2,571  |   |      |        | 1,238  |   |   |        | 1,389  | 
|                             |                                           |                          |        |        |   |      |        |        |   |   |        |       
|                             |                                           | $                        | 57,572 |        |   | $    | 79,797 |        |   | $ | 70,608 |       
|                             |                                           |                          |        |        |   |      |        |        |   |   |        |       

The effective income tax rate on pre-tax income
varies from the prevailing corporate federal income tax rate and
is summarized as follows:

|                                                         |                    |                          |       |       |   |      |       |       |   |  |       |       |  
|-------------------------------------------------------- | ------------------ | ------------------------ | ----- | ----- | - | ---- | ----- | ----- | - |  | ----- | ----- | -
|                                                         |                    |                         
|                                                         |                    | Years ended December 31,
|                                                         |                    |                         
|                                                         |                    | 2004                     |       | 2003  |   | 2002
|                                                         |                    |                          |       |       |   |     
|Corporate federal income tax rate                        |                    |                          | 35.00 | %     |   |      | 35.00 | %     |   |  | 35.00 | %    
|Acquisitions costs and reorganization expenses           |                    |                          |      |       |   |      |      |       |   |  | 0.53  | %    
|Net benefit of tax credits                               |                    |                          | (0.08 | )%    |   |      |      |       |   |  | (0.19 | )%   
|Dividend received deduction                              |                    |                          | (0.73 | )%    |   |      | (0.80 | )%    |   |  | (0.42 | )%   
|Tax exempt income                                        |                    |                          | (2.06 | )%    |   |      | (2.14 | )%    |   |  | (5.37 | )%   
|Prior year overpayments                                  |                    |                          | (1.61 | )%    |   |      |      |       |   |  |      |      
|Provision releases                                       |                    |                          | (7.31 | )%    |   |      |      |       |   |  |      |      
|Deferred income tax asset valuation allowance
    change |                    |                          | (7.18 | )%    |   |      |      |       |   |  |      |      
|Other items, net                                         |                    |                          | 1.07  | %     |   |      | 0.80  | %     |   |  | 2.28  | %    
|                                                         |                    |                          |       |       |   |      |       |       |   |  |       |      
|                                                         | Effective tax rate |                          |       | 17.10 | % |      |       | 32.86 | % |  |       | 31.83 | %
|                                                         |                    |                          |       |       |   |      |       |       |   |  |       |      

The effective income tax rate for 2004 was
lowered by a reduction in the income tax accrual and a change in
the deferred tax asset valuation allowance. Approximately
$3.7 million of the accrual reduction represents an
overpayment of tax in prior years for which a refund is
expected. There were also accrual reductions of
$16.7 million for the release of provisions originally
established for potential tax adjustments which have been
settled or eliminated. In addition, a deferred tax valuation
allowance was reduced $16.4 million as a result of

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the realization of capital loss carry forwards.
The effective income tax rate for 2003 and 2002 varied from the
prevailing corporate rate primarily due to tax exempt income.

The Companys federal income tax expense
(benefit) from continuing operations is summarized as follows:

|                         |  |                          |        |      |  |      |        |  |  |   |         |  
|------------------------ |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------- | -
|                         |  |                         
|                         |  | Years ended December 31,
|                         |  |                         
|                         |  | 2004                     |        | 2003 |  | 2002
|                         |  |                          |        |      |  |     
|                         |  |                         
|                         |  | ($ in thousands)        
|Current                  |  | $                        | (9,176 | )    |  | $    | 11,841 |  |  | $ | 41,958  |  
|Deferred                 |  |                          | 48,217 |      |  |      | 66,769 |  |  |   | (13,583 | )
|                         |  |                          |        |      |  |      |        |  |  |   |         |  
|Total income tax expense |  | $                        | 39,041 |      |  | $    | 78,610 |  |  | $ | 28,375  |  
|                         |  |                          |        |      |  |      |        |  |  |   |         |  

The significant components of net deferred income
tax assets (liabilities) are summarized as follows:

|                                 |                                                                                                                                                         |                                           |         |          |            |   |         |          |          |  
|-------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------- | -------- | ---------- | - | ------- | -------- | -------- | -
|                                 |                                                                                                                                                         |                                          
|                                 |                                                                                                                                                         | December 31,                             
|                                 |                                                                                                                                                         |                                          
|                                 |                                                                                                                                                         | 2004                                      |         | 2003    
|                                 |                                                                                                                                                         |                                           |         |         
|                                 |                                                                                                                                                         |                                          
|                                 |                                                                                                                                                         | ($ in thousands)                         
|Deferred income tax assets:      |                                                                                                                                                         |                                           |         |          |            |   |         |         
|                                 | Policy reserves, policyowner funds and dividends                                                                                                        |                                           | $       | 791,179  |            |   | $       | 728,015  |         
|                                 | DAC, capitalized bonus interest, and VOBA related
    to unrealized appreciation on available-for-sale securities and
    investments reflected in AOCI |                                           |         | 81,273   |            |   |         | 78,092   |         
|                                 | Employee benefits and deferred compensation                                                                                                             |                                           |         | 40,303   |            |   |         | 26,202   |         
|                                 | Credit carryover                                                                                                                                        |                                           |         | 38,697   |            |   |         | 69,265   |         
|                                 | Other                                                                                                                                                   |                                           |         | 14,204   |            |   |         | 5,989    |         
|                                 |                                                                                                                                                         |                                           |         |          |            |   |         |         
|                                 |                                                                                                                                                         | Total gross deferred income tax asset     |         |          | 965,656    |   |         |          | 907,563  |  
|                                 |                                                                                                                                                         | Valuation allowance                       |         |          | 5,899      |   |         |          | 22,300   |  
|                                 |                                                                                                                                                         |                                           |         |          |            |   |         |         
|                                 |                                                                                                                                                         |                                           | 959,757 |          |            |   | 885,263 |         
|                                 |                                                                                                                                                         |                                           |         |          |            |   |         |         
|Deferred income tax liabilities: |                                                                                                                                                         |                                           |         |          |            |   |         |         
|                                 | DAC and capitalized bonus interest                                                                                                                      |                                           |         | (449,964 | )          |   |         | (333,321 | )       
|                                 | Net unrealized appreciation on available-for-sale
    securities and investments reflected in AOCI                                                      |                                           |         | (142,773 | )          |   |         | (123,339 | )       
|                                 | VOBA                                                                                                                                                    |                                           |         | (154,133 | )          |   |         | (178,204 | )       
|                                 | Reinsurance receivables                                                                                                                                 |                                           |         | (241,340 | )          |   |         | (246,979 | )       
|                                 | Other invested assets                                                                                                                                   |                                           |         | (88,517  | )          |   |         | (55,872  | )       
|                                 | Other                                                                                                                                                   |                                           |         | (28,362  | )          |   |         | (28,409  | )       
|                                 |                                                                                                                                                         |                                           |         |          |            |   |         |         
|                                 |                                                                                                                                                         | Total gross deferred income tax liability |         |          | (1,105,089 | ) |         |          | (966,124 | )
|                                 |                                                                                                                                                         |                                           |         |          |            |   |         |         
|                                 |                                                                                                                                                         | Net deferred income tax liability         |         | $        | (145,332   | ) |         | $        | (80,861  | )
|                                 |                                                                                                                                                         |                                           |         |          |            |   |         |         

The Company is required to establish a
valuation allowance for any portion of the deferred
tax asset that management believes will not be realized. A
valuation allowance has been established at December 31,
2004 and 2003 for certain credit carryovers which may not be
realized and capital loss carryforwards at December 31,
2003.

Federal income tax returns for the Company for
years through 1996 are closed to further assessment of taxes.
Federal income tax returns of the Company for 1997 and 1998 are
in the final stages of appeals

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

mediation but are not yet final. The Internal
Revenue Service has completed examining federal income tax
returns of the Company for 1999 through 2001, with some issues
being referred to appeals. The Internal Revenue Service is
examining federal income tax returns for 2002 and 2003.
Management believes adequate provisions have been made for any
additional taxes which may become due with respect to open years.

(10) EMPLOYEE BENEFIT PLANS

Defined Benefit Plans

The Company has a defined benefit pension plan
which covered substantially all of the Companys employees.
The plan provided for benefits based upon years of service and
the employees compensation. The Company froze the plan
effective December 31, 1995. Effective January 1,
1996, the plan was replaced by a defined contribution savings
and retirement plan which also replaced the Companys
defined contribution pension plans.

In addition, ILICO had a noncontributory defined
benefit pension plan, which generally covered all qualified
employees that had attained the age of twenty-one. Benefits were
based on years of service and compensation levels during
employment. All plan assets consisted primarily of deposit
administration funds and group annuity contracts held by ILICO.
The Company froze the plan effective December 31, 2001 and
merged this plan into the Companys defined benefit pension
plan. Effective January 1, 2002, the plan participants are
included in the Companys defined contribution savings and
retirement plan.

The Company also has nonqualified defined benefit
pension plans to provide supplemental retirement benefits to
certain agents and executives. The measurement date for all
defined benefit plans is December 31. The defined benefit
plans funded status, reconciled to amounts recognized in
the consolidated financial statements is as follows:

|                              |                                                |                                          |   |        |        |  |   |        |        | 
|----------------------------- | ---------------------------------------------- | ---------------------------------------- | - | ------ | ------ |  | - | ------ | ------ | 
|                              |                                                |                                         
|                              |                                                | December 31,                            
|                              |                                                |                                         
|                              |                                                | 2004                                     |   | 2003  
|                              |                                                |                                          |   |       
|                              |                                                |                                         
|                              |                                                | ($ in thousands)                        
|Change in benefit obligation: |                                                |                                          |   |        |        |  |   |       
|                              | Benefit obligation at beginning of year        |                                          | $ | 86,911 |        |  | $ | 79,913 |       
|                              | Service cost                                   |                                          |   |       |        |  |   |       |       
|                              | Interest cost                                  |                                          |   | 5,148  |        |  |   | 5,178  |       
|                              | Actuarial loss                                 |                                          |   | 6,961  |        |  |   | 5,604  |       
|                              | Settlements and termination benefits           |                                          |   |       |        |  |   | 1,570  |       
|                              | Actual benefits paid                           |                                          |   | (6,140 | )      |  |   | (5,354 | )     
|                              |                                                |                                          |   |        |        |  |   |       
|                              |                                                | Benefit obligation at end of year        |   | $      | 92,880 |  |   | $      | 86,911 | 
|                              |                                                |                                          |   |        |        |  |   |       
|Change in plan assets:        |                                                |                                          |   |        |        |  |   |       
|                              | Fair value of plan assets at beginning of year |                                          | $ | 68,515 |        |  | $ | 67,713 |       
|                              | Actual return on plan assets                   |                                          |   | 5,195  |        |  |   | 5,523  |       
|                              | Company contribution                           |                                          |   | 730    |        |  |   | 633    |       
|                              | Benefits paid and transfers                    |                                          |   | (6,140 | )      |  |   | (5,354 | )     
|                              |                                                |                                          |   |        |        |  |   |       
|                              |                                                | Fair value of plan assets at end of year |   | $      | 68,300 |  |   | $      | 68,515 | 
|                              |                                                |                                          |   |        |        |  |   |       

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                              |                                        |                              |   |         |         |   |   |         |         |  
|--------------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                              |                                        |                             
|                                                                                              |                                        | December 31,                
|                                                                                              |                                        |                             
|                                                                                              |                                        | 2004                         |   | 2003   
|                                                                                              |                                        |                              |   |        
|                                                                                              |                                        |                             
|                                                                                              |                                        | ($ in thousands)            
|Reconciliation of funded status                                                               |                                        |                              |   |         |         |   |   |        
|                                                                                              | Accumulated benefit obligation         |                              | $ | (92,880 | )       |   | $ | (86,911 | )      
|                                                                                              |                                        |                              |   |         |         |   |   |        
|                                                                                              | Projected benefit obligation           |                              | $ | (92,880 | )       |   | $ | (86,911 | )      
|                                                                                              | Market value of plan assets            |                              |   | 68,300  |         |   |   | 68,515  |        
|                                                                                              |                                        |                              |   |         |         |   |   |        
|                                                                                              | Funded status                          |                              |   | (24,580 | )       |   |   | (18,396 | )      
|                                                                                              | Unrecognized transition obligation     |                              |   | (3      | )       |   |   | (4      | )      
|                                                                                              | Unrecognized prior service cost        |                              |   | 390     |         |   |   | 415     |        
|                                                                                              | Unrecognized net loss                  |                              |   | 16,990  |         |   |   | 10,488  |        
|                                                                                              |                                        |                              |   |         |         |   |   |        
|                                                                                              | Accrued benefit cost                   |                              | $ | (7,203  | )       |   | $ | (7,497  | )      
|                                                                                              |                                        |                              |   |         |         |   |   |        
|Amounts recognized in the consolidated balance
    sheet consist of:                          |                                        |                              |   |         |         |   |   |        
|                                                                                              | Liabilities                            |                              |   |         |         |   |   |         |        
|                                                                                              |                                        | Accrued pension cost         |   | $       | (9,450  | ) |   | $       | (9,385  | )
|                                                                                              |                                        | Additional minimum liability |   |         | (17,378 | ) |   |         | (10,899 | )
|                                                                                              | Assets                                 |                              |   |         |         |   |   |         |        
|                                                                                              |                                        | Prepaid pension cost         |   |         | 2,247   |   |   |         | 1,888   |  
|                                                                                              |                                        | Intangible asset             |   |         | 405     |   |   |         | 431     |  
|                                                                                              | Accumulated other comprehensive income |                              |   | 16,973  |         |   |   | 10,468  |        
|                                                                                              |                                        |                              |   |         |         |   |   |        
|                                                                                              |                                        | Net accrued pension cost     |   | $       | (7,203  | ) |   | $       | (7,497  | )
|                                                                                              |                                        |                              |   |         |         |   |   |        
|Weighted-average assumptions used to determine
    obligations at December 31:                |                                        |                              |   |         |         |   |   |        
|                                                                                              | Discount rate                          |                              |   | 5.50    | %       |   |   | 6.00    | %      
|                                                                                              | Expected return on plan assets         |                              |   | 7.50    | %       |   |   | 7.50    | %      
|                                                                                              | Rate of compensation increase          |                              |   | N/A     |         |   |   | N/A     |        
|Weighted-average assumptions used to determine
    net periodic pension cost for fiscal year: |                                        |                              |   |         |         |   |   |        
|                                                                                              | Discount rate                          |                              |   | 6.00    | %       |   |   | 6.50    | %      
|                                                                                              | Expected return on plan assets         |                              |   | 7.50    | %       |   |   | 7.50    | %      
|                                                                                              | Rate of compensation increase          |                              |   | N/A     |         |   |   | N/A     |        

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                         |                                       |                          |   |        |     |      |   |        |       |  |   |        |     | 
|---------------------------------------- | ------------------------------------- | ------------------------ | - | ------ | --- | ---- | - | ------ | ----- |  | - | ------ | --- | 
|                                         |                                       |                         
|                                         |                                       | Years ended December 31,
|                                         |                                       |                         
|                                         |                                       | 2004                     |   | 2003   |     | 2002
|                                         |                                       |                          |   |        |     |     
|                                         |                                       |                         
|                                         |                                       | ($ in thousands)        
|Components of net periodic benefit cost: |                                       |                          |   |        |     |      |   |        |       |  |   |       
|                                         | Service cost                          |                          | $ |       |     |      | $ |       |       |  | $ |       |    
|                                         | Interest cost                         |                          |   | 5,148  |     |      |   | 5,178  |       |  |   | 5,368  |    
|                                         | Expected return on plan assets        |                          |   | (4,959 | )   |      |   | (4,905 | )     |  |   | (4,934 | )  
|                                         | Amortization of transition obligation |                          |   | (1     | )   |      |   | (1     | )     |  |   | (1     | )  
|                                         | Amortization of prior service cost    |                          |   | 25     |     |      |   | (24    | )     |  |   | (49    | )  
|                                         | Amortizaton of actuarial loss         |                          |   | 223    |     |      |   | 44     |       |  |   | 39     |    
|                                         |                                       |                          |   |        |     |      |   |        |       |  |   |       
|                                         | Net periodic benefit cost             |                          |   | 436    |     |      |   | 292    |       |  |   | 423    |    
|                                         | Settlement cost                       |                          |   |       |     |      |   | 1,570  |       |  |   |       |    
|                                         |                                       |                          |   |        |     |      |   |        |       |  |   |       
|                                         |                                       | Total expense            |   | $      | 436 |      |   | $      | 1,862 |  |   | $      | 423 | 
|                                         |                                       |                          |   |        |     |      |   |        |       |  |   |       

Three of the defined benefit pension plans, with
liabilities of $9.4 million, do not have separate plan
assets. The frozen pension plan, which has a prepaid benefit
cost of $2.2 million at December 31, 2004, has plan
assets.

The plan assets are invested prudently in various
asset classes that are expected to produce a sufficient level of
diversification and investment return over the long-term.
Liability studies are conducted on a regular basis to provide
guidance in setting investment goals with an objective to
balance risk. All policies and procedures are designed to ensure
the plans investments are in compliance with the Employee
Retirement Security Act. Guidelines are established defining
permitted investments within each asset class. The plan employs
a total return on investment approach, whereby a mix, which is
broadly similar to the current asset allocation, of equity
securities, debt securities and other assets is targeted to
maximize the long-term return on assets for a given risk.
Investment return and risk is monitored on an ongoing basis by
the firms Pension Committee through periodic reviews,
meetings with investment managers and liability measurements.
The allocation of the fair value of plan assets at
December 31, 2004 and 2003 is as follows:

|                  |                                   |              |    |      |   |  |    |     |  
|----------------- | --------------------------------- | ------------ | -- | ---- | - |  | -- | --- | -
|                  |                                   |             
|                  |                                   | December 31,
|                  |                                   |             
|                  |                                   | 2004         |    | 2003
|                  |                                   |              |    |     
|Debt securities   |                                   |              | 53 | %    |   |  | 80 | %  
|Equity securities |                                   |              | 44 | %    |   |  | 12 | %  
|Other             |                                   |              | 3  | %    |   |  | 8  | %  
|                  |                                   |              |    |      |   |  |    |    
|                  | Benefit obligation at end of year |              |    | 100  | % |  |    | 100 | %
|                  |                                   |              |    |      |   |  |    |    

The Company estimates the long-term rate of
return on plan assets will be 7.5% based upon a strategic,
long-term asset allocation mix. The long-term rate of return was
based on the reasonable range of rates determined by a
combination of long-term historical asset returns and expected
value to be generated through active management.

The Company expects to contribute
$1.0 million to the defined benefit plans in 2005. The
following benefit payments which reflect expected future
service, as appropriate, are expected to be paid:
$5.8 million in 2005; $5.8 million in 2006;
$5.9 million in 2007; $6.0 million in 2008; and
$5.9 million in 2009.

Defined Contribution Pension Plans

The Company has a defined contribution savings
and retirement plan. Company contributions are non-discretionary
and consist of a matching contribution of an amount equal to
125 percent of the first 4 percent of

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

employee contributions and an annual core
contribution of an amount equal to 4 percent of annual
employee compensation. The Company uses a combination of cash
and Company common stock for the annual contribution. The shares
for this purpose are provided by the Companys Employee
Stock Ownership Plan (ESOP). Compensation expense for the
employer match and annual contribution amounted to
$7.2 million, $7.0 million and $6.6 million, in
2004, 2003 and 2002, respectively.

Leveraged Employee Stock Ownership
Plan

The Company has a leveraged ESOP. The shares of
the ESOP are used to fund a portion of the annual core
contribution savings and retirement plan. The ESOP was
originally sponsored by AmVestors, an acquired subsidiary of the
Company. The ESOP acquired AmVestors stock, which was
subsequently exchanged for the Companys stock, through the
proceeds of a note payable to American, a subsidiary of
AmVestors. The note was repaid in December 2002. During 2002,
the ESOP purchased 80,000 shares of the Companys
stock which was funded by an employer loan from the Company.

The Company accounts for its ESOP in accordance
with Statement of Position 93-6. Accordingly, as unallocated
shares are allocated a reduction in the annual defined
contribution savings and retirement plan liability is reported
equal to the current market price of the shares, and the shares
become outstanding for earnings-per-share
(EPS) computations.

The ESOP shares were as follows:

|                                                           |  |                          |         |      |  |      |         |  |  |   |         | 
|---------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                           |  |                         
|                                                           |  | Years ended December 31,
|                                                           |  |                         
|                                                           |  | 2004                     |         | 2003 |  | 2002
|                                                           |  |                          |         |      |  |     
|Allocated shares                                           |  |                          | 272,653 |      |  |      | 293,278 |  |  |   | 259,671 | 
|Unallocated shares                                         |  |                          |        |      |  |      |        |  |  |   | 45,773  | 
|                                                           |  |                          |         |      |  |      |         |  |  |   |         | 
|Total LESOP shares                                         |  |                          | 272,653 |      |  |      | 293,278 |  |  |   | 305,444 | 
|                                                           |  |                          |         |      |  |      |         |  |  |   |         | 
|Fair market value of unallocated shares (in
    thousands) |  | $                        |        |      |  | $    |        |  |  | $ | 1,294   | 
|                                                           |  |                          |         |      |  |      |         |  |  |   |         | 

Nonqualified and Deferred Compensation
Plans

The Company has nonqualified benefit, deferred
compensation and bonus plans covering certain agents, directors
and officers in addition to the defined benefit plans previously
described. Accumulated benefits of these plans are primarily
unfunded and are included in other liabilities at
December 31, 2004 and 2003, amounting to $89.6 million
and $76.0 million, respectively. Total expense for these
plans amounted to $17.7 million, $12.7 million and
$6.5 million for 2004, 2003 and 2002, respectively.

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Postretirement Benefit Plans

The Company has postretirement benefit plans
which provide eligible participants and dependents with certain
medical, dental and life insurance benefits. The medical and
dental plans are contributory with participants
contributions adjusted annually. The life insurance benefits are
noncontributory. The plans obligations and funded status,
using a measurement date of December 31, reconciled to
amounts recognized in the consolidated financial statements are
as follows:

|                                 |                                                |                                          |   |         |         |   |   |         |         |  
|-------------------------------- | ---------------------------------------------- | ---------------------------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                 |                                                |                                         
|                                 |                                                | December 31,                            
|                                 |                                                |                                         
|                                 |                                                | 2004                                     |   | 2003   
|                                 |                                                |                                          |   |        
|                                 |                                                |                                         
|                                 |                                                | ($ in thousands)                        
|Change in benefit obligation:    |                                                |                                          |   |         |         |   |   |        
|                                 | Benefit obligation at beginning of year        |                                          | $ | 17,647  |         |   | $ | 16,239  |        
|                                 | Service cost                                   |                                          |   | 267     |         |   |   | 283     |        
|                                 | Interest cost                                  |                                          |   | 956     |         |   |   | 1,021   |        
|                                 | Plan participants contributions               |                                          |   | 421     |         |   |   | 469     |        
|                                 | Actuarial loss                                 |                                          |   | 615     |         |   |   | 1,270   |        
|                                 | Curtailments                                   |                                          |   | (953    | )       |   |   |        |        
|                                 | Actual benefits paid                           |                                          |   | (1,833  | )       |   |   | (1,635  | )      
|                                 |                                                |                                          |   |         |         |   |   |        
|                                 |                                                | Benefit obligation at end of year        |   | $       | 17,120  |   |   | $       | 17,647  |  
|                                 |                                                |                                          |   |         |         |   |   |        
|Change in plan assets:           |                                                |                                          |   |         |         |   |   |        
|                                 | Fair value of plan assets at beginning of year |                                          | $ |        |         |   | $ |        |        
|                                 | Company contribution                           |                                          |   | 1,412   |         |   |   | 1,166   |        
|                                 | Plan participant contribution                  |                                          |   | 421     |         |   |   | 469     |        
|                                 | Benefits paid                                  |                                          |   | (1,833  | )       |   |   | (1,635  | )      
|                                 |                                                |                                          |   |         |         |   |   |        
|                                 |                                                | Fair value of plan assets at end of year |   | $       |        |   |   | $       |        |  
|                                 |                                                |                                          |   |         |         |   |   |        
|Reconciliation of funded status: |                                                |                                          |   |         |         |   |   |        
|                                 | Accumulated postretirement benefit obligation  |                                          | $ | (17,120 | )       |   | $ | (17,647 | )      
|                                 | Market value of plan assets                    |                                          |   |        |         |   |   |        |        
|                                 |                                                |                                          |   |         |         |   |   |        
|                                 | Funded status                                  |                                          | $ | (17,120 | )       |   | $ | (17,647 | )      
|                                 | Unrecognized prior service cost                |                                          |   | 391     |         |   |   | 454     |        
|                                 | Unrecognized net loss                          |                                          |   | 2,863   |         |   |   | 2,293   |        
|                                 |                                                |                                          |   |         |         |   |   |        
|                                 |                                                | Accrued benefit cost                     |   | $       | (13,866 | ) |   | $       | (14,900 | )
|                                 |                                                |                                          |   |         |         |   |   |        

|                                                                                          |                                              |              |  |       |   |  |  |       |  
|----------------------------------------------------------------------------------------- | -------------------------------------------- | ------------ |  | ----- | - |  |  | ----- | -
|                                                                                          |                                              |             
|                                                                                          |                                              | December 31,
|                                                                                          |                                              |             
|                                                                                          |                                              | 2004         |  | 2003 
|                                                                                          |                                              |              |  |      
|Weighted-average assumptions for year end
    obligation determination as of December 31: |                                              |              |  |       |   |  |  |      
|                                                                                          | Discount rate                                |              |  | 5.50  | % |  |  | 6.00  | %
|                                                                                          | Initial weighted health care cost trend rate |              |  | 11.00 | % |  |  | 12.00 | %
|                                                                                          | Ultimate health care cost trend rate         |              |  | 5.00  | % |  |  | 5.00  | %
|                                                                                          | Years to ultimate trend                      |              |  | 6     |   |  |  | 7     |  
|Weighted-average assumptions for expense
    determination for fiscal year:               |                                              |              |  |       |   |  |  |      
|                                                                                          | Discount rate                                |              |  | 6.00  | % |  |  | 6.50  | %

F-43



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                               |                                    |                          |   |       |   |      |   |       |  |  |   |       | 
|------------------------------ | ---------------------------------- | ------------------------ | - | ----- | - | ---- | - | ----- |  |  | - | ----- | 
|                               |                                    |                         
|                               |                                    | Years ended December 31,
|                               |                                    |                         
|                               |                                    | 2004                     |   | 2003  |   | 2002
|                               |                                    |                          |   |       |   |     
|                               |                                    |                         
|                               |                                    | ($ in thousands)        
|Components of benefit expense: |                                    |                          |   |       |   |      |   |       |  |  |   |      
|                               | Service cost                       |                          | $ | 267   |   |      | $ | 283   |  |  | $ | 345   | 
|                               | Interest cost                      |                          |   | 956   |   |      |   | 1,021 |  |  |   | 1,087 | 
|                               | Amortization of prior service cost |                          |   | 64    |   |      |   | 64    |  |  |   | 63    | 
|                               | Amortization of net loss           |                          |   | 43    |   |      |   |      |  |  |   |      | 
|                               |                                    |                          |   |       |   |      |   |       |  |  |   |      
|                               | Net periodic benefit cost          |                          |   | 1,330 |   |      |   | 1,368 |  |  |   | 1,495 | 
|                               | Curtailment charges                |                          |   | (953  | ) |      |   |      |  |  |   |      | 
|                               |                                    |                          |   |       |   |      |   |       |  |  |   |      
|                               | Total expense                      |                          | $ | 377   |   |      | $ | 1,368 |  |  | $ | 1,495 | 
|                               |                                    |                          |   |       |   |      |   |       |  |  |   |      

Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care
plans. A one-percentage-point change in the assumed health care
cost trend rates would have the following effects in 2004:

|                                                            |  |                  |       |            |  |   |        |  
|----------------------------------------------------------- |  | ---------------- | ----- | ---------- |  | - | ------ | -
|                                                            |  | 1% Point         |       | 1% Point  
|                                                            |  | Increase         |       | (Decrease)
|                                                            |  |                  |       |           
|                                                            |  |                 
|                                                            |  | ($ in thousands)
|Effect on total of service and interest cost
    components |  | $                | 52.7  |            |  | $ | (47.8  | )
|Effect of postretirement benefit obligation                 |  | $                | 915.9 |            |  | $ | (816.5 | )

On December 8, 2003, President Bush signed
the Medicare Prescription Drug, Improvement and Modernization
Act into law. This law provides for a federal subsidy to
sponsors of retiree health care benefit plans that provide a
prescription drug benefit that is at least actuarially
equivalent to the benefit established by the law. The Company
has determined that the drug benefits provided under the
postretirement benefits program for Medicare eligible retirees
are not actuarially equivalent to the benefit established by
law, and therefore the Company will not be eligible to receive
the federal subsidy.

The Company expects to contribute
$1.6 million to the post-retirement benefit plans in 2005.
The following benefit payments which reflect expected future
service, as appropriate, are expected to be paid:
$1.6 million in 2005; $1.5 million in 2006;
$1.5 million in 2007; $1.6 million in 2008; and
$1.6 million in 2009.



|     |            
|---- | -----------
|(11) | REINSURANCE

The Company has indemnity reinsurance agreements
with various companies whereby life insurance in excess of its
retention limits is reinsured. The Companys retention of
the net amount at risk is generally between $150,000 and
$500,000. Insurance in force ceded to nonaffiliated companies
under risk sharing arrangements at December 31, 2004 and
2003, totaled approximately $77.4 billion and
$75.3 billion, respectively. The Company has entered into
modified coinsurance arrangements to cede between 70% and 80% of
certain annuity products. Under this arrangement, the Company
transfers the risks and rewards of the business to the assuming
company; however, the ceding company retains the assets and
liabilities associated with the business.

F-44



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Net premiums and amounts earned were as follows:

|                                                               |  |                          |          |      |  |      |          |   |  |   |          |  
|-------------------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                               |  |                         
|                                                               |  | Years ended December 31,
|                                                               |  |                         
|                                                               |  | 2004                     |          | 2003 |  | 2002
|                                                               |  |                          |          |      |  |     
|                                                               |  |                         
|                                                               |  | ($ in thousands)        
|Direct premiums and amounts assessed against
    policyholders |  | $                        | 358,300  |      |  | $    | 377,588  |   |  | $ | 419,503  |  
|Reinsurance assumed                                            |  |                          | 40,188   |      |  |      | 45,854   |   |  |   | 49,544   |  
|Reinsurance ceded                                              |  |                          | (130,822 | )    |  |      | (126,254 | ) |  |   | (117,747 | )
|                                                               |  |                          |          |      |  |      |          |   |  |   |          |  
|Net premiums and amounts earned                                |  | $                        | 267,666  |      |  | $    | 297,188  |   |  | $ | 351,300  |  
|                                                               |  |                          |          |      |  |      |          |   |  |   |          |  

Reinsurance recoveries on ceded reinsurance
contracts were $222.6 million, $222.1 million and
$134.2 million during 2004, 2003 and 2002, respectively.



|     |                              
|---- | -----------------------------
|(12) | COMMITMENTS AND CONTINGENCIES

At December 31, 2004, the Company is
obligated to make future capital contributions to various
partnerships of up to $0.5 million. We also have
commitments to extend credit for mortgages totaling
$36.6 million at December 31, 2004. In addition, at
December 31, 2004, the Company had loan guarantees which
totaled $1.5 million.

The Company had an agreement with Bank One, N.A.
whereby the Company guarantees the payment of loans made to
certain of the Companys managers and executives for the
purpose of purchasing Common Stock pursuant to the Stock
Purchase Program. The liability of the Company in respect of the
principal amount of loans is limited to $3.3 million as of
December 31, 2003, which was repaid in March 2004.

AmerUs and its joint venture partner are
contingently liable in the event Ameritas Variable Life
Insurance Company (AVLIC) cannot meet its obligations. At
December 31, 2004, AVLIC had statutory assets of
$2,441.6 million, liabilities of $2,331.4 million, and
surplus of $110.2 million.

The Company leases office space under various
operating leases with terms through 2007. Rental expense for
operating leases amounted to $5.3 million,
$5.4 million and $5.3 million in 2004, 2003 and 2002,
respectively. At December 31, 2004, future minimum annual
lease commitments under these non-cancelable operating leases
were as follows ($ in thousands):

|                         |            |      |        |   |       | 
|------------------------ | ---------- | ---- | ------ | - | ----- | 
|Year ending December 31, |            |      |        |  
|                         |            | 2005 |        | $ | 6,876 | 
|                         |            | 2006 |        |   | 5,255 | 
|                         |            | 2007 |        |   | 5,132 | 
|                         |            | 2008 |        |   | 872   | 
|                         |            | 2009 |        |   | 570   | 
|                         | Thereafter |      |        |  |      
|                         |            |      |        |  
|                         |            | $    | 18,705 |  
|                         |            |      |        |  

In recent years, the life insurance industry,
including the Company and its subsidiaries, have been subject to
an increase in litigation pursued on behalf of purported classes
of insurance purchasers, questioning the conduct of insurers in
the marketing of their products. The Company is routinely
involved in litigation and other proceedings, including class
actions, reinsurance claims and regulatory proceedings arising
in the ordinary course of its business. Some of these claims and
legal actions are in jurisdictions where juries are given
substantial latitude in assessing damages, including punitive
and exemplary damages. In addition, regulatory bodies, such as
state insurance departments and attorneys general, periodically
make inquiries and

F-45



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

conduct examinations concerning the
Companys compliance with insurance and other laws. The
Company responds to such inquiries and cooperates with
regulatory examinations in the ordinary course of business.

Currently, the Company and/or certain of its
subsidiaries are defendants in class action lawsuits brought in
California state courts on behalf of purchasers of insurance
products and related services. These class action lawsuits
relate to the use of purportedly inappropriate sales techniques
and products for the senior citizen market. The plaintiffs in
these lawsuits are seeking a variety of damages including
restitution of all surrender charge penalties, injunctive
relief, punitive and other indirect damages and attorneys fees.
Additionally, on February 10, 2005, the California Attorney
General and the California Commissioner of Insurance filed a
complaint in California Superior Court for the County of Los
Angeles against certain of the Companys subsidiaries,
including Family First Advanced Estate Planning and Family First
Insurance Services, and certain third parties alleging conduct
similar to that alleged in the class actions. The complaint
alleges, among other things, that the defendants engaged in the
unauthorized practice of law, claims related to the suitability
of the products for, and the manner in which they were sold to,
the senior citizen market and other violations of
Californias insurance laws. The plaintiffs seek civil
penalties, restitution, injunctive relief and other relief and
damages. The Company believes it has appropriate defenses
against these lawsuits and intends to vigorously defend its
position.

The Companys pending litigation (including
without limitation the proceedings described in the immediately
preceding paragraph) is subject to many uncertainties, and given
its complexity and scope, the outcomes cannot be predicted.
Given these uncertainties, the Company is unable to estimate the
possible loss or range of loss that may result from the
Companys pending litigation. It is possible that the
Companys results of operations or cash flow in a
particular quarterly or annual period could be materially
affected by an ultimate unfavorable resolution of pending
litigation and regulatory matters depending, in part, upon the
results of operations or cash flow for such period. Although no
assurances can be given and no determinations can be made at
this time, the Company believes that the ultimate liability, if
any, with respect to the Companys pending claims and legal
actions, would have no material effect on its operations and
financial position.



|     |                     
|---- | --------------------
|(13) | STOCKHOLDERS EQUITY

Generally, the stockholders equity of the
Companys insurance subsidiaries available for distribution
to the Company is limited to the amounts that the insurance
subsidiaries net assets, as determined in accordance with
statutory accounting practices, exceed minimum statutory capital
requirements; however, payments of such amounts as dividends may
be subject to approval by regulatory authorities. In 2005, the
Companys insurance subsidiaries can distribute
approximately $186 million in the form of dividends to the
Company without prior approval of such regulatory authorities.

Stock Option Plans

The Company has four stock incentive plans
authorizing the issuance of incentive and non-qualified stock
options to employees, officers and non-employee directors of the
Company. The Company has reserved 4,650,000 shares of
Common Stock for issuance under these plans.

In conjunction with the acquisition of AmVestors,
the Company has two additional plans in which no additional
shares may be granted. They are a non-qualified stock option
plan and an incentive stock option plan.

The date of grant and the term of the option may
not be longer than ten years. The 2003 stock incentive plan,
which has 1,500,000 of Common Stock reserved, provides for a
five-year vesting schedule with one-fifth of the options granted
vesting at the end of each of the five years. Generally, the
remaining option plans have a three-year vesting schedule with
one-third of the options granted vesting at the end of each of
the three years.

F-46



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the Companys stock option
plans follows:

|                               |  |                          |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|------------------------------ |  | ------------------------ | --------- | -------- |  | --------- | ----- | -------- |  | --------- | --------- | -------- |  | - | ----- |  |  |  | --------- | - |  | - | ----- | 
|                               |  |                         
|                               |  | Years Ended December 31,
|                               |  |                         
|                               |  |                          |           |          |  |          
|                               |  | 2004                     |           | 2003     |  | 2002     
|                               |  |                          |           |          |  |          
|                               |  |                          |           | Weighted |  |           |       | Weighted |  |           |           | Weighted
|                               |  |                          |           | average  |  |           |       | average  |  |           |           | average 
|                               |  | Number of                |           | exercise |  | Number of |       | exercise |  | Number of |           | exercise
|                               |  | shares                   |           | price    |  | shares    |       | price    |  | shares    |           | price   
|                               |  |                          |           |          |  |           |       |          |  |           |           |         
|Outstanding, beginning of year |  |                          | 3,134,770 |          |  | $         | 27.91 |          |  |           | 2,735,363 |          |  | $ | 27.64 |  |  |  | 2,370,134 |   |  | $ | 24.64 | 
|Granted at market price        |  |                          | 359,555   |          |  |           | 37.44 |          |  |           | 531,082   |          |  |   | 27.03 |  |  |  | 626,086   |   |  |   | 37.95 | 
|Exercised                      |  |                          | (377,615  | )        |  |           | 28.03 |          |  |           | (131,065  | )        |  |   | 17.10 |  |  |  | (151,501  | ) |  |   | 22.87 | 
|Forfeited                      |  |                          | (42,152   | )        |  |           | 31.91 |          |  |           | (610      | )        |  |   | 32.26 |  |  |  | (109,356  | ) |  |   | 26.90 | 
|                               |  |                          |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Outstanding, end of year       |  |                          | 3,074,558 |          |  | $         | 28.97 |          |  |           | 3,134,770 |          |  | $ | 27.91 |  |  |  | 2,735,363 |   |  | $ | 27.64 | 
|                               |  |                          |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Exercisable, end of year       |  |                          | 2,177,544 |          |  | $         | 27.27 |          |  |           | 2,159,777 |          |  | $ | 26.48 |  |  |  | 1,859,471 |   |  | $ | 24.99 | 
|                               |  |                          |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |           |   |  |   |       | 

The following table summarizes information about
stock options outstanding under the Companys option plans
as of December 31, 2004:

|                    |  |             |  |               |           |          |  |  |     |  |  |   |       | 
|------------------- |  | ----------- |  | ------------- | --------- | -------- |  |  | --- |  |  | - | ----- | 
|                   
|Options Outstanding
|                   
|                    |  | Weighted    |  | Weighted     
|Range               |  | Remaining   |  | average       |           | average 
|of exercise         |  | options     |  | contractual   |           | exercise
|prices              |  | outstanding |  | life in years |           | price   
|                    |  |             |  |               |           |          |  | 
|$13.37 - $17.82     |  |             |  |               | 26,896    |          |  |  | 0.2 |  |  | $ | 15.80 | 
|$17.83 - $22.28     |  |             |  |               | 759,723   |          |  |  | 4.1 |  |  |   | 19.92 | 
|$22.29 - $26.73     |  |             |  |               | 97,683    |          |  |  | 4.4 |  |  |   | 23.53 | 
|$26.74 - $31.19     |  |             |  |               | 1,125,781 |          |  |  | 6.2 |  |  |   | 28.31 | 
|$31.20 - $35.64     |  |             |  |               | 179,720   |          |  |  | 5.3 |  |  |   | 33.02 | 
|$35.65 - $40.10     |  |             |  |               | 884,755   |          |  |  | 7.7 |  |  |   | 37.75 | 
|                    |  |             |  |               |           |          |  |  |     |  |  |   |       | 
|                    |  |             |  |               | 3,074,558 |          |  |  | 6.0 |  |  | $ | 28.97 | 
|                    |  |             |  |               |           |          |  |  |     |  |  |   |       | 

The following table summarizes information about
stock options exercisable under the Companys option plans
as of December 31, 2004:

|                    |  |             |  |          |           |  |  |   |       | 
|------------------- |  | ----------- |  | -------- | --------- |  |  | - | ----- | 
|                   
|Options Exercisable
|                   
|                    |  | Weighted   
|Range               |  | average    
|of exercise         |  | Options     |  | exercise
|prices              |  | exercisable |  | price   
|                    |  |             |  |          |           | 
|$13.37 - $17.82     |  |             |  |          | 26,896    |  |  | $ | 15.80 | 
|$17.83 - $22.28     |  |             |  |          | 759,723   |  |  |   | 19.92 | 
|$22.29 - $26.73     |  |             |  |          | 97,683    |  |  |   | 23.53 | 
|$26.74 - $31.19     |  |             |  |          | 751,503   |  |  |   | 29.00 | 
|$31.20 - $35.64     |  |             |  |          | 150,267   |  |  |   | 32.69 | 
|$35.65 - $40.10     |  |             |  |          | 391,472   |  |  |   | 37.85 | 
|                    |  |             |  |          |           |  |  |   |       | 
|                    |  |             |  |          | 2,177,544 |  |  | $ | 27.27 | 
|                    |  |             |  |          |           |  |  |   |       | 

The Company applies the intrinsic value method of
Accounting Principles Board Opinion 25 and related
interpretations in accounting for its stock option plans for
employees, officers and non-employee directors.

F-47



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Accordingly, no compensation expense has been
recognized for its option plans. See note 1 for pro forma
information if the Company had applied the fair value
recognition provisions of SFAS 123.

For pro forma purposes, the fair value of options
granted was estimated on the date of grant using the
Black-Scholes pricing model with an expected life equal to the
contractual expiration and the following weighted average
assumptions:

|                                               |  |      |       |      |  |      |       |   |  |   |       |  
|---------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                               |  | 2004 |       | 2003 |  | 2002
|                                               |  |      |       |      |  |     
|Expected Volatility                            |  |      | 28.00 | %    |  |      | 34.00 | % |  |   | 32.00 | %
|Risk-free Interest Rate                        |  |      | 4.47  | %    |  |      | 4.31  | % |  |   | 5.39  | %
|Dividend Yield                                 |  |      | 1.11  | %    |  |      | 1.48  | % |  |   | 1.06  | %
|Weighted average fair value of options granted |  | $    | 15.26 |      |  | $    | 11.43 |   |  | $ | 17.57 |  

Non-vested Stock

The Company has awarded common stock to eligible
employees and non-employee directors under two of the stock
incentive plans. The plans have restriction periods of one to
five years tied to employment and/or service. The awards are
recorded at the market value on the date of the grant as
unearned compensation since common shares were legally issued on
that date. The initial values of these grants are amortized over
the restriction periods, net of forfeitures.

Non-vested stock and compensation expense
information is as follows:

|                                      |  |                          |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|------------------------------------- |  | ------------------------ | ------- | -------- |  | ------ | ----- | -------- |  | ------ | ------- | -------- |  | - | ----- |  |  |  | ------- | - |  | - | ----- | 
|                                      |  |                         
|                                      |  | Years Ended December 31,
|                                      |  |                         
|                                      |  |                          |         |          |  |       
|                                      |  | 2004                     |         | 2003     |  | 2002  
|                                      |  |                          |         |          |  |       
|                                      |  |                          |         | Weighted |  |        |       | Weighted |  |        |         | Weighted
|                                      |  | Number                   |         | average  |  | Number |       | average  |  | Number |         | average 
|                                      |  | of                       |         | exercise |  | of     |       | exercise |  | of     |         | exercise
|                                      |  | shares                   |         | price    |  | shares |       | price    |  | shares |         | price   
|                                      |  |                          |         |          |  |        |       |          |  |        |         |         
|Outstanding, beginning of year        |  |                          | 57,374  |          |  | $      | 29.72 |          |  |        | 31,927  |          |  | $ | 33.51 |  |  |  | 51,635  |   |  | $ | 29.36 | 
|Granted at market price               |  |                          | 19,070  |          |  |        | 40.20 |          |  |        | 36,110  |          |  |   | 27.39 |  |  |  | 13,149  |   |  |   | 33.70 | 
|Exercised                             |  |                          | (18,544 | )        |  |        | 32.79 |          |  |        | (10,663 | )        |  |   | 33.15 |  |  |  | (23,857 | ) |  |   | 24.66 | 
|Forfeited                             |  |                          | (7,000  | )        |  |        | 26.97 |          |  |        |        |          |  |   |      |  |  |  | (9,000  | ) |  |   | 33.45 | 
|                                      |  |                          |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|Outstanding, end of year              |  |                          | 50,900  |          |  | $      | 32.91 |          |  |        | 57,374  |          |  | $ | 29.72 |  |  |  | 31,927  |   |  | $ | 33.51 | 
|                                      |  |                          |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|Compensation expense ($ in thousands) |  |                          |         |          |  | $      | 504   |          |  |        |         |          |  | $ | 521   |  |  |  |         |   |  | $ | 554   | 
|                                      |  |                          |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 

Stock Appreciation Rights

As part of the stock incentive plans for
employees and non-employees, the Human Resources and
Compensation Committee of the Board of Directors is authorized
to grant stock appreciation rights (SARs) to
employees, officers, agents and other non-employees. Issuance of
SARs is made at the sole discretion of the Human Resources and
Compensation Committee of the Board of Directors. The terms and
conditions under this plan are the same as under the employee
stock incentive plans.

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AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Companys SARs are summarized as follows:

|                                      |  |                          |         |          |  |        |       |          |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       |  
|------------------------------------- |  | ------------------------ | ------- | -------- |  | ------ | ----- | -------- |  | ------ | ------ | -------- |  | - | ----- |  |  |  | ------ | - |  | - | ----- | -
|                                      |  |                         
|                                      |  | Years Ended December 31,
|                                      |  |                         
|                                      |  |                          |         |          |  |       
|                                      |  | 2004                     |         | 2003     |  | 2002  
|                                      |  |                          |         |          |  |       
|                                      |  | Number                   |         | Weighted |  | Number |       | Weighted |  | Number |        | Weighted
|                                      |  | of                       |         | average  |  | of     |       | average  |  | of     |        | average 
|                                      |  | shares                   |         | value    |  | shares |       | value    |  | shares |        | value   
|                                      |  |                          |         |          |  |        |       |          |  |        |        |         
|Outstanding, beginning of year        |  |                          | 54,567  |          |  | $      | 28.20 |          |  |        | 46,400 |          |  | $ | 27.28 |  |  |  | 39,233 |   |  | $ | 24.58 |  
|Granted at market price               |  |                          | 12,999  |          |  |        | 39.66 |          |  |        | 16,000 |          |  |   | 27.80 |  |  |  | 12,000 |   |  |   | 35.30 |  
|Exercised                             |  |                          | (11,167 | )        |  |        | 26.05 |          |  |        | (7,833 | )        |  |   | 21.80 |  |  |  | (2,833 | ) |  |   | 22.06 |  
|Forfeited                             |  |                          | (1,500  | )        |  |        | 35.30 |          |  |        |       |          |  |   |      |  |  |  | (2,000 | ) |  |   | 29.85 |  
|                                      |  |                          |         |          |  |        |       |          |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       |  
|Outstanding, end of year              |  |                          | 54,899  |          |  | $      | 31.16 |          |  |        | 54,567 |          |  | $ | 28.20 |  |  |  | 46,400 |   |  | $ | 27.28 |  
|                                      |  |                          |         |          |  |        |       |          |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       |  
|Compensation expense ($ in thousands) |  |                          |         |          |  | $      | 332   |          |  |        |        |          |  | $ | 166   |  |  |  |        |   |  | $ | (140  | )
|                                      |  |                          |         |          |  |        |       |          |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       |  

Long-term Incentive Plan

As part of the stock incentive plans for
employees and non-employees, the Human Resources and
Compensation Committee of the Board of Directors is authorized
to grant awards to senior officers in connection with a
long-term incentive plan. The plan provides for an initial grant
of units. The units are earned over a multi-year period and the
number of units earned varies with the level of performance
achieved over such performance period. The number of units
earned range from zero to 200% of the initial units granted. The
final value of each unit earned will be equal to the
Companys stock price on the pay-out date. Awards will be
paid in common stock or such other consideration as the
committee may determine. Awards under this plan are subject to
the terms and conditions of the employee stock incentive plans.
In 2004, there were 60,800 units issued of which
4,000 units were forfeited during the year. As of
December 31, 2004, there were 56,800 units outstanding
under the plan. Compensation expense for the plan amounted to
$2.5 million and none in 2004 and 2003, respectively.

Management Incentive Payment Deferral
Plan

The Company has a management incentive payment
deferral plan under which eligible employees can elect to defer
their year-end cash bonuses. The Human Resources and
Compensation Committee of the Board of Directors determines each
year the maximum amount of deferral and percentage of match by
the Company. Employees can defer up to 100% of bonuses received
(50% for bonuses received prior to May 10, 2001).
Participant deferrals are 50% matched by the Company up to a
maximum match of $10,000 in 2004 and 2003 and a maximum match of
$20,000 in 2002. The total deferrals, including participant
deferrals and Company match, have a restriction period of three
years during which the deferrals cannot be paid out except for
certain specified events.

Prior to 2003, deferrals and match amounts were
valued based on the fair value of a share of the Companys
common stock and at settlement were paid in cash. Beginning in
2003, deferrals and match amounts are used to purchase units
equal in value to a share of the Companys common stock.
Shares of common stock are distributed at the end of the
restriction period. At December 31, 2004 and 2003, the
value of the vested and partially vested units outstanding
amounted to $0.6 and $0.7 million, respectively, which is
included in unearned compensation in stockholders equity
in the consolidated balance sheet.

F-49



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Stock Warrants

In conjunction with the acquisition of AmVestors,
the Company had outstanding warrants to purchase shares of the
Companys Common Stock. The warrants were exercisable at
$24.42 per share and expired on April 2, 2002. There
was no compensation expense recorded in 2002 for the warrants.



|     |                               
|---- | ------------------------------
|(14) | STATUTORY ACCOUNTING PRACTICES

The Companys insurance subsidiaries had
statutory net income of approximately $169 million for
2004, statutory net income of $60 million for 2003 and
statutory net loss of $30 million for 2002. The
Companys insurance subsidiaries statutory surplus
and capital was approximately $1,046 million and
$828 million at December 31, 2004 and 2003,
respectively. The minimum capital and surplus requirements are
met in all the states in which the insurance subsidiaries are
domiciled.

The Companys insurance subsidiaries are
domiciled in Indiana, Iowa, Kansas and New York and prepare
their statutory-basis financial statements in accordance with
accounting practices prescribed or permitted by those respective
state insurance departments. The National Association of
Insurance Commissioners (NAIC) has codified statutory
accounting practices which have been adopted without exception
by the states in which the insurance subsidiaries are domiciled
and which constitute the only source of prescribed statutory
accounting practices.

The respective insurance departments impose
minimum risk-based capital (RBC) requirements on insurance
enterprises that were developed by the NAIC. The formulas for
determining the amount of RBC specify various weighting factors
that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of the enterprises
regulatory total adjusted capital, to its authorized control
level RBC. The life insurance subsidiaries exceed the authorized
control level RBC requirements.



|     |                      
|---- | ---------------------
|(15) | DEMUTUALIZATION COSTS

As a requirement of ILICs demutualization,
the Company undertook a commission-free program under which
shareholders with less than one hundred shares were permitted to
redeem those shares for cash or purchase additional shares,
commission-free, to reach a holding of at least one hundred
shares. The 2002 costs amounting to $1.2 million were
primarily for commissions, postage and printing under this
program.



|     |                      
|---- | ---------------------
|(16) | RESTRUCTURING CHARGES

During the third quarter of 2001, the Company
began consolidating various functions in connection with a
restructuring of its protection products and accumulation
products operations and investment activities. The objective of
the restructuring plan was to eliminate duplicative functions
for all business units and to reduce ongoing costs. Corporate
administrative functions were transitioned so they are performed
primarily in Des Moines, Iowa. Protection products
administration processes were transitioned so they are performed
primarily in Des Moines; Woodbury, New York; or outsourced.
Accumulation products functions were transitioned so they are
primarily performed in Topeka, Kansas. Investment activities
were restructured to eliminate certain real estate management
services which have been outsourced.

The Company listed its office building located in
Indianapolis, Indiana, with a real estate broker in 2003, and
the Company substantially vacated this location as a result of
staff reductions. In addition, the Company moved those employees
who are going to continue to work in Indianapolis to a new
location. The Company determined that the plan of sale criteria
in SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, had been meet. Accordingly,
the carrying value of the building was adjusted to its fair
value less costs to sell, amounting to $15.5 million, which
was based upon comparable properties recently marketed in
Indianapolis. The resulting $7.7 million pre-tax impairment
loss was recorded as restructuring cost in the

F-50



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

consolidated statement of income in 2003. The
carrying value of the building held for sale was included in the
other assets line item of the consolidated balance sheet and was
an asset of the protection products segment which amounted to
$15.5 million on December 31, 2003. During 2004, the
building was sold resulting in a pre-tax realized capital loss
of $11.8 million.

During 2003, the Company initiated and executed a
restructuring plan to merge one of its subsidiaries, IL Annuity,
into its parent, ILIC. The merger was effective June 30,
2003 and total restructuring costs associated with this plan
amounted to $2.5 million pre-tax, which primarily consisted
of legal, accounting, and printing costs and the write off of
$2.2 million of insurance licenses.

Restructuring charges have been included as a
separate item in the consolidated statement of income and
include severance and termination benefits associated with the
elimination of approximately 10 positions and 240 positions in
2003 and 2002, respectively. The other costs in 2003 primarily
related to the impairment loss on the Indianapolis office
building, expenses associated with the merger of IL Annuity into
ILIC, and systems conversion costs. Other costs in 2002
primarily consisted of systems conversion and relocation of
employees. Charges for all restructuring activities were
completed in 2003. A summary of the pre-tax structuring charges
are as follows:

|                                   |  |                  |       |        |  |             |   |             |  |              |   |  |  |   |        |   |  |   |   | 
|---------------------------------- |  | ---------------- | ----- | ------ |  | ----------- | - | ----------- |  | ------------ | - |  |  | - | ------ | - |  | - | - | 
|                                   |  | Accrual at       |       |        |  |             |   | Payments    |  | Accrual at  
|                                   |  | December 31,     |       | 2004   |  | Other       |   | and         |  | December 31,
|                                   |  | 2003             |       | Charge |  | Adjustments |   | Write-downs |  | 2004        
|                                   |  |                  |       |        |  |             |   |             |  |             
|                                   |  |                 
|                                   |  | ($ in thousands)
|Severance and termination benefits |  | $                | 2,799 |        |  | $           |  |             |  | $            |  |  |  | $ | (2,799 | ) |  | $ |  | 
|Other costs                        |  |                  | 1,214 |        |  |             |  |             |  |              |  |  |  |   | (1,214 | ) |  |   |  | 
|                                   |  |                  |       |        |  |             |   |             |  |              |   |  |  |   |        |   |  |   |   | 
|                                   |  | $                | 4,013 |        |  | $           |  |             |  | $            |  |  |  | $ | (4,013 | ) |  | $ |  | 
|                                   |  |                  |       |        |  |             |   |             |  |              |   |  |  |   |        |   |  |   |   | 

|                                   |  |                  |       |        |  |             |        |             |  |              |      |   |  |   |         |   |  |   |       | 
|---------------------------------- |  | ---------------- | ----- | ------ |  | ----------- | ------ | ----------- |  | ------------ | ---- | - |  | - | ------- | - |  | - | ----- | 
|                                   |  | Accrual at       |       |        |  |             |        | Payments    |  | Accrual at  
|                                   |  | December 31,     |       | 2003   |  | Other       |        | and         |  | December 31,
|                                   |  | 2002             |       | Charge |  | Adjustments |        | Write-downs |  | 2003        
|                                   |  |                  |       |        |  |             |        |             |  |             
|                                   |  |                 
|                                   |  | ($ in thousands)
|Severance and termination benefits |  | $                | 5,133 |        |  | $           | 3,494  |             |  | $            | (486 | ) |  | $ | (5,342  | ) |  | $ | 2,799 | 
|Other costs                        |  |                  | 1,012 |        |  |             | 20,332 |             |  |              | (46  | ) |  |   | (20,084 | ) |  |   | 1,214 | 
|                                   |  |                  |       |        |  |             |        |             |  |              |      |   |  |   |         |   |  |   |       | 
|                                   |  | $                | 6,145 |        |  | $           | 23,826 |             |  | $            | (532 | ) |  | $ | (25,426 | ) |  | $ | 4,013 | 
|                                   |  |                  |       |        |  |             |        |             |  |              |      |   |  |   |         |   |  |   |       | 

|                                   |  |                  |       |        |  |             |        |          |  |              |      |   |  |   |         |   |  |   |       | 
|---------------------------------- |  | ---------------- | ----- | ------ |  | ----------- | ------ | -------- |  | ------------ | ---- | - |  | - | ------- | - |  | - | ----- | 
|                                   |  | Accrual at       |       |        |  |             |        |          |  | Accrual at  
|                                   |  | December 31,     |       | 2002   |  | Other       |        | Cash     |  | December 31,
|                                   |  | 2001             |       | Charge |  | Adjustments |        | Payments |  | 2002        
|                                   |  |                  |       |        |  |             |        |          |  |             
|                                   |  |                 
|                                   |  | ($ in thousands)
|Severance and termination benefits |  | $                | 2,065 |        |  | $           | 9,869  |          |  | $            | (342 | ) |  | $ | (6,459  | ) |  | $ | 5,133 | 
|Other costs                        |  |                  | 36    |        |  |             | 11,936 |          |  |              | (238 | ) |  |   | (10,722 | ) |  |   | 1,012 | 
|                                   |  |                  |       |        |  |             |        |          |  |              |      |   |  |   |         |   |  |   |       | 
|                                   |  | $                | 2,101 |        |  | $           | 21,805 |          |  | $            | (580 | ) |  | $ | (17,181 | ) |  | $ | 6,145 | 
|                                   |  |                  |       |        |  |             |        |          |  |              |      |   |  |   |         |   |  |   |       | 

F-51



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                         
|---- | ------------------------
|(17) | EARNINGS PER SHARE (EPS)

|                              |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |         |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |       |  
|----------------------------- | ------------------------------------- | ----------------------------------- | ------- | --------- |  | --------- | ------ | ---------- |  | --------- | ---- | --------- | - | ---------- | ------- | --------- |  | --------- | ------ | ------ |  | - | ---- | ----- | - | - | ------ | ------ |  |  | ------ | ------ |  | - | ---- | ----- | -
|                              |                                       |                                    
|                              |                                       | Years Ended December 31,           
|                              |                                       |                                    
|                              |                                       |                                     |         |           |  |          
|                              |                                       | 2004                                |         | 2003      |  | 2002     
|                              |                                       |                                     |         |           |  |          
|                              |                                       |                                     |         | Number of |  | Per Share |        |            |  | Number of |      | Per Share |   |            |         | Number of |  | Per Share
|                              |                                       | Net Income                          |         | Shares    |  | Amount    |        | Net Income |  | Shares    |      | Amount    |   | Net Income |         | Shares    |  | Amount   
|                              |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |         |           |  |          
|                              |                                       |                                    
|                              |                                       | ($ in thousands, except share data)
|Basic EPS                     |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |         |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |      
|                              | Net Income from Continuing Operations |                                     | $       | 189,253   |  |           |        | 39,335     |  |           | $    | 4.81      |   |            | $       | 160,628   |  |           |        | 39,176 |  |   | $    | 4.10  |   |   | $      | 60,782 |  |  |        | 39,972 |  |   | $    | 1.52  |  
|Effect of dilutive securities |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |         |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |      
|                              | Options                               |                                     |         |          |  |           |        | 672        |  |           |      | (0.08     | ) |            |         |          |  |           |        | 370    |  |   |      | (0.04 | ) |   |        |       |  |  |        | 404    |  |   |      | (0.02 | )
|                              | PRIDES                                |                                     |         |          |  |           |        | 834        |  |           |      | (0.10     | ) |            |         |          |  |           |        | 72     |  |   |      | (0.01 | ) |   |        |       |  |  |        |       |  |   |      |      |  
|                              | OCEANs                                |                                     |         |          |  |           |        | 294        |  |           |      | (0.03     | ) |            |         |          |  |           |        |       |  |   |      |      |   |   |        |       |  |  |        |       |  |   |      |      |  
|                              | Warrants                              |                                     |         |          |  |           |        |           |  |           |      |          |   |            |         |          |  |           |        |       |  |   |      |      |   |   |        |       |  |  |        | 22     |  |   |      |      |  
|                              |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |         |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |      
|Diluted EPS                   |                                       | $                                   | 189,253 |           |  |           | 41,135 |            |  | $         | 4.60 |           |   | $          | 160,628 |           |  |           | 39,618 |        |  | $ | 4.05 |       |   | $ | 60,782 |        |  |  | 40,398 |        |  | $ | 1.50 |      
|                              |                                       |                                     |         |           |  |           |        |            |  |           |      |           |   |            |         |           |  |           |        |        |  |   |      |       |   |   |        |        |  |  |        |        |  |   |      |      



|     |                                    
|---- | -----------------------------------
|(18) | FAIR VALUE OF FINANCIAL INSTRUMENTS

The following describes the methodologies and
assumptions used to determine the fair values of the
Companys financial instruments. The fair values for all
other assets and liabilities have been reported at their
carrying amounts. The aggregate fair value amounts presented
herein do not represent the underlying value of the Company and,
accordingly, care should be exercised in deriving conclusions
about the Companys business or financial condition based
on the fair value information presented.

Valuation Methods and Assumptions

The following methods and assumptions were used
to estimate the fair value of each class of financial
instruments:

Cash and cash equivalents, short-term
investments, policy loans and other
investments:the carrying amounts for
these instruments approximate their fair values.

Fixed maturities and equity
securities:fair values for bonds are
based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using
values obtained from independent pricing services or, in the
case of private placements, are estimated by discounting
expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the
investments. The fair values for preferred and common stocks are
based on quoted market prices.

Mortgage loans:for
all performing fixed interest rate loans, the estimated net cash
flows to maturity were discounted to derive an estimated market
value. The discount rate used was based on the individual
loans remaining weighted average life and a basis point
spread based on the market conditions for the type of loan and
credit quality. These spreads were over the United States
Treasury yield curve as of each respective year end. Performing
variable rate commercial loans and residential loans were valued
at the current outstanding balance. Loans which have been
restructured, in foreclosure or significantly delinquent were
valued primarily at the lower of the estimated net cash flows to
maturity discounted at a market rate of interest or the current
outstanding principal balance.

Derivative
instruments:fair values for
derivative securities are based on broker prices or internal
models using current assumptions and are classified as other
investments or policy reserves.

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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Policy reserves:fair values of the Companys liabilities under contracts
not involving significant mortality or morbidity risks
(primarily annuities) are stated at the cost the Company would
incur to extinguish the liability (i.e., the cash surrender
value). The fair values for insurance contracts other than
investment-type contracts are not required to be disclosed.

Notes payable:fair
values for notes payable are estimated using discounted cash
flow analysis based on the Companys current incremental
borrowing rate for similar types of borrowing arrangements.

Separate account assets and
liabilities:fair values of separate
account assets and liabilities are based on the carrying values
of the underlying funds.

The estimated fair values of the Companys
significant financial instruments are as follows:

|                       |                                           |                           |   |                |            |          |   |                |            |  |   |            |            |  |   |            |            | 
|---------------------- | ----------------------------------------- | ------------------------- | - | -------------- | ---------- | -------- | - | -------------- | ---------- |  | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                       |                                           |                          
|                       |                                           | December 31,             
|                       |                                           |                          
|                       |                                           |                           |   |               
|                       |                                           | 2004                      |   | 2003          
|                       |                                           |                           |   |               
|                       |                                           | Carrying                  |   | Estimated fair |            | Carrying |   | Estimated fair
|                       |                                           | amount                    |   | value          |            | amount   |   | value         
|                       |                                           |                           |   |                |            |          |   |               
|                       |                                           |                          
|                       |                                           | ($ in thousands)         
|Financial assets:      |                                           |                           |   |                |            |          |   |                |            |  |   |            |            |  |   |           
|                       | Securities available-for-sale:            |                           |   |                |            |          |   |                |            |  |   |            |            |  |   |            |           
|                       |                                           | Fixed maturity securities |   | $              | 15,646,653 |          |   | $              | 15,646,653 |  |   | $          | 13,944,961 |  |   | $          | 13,944,961 | 
|                       |                                           | Equity securities         |   |                | 77,024     |          |   |                | 77,024     |  |   |            | 74,890     |  |   |            | 74,890     | 
|                       |                                           | Short-term investments    |   |                | 2,979      |          |   |                | 2,979      |  |   |            | 28,556     |  |   |            | 28,556     | 
|                       | Securities held for trading purposes:     |                           |   |                |            |          |   |                |            |  |   |            |            |  |   |            |           
|                       |                                           | Fixed maturity securities |   |                | 1,718,125  |          |   |                | 1,718,125  |  |   |            | 2,089,502  |  |   |            | 2,089,502  | 
|                       |                                           | Equity securities         |   |                | 15,468     |          |   |                | 15,468     |  |   |            | 1,652      |  |   |            | 1,652      | 
|                       |                                           | Short-term investments    |   |                |           |          |   |                |           |  |   |            | 591        |  |   |            | 591        | 
|                       | Mortgage loans                            |                           |   | 865,733        |            |          |   | 909,761        |            |  |   | 968,572    |            |  |   | 1,034,373  |           
|                       | Policy loans                              |                           |   | 486,071        |            |          |   | 486,071        |            |  |   | 494,646    |            |  |   | 494,646    |           
|                       | Other investments (excluding derivatives) |                           |   | 213,254        |            |          |   | 213,254        |            |  |   | 242,208    |            |  |   | 242,208    |           
|                       | Derivatives:                              |                           |   |                |            |          |   |                |            |  |   |            |            |  |   |            |           
|                       |                                           | Interest rate swaps       |   |                | 453        |          |   |                | 453        |  |   |            | 3,166      |  |   |            | 3,166      | 
|                       |                                           | Credit default swaps:     |   |                | 536        |          |   |                | 536        |  |   |            | 599        |  |   |            | 599        | 
|                       |                                           | Options                   |   |                | 159,997    |          |   |                | 159,997    |  |   |            | 134,942    |  |   |            | 134,942    | 
|                       | Cash and cash equivalents                 |                           |   | 478,441        |            |          |   | 478,441        |            |  |   | 274,150    |            |  |   | 274,150    |           
|                       | Separate account assets                   |                           |   | 248,507        |            |          |   | 248,507        |            |  |   | 261,657    |            |  |   | 261,657    |           
|Financial liabilities: |                                           |                           |   |                |            |          |   |                |            |  |   |            |            |  |   |           
|                       | Policy reserves for annuities             |                           | $ | 12,400,576     |            |          | $ | 11,443,678     |            |  | $ | 11,715,783 |            |  | $ | 10,893,778 |           
|                       | Notes payable                             |                           |   | 571,155        |            |          |   | 494,713        |            |  |   | 621,896    |            |  |   | 507,792    |           
|                       | Separate account liabilities              |                           |   | 248,507        |            |          |   | 248,507        |            |  |   | 261,657    |            |  |   | 261,657    |           



|     |                        
|---- | -----------------------
|(19) | DISCONTINUED OPERATIONS

In November 2003, the Company entered into an
agreement to sell a wholly-owned subsidiary which conducts
residential financing operations. The assets, liabilities and
results of the residential financing operations have been
classified as discontinued operations. The sale was completed in
January 2004, resulting

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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

in an after-tax gain of $3.9 million. Income
from discontinued operations net of tax was as follows ($ in
thousands, except per share data):

|                                                                                                            |         |                                     |       |            |  |      |       |            |  |   |       |            | 
|----------------------------------------------------------------------------------------------------------- | ------- | ----------------------------------- | ----- | ---------- |  | ---- | ----- | ---------- |  | - | ----- | ---------- | 
|                                                                                                            |         |                                    
|                                                                                                            |         | Years Ended December 31,           
|                                                                                                            |         |                                    
|                                                                                                            |         | 2004                                |       | 2003       |  | 2002
|                                                                                                            |         |                                     |       |            |  |     
|                                                                                                            |         |                                    
|                                                                                                            |         | ($ in thousands, except share data)
|Operating income from discontinued operations,
    net of income taxes of $1,238 in 2003 and $1,389 in 2002 |         | $                                   |      |            |  | $    | 1,815 |            |  | $ | 2,084 |           
|Gain on sale of discontinued operations, net of
    income taxes of $2,571 in 2004                          |         |                                     | 3,899 |            |  |      |      |            |  |   |      |           
|                                                                                                            |         |                                     |       |            |  |      |       |            |  |   |       |           
|                                                                                                            |         | $                                   | 3,899 |            |  | $    | 1,815 |            |  | $ | 2,084 |           
|                                                                                                            |         |                                     |       |            |  |      |       |            |  |   |       |           
|Net income from discontinued operations per
    common share:                                               |         |                                     |       |            |  |      |       |            |  |   |       |           
|                                                                                                            | Basic   |                                     | $     | 0.10       |  |      | $     | 0.05       |  |   | $     | 0.05       | 
|                                                                                                            | Diluted |                                     | $     | 0.09       |  |      | $     | 0.05       |  |   | $     | 0.06       | 
|Weighted average common shares outstanding:                                                                 |         |                                     |       |            |  |      |       |            |  |   |       |           
|                                                                                                            | Basic   |                                     |       | 39,334,798 |  |      |       | 39,175,924 |  |   |       | 39,972,328 | 
|                                                                                                            | Diluted |                                     |       | 41,135,188 |  |      |       | 39,618,217 |  |   |       | 40,398,378 | 



|     |                   
|---- | ------------------
|(20) | OPERATING SEGMENTS

The Company has two operating segments:
Protection Products and Accumulation Products. Products
generally distinguish a segment. A brief description of each
segment follows:

Protection Products

The primary product offerings consist of
interest-sensitive whole life, term life, universal life and
equity indexed life insurance policies. These products are
marketed on a national basis primarily through a Preferred
Producer agency system, a Personal Producing General Agent
(PPGA) system and Independent Marketing Organizations
(IMOs).

Accumulation Products

The primary product offerings consist of
traditional fixed annuities and equity indexed annuities,
marketed on a national basis primarily through IMOs and
independent brokers, and insurance contracts issued through
funding agreements.

The product offerings within each segment are of
a very similar nature. Insurance premiums of the protection
products segment primarily include term life products. Product
charges of the protection products segment include
interest-sensitive whole life, universal life and equity indexed
life insurance products. Product charges of the accumulation
products segment include traditional fixed and equity indexed
annuities. Due to the similarity of products within each
segment, premiums and product charges are shown by segment and
not by specific product type.

The Company uses the same accounting policies and
procedures to measure operating segment income and assets as it
uses to measure its consolidated income from operations and
assets with the exception of the elimination of certain items
which management believes are not necessarily indicative of
overall operating

F-54



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

trends. These items are shown between segment
pre-tax operating income and net income on the following
operating segment tables and are as follows:

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 equity 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) Demutualization costs.

5) Restructuring costs.

6) Certain reinsurance adjustments.

7) Other income from non-insurance
operations.

8) Interest expense.

9) Income tax expense.

10) Income from discontinued operations.

11) Cumulative effect of changes in
accounting.

These items will fluctuate from period to period
depending on the prevailing interest rate and economic
environment or are not part of the core insurance operations. As
a result, management believes they do not reflect the ongoing
earnings capacity of our operating segments.

Premiums, product charges, policyowner benefits;
insurance expenses; amortization of DAC; bonus interest, and
VOBA; and dividends to policyowners are attributed directly to
each operating segment. Net investment income and Closed Block
realized capital gains and losses are allocated based on
directly-related assets required for transacting the business of
that segment. Other revenues and benefits and expenses which are
deemed not to be associated with any specific segment are
grouped together in the All Other category. These items
primarily consist of holding company revenues and expenses,
operations of the Companys real estate management
subsidiary, and accident and health insurance.

Assets are segmented based on policy liabilities
directly attributable to each segment. There are no significant
intersegment transactions. Depreciation and amortization,
excluding amortization of DAC, bonus interest, and VOBA as
previously discussed, are not significant.

F-55



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Operating Segment Income

($ in thousands)


|                                                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |           |         | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ------------ | - | --------- | ------- | ------------ |  | - | ------- | ------ |  |  | --------- | --------- | ------- | 
|                                                          |                                                                                                                       |                             
|                                                          |                                                                                                                       | Year Ended December 31, 2004
|                                                          |                                                                                                                       |                             
|                                                          |                                                                                                                       | Protection                   |         | Accumulation |   |           |         | Total       
|                                                          |                                                                                                                       | Products                     |         | Products     |   | All Other |         | Consolidated
|                                                          |                                                                                                                       |                              |         |              |   |           |         |             
|Revenues:                                                 |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          
|                                                          | Insurance premiums                                                                                                    |                              | $       | 263,050      |   |           | $       | 2,602        |  |   | $       | 2,014  |  |  | $         | 267,666   |        
|                                                          | Product charges                                                                                                       |                              |         | 167,585      |   |           |         | 52,969       |  |   |         |       |  |  |           | 220,554   |        
|                                                          | Net investment income                                                                                                 |                              |         | 333,477      |   |           |         | 697,363      |  |   |         | 6,607  |  |  |           | 1,037,447 |        
|                                                          | Realized/unrealized gains (losses) on closed
    block investments                                                    |                              |         | (1,693       | ) |           |         |             |  |   |         |       |  |  |           | (1,693    | )      
|                                                          | Other income                                                                                                          |                              |         | 3,573        |   |           |         | 64,212       |  |   |         | 2,101  |  |  |           | 69,886    |        
|                                                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          
|                                                          |                                                                                                                       |                              | 765,992 |              |   |           | 817,146 |              |  |   | 10,722  |        |  |  | 1,593,860 |          
|Benefits and expenses:                                    |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          
|                                                          | Policyowner benefits                                                                                                  |                              |         | 379,749      |   |           |         | 472,208      |  |   |         | 179    |  |  |           | 852,136   |        
|                                                          | Underwriting, acquisition, and other expenses                                                                         |                              |         | 73,750       |   |           |         | 76,449       |  |   |         | 29,852 |  |  |           | 180,051   |        
|                                                          | Amortization of DAC and VOBA, net of open block
    gain adjustment of $9,068                                         |                              |         | 91,193       |   |           |         | 104,602      |  |   |         |       |  |  |           | 195,795   |        
|                                                          | Dividends to policyowners                                                                                             |                              |         | 81,088       |   |           |         | 4            |  |   |         |       |  |  |           | 81,092    |        
|                                                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          
|                                                          |                                                                                                                       |                              | 625,780 |              |   |           | 653,263 |              |  |   | 30,031  |        |  |  | 1,309,074 |          
|                                                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          
|Segment pre-tax operating income                          |                                                                                                                       | $                            | 140,212 |              |   | $         | 163,883 |              |  | $ | (19,309 | )      |  |  | 284,786   |          
|                                                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          
|                                                          | Realized/unrealized gains (losses) on open block
    assets                                                           |                              |         |              |   |           |         |              |  |   |         |        |  |  |           | (36,786   | )      
|                                                          | Unrealized gains (losses) on open block options
    and trading investments                                           |                              |         |              |   |           |         |              |  |   |         |        |  |  |           | 56,547    |        
|                                                          | Change in option value of equity indexed products
    and market value adjustments on total return strategy annuities |                              |         |              |   |           |         |              |  |   |         |        |  |  |           | (35,652   | )      
|                                                          | Cash flow hedge amortization                                                                                          |                              |         |              |   |           |         |              |  |   |         |        |  |  |           | (908      | )      
|                                                          | Amortization of DAC and VOBA due to open block
    gains and losses                                                   |                              |         |              |   |           |         |              |  |   |         |        |  |  |           | (9,068    | )      
|                                                          | Other income from non-insurance operations                                                                            |                              |         |              |   |           |         |              |  |   |         |        |  |  |           | 1,495     |        
|                                                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          
|Income from continuing operations                         |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  | 260,414   |          
|Interest (expense)                                        |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  | (32,120   | )        
|Income tax (expense)                                      |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  | (39,041   | )        
|Income from discontinued operations, net of tax           |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  | 3,899     |          
|Cumulative effect of change in accounting, net of
    tax |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  | (510      | )        
|                                                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          
|                                                          |                                                                                                                       | Net income                   |         |              |   |           |         |              |  |   |         |        |  |  |           | $         | 192,642 | 
|                                                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |         |        |  |  |           |          

F-56



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Operating Segment Income

($ in thousands)


|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |           |         | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ------------ |  | --------- | ------- | ------------ |  | - | ------ | ------ | - |  | --------- | --------- | ------- | 
|                                                          |                                                                                                                       |                             
|                                                          |                                                                                                                       | Year Ended December 31, 2003
|                                                          |                                                                                                                       |                             
|                                                          |                                                                                                                       | Protection                   |         | Accumulation |  |           |         | Total       
|                                                          |                                                                                                                       | Products                     |         | Products     |  | All Other |         | Consolidated
|                                                          |                                                                                                                       |                              |         |              |  |           |         |             
|Revenues:                                                 |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          | Insurance premiums                                                                                                    |                              | $       | 290,707      |  |           | $       | 4,114        |  |   | $      | 787    |   |  | $         | 295,608   |        
|                                                          | Product charges                                                                                                       |                              |         | 138,215      |  |           |         | 43,139       |  |   |        |       |   |  |           | 181,354   |        
|                                                          | Net investment income                                                                                                 |                              |         | 321,532      |  |           |         | 672,141      |  |   |        | 8,241  |   |  |           | 1,001,914 |        
|                                                          | Realized/unrealized gains (losses) on closed
    block investments                                                    |                              |         | 9,326        |  |           |         |             |  |   |        |       |   |  |           | 9,326     |        
|                                                          | Other income                                                                                                          |                              |         | 4,224        |  |           |         | 61,849       |  |   |        | 988    |   |  |           | 67,061    |        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          |                                                                                                                       |                              | 764,004 |              |  |           | 781,243 |              |  |   | 10,016 |        |   |  | 1,555,263 |          
|Benefits and expenses:                                    |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          | Policyowner benefits                                                                                                  |                              |         | 387,068      |  |           |         | 491,932      |  |   |        | (626   | ) |  |           | 878,374   |        
|                                                          | Underwriting, acquisition, and other expenses                                                                         |                              |         | 76,042       |  |           |         | 69,225       |  |   |        | 18,367 |   |  |           | 163,634   |        
|                                                          | Amortization of DAC and VOBA, net of open block
    gain adjustment of $16,257                                        |                              |         | 74,211       |  |           |         | 89,196       |  |   |        |       |   |  |           | 163,407   |        
|                                                          | Dividends to policy owners                                                                                            |                              |         | 98,393       |  |           |         |             |  |   |        |       |   |  |           | 98,393    |        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          |                                                                                                                       |                              | 635,714 |              |  |           | 650,353 |              |  |   | 17,741 |        |   |  | 1,303,808 |          
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|Segment pre-tax operating income                          |                                                                                                                       | $                            | 128,290 |              |  | $         | 130,890 |              |  | $ | (7,725 | )      |   |  | 251,455   |          
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          | Realized/unrealized gains (losses) on open block
    assets                                                           |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | 32,196    |        
|                                                          | Unrealized gains (losses) on open block options
    and trading investments                                           |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | 89,769    |        
|                                                          | Change in option value of equity indexed products
    and market value adjustments on total return strategy annuities |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | (65,741   | )      
|                                                          | Cash flow hedge amortization                                                                                          |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | (3,827    | )      
|                                                          | Amortization of DAC and VOBA due to open block
    gains and losses                                                   |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | (16,257   | )      
|                                                          | Reinsurance adjustments                                                                                               |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | 3,854     |        
|                                                          | Restructuring costs                                                                                                   |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | (23,294   | )      
|                                                          | Other income from non-insurance operations                                                                            |                              |         |              |  |           |         |              |  |   |        |        |   |  |           | 1,237     |        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|Income from continuing operations                         |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | 269,392   |          
|Interest (expense)                                        |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | (30,154   | )        
|Income tax (expense)                                      |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | (78,610   | )        
|Income from discontinued operations, net of tax           |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | 1,815     |          
|Cumulative effect of change in accounting, net of
    tax |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  | (1,296    | )        
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          
|                                                          |                                                                                                                       | Net income                   |         |              |  |           |         |              |  |   |        |        |   |  |           | $         | 161,147 | 
|                                                          |                                                                                                                       |                              |         |              |  |           |         |              |  |   |        |        |   |  |           |          

F-57



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Operating Segment Income

($ in thousands)


|                                                |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |           |        | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ------------ | - | --------- | ------- | ------------ |  | - | ------ | ------ |  |  | --------- | --------- | ------ | 
|                                                |                                                                                                                       |                             
|                                                |                                                                                                                       | Year Ended December 31, 2002
|                                                |                                                                                                                       |                             
|                                                |                                                                                                                       | Protection                   |         | Accumulation |   |           |         | Total       
|                                                |                                                                                                                       | Products                     |         | Products     |   | All Other |         | Consolidated
|                                                |                                                                                                                       |                              |         |              |   |           |         |             
|Revenues:                                       |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          
|                                                | Insurance premiums                                                                                                    |                              | $       | 341,602      |   |           | $       | 8,702        |  |   | $      | 996    |  |  | $         | 351,300   |       
|                                                | Product charges                                                                                                       |                              |         | 103,145      |   |           |         | 41,349       |  |   |        |       |  |  |           | 144,494   |       
|                                                | Net investment income                                                                                                 |                              |         | 335,111      |   |           |         | 660,470      |  |   |        | 5,676  |  |  |           | 1,001,257 |       
|                                                | Realized/unrealized gains (losses) on closed
    block investments                                                    |                              |         | (2,400       | ) |           |         |             |  |   |        |       |  |  |           | (2,400    | )     
|                                                | Other income                                                                                                          |                              |         | 4,026        |   |           |         | 60,420       |  |   |        | 2,675  |  |  |           | 67,121    |       
|                                                |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          
|                                                |                                                                                                                       |                              | 781,484 |              |   |           | 770,941 |              |  |   | 9,347  |        |  |  | 1,561,772 |          
|Benefits and expenses:                          |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          
|                                                | Policy owner benefits                                                                                                 |                              |         | 403,293      |   |           |         | 498,294      |  |   |        | 2,606  |  |  |           | 904,193   |       
|                                                | Underwriting, acquisition, and other expenses                                                                         |                              |         | 80,319       |   |           |         | 68,585       |  |   |        | 13,363 |  |  |           | 162,267   |       
|                                                | Amortization of DAC and VOBA, net of open block
    gain adjustment of ($15,002)                                      |                              |         | 63,267       |   |           |         | 83,407       |  |   |        |       |  |  |           | 146,674   |       
|                                                | Dividends to policy owners                                                                                            |                              |         | 104,866      |   |           |         |             |  |   |        |       |  |  |           | 104,866   |       
|                                                |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          
|                                                |                                                                                                                       |                              | 651,745 |              |   |           | 650,286 |              |  |   | 15,969 |        |  |  | 1,318,000 |          
|                                                |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          
|Segment pre-tax operating income                |                                                                                                                       | $                            | 129,739 |              |   | $         | 120,655 |              |  | $ | (6,622 | )      |  |  | 243,772   |          
|                                                |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          
|                                                | Realized/unrealized gains (losses) on open block
    assets                                                           |                              |         |              |   |           |         |              |  |   |        |        |  |  |           | (102,310  | )     
|                                                | Unrealized gains (losses) on open block options
    and trading investments                                           |                              |         |              |   |           |         |              |  |   |        |        |  |  |           | (45,209   | )     
|                                                | Change in option value of equity indexed products
    and market value adjustments on total return strategy annuities |                              |         |              |   |           |         |              |  |   |        |        |  |  |           | 28,759    |       
|                                                | Cash flow hedge amortization                                                                                          |                              |         |              |   |           |         |              |  |   |        |        |  |  |           | (4,351    | )     
|                                                | Amortization of DAC and VOBA due to open block
    gains and losses                                                   |                              |         |              |   |           |         |              |  |   |        |        |  |  |           | 15,002    |       
|                                                | Demutualization costs                                                                                                 |                              |         |              |   |           |         |              |  |   |        |        |  |  |           | (1,186    | )     
|                                                | Restructuring costs                                                                                                   |                              |         |              |   |           |         |              |  |   |        |        |  |  |           | (21,225   | )     
|                                                | Other income from non-insurance operations                                                                            |                              |         |              |   |           |         |              |  |   |        |        |  |  |           | 1,392     |       
|                                                |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          
|Income from continuing operations               |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  | 114,644   |          
|Interest (expense)                              |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  | (25,487   | )        
|Income tax (expense)                            |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  | (28,375   | )        
|Income from discontinued operations, net of tax |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  | 2,084     |          
|                                                |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          
|                                                |                                                                                                                       | Net income                   |         |              |   |           |         |              |  |   |        |        |  |  |           | $         | 62,866 | 
|                                                |                                                                                                                       |                              |         |              |   |           |         |              |  |   |        |        |  |  |           |          

F-58



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Operating Segment Assets

($ in thousands)


|                                          |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|----------------------------------------- |  | ---------- | --------- | ------------ |  | --------- | ---------- | ------------ |  | - | ------- |  |  | - | ---------- | 
|                                          |  | Protection |           | Accumulation |  |           |            | Total       
|                                          |  | Products   |           | Products     |  | All Other |            | Consolidated
|                                          |  |            |           |              |  |           |            |             
|December 31, 2004                         |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Investments                               |  | $          | 5,616,464 |              |  | $         | 13,470,899 |              |  | $ | 98,930  |  |  | $ | 19,186,293 | 
|DAC, capitalized bonus interest, and VOBA |  |            | 868,309   |              |  |           | 892,030    |              |  |   |        |  |  |   | 1,760,339  | 
|Other assets                              |  |            | 762,179   |              |  |           | 1,375,881  |              |  |   | 86,177  |  |  |   | 2,224,237  | 
|                                          |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Total assets                              |  | $          | 7,246,952 |              |  | $         | 15,738,810 |              |  | $ | 185,107 |  |  | $ | 23,170,869 | 
|                                          |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|December 31, 2003                         |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Investments                               |  | $          | 5,143,441 |              |  | $         | 12,780,990 |              |  | $ | 59,854  |  |  | $ | 17,984,285 | 
|DAC, capitalized bonus interest, and VOBA |  |            | 789,725   |              |  |           | 749,987    |              |  |   |        |  |  |   | 1,539,712  | 
|Other assets                              |  |            | 556,171   |              |  |           | 1,412,895  |              |  |   | 90,625  |  |  |   | 2,059,691  | 
|                                          |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Total assets                              |  | $          | 6,489,337 |              |  | $         | 14,943,872 |              |  | $ | 150,479 |  |  | $ | 21,583,688 | 
|                                          |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|December 31, 2002                         |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Investments                               |  | $          | 4,966,449 |              |  | $         | 11,941,384 |              |  | $ | 24,657  |  |  | $ | 16,932,490 | 
|DAC, capitalized bonus interest, and VOBA |  |            | 691,849   |              |  |           | 646,549    |              |  |   |        |  |  |   | 1,338,398  | 
|Other assets                              |  |            | 703,697   |              |  |           | 1,235,412  |              |  |   | 83,668  |  |  |   | 2,022,777  | 
|                                          |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 
|Total assets                              |  | $          | 6,361,995 |              |  | $         | 13,823,345 |              |  | $ | 108,325 |  |  | $ | 20,293,665 | 
|                                          |  |            |           |              |  |           |            |              |  |   |         |  |  |   |            | 

F-59



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##### Table of Contents



AMERUS GROUP CO.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                              
|---- | -----------------------------
|(21) | QUARTERLY RESULTS (UNAUDITED)

2004 Quarterly Data

|                                                 |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |            | 
|------------------------------------------------ | ------- | ----------------------------------- | ------- | ---------- |  | ------------ | ------- | ----------- |  | - | ------- | ---------- |  | - | ------- | ---------- | 
|                                                 |         |                                    
|                                                 |         | Quarter Ended                      
|                                                 |         |                                    
|                                                 |         | March 31                            |         | June 30    |  | September 30 |         | December 31
|                                                 |         |                                     |         |            |  |              |         |            
|                                                 |         |                                    
|                                                 |         | ($ in thousands, except share data)
|Total revenues                                   |         | $                                   | 396,692 |            |  | $            | 343,934 |             |  | $ | 407,996 |            |  | $ | 466,494 |           
|Total benefits and expenses                      |         | $                                   | 352,425 |            |  | $            | 283,301 |             |  | $ | 341,300 |            |  | $ | 377,676 |           
|Net income from continuing operations            |         | $                                   | 29,740  |            |  | $            | 48,776  |             |  | $ | 42,862  |            |  | $ | 67,875  |           
|Weighted average number of shares:               |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |           
|                                                 | Basic   |                                     |         | 39,263,367 |  |              |         | 39,327,182  |  |   |         | 39,237,840 |  |   |         | 39,390,532 | 
|                                                 | Diluted |                                     |         | 40,466,149 |  |              |         | 40,977,178  |  |   |         | 41,053,772 |  |   |         | 41,986,455 | 
|Net income from continuing operations per share: |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |           
|                                                 | Basic   |                                     | $       | 0.76       |  |              | $       | 1.24        |  |   | $       | 1.09       |  |   | $       | 1.72       | 
|                                                 | Diluted |                                     | $       | 0.73       |  |              | $       | 1.20        |  |   | $       | 1.04       |  |   | $       | 1.63       | 

The diluted weighted average number of shares and
diluted net income from continuing operations per share for
September 30, 2004 were restated from the original reported
results due to the impact of adopting EITF 04-8 for the new
OCEANs.

2003 Quarterly Data

|                                                 |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |            | 
|------------------------------------------------ | ------- | ----------------------------------- | ------- | ---------- |  | ------------ | ------- | ----------- |  | - | ------- | ---------- |  | - | ------- | ---------- | 
|                                                 |         |                                    
|                                                 |         | Quarter Ended                      
|                                                 |         |                                    
|                                                 |         | March 31                            |         | June 30    |  | September 30 |         | December 31
|                                                 |         |                                     |         |            |  |              |         |            
|                                                 |         |                                    
|                                                 |         | ($ in thousands, except share data)
|Total revenues                                   |         | $                                   | 407,759 |            |  | $            | 456,273 |             |  | $ | 374,656 |            |  | $ | 441,357 |           
|Total benefits and expenses                      |         | $                                   | 348,559 |            |  | $            | 383,519 |             |  | $ | 307,102 |            |  | $ | 371,473 |           
|Net income from continuing operations            |         | $                                   | 35,302  |            |  | $            | 43,178  |             |  | $ | 40,291  |            |  | $ | 41,857  |           
|Weighted average number of shares:               |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |           
|                                                 | Basic   |                                     |         | 38,984,807 |  |              |         | 39,161,780  |  |   |         | 39,208,151 |  |   |         | 39,268,068 | 
|                                                 | Diluted |                                     |         | 39,217,951 |  |              |         | 39,404,467  |  |   |         | 39,650,473 |  |   |         | 40,133,053 | 
|Net income from continuing operations per share: |         |                                     |         |            |  |              |         |             |  |   |         |            |  |   |         |           
|                                                 | Basic   |                                     | $       | 0.91       |  |              | $       | 1.10        |  |   | $       | 1.03       |  |   | $       | 1.06       | 
|                                                 | Diluted |                                     | $       | 0.90       |  |              | $       | 1.10        |  |   | $       | 1.02       |  |   | $       | 1.03       | 

F-60



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##### Table of Contents



AMERUS GROUP CO.



INDEX TO CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES


|                                                            |  |                                                                            |     |  |                 | 
|----------------------------------------------------------- |  | -------------------------------------------------------------------------- | --- |  | --------------- | 
|                                                            |  |                                                                           
|Schedule                                                    |  |                                                                           
|                                                            |  |                                                                           
|                                                            |  | Page                                                                      
|                                                            |  |                                                                           
|Report of Independent
    Registered Public Accounting Firm |  |                                                                            | S-2 | 
|I                                                           |  | Summary of
    Investments  Other than Investments in Related
    Parties |     |  | S-3             | 
|II                                                          |  | Condensed Financial
    Information of Registrant                          |     |  | S-4 through S-9 | 
|III                                                         |  | Supplementary Insurance
    Information                                    |     |  | S-10            | 
|IV                                                          |  | Reinsurance                                                                |     |  | S-11            | 

All other schedules are omitted for the reason
that they are not required, amounts are not sufficient to
require submission of the schedule, or that the equivalent
information has been included in the consolidated financial
statements and notes thereto.

S-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders

AmerUs Group Co.


We have audited the consolidated balance sheets
of AmerUs Group Co. as of December 31, 2004 and 2003, and
the related consolidated statements of income, comprehensive
income, stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2004, and
have issued our report thereon dated February 25, 2005
(included elsewhere in this Annual Report on Form 10-K).
Our audits also included the financial schedules listed on
page S-1 of this Annual Report on Form 10-K. These
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion based on
our audits.

In our opinion, the financial statement schedules
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein. As
discussed in note 1 to the consolidated financial
statement, in 2004 the Company changed its method of accounting
for certain non-traditional long-duration insurance contracts,
in 2003 the Company changed its method of accounting for
embedded derivatives associated with certain reinsurance
agreements and in 2002 the Company changed its method of
accounting for goodwill and other intangibles.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Des Moines, Iowa

February 25, 2005


S-2



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##### Table of Contents



AMERUS GROUP CO.

SCHEDULE I




SUMMARY OF INVESTMENTS


OTHER THAN INVESTMENTS IN RELATED
PARTIES


|                   |                             |                            |                                                                      |             |        |                |  |         |        |            |   |            |        |            | 
|------------------ | --------------------------- | -------------------------- | -------------------------------------------------------------------- | ----------- | ------ | -------------- |  | ------- | ------ | ---------- | - | ---------- | ------ | ---------- | 
|                   |                             |                           
|                   |                             | December 31, 2004         
|                   |                             |                           
|                   |                             |                            |                                                                      | Amount at  
|                   |                             |                            |                                                                      | which Shown
|                   |                             | Amortized                  |                                                                      | Market      |        | in the Balance
|Type of Investment |                             | Cost (1)                   |                                                                      | Value       |        | Sheet         
|                   |                             |                            |                                                                      |             |        |               
|                   |                             |                           
|                   |                             | ($ in thousands)          
|Fixed Maturities:  |                             |                            |                                                                      |             |        |                |  |         |        |            |   |           
|                   |                             | Bonds                      |                                                                      |             |        |                |  |         |        |            |   |            |        |           
|                   |                             |                            | United States Government and government agencies
    and authorities |             | $      | 2,239,576      |  |         | $      | 2,372,470  |   |            | $      | 2,372,470  | 
|                   |                             |                            | States, municipalities and political subdivisions                    |             |        | 64,917         |  |         |        | 66,026     |   |            |        | 66,026     | 
|                   |                             |                            | Foreign governments                                                  |             |        | 113,585        |  |         |        | 118,620    |   |            |        | 118,620    | 
|                   |                             |                            | Public utilities                                                     |             |        | 1,710,475      |  |         |        | 1,794,405  |   |            |        | 1,794,405  | 
|                   |                             |                            | Convertibles and bonds with warrants attached                        |             |        | 815,284        |  |         |        | 870,666    |   |            |        | 870,666    | 
|                   |                             |                            | Indexed debt instruments                                             |             |        | 571,965        |  |         |        | 564,720    |   |            |        | 564,720    | 
|                   |                             |                            | All other corporate bonds                                            |             |        | 11,263,903     |  |         |        | 11,537,728 |   |            |        | 11,537,728 | 
|                   |                             | Redeemable preferred stock |                                                                      |             | 40,143 |                |  |         | 40,143 |            |   |            | 40,143 |           
|                   |                             |                            |                                                                      |             |        |                |  |         |        |            |   |           
|                   |                             |                            | Total fixed maturities                                               |             |        | 16,819,848     |  |         |        | 17,364,778 |   |            |        | 17,364,778 | 
|                   | Equity securities:          |                            |                                                                      |             |        |                |  |         |        |            |   |            |       
|                   |                             | Common stocks              |                                                                      |             |        |                |  |         |        |            |   |            |        |           
|                   |                             |                            | Banks, trust and insurance companies                                 |             |        | 62,876         |  |         |        | 62,675     |   |            |        | 62,675     | 
|                   |                             |                            | Industrial, miscellaneous and all other                              |             |        | 1,807          |  |         |        | 2,941      |   |            |        | 2,941      | 
|                   |                             |                            | Non-redeemable preferred stocks                                      |             |        | 25,554         |  |         |        | 26,876     |   |            |        | 26,876     | 
|                   |                             |                            |                                                                      |             |        |                |  |         |        |            |   |           
|                   |                             |                            | Total equity securities                                              |             |        | 90,237         |  |         |        | 92,492     |   |            |        | 92,492     | 
|                   | Mortgage loans              |                            |                                                                      | 865,733     |        |                |  |         |        |            |   | 865,733    |       
|                   | Policy loans                |                            |                                                                      | 486,071     |        |                |  |         |        |            |   | 486,071    |       
|                   | Other long-term investments |                            |                                                                      | 373,820     |        |                |  | 374,240 |        |            |   | 374,240    |       
|                   | Short-term investments      |                            |                                                                      | 2,951       |        |                |  | 2,979   |        |            |   | 2,979      |       
|                   |                             |                            |                                                                      |             |        |                |  |         |        |            |   |           
|                   | Total investments           |                            | $                                                                    | 18,638,660  |        |                |  |         |        |            | $ | 19,186,293 |       
|                   |                             |                            |                                                                      |             |        |                |  |         |        |            |   |           



---



|    |                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On the basis of cost adjusted for repayments and
    amortization of premiums and accrual of discounts for fixed
    maturities, other long-term investments and short-term
    investments; original cost for equity securities; and unpaid
    principal balance for mortgage loans and policy loans.

S-3



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##### Table of Contents



AMERUS GROUP CO.

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT




CONDENSED BALANCE SHEETS


(Parent Company)


|                                       |                                                                |                  |           |        |           |  |           |        |           | 
|-------------------------------------- | -------------------------------------------------------------- | ---------------- | --------- | ------ | --------- |  | --------- | ------ | --------- | 
|                                       |                                                                |                 
|                                       |                                                                | December 31,    
|                                       |                                                                |                 
|                                       |                                                                | 2004             |           | 2003  
|                                       |                                                                |                  |           |       
|                                       |                                                                |                 
|                                       |                                                                | ($ in thousands)
|ASSETS                                
|Investments:                           |                                                                |                  |           |        |           |  |           |       
|                                       | Fixed maturity securities available-for-sale at
    fair value |                  | $         | 45,030 |           |  | $         |       |          
|                                       | Equity securities available-for-sale at fair value             |                  |           | 262    |           |  |           | 270    |          
|                                       | Other investments                                              |                  |           | 52,771 |           |  |           | 52,758 |          
|Investments in subsidiaries, at equity |                                                                |                  | 2,149,772 |        |           |  | 1,896,004 |       
|Cash and cash equivalents              |                                                                |                  | 32,880    |        |           |  | 7,574     |       
|Accrued investment income              |                                                                |                  |          |        |           |  | 1,125     |       
|Property and equipment                 |                                                                |                  | 15,846    |        |           |  | 14,485    |       
|Income taxes receivable                |                                                                |                  | 16,862    |        |           |  |          |       
|Other assets                           |                                                                |                  | 25,964    |        |           |  | 28,707    |       
|                                       |                                                                |                  |           |        |           |  |           |       
|                                       |                                                                | Total assets     |           | $      | 2,339,387 |  |           | $      | 2,000,923 | 
|                                       |                                                                |                  |           |        |           |  |           |       

See accompanying notes to condensed financial
statements.

S-4



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##### Table of Contents



AMERUS GROUP CO.

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

CONDENSED BALANCE SHEETS

(Parent Company)


|                                         |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |           |           | 
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | --------- | --------- |  | - | --------- | --------- | 
|                                         |                                                                                                                                                                                                                   |                                           
|                                         |                                                                                                                                                                                                                   | December 31,                              
|                                         |                                                                                                                                                                                                                   |                                           
|                                         |                                                                                                                                                                                                                   | 2004                                       |   | 2003     
|                                         |                                                                                                                                                                                                                   |                                            |   |          
|                                         |                                                                                                                                                                                                                   |                                           
|                                         |                                                                                                                                                                                                                   | ($ in thousands)                          
|Liabilities and Stockholders
    Equity |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |          
|Liabilities:                             |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |          
|                                         | Accrued expenses and other liabilities                                                                                                                                                                            |                                            | $ | 200,485   |           |  | $ | 42,424    |          
|                                         | Income taxes payable                                                                                                                                                                                              |                                            |   |          |           |  |   | 4,872     |          
|                                         | Deferred income taxes                                                                                                                                                                                             |                                            |   | 2,233     |           |  |   | 5,105     |          
|                                         | Notes payable                                                                                                                                                                                                     |                                            |   | 513,200   |           |  |   | 538,711   |          
|                                         |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |          
|                                         |                                                                                                                                                                                                                   | Total liabilities                          |   |           | 715,918   |  |   |           | 591,112   | 
|                                         |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |          
|Stockholders equity:                    |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |          
|                                         | Preferred Stock, no par value,
    20,000,000 shares authorized, none issued                                                                                                                                      |                                            |   |          |           |  |   |          |          
|                                         | Common Stock, no par value,
    230,000,000 shares authorized; 44,225,902 shares
    issued and 39,400,663 shares outstanding in 2004;
    43,836,608 shares issued and 39,194,602 shares
    outstanding in 2003 |                                            |   | 44,226    |           |  |   | 43,836    |          
|                                         | Additional paid-in capital                                                                                                                                                                                        |                                            |   | 1,198,379 |           |  |   | 1,184,237 |          
|                                         | Accumulated other comprehensive income                                                                                                                                                                            |                                            |   | 114,670   |           |  |   | 84,519    |          
|                                         | Unearned compensation                                                                                                                                                                                             |                                            |   | (1,238    | )         |  |   | (1,361    | )        
|                                         | Retained earnings                                                                                                                                                                                                 |                                            |   | 431,911   |           |  |   | 255,006   |          
|                                         | Treasury stock                                                                                                                                                                                                    |                                            |   | (164,479  | )         |  |   | (156,426  | )        
|                                         |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |          
|                                         |                                                                                                                                                                                                                   | Total stockholders equity                 |   |           | 1,623,469 |  |   |           | 1,409,811 | 
|                                         |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |          
|                                         |                                                                                                                                                                                                                   | Total liabilities and stockholders equity |   | $         | 2,339,387 |  |   | $         | 2,000,923 | 
|                                         |                                                                                                                                                                                                                   |                                            |   |           |           |  |   |          

See accompanying notes to condensed financial
statements.

S-5



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##### Table of Contents



AMERUS GROUP CO.

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

CONDENSED STATEMENTS OF INCOME

(Parent Company)


|                                                |                                            |                                  |         |         |   |      |         |         |   |   |        |        |  
|----------------------------------------------- | ------------------------------------------ | -------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------ | ------ | -
|                                                |                                            |                                 
|                                                |                                            | For the Years ended December 31,
|                                                |                                            |                                 
|                                                |                                            | 2004                             |         | 2003    |   | 2002
|                                                |                                            |                                  |         |         |   |     
|                                                |                                            |                                 
|                                                |                                            | ($ in thousands)                
|Revenues:                                       |                                            |                                  |         |         |   |      |         |         |   |   |        |       
|                                                | Equity in earnings of subsidiaries         |                                  | $       | 201,948 |   |      | $       | 186,633 |   |   | $      | 88,563 |  
|                                                | Net investment income                      |                                  |         | 2,756   |   |      |         | 4,647   |   |   |        | 4,739  |  
|                                                | Realized/unrealized capital gains (losses) |                                  |         | (1,653  | ) |      |         | (42     | ) |   |        | 874    |  
|                                                | Other income (loss)                        |                                  |         | 2,787   |   |      |         | 274     |   |   |        | (178   | )
|                                                |                                            |                                  |         |         |   |      |         |         |   |   |        |       
|                                                |                                            |                                  | 205,838 |         |   |      | 191,512 |         |   |   | 93,998 |       
|Expenses:                                       |                                            |                                  |         |         |   |      |         |         |   |   |        |       
|                                                | Operating expenses                         |                                  |         | 22,310  |   |      |         | 12,919  |   |   |        | 8,906  |  
|                                                | Demutualization costs                      |                                  |         |        |   |      |         |        |   |   |        | 954    |  
|                                                | Restructuring costs                        |                                  |         |        |   |      |         | 3,034   |   |   |        | 11,021 |  
|                                                | Interest expense                           |                                  |         | 28,484  |   |      |         | 26,635  |   |   |        | 22,165 |  
|                                                |                                            |                                  |         |         |   |      |         |         |   |   |        |       
|                                                |                                            |                                  | 50,794  |         |   |      | 42,588  |         |   |   | 43,046 |       
|                                                |                                            |                                  |         |         |   |      |         |         |   |   |        |       
|Income from continuing operations               |                                            |                                  | 155,044 |         |   |      | 148,924 |         |   |   | 50,952 |       
|Income tax benefit                              |                                            |                                  | 33,699  |         |   |      | 15,072  |         |   |   | 14,593 |       
|Minority interest                               |                                            |                                  |        |         |   |      | (2,849  | )       |   |   | (2,679 | )     
|                                                |                                            |                                  |         |         |   |      |         |         |   |   |        |       
|Net income from continuing operations           |                                            |                                  | 188,743 |         |   |      | 161,147 |         |   |   | 62,866 |       
|Income from discontinued operations, net of tax |                                            |                                  | 3,899   |         |   |      |        |         |   |   |       |       
|                                                |                                            |                                  |         |         |   |      |         |         |   |   |        |       
|Net income                                      |                                            | $                                | 192,642 |         |   | $    | 161,147 |         |   | $ | 62,866 |       
|                                                |                                            |                                  |         |         |   |      |         |         |   |   |        |       

See accompanying notes to condensed financial
statements.

S-6



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##### Table of Contents



AMERUS GROUP CO.

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

CONDENSED STATEMENTS OF CASH FLOWS

(Parent Company)


|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |         |         |  
|------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------- | ------- | -------- | -------- | ---- | -------- | -------- | ------- | - | -------- | ------- | ------- | -
|                                                                                      |                                        |                                                        
|                                                                                      |                                        | For the Years ended December 31,                       
|                                                                                      |                                        |                                                        
|                                                                                      |                                        | 2004                                                    |         | 2003     |          | 2002
|                                                                                      |                                        |                                                         |         |          |          |     
|                                                                                      |                                        |                                                        
|                                                                                      |                                        | ($ in thousands)                                       
|Cash flows from operating
    activities:                                             |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|Net income                                                                            |                                        | $                                                       | 192,642 |          |          | $    | 161,147  |          |         | $ | 62,866   |        
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|                                                                                      | Equity in undistributed earnings       |                                                         |         | (201,948 | )        |      |          | (186,633 | )       |   |          | (88,563 | )      
|                                                                                      | Dividends from subsidiaries            |                                                         |         | 49,732   |          |      |          | 83,758   |         |   |          | 45,332  |        
|                                                                                      | Realized investment (gains) losses     |                                                         |         | 1,653    |          |      |          | 42       |         |   |          | (874    | )      
|                                                                                      | Minority interest                      |                                                         |         |         |          |      |          | 2,849    |         |   |          | 2,679   |        
|Change in:                                                                            |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|                                                                                      | Accrued expenses and other liabilities |                                                         |         | 135,338  |          |      |          | (15,601  | )       |   |          | 7,176   |        
|                                                                                      | Income taxes                           |                                                         |         | (18,650  | )        |      |          | 16,265   |         |   |          | (8,463  | )      
|                                                                                      | Other, net                             |                                                         |         | 7,220    |          |      |          | (15,040  | )       |   |          | 5,607   |        
|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|                                                                                      |                                        | Net cash provided by operating activities               |         |          | 165,987  |      |          |          | 46,787  |   |          |         | 25,760  |  
|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|Cash flows from investing
    activities:                                             |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|(Purchase) sale of investments                                                        |                                        |                                                         | (44,429 | )        |          |      |         |          |         |   | 37       |        
|Proceeds from repayment of loans                                                      |                                        |                                                         |        |          |          |      |         |          |         |   | 3        |        
|Purchase of real estate                                                               |                                        |                                                         | (2,016  | )        |          |      |         |          |         |   |         |        
|Other assets, net                                                                     |                                        |                                                         | 7,155   |          |          |      |         |          |         |   | 403      |        
|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|                                                                                      |                                        | Net cash (used in) provided by investing
    activities |         |          | (39,290  | )    |          |          |        |   |          |         | 443     |  
|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|Cash flows from financing
    activities:                                             |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|Change in debt and capital securities, net                                            |                                        |                                                         | (25,511 | )        |          |      | (84,664  | )        |         |   | 141,163  |        
|Allocation of shares in leveraged ESOP                                                |                                        |                                                         |        |          |          |      | 1,597    |          |         |   | 1,333    |        
|Issuance of PRIDES                                                                    |                                        |                                                         |        |          |          |      | 135,701  |          |         |   |         |        
|Retirement of company-obligated mandatorily
    redeemable capital securities         |                                        |                                                         |        |          |          |      |         |          |         |   | (20,805  | )      
|Capital contribution to subsidiaries                                                  |                                        |                                                         | (66,745 | )        |          |      | (102,696 | )        |         |   | (58,930  | )      
|Purchase of treasury stock, net of issuance                                           |                                        |                                                         | (9,153  | )        |          |      |         |          |         |   | (114,638 | )      
|Dividends paid to stockholders                                                        |                                        |                                                         | (15,737 | )        |          |      | (15,658  | )        |         |   | (15,536  | )      
|Stock issued under various incentive plans, net
    of forfeitures                    |                                        |                                                         | 15,755  |          |          |      | 11,060   |          |         |   | 14,623   |        
|Other, net                                                                            |                                        |                                                         |        |          |          |      | (65      | )        |         |   | (109     | )      
|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|                                                                                      |                                        | Net cash used in financing activities                   |         |          | (101,391 | )    |          |          | (54,725 | ) |          |         | (52,899 | )
|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|Net increase (decrease) in cash                                                       |                                        |                                                         | 25,306  |          |          |      | (7,938   | )        |         |   | (26,696  | )      
|Cash at beginning of period                                                           |                                        |                                                         | 7,574   |          |          |      | 15,512   |          |         |   | 42,208   |        
|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |        
|Cash at end of period                                                                 |                                        | $                                                       | 32,880  |          |          | $    | 7,574    |          |         | $ | 15,512   |        
|                                                                                      |                                        |                                                         |         |          |          |      |          |          |         |   |          |        

See accompanying notes to condensed financial
statements.

S-7



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##### Table of Contents



AMERUS GROUP CO.

Condensed Financial Information of
Registrant

NOTES TO CONDENSED FINANCIAL
STATEMENTS

(Parent Company)




|    |                      
|--- | ---------------------
|(1) | Basis of Presentation

AmerUs Group Co. (the Company) is the parent
company of its primary subsidiaries, AmerUs Life Insurance
Company (ALIC), AmerUs Annuity Group Co. and its subsidiaries
(collectively, AAG), AmerUs Capital Management Group, Inc.
(ACM), and ILICO Holdings, Inc., the holding company of
Indianapolis Life Insurance Company (ILIC) and its
subsidiaries (collectively ILICO). Prior to 2003, ALIC had a
7.8 percent ownership in ILICO which was recorded as
minority interest. In 2003, ALIC dividended its ownership in
ILICO to the Company. The Companys investment in its
subsidiaries is stated at cost plus equity in undistributed
earnings of the subsidiaries. The Companys share of net
income of its unconsolidated subsidiaries is included in income
using the equity method. These financial statements should be
read in conjunction with AmerUs Group Co.s consolidated
financial statements.



|    |              
|--- | -------------
|(2) | Notes Payable

Notes payable consist of the following:

|                                                                 |  |                  |         |      |  |   |         | 
|---------------------------------------------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | 
|                                                                 |  |                 
|                                                                 |  | December 31,    
|                                                                 |  |                 
|                                                                 |  | 2004             |         | 2003
|                                                                 |  |                  |         |     
|                                                                 |  |                 
|                                                                 |  | ($ in thousands)
|OCEANS due on March 6, 2032 (A)                                  |  | $                | 189,212 |      |  | $ | 187,723 | 
|PRIDES notes (B)                                                 |  |                  | 143,750 |      |  |   | 143,750 | 
|Senior notes bearing interest at 6.95% due June
    2005         |  |                  | 125,000 |      |  |   | 125,000 | 
|Revolving Credit Agreement (C)                                   |  |                  |        |      |  |   | 27,000  | 
|Junior Subordinated debentures bearing interest
    at 8.85% (D) |  |                  | 50,755  |      |  |   | 50,755  | 
|Other intercompany (eliminated in consolidation)                 |  |                  | 4,483   |      |  |   | 4,483   | 
|                                                                 |  |                  |         |      |  |   |         | 
|                                                                 |  | $                | 513,200 |      |  | $ | 538,711 | 
|                                                                 |  |                  |         |      |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | On March 6, 2002, the Company issued
    $185 million aggregate original principal amount of OCEANs.
    The OCEANs are senior subordinated debt and were issued and sold
    in an original principal amount of $1,000 per OCEAN, with a
    principal amount at maturity of $1,270 per OCEAN. The
    maturity date of the OCEANs is March 6, 2032. The OCEANs
    will have aggregate principal amount at maturity of
    $235 million. The OCEANs were registered on Form S-3
    filed with the Securities and Exchange Commission on
    September 20, 2002. In 2004, the Company exchanged the
    OCEANs, which were previously convertible into shares of the
    Companys common stock, to now being convertible into a
    combination of cash and shares of common stock.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | On May 28, 2003, the Company issued
    $125.0 million of PRIDES which were registered on
    Form S-3 filed with the Securities and Exchange Commission.
    The PRIDES initially consist of a $25 senior note and a contract
    requiring the holder to purchase the Companys common
    stock. The note has a minimum term of 4.75 years, which may
    be extended by the Company in certain circumstances. Under the
    purchase contract, holders of each contract are required to
    purchase the Companys common stock on the settlement date
    of August 16, 2006 based on a specified settlement rate,
    which will vary according to the applicable market value of the
    Companys common stock at the settlement date.
|   
|(C) |  | The revolving credit agreement provides for a
    maximum borrowing of $200 million with the balance maturing
    in December 2007. The interest rate is variable, however, the
    Company may elect to fix the rate for periods from 30 days
    to six months. The loan agreement contains various financial and
    operating covenants which, among other things, limit future
    indebtedness and restrict the amount of future dividend payments.                                                                                                                                                                                                                                                                                     

S-8



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##### Table of Contents



AMERUS GROUP CO.


Condensed Financial Information of
Registrant

NOTES TO CONDENSED FINANCIAL
STATEMENTS

(Parent
Company)  (Continued)




|    |  |                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(D) |  | The Company issued $88.66 million of junior
    subordinated debentures to a wholly-owned subsidiary trust in
    connection with capital securities issued by the trust. The
    debentures bear interest at the rate of 8.85% and mature
    February 1, 2027.

Maturities of notes payable are as follows for
each of the next five years:

|           |  |                  |         | 
|---------- |  | ---------------- | ------- | 
|           |  | ($ in thousands)
|           |  |                 
|2005       |  | $                | 129,483 | 
|2006       |  |                  |        | 
|2007       |  |                  |        | 
|2008       |  |                  | 143,750 | 
|2009       |  |                  |        | 
|Thereafter |  |                  | 239,967 | 
|           |  |                  |         | 
|           |  | $                | 513,200 | 
|           |  |                  |         | 

S-9



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##### Table of Contents



AMERUS GROUP CO.

SCHEDULE III



SUPPLEMENTARY INSURANCE INFORMATION


FOR THE YEARS ENDED DECEMBER 31, 2004,
2003, AND 2002


($ in thousands)


|                      |  |             |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|--------------------- |  | ----------- | --------- | ---------------- |  | -------- | ---------- | ------------ |  | ------- | - | ---------- |  | ---------- | ------ | ------------ |  | --------- | ------- | -------- |  | - | --------- |  |  | - | --------- |  |  | - | ------- |  |  | - | ------- |  |  |  | --- | 
|                      |  | DAC,        |           |                  |  |          |            |              |  |         |   |            |  | Benefits,  |        |              |  |           |         |         
|                      |  | capitalized |           | Future policy    |  |          |            | Other policy |  |         |   |            |  | claims,    |        |              |  |           |         |         
|                      |  | bonus       |           | benefits, losses |  |          |            | claims &     |  |         |   | Net        |  | losses &   |        | Amortization |  | Other     |         |         
|                      |  | interest, & |           | claims & loss    |  | Unearned |            | benefits     |  | Premium |   | investment |  | settlement |        | of DAC &     |  | operating |         | Premiums
|Segment               |  | VOBA        |           | expenses (1)     |  | premiums |            | payable (2)  |  | revenue |   | income     |  | expenses   |        | VOBA         |  | expenses  |         | written 
|                      |  |             |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |         
|Protection Products   |  |             |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|12/31/2004            |  | $           | 868,309   |                  |  | $        | 5,849,649  |              |  | $       |  |            |  | $          | 66,305 |              |  | $         | 263,050 |          |  | $ | 333,477   |  |  | $ | 471,001   |  |  | $ | 91,323  |  |  | $ | 73,750  |  |  |  | n/a | 
|12/31/2003            |  | $           | 789,725   |                  |  | $        | 5,917,278  |              |  | $       |  |            |  | $          | 52,506 |              |  | $         | 292,287 |          |  | $ | 321,532   |  |  | $ | 501,229   |  |  | $ | 76,808  |  |  | $ | 76,048  |  |  |  | n/a | 
|12/31/2002            |  | $           | 691,849   |                  |  | $        | 5,428,918  |              |  | $       |  |            |  | $          | 36,058 |              |  | $         | 341,602 |          |  | $ | 335,111   |  |  | $ | 505,123   |  |  | $ | 62,523  |  |  | $ | 80,319  |  |  |  | n/a | 
|Accumulation Products |  |             |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|12/31/2004            |  | $           | 892,030   |                  |  | $        | 13,727,230 |              |  | $       |  |            |  | $          | 3,776  |              |  | $         | 2,602   |          |  | $ | 697,363   |  |  | $ | 497,699   |  |  | $ | 113,540 |  |  | $ | 76,449  |  |  |  | n/a | 
|12/31/2003            |  | $           | 749,987   |                  |  | $        | 12,614,576 |              |  | $       |  |            |  | $          | 5,868  |              |  | $         | 4,114   |          |  | $ | 672,141   |  |  | $ | 547,798   |  |  | $ | 102,856 |  |  | $ | 61,054  |  |  |  | n/a | 
|12/31/2002            |  | $           | 646,549   |                  |  | $        | 12,363,587 |              |  | $       |  |            |  | $          | 2,570  |              |  | $         | 8,702   |          |  | $ | 660,470   |  |  | $ | 472,571   |  |  | $ | 69,149  |  |  | $ | 68,585  |  |  |  | n/a | 
|Other                 |  |             |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|12/31/2004            |  | $           |          |                  |  | $        | 88,249     |              |  | $       |  |            |  | $          | 384    |              |  | $         | 2,014   |          |  | $ | 6,607     |  |  | $ | 1,088     |  |  | $ |        |  |  | $ | 29,852  |  |  |  | n/a | 
|12/31/2003            |  | $           |          |                  |  | $        | 89,794     |              |  | $       |  |            |  | $          | 506    |              |  | $         | 787     |          |  | $ | 8,241     |  |  | $ | 3,200     |  |  | $ |        |  |  | $ | 41,660  |  |  |  | n/a | 
|12/31/2002            |  | $           |          |                  |  | $        | 89,717     |              |  | $       |  |            |  | $          | 941    |              |  | $         | 996     |          |  | $ | 5,676     |  |  | $ | 6,957     |  |  | $ |        |  |  | $ | 35,774  |  |  |  | n/a | 
|Total                 |  |             |           |                  |  |          |            |              |  |         |   |            |  |            |        |              |  |           |         |          |  |   |           |  |  |   |           |  |  |   |         |  |  |   |         |  |  |  |     | 
|12/31/2004            |  | $           | 1,760,339 |                  |  | $        | 19,665,128 |              |  | $       |  |            |  | $          | 70,465 |              |  | $         | 267,666 |          |  | $ | 1,037,447 |  |  | $ | 969,788   |  |  | $ | 204,863 |  |  | $ | 180,051 |  |  |  | n/a | 
|12/31/2003            |  | $           | 1,539,712 |                  |  | $        | 18,621,648 |              |  | $       |  |            |  | $          | 58,880 |              |  | $         | 297,188 |          |  | $ | 1,001,914 |  |  | $ | 1,052,227 |  |  | $ | 179,664 |  |  | $ | 178,762 |  |  |  | n/a | 
|12/31/2002            |  | $           | 1,338,398 |                  |  | $        | 17,882,222 |              |  | $       |  |            |  | $          | 39,569 |              |  | $         | 351,300 |          |  | $ | 1,001,257 |  |  | $ | 984,651   |  |  | $ | 131,672 |  |  | $ | 184,678 |  |  |  | n/a | 



---



|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(1) | Policy reserves, policyowner funds and dividends
    payable to policyowners
|   
|(2) | Policy and contract claims                                                  

S-10



---



##### Table of Contents



AMERUS GROUP CO.

SCHEDULE IV




REINSURANCE


FOR THE YEARS ENDED DECEMBER 31, 2004,
2003, AND 2002


|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |       |  
|---------------------------- | -------------- | ---------------- | ---------- | --------- |  | ---------- | ---------- | ---------- |  | ---------- | ---------- | ------ |  | - | ---------- | ------- |  |  | ----- | ----- | -
|                             |                |                  |            |           |  |            |            |            |  | Percentage
|                             |                |                  |            | Ceded to  |  | Assumed    |            |            |  | of Amount 
|                             |                |                  |            | Other     |  | From Other |            |            |  | Assumed   
|                             |                | Gross Amount     |            | Companies |  | Companies  |            | Net Amount |  | to Net    
|                             |                |                  |            |           |  |            |            |            |  |           
|                             |                |                 
|                             |                | ($ in thousands)
|Year ended December 31, 2004 |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Life insurance in force      |                | $                | 84,353,582 |           |  | $          | 77,375,294 |            |  | $          | 13,287,744 |        |  | $ | 20,266,032 |         |  |  | 65.57 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Premiums                     |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|                             | Life insurance |                  | $          | 347,692   |  |            | $          | 124,586    |  |            | $          | 39,944 |  |   | $          | 263,050 |  |  |       | 15.18 | %
|                             | Annuities      |                  |            | 2,602     |  |            |            |           |  |            |            |       |  |   |            | 2,602   |  |  |       |      |  
|                             | Other          |                  |            | 8,006     |  |            |            | 6,236      |  |            |            | 244    |  |   |            | 2,014   |  |  |       | 12.12 | %
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Total premiums               |                | $                | 358,300    |           |  | $          | 130,822    |            |  | $          | 40,188     |        |  | $ | 267,666    |         |  |  | 15.01 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Year ended December 31, 2003 |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Life insurance in force      |                | $                | 83,441,177 |           |  | $          | 75,316,449 |            |  | $          | 14,826,361 |        |  | $ | 22,951,089 |         |  |  | 64.60 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Premiums                     |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|                             | Life insurance |                  | $          | 365,302   |  |            | $          | 118,644    |  |            | $          | 45,629 |  |   | $          | 292,287 |  |  |       | 15.61 | %
|                             | Annuities      |                  |            | 4,114     |  |            |            |           |  |            |            |       |  |   |            | 4,114   |  |  |       |      |  
|                             | Other          |                  |            | 8,172     |  |            |            | 7,610      |  |            |            | 225    |  |   |            | 787     |  |  |       | 28.59 | %
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Total premiums               |                | $                | 377,588    |           |  | $          | 126,254    |            |  | $          | 45,854     |        |  | $ | 297,188    |         |  |  | 15.43 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Year ended December 31, 2002 |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Life insurance in force      |                | $                | 78,828,540 |           |  | $          | 71,067,236 |            |  | $          | 16,211,471 |        |  | $ | 23,972,775 |         |  |  | 67.62 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Premiums                     |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|                             | Life insurance |                  | $          | 402,282   |  |            | $          | 109,846    |  |            | $          | 49,166 |  |   | $          | 341,602 |  |  |       | 14.39 | %
|                             | Annuities      |                  |            | 8,702     |  |            |            |           |  |            |            |       |  |   |            | 8,702   |  |  |       |      |  
|                             | Other          |                  |            | 8,519     |  |            |            | 7,901      |  |            |            | 378    |  |   |            | 996     |  |  |       | 37.95 | %
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      
|Total premiums               |                | $                | 419,503    |           |  | $          | 117,747    |            |  | $          | 49,544     |        |  | $ | 351,300    |         |  |  | 14.10 | %    
|                             |                |                  |            |           |  |            |            |            |  |            |            |        |  |   |            |         |  |  |       |      

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