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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 2003.

[ ]

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from N/A to N/A.

Commission file number 333-02491*.

KEMPER INVESTORS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in charter)

ILLINOIS
(State of Incorporation)

36-3050975
(I.R.S. Employer Identification Number)

1600 McCONNOR PARKWAY
SCHAUMBURG, ILLINOIS
(Address of Principal Executive Offices)

60196-6801
(Zip Code)

Registrant's telephone number, including area code: (847) 874-4000

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).

Yes

No  X

* Pursuant to Rule 429 under the Securities Act of 1933, this Form 10-Q also

  relates to Commission file numbers 333-22389, 333-32632,333-54252 and     
  333-86044.

KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES

FORM 10-Q

PART I. FINANCIAL STATEMENTS

Consolidated Balance Sheets -

  March 31, 2003 and December 31, 2002

3

Consolidated Statements of Operations -

  Three months ended March 31, 2003 and 2002

5

Consolidated Statements of Comprehensive Income (Loss)-

 Three months ended March 31, 2003 and 2002

6

Consolidated Statements of Cash Flows -

  Three months ended March 31, 2003 and 2002

7

Notes to Consolidated Financial Statements

9

Management's Discussion and Analysis

  Results of Operations

11

  Investments

21

  Liquidity and Capital Resources

23

PART II. OTHER INFORMATION

ITEM 4. Submission of Matters to a vote of Security Holders

25

ITEM 6. Exhibits and Reports on Form 8-K

25

Signatures

27

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands, except share data)

See accompanying notes to consolidated financial statements.

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Operations
(in thousands)
(unaudited)

See accompanying notes to consolidated financial statements.

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)

See accompanying notes to consolidated financial statements.

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

Kemper Investors Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)

See accompanying notes to consolidated financial statements.

Kemper Investors Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)

1.

Kemper Investors Life Insurance Company is incorporated under the insurance laws of the State of Illinois and is licensed in the District of Columbia and all states, except New York. Zurich Life Insurance Company of New York is a wholly-owned subsidiary that is licensed in the State of New York.  Kemper Investors Life Insurance Company and its subsidiaries (collectively, "KILICO" or "the Company"), are wholly-owned by Kemper Corporation ("Kemper"), a non-operating holding company. Kemper is a wholly-owned subsidiary of Zurich Holding Company of America (“ZHCA”), a holding company.  ZHCA is a wholly-owned subsidiary of Zurich Group Holding (“ZGH” or “Zurich”), a Swiss holding company. ZGH is wholly-owned by Zurich Financial Services (“Z FS”), a Swiss holding company.

2.

In the opinion of management, all necessary adjustments consisting of normal recurring accruals have been made for a fair statement of the results of KILICO for the periods included in these financial statements. The results for the interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and related notes in the 2002 Annual Report on Form 10-K.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

3.

The Company, Federal Kemper Life Assurance Company ("FKLA"), Zurich Life Insurance Company of America ("ZLICA"), and Fidelity Life Association ("FLA"), operate under the trade name Zurich Life ("ZL").

Prior to 2002, the Company had managed its operations along Strategic Business Units (“SBUs”). Each SBU concentrated on specific distribution channels. However, the SBUs were not managed at the legal entity level, but rather at the Zurich Life level. Zurich Life’s SBUs crossed legal entity lines, as certain similar products are sold by more than one legal entity and/or through more than one distribution channel.

In 2002 and 2001, after extensive review of its product portfolio, the Company exited the high net worth business and the individual variable universal life product line due to lack of scale and profitability. In addition, the Company chose not to build out a separate marketing and wholesaling group to exclusively target the bank distribution channel. The Company has and will continue to assess the various markets in which it operates as well as its product offerings in each such market.

In 2002, the Company’s management team shifted its financial focus from SBU performance to a line of business performance within each legal entity. The SBUs are now primarily responsible

for market management, including distribution management, product design, sales and marketing.

The Company has two primary operating segments, life insurance and annuities, that offer different types of products and services.  These two operating segments reflect the way the Company manages its operations and makes business decisions.

In the following table, the Company uses the caption “net operating income” as an operating measure of segment performance. Net operating income is calculated by deducting net realized investment gains or losses, net of related income taxes, from net income. Net realized investment gains or losses are excluded from net operating income because they can, in part, be discretionary and are not indicative of operational trends.

Prior period information has been restated to reflect the adoption of Statement of Financial Accounting Standards No. 142 (“SFAS 142”) Goodwill and Other Intangible Assets, effective January 1, 2002.

The following table reconciles the Company’s net operating income (loss) to its net income loss:

MANAGEMENT'S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

Kemper Investors Life Insurance Company and subsidiaries (collectively, "KILICO", "the Company", "we", "our" or "us") recorded net income of $5.8 million in the first three months of 2003, compared with a net loss of $14.6 million for the first three months of 2002.

The following table reflects the components of net income (loss):

Net income (loss)

(in millions)

The following table reflects the major components of net realized capital gains and losses included in net income (loss):

Net realized capital gains (losses)
(in millions)

The 2003 realized results include $5.6 million of net gains from securities sold during the period.  The $2.4 million of writedowns are related to other-than-temporary declines in value of certain securities, primarily certain airline issuers.

The $21.9 million in goodwill impairment in 2002, resulted from the implementation of Statement of Financial Accounting Standards No. 142 (“SFAS 142”) Goodwill and Other Intangible Assets, issued in July 2001.  SFAS 142 primarily addresses the accounting that must be applied to goodwill and intangible assets subsequent to their acquisition. Effective January 1, 2002, SFAS 142 required that goodwill and indefinite-lived intangible assets no longer be amortized, but be tested for impairment at the reporting unit level. The Company’s goodwill was tested for impairment at the life insurance and annuities operating segment level based on the guidance under SFAS 142. As a result of the testing performed an impairment of $21.9 million was recorded in the annuities segment, retroactive to January 1, 2002, the effective date of SFAS 142.

In September 2002, the board of directors of our indirect, 100% shareholder, Zurich Financial Services Group (“the Group”), approved a plan designed to improve the profitability of the Group and its subsidiaries.  Under this plan, the Group considered a number of strategic options, the completion of which could have a significant impact on the recoverability of the carrying value of certain assets.  Among the assets affected by the approval of the plan is the goodwill associated with the acquisition of the Zurich Life companies.  As a result, the Company recorded the complete write-down of the remaining goodwill of $156.5 million in the third quarter of 2002.

Operating earnings before goodwill impairment and amortization of definite-lived intangible assets resulted in a gain of $3.9 million for the first three months of 2003, compared with $8.3 million in the first three months of 2002. This decrease was primarily due to:

*

a decrease in spread revenue (net investment income less interest credited to policyholders),

*

a decrease in separate account fees and charges due to continued equity market declines,   

*

an increase in claims incurred and other policyholder benefits, primarily due to an increase in variable annuity guaranteed benefits and related reserves resulting from the continued decline in the stock market, and

*

an increase in the amortization of deferred insurance acquisition costs,

offset by

*

an increase in other income,

*

a decrease in taxes, licenses and fees, and

*

a decrease in commissions and operating expenses, net of the deferral of insurance acquisition costs.

Sales and reinsurance assumed
(in millions)

Sales of annuity products consist of total deposits received, which are not recorded as revenue within the consolidated statements of operations. For variable annuity deposits we receive administrative fee revenue and on variable life insurance contracts we collect cost of insurance charges. For fixed-rate annuity business we manage spread revenue, defined as investment income less interest credited to policyholders.

Variable annuity deposits, including deposits under the fixed account option, decreased $370.7 million in the first three months of 2003, compared with the first three months of 2002. The decrease is primarily due to lower sales of our Destinations^SM product. In the fourth quarter of 2001, we discontinued offering the guaranteed retirement income benefit (“GRIB”) option with the Destinations^SM product due to the continued decline in the stock market and, in the first quarter of 2003, we discontinued all new sales of Destinations^SM. We will, however, continue to receive additional deposits.

The GRIB is an optional benefit to the Destinations^SM variable annuity. For an additional asset-based fee it allows for a proxy account value, called the GRIB Base, to be applied to the guaranteed annuity factors (settlement option purchase rates) in the contract. The GRIB Base prior to attained age 80 is the greatest of:

*

the contract value (account value)   

*

the greatest anniversary value before the exercise (annuitization) date, or   

*

purchase payments minus previous withdrawals, accumulated at 5 percent interest per year to the annuitization date.

Fixed annuity deposits increased $82.0 million in the first three months of 2003, compared with the first three months of 2002, primarily due to continued strong sales of our Zurich Classic II fixed annuity product. In the first quarter of 2003, our wholly-owned subsidiary, Zurich Life Insurance Company of New York, began sales of the Zurich Classic II product in the State of New York.

BOLI deposits decreased $97.6 million in the first quarter of 2003, compared with the same period in 2002. Due to the nature of the BOLI product - high dollar volume per sale, low frequency of sales, the level of BOLI sales can fluctuate, sometimes significantly, between periods.  Continued maturation of the BOLI market and company ratings can also affect the level of BOLI sales.  

Assets under management
(in millions)

Total assets under management increased $87.9 million from December 31, 2002, to March 31, 2003, primarily reflecting the volume of sales in the first quarter of 2003. Total assets under management are also affected by equity market and interest rate fluctuations. The level of policyholder surrenders, withdrawals and death benefits also directly impacts the level of assets under management from year to year.  

Spread revenue decreased in the first three months of 2003, compared with the same period in 2002. Investment income decreased primarily due to the reinvestment of 2002 and 2003 sales proceeds, maturities and prepayments in lower yielding securities due to the lower interest rate environment. Also contributing to the decrease is the loss of investment income earned on the BOLI funds withheld account (“FWA”).  During the first quarter of 2002, we amended our BOLI reinsurance agreement with Zurich Insurance Company, Bermuda Branch (“ZICBB”). Under the amended agreement, the balance in the FWA was transferred to a trust account that acts as security for the reinsurance agreement. On January 25,2002, approximately $222.5 million of invested assets were transferred to the trust account. The trust account is not reflected in our consolidated financial statements but is included in ZICBB’s financial statements.

Interest credited increased in the first three months of 2003, compared with the same period in 2002, mainly due to higher average policyholder account balances, somewhat offset by lower average interest crediting rates.

Separate account fees and charges
(in millions)

-----------------------------------------------

⁽¹⁾ Includes $.7 million of cost of insurance charges               
    ceded, related to appreciation of the BOLI funds withheld account
    for the three months ended March 31, 2002.

⁽²⁾ There is a corresponding offset in taxes, licenses and fees.

Separate account fees on non-BOLI variable life and annuities decreased in the first three months of 2003, compared with the first three months of 2002, primarily due to the decline in the stock market, as the fees are primarily asset-based.   

Net BOLI cost of insurance charges and fees increased $0.9 million in the first three months of 2003, compared with 2002.  The increase is primarily  related to the transfer of the assets supporting the FWA to a trust.  Prior to the transfer, we ceded additional cost of insurance charges due to appreciation of the FWA. In addition, subsequent to the transfer, we received an increase in asset management fees in conjunction with the amended reinsurance agreement in 2002, as previously discussed.  

Other income increased $2.5 million in the first three months of 2003, compared with the same period in 2002. The increase was primarily due to the non-recurrence of separate account trading losses that occurred in the first quarter of 2002. The high volume of variable annuity sales and the subsequent investment of customer funds during periods of significant stock market volatility caused these losses in 2002.

Policyholder surrenders, withdrawals and death benefits
(in millions)

Reflecting the current interest rate environment and other competitive market factors, we adjust our crediting rates on interest-sensitive products over time in order to manage spread revenue and policyholder surrender and withdrawal activity. Spread revenue can also improve over time by increasing investment income.

General account surrenders, withdrawals and death benefits decreased $10.3 million in the first three months of 2003, compared with the first three months of 2002, as policyholders opted for the relatively safer investment options offered by the general account.

Separate account surrenders, withdrawals and death benefits increased $50.7 million in the first three months of 2003, compared with the first three months of 2002, as investors sought more stable returns during a period of stock market volatility.  

Claims incurred and other policyholder benefits increased $3.2 million for the period ended March 31, 2003, compared with the same period in 2002.  The increase is primarily due to an increase in policyholder reserves for guaranteed minimum death benefits (“GMDB”) and GRIB on certain of our variable annuity contracts due to increasing variable annuity business in-force and a lower stock market. We reserve for death benefit guarantees in our variable annuities. For policies that were deemed to have elected annuitization, GRIB reserves have been established to cover the present value of future benefits in excess of account value. A further decline in the stock market would have the impact of increasing these GMDB and GRIB reserves. Conversely, a rally in the stock market would generally have the impact of decreasing these reserves.

Pursuant to accounting principles generally accepted in the United States of America, no additional liabilities for future policy benefits related to guaranteed living benefits have been established for policies that have not been deemed to have elected annuitization.  However, a number of accounting exposure drafts on this subject have been circulated for comment. While these exposure drafts have varied significantly in terms of recognizing future policy liabilities for guaranteed living benefits, it appears some form of recognition will be forthcoming. As a result, recognition of future policy benefits for GRIB in future periods could vary significantly from amounts recorded as of March 31, 2003.

Taxes, licenses and fees decreased in the first quarter of 2003, compared with the same period in 2002, primarily due to the decrease in BOLI premiums.

Commissions and operating expenses, net of the deferral of insurance acquisition costs, decreased in the first three months of 2003, compared with the first three months of 2002. The decrease is primarily due to a decrease in operating expenses. The decrease in operating expenses was mainly attributable to exiting certain lines of business and a significant focus on operations and IT re-engineering and expense reductions.

The increase in the amortization of deferred insurance acquisition costs (“DAC”) is primarily due to a decrease in future estimated gross profits (“EGPs”) which is caused by the decline in the stock market in the first quarter of 2003. The S&P 500 declined 3.6% through March 31, 2003 and was relatively flat during the first quarter of 2002. The decline in the stock market resulted in depreciation in the separate account assets, which reduces asset-based separate account fees and future EGPs. The level of realized gains on the post-purchase (i.e., after January 4, 1996) investment portfolio in the first quarter of 2003, compared to realized losses in the first quarter of 2002, also increased DAC amortization year over year. Realized capital gains increase current gross profits, decreasing future estimated gross profits, and accelerates amort ization in the current period. Realized capital losses decrease current gross profits, increasing future estimated gross profits, and defers amortization into future periods.

Operations by Business Segment

As previously discussed in the footnotes, the Company, Federal Kemper Life Assurance Company ("FKLA"), Zurich Life Insurance Company of America ("ZLICA"), and Fidelity Life Association ("FLA"), operate under the trade name Zurich Life ("ZL").

We have two primary operating segments, life insurance and annuities, that offer different types of products and services.  These two operating segments reflect the way the Company manages its operations and makes business decisions.

In the following table, we use the caption “net operating income” as an operating measure of segment performance. Net operating income is calculated by deducting net realized investment gains or losses, net of related income taxes from net income. Net realized investment gains or losses are excluded from net operating income because they can, in part, be discretionary and are not indicative of operational trends.

Prior period information has been restated to reflect the adoption of FAS 142, effective January 1, 2002.

Total operating revenues for the life insurance segment decreased $0.8 million in the first three months of 2003, compared with the same period in 2002, primarily due to a decrease in investment income, as previously discussed. Total operating revenues for the annuities segment decreased $2.7 million in the first three months of 2003, compared with the same period in 2002, primarily due to a decrease in investment income, as previously discussed.

The decrease in investment income for both segments is mainly due to the reinvestment of 2002 and 2003 sales proceeds, maturities and prepayments in lower yielding securities due to the lower interest rate environment, as previously discussed.

Net operating income, before the cumulative effect of an accounting change, for the life insurance segment increased $1.8 million for the first three months of 2003, compared with the same period in 2002. The increase is primarily attributable to lower claim experience and lower operating expenses in the first three months of 2003, compared with the same period in 2002, as previously discussed.

Net operating income, before goodwill impairment and cumulative effect of an accounting change, for the annuities segment decreased $6.2 million for the first three months of 2003, compared to the same period in 2002. The decrease is primarily due to the decrease in spread revenue, the increase in variable annuity guaranteed benefits and related reserves, and the increase in amortization of deferred acquisition costs, as previously discussed.   

Reconciliation of Non-GAAP Information

The following table reconciles our sales with premium revenue, as reported in our Consolidated Statements of Operations:

As previously discussed, the significant decline in sales is primarily due to management’s decision in 2001 to discontinue offering the GRIB option on our Destinations^SM product. Also contributing to the decline in sales is the decrease in BOLI deposits received, as previously discussed.

The following table reconciles our policyholder surrenders, withdrawals and death benefits with claims incurred and other benefits, as reported in our Consolidated Statements of Operations:

Premiums paid by and benefits paid to policyholders related to annuity and certain life insurance products are treated as investment contract deposits and payments, respectively, per accounting principles generally accepted in the United States of America (“GAAP”). Premiums are treated as deposits (increases) to policyholders’ account balances and benefits are treated as payments from policyholders’ account balances.

Due to combining several categories on our GAAP Consolidated Statements of Operations, two additional items are shown above in the reconciliation.

The increase in reserves primarily represents estimated future guaranteed policyholder benefits. Interest on benefits and other is primarily interest that accrues on annuity and death benefits before pending claims are settled.

Critical Accounting Policies

Our Management’s Discussion and Analysis is based upon our consolidated financial statements that have been prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets or liabilities at the date of the financial statements. As a result, actual results reported as revenue and expenses could differ from the estimates reported in the financial statements. We evaluate our estimates periodically, including those related to investments, DAC, value of business acquired and future policy benefits.

We believe the following critical accounting policies affect management’s more significant judgments and estimates used in the preparation of the consolidated financial statements.

Investments – All fixed maturity investments are reviewed monthly for impairment. We use a market value to book value test, along with a “watch list” prepared by our external asset managers. We use this information to analyze securities for possible write-downs. If an impairment is determined to be other-than-temporary, the issue is written down to its net realizable value during the current fiscal quarter. In addition, upon default or indication of potential default by an issuer of fixed maturity securities other than securitized financial assets, the issue(s) of such issuer would be placed on nonaccrual status and, since declines in fair value would no longer be considered temporary, would be analyzed for possible write-down. Thereafter, each issue on nonaccrual status is regularly reviewed, and additional write-downs may be taken in light of late r developments.

For our securitized financial assets, we recognize an impairment loss if the fair value of the security is below book value and there was an adverse change in expected future cash flows since the most recent (prior) estimation date.

DAC – The level of operating expenses that can be deferred is a significant factor in our reported profitability in any given period. Also, DAC amortization is affected by changes in future estimated gross profits (“EGPs”) principally related to investment results, separate account fees, expected market rates of return, lapse rates and anticipated surrender charges. Changes in EGPs and the corresponding impacts on DAC amortization are reflected in earnings in the period such EGPs are reprojected.

Value of Business Acquired - The value of business acquired reflects the estimated fair value of our life insurance business in force as of January 4, 1996, and represents the portion of the cost to acquire the Company that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. Such value is the present value of the actuarially projected cash flows for the acquired policies.

The value of the business acquired is amortized over the estimated contract life of the business acquired in relation to the present value of EGPs using current assumptions and a discount rate equal to the liability or contract rate on the business acquired. As with DAC, amortization of the value of business acquired may be affected by changes in EGPs. The impact of any changes in EGPs will be reflected in earnings in the period such EGPs are reprojected.

Future Policy Benefits - Liabilities for future policy benefits related to annuities and interest-sensitive life contracts reflect net premiums received plus interest credited during the contract accumulation period less withdrawals and fees charged. For contracts that have annuitized, the liabilities are equal to the present value of future payments. A liability has been established for guaranteed death benefits in excess of account values (“GMDB”). Reserves for GRIB have been established to cover the present value of future benefits in excess of account value for policies that were deemed to have elected annuitization. Both GMDB and GRIB reserves are based on models that involve numerous estimates and subjective judgments, including expected market rates of return and mortality experience.

INVESTMENTS

Our principal investment strategy is to maintain a balanced, well-diversified portfolio supporting the insurance contracts written. We make shifts in our investment portfolio depending on, among other factors:

*

our evaluation of risk and return in various markets,

*

the interest rate environment,

*

liability durations, and  

*

changes in market and business conditions.

Invested assets and cash
(in millions)

-----------------------------------------------------

⁽¹⁾

National Association of Insurance Commissioners ("NAIC").
       -- Class 1 = A- and above
       -- Class 2 = BBB- through BBB+

Fixed maturity securities

We carry our fixed maturity securities investment portfolio, which is considered available for sale, at estimated fair value. The aggregate unrealized appreciation or depreciation is recorded as a component of accumulated other comprehensive income (loss), net of any applicable income tax expense. The after-tax aggregate unrealized appreciation on fixed maturity securities at March 31, 2003 was $85.8 million. The aggregate unrealized appreciation on fixed maturity securities at December 31, 2002 was $69.5 million. Fair values are sensitive to movements in interest rates and other economic developments and can be expected to fluctuate, at times significantly, from period to period.

At March 31, 2003, investment-grade fixed maturity securities, cash and short-term investments accounted for 86.8 percent of invested assets and cash, compared with 85.7 percent at December 31, 2002.

At March 31, 2003, approximately 14.7 percent of investment-grade fixed maturity securities were residential mortgage-backed securities, down from 16.2 percent at December 31, 2002.  Approximately 7.7 percent of investment-grade fixed maturity securities were commercial mortgage-backed securities at March 31, 2003 compared with 6.3 percent at December 31, 2002.  

Approximately 7.1 percent of the investment-grade fixed maturity securities at March 31, 2003 consisted of asset-backed securities, compared with 7.3 percent at December 31, 2002. The majority of investments in asset-backed securities were backed by home equity loans, manufactured housing loans, collateralized loan and bond obligations and automobile loans.

Real estate-related investments

The $181.9 million real estate portfolio, consisting of joint venture and third-party mortgage loans and other real estate-related investments, constituted 4.4 percent of cash and invested assets at March 31, 2003, compared with $177.7 million, or 4.6 percent, at December 31, 2002.

Real estate outlook

Loans to a master limited partnership (the "MLP") between subsidiaries of Kemper Corporation and subsidiaries of Lumbermens Mutual Casualty Company, a former affiliate, amounted to $107.5 million at March 31, 2003. The MLP's underlying investment primarily consists of a water development project located in California's Sacramento River Valley. While efforts continue on obtaining numerous approvals and permits, various local permits are/may be required in addition to the state and federal permits.  This venture also contains uncertainty due to the difficulty of completing water projects in California and current fiscal difficulties being experienced by the state.

Troubled real estate-related investments consisted of loans on nonaccrual status, before reserves and write-downs, totaling $10.6 million at both March 31, 2003 and December 31, 2002. Loans on nonaccrual status, after reserves and write-downs, amounted to $5.0 million at both March 31, 2003 and December 31, 2002.

Net investment income

Pre-tax net investment income totaled $56.4 million in the first three months of 2003, compared with $59.9 million in the first three months of 2002. Investment income was adversely impacted in 2003 and 2002 by the declining interest rate environment.

Total foregone investment income before tax on nonaccrual real estate-related investments, nonperforming fixed maturity securities, and certain other invested assets was as follows:

Foregone investment income is primarily due to certain real estate-related  investments that have been placed on nonaccrual status, bonds that are in default and a leveraged lease covering two aircraft leased by United Airlines. Any increase in nonperforming securities and either worsening or stagnant real estate conditions, would increase the expected adverse effect on future investment income and realized investment results.

Interest rates

In the first three months of 2003, the Federal Open Market Committee met two times but left interest rates unchanged.  Interest rate fluctuations can cause significant fluctuations in both future investment income and future realized and unrealized investment gains and losses.

LIQUIDITY AND CAPITAL RESOURCES

We carefully monitor cash and short-term investments to maintain adequate balances for timely payment of policyholder benefits, expenses, taxes and policyholders’ account balances. In addition, regulatory authorities establish minimum liquidity and capital standards. The major ongoing sources of liquidity are deposits for fixed annuities, premium income, investment income, separate account fees, other operating revenue and cash provided from maturing investments or investments sold from a large, publicly traded investment portfolio.

We also continuously monitor capital resources.  Our total adjusted capital and surplus (statutory accounting basis) is compared with required capital under the National Association of Insurance Commissioners risk-based capital (“RBC”) approach.  During the first quarter of 2003 our RBC ratio declined due to losses on a statutory accounting basis, but is still safely above the level that would require regulatory action.  One source of the decline in the capital ratio has been the requirement to establish additional reserves for guarantees on the Destinations^SM product.  These reserves are driven by the decline in the stock market.  Further market declines will require establishment of additional reserves. Conversely, a rally in the stock market would generally have the impact of decreasing these reserves. We monitor capital resources very clo sely and mitigation strategies have been and will be put in place should further market declines continue.

Ratings

We receive a rating from Standard & Poor’s (“S&P”) that is not considered a “group” rating. At March 31, 2003, our rating is “A+” with a negative outlook.

We share our A.M. Best rating with Zurich Financial Services (“ZFS”). Our financial strength rating at March 31, 2003 is “A” (Excellent) with a positive outlook.

We have a rating from Moody’s Investors Service (“Moody’s”) that is not considered a “group” rating, so our rating is not shared with ZFS. Our Moody’s rating is A2 at March 31, 2003 and is currently on CreditWatch for possible downgrade.

PART II.

OTHER INFORMATION

ITEM 4.  Submission of Matters to a Vote of Security Holders

         None

         Controls and Procedures

In order to ensure that the information that we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis, we have adopted disclosure controls and procedures.  Our Chief Executive Officer, Gale K. Caruso, and our Chief Financial Officer, Frederick L. Blackmon, have reviewed and evaluated our disclosure controls and procedures as of
May 5, 2003 and have concluded that our disclosure controls and procedures are appropriate and that no changes are required at this time.

There have been no significant changes in our internal controls, or in other factors that could affect our internal controls, since May 5, 2003.

ITEM 6.  Exhibits and Reports on Form 8-K.

           (a)  EXHIBITS.

(a)

REPORTS ON FORM 8-K.

No reports on Form 8-K were filed during the three months ended March 31, 2003.

Kemper Investors Life Insurance Company and Subsidiaries
FORM 10-Q
For the fiscal period ended March 31, 2003
- --------------------------------------------

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Kemper Investors Life Insurance Company
(Registrant)

I, Gale K. Caruso, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Kemper Investors Life Insurance Company;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:   May 14, 2003

/s/ GALE K. CARUSO

Gale K. Caruso

Chief Executive Officer

I, Frederick L. Blackmon, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Kemper Investors Life Insurance Company;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:   May 14, 2003

/s/ FREDERICK L. BLACKMON

Frederick L. Blackmon

Chief Financial Officer

                                                                                                                                             Exhibit 99.1

Certification of CEO Pursuant to                                                                        

18 U.S.C. Section 1350,

As Adopted Pursuant  to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Kemper Investors Life Insurance Company (the “Company”) on Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gale K. Caruso, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)

The Report fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

              Dated:  May 14, 2003  

                                                    /s/GALE K. CARUSO

Gale K. Caruso

Chief Executive Officer

This certification accompanies this Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of section 18 of the Securities Exchange Act of 1934, as amended.

                                                                                                                                                                                             Exhibit 99.2

Certification of CFO Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant  to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Kemper Investors Life Insurance Company (the “Company”) on Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frederick L. Blackmon, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)

The Report fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

             Dated:  May 14, 2003

                                /s/FREDERICK L. BLACKMON

Frederick L. Blackmon

                                Chief Financial Officer

This certification accompanies this Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of section 18 of the Securities Exchange Act of 1934, as amended.