A.M. Best Affirms Ratings of Kansas City Life Insurance Company
OLDWICK, N.J. -- June 18, 2014
A.M. Best has affirmed the financial strength rating (FSR) of A (Superior) and
the issuer credit rating (ICR) of “a” of Kansas City Life Insurance Company
(Kansas City Life) [NASDAQ: KCLI]. Concurrently, A.M. Best has affirmed the
FSR of A- (Excellent) and the ICR of “a-” of Kansas City Life’s wholly-owned
subsidiary, Sunset Life Insurance Company of America (Sunset Life). The
outlook for all ratings is stable.
Additionally, A.M. Best has upgraded the FSR to A- (Excellent) from B++ (Good)
and the ICR to “a-” from “bbb+” of Kansas City Life’s final expense life
insurance subsidiary, Old American Insurance Company (Old American). A.M. Best
has also revised the outlook to stable from positive. All companies are
domiciled in Kansas City, MO.
The ratings of Kansas City Life reflect its more than adequate risk-adjusted
capitalization, favorable business profile and statutory profitability. The
company maintains a diversified product portfolio consisting of ordinary life
insurance, fixed and variable annuities and group health and life products.
Kansas City Life continues to focus on the growth of its ordinary life
insurance products, primarily universal life insurance, utilizing its core
general agencies, along with a complementary distribution system. While its
consistent ordinary life business has enabled the company to maintain its
statutory profitability, earnings continue to be impacted by fluctuating
mortality performance and tightening credit spreads. Furthermore, A.M. Best
notes that statutory profitability in the most recent year was lower due to a
one-time ceding commission associated with the execution of a reinsurance
transaction with American Family Life Insurance Company, which resulted in the
acquisition of a closed block of variable life and annuities. Going forward,
the transaction is expected to be accretive to earnings while adding scale to
its fee-based businesses. Despite the 2013 statutory earnings decline, Kansas
City Life’s ability to deliver a consistently profitable operating
performance, together with a reduction in the level of stockholder dividends,
has enabled the company to maintain a more-than adequate level of
risk-adjusted capitalization. Moreover, A.M. Best believes that the
organization’s capital is of high quality as full reserves related to
regulation XXX and Guideline AXXX (AG38) are held by Kansas City Life, with
limited use of financial or operating leverage.
Partially offsetting these positive factors is Kansas City Life’s ongoing
exposure to disintermediation risk in a rising interest rate environment, as
fixed annuities account for approximately 40% of general account reserves, a
sizeable portion of which is not subject to surrender charges. In addition, a
large portion of reserves are subject to high minimum interest rate
guarantees, which could result in further spread compression in future periods
should interest rates remain at current levels. A.M. Best also remains
concerned with the inconsistent premium growth of its ordinary life business.
Although sales have modestly improved in recent years, the uncertainty over
the economy and intense competition continue to represent a headwind as the
company continues to seek higher ordinary life sales growth.
Additionally, A.M. Best remains concerned with the high exposure to commercial
mortgages. Although commercial mortgage loans as a percentage of the total
investment portfolio has been decreasing recently, they still represent almost
two times capital and surplus. However, these concerns are partially mitigated
by the consistent performance of the commercial mortgage loan portfolio.
The upgrade of Old American’s ratings reflects A.M. Best’s view of the
increasing strategic importance of Old American to Kansas City Life, as
evidenced by its relatively high level of functional integration within the
organization, its generally increasing level of financial materiality, as well
as the continued long-term commitment of senior management to the company’s
A.M. Best believes the potential for positive rating actions on Kansas City
Life is unlikely in the near term due primarily to inconsistent statutory
earnings and direct premium growth.
Factors that could lead to negative future rating actions include a material
deterioration in risk-adjusted capital, a decline in operating earnings and/or
life insurance sales falling short of A.M. Best’s expectations.
The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at
A.M. Best Company is the world's oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.
Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
Senior Financial Analyst
(908) 439-2200, ext. 5412
Assistant Vice President
(908) 439-2200, ext. 5201
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
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