A.M. Best Co. has affirmed the financial strength rating (FSR) of
A (Excellent) and issuer credit rating (ICR) of “a” of Kansas City
Life Insurance Company (Kansas City Life) [NASDAQ: KCLI].
Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and ICR
of “a-” of Kansas City Life’s wholly-owned subsidiary, Sunset Life
Insurance Company of America (Sunset Life). The outlook for the
above ratings is stable.
Concurrently, A.M. Best has revised the outlook to positive from stable
and affirmed the FSR of B++ (Good) and ICR of “bbb+” of Old American
Insurance Company (Old American), the group’s final expense life
insurance subsidiary. All companies are domiciled in Kansas City, MO.
The ratings of Kansas City Life reflect its solid risk-adjusted capital
position and favorable trends in statutory and GAAP operating
profitability, which have been primarily driven by its core life
insurance and fixed annuity lines of business. More specifically, Kansas
City Life has experienced favorable mortality and good persistency along
with increasing traditional whole and term life sales over the most
recent period. The ratings also consider the company’s diversified
product portfolio and multi-channel distribution platform. Kansas City
Life also benefits from earnings on its acquired blocks of business,
including the recent acquisition of a significant block of variable
business (largely variable universal life), which added scale to its
fee-based businesses. A.M. Best notes that acquisitions remain a
significant part of Kansas City Life’s growth strategy, and it plans to
purchase other insurance companies or blocks of ordinary life insurance
on an opportunistic basis. Moreover, A.M. Best believes that the
organization’s capital is of high quality as full reserves related to
Regulation XXX and Guideline AXXX (AG 38) are held by Kansas City Life,
and there is limited use of financial or operating leverage.
Partially offsetting these positive rating factors is the general
decline in the company’s capital and surplus over the past five years,
which was driven by stockholder dividends, and more recently, a material
increase in its pension liability due to the low interest rate
environment. However, the company remains well capitalized with good
liquidity and access to public markets, if necessary. Additionally,
Kansas City Life has experienced mixed trends of ordinary life premiums
over the past five-year period, which can be partially attributed to the
sluggish economy and intense competition in the life insurance arena.
Furthermore, A.M. Best believes the group insurance lines of business
require more scale to facilitate profitability. Although the portfolio
has generally performed well, Kansas City Life maintains an elevated
exposure to commercial mortgages (roughly two times capital and surplus)
compared to industry norms. While Kansas City Life has reported
operating gains on both a statutory and GAAP basis in recent periods,
earnings have been negatively impacted by spread compression in its
fixed annuity line of business.
The revised outlook for Old American reflects its improved absolute and
risk-adjusted capital position and increasing operating results over the
most recent period. Additionally, the company has demonstrated favorable
premium growth trends over the past five years and actual mortality
results have been within A.M. Best’s expectations. A.M. Best expects Old
American to remain profitable on both a statutory and GAAP accounting
basis in the near to medium term.
Given the stable outlook, A.M. Best believes Kansas City Life and Sunset
Life are well positioned for their current ratings. Regarding Old
American, positive rating actions may occur due to continued positive
trends in its absolute and risk-adjusted capital position as well as
continued growth in premiums and favorable earnings.
Key rating drivers that may lead to negative rating actions for the
group include a deterioration in risk-adjusted capital, decline in
overall earnings or if life insurance sales were to fall short of A.M.
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 www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
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