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 wile 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
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 development.
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
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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