Best’s News & Research Service - July 21, 2016 02:29 PM (EDT)
A.M. Best Affirms Ratings of Kansas City Life Insurance Company and Its Subsidiaries
- July 21, 2016 02:29 PM (EDT)
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit rating (ICR) of “a” of Kansas City Life Insurance Company (Kansas City Life). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the ICRs of “a-” of Kansas City Life’s wholly owned subsidiary, Sunset Life Insurance Company of America (Sunset Life) and its final expense life insurance subsidiary, Old American Insurance Company (Old American). The outlook for each rating is stable. All companies are domiciled in Kansas City, MO. These companies are collectively referred to as Kansas City Life Group.
The ratings reflect Kansas City Life’s diversified portfolio of product offerings which consist of ordinary life, fixed and variable annuities, and group health and life products. Kansas City Life also has maintained a strong risk-adjusted capital position even with fully supporting reserves for regulation XXX and guideline AXXX (AG38) with no debt and limited use of reinsurance. The ratings also reflect the conservative and diversified investment portfolio closely matched to meet its liabilities. In addition, Kansas City Life’s return on both equity and assets over the past one-, three- and five-year periods is superior to many of its peers.
Conversely, Kansas City Life’s total capital and risk-adjusted capital position declined significantly in 2015 due to a one-time event related to delisting from the NASDAQ exchange and the corresponding move to the OTCQX best marketplace [OTCQX: KCLI]; however, the move is expected to produce significant cost savings going forward from reductions in both operating expenses and shareholder dividends. Additionally, Kansas City Life is faced with large blocks of business with high interest rate guarantees in a sustained low interest rate environment, coupled with a material portion of variable annuity contracts with somewhat riskier living benefit income riders. These two risks expose the company to disintermediation risk as approximately 40% of reserves relate to individual annuities. Kansas City Life also maintains elevated levels of real estate exposure through its commercial mortgage portfolio, mortgage-backed securities and direct real estate held, which represent approximately 27% of invested assets and 300% of capital and surplus.
A.M. Best believes a positive rating could occur if Kansas City Life experiences a material increase in profitable premium growth resulting in increased risk-adjusted capital. A negative rating action could occur if risk-adjusted capital continues to decline. A negative rating action could also occur if legacy blocks of business materially underperform, causing a material decline in operating income. A negative ration action could be taken if Kansas City Life Group significantly increases the risk profile of their investment portfolio leading A.M. Best to view the balance sheet as less secure.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.
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