OLDWICK, N.J. -- (Business Wire)
A.M. BestCo. has affirmed the financial strength rating
(FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Kansas
City Life Insurance Company (Kansas City Life) [NASDAQ: KCLI]. The
outlook for these ratings is stable.
Additionally, A.M. Best has 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. The outlook for these
ratings is positive. All companies are domiciled in Kansas City, MO.
The ratings of Kansas City Life primarily reflect its solid
risk-adjusted capitalization, despite a noticeable decline in capital
and surplus during the past several years due to stockholder dividends,
realized losses and the cost associated with freezing the company’s
employee pension plan. Kansas City Life has maintained a relatively
conservative balance sheet with no outstanding debt and only a modest
level of intangible assets. A.M. Best notes that the company’s liquidity
position remains favorable with ready access to public markets or other
committed lines of credit if necessary. While A.M. Best notes that
Kansas City Life has increased its exposure to direct commercial
mortgage loans in its general account investment portfolio, there are
currently no delinquencies of over 60 days, and the company does not
actively invest in commercial mortgaged-backed securities. In addition,
Kansas City Life’s investment portfolio was in a net unrealized gain
position of $110 million on a GAAP basis as of the end of the first
quarter of 2011.
Kansas City Life maintains a diversified product portfolio that consists
of ordinary life insurance, fixed and variable annuities and group
accident and health and life insurance products. The company recently
has been focused on increasing its ordinary life premium with a
noticeable increase in its universal life insurance sales over the most
recent period. However, a significant amount of the company’s overall
earnings are driven by closed blocks of ordinary life insurance that are
currently in run off. Statutory operating results have generally
declined over the past five years due to declining investment yields,
reduced earnings from the run-off life blocks and a number of one-time
operating expenses over the most recent period. A.M. Best also notes
that since fixed annuities account for roughly 40% of general account
reserves—a sizeable portion of which is not subject to surrender
charges—Kansas City Life continues to be exposed to disintermediation
risk in an increasing interest rate environment. In addition, a large
portion of reserves maintain high interest rate guarantees, which have
resulted in a modest amount of spread compression.
The positive outlook on Old American’s ratings recognizes the favorable
trend in new business sales it has experienced in recent periods, the
sufficient levels of risk-adjusted capital and the growth opportunities
due to the favorable demographic trends associated with the senior
market. While net written premiums had declined in prior years, Old
American recorded positive premium growth over the past two years due to
increasing sales of its final expense whole life insurance product line,
which is attributable to concerted marketing efforts in this segment.
A.M. Best also notes that Old American has maintained positive statutory
operating gains, despite the strain from new sales and a number of
one-time operating expenses during the past year. A.M. Best will
continue to monitor the premium growth and mortality experience for this
line of business as these will be determining factors of Old American’s
A.M. Best also has downgraded the FSR to A- (Excellent) from A
(Excellent) and the ICR to “a-“ from “a” of Kansas City Life’s
subsidiary, Sunset Life Insurance Company of America (Sunset
Life). The outlook for both ratings is stable.
Sunset Life had historically marketed ordinary life and annuities in the
western region of the United States. In 2006, Sunset Life’s sales force
was integrated into the Kansas City Life sales force, and the company
ceased writing new business. However, both capital and reserve levels
remain adequate for the company’s insurance and investment risks. The
notching of Sunset Life’s ratings and the removal of the group
affiliation code reflect its run-off status and is consistent with A.M.
Best’s methodology for “Rating Members of Insurance Groups.”
The principal methodology used in determining these ratings is Best’s
Credit Rating Methodology -- Global Life and Non-Life Insurance Edition,
which provides a comprehensive explanation of A.M. Best’s rating process
and highlights the different rating criteria employed. Additional key
criteria utilized include: “Risk Management and the Rating Process for
Insurance Companies”; “Understanding BCAR for Life and Health Insurers”
Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, 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 © 2011 by A.M. Best Company, Inc.ALL RIGHTS
Michael Adams, 908-439-2200, ext.
Senior Financial Analyst
Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
Morrow, 908-439-2200, ext. 5378
Senior Manager, Public
Peavy, 908-439-2200, ext. 5644
Assistant Vice President,
Source: A.M. Best Co.