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.