Securities and Exchange Commission
Washington, D. C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarter ended September 30, 1995
Commission File No. 2-40764
Kansas City Life Insurance Company
3520 Broadway
Kansas City, Missouri 64111-2565
Phone: (816) 753-7000
IRS Number: 44-0308260
Incorporated in State of Missouri
The Registrant (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the most recent date
available.
Class: Outstanding at October 5, 1995
Common Stock, $2.50 par value 6,177,911 shares
Kansas City Life Insurance Company
Quarter ended September 30, 1995
Part I
Item 1. Financial Statements
Incorporated by reference from the Quarterly Report to
Stockholders (pages 4 through 7). These interim financial
statements should be read in conjunction with the Company's 1994
Annual Report to Stockholders.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Nine month operating earnings per share increased $.01 to $4.60
compared with $4.59 last year. Net income per share was flat,
at $4.98 in both years. Kansas City Life's third quarter
operating earnings per share declined 18 percent to $1.32
largely due to less favorable mortality experience and increased
home office operating expenses. Net income per share for the
third quarter was down 8 percent at $1.69 versus $1.83 last
year.
Sales
Consolidated new annualized premiums declined 6 percent for the
third quarter and 7 percent for the nine months. New universal
life annualized premiums were down 5 percent for the nine
months, but were up 9 percent in the third quarter. Sales of
flexible annuities were down 20 percent in the quarter and 8
percent thus far in 1995. Group sales were up 145 percent in
the third quarter and 23 percent for the nine months. Sales in
terms of face amount were up 6 percent for the nine months and
insurance in force totaled $20.7 billion, a 4 percent annualized
growth from last year end.
The number of new agents recruited, as well as the production
generated by these agents, are on track with our marketing plan.
However, overall new business production is behind the goal
established for the year. Late last year we entered the
Asian-American market. These sales total nearly $800,000 of new
annualized premiums through nine months. In mid-October we
issued our first variable annuity policies and expect to enter
the variable universal life market as well by year end.
Although they will have little impact on our 1995 sales, the
Century II variable products are expected to play a significant
role in future sales growth.
Insurance Revenues
Total insurance revenues grew 1 percent for the quarter but
declined 1 percent for the nine months. Traditional life
insurance premiums fell 2 percent and 4 percent in the third
quarter and nine months, respectively. Accident and health
premiums declined 2 percent for the quarter and 8 percent for
the nine months, largely due to the run-off of a closed block of
individual accident and health business. Contract charges on
interest sensitive products rose 8 percent for the quarter and 7
percent for the nine months.
Investment Revenues
Net investment income rose 8 percent in both the third quarter
and nine months. This increase reflects growth in investment
assets and a 30 basis point increase in the portfolio yield.
Investment gains were up $1.4 million in the third quarter of
1995, but are $2.4 million behind the nine months of last year.
During the third quarter, the Company sold its Dow Chemical
bonds which were classified as held-to-maturity. The Company's
$4.3 million holding was sold for $4.2 million. Dow Corning is
facing extensive litigation related to breast-implants and is
currently in bankruptcy proceedings. This September, a Michigan
judge ruled that lawsuits against Dow Corning could proceed
against Dow Chemical, which owns half of Dow Corning. In
response to this ruling, a pending global claims settlement
collapsed. Thus, Kansas City Life believes this has a material
adverse impact to the credit quality of these bonds and
considers them to be impaired.
Benefits
Benefits rose 6 percent for the third quarter and 3 percent for
the nine months. The ratio of total benefits to insurance
revenues for the nine months was 118 percent compared with 115
percent at the six months. This increase was spurred largely by
less favorable mortality experience which fluctuates somewhat
quarter-to-quarter.
Yield spreads on the Company's interest sensitive products
remained favorable and contributed to the nine months' earnings.
Other Expenses
The Company, over the past few years, has concentrated on
controlling its home office operating expenses. These efforts
have generated significant cost reductions as we have
streamlined our operations, consolidated many functions into the
home office and reduced staff accordingly. While our efforts
will continue, we also recognize that additional sizable savings
will be increasingly more difficult to attain. Home office
operating expenses were up 5 percent for the nine months,
partially due to expenses incurred this year for our centennial
celebration and for the development of the variable products.
Liquidity and Capital Resources
Statements made in the Company's 1994 Annual Report to
Stockholders remain pertinent.
Total funds provided from operations totaled $30.6 million.
Funds from all sources exceeded half a billion dollars. This is
less than 1994 largely due to declines in calls on the
securities portfolio.
The Company's assets totaled $2.8 billion, a 9 percent
annualized growth rate. Much of this growth resulted from
increased market values on those securities which are carried at
market value. Excluding changes in market value, assets
increased at a 4 percent annualized rate. Reported book value
per share equaled $68.69, a 31 percent annualized increase due
in part to a $56.9 million increase in unrealized gains on
securities "available for sale", net of taxes and related
deferred acquisition costs. However, excluding these unrealized
security gains, book value per share totaled $67.79, an 8
percent annualized increase.
Part II: Other Information
Item 6.
(a). Exhibits. None.
(b). Reports on 8-K. There were no reports on Form 8-K filed
for the three months ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
KANSAS CITY LIFE INSURANCE COMPANY
/s/Richard L. Finn
Richard L. Finn
Senior Vice President, Finance
/s/C. John Malacarne
C. John Malacarne
Vice President, General Counsel and Secretary
/s/John K. Koetting
John K. Koetting
Vice President and Controller
Date: November 3, 1995KANSAS CITY LIFE INSURANCE COMPANY
Quarter ended September 30, 1995
EXHIBIT
Quarterly Report to Stockholders
<TABLE>
Consolidated
Balance Sheet
(in thousands)
[MULTIPLIER]
1,000
<CAPTION>
September 30 December 31
1995 1994
------------- -------------
<S> <C> <C>
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 1,534,923 1,309,297
Securities held to maturity,
at amortized cost 357,531 395,886
Equity securities available
for sale, at market 74,133 82,251
Mortgage loans 254,039 267,695
Real estate, net 49,394 54,976
Real estate joint ventures 28,794 26,120
Policy loans 94,747 95,854
Short-term 35,406 19,340
------------- -------------
2,428,967 2,251,419
Deferred acquisition costs 193,610 193,667
Other assets 215,720 218,667
------------- -------------
$ 2,838,297 2,663,753
============= =============
Liabilities and equity
Future policy benefits $ 680,309 670,658
Accumulated contract values 1,506,330 1,459,045
Other liabilities 227,297 190,355
------------- -------------
Total liabilities 2,413,936 2,320,058
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 12,778 11,847
Unrealized gains (losses) on
securities available for sale 5,553 (51,345)
Retained earnings 469,250 446,149
Less treasury stock (86,341) (86,077)
------------- -------------
424,361 343,695
------------- -------------
$ 2,838,297 2,663,753
============= =============
<FN>
Notes:
* These financial statements are unaudited but, in
management's opinion, include all adjustments
necessary for a fair presentation of the results.
* Income per common share is based upon the weighted
average number of shares outstanding during the period
(6172200 - 1995 and 6150042 - 1994).
* Certain amounts from the prior year's financial
statements have been reclassified to conform with
current year presentation.
</FN>
</TABLE>
<TABLE>
Consolidated
Income Statement
[MULTIPLIER]
1,000
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Insurance revenues:
Premiums:
Life insurance $ 24,699 25,222 75,271 78,011
Accident and health 7,226 7,395 21,698 23,481
Contract charges 18,476 17,130 55,516 52,045
Investment revenues:
Investment income, net 46,980 43,573 138,632 128,259
Realized gains 3,505 2,128 3,651 6,011
Other 2,155 2,724 7,361 7,533
------- ------- ------- -------
Total revenues 103,041 98,172 302,129 295,340
------- ------- ------- -------
Benefits and expenses
Policy benefits:
Death benefits 22,360 18,886 63,905 58,691
Surrenders of life insurance 3,899 3,277 12,858 12,720
Other benefits 12,908 14,348 39,083 41,632
Increase in benefit and contract reserve 23,027 22,361 64,160 62,394
Amortization of policy acquisition costs 6,918 6,215 20,961 20,437
Insurance operating expenses 18,981 16,679 56,642 52,064
Interest expense 18 30 18 444
------- ------- ------- -------
Total benefits and expenses 88,111 81,796 257,627 248,382
------- ------- ------- -------
Pretax income 14,930 16,376 44,502 46,958
------- ------- ------- -------
Federal income taxes:
Current 5,034 4,486 15,331 17,159
Deferred (548) 652 (1,583) (2,321)
------- ------- ------- -------
4,486 5,138 13,748 14,838
------- ------- ------- -------
Income before nonrecurring item 10,444 11,238 30,754 32,120
Postemployment benefits, net 0 0 0 1,481
------- ------- ------- -------
Net income $ 10,444 11,238 30,754 30,639
======= ======= ======= =======
Per common share
Income before nonrecurring item $ 1.69 1.83 4.98 4.98
------- ------- ------- -------
Net income $ 1.69 1.83 4.98 4.98
======= ======= ======= =======
</TABLE>
<TABLE>
CONSOLIDATED
STATEMENT OF CASH FLOWS
[MULTIPLIER]
1,000
<CAPTION>
Nine Months ended
September 30
1995 1994
<S> <C> <C>
Operating activities
Net cash provided $30,647 34,289
Investing activities
Investments called or matured:
Fixed maturities available for sale 83,318 179,828
Fixed maturities held to maturity 39,598 64,278
Equity securities available for sale 9,004 26,840
Mortgage loans 38,893 30,057
Other 2,041 1,475
Investments sold:
Fixed maturities available for sale 154,069 32,003
Equity securities available for sale 18,984 0
Real estate 5,410 387
Other 5,314 0
Investments made:
Decrease (increase) in
short-term investments, net (16,112) 84,641
Fixed maturities available for sale (373,293) (461,580)
Fixed maturities held to maturity 0 (21,533)
Equity securities available for sale (12,387) (2,990)
Mortgage loans (21,915) (5,242)
Real estate joint ventures (4,198) (5,465)
Other (1,209) 0
Other, net 177 (1,607)
Net cash used (72,306) (78,908)
Financing activities
Policyowner contract deposits 136,140 135,697
Withdrawals of policyowner
contract deposits (89,087) (80,889)
Dividends paid to stockholders (7,652) (6,395)
Repayment of borrowings 0 (11,446)
Other, net (1,720) 1,264
Net cash provided 37,681 38,231
Decrease in cash ($3,978) (6,388)
</TABLE>
Message from the President
Operating earnings for the nine months were flat at $4.60 a
share compared with $4.59 a share for last year. Net income per
share was $4.98 for both nine month periods. Third quarter
operating earnings per share declined 17 percent to $1.32 a
share, while net income per share for the quarter was down 8
percent to $1.69 a share.
The quarterly earnings decline was due in part to less favorable
mortality experience in several lines of business. It is to be
expected that mortality experience will vary from
quarter-to-quarter and impact earnings accordingly.
Historically, our mortality experience has been in line with our
pricing assumptions.
Contract charges arising from interest sensitive products rose 8
percent in the quarter and 7 percent in the nine months.
Premiums associated with traditional insurance products, as
shown in the enclosed earnings statement, declined 2 percent for
the quarter compared with a 6 percent decline in the first half.
Life insurance in force stands at $20.7 billion.
Our marketing plan is on track for the year in terms of the
number of new general agents recruited and the business
generated by their agents. However, overall new business
production continues to lag behind its goal for the year. In
mid-October we issued our first variable annuity policies: by
year end we expect to enter the variable universal life market
as well. While our Century II line of variable products can
only marginally impact 1995 sales, they are expected to play a
significant role in future sales progress.
Investment earnings rose 8 percent in both the quarter and the
nine months, reflecting investment asset growth and an
improvement in the portfolio's yield. Realized investment gains
equaled $3.7 million compared with $6.0 million at this time
last year. The market value of our securities classified as
"Available for Sale" which are marked to market in the enclosed
statements has risen $56.9 million from year end, net of taxes
and related changes in deferred acquisition costs. Additionally,
the market value of the entire securities portfolio exceeds its
cost basis by $27.1 million.
Home office expenses were up 4.8% for the first nine months.
Part of this increase was attributable to costs associated with
the development of our variable insurance products and
supporting systems and with the observance of our centennial.
Changes arising out of our reengineering efforts have yet to
impact expense levels to any significant degree.
Stockholder equity per share, or book value, has risen 31
percent on an annualized basis in the nine months to equal
$68.69. Excluding the impact of unrealized gains and losses,
book value has risen from $64.11 a share to $67.79 a share in
the nine months.
The Board of Directors declared a $.39 per share quarterly
dividend which is payable November 20 to stockholders of record
on November 6.
W. E. Bixby
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 1,534,923<F1>
<DEBT-CARRYING-VALUE> 357,531<F2>
<DEBT-MARKET-VALUE> 374,240<F2>
<EQUITIES> 74,133<F3>
<MORTGAGE> 254,039
<REAL-ESTATE> 78,188<F4>
<TOTAL-INVEST> 2,393,562
<CASH> 38,679
<RECOVER-REINSURE> 89,968
<DEFERRED-ACQUISITION> 193,610
<TOTAL-ASSETS> 2,838,297
<POLICY-LOSSES> 680,309
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 31,660
<POLICY-HOLDER-FUNDS> 1,603,606<F5>
<NOTES-PAYABLE> 0
<COMMON> 23,121
0
0
<OTHER-SE> 401,240
<TOTAL-LIABILITY-AND-EQUITY> 2,838,297
96,969
<INVESTMENT-INCOME> 138,632
<INVESTMENT-GAINS> 3,651
<OTHER-INCOME> 62,877
<BENEFITS> 180,006
<UNDERWRITING-AMORTIZATION> 20,961
<UNDERWRITING-OTHER> 699<F6>
<INCOME-PRETAX> 44,502
<INCOME-TAX> 13,748
<INCOME-CONTINUING> 30,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,754
<EPS-PRIMARY> 4.98
<EPS-DILUTED> 4.98
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Represents FASB 115 available for sale fixed maturity securities reported
on a current value basis, and does not include trading securities or
securities held to maturity.
<F2>Represents FASB 115 held to maturity fixed maturity securities, and does
not include trading securities or securities available for sale.
<F3>Includes equity securities that are available for sale, per FASB 115.
<F4>Includes real estate joint ventures.
<F5>Includes accumulated contract values as defined by FASB 97, dividend and
coupon accumulations and other policyowner funds.
<F6>Represents amortization for value of purchased insurance in force.
</FN>
</TABLE>
