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, 1996
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 the 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 3, 1996
Common Stock, $2.50 par value 6,195,952 shares
Kansas City Life Insurance Company
Quarter ended September 30, 1996
Part I
Item 1. Financial Statements
Incorporated by reference from the Quarterly Report to Stockholders (pages 4
through 7) see the attached exhibit. These interim financial statements should
be read in conjunction with the Company's 1995 Annual Report to Stockholders.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Operating earnings per share equaled $1.39 in the third quarter, a 5 percent
increase over last year. Nine month operating income per share of $4.94
represents 7 percent growth. Much of this earnings growth has come from
improved mortality experience in the life lines of business. Realized
investment gains have been lower this year, thus impacting net earnings. Net
income per share dropped 11 percent for the third quarter to $1.50, and for the
nine months rose 2 percent to $5.10.
Sales
Consolidated new annualized premiums increased 3 percent for the nine months
and 1 percent for the third quarter. Sales of new variable annuity and
universal life products totaled $8.1 million this year and accounted for 14
percent of individual sales. Universal life premiums at our affiliate Sunset
Life increased 20 percent over last year. Group premiums increased 68 percent
largely due to new group dental business. Partly offsetting these successes,
individual life sales at Kansas City Life remain below expectations and new
fixed annuity premiums, reflecting shifting consumer preferences, declined 28
percent. Life insurance in-force totaled $21.8 billion at period end, a 5
percent annualized increase from last year end.
Insurance Revenues
Insurance revenues, in total, rose 7 percent for the nine months and 9 percent
for the quarter. Life premiums rose due to double-digit growth in
single-premium annuities and group life premiums. This growth was partially
offset by traditional life premiums which were flat thus far in 1996. Accident
and health premiums, aided by the group dental sales discussed above, increased
27 percent year-to-date and 34 percent during the third quarter. Contract
charge revenues on interest sensitive products increased 5 percent in the nine
months and 6 percent in the third quarter.
Investment Revenues
Net investment income was 2 percent higher through nine months and flat for the
quarter. The book value of the Company's invested assets increased an
annualized 3 percent over last year end. Offsetting this growth has been a 20
basis point drop in the portfolio's yield, reflecting lower available returns
on new investments. The majority of realized gains on investments for both
years occurred in the third quarter. These gains totaled $3.5 million for the
third quarter last year and $1.0 million for the same period this year.
Benefits
Total benefits grew 5 percent for both the nine months and third quarter.
Benefits equaled 60.4 percent of operating revenues through nine months and
62.6 percent for the quarter, both slightly higher than last year. While
overall benefits experience deteriorated slightly, mortality was more favorable
than last year, and death benefits were flat for the nine months and dropped 5
percent for the quarter. Traditional life surrenders were also better, down 11
percent year-to-date and 6 percent in the third quarter. Offsetting the more
favorable death benefits and surrenders, other benefits increased 23 percent
for the nine months and 34 percent for the quarter. Other benefits include
group dental business which is experiencing historically high claims ratios
this year, and the home health care line, a closed block of business that has
likewise been effected by adverse claims experience. Rate increases are being
sought in both of these lines of business.
Other Expenses
Insurance operating expenses include commissions, capitalized policy
acquisition costs and home office operating expenses. Home office operating
expenses increased 2 percent thus far in 1996. These expenses equaled 17.8
percent of operating revenues, an improvement from 18.4 percent last year.
Liquidity and Capital Resources
Statements made in the Company's 1995 Annual Report to Stockholders remain
pertinent.
Cash provided from operating activities totaled $34.5 million for the nine
months, a 13 percent increase from a year ago. Funds from all sources totaled
$483.8 million, down 8 percent versus last year due to lower sales from the
Company's investment portfolio.
Total assets of $2.9 billion at September 30 represents a small increase from
year end. However, excluding market value changes in available-for-sale
securities, total assets increased an annualized 3 percent from last year end.
Unrealized gains and losses on available-for-sale securities also adds
significant volatility to stockholders' equity and book value. A $39.9 million
decrease in equity since last year end was due to changes in market value
arising from interest rate changes. Reported book value per share equaled
$71.33, down from $73.99 at last year end. Excluding the effects of unrealized
gains and losses, book value equaled $72.97 a share, a 7 percent annualized
improvement since last year end.
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, 1996.
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
Senior Vice President, Finance
___________________________
/s/ John K. Koetting
Vice President and Controller
___________________________
/s/ C. John Malacarne
Vice President, General Counsel and Secretary
Date: November 7, 1996
KANSAS CITY LIFE INSURANCE COMPANY
Quarter ended September 30, 1996
EXHIBIT
Quarterly Report to Stockholders
Consolidated
Balance Sheet
(in thousands)
September 30 December 31
1996 1995
------------- -------------
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 1,707,738 1,647,674
Securities held to maturity,
at amortized cost 270,600 320,394
Equity securities available
for sale, at market 74,017 70,837
Mortgage loans 238,087 235,213
Real estate, net 43,593 48,542
Real estate joint ventures 27,073 36,103
Policy loans 94,744 94,312
Short-term 26,499 36,898
------------- -------------
2,482,351 2,489,973
Deferred acquisition costs 205,446 192,476
Other assets 218,134 220,055
Separate account assets 10,427 1,264
------------- -------------
$ 2,916,358 2,903,768
============= =============
Liabilities and equity
Future policy benefits $ 699,956 685,729
Accumulated contract values 1,537,435 1,518,968
Other liabilities 226,571 240,680
Separate account liabilities 10,427 1,264
------------- -------------
Total liabilities 2,474,389 2,446,641
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 14,555 13,039
Unrealized gains (losses) on
securities available for sale (10,130) 29,740
Retained earnings 501,588 477,826
Less treasury stock (87,165) (86,599)
------------- -------------
441,969 457,127
------------- -------------
$ 2,916,358 2,903,768
============= =============
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
6,187,677 shares (6,172,200 shares - 1995).
* These interim financial statements should be read
in conjunction with the Company's Annual Report to
Stockholders. The results of operations for any
interim period are not necessarily indicative of
the Company's operating results for a full year.
Consolidated
Income Statement
(in thousands, except per share data)
Quarter ended Nine Months ended
September 30 September 30
1996 1995 1996 1995
------- ------- ------- -------
Revenues
Insurance revenues:
Premiums:
Life insurance $ 25,629 24,699 77,485 75,271
Accident and health 9,717 7,226 27,574 21,698
Contract charges 19,527 18,477 58,543 55,517
Investment revenues:
Investment income, net 46,884 46,980 140,245 138,632
Realized gains 1,032 3,505 1,502 3,651
Other 2,888 2,154 9,285 7,360
------- ------- ------- -------
Total revenues 105,677 103,041 314,634 302,129
------- ------- ------- -------
Benefits and expenses
Policy benefits:
Death benefits 21,329 22,360 63,909 63,905
Surrenders of life insurance 3,684 3,899 11,439 12,858
Other benefits 17,320 12,908 48,082 39,083
Increase in benefit and contract reserve 23,189 23,027 65,786 64,160
Amortization of policy acquisition costs 7,340 6,918 22,305 20,961
Insurance operating expenses 19,789 18,981 58,365 56,642
Interest expense 0 18 1 18
------- ------- ------- -------
Total benefits and expenses 92,651 88,111 269,887 257,627
------- ------- ------- -------
Pretax income 13,026 14,930 44,747 44,502
------- ------- ------- -------
Federal income taxes:
Current 5,189 5,034 18,731 15,331
Deferred (1,477) (548) (5,540) (1,583)
------- ------- ------- -------
3,712 4,486 13,191 13,748
------- ------- ------- -------
Net income $ 9,314 10,444 31,556 30,754
======= ======= ======= =======
Per common share
Operating income $ 1.39 1.32 4.94 4.60
Realized gains, net 0.11 0.37 0.16 0.38
------- ------- ------- -------
Net income $ 1.50 1.69 5.10 4.98
======= ======= ======= =======
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in thousands)
Nine Months ended
September 30
1996 1995
Operating activities
Net cash provided $34,546 30,647
Investing activities
Investments called or matured:
Decrease (increase) in short-term investments, net 10,397 (16,112)
Fixed maturities available for sale 125,447 83,318
Fixed maturities held to maturity 54,915 39,598
Equity securities available for sale 8,378 9,004
Mortgage loans 34,860 38,893
Real estate joint ventures 7,541 1,541
Other 1,240 500
Investments sold:
Fixed maturities available for sale 77,739 154,069
Equity securities available for sale 504 18,984
Real estate 2,543 5,410
Real estate joint ventures 5,263 0
Other (432) 5,314
Investments made:
Fixed maturities available for sale (331,294) (373,293)
Equity securities available for sale (13,623) (12,387)
Mortgage loans (34,305) (21,915)
Real estate joint ventures (2,067) (4,198)
Other (1,540) (1,209)
Other, net 348 177
Net cash used (54,086) (72,306)
Financing activities
Policyowner contract deposits 130,812 136,140
Withdrawals of policyowner
contract deposits (106,628) (89,087)
Dividends paid to stockholders (7,794) (7,652)
Other, net 406 (1,720)
Net cash provided 16,796 37,681
Decrease in cash ($2,744) (3,978)
Message from the President
Earnings growth slowed during the third quarter. Operating
income per share equaled $4.94 a share for the nine months, a 7
percent increase. Third quarter operating earnings per share of
$1.39 increased 5 percent over 1995's third quarter. When
realized investment gains are taken into account, net income
equaled $5.10 a share for the nine months, and $1.50 a share for
the quarter. Due to declines in realized gains this year, net
income per share rose just 2 percent for the nine months and
declined 11 percent for the third quarter.
We have achieved some successes in our marketing efforts thus
far in 1996, but challenges remain. New annualized premiums for
our group of companies were up 3 percent so far this year. The
recently introduced variable products contributed $8.1 million
in new premiums, one-ninth of our total new premiums. New group
dental premiums more than doubled in the first nine months.
Sunset Life, our affiliate based in the northwest, achieved
double-digit growth in new universal life premiums. However,
partially offsetting these achievements, fixed annuity premiums
declined by a fourth reflecting changing consumer preferences.
Also the results from our efforts to rebuild sales momentum in
our individual lines at Kansas City Life have yet to meet our
expectations, although many signs are promising.
Investment income rose 1 percent for the nine months and was
level for the third quarter. Realized investment gains declined
$2.1 million from last year to equal $1.5 million thus far in
1996. Most of the decrease occurred in the third quarter. Such
fluctuations may be expected as the investment portfolio is
managed in order to maximize its total return.
This year's earnings growth has largely come from more favorable
mortality experience in our life lines of business. Two factors
however offset part of the benefit of the improved mortality.
Claims ratios in our group dental line have run at historically
high levels this year. Also, adverse claims ratios continued to
be experienced in the home health care line, a closed block of
business. Some rate increases have been enacted and additional
increases are being sought.
Fluctuations in interest rates cause the market value of our
securities classified as "available for sale" to fluctuate as
well. Last year interest rates declined resulting in an increase
in stockholders' equity as our portfolio's market value
increased. This year the opposite has occurred as interest rates
have risen. The result has been that stockholders' equity has
declined by $39.9 million from the beginning of the year as a
result of the change in the value of our securities classified
as "available for sale". Reported book value per share fell from
$73.99 at year end to $71.33 currently. However, excluding the
effect on equity of these swings in interest rates and security
market values, book value equaled $72.97 a share at quarter end,
a 7 percent annualized increase.
We are pleased to report that Kansas City Life was named by the
Ward Financial Group to the "Ward's 50" for the third
consecutive year. The Ward Financial Group, a management
consulting firm specializing in financial performance
information, views our Company as one of the fifty best life
insurance companies in the United States from the standpoint of
safety and financial performance.
The Board of Directors approved a $.42 a share quarterly
dividend payable on November 25th to stockholders of record on
November 12th.
/s/ W. E. Bixby
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 1,707,738<F1>
<DEBT-CARRYING-VALUE> 270,600<F2>
<DEBT-MARKET-VALUE> 277,767<F2>
<EQUITIES> 74,017<F3>
<MORTGAGE> 238,087
<REAL-ESTATE> 70,666<F4>
<TOTAL-INVEST> 2,455,852
<CASH> 33,366
<RECOVER-REINSURE> 95,717
<DEFERRED-ACQUISITION> 205,446
<TOTAL-ASSETS> 2,916,358
<POLICY-LOSSES> 699,956
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 35,561
<POLICY-HOLDER-FUNDS> 1,642,725<F5>
<NOTES-PAYABLE> 0
0
0
<COMMON> 23,121
<OTHER-SE> 418,848
<TOTAL-LIABILITY-AND-EQUITY> 2,916,358
105,059
<INVESTMENT-INCOME> 140,245
<INVESTMENT-GAINS> 1,502
<OTHER-INCOME> 67,828
<BENEFITS> 189,216
<UNDERWRITING-AMORTIZATION> 22,305
<UNDERWRITING-OTHER> 789<F6>
<INCOME-PRETAX> 44,747
<INCOME-TAX> 13,191
<INCOME-CONTINUING> 31,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,556
<EPS-PRIMARY> 5.10
<EPS-DILUTED> 5.10
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Debt securities held for sale represent FASB 115 available for sale fixed
maturity securities reported on a current value basis, and do not include
trading securities or securities held to maturity.
<F2>Debt securities represent FASB 115 held to maturity fixed maturity
securities, and do not include trading securities or securities available
for sale.
<F3>Equity securities include equity securities that are available for sale,
under FASB 115.
<F4>Real estate includes real estate joint ventures.
<F5>Policyholder funds includes accumulated contract values as defined by FASB
97, dividend and coupon accumulations and other policyowner funds.
<F6>Underwriting expenses represent amortization of the value of purchased
insurance in force.
</FN>
</TABLE>
