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 March 31, 1998
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 April 8, 1998
Common Stock, $2.50 par value 6,197,459 shares
Kansas City Life Insurance Company
Quarter ended March 31, 1998
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 1997 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 declined 21 percent in the quarter to $1.31.
Including realized investment gains, which declined slightly year to year, net
income declined 20 percent to $1.57 a share. Much of the decline in earnings
resulted from less favorable mortality at each of the insurance companies and
narrowed interest margins in the interest sensitive products. Reported results
for 1998 include those for the block of business acquired in late 1997, whereas
1997's first quarter results do not. Therefore, where appropriate, the block's
results have been excluded from the following analysis in order to provide more
valid comparisons.
Sales Performance
Consolidated new annualized premiums rose 43 percent compared to a year ago.
This growth was led by the variable products, whose new premiums nearly
quadrupled to $14.7 million for the quarter. Variable products comprised 43
percent of new premiums. Non-variable universal life and flexible annuity sales
rose 29 percent and 14 percent, respectively. Only two lines of business' sales
declined. Sales of final expense coverage to the senior market declined as did
group life and disability sales. Life insurance in-force totaled $26.2 billion
at March 31, 1998, a 6 percent annualized decrease from last year end.
Insurance Revenues
Insurance revenues, in total, rose 4 percent. Life insurance premiums rose
principally due to growth in single-premium traditional annuities. Accident and
health premiums declined 3 percent due to the continued runoff of the closed
home health block and a leveling of group disability and dental premiums.
Contract charge revenues associated with interest sensitive products increased 8
percent, reflecting the sales growth achieved over the past year.
Investment Revenues
Net investment income declined 5 percent excluding the impact of the purchased
block of business. The yield on the investment portfolio declined as yields
available in the marketplace were below the overall portfolio yield and yields
lost through maturities and repayments. Gains realized from the investment
portfolio vary at management's discretion as they manage the portfolio's overall
return.
Benefits
Total benefits rose 3 percent in the first quarter as they equaled 61.5 percent
of operating revenues compared with 59.6 percent in last year's first quarter.
The deterioration in the benefits ratio reflected worse mortality experience at
each of the insurance companies. Mortality fluctuates quarter to quarter.
Surrenders of traditional life insurance rose $365,000, or 10 percent, for the
quarter. Group's claims ratio deteriorated somewhat but claims experience
improved considerably in the dental line. Improved claims ratios were attained
in the home health line of business.
Other Expenses
Insurance operating expenses include commissions, capitalized policy acquisition
costs and home office operating expenses. Home office operating expenses
increased 5 percent thus far in 1998, the increase being focused in the
marketing areas of the Company.
Liquidity and Capital Resources
Statements made in the Company's 1997 Annual Report to Stockholders remain
pertinent.
Cash provided from operating activities, combined with net inflows related to
contract deposits, totaled $21.8 million in 1998 contrasted with $22.3 million a
year ago. Liquidity remains sufficient as the Company made new investments
totaling $149.4 million during the quarter.
Total assets of $3.5 billion at March 31, 1998 increased at a 6 percent
annualized rate from last year end. Book value improved 8 percent in the
quarter, on an annualized basis, to $87.47 a share. Excluding the impact of
changes in unrealized investment gains since the beginning of the year, book
value rose 6 percent on an annualized basis.
Changes in Reporting Regulations
Financial Accounting Standard No. 130, "Reporting Comprehensive Income,"
requires that all components and the total of comprehensive income be displayed
prominently, including the change in unrealized investment gains and losses.
This guideline was implemented for the first quarter. Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
establishes requirements for annual and interim reporting of segment information
including products and services, geographic areas and major customers. Kansas
City Life is studying these requirements and will adopt this standard by year
end 1998.
Part II: Other Information
Item 1: Legal Proceedings
The Company has agreed to indemnify Security Benefit Life Insurance Company
("Security Benefit") from a claim pursuant to the terms of the Coinsurance and
Servicing Agreement ("Agreement") dated September 4, 1997 between the Company
and Security Benefit. The case, William H. Stewart, Richard M. Littrell,
Kimberley Weyland Reisinger (f.k.a. Kimberley K. Weyand) and Catherine I. King,
Individually and on Behalf of All Others Similarly Situated, v. Security Benefit
Life Insurance Company and Bank Market Service, Inc. , was filed April 1, 1998
in the District Court of Johnson County, Kansas. The Plaintiffs are current or
former policyowners of Security Benefit, all of whom allegedly brought
bank-endorsed life insurance policies from Security Benefit through Bank Market
Service, Inc. The Plaintiffs allege that they and others who bought similar
products were deceived into believing that their policies were purely retirement
plans, not life insurance. They allege that they and others similarly situated
were damaged in that they could have saved more money for retirement had they
invested their funds elsewhere. The Plaintiffs seek, among other remedies,
equitable relief, contractual and compensatory damages in an undetermined
amount, and attorney fees for the alleged deceptive and fraudulent practices of
the Defendants in connection with the sale of the policies. The Petition further
alleges that the Plaintiffs' class consists of tens of thousands of policyowners
who purchased retirement plans from 1997 through the present. The case is in its
very early stages, class action certification has not been granted, nor has any
responsive pleading been filed. The amount of any liability which may arise as a
result of this case cannot be reasonably estimated, and no provision for loss
has been made in the Company's financial statements. However, there can be no
assurance that this case or any current or future litigation relating to sales
practices will not have a material effect on the Company.
Item 4. Result of Votes of Security Holders
On April 23, 1998, the Annual Stockholders Meeting was held at 3520 Broadway,
Kansas City, Missouri. At this meeting, there were 6,196,102 shares outstanding
and eligible to vote, and 5,418,879 shares were represented at the meeting
either in person or by proxy. The following Directors received the number of
votes indicated and were elected for a three year term:
W. E. Bixby - 5,388,883
Jack D. Hayes - 5,372,891
Francis P. Lemery - 5,388,843
Michael J. Ross - 5,383,098
Elizabeth T. Solberg - 5,379,195
The following Directors continued their term of office after this meeting:
J. R. Bixby
R. Philip Bixby
W. E. Bixby, III
Richard L. Finn
Webb R. Gilmore
Nancy Bixby Hudson
Warren J. Hunzicker, M. D.
Daryl D. Jensen
C. John Malacarne
Larry Winn, Jr.
Item 6.
(a) Exhibits: None
(b) Reports on 8-K: There were no reports on Form 8-K filed for the three months
ended March 31, 1998.
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: May 12, 1998
KANSAS CITY LIFE INSURANCE COMPANY
Quarter ended March 31, 1998
EXHIBIT
Quarterly Report to Stockholders
Consolidated
Balance Sheet
(in thousands)
March 31 December 31
1998 1997
------------- -------------
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 2,053,558 2,004,516
Securities held to maturity,
at amortized cost 130,216 145,661
Equity securities available
for sale, at market 106,104 114,986
Mortgage loans 273,767 270,054
Real estate, net 42,381 36,764
Real estate joint ventures 42,828 43,347
Policy loans 123,004 123,186
Short-term 74,965 74,341
Other 7,500 7,500
------------- -------------
2,854,323 2,820,355
Deferred acquisition costs 216,321 209,826
Other assets 339,694 351,291
Separate account assets 82,772 57,980
------------- -------------
$ 3,493,110 3,439,452
============= =============
Liabilities and equity
Future policy benefits $ 806,035 803,738
Accumulated contract values 1,745,520 1,755,133
Other liabilities 316,746 292,007
Separate account liabilities 82,772 57,980
------------- -------------
Total liabilities 2,951,073 2,908,858
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 16,626 16,256
Accumulated other
comprehensive income 40,539 36,448
Retained earnings 550,668 543,715
Less treasury stock (88,917) (88,946)
------------- -------------
542,037 530,594
------------- -------------
$ 3,493,110 3,439,452
============= =============
Notes:
* The components of comprehensive income, net of
related tax follow.
1998 1997
Net income $ 9,741 12,134
Unrealized gains (losses)
on securities 4,091 (22,067)
------ ------
Comprehensive income (loss) $13,832 (9,933)
====== ======
Unrealized gains will fluctuate as interest rates
vary over time.
* 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
(6,195,226 shares (6,189,437 shares - 1997).
* 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.
* Certain amounts from the prior year's financial
statements have been reclassified to conform with
the current year's presentation.
Consolidated
Income Statement
(in thousands, except per share data)
Quarter ended
March 31
1998 1997
---- ----
Revenues
Insurance revenues:
Premiums:
Life insurance $ 25,229 24,647
Accident and health 10,368 10,732
Contract charges 27,280 20,456
Investment revenues:
Investment income, net 49,042 47,044
Realized gains 2,527 2,823
Other 2,339 2,677
------- -------
Total revenues 116,785 108,379
------- -------
Benefits and expenses
Policy benefits:
Death benefits 32,007 23,805
Surrenders of life insurance 4,763 3,643
Other benefits 16,904 16,029
Increase in benefit and contract reserve 18,126 19,418
Amortization of policy acquisition costs 8,517 8,666
Insurance operating expenses 23,247 20,071
------ ------
Total benefits and expenses 103,564 91,632
------ ------
Pretax income 13,221 16,747
------ ------
Federal income taxes:
Current 4,764 7,240
Deferred (1,284) (2,627)
------ ------
3,480 4,613
------ ------
Net income $ 9,741 12,134
======= =======
Per common share
Operating income $ 1.31 1.66
Realized gains, net 0.26 0.30
----- -----
Net income $ 1.57 1.96
===== =====
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in thousands)
Quarter ended
March 31
1998 1997
Operating activities
Net cash provided $15,311 17,489
Investing activities
Investments called or matured:
Fixed maturities available for sale 55,471 32,558
Fixed maturities held to maturity 15,601 31,622
Mortgage loans 6,549 17,531
Other 6,091 6,002
Investments sold:
Fixed maturities available for sale 29,960 58,921
Other 5,862 848
Investments made:
Fixed maturities available for sale (129,363) (121,981)
Equity securities available for sale (1,304) (11,040)
Mortgage loans (11,326) (8,465)
Real estate (6,006) (176)
Real estate joint ventures (736) (11,436)
Increase in short-term investments, net (627) (11,033)
Other, net 5,655 (2,257)
Net cash used (24,173) (18,906)
Financing activities
Policyowner contract deposits 53,831 44,306
Withdrawals of policyowner
contract deposits (47,372) (39,477)
Dividends paid to stockholders (2,787) (2,723)
Other, net (2,490) 146
Net cash provided 1,182 2,252
Increase (decrease) in cash (7,680) 835
Cash at beginning of year 50,927 4,577
Cash at end of period $43,247 5,412
Kansas City Life's operating earnings totaled $1.31 a share for
the first quarter, a decline of 21 percent. Net income, which
includes realized investment gains, declined 20 percent to $1.57
a share. The decline in earnings was caused by mortality swings
in all three of our insurance companies and by a narrowing of
interest spreads on our interest sensitive products.
Kansas City Life experienced record sales in the first quarter.
Sales, in terms of new annualized premiums, rose 43 percent for
the quarter. Sales growth continues to build as we successfully
recruit seasoned life agencies and achieve improved sales
results in our core agencies. Sales of variable products nearly
quadrupled to total $14.7 million for the quarter. These
products accounted for 43 percent of new premiums.
Significantly, sales of our non-variable universal life products
climbed 29 percent. Just two lines of business experienced
sales declines, namely, sales of final expense policies for the
senior market and group life and disability products.
Investment income rose 4 percent year-to-year. Excluding
investment earnings from the block of business acquired in 1997,
investment earnings declined 5 percent as market yields on new
investments fell below yields lost through investment
maturities, repayments and sales.
Kansas City Life has received certification as a member of the
Insurance Marketplace Standards Association (IMSA). IMSA has
established a uniform set of standards to benchmark against in
order to ensure that companies have appropriate market conduct
policies and procedures. Certification was earned by
successfully undergoing rigorous evaluation by both internal and
external sources. This certification underscores our continuing
commitment to customer satisfaction and ethical marketing
practices.
Book value, or stockholders' equity per share, rose 8 percent in
the quarter on an annualized basis to $87.47 a share.
The Board of Directors approved a quarterly dividend of $.45 a
share, unchanged from the previous quarter. The dividend will
be paid on May 26 to stockholders of record on May 11.
This is my first message to you as your President. I feel
fortunate to have been able to assume this position at a time
when we are enjoying such outstanding marketing momentum. The
leadership and direction provided by my Father, Walt, are now
coming to fruition. We are a financially strong player in a
vital segment of the financial services industry. With the
continued efforts of our associates and sales agents, I believe
that we will extend and augment the tradition and performance of
past generations. We are the future of Kansas City Life, and
the future is bright with promise.
/s/ R. Philip Bixby
<TABLE> <S> <C>
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<CIK> 0000054473
<NAME> KANSAS CITY LIFE INSURANCE COMPANY
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 2,053,558<F1>
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<REAL-ESTATE> 85,209<F4>
<TOTAL-INVEST> 2,779,358
<CASH> 118,215
<RECOVER-REINSURE> 111,080
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0
0
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<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 include 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>
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