OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) of Kansas City Life Insurance Company (KCL) (Kansas City, MO) [OTCQX: KCLI]. Additionally, AM Best has revised the outlook of the Long-Term ICR to stable from negative and affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Old American Insurance Company (Old American) (Kansas City, MO), a wholly owned subsidiary of KCL that focuses on final expense insurance business. The outlook of the FSR is stable. Concurrently, AM Best has affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb” (Good) of Grange Life Insurance Company (Grange Life) (Columbus, OH), a wholly owned subsidiary of KCL since Oct. 1, 2018. The outlook of these Credit Ratings (ratings) is negative.
The ratings of KCL reflect its balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The ratings of Old American reflect its balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate ERM.
The ratings of Grange Life reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate ERM. The ratings of Old American and Grange Life also reflect implicit support from the greater organization.
The outlook revisions to stable for KCL’s ratings and Old American’s Long-Term ICR reflect an easing of balance sheet pressure, as management has executed on capital plans that have enhanced the companies’ level of available capital and risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). KCL’s risk-based capital ratio has also returned to historical levels. AM Best expects KCL and Old American to maintain their absolute and risk-adjusted capitalization levels. AM Best also will continue to monitor how shareholder dividends and ongoing litigation related to universal life cost-of-insurance policyowner charges impact the group’s overall balance sheet strength metrics. While the litigation has affected other carriers, it has the potential for an outsized impact on KCL’s more-limited earnings and its balance sheet strength.
KCL’s diversified product offerings includes ordinary life insurance, individual annuities and group life insurance; however, the organization faces strong competition from peers that have larger economies of scale. For example, in the final expense market, high upfront commissions and incremental innovation and technology costs may be needed to support sales through Old American, although the group’s strategic use of reinsurance with well-rated and long-standing third-party reinsurer partners helps reduce the impact of new business strain on available capital.
While Grange Life has modestly improved or maintained its balance sheet strength metrics in 2024, mainly due to reverting to slightly positive statutory earnings in 2023, the negative outlook reflects AM Best’s view that Grange Life has a weak risk-adjusted capitalization level, as measured by BCAR, and a modest level of absolute available capital and statutory earnings, which limits its financial flexibility. Grange Life operates as a closed block of business. All policies sold through Grange Life’s former agents have been written on KCL’s balance sheet since the start of 2020.
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