OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has 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]. The outlook of these Credit Ratings (ratings) is negative. Additionally, AM Best has 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 which focuses on the final expense insurance business. The outlook of the FSR is stable, while the outlook of the Long-Term ICR is negative. 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 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.

While KCL’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has weakened over the last five years; management has implemented mitigating strategies to improve its absolute level of available capital over the near term, and AM Best will continue to closely monitor its progress over the next few months. This includes an expectation that KCL’s risk-based capital ratio will return to historical levels, driven by the impacts of a material in-force deferred annuity reinsurance agreement, the reduction of dividends out of the operating insurance entities, yield-enhancing strategies implemented by management, a reduction in the amount of new business sold for certain lines and a decline in mortality experience compared to prior years. Additional impacts of the reinsurance agreement are the narrowing of the asset-liability mismatch present at KCL and the increased creditworthiness of the company’s reserve profile. However, negative operating trends and failure to execute on management’s mitigation efforts may add additional negative pressure on the balance sheet strength assessment if trends do not reverse. Offsetting rating factors include KCL’s business profile, which is aided by a diverse set of product offerings with a focus on ordinary life.

The rating affirmations of Old American reflect AM Best’s expectation that pricing initiatives for the company’s final expense product and the implementation of incremental reinsurance will reduce the impact of new business strain on available capital. Furthermore, the reduction of dividends taken from Old American may provide it with additional capital support and increase its risk-adjusted capitalization. The negative Long-Term ICR outlook reflects the challenges of long-term profitable premium growth in the competitive final expense marketplace, the capital strain associated with final expense sales and the operating performance of Old American, as well as its parent, KCL.

The ratings of Grange Life reflect a trend of declining levels of available capital and risk-adjusted capitalization, as measured by BCAR, over the medium term and increased volatility of that measure. Furthermore, Grange Life experienced elevated mortality levels during the COVID-19 pandemic and was impacted by an increase in universal life secondary guarantee reserves, both of which resulted in a decline of available capital. The negative outlooks reflect the declining balance sheet strength assessment and volatile operating performance of Grange Life.

The ratings of Old American and Grange Life receive rating lifts from the operating parent, KCL. If the ratings of the greater organization should be downgraded, then the ratings of Old American and Grange Life could be downgraded, as well.

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