Kansas City Life Insurance Company Annual Report 2012

FY2012 Annual Report · Kansas City Life Insurance Company

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Kansas City Life Insurance Company

2012 Annual Report

TThe symbols which adorn the pages of this year’s annual report

are from the bronzed front doors on the North building of the Home Office.
Each pierced panel is symbolic to Kansas City Life and the life insurance
industry. Within the Doors of Kansas City Life lays the foundation
of how we have guaranteed Security Assured for more than a century.

In the summer of 1924, the doors of Kansas City Life Insurance Company’s Home
Office building opened to the public. Welcoming visitors at the entrance of the
building are six heavily bronzed doors. These doors measure 14 feet high and seven
feet wide and are divided into square sections. Within each section is a minutely
and beautifully carved symbolic design that relates back to the ideals Kansas City
Life strives to maintain in business and in our industry.

Shield with chevrons for
Protection

me S S a g e fr o m t h e pre S I d e n t

The year 2012 was a remarkable
chapter in the history of Kansas
City Life Insurance Company,
as the Company generated
strong earnings and reached
new heights in terms of assets
and stockholders’ equity. The
Company recorded net income
of $39.9 million, the highest
level of earnings since 2004, and
the year ended with assets and
stockholders’ equity growing to
$4.5 billion and $750 million,
respectively. A highlight of the
year was that the Company
was able to share the favorable
financial performance through the
payment of a special dividend in
December 2012.

These results were perhaps
most notable because they
were generated during a period
of significant economic and
political uncertainty, and they
stand in contrast relative to the
impact of the recent recession.
However, Kansas City Life
continues to successfully weather
difficult periods of recession and
uncertainty as the Company grows
and prospers over time; and to
share these benefits is reflected in
the values upon which we operate.

The ability to maintain a long-
term perspective is one of the
most important attributes in
providing Security Assured to
those we serve. Many of the seeds
for the harvest of 2012 were
planted during the great recession,
and only by having had financial
strength during this difficult

period could the Company have
taken the long-term view of
knowing that sound investments
would again bear rewards.

The challenges of globally
low interest rates and fragile
economic systems, along
with political uncertainties
of addressing public finance
deficits and long-term debt,
have certainly not abated.
Despite these challenges, the
Company is well positioned to
deal with these and the many
other challenges that we may
potentially face in both the
near- and long-term future.

During the past year, Kansas
City Life pursued opportunities
to reallocate investments, altered
product marketing programs for
certain existing products and
developed new product features
that were aimed at improving
performance in the low interest
rate environment. The Company
also took measures to reduce
exposure to potential future
market volatility.

Another important step taken
by the Company in 2012 was
the promotion and expansion
of marketing responsibilities for
Kansas City Life Vice Chairman
of the Board and President of Old
American Insurance Company,
Walter E. “Web” Bixby, LLIF.
Having guided Old American to
six consecutive years of growth
in new premiums, Web was
promoted to Executive Vice
President at Kansas City Life.

This strengthens the Company’s
emphasis and priority of providing
protection to policyholders
through life insurance.

Kansas City Life will continue
to maintain a diversified product
portfolio and focus on cultivating
strong relationships with its
policyholders, agents, general
agents and sales representatives,
and we plan to expand upon these
in the future. These relationships,
together with leadership trained
on long-term results and a
commitment to a value system
based on honor and integrity,
create the foundation for our
ability to meet challenges and
provide for a prosperous future to
all we serve.

— R. Philip Bixby
President, Chief Executive Officer
and Chairman of the Board

t h e k a n S a S c I t y l I f e gr o u p o f c o m p a n I e S

Kansas City Life Insurance Company
Since 1895, Kansas City Life Insurance Company (www.kclife.com) has been dedicated to
the present and future financial security of its customers. Kansas City Life provides financial
services, including life insurance and investments, to consumers throughout 48 states and
the District of Columbia. More than 2,500 general agents and agents serve individuals,
families, small businesses and corporations with a diverse range of products including
universal life, term life, whole life, variable life insurance,* variable annuities,* fixed deferred
annuities and group products. Kansas City Life has been providing Security Assured for
more than 117 years.

Old American Insurance Company
Since 1939, the mission of Old American Insurance Company (www.oaic.com) has been
to provide peace of mind to the senior market and, in turn, enhance the quality of life for
policyholders and their beneficiaries. Agents assist individuals ages 50 to 85 through final
arrangements planning, charitable giving life insurance, and Social Security and retirement
income replacement insurance. In addition, Old American began targeting individuals ages
20 to 65 in 2009 with its Level Term 20 life insurance product. The subsidiary operates in
47 states and the District of Columbia.

Sunset Financial Services Inc.*
Sunset Financial Services (www.sunsetfinancial.com) is a full-service broker/dealer and registered
investment advisor. Sunset Financial Services’ registered representatives are also licensed with
Kansas City Life. Investment products offered include variable insurance products, mutual
funds, stocks and bonds, money market funds, CDs and asset management products.

Sunset Life Insurance Company of America
Sunset Life Insurance Company of America (www.sunsetlife.com) was originally founded in
1937 in Olympia, Wash. Kansas City Life purchased Sunset Life in 1974 and its operations
were consolidated into the Company’s Home Office in 1999. The Sunset Life sales force was
integrated into the Kansas City Life sales force in 2006.

Financial Ratings, evaluated by A.M. Best
Kansas City Life Insurance Company: A (Excellent; Stable Outlook)
Old American Insurance Company: B++ (Good; Stable Outlook)
Sunset Life Insurance Company: A- (Excellent; Stable Outlook)

These ratings represent A.M. Best’s opinion of the financial strength and stability of Kansas
City Life, Old American and Sunset Life Insurance Companies and each company’s ability
to meet ongoing obligations to policyholders, as of June 2012.

There are 16 financial strength ratings offered by A.M. Best, ranging from A++ (Superior) to F
(In liquidation).

Please refer to the Company’s Form 10-K and Proxy Statement as filed with the Securities
and Exchange Commission (SEC).

*Securities offered through Sunset Financial Services Inc., 3520 Broadway, Kansas City, MO 64111,
816-753-7000. Member FINRA and SIPC.

Burning lamp for
Life

Helmet for

Valor

Dolphin for

Beauty

Shield with bar for
Guardianship

c o r p o r a t e h I g h l I g h t S

The promise of Security Assured has
been a 117-year tradition at Kansas
City Life Insurance Company. The
goal of this mission is to not only
safeguard individuals, families and
businesses against the unpredictable
elements of life, but is also the
foundation on which the Company
was built.

At times, this mission has also
included safeguarding policyholders
against the unpredictable elements
of our economy. This unpredictable
and difficult economic
environment, with its sustained
period of low interest rates, has
made it challenging for financial
service companies and investors to
satisfy both short-term and long-
term objectives for consumers.

However, despite operating in this
unpredictable economy, Kansas
City Life continues to maintain
a well-managed, diversified
investment portfolio and a strong
capital position. The Company
will continue its goal to remain at
an excellent competitive position
and always live up to our mission –
providing Security Assured during
any economic cycle.

Individual Insurance

Kansas City Life Insurance
Company’s Individual Insurance
segment provides financial security
to consumers in 48 states. Life
insurance products are distributed
through two channels: the

Company’s field force and
alliances with third-party
marketing arrangements.

Company field force
The Company’s field force is
represented by independent
agencies, which are operated by
general agents and agents across
the U.S. and in certain locations in
Europe. Kansas City Life Insurance
Company provides each agency
with the product portfolio and
marketing support necessary to
succeed in servicing consumers in
their local markets.

The Company’s expanding product
portfolio and individual one-on-
one support from the Home Office
are attractive recruiting resources,
setting Kansas City Life apart from
many in the industry.

Third-party alliances
Independent alliances with
American Republic Insurance
Company and GuideOne
Mutual Insurance Company
allow representatives from both
companies to distribute Kansas City
Life’s products. These agreements
provide representatives with the
complementary products and
services they need to offer financial
security to their clients.

Life insurance sales
Life insurance sales and new
business production at Kansas City
Life are measured by new premiums

The symbolism within
the doors ...

Shield with chevrons for Protection
Shield with bars for Guardianship

Two shields adorn the bronze
doors; the shield with chevrons
denotes protection and the shield
with horizontal bars represents
guardianship.

Helmet for Valor

A helmet, the symbol of knightly valor,
is among the figures on the doors and
also stands for mercy.

Dolphin for Beauty

The graceful dolphin upon the doors
is synonymous with beauty while
the pine tree, growing tall against
the sky behind the dolphin, stands
for longevity.

Owl for Wisdom

The owl on the doors is an ancient
symbol for wisdom and insight.

Oak leaf for Strength

The oak leaf carved in our bronze
doors was taken from the pagan Greeks
who believed all the simplest things in
nature had significance. They saw the
oak leaf as a symbol of strength.

Burning lamp for Life
Burning torches for Progress
Sun for the Light of the world

Three other carvings complete the
designs in the doors. One of these
is a burning lamp, the flame of
which denotes life, and the others
are the sun and torches, also a flame,
meaning progress.

recorded and new deposits received.
Premiums include receipts from
traditional individual life insurance
and immediate annuity products.
Deposits are received from universal
life insurance, variable universal life
insurance and fixed deferred and
variable annuity products.

The Individual Insurance segment
generated approximately 49% of
consolidated insurance revenues
for the year ended December 31,
2012, as well as for the year ended
December 31, 2011.

Total premiums increased $4.9
million or 9% in 2012 compared
to 2011. Total new premiums
increased $5.3 million or 45% in
2012 from the year prior due to
higher sales of immediate annuities.

Total new deposits decreased from
the prior year by $2.6 million or
3% in 2012, following a $10.0
million or 10% decrease in 2011.
The decrease in 2012 was largely due
to a $5.3 million decrease in new
fixed deferred annuity deposits. Total
renewal deposits decreased from the
prior year by $3.6 million or 2% in
2012 following a $5.8 million or 4%
increase in 2011. The decline in 2012
was largely attributable to a decrease
in fixed deferred annuity renewal
deposits. The improvement in 2011
was due to an increase in renewal
fixed deferred annuity deposits.

Future growth
The Individual Insurance segment
is an essential part of Kansas City

Life’s core business, representing
a majority of the Company’s
revenue and net income. The
Company plans to continue to
grow the segment by recruiting
talented general agents and agents.
Enhancements to the product
portfolio, increased focus on
sales development and superior
marketing support are elements that
will be emphasized to attract new
field representatives.

Group Insurance

Kansas City Life Insurance
Company offers several insurance
products in the Group Insurance
segment, including dental, life,
vision, and short- and long-term
disability. These offerings encompass
both traditional, employer-
funded group insurance, as well as
voluntary, employee-paid products.

The Group Insurance segment
markets its products primarily to
small and mid-size organizations.
Group products are sold through
sales representatives who target a
nationwide network of independent
general agents and group brokers,
along with the Company’s career
general agents. The sales network
is this segment’s core distribution
system. The Company also markets
Group products through select
third-party marketing arrangements.

The Group Insurance segment
generated 21% of the Company’s
consolidated insurance revenues in
2012, compared to 22% in 2011.
Total Group premiums increased

$0.8 million or 1% in 2012,
following a $2.9 million or 5%
increase in 2011. Moving forward,
the Group Insurance segment
continues to focus on three primary
areas of emphasis to improve sales:

1. Growing in-force business

through the Company’s sales
representatives and select third-
party marketing arrangements.

2. Improving administrative

efficiency through greater use
of customer-facing technology,
designed to reduce expenses and
improve customer service.

3. Enhancing the segment’s

product portfolio, through
delivery of new product offerings
and more flexible options to
meet the dynamic needs of the
employee benefits market.

Sunset Financial Services Inc.

Kansas City Life Insurance
Company’s in-house broker/
dealer facilitates the purchase, sale
and management of securities,
such as variable universal life and
variable annuity products. Through
this alliance, Sunset Financial
Services (SFS) provides registered
representatives the flexibility to
market a full range of fixed and
variable products through a
single relationship.

SFS will continue working with
Kansas City Life to help recruit and
retain quality agencies and producers.

Sun for the

Light

of the world

Owl for
Wisdom

Eagle for

Reliability,
Protection Security

o l d a m e r I c a n I n S u r a n c e c o m p a n y

Reliability, Protection
and Security.

The need for final expense products
among the senior market continues
to increase as the country’s
population ages. With the final
expense industry’s strong demand,
it is no surprise that Old American
Insurance Company once again had
another successful year as it carried
out its mission to provide peace of
mind to the senior market.

The Company’s Peace of Mind
mission is represented by a symbolic
eagle. Prominently displayed in
Old American Insurance Company’s
logo, the eagle stands for reliability,
protection and security.

Old American carries out this
mission through products that are
designed to cover the necessary costs
following the death of a loved one.
These funds also provide comfort to
surviving family members knowing
that money will be available for
ongoing expenses.

During 2012, Old American
focused on improving territory
penetration, recruiting and agent
productivity for its general agencies
in order to effectively meet the
sales goals of the Company. The
Old American segment accounted
for 30% of consolidated insurance
revenues for the years ended
December 31, 2012 and 2011.
Old American’s new sales increased
5% in 2012 and 9% 2011. Total
renewal premiums increased
3% in 2012 and 2% in 2011.

The increase in new premiums
reflects a combination of expanded
distribution efforts and improved
productivity from the Company’s
sales agents.

Old American continues to focus on
the recruitment and development of
new agencies and agents, along with
generating improved production
from existing agencies and agents.
In addition, this segment has
aggressively managed territories
assigned to agencies and emphasized
recruiting to improve production of
new sales.

A family-oriented company with
a long history, Old American is
licensed in 47 states and the District
of Columbia. Founded in 1939, the
Company celebrated its 73rd year
of business in 2012, of which more
than 20 have been under its current
parent company, Kansas City Life
Insurance Company. Walter E.
Bixby, a fourth generation member
of the Bixby family that has led
Kansas City Life since its early days,
serves as Old American’s President.

Looking forward, Old American
will remain committed to delivering
peace of mind through its successful
nationwide general agency system
with exclusive territories. Old
American is focused on its core
foundation for even further
momentum to fuel profitable
growth for its field force and
the Company.

Reliability, protection and security.
These three words have adorned
the circular logo of Old American
Insurance Company since its beginning
days and represent a promise to our
policyholders – a promise to provide
peace of mind to the senior market.

When Old American was founded
in 1939, the Company’s philosophy
was that nobody should be considered
uninsurable simply on the basis of
age. That philosophy still resonates
with our mission of providing peace
of mind to the senior market. Old
American’s products and services
provide for financial needs following
a death, but they also fulfill emotional
needs as well.

Reliability on a company in
business for 73 years; the comfort
that comes from the Protection of
insuring your loved ones; and last
but not least, the Security that
comes from knowing money will be
available for final expenses as well
as necessary living expenses.

These three words will continue
to represent our mission and our
guiding philosophy to provide peace
of mind to the senior market now
and in the future.

S e n I o r o f f I c e r S

Kansas City Life
Insurance Company

John L. Nogalski, CPA, FLMI
Vice President, Taxes

Tracy W. Knapp
Chief Financial Officer

R. Philip Bixby
President, Chief Executive Officer and

Chairman of the Board

Walter E. Bixby, LLIF
Executive Vice President and Vice

Chairman of the Board

Charles R. Duffy Jr., FLMI
Senior Vice President, Operations

Tracy W. Knapp
Senior Vice President, Finance

Richard D. Ropp, FLMI, ACS
Vice President, Customer Services and

David A. Laird, CPA, FLMI
Vice President and Controller

Claims

Stephen E. Ropp
Vice President, Insurance Services

Richard D. Ropp, FLMI, ACS
Vice President, Customer Services and

Claims

J. Todd Salash
Vice President, Computer Information

Stephen E. Ropp
Vice President, Insurance Services

Services

Dan L. Schick, CPA, CLU, FLMI
Vice President and Auditor

Sunset Life Insurance
Company of America

R. Philip Bixby
President, Chairman of the Board

Walter E. Bixby, LLIF
Vice Chairman of the Board

Donald E. Krebs, MSM, CLU, ChFC
Vice President, Sales and Marketing

David A. Laird, CPA, FLMI
Vice President and Controller

Mark A. Milton, FSA, CERA, MAAA
Vice President and Actuary

Richard D. Ropp, FLMI, ACS
Vice President, Policy Administration

Matthew R. O’Connor
Secretary

Donald E. Krebs, MSM, CLU, ChFC
Senior Vice President, Sales and
Marketing

Jeffrey M. Seeman
Vice President, Group

Mark A. Milton, FSA, CERA, MAAA
Senior Vice President and Actuary

Philip A. Williams, CFA
Vice President, Securities

Aaron L. Bush
Vice President, Corporate Actuary

Gregory M. Galvin
Vice President, Real Estate

David A. Laird, CPA, FLMI
Vice President and Controller

A. Craig Mason, Jr.
Vice President, General Counsel and

Secretary

Old American
Insurance Company

R. Philip Bixby
Chairman of the Board

Walter E. Bixby, LLIF
President

John C. Alderton
Vice President, Sales

Gary K. Hoffman, JD, CLU, FLMI
Vice President, Associate General

Counsel and Secretary

Kansas City Life
Insurance Company

Old American Insurance Company

Sunset Financial Services Inc.

Sunset Life Insurance
Company of America

Home Office
3520 Broadway
Kansas City, MO 64111
816-753-7000

Visit us on the Internet:
www.kclife.com
www.oaic.com
www.sunsetfinancial.com
www.sunsetlife.com

Burning torches for
Progress

Oak leaf for
Strength

B o a rd o f d I re c t o r S – kanSa S cIty lIfe InSura nce com pany

Kevin G. Barth
President and Chief Operating Officer
Commerce Bank
Kansas City, Mo.

R. Philip Bixby
President, Chief Executive Officer and

Chairman of the Board

Kansas City Life Insurance Company
Kansas City, Mo.

Walter E. Bixby, LLIF
Executive Vice President and Vice Chairman

of the Board

Kansas City Life Insurance Company
President
Old American Insurance Company
Kansas City, Mo.

William R. Blessing
Retired Senior Vice President,
Corporate Strategy and Development
Embarq
Overland Park, Kan.

Michael Braude
Retired President and Chief Executive

Officer

Kansas City Board of Trade
Kansas City, Mo.

James T. Carr
President and Chief Executive Officer
National Association of
Intercollegiate Athletics
Kansas City, Mo.

John C. Cozad
President
Cozad Company, LLC
Platte City, Mo.

Richard L. Finn
Retired Senior Vice President, Finance
Kansas City Life Insurance Company
Kansas City, Mo.

Nancy Bixby Hudson
Investor
Lander,Wyo.

Tracy W. Knapp
Senior Vice President, Finance
Kansas City Life Insurance Company
Kansas City, Mo.

Cecil R. Miller, CPA
Retired Partner
KPMG, LLP
Kansas City, Mo.

Mark Milton, FSA, CERA, MAAA
Senior Vice President and Actuary
Kansas City Life Insurance Company
Kansas City, Mo.

Bradford T. Nordholm
Chief Executive Officer
Starwood Energy Group Global, LLC
Greenwich, Conn.

William A. Schalekamp, JD, CLU, FLMI
Retired Senior Vice President, General
Counsel and Secretary
Kansas City Life Insurance Company
Kansas City, Mo.

St o c k h o l d e r I n f o r m a t I o n

CORPORATE HEADQUARTERS

Kansas City Life Insurance Company
3520 Broadway
Post Office Box 219139
Kansas City, MO 64121-9139
Telephone: 816-753-7000
Fax: 816-753-4902
Internet: http://www.kclife.com
Email: kclife@kclife.com

NOTICE OF ANNUAL MEETING

The annual meeting of stockholders will be held at 9 a.m. on Thursday, April 18, 2013, at Kansas City Life Insurance Company’s
corporate headquarters.

TRANSFER AGENT

Janice Poe, Stock Agent and Assistant Secretary
Kansas City Life Insurance Company
Post Office Box 219139
Kansas City, MO 64121-9139

10-K REQUEST

Stockholders may request a free copy of Kansas City Life’s Form 10-K, as filed with the Securities and Exchange Commission, by
writing to Secretary, Kansas City Life Insurance Company.

SECURITY HOLDERS

As of January 31, 2013, Kansas City Life had approximately 3,355 security holders, including individual participants in security
position listings.

Please refer to the Company’s Form 10-K and Proxy Statement as filed with the Securities and Exchange Commission (SEC).

St o c k & d I v I d e n d I n f o r m a t I o n

The following table presents the high and low prices for the Company’s common stock for the periods indicated and the dividends
declared per share and paid during such periods. The Company’s common stock is traded on the NASDAQ Capital Market under the
symbol “KCLI.”

2012:
First quarter
Second quarter
Third quarter
Fourth quarter*

2011:
First quarter
Second quarter
Third quarter
Fourth quarter

High

Low

$ 34.54
34.94
38.84
39.36

$ 31.29
30.82
34.31
34.61

$ 34.45
32.35
31.57
36.07

$ 29.70
28.48
28.37
30.16

Dividend
Paid

$ 0.27
0.27
0.27
0.54
$ 1.35

$ 0.27
0.27
0.27
0.27
$ 1.08

*In the fourth quarter, the Company declared and paid two dividends. The first was for $0.27 per share, which was declared in
October 2012 and paid in November 2012. The second dividend was a special dividend of $0.27 per share, which was declared
and paid in December 2012.

A quarterly dividend of $0.27 per share was paid February 13, 2013.

NASDAQ market quotations are compiled according to Company records and may reflect inter-dealer prices, without markup,
markdown or commission and may not necessarily represent actual transactions.

Kansas City Life Insurance Company
Home Office: Kansas City, MO

3520 Broadway
Kansas City, MO 64111
816-753-7000
www.kclife.com

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