Life is better here. 2 0 13 Annual Repor t Me s s a g e Fr o M T h e Pr e s i d e n T My fellow shareholders, I am pleased to share the Company’s 2013 results. The year was marked by solid earnings, new sales growth, new product introduction and product enhancements. We also increased our assets with the acquisition of a block of business from American Family Life Insurance Company. During 2013, companies in the insurance and financial services industry continued to struggle with sustained economic pressures marked by the low interest rate environment. Despite these challenges, Kansas City Life Insurance Company continued to operate from a position of stability, backed by sound business practices and financial strength. Net earnings totaled $29.6 million in 2013, reflecting strong growth in insurance revenues. New sales increased on the Company’s traditional business and contract charges improved as a result of the reinsurance transaction. Total assets at year- end were $4.5 billion, and stockholders’ equity remained strong at $725 million. Our Company acquired variable life and variable annuity business from American Family Life Insurance Company through a reinsurance transaction in the second quarter. The acquisition instantly added approximately $3.4 billion of life insurance in force and $58.5 million in policy loan and deferred acquisition cost assets. The acquisition will also generate additional annual renewal deposits A highlight for the year was the introduction of our first equity indexed universal life product, which offered an important new option for customers. Enhancements to the traditional life insurance product portfolio at Old American Insurance Company were also made to ensure the senior market products remain competitive in this growing market segment. During the year, Kansas City Life also emphasized the benefits of annuitization for customers by providing guaranteed lifetime income. This feature has become more important as retirees seek guaranteed income during their retirement years. Finally, the Company is acutely aware of the value of the relationships we share with our shareholders, our policyholders, and our general agents and agents. We are proud of the relationships we have forged and remain committed to fostering them for mutual, long-term success. It is these relationships that drive our commitment to provide Security Assured every day. and insurance revenues for years to come. We This is our promise and our commitment. After all, it believe this acquisition is an example of how well is what you expect from a Company with more than the Company is positioned for future acquisitions 118 years of success. and similar growth opportunities. On the sales and marketing front, the Company remains committed to provide top-tier products and quality services to our customers and our general agents and agents. We continue to invest in our — R. Philip Bixby President, Chief Executive Officer and product portfolio to ensure our products remain Chairman of the Board affordable, long-term options for customers. 2 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 118 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 our 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, 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. 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; Positive 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 2013. 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. 3 Life is Better Here In this day and age, you are only as strong as the promises you keep, and your word must count for something. The strength of a promise is built into the very structure of the company that makes it. As a shareholder, customer, field force who represent our Company know when they representative and associate, life is better at sell a Kansas City Life policy, they are protecting Kansas City Life Insurance Company. From the moment you first come in contact with our 118-year-old Company, you will realize we highly regard the promise of life insurance and financial products. More than just a promise, Security Assured is etched into the foundation that life insurance and financial products can provide. Security Assured isn’t just a catchphrase; it’s the personification their customers with the tradition and legacy of a Company whose integrity, customer service and solid financial foundation date back to the late 19th century. Despite the low interest rate environment that has recently challenged the industry, Kansas City Life has remained true to its core business philosophies and practices of providing Security Assured. Our Company’s continued emphasis of strength for Kansas City Life. The individuals on these core values – providing competitive Kansas City Life offers life insurance and financial solutions products tailored to serve our three distinct markets – families, small businesses and pre-retirement individuals. 4 products, superior customer service, financial From a young family purchasing life insurance strength, specialized training and exceptional for the first time to a pre-retirement-aged couple sales and marketing support – coupled with a planning ahead for their golden years and to dedicated resourcefulness – allowed for success during 2013. business partners ensuring that their small venture will be around for years to come, Kansas City Life is there every step of the way. We’ll Be With You … We’re Kansas City Life Kansas City Life understands the needs of Kansas City Life remains dedicated to our shareholders, our policyholders, our field force and our associates. Throughout the ever- changing economic climate of the industry and the current events of the world, Kansas City Life has not altered that promise. Since 1895, we have assisted policyholders through world wars, the Great Depression and various periods of recession and inflation. Throughout the years, our Company has grown, technology has enhanced our business practices, and changing economic conditions have allowed our products to evolve and meet the different needs of consumers and businesses. Kansas City Life continues to position itself to meet the needs of its shareholders, customers, field force and associates now and in the years to come. Life’s Financial Seasons Kansas City Life is dedicated to the markets we support and keeping a promise of financial security is not something we take lightly. When a small business owner purchases a life insurance policy for a key employee, a promise is our policyholders. These primary customers – families, small businesses and pre-retirement individuals – are the three main markets Kansas City Life supports. With a complete product portfolio and financial services, each need is met no matter what stage or season in life a customer is entering. For you … For yours … Forever Our essential relationships with our shareholders, our policyholders, our field force and our associates build upon our solid foundation and separate us from all others in the industry. We are proud of our superior customer service, sales and marketing support, and our financial strength. When you look at Kansas City Life, you are truly discovering a family. And when you feel a part of a family, your efforts and hard work become an investment, as opposed to a job. Our Home Office associates are committed to putting in the extra effort. After all, our agents and their customers are the most important part of our family. And that’s who we are in business to support. made signifying the willingness and determination Kansas City Life has held true to the tradition and for the success of their business. In addition to promise of honesty, integrity and sound business meeting the most intrinsic needs of food, clothing practices upon which our Company was founded and shelter, the need for financial security is in 1895. Kansas City Life is proud of the heritage promised when insurance is purchased for the that has been passed down for four generations. breadwinner and caregiver of a family. And when Like our well-known Home Office building, our pre-retirement individuals purchase financial Company is built on the promise of strength and solutions for their sustained retirement, a promise stability. Life is truly better here. is made to ensure an income stream during the remainder of their lifetimes. 5 For you ... For yours ... Forever 6 c o r P o r a T e h i g h l i g h T s Throughout the course of 2013, Kansas City Life Insurance Company continued to provide Company’s field force The Company’s field force is represented by policyholders with the same quality and services independent agencies, which are operated by they have come to expect from a Company general agents and agents across the U.S. and dedicated to providing Security Assured for more in certain locations in Europe. Kansas City Life than 118 years. The promise of Security Assured is a tradition for Kansas City Life, and the goal of this mission is to safeguard individuals, families and businesses provides each agency with an ever-growing product portfolio and marketing support necessary to succeed in servicing consumers in their local markets. against the unpredictable elements of life. We The Company’s expanding product portfolio and are committed to providing financial security to policyholders for generations to come. Kansas individual one-on-one support from the Home Office are attractive recruiting resources, setting City Life will always uphold its promise to provide Kansas City Life apart from many in the industry. premium services and continue its tradition of bringing value to its shareholders. Third-party alliances Independent alliances with American Republic It is Kansas City Life’s commitment to sound Insurance Company, GuideOne Mutual Insurance business practices, integrity and financial strength Company and AmeriLife Group LLC allow that has made our Company into what it is today. representatives from all three companies to These notions are the cornerstone of our business distribute Kansas City Life’s products. These philosophy as we seek to maintain consistent, agreements provide representatives with the long-term profitable growth. Kansas City Life enjoyed a strong sales year in 2013, with increased life insurance sales while the industry experienced flat life insurance sales. complementary products and services they need to offer complete financial security to their clients. Life insurance sales Life insurance sales and new business production With some strategic organizational changes at Kansas City Life are measured by new during the year, our Company is positioned to expand upon this success during 2014. Individual Insurance Kansas City Life’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 through alliances with third-party marketing arrangements. The Individual Insurance segment consists of individual insurance products for both Kansas City Life and Sunset Life. Kansas City Life is dedicated to protecting the promise of a financial future with the purchase of life insurance and financial solutions. 7 premiums recorded and new deposits received. The Group Insurance segment markets its Premiums include receipts from traditional products primarily to small and mid-size individual life insurance and immediate annuity organizations. Group products are sold through products. Deposits are received from universal life sales representatives who target a nationwide insurance, variable universal life insurance and fixed deferred and variable annuity products. The Individual Insurance segment generated approximately 58% of consolidated insurance revenues for the year ended December 31, 2013, compared to 49% for the year ended December 31, 2012. 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 18% of the Company’s consolidated insurance revenues Total new deposits decreased from the prior year in 2013, compared to 21% in 2012. Total Group by $2.9 million or 3% in 2013, compared to a premiums increased $4.4 million or 7% in 2013, $2.6 million or 3% decrease in 2012. The decline in 2013 resulted from a $10.7 million decrease in new fixed annuity deposits. Total renewal deposits increased $14.6 million or 10% in 2013, following a $3.6 million or 2% decline in 2012. The reinsurance transaction with American Family increased renewal deposits $20.0 million in 2013. Excluding this transaction, renewal deposits decreased $5.4 million or 4%. 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 and by adding more third-party alliances. Enhancements to the vast product portfolio, increased focus on sales development and superior marketing support are following a $0.8 million or 1% increase in 2012. 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. elements that will be emphasized to attract new Kansas City Life Insurance Company’s in-house 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 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. offerings encompass both traditional, employer- SFS will continue working with Kansas City Life funded group insurance, as well as voluntary, to help recruit and retain quality agencies employee-paid products. and producers. 8 Life’s Financial Seasons 9 Reliability, Protection and Security 10 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 The need for final expense products among Looking forward, Old American will remain the senior market continues to increase as committed to delivering peace of mind through the country’s population ages. With the final our successful nationwide general agency expense industry’s strong demand, Old American system with exclusive territories. Old American is Insurance Company once again had another focused on our core foundation for even further successful year as we carried out our mission to momentum to fuel profitable growth for our provide peace of mind to our market. field force and our Company. Our Company’s Peace of Mind mission is represented by a symbolic eagle. Prominently displayed in Old American’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 to know that money will be available for ongoing expenses. During 2013, Old American focused on improving territory penetration, recruiting and agent productivity for our general agencies in order to effectively meet the sales objectives of our Company. 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 aggressively manages territories to improve recruiting and 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, our Company celebrated its 74th year of business in 2013, including more than 20 with 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. Reliability, Protection and Security Reliability, protection and security. These three words have adorned the circular logo of Old American Insurance Company since our beginning days and represent a promise to our policyholders – a promise to provide peace of mind to our market. When Old American was founded in 1939, our 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 our 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 74 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. 11 s e n i o r o F F i c e r s Kansas City Life Insurance Company David A. Laird, CPA, FLMI Vice President and Controller Tracy W. Knapp Chief Financial Officer R. Philip Bixby President, Chief Executive Officer and Chairman of the Board John L. Nogalski, CPA, FLMI Vice President, Taxes David A. Laird, CPA, FLMI Vice President and Controller 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 Donald E. Krebs, MSM, CLU, ChFC, LLIF Senior Vice President, Sales and Marketing A. Craig Mason, Jr. Senior Vice President, General Counsel and Secretary Mark A. Milton, FSA, CERA, MAAA Senior Vice President and Actuary Ryan C. Beasley, MSFS, CFP, CLU, ChFC, LLIF Vice President, Agencies Aaron L. Bush Vice President, Corporate Actuary Robert M. Fisher, CPA, CITP Vice President, Information Strategy Richard D. Ropp, FLMI, ACS Vice President, Customer Services Richard D. Ropp, FLMI, ACS Vice President, Customer Services and Claims and Claims Stephen E. Ropp Vice President, Operations Stephen E. Ropp Vice President, Operations J. Todd Salash Vice President, Information Technology Sunset Life Insurance Company of America Dan L. Schick, CPA, CLU, FLMI Vice President and Auditor R. Philip Bixby President and Chairman of the Board Philip A. Williams, CFA Vice President, Securities Old American Insurance Company R. Philip Bixby Chairman of the Board Walter E. Bixby, LLIF President Benton T. Summers Vice President, Sales Walter E. Bixby, LLIF Vice Chairman of the Board Donald E. Krebs, MSM, CLU, ChFC, LLIF 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 Gary K. Hoffman, JD, CLU, FLMI Vice President, Associate General Counsel and Secretary Matthew R. O’Connor Secretary *Charles R. Duffy, Jr. retired from the Company in August 2013. Kansas City Life Insurance Company Old American Insurance Company Sunset Financial Services Inc. Sunset Life Insurance Company of America 12 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 We’ll Be With You ... We’re Kansas City Life. 13 B o a rd o F d i re c T o r s – kansa s ciTy li Fe insura nce coMP any 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. 14 James T. Carr President and Chief Executive Officer National Association of Intercollegiate Athletics Kansas City, Mo. Cecil R. Miller, CPA Retired Partner KPMG, LLP 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. David S. Kimmel* Chief Executive Officer CyberRisk Partners, LLC Rye, N.Y. Tracy W. Knapp Senior Vice President, Finance Kansas City Life Insurance Company 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. *David S. Kimmel was elected to the Board of Directors on April 18, 2013. Bradford T. Nordholm retired from the Board of Directors effective April 22, 2013. 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 24, 2014, 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, 2014, Kansas City Life had approximately 2,745 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.” 2013: First quarter Second quarter Third quarter Fourth quarter 2012: First quarter Second quarter Third quarter Fourth quarter* High Low $ 39.93 39.06 45.31 49.95 $ 36.35 34.01 38.10 43.15 $ 34.54 34.94 34.84 39.36 $ 31.29 30.82 34.31 34.61 Dividend Paid $ 0.27 0.27 0.27 0.27 $ 1.08 $ 0.27 0.27 0.27 0.54 $ 1.35 *In the fourth quarter of 2012, 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 12, 2014. 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. 15 Kansas City Life Insurance Company Home Office: Kansas City, MO 3520 Broadway Kansas City, MO 64111 816-753-7000 www.kclife.com 11659