Kansas City Life Insurance Company Annual Report 2019

FY2019 Annual Report · Kansas City Life Insurance Company

Loading PDF…

KANSAS CITY LIFE INSURANCE COMPANY

2019 ANNUAL REPORT

KANSAS CITY LIFE INSURANCE COMPANY

TABLE OF CONTENTS

Financial Information .............................................................................................................................................................

Consolidated Balance Sheets ...............................................................................................................................................

Consolidated Statements of Comprehensive Income...........................................................................................................

Consolidated Statements of Stockholders' Equity................................................................................................................

Consolidated Statements of Cash Flows ..............................................................................................................................

Notes to Consolidated Financial Statements ........................................................................................................................

Independent Auditors' Report...............................................................................................................................................

Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................

Risk Factors ............................................................................................................................................................................

Financial Information
Amounts in thousands, except share data, security counts, claim counts, or as otherwise noted.

Kansas City Life Insurance Company
Consolidated Balance Sheets

ASSETS
Investments:

Fixed maturity securities available for sale, at fair value
(amortized cost: 2019 - $2,776,856; 2018 - $2,693,860)
Equity securities, at fair value
(cost: 2019 - $10,614; 2018 - $14,614)
Mortgage loans
Real estate
Policy loans
Short-term investments
Other investments

Total investments

Cash
Accrued investment income
Deferred acquisition costs
Reinsurance recoverables
Other assets
Separate account assets
Total assets

LIABILITIES
Future policy benefits
Policyholder account balances
Policy and contract claims
Other policyholder funds
Other liabilities
Separate account liabilities
Total liabilities

STOCKHOLDERS' EQUITY
Common stock, par value $1.25 per share

Authorized 36,000,000 shares, issued 18,496,680 shares

Additional paid in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost (2019 and 2018 - 8,813,266 shares)

Total stockholders’ equity
Total liabilities and stockholders’ equity

December 31

2019

2018

2,951,137

2,704,079

11,272
577,699
183,016
87,499
75,426
9,156
3,895,205

14,234
32,142
286,682
378,772
181,629
431,201
5,219,865

1,331,215
2,237,700
55,997
170,776
182,245
431,201
4,409,134

23,121
41,025
928,380
59,506
(241,301)
810,731
5,219,865

14,424
639,559
186,994
88,066
58,712
5,355
3,697,189

31,689
31,535
291,168
366,196
179,975
373,734
4,971,486

1,279,034
2,261,860
47,274
174,984
142,894
373,734
4,279,780

23,121
41,025
914,411
(45,550)
(241,301)
691,706
4,971,486

See accompanying Notes to Consolidated Financial Statements

Kansas City Life Insurance Company
Consolidated Statements of Comprehensive Income

REVENUES
Insurance revenues:

Net premiums

Contract charges

Total insurance revenues

Investment revenues:

Net investment income

Net investment gains

Total investment revenues

Other revenues

Total revenues

BENEFITS AND EXPENSES
Policyholder benefits

Interest credited to policyholder account balances

Amortization of deferred acquisition costs

Operating expenses

Total benefits and expenses

Income before income tax expense (benefit)

Income tax expense (benefit)

NET INCOME

COMPREHENSIVE INCOME (LOSS),
NET OF TAXES

Changes in:

Year Ended December 31
2018

2017

2019

223,227

193,593

179,936

125,886

349,113

148,349

9,133

157,482

6,098

512,693

257,621

78,520

35,948

111,154

483,243

29,450

5,023

116,916

310,509

141,315

2,840

144,155

6,368

461,032

227,202

74,308

40,616

101,720

443,846

17,186

1,514

114,028

293,964

145,825

4,555

150,380

6,413

450,757

210,799

72,921

34,770

102,898

421,388

29,369

(22,172)

24,427

15,672

51,541

Net unrealized gains (losses) on
securities available for sale
Effect on deferred acquisition costs, value of business
acquired, and deferred revenue liabilities

Policyholder liabilities

Benefit plan obligations

Other comprehensive income (loss)

129,609

(65,062)

788

(11,608)
(15,987)
3,042

105,056

8,867

11,354
(5,823)
(50,664)

1,254

2,008

6,439

10,489

COMPREHENSIVE INCOME (LOSS)

129,483

(34,992)

62,030

Basic and diluted earnings per share:

Net income

2.52

1.62

5.32

See accompanying Notes to Consolidated Financial Statements

Kansas City Life Insurance Company
Consolidated Statements of Stockholders’ Equity

Year Ended December 31
2018

2017

2019

COMMON STOCK, beginning and end of year

23,121

ADDITIONAL PAID IN CAPITAL, beginning and end of year

41,025

RETAINED EARNINGS
Beginning of year

Net income

Stockholder dividends (2019, 2018, and 2017 - $1.08 per share)

Cumulative effect of adoption of new accounting principle

End of year

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Beginning of year

Other comprehensive income (loss)

Cumulative effect of adoption of new accounting principle

End of year

914,411

24,427
(10,458)
—

908,022

15,672
(10,457)
1,174

868,054

51,541
(10,458)
(1,115)

928,380

914,411

908,022

(45,550)
105,056

—

59,506

6,288
(50,664)
(1,174)

(45,550)

(5,316)
10,489

1,115

6,288

TREASURY STOCK, at cost, beginning and end of year

(241,301)

TOTAL STOCKHOLDERS’ EQUITY

810,731

691,706

737,155

See accompanying Notes to Consolidated Financial Statements

Kansas City Life Insurance Company
Consolidated Statements of Cash Flows

OPERATING ACTIVITIES
Net income

Adjustments to reconcile net income to net cash provided
by operating activities:

Amortization of investment premium and discount

Depreciation and amortization

Acquisition costs capitalized

Amortization of deferred acquisition costs

Net investment gains

Changes in assets and liabilities:

Reinsurance recoverables

Future policy benefits

Policyholder account balances

Income taxes payable and deferred

Other, net

Net cash provided

INVESTING ACTIVITIES
Purchases:

Fixed maturity securities

Equity securities

Mortgage loans

Real estate

Policy loans

Other investments

Property and equipment

Year Ended December 31
2018

2017

2019

24,427

15,672

51,541

3,321

8,367
(48,443)
35,948
(9,133)

(12,576)
32,274
(43,516)
5,960

3,503

132

(342,477)
—
(25,036)
(1,975)
(10,969)
(2,712)
(2,379)

3,453

5,802
(43,389)
40,616
(2,840)

52,937

26,248
(32,096)
2,477
(3,798)
65,082

(275,591)
(58)
(65,557)
(7,282)
(9,469)
(2,074)
(20,448)

3,026

5,727
(41,845)
34,770
(4,555)

2,294

12,583
(28,338)
(25,741)
5,054

14,516

(332,552)
(45)
(105,354)
(5,304)
(11,006)
(1,242)
(2,289)

Sales or maturities, calls, and principal paydowns:

Fixed maturity securities

263,411

307,167

326,923

Equity securities

Mortgage loans

Real estate

Policy loans

Other investments

Property and equipment

Net purchases of short-term investments

Acquisition of Grange Life, net of cash acquired

Receipts from post-acquisition purchase price adjustments

Net cash used

4,000

87,157

3,084

11,535

2,176

5,572
(16,714)
—

1,663
(23,664)

824

75,636

12,734

11,685

2,712

932
(12,930)
(62,447)
—
(44,166)

4,075

85,891

2,205

12,722

1,786

415
(4,669)
—

—
(28,444)

Kansas City Life Insurance Company
Consolidated Statements of Cash Flows (Continued)

FINANCING ACTIVITIES

Deposits on policyholder account balances

Withdrawals from policyholder account balances

Net transfers from separate accounts

Change in other deposits

Cash dividends to stockholders

Post-acquisition contingent liability fulfillment

Net cash provided

Increase (decrease) in cash

Cash at beginning of year

Cash at end of year

Year Ended December 31
2018

2017

2019

223,058

217,344

226,313

(207,242)
3,500
(2,666)
(10,458)
(115)
6,077

(17,455)
31,689

(206,444)
4,386
(3,560)
(10,457)
—

1,269

22,185

9,504

14,234

31,689

(203,249)
5,625
(4,429)
(10,458)
—

13,802

(126)
9,630

9,504

See accompanying Notes to Consolidated Financial Statements

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements

1. Nature of Operations and Significant Accounting Policies

Business
Kansas City Life Insurance Company is a Missouri domiciled stock life insurance company which, with its subsidiaries, is licensed
to sell insurance products in 49 states and the District of Columbia. The consolidated entity (the Company) offers a diversified
portfolio of individual insurance, annuity, and group life and health products through its four life insurance companies. Kansas
City Life Insurance Company (Kansas City Life) is the parent company. Sunset Life Insurance Company of America (Sunset
Life), Old American Insurance Company (Old American), and Grange Life Insurance Company (Grange Life) are wholly-owned
insurance subsidiaries. The Company also has non-insurance subsidiaries that individually and collectively are not material. The
terms "the Company," "we," "us," and "our" are used in these consolidated financial statements to refer to Kansas City Life Insurance
Company and its subsidiaries.

Basis of Presentation
The consolidated financial statements and the accompanying notes to the consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of
Kansas City Life and its subsidiaries, principally Sunset Life, Old American, and Grange Life. Significant intercompany
transactions have been eliminated in consolidation and certain immaterial reclassifications have been made to prior period results
to conform with the current period’s presentation.

Business Changes
There were no business changes during 2019.

In October 2018, the Company acquired all of the issued and outstanding stock of Grange Life Insurance Company from Grange
Mutual Casualty Company, for approximately $75 million, subject to certain adjustments under the terms of the agreement. For
additional information regarding the acquisition of Grange Life, please see Note 2 - Acquisition.

Use of Estimates
The preparation of the consolidated financial statements requires management of the Company to make estimates and assumptions
relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenue and expenses during the period. These estimates are
inherently subject to change and actual results could differ from these estimates. Significant estimates required in the preparation
of the consolidated financial statements include the fair value of invested assets, deferred acquisition costs (DAC), deferred income
taxes, goodwill and other intangibles, value of business acquired (VOBA), deferred revenue liability (DRL), policyholder account
balances, future policy benefits, policy and contract claim liabilities, reinsurance, and pension and other postemployment benefits.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Significant Accounting Policies

Investments
Valuation of Investments and Other-than-Temporary Impairments
Our principal investments are in fixed maturity securities, mortgage loans, and real estate; all of which are exposed to at least three
primary sources of investment risk, including: credit, interest rate, and liquidity.

Fixed maturity securities, which are all classified as available for sale, are carried at fair value in the Consolidated Balance Sheets,
with unrealized gains or losses recorded in accumulated other comprehensive income (loss). The unrealized gains or losses are
recorded net of the adjustment to policyholder liabilities, DAC, VOBA, and DRL to reflect what would have been earned had
those gains or losses been realized and the proceeds reinvested. The adjustments to DAC, VOBA, and DRL represent changes in
the amortization that would have been required as a charge or credit to income had such unrealized amounts been realized. The
adjustments to policyholder liabilities represent the increase from using a discount rate that would have been required if such
unrealized gains or losses had been realized and the proceeds reinvested at current market interest rates, which were different from
the then-current effective portfolio rate. The amortized cost of a security is adjusted for declines in value that are determined to
be other-than-temporary. Other-than-temporary impairment losses are reported as a component of investment revenues in the
Consolidated Statements of Comprehensive Income, which also presents the amount of non-credit impairment losses for certain
fixed maturity securities that are reported in accumulated other comprehensive income (loss). See Note 4 - Investments for
additional discussion of our considerations related to other-than-temporary impairments. For additional information regarding
fair value, please see Note 5 - Fair Value Measurements.

Equity securities are carried at fair value. Beginning with the adoption of Accounting Standards Update (ASU) No. 2016-01 on
January 1, 2018, changes in the fair value of equity securities are recognized through net income. Prior to January 1, 2018,
unrealized gains or losses were recorded in accumulated other comprehensive income (loss).

Mortgage loans are stated at cost, adjusted for amortization of premium and accrual of discount, less an allowance for loan losses.
A loan is considered impaired if it is probable that all contractual amounts due will not be collected. The allowance for loan losses
is maintained at a level believed by management to be adequate to absorb potential future incurred credit losses. Management’s
periodic evaluation and assessment of the adequacy of the allowance is based on known and inherent risks in the portfolio, historical
and industry data, current economic conditions, and other relevant factors, along with specific risks related to specific loans. Loans
in foreclosure, loans considered to be impaired, and loans with amounts past due 90 days or more are placed on non-accrual status.

Real estate consists of directly owned investments and real estate joint ventures. Real estate that is directly owned is carried at
depreciated cost. Real estate joint ventures consist primarily of office buildings, industrial warehouses, unimproved land for future
development, and affordable housing real estate joint ventures. Real estate joint ventures are consolidated when required. The
initial cost of the non-consolidated affordable housing real estate joint ventures is amortized in proportion to the tax credits and
other tax benefits received and the net investment performance is recognized in the Consolidated Statements of Comprehensive
Income as a component of income tax expense. The investments in other non-consolidated real estate joint ventures are recorded
using the equity method of accounting, in which the initial cost of the investment is adjusted for earnings and cash contributions
or distributions.

Policy loans are carried at their outstanding principal amount.

Short-term investments include highly-liquid investments in institutional money market funds that are carried at net asset value
(NAV).

The Company has hedge positions classified as derivatives that are included in Other Investments in the Consolidated Balance
Sheets. These derivative assets are recorded at fair value and are established in relation to the Company's indexed universal life
portfolio. The index credit portion of the reserves associated with the indexed universal life products are considered to be embedded
derivatives and are accounted for at fair value and are included in Policyholder Account Balances in the Consolidated Balance
Sheets. The value of the reserves will fluctuate depending on market conditions. Changes in market values can result in significant
fluctuations to realized gains and losses in the Consolidated Statements of Comprehensive Income.

Investment Income
Investment income is recognized when earned. Premiums and discounts on fixed maturity securities are amortized over the life
of the related security as an adjustment to yield using the effective interest method, with the exception of premiums on callable
fixed maturity securities, which are amortized to the earliest call date. Realized gains and losses on the sale of investments are
determined on the basis of specific security identification recorded on the trade date.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Future Policy Benefits
We establish liabilities for amounts payable under insurance policies, including traditional life insurance, immediate annuities with
life contingencies, supplementary contracts with life contingencies, group life insurance, and accident and health insurance. These
liabilities originate from new premiums and conversions from other products and are generally payable over an extended period
of time.

Liabilities for future policy benefits of traditional life insurance have been computed by a net level premium method based upon
estimates at the time of issue or at the time of acquisition for investment yields, mortality, and withdrawals. These estimates
include provisions for experience less favorable than initially expected. Mortality assumptions are based on Company experience
expressed as a percentage of standard mortality tables. The 2008 Valuation Basic Table, the 2001 Valuation Basic Table, and the
1975-1980 Select and Ultimate Basic Table serve as the bases for most mortality assumptions.

Liabilities for future policy benefits of immediate annuities and supplementary contracts with life contingencies are computed by
calculating an actuarial present value of future policy benefits, based upon estimates for investment yields and mortality at the
time of issue or at the time of acquisition. The 2012 Individual Annuity Reserving Table, the Annuity 2000 Table, the 1983
Individual Annuity Mortality Table, and the 1971 Individual Annuity Mortality Table serve as the bases for most immediate annuity
and supplementary contract mortality assumptions.

Liabilities for future policy benefits of accident and health insurance represent estimates of payments to be made on reported
insurance claims, as well as claims incurred-but-not-reported (IBNR). These liabilities are estimated using actuarial analyses and
case basis evaluations that are based upon past claims experience, claim trends, and industry experience.

The following table provides detail about the composition of future policy benefits at December 31.

Life insurance

Immediate annuities and supplementary
contracts with life contingencies
Accident and health insurance

2019

2018

$ 1,004,148

976,310

292,590

34,477

267,343

35,381

Future policy benefits

$ 1,331,215

$ 1,279,034

Policyholder Account Balances
Policyholder account balances are deposit-type contracts, including universal life insurance and fixed annuity contracts, and
investment-type contracts. Liabilities for policyholder account balances are included without reduction for potential surrender
charges. These liabilities originate from new deposits and conversions from other products. Policyholder account balances are
equal to cumulative deposits, less contract charges and withdrawals, plus interest credited. Deferred front-end contract charges
reduce policyholder account balance liabilities and increase the other policyholder funds liability, and are amortized over the term
of the policies in a manner similar to DAC, as discussed below. Interest on policyholder account balances is credited as earned.

On an ongoing basis, we perform testing and analysis on our blocks of business to ensure the assumptions made remain viable.
We also periodically perform sensitivity testing on these blocks of business to ensure we maintain the capacity to meet an increase
in policyholder benefits, namely increased surrenders, policy loans, or other policyholder elective withdrawals. If it is determined
that our established reserves are not adequate, additional reserves will be added.

Crediting rates for universal life insurance and fixed annuity products ranged from 1.00% to 5.50% in 2019, 2018, and 2017.

The following table provides detail about the composition of policyholder account balances at December 31.

Universal life insurance

Fixed annuities
Immediate annuities and supplementary
contracts without life contingencies

2019

2018

$ 1,087,984

$ 1,086,286

1,096,588

1,122,776

53,128

52,798

Policyholder account balances

$ 2,237,700

$ 2,261,860

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Deferred Acquisition Costs
DAC, principally agent commissions and other selling, selection, and issue costs, which are related directly to the successful
acquisition of new or renewal insurance contracts, are capitalized as incurred. At least annually, we review our DAC capitalization
policy and the specific items which are capitalized under existing guidance.

Policy acquisition costs associated with traditional life products are deferred and amortized over the premium paying period.
Assumptions related to DAC on traditional life insurance products are typically determined at inception and remain unchanged
with any future premium deficiency recorded first as a reduction of DAC.

Policy acquisition costs that relate to interest sensitive and variable insurance products are deferred and amortized in relation to
the estimated gross profits to be realized over the lives of the contracts. Estimated gross profits for interest sensitive and variable
insurance products are projected using assumptions as to net interest income, net realized investment gains and losses, fees,
surrender charges, expenses, and mortality gains and losses, net of reinsurance. At the issuance of policies, projections of estimated
gross profits are made. These projections are then replaced by actual gross profits over the lives of the policies. In addition to
other factors, emerging experience may lead to a revised outlook for the remaining estimated gross profits. Accordingly, DAC
may be recalculated (unlocked) using these new assumptions and any resulting adjustment is included in income in the period
such an unlocking is deemed appropriate. See the Unlocking and Refinements in Estimates section below for additional information.

The DAC asset is adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available for sale, as
described in the Investments section above.

DAC is reviewed on an ongoing basis to evaluate whether the unamortized portion exceeds the expected recoverable amounts. If
it is determined from emerging experience that the premium margins or expected gross profits are insufficient to amortize DAC,
the asset will be adjusted downward with the adjustment recorded as an expense in the current period.

The following table provides information about DAC at December 31.

Balance at beginning of year

Capitalization of commissions and expenses

Gross amortization

Accrual of interest

Change in DAC due to the change in unrealized
investment gains or losses

Balance at end of year

2019

2018

291,168

277,182

48,443
(48,375)
12,427

(16,981)
286,682

43,389
(53,251)
12,635

11,213

291,168

Value of Business Acquired
The concept of VOBA is no longer applied to business combinations. Rather, under current guidance for business combinations,
all assets and liabilities are reported at fair value at acquisition and an intangible asset or liability may result due to differences
between fair value and consideration paid. However, prior to the adoption of Accounting Standards Codification (ASC) No. 805
Business Combinations, a portion of the purchase price was allocated to a separately identifiable intangible asset, VOBA, when
a new block of business was acquired or when an insurance company was purchased. VOBA is established as the actuarially
determined present value of future gross profits of the business acquired and is amortized with interest in proportion to future
premium revenues or the expected future profits, depending on the type of business acquired. VOBA is reported as a component
of other assets with related amortization included in operating expenses. Amortization of VOBA occurs with interest over the
anticipated life of the underlying business to which it relates, initially 15 to 30 years. The assumptions regarding future experience
on interest sensitive business can affect the carrying value of VOBA, similar to DAC. These assumptions include interest spreads,
mortality, expense margins, and policy and premium persistency experience.

The VOBA asset is adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available for sale, as
described in the Investments section above.

VOBA is reviewed on an ongoing basis to evaluate whether the unamortized portion exceeds the expected recoverable amounts.
If it is determined from emerging experience that the premium margins or expected gross profits are insufficient to amortize VOBA,
the asset will be adjusted downward with an expense recorded in the current period.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides information about VOBA at December 31.

Balance at beginning of year

Gross amortization

Accrual of interest

Change in VOBA due to the change in unrealized
investment gains or losses

Balance at end of year

2019

2018

20,306
(4,230)
1,097

(4,643)
12,530

20,297
(4,875)
1,286

3,598

20,306

Interest accrued on the VOBA of one block of business was at the rates of 4.21% on the interest sensitive life block and 5.25% on
the traditional life block, based upon the credited rates of the VOBA policies. The VOBA on a separate acquired block of business
used a 7.00% interest rate on the traditional life portion and a 5.40% interest rate on the interest sensitive portion, based upon rates
appropriate at the time of acquisition.

Goodwill and Intangible Asset
We established goodwill for the future economic benefits arising from the acquisition of Grange Life. Goodwill was valued at
$43.0 million at December 31, 2018. Subsequent to December 31, 2018, certain post-acquisition adjustments, as defined under
the contract, were made that resulted in a decrease of $0.7 million in goodwill. The goodwill balance at December 31, 2019 was
$42.3 million. Goodwill is included in Other Assets in the Consolidated Balance Sheets. Under GAAP, goodwill is assessed at
least annually for impairment rather than being amortized. As a result of our impairment assessment, we determined that goodwill
was not impaired at December 31, 2019.

The acquisition of Grange Life generated an amortizable intangible asset, which is the difference between the fair value and book
value of the net reserve liabilities acquired. We evaluated the fair value and book value of all other assets and liabilities acquired
and no other intangible assets were recognized at acquisition. The intangible asset was valued at $20.0 million at December 31,
2019 and $21.1 million at December 31, 2018 and is included in Other Assets in the Consolidated Balance Sheets.

Deferred Revenue Liabilities
Deferred revenue liabilities represent the capitalization of revenues received from contracts as compensation for services to be
provided by the Company in future periods. Deferred revenue liabilities totaled $37.7 million at December 31, 2019 and $41.6
million at December 31, 2018. Such loads and charges are reported as unearned revenue in the period received and are subsequently
recognized as income over the policy benefit period, using the same assumptions and factors used to amortize DAC. Similar to
DAC, these amounts are amortized in relation to estimated gross profits for interest sensitive and variable insurance products.
However, unlike DAC, the amortization of the DRL results in the recognition of revenue rather than expense. The DRL could be
impacted by unlocking and refinements in estimates, as discussed in the following section.

Unlocking and Refinements in Estimates
Models and assumptions used to develop expected gross profits for interest sensitive and variable insurance products are reviewed
at least annually based upon management’s current view of future events. Key assumptions analyzed include net interest income,
net realized investments gains and losses, fees, surrender charges, expenses, and mortality gains and losses, net of reinsurance.
Management’s view primarily reflects Company experience but can also reflect emerging trends within the industry. Short-term
deviations in experience affect the amortization of DAC, VOBA, and DRL in the period, but do not necessarily indicate that a
change to the long-term assumptions of future experience is warranted. If it is determined that it is appropriate to change the
assumptions related to future experience, then an unlocking adjustment is recognized for the block of business being evaluated.
Certain assumptions, such as interest spreads and surrender rates, may be interrelated. As such, unlocking adjustments often reflect
revisions to multiple assumptions. The DAC, VOBA, or DRL balance is immediately impacted by any assumption changes, with
the change reflected through the Consolidated Statements of Comprehensive Income as an unlocking adjustment. These adjustments
can be positive or negative, and adjustments increasing the DAC asset are limited to amounts previously deferred plus interest
accrued through the date of the adjustment.

We also consider refinements in estimates due to improved capabilities resulting from administrative or actuarial system
enhancements. We consider such enhancements to determine whether and to what extent they are associated with prior periods
or simply improvements in the projection of future expected gross profits due to improved functionality. To the extent they represent
such improvements, these items are applied to DAC, VOBA, and DRL in a manner similar to unlocking adjustments.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following tables summarize the effects of the refinements in estimates on all products and unlocking of assumptions on interest
sensitive products in the Consolidated Statements of Comprehensive Income for the years ended December 31. Positive numbers
are increases to income and negative numbers are reductions to income.

2019:

Unlocking

Refinement in estimate

2018:

Unlocking

Refinement in estimate

2017:

Unlocking

Refinement in estimate

DAC
Amortization

VOBA
Amortization

DRL
Contract
Charges

Net Impact
to Pre-Tax
Income

(350)

708

358

(538)
—
(538)

DAC
Amortization

VOBA
Amortization

(884)
71

(813)

(644)
—
(644)

DAC
Amortization

VOBA
Amortization

(344)

(1,378)

(1,722)

(1,246)
—
(1,246)

763

780

(125)
725

600

DRL
Contract
Charges

Net Impact
to Pre-Tax
Income

920
—

920

(608)
71
(537)

DRL
Contract
Charges

Net Impact
to Pre-Tax
Income

(46)
2,004

1,958

(1,636)
626
(1,010)

The unlocking in 2019 primarily resulted from unlocking surrender rates and reinsurance as well as refinements of expense loads.
These were partially offset by interest rate fluctuations. The unlocking in 2018 primarily resulted from interest rate fluctuations.
The unlocking and refinements in 2017 were primarily driven by low interest rates and the implementation of specific cost of
insurance charges for certain plans. In addition, we recorded a $0.2 million reserve decrease in 2019, a $0.2 million reserve increase
in 2018, and a $0.3 million reserve increase in 2017 related to the impacts of unlocking.

Additional refinements were made in 2019 as a result of the completed review of Grange Life valuation models. Most refinements
were the result of replacing simpler, more aggregate type calculations or assumptions with more detailed plan specifications or
assumptions. We recorded a $3.2 million reserve decrease in 2019 related to the Grange Life model refinements. In addition,
these refinements resulted in a $0.4 million increase in DAC included in the table above.

The impact to pre-tax income of all adjustments related to unlocking and refinements in estimates, including insurance revenues,
amortization of DAC and VOBA, and policy holder benefits, was an increase of $4.1 million in 2019, a decrease of $0.7 million
in 2018, and a decrease of $1.3 million in 2017.

Pensions and Other Postemployment Benefits (OPEB)
The measurement of pension and other postemployment benefit obligations and costs depends on a variety of assumptions. Changes
in the valuation of pension obligations and assets supporting this obligation can significantly impact the funded status. Assumptions
are made regarding the discount rate, expected long-term rate of return on plan assets, health care claim costs, health care cost
trends, retirement rates, and mortality. Generally, the discount rate, expected return on plan assets, and mortality tables have the
most significant impact on the cost. The components of benefit cost are included in Operating Expenses in the Consolidated
Statements of Comprehensive Income. See Note 13 - Pensions and Other Postemployment Benefits for further details.

Separate Accounts and Guaranteed Minimum Withdrawal Benefits (GMWB)
Separate account assets and liabilities arise from the sale of variable universal life insurance and variable annuity products. The
separate account represents funds segregated for the benefit of certain policyholders who bear the investment risk. The assets are

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

legally segregated and are not subject to claims which may arise from any other business of the Company. The separate account
assets and liabilities, which are equal, are recorded at fair value based upon the NAV of the underlying investment holdings as
derived from closing prices on a national exchange or as provided by the issuer. Policyholder account deposits and withdrawals,
investment income, and realized investment gains and losses are excluded from the amounts reported in the Consolidated Statements
of Comprehensive Income. Revenues to the Company from separate accounts are derived from directly-issued policies and
contracts, as well as reinsurance assumed business. These revenues consist principally of contract charges, which include
maintenance charges, administrative fees, and mortality and expense charges.

We offer a GMWB rider that can be added to new or existing variable annuity contracts. The rider provides an enhanced withdrawal
benefit that guarantees a stream of income payments to an owner or annuitant, regardless of the contract account value. The rider
is considered to be a financial derivative and, as such, is accounted for at fair value. The value of the rider will fluctuate depending
on market conditions, but is principally impacted by stock market volatility, interest rates, and equity market returns. The change
in value could have a material impact on earnings. See Note 5 for further details.

Reinsurance
Consistent with the general practice of the life insurance industry, we enter into traditional indemnity reinsurance agreements with
other insurance companies to support sales of selected new products and the in force business. We cede reinsurance in force on
all of the following bases: automatic and facultative; yearly renewable term (YRT) and coinsurance; and excess and quota share
basis. See Note 15 - Reinsurance for additional information pertaining to our significant reinsurers, along with additional
information pertaining to reinsurance.

Future policy benefits are not reduced for reinsurance ceded in the Consolidated Balance Sheets. A reinsurance recoverable is
established for these items. Reinsurance recoverables include amounts related to paid benefits and estimated amounts related to
unpaid policy and contract claims, future policy benefits, and policyholder account balances. All insurance related revenues,
benefits, and expenses are reported net of reinsurance ceded in the Consolidated Statements of Comprehensive Income.

We have two large reinsurance assumed arrangements. We acquired a block of traditional life and universal life products in 1997
through a 100% coinsurance and servicing arrangement. These assumed policies and contracts are accounted for in a manner
similar to that used for direct business. We also acquired a block of variable universal life insurance policies and variable annuity
contracts in 2013. We receive fees based upon both specific transactions and the fund value of the block of policies, as provided
under modified coinsurance transactions. Also, as required under modified coinsurance transaction accounting, the separate account
fund balances are not recorded as separate accounts on our financial statements. The coinsurance portion of the transaction, which
is invested in our fixed funds, is included in Future Policy Benefits in the Consolidated Balance Sheets. We record these fixed
fund accounts as a separate block under our general accounts. We receive fees on both the separate accounts and the fixed fund
accounts.

Property and Equipment
Property and equipment are stated at cost, depreciated over estimated useful lives using the straight-line method, and are included
in Other Assets in the Consolidated Balance Sheets. The home office is depreciated over 10 years to 50 years and furniture and
equipment is depreciated over 3 years to 10 years. The following table provides information about property and equipment at
December 31.

Land

Home office complex

Furniture and equipment

Accumulated depreciation

Property and equipment

2019

2018

766

21,562

35,373

57,701

(35,198)

22,503

766

21,126

38,050

59,942
(31,958)
27,984

Depreciation expense totaled $2.5 million during 2019, $1.8 million during 2018, and $1.5 million during 2017.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Recognition of Revenues
Premiums
Premiums for traditional life insurance products are reported as revenue when due. Premiums for immediate annuities with life
contingencies are reported as revenue when received. Premiums on accident and health, disability, and dental insurance are reported
as earned ratably over the contract period in proportion to the amount of insurance protection provided. Premiums are reported
net of reinsurance, as applicable.

Contract Charges
Contract charges consist of cost of insurance, expense loads, the amortization of unearned revenues, and surrender charges on
policyholder account balances. Cost of insurance relates to charges for mortality. These charges are applied to the excess of the
mortality benefit over the account value for universal life policies. Expense loads are amounts that are assessed against the
policyholder balance as consideration for origination and maintenance of the contract. Surrender charges are fees on policyholder
account balances upon cancellation or withdrawal of policyholder account balances consistent with policy terms.

An additional component of contract charges is the recognition over time of the DRL for certain fixed and variable universal life
policies. This liability arises from front-end loads on such policies and is recognized into the Consolidated Statements of
Comprehensive Income in a manner similar to the amortization of DAC. If it is determined that it is appropriate to change the
assumptions of future experience, then an unlocking adjustment is recognized for the block of business being evaluated. Certain
assumptions, such as interest spreads and surrender rates, may be interrelated, and unlocking adjustments often reflect revisions
to multiple assumptions. In addition, we may also consider refinements in estimates for other unusual or one-time occurrences,
such as administrative or actuarial system upgrades. These items are applied to the appropriate financial statement line items,
similar to unlocking adjustments.

Deposits
Deposits related to universal life, fixed annuity contracts, and investment-type products are credited to policyholder account
balances. Deposits are not recorded as revenue and are shown as a Financing Activity in the Consolidated Statements of Cash
Flows. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy
administration, and surrender charges, and are recognized in the period in which the benefits and services are provided as contract
charges in the Consolidated Statements of Comprehensive Income.

Revenues from Contracts with Customers
We have certain types of non-insurance and non-investment revenue from contracts with customers. These revenues are recognized
when obligations under the terms of the contract are satisfied. The amount of revenue recognized reflects the consideration we
expect to be entitled to in exchange for those services. For these revenues, the performance obligation is fulfilled as services are
rendered. These revenues equaled less than 1% of our total revenues for the years ended December 31, 2019 and December 31,
2018 and are not material to our consolidated financial statements.

Realized Gains (Losses)
We realize investment gains and losses from several sources, including write-downs of investments, the change in the allowance
for mortgage loan losses, sales of investment securities and real estate, and the change in fair value of equity securities and derivative
instruments.

Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return that includes Kansas City Life, Sunset Life, Old
American, and non-life insurance companies. Grange Life files a separate federal income tax return.

Deferred income taxes are recorded based on the differences between the tax bases of assets and liabilities and the amounts at
which they are reported in the consolidated financial statements. Recorded amounts are adjusted to reflect changes in income tax
rates and other tax law provisions as they become enacted.

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (TCJA), which
significantly changed the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, as well as other
changes. As a result of enactment of the legislation, the Company incurred an additional one-time tax expense increase during
the fourth quarter of 2018, primarily related to the remeasurement of certain deferred tax assets and liabilities. The change in tax
as a result of tax reform was a $30.5 million benefit and a $0.3 million expense as of December 31, 2017 and December 31, 2018,
respectively. For additional information, please see Note 12 - Income Taxes.

Deferred income tax assets are subject to ongoing evaluation of whether such assets will be realized. The ultimate realization of
deferred income tax assets generally depends on the reversal of deferred tax liabilities and the generation of future taxable income

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

and realized gains during the periods in which temporary differences become deductible. Deferred income taxes include future
deductible differences relating to unrealized losses on investment securities. We evaluate the character and timing of unrealized
gains and losses to determine whether future taxable amounts are sufficient to offset future deductible amounts. A valuation
allowance against deferred income tax assets may be required if future taxable income of an appropriate amount and character is
not expected.

2. Acquisition

On October 1, 2018, the Company acquired all of the issued and outstanding stock of Grange Life Insurance Company (Grange
Life) from Grange Mutual Casualty Company, for approximately $75 million, subject to certain adjustments under the terms of
the agreement. Additionally, the agreement provides for performance-related contingent consideration based on certain future
revenues of both Grange Life and the Company over a three-year period from the closing date.

The purchase price was reduced $1.7 million during 2019 to settle certain items under the terms of the agreement. Management
established a contingent commission expense liability of $1.0 million during 2019, resulting in a total purchase price of
approximately $74 million.

The acquisition resulted in goodwill, which is included in Other Assets in the Consolidated Balance Sheets. Goodwill was valued
at $43.0 million at December 31, 2018. During 2019, goodwill was reduced $0.7 million, the net of the purchase price adjustments
mentioned above, resulting in a balance of $42.3 million at December 31, 2019. None of the goodwill is expected to be deductible
for tax purposes.

The acquisition generated an amortizable intangible asset, which is the difference between the fair value and book value of the net
reserve liabilities acquired. We evaluated the fair value and book value of all other assets and liabilities acquired and no other
intangible assets were recognized at acquisition. The intangible asset was valued at $20.0 million at December 31, 2019 and $21.1
million at December 31, 2018 and is included in Other Assets in the Consolidated Balance Sheets.

Grange Life is domiciled in the state of Ohio and is licensed in 15 states to sell traditional life insurance, universal life products,
and fixed annuities. The Ohio Department of Insurance approved the transaction. The acquisition of Grange Life expanded our
existing block of business and our insurance sales through access to a wider distribution network of independent agents.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Grange Life is included in the Individual Insurance segment. The following table presents the Grange Life assets and liabilities
acquired on October 1, 2018. The pro forma combined revenue and earnings of the Company and Grange Life, and other disclosures
as may be required, for the current reporting periods as though the acquisition date had been as of January 1, 2018 are not disclosed
in this Annual Report. The disclosure of this information is impracticable because Grange Life has not historically prepared GAAP
financial statements.

Investments:

Fixed maturity securities available for sale, at fair value $
Policy loans

Short-term investments

Total investments

Cash

Reinsurance recoverables

Other assets

Total assets

Future policy benefits:

Life insurance

Immediate annuities

Accident and health insurance

Policyholder account balances:

Universal life insurance

Fixed annuities

Policy and contract claims

Other liabilities

Total liabilities

288,150

12,106

13,587

313,843

12,073

233,486

39,658

599,060

311,351

1,368

1,017

172,449

54,593

8,849

17,933

567,560

Net assets acquired

31,500

The operating results of Grange Life were combined with our operating results subsequent to the acquisition date.
Approximately $15.5 million of total revenues and $15.2 million of total benefits, expenses, and income taxes from Grange Life
were included in the Consolidated Statements of Comprehensive Income for the year ended December 31, 2018.

3. New Accounting Pronouncements

Accounting Pronouncements Adopted During 2019
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02
Leases (Topic 842). Topic 842 includes a lessee model that requires most leases to be reported on the balance sheet. This guidance,
including subsequently issued amendments, became effective for fiscal years beginning after December 15, 2018 and interim
periods within those fiscal years. We adopted this guidance effective January 1, 2019 with no material impact to our consolidated
financial statements.

In January 2017, the FASB issued ASU No. 2017-04 Simplifying the Test for Goodwill Impairment. This update simplified the
subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under Step 2, an entity had to
perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure
that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This
update also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative
assessment. This guidance is effective for fiscal years beginning after December 15, 2020, with early adoption allowed. We early-
adopted this guidance effective January 1, 2019 with no material impact to our consolidated financial statements.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

In March 2017, the FASB issued ASU No. 2017-08 Premium Amortization on Purchased Callable Debt Securities. The amortization
period for premiums is being shortened to the earliest call date. This guidance became effective for fiscal years, and interim periods
within those years, beginning after December 15, 2018. We adopted this guidance effective January 1, 2019 with no material
impact to our consolidated financial statements.

Accounting Pronouncements Issued, Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13 Measurement of Credit Losses on Financial Instruments. Under this guidance,
the incurred loss impairment methodology currently used for loans and other financial instruments will be replaced by a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information
concerning our credit loss estimates. The measurement of expected credit losses will be based on current, historical, and forecasted
information that impacts the collectability of the reported amount. Any credit losses related to available for sale debt securities
will be recorded through a valuation allowance that is established and adjusted over time. The valuation allowance will be based
on the probability of loss over the life of the instrument. Our investments subject to this guidance include, but are not limited to,
fixed maturity securities available for sale, mortgage loans, and reinsurance recoverables. Additional disclosures will be required
to provide information regarding significant estimates and judgments used in estimating credit losses, as well as the credit quality
and underwriting standards of an organization's portfolio. The original effective date for this guidance, including subsequently
issued amendments, was for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. In
November 2019, the FASB deferred the effective date of this guidance to fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years. We are currently evaluating this guidance.

In August 2018, the FASB issued ASU No. 2018-12 Targeted Improvements to the Accounting for Long-Duration Contracts. This
update modifies the existing recognition, measurement, presentation, and disclosure requirements in ASC 944 Financial Services
- Insurance (Topic 944). It focuses on improving the timeliness of recognizing changes in the liability for future policy benefits
and requires that the discount rate assumption be updated at each reporting date. It simplifies the accounting for certain market-
based options or guarantees associated with deposit contracts by requiring insurance entities to measure them at fair value. It also
simplifies the amortization of deferred acquisition costs by requiring amortization on a constant level basis over the expected term
of the related contracts. The original effective date for this guidance was for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020. In November 2019, the FASB deferred the effective date of this guidance to fiscal
years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are
currently evaluating this guidance.

In August 2018, the FASB issued ASU No. 2018-13 Disclosure Framework - Changes to the Disclosure Requirements for Fair
Value Measurement. This update modifies the disclosure requirements for fair value measurements in ASC Topic 820 Fair Value
Measurement. Specific fair value measurement disclosure requirements are removed, modified, or added. This guidance is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this
guidance effective January 1, 2020. The guidance will not impact our earnings or financial position as the modifications only
impact disclosures.

In August 2018, the FASB issued ASU No. 2018-14 Disclosure Framework - Changes to the Disclosure Requirements for Defined
Benefit Plans. This update modifies the disclosure requirements in ASC Subtopic 715-20 Compensation - Retirement Benefits -
Defined Benefit Plans for employers that sponsor defined benefit pension or other postretirement plans. Specific fair value
measurement disclosure requirements are removed, added, or clarified. This guidance is effective for fiscal years ending after
December 15, 2020. We are currently evaluating this guidance. However, it will not impact our earnings or financial position as
the modifications only impact disclosures.

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by
management and did not relate to accounting policies and procedures pertinent to us at this time or were not expected to have a
material impact to the consolidated financial statements.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

4. Investments

Fixed Maturity Securities

Securities by Asset Class
The following table provides amortized cost and fair value of fixed maturity securities by asset class at December 31, 2019.

U.S. Treasury securities and
obligations of U.S. Government
Federal agencies 1
Federal agency issued residential
mortgage-backed securities 1

Subtotal

Corporate obligations:

Industrial

Energy

Communications and technology

Financial

Consumer

Public utilities

Subtotal

Corporate private-labeled residential
mortgage-backed securities

Municipal securities

Other

Redeemable preferred stocks

Total

Amortized
Cost

Gross
Unrealized

Gains

Losses

180,659

11,666

1,379

107,865

289,903

438,868

162,863

231,255

365,621

653,215

288,736

107

8,491

20,264

22,366

11,627

17,265

21,775

31,352

20,807

—

454

348

383

Fair
Value

192,306

1,486

116,303

310,095

461,155

174,484

248,515

386,942

684,219

309,160

2,140,558

125,192

1,275

2,264,475

18,420

240,057

76,417

11,501

1,844

28,303

1,059

575

—

165

1,444

—

20,264

268,195

76,032

12,076

$ 2,776,856

177,237

2,956

$ 2,951,137

1 Federal agency securities are not backed by the full faith and credit of the U.S. Government.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides amortized cost and fair value of fixed maturity securities by asset class at December 31, 2018.

U.S. Treasury securities and
obligations of U.S. Government
Federal agencies 1
Federal agency issued residential
mortgage-backed securities 1

Subtotal

Corporate obligations:

Industrial

Energy

Communications and technology

Financial

Consumer

Public utilities

Subtotal

Corporate private-labeled residential
mortgage-backed securities

Municipal securities

Other

Redeemable preferred stocks

Total

Amortized
Cost

Gross
Unrealized

Gains

Losses

179,208

4,320

2,326

108,943

290,477

479,823

166,231

247,487

293,089

594,892

266,358

2,047,880

26,849

246,815

67,338

14,501

4,120

8,504

6,978

4,461

5,655

3,731

4,717

6,265

31,807

1,993

16,557

169

—

382

—

146

528

7,110

4,362

3,810

7,446

13,963

6,728

43,419

—

1,693

2,080

1,091

Fair
Value

183,146

2,390

112,917

298,453

479,691

166,330

249,332

289,374

585,646

265,895

2,036,268

28,842

261,679

65,427

13,410

$ 2,693,860

59,030

48,811

$ 2,704,079

1 Federal agency securities are not backed by the full faith and credit of the U.S. Government.

Contractual Maturities
The following table provides the distribution of maturities for fixed maturity securities available for sale. Expected maturities
may differ from these contractual maturities since issuers or borrowers may have the right to call or prepay obligations.

Due in one year or less

Due after one year through five years

Due after five years through ten years

Due after ten years

Securities with variable principal payments

Redeemable preferred stocks

December 31, 2019

December 31, 2018

Amortized
Cost
131,443

Fair Value

132,475

Amortized
Cost
118,311

Fair Value

119,083

771,772

1,061,818

593,664

206,658

11,501

802,526

1,131,759

649,790

222,511

12,076

777,498

1,088,868

493,252

201,430

14,501

779,903

1,080,109

502,078

209,496

13,410

Total

$ 2,776,856

$ 2,951,137

$ 2,693,860

$ 2,704,079

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Unrealized Losses on Investments
At the end of each quarter, all fixed maturity securities are reviewed to determine whether impairments exist and whether other-
than-temporary impairments should be recorded. This quarterly process includes an assessment of the credit quality of each
investment in the entire securities portfolio. Additional reporting and review procedures are conducted for those securities where
fair value is less than 90% of amortized cost. A formal review document is prepared no less often than quarterly of all investments
where fair value is less than 80% of amortized cost for six months or more and selected investments that have changed significantly
from a previous period and that have a decline in fair value greater than 10% of amortized cost.

We consider relevant facts and circumstances in evaluating whether the impairment of a security is other-than-temporary. Relevant
facts and circumstances considered include but are not limited to:

• The current fair value of the security as compared to amortized cost;
• The credit rating of the security;
• The extent and the length of time the fair value has been below amortized cost;
• The financial position of the issuer, including the current and future impact of any specific events, material declines
in the issuer’s revenues, margins, cash positions, liquidity issues, asset quality, debt levels, and income results;
Significant management or organizational changes of the issuer;
Significant uncertainty regarding the issuer’s industry;

•
•
• Violation of financial covenants;
• Consideration of information or evidence that supports timely recovery;
• The intent and ability to hold a security until it recovers in value;
• Whether we intend to sell a fixed maturity security and whether it is more likely than not that we will be required to

sell a fixed maturity security before recovery of the amortized cost basis; and

• Other business factors related to the issuer’s industry.

To the extent we determine that a fixed maturity security is deemed to be other-than-temporarily impaired, the portion of the
impairment that is deemed to be due to credit is charged to earnings in the Consolidated Statements of Comprehensive Income
and the cost basis of the underlying investment is reduced. The portion of such impairment that is determined to be non-credit-
related is reflected in other comprehensive income (loss) and accumulated other comprehensive income (loss).

There are a number of significant risks and uncertainties inherent in the process of monitoring impairments, determining if an
impairment is other-than-temporary, and determining the portion of an other-than-temporary impairment that is due to credit.
These risks and uncertainties include but are not limited to:

• The risk that our assessment of an issuer’s ability to meet all of its contractual obligations will change based on

changes in the credit characteristics of that issuer;

• The risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated;
• The risk that the performance of the underlying collateral for securities could deteriorate in the future and credit
enhancement levels and recovery values do not provide sufficient protection to contractual principal and interest;
• The risk that fraudulent, inaccurate, or misleading information could be provided to our credit, investment, and

accounting professionals who determine the fair value estimates and accounting treatment for securities;

• The risk that actions of trustees, custodians, or other parties with interests in the security may have an unforeseen

adverse impact on our investments;

• The risk that new information obtained or changes in other facts and circumstances may lead us to change our intent

to sell the security before it recovers in value;

• The risk that facts and circumstances change such that it becomes more likely than not that we will be required to

sell the investment before recovery of the amortized cost basis; and

• The risk that the methodology or assumptions used to develop estimates of the portion of impairments due to credit

prove, over time, to be inaccurate or insufficient.

Any of these situations could result in a charge to income in a future period.

Once a security is determined to have met certain of the criteria for consideration as being other-than-temporarily impaired, further
information is gathered and evaluated pertaining to the particular security. If the security is an unsecured obligation, the additional
research is a top-down approach with particular emphasis on the likelihood of the issuer to meet the contractual terms of the
obligation. If the security is secured by an asset or guaranteed by another party, the value of the underlying secured asset or the
financial ability of the third-party guarantor is evaluated as a secondary source of repayment. Such research is based upon a top-
down approach, narrowing to the specific estimates of value and cash flow of the underlying secured asset or guarantor. If the
security is a collateralized obligation, such as a mortgage-backed or other asset-backed instrument, research is also conducted to

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

obtain and analyze the performance of the collateral relative to expectations at the time of acquisition and with regard to projections
for the future. Such analyses are based upon historical results, trends, comparisons to collateral performance of similar securities,
and analyses performed by third parties. This information is used to develop projected cash flows that are compared to the amortized
cost of the security.

We may selectively determine that we no longer intend to hold a specific issue to its maturity. If we make this determination and
the fair value is less than the cost basis, the investment is written down to the fair value and an other-than-temporary impairment
is recorded. Subsequently, we seek to obtain the best possible outcome available for this specific issue and record an investment
gain or loss at the disposal date. The Company recorded a $0.6 million impairment of this kind in the year ended December 31,
2019. No impairments of this kind were recorded in the years ended December 31, 2018 or December 31, 2017.

A discounted future cash flow calculation becomes the primary determinant of whether any portion and to what extent an unrealized
loss is due to credit on loan-backed and similar asset-backed securities. Such indications typically include below investment grade
ratings and significant unrealized losses for an extended period of time, among other factors. We identified 10 non-U.S. agency
mortgage-backed securities that were determined to have such indications at December 31, 2019. We identified 13 non-U.S.
agency mortgage-backed securities that were determined to have such indications at December 31, 2018. A discounted future cash
flow analysis was performed for each of these securities to determine if any portion of the impairment was due to credit and deemed
to be other-than-temporary. The discount rate used in calculating the present value of future cash flows was the investment yield
at the time of purchase for each security. The initial default rates were assumed to remain constant or grade down over time,
reflecting our estimate of stabilized collateral performance in the future for such securities. An impairment is recognized as a
realized loss in the Consolidated Statements of Comprehensive Income and the carrying value of the security is written down by
the same amount. The portion of an impairment that is determined not to be due to credit is recorded as a component of accumulated
other comprehensive income (loss) in the Consolidated Balance Sheets. No impairments of this kind were recorded in the years
ended December 31, 2019 or December 31, 2018. Impairments of this kind totaling less than $0.1 million were recorded in the
year ended December 31, 2017.

Significant unrealized losses on securities can continue for extended periods of time, particularly for certain individual securities.
While this can be an indication of potential credit impairments, it can also be an indication of illiquidity in a particular sector or
security. In addition, the fair value of an individual security can be heavily influenced by the complexities of varying market
sentiment or uncertainty regarding the prospects for an individual security. Based upon the process described above, we are best
able to determine if and to what extent credit impairment may exist in these securities by performing present value calculations
of projected future cash flows at the conclusion of each reporting period. By reviewing the most recent data available regarding
the security and other relevant industry and market factors, we can modify assumptions used in the cash flow projections and
determine the best estimate of the portion of any impairment that is due to credit at the conclusion of each period.

We monitor structured securities through a combination of an analysis of vintage, credit ratings, and other factors. Structured
securities include asset-backed, residential mortgage-backed securities, collateralized debt obligations, and other collateralized
obligations.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides information regarding fixed maturity securities available for sale with unrealized losses by asset class
and by length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019.

Less Than 12 Months

Fair
Value

Unrealized
Losses

12 Months or Longer
Fair
Value

Unrealized
Losses

Total

Fair
Value

Unrealized
Losses

U.S. Treasury securities and
obligations of U.S. Government

Federal agency issued residential
mortgage-backed securities 1

Subtotal

Corporate obligations:

Industrial

Energy

Communications and technology

Financial

Consumer

Public utilities

Subtotal

Municipal securities

Other

Total

6,249

2,304

8,553

6,116

3,078

1,074

12,327

22,540
21,795

66,930

12,328

10,298

98,109

273
249

670

165

942

8,778

15,027

8,793

3,066

—

1,999

5,520

8,975
5,224

24,784

—

16,100

49,677

—

370

75
134

605

—

1,400

2,014

2,319

17,346

9,182

3,078

3,073

17,847

31,515
27,019

91,714

12,328

26,398

147,786

454

348
383

1,275

165

1,444

2,956

1 Federal agency securities are not backed by the full faith and credit of the U.S. Government.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Less Than 12 Months

Fair
Value

Unrealized
Losses

12 Months or Longer
Fair
Value

Unrealized
Losses

Total

Fair
Value

Unrealized
Losses

U.S. Treasury securities and
obligations of U.S. Government

Federal agency issued residential
mortgage-backed securities 1

Subtotal

Corporate obligations:

Industrial

Energy

Communications and technology

Financial

Consumer

Public utilities

Subtotal

Municipal securities

Other

Redeemable preferred stocks

14,705

922

15,627

111,282

45,514

65,157

59,036

157,293
39,772

478,054

9,329

10,908

7,202

2,274

815

1,057

1,122

2,723
1,289

9,280

110

299

27,854

350

42,559

7,135

34,989

120,592

60,229

51,688

115,355

200,584
96,603

645,051

46,655

38,856

6,208

141

491

4,836

3,547

2,753

6,324

11,240
5,439

34,139

1,615

1,970

792

8,057

50,616

231,874

105,743

116,845

174,391

357,877
136,375

1,123,105

55,984

49,764

13,410

382

146

528

7,110

4,362

3,810

7,446

13,963
6,728

43,419

1,693

2,080

1,091

Total

$ 521,120

9,804

$ 771,759

39,007

$ 1,292,879

48,811

1 Federal agency securities are not backed by the full faith and credit of the U.S. Government.

The following table provides information regarding the number of fixed maturity securities with unrealized losses at December 31.

Below cost for less than one year

Below cost for one year or more and less than three years

Below cost for three years or more

Total

2019

2018

258

287

558

We do not consider the unrealized losses related to these securities to be credit-related. The unrealized losses at both December 31,
2019 and December 31, 2018 primarily related to changes in interest rates and market spreads subsequent to purchase. A substantial
portion of investment securities that have unrealized losses are either corporate debt issued with investment grade credit ratings
or other investment securities. Included in other investment securities are commercial mortgage-backed securities and asset-
backed securities.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table summarizes investments in fixed maturity securities available for sale with unrealized losses at December 31,
2019.

Amortized
Cost

Fair
Value

Gross
Unrealized
Losses

Securities owned without realized impairment:

Unrealized losses of 10% or less

149,834

147,016

2,818

138

2,956

—

Unrealized losses of 20% or less and greater than 10%

Subtotal

Unrealized losses greater than 20%:

Investment grade:

Less than twelve months

Twelve months or greater

Total investment grade

Below investment grade:

Less than twelve months

Twelve months or greater

Total below investment grade

Unrealized losses greater than 20%

Subtotal

908

150,742

770

147,786

—

150,742

147,786

2,956

Securities owned with realized impairment:

Unrealized losses of 10% or less

Unrealized losses of 20% or less and greater than 10%

Unrealized losses greater than 20%

Subtotal

Total

—

150,742

147,786

2,956

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table summarizes investments in fixed maturity securities available for sale with unrealized losses at December 31,
2018.

Amortized
Cost

Fair
Value

Gross
Unrealized
Losses

Securities owned without realized impairment:

Unrealized losses of 10% or less

$ 1,287,248

$ 1,245,754

Unrealized losses of 20% or less and greater than 10%

Subtotal

Unrealized losses greater than 20%:

Investment grade:

Less than twelve months

Twelve months or greater

Total investment grade

Below investment grade:

Less than twelve months

Twelve months or greater

Total below investment grade

Unrealized losses greater than 20%

Subtotal

Securities owned with realized impairment:

Unrealized losses of 10% or less

Unrealized losses of 20% or less and greater than 10%

Unrealized losses greater than 20%

Subtotal

Total

48,260

42,248

1,335,508

1,288,002

908

—

908

3,987

—

3,987

4,895

678

—

678

2,960

—

2,960

3,638

1,340,403

1,291,640

1,287

—

1,287

1,239

—

1,239

41,494

6,012

47,506

230

—

230

1,027

—

1,027

1,257

48,763

—

$ 1,341,690

$ 1,292,879

48,811

The following table provides information on fixed maturity securities available for sale with unrealized losses by actual or equivalent
Standard & Poor’s rating at December 31, 2019.

AAA

BBB

Total investment grade

B and below

Total below investment grade

Fair
Value

%
of Total

Gross
Unrealized
Losses

%
of Total

5,946

50,797

50,612

39,446

146,801

—

985

4% $

34%

27%

99%

—%

1,755

398

733

2,942

—

147,786

100% $

2,956

59%

14%

25%

100%

—%

100%

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides information on fixed maturity securities available for sale with unrealized losses by actual or equivalent
Standard & Poor’s rating at December 31, 2018.

AAA

BBB

Total investment grade

B and below

Total below investment grade

Fair
Value

66,034

189,896

484,822

536,458

1,277,210

6,263

9,406

15,669

%
of Total

5% $

15%

38%

41%

99%

—%

Gross
Unrealized
Losses

%
of Total

1,929

5,885

18,201

20,696

46,711

733

1,367

2,100

12%

37%

42%

95%

1,292,879

100% $

48,811

100%

Our residential mortgage-backed securities, commercial mortgage-backed securities, and asset-backed securities that were rated
below investment grade represented 43% of the fair value of the total below investment grade securities as of December 31, 2019,
compared to 61% at December 31, 2018.

We held no non-income producing securities at December 31, 2019 or December 31, 2018.

We did not hold securities of any corporation and its affiliates that exceeded 10% of stockholders' equity at December 31, 2019
or 2018.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following tables identify structured securities by credit ratings for all vintages owned at December 31.

Fair
Value

2019

Amortized
Cost

Unrealized
Gains (Losses)

Corporate Private-Labeled Residential MBS:

Investment Grade

Below Investment Grade

Total residential & non-agency MBS

Other structured securities:

Investment grade

Below investment grade

Total other structured securities

Total structured securities

1,626

1,583

18,638

20,264

76,032

—

76,032

96,296

16,837

18,420

76,417

—

76,417

94,837

Fair
Value

2018
Amortized
Cost

Unrealized
Gains (Losses)

Corporate Private-Labeled Residential MBS:

Investment Grade

Below Investment Grade

Total residential & non-agency MBS

Other structured securities:

Investment grade

Below investment grade

Total other structured securities

Total structured securities

1,707

1,704

27,135

28,842

64,188

1,239

65,427

94,269

25,145

26,849

66,052

1,286

67,338

94,187

1,801

1,844

(385)
—
(385)
1,459

1,990

1,993

(1,864)
(47)
(1,911)
82

The following table provides a reconciliation of credit losses recognized in earnings on fixed maturity securities for which a portion
of the other-than-temporary impairment loss was recognized in other comprehensive income (loss) for the years ended December 31.

Credit losses on securities held at the beginning of the year

4,381

4,399

13,224

2019

2018

2017

Additions for increases (decreases) in the credit loss for which
an other-than-temporary impairment was previously
recognized when there was no intent to sell the security
before recovery of its amortized cost basis

Reductions for securities sold

Reductions for increases in cash flows expected to be
collected that are recognized over the remaining
life of the security

584
(520)

—

—
(18)

—

Credit losses on securities held at the end of the year

4,445

4,381

7
(8,819)

(13)
4,399

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides the net unrealized gains (losses) reported in accumulated other comprehensive income (loss) on our
investments in securities available for sale, at December 31.

Net unrealized gains

Amounts resulting from:

DAC, VOBA, and DRL

Policyholder liabilities

Deferred income taxes

Total

2019

2018

2017

174,281

10,219

94,110

(16,096)
(25,480)
(27,866)
104,839

(1,402)
(5,244)
(748)
2,825

(12,674)
(19,616)
(12,980)
48,840

Investment Revenues
The following table provides investment revenues by major category for the years ended December 31.

Gross investment income:

Fixed maturity securities

Equity securities

Mortgage loans

Real estate

Policy loans

Short-term investments

Other investments

Total

Less investment expenses

Net investment income

2019

2018

2017

108,421

100,162

103,438

1,019

28,257

20,919

5,974

1,345

118

1,013

29,260

21,760

5,667

878

120

928

30,686

21,669

5,421

296

105

166,053
(17,704)
148,349

158,860
(17,545)
141,315

162,543
(16,718)
145,825

Investment Gains (Losses)
The following table provides net investment gains (losses) by major category for the years ended December 31.

Fixed maturity securities

Equity securities

Mortgage loans

Real estate

Net investment gains

2019

2018

2017

2,139

4,112
293

2,589

9,133

(367)
(2,005)
143

5,069

2,840

2,470

1,608
(758)
1,235

4,555

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides detail concerning investment gains and losses for the year ended December 31.

2019

2018

2017

Gross gains resulting from:

Sales of investment securities

Investment securities called and other

Real estate

Disposal of affordable housing real estate joint venture

Total gross gains

Gross losses resulting from:

Sales of investment securities

Investment securities called and other

Sale of real estate and joint ventures

Mortgage loans

Total gross losses

Change in allowance for loan losses

Change in fair value:

Equity securities

Derivative instruments

Total change in fair value

Net realized investment gains, excluding
other-than-temporary impairment losses

Net impairment losses recognized in earnings:

Other-than-temporary impairment losses on
fixed maturity securities

Portion of loss recognized in other
comprehensive income (loss)

Net other-than-temporary impairment losses
recognized in earnings

Net investment gains

138

228

2,654

2,589

—

5,381

(62)
(7)
—

—
(69)
293

847

3,265

4,112

9,717

(580)

(4)

(584)
9,133

1,282

4,754

315

6,579

(1,839)
(70)
—
(807)
(2,716)
950

(735)
(1,238)
(1,973)

2,840

—

2,840

837

2,127

1,236

—

4,200

(449)
(5)
(1)
(12)
(467)
(746)

—

1,575

4,562

—

(7)

(7)
4,555

The portion of loss recognized in other comprehensive income (loss) represents the non-credit portion of current or prior other-
than-temporary impairment. Other-than-temporary impairments of $0.6 million were recorded in earnings during the year ended
December 31, 2019. No other-than-temporary impairments were recorded in earnings during the year ended December 31, 2018.
Corporate private-labeled residential mortgage-backed and other securities had impairments recorded in earnings of less than $0.1
million during the year ended December 31, 2017.

Proceeds from Sales of Investment Securities
The following table provides proceeds from the sale of fixed maturity and equity securities, excluding maturities and calls, for the
years ended December 31. The increase in proceeds in 2018 primarily reflected the sale of fixed maturity securities to fund the
acquisition of Grange Life.

Proceeds

9,615

83,145

35,655

2019

2018

2017

Mortgage Loans
Investments in mortgage loans totaled $577.7 million at December 31, 2019, compared to $639.6 million at December 31, 2018.
Our mortgage loans are secured by commercial real estate and are stated at cost, adjusted for premium amortization and discount
accretion, less an allowance for loan losses. We believe this allowance is at a level adequate to absorb estimated credit losses and
was $2.8 million at December 31, 2019 and $3.1 million at December 31, 2018. The decrease in the allowance for loan losses
reflects a reduction in the mortgage loan portfolio. Our periodic evaluation and assessment of the adequacy of the allowance is

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

based on known and inherent risks in the portfolio, historical and industry data, current economic conditions, and other relevant
factors. Please see Note 6 - Financing Receivables for additional information. We do not hold mortgage loans from any single
borrower that exceed 5% of stockholders' equity.

We had 15% of our total investments in commercial mortgage loans at December 31, 2019 compared to 17% at December 31,
2018. New commercial loans, including refinanced loans, totaled $29.7 million during 2019 and $69.7 million during 2018. The
level of new commercial mortgage loans in any year is influenced by market conditions, as we respond to changes in interest rates,
available spreads, borrower demand, and opportunities to acquire loans that meet our yield and quality thresholds.

In addition to the subject collateral underlying the mortgage, we may require some amount of recourse from borrowers as another
potential source of repayment should the loan default. Any recourse requirement deemed necessary is determined as part of the
underwriting requirements of each loan. We added 14 new loans to the portfolio during 2019, and 69% of the total balance of
these loans had some amount of recourse requirement. The average loan-to-value ratio for the overall portfolio was 47% at
December 31, 2019, up from 45% at December 31, 2018. These ratios are based upon the current balance of loans relative to the
appraisal of value at the time the loan was originated or acquired. Additionally, we may receive fees when borrowers prepay their
mortgage loans. The average loan balance was $1.7 million at December 31, 2019 and $1.8 million at December 31, 2018. We
have certain mortgage loans that have an unamortized premium, totaling $0.1 million at both December 31, 2019 and December 31,
2018.

The following table identifies the gross mortgage loan principal outstanding and the allowance for loan losses at December 31.

Principal outstanding

Allowance for loan losses

Carrying value

2019

2018

580,535

(2,836)

577,699

642,688
(3,129)
639,559

The following table summarizes the amount of mortgage loans at December 31, segregated by year of origination. Purchased
loans are shown in the year acquired by the Company, although the individual loans may have been initially originated in prior
years.

Prior to 2011

2011

2012

2013

2014

2015

2016

2017

2018

2019

16,131

23,347

42,054

31,109

33,954
98,288

136,019

104,592

65,560

29,481

%
of Total

3% $

6%
17%

23%

18%

11%

2018

34,664

28,691

57,854

36,720

42,340
116,628

148,803

108,127

68,861

—

%
of Total

7%
18%

23%

17%

11%

—%

Principal outstanding

580,535

100% $

642,688

100%

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table identifies mortgage loans by geographic location at December 31.

2019

%
of Total

2018

%
of Total

Pacific

South Atlantic

East north central

West south central

West north central

Middle Atlantic

Mountain

East south central

New England

115,868

20% $

131,594

88,154

83,758

82,542

67,408

59,610

45,552

29,258

8,385

15%

14%

12%

10%

98,430

86,487

105,927

71,833

61,219

53,697

29,758

3,743

20%

15%

13%

17%

11%

10%

Principal outstanding

580,535

100% $

642,688

100%

The following table identifies the concentration of mortgage loans by state greater than 5% of total at December 31.

California
Texas
Minnesota
Ohio
New Jersey
Georgia
All others

Principal outstanding

2019

92,618
81,741
50,966
38,983
33,883
24,513
257,831
580,535

%
of Total

16% $
14%
9%
7%
6%
4%
44%
100% $

2018
105,735
102,638
54,652
39,028
36,247
30,760
273,628
642,688

%
of Total

16%
16%
9%
6%
6%
5%
42%
100%

The following table identifies mortgage loans by property type at December 31.

2019

%
of Total

2018

%
of Total

Industrial

Office

Medical
Other 1

386,688

67% $

414,076

125,013

19,497
49,337

22%

3%
8%

149,898

19,775
58,939

Principal outstanding

580,535

100% $

642,688

1 The Other category consists principally of apartments and retail properties.

The following table identifies mortgage loans by maturity at December 31.

Due in one year or less

Due after one year through five years
Due after five years through ten years

Due after ten years

2019

3,184

41,566

166,175

369,610

%
of Total

1% $

29%

63%

2018

21,397

54,671

128,713

437,907

Principal outstanding

580,535

100% $

642,688

64%

23%

3%
10%

100%

%
of Total

20%

68%

100%

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table identifies the commercial mortgage portfolio by current loan balance as a percentage of the appraised value
at the time of origination at December 31.

2019

%
of Total

2018

%
of Total

70% or greater

50% to 69%

Less than 50%

87,776

15% $

70,347

292,982

199,777

50%

35%

348,033

224,308

Principal outstanding

580,535

100% $

642,688

11%

54%

35%

100%

We diversify our commercial mortgage loan portfolio both geographically and by property type to reduce certain risks, including
local and regional physical and economic exposures. However, diversification may not always sufficiently mitigate these risks.
Concentration risk exposes us to potential losses from an economic downturn, certain catastrophes, and natural disasters that may
affect geographic locations where we have mortgage loans. We would not expect an occurrence in any of these geographic locations
to have a material adverse effect on our business, financial position, or financial statements. However, we cannot provide assurance
that such risks could not have such material adverse effects.

Under the laws of certain states, environmental contamination of a property may result in a lien on the property to secure recovery
of the costs of cleanup. In some states, such a lien has priority over the lien of an existing mortgage against such property. As a
commercial mortgage lender, we customarily conduct environmental assessments prior to making commercial mortgage loans
secured by real estate and before taking title on real estate. Based on our environmental assessments, we believe that any compliance
costs associated with environmental laws and regulations or any remediation of affected properties would not have a material
adverse effect on our business, financial position, or financial statements. However, we cannot provide assurance that material
compliance costs will not be incurred.

We may refinance commercial mortgage loans prior to contractual maturity as a means of retaining loans that meet our underwriting
and pricing parameters. We refinanced four loans with a total outstanding balance of $4.7 million during the year ended
December 31, 2019. We refinanced one loan with an outstanding balance of $4.2 million during the year ended December 31,
2018. None of these refinancings were the result of troubled debt restructuring.

In the normal course of business, we commit to fund commercial mortgage loans generally up to 120 days in advance. These
commitments typically have fixed expiration dates. A small percentage of commitments expire due to the borrower's failure to
deliver the requirements of the commitment by the expiration date. In these cases, the commitment fee is retained. For additional
information, please see Note 21 - Commitments, Contingent Liabilities, Guarantees, and Indemnifications.

Real Estate
The following table provides information concerning real estate investments by major category at December 31.

Land

Buildings

Less accumulated depreciation

Real estate, commercial

Real estate, joint ventures

Total

2019

2018

33,955

34,063

170,055
(46,431)
157,579

25,437

168,365
(42,766)
159,662

27,332

183,016

186,994

Investment real estate is depreciated on a straight-line basis over periods ranging from 3 years to 60 years. We had real estate
sales of $2.7 million during 2019, $12.5 million during 2018, and $2.1 million during 2017.

We had $25.4 million in real estate joint ventures at December 31, 2019, compared with $27.3 million at December 31, 2018. We
are the holder of all shares in three subsidiary real estate joint ventures with a combined carrying value of $20.3 million at
December 31, 2019 and $20.7 million at December 31, 2018. Each of the three subsidiaries holds a 50% interest in these separate
joint ventures and all are based in Urbandale, Iowa. The Company periodically reviews its real estate and real estate joint ventures
for impairment and tests for recoverability whenever events or changes in circumstances indicate the carrying value may not be
recoverable and exceeds its estimated fair value. For equity method investees, we consider financial and other information provided

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

by the investee as well as other known information, including recent market activity and prospects for future activity, in determining
whether an impairment has occurred. Based on our reviews performed, we concluded that no impairment existed as of December
31, 2019 or 2018.

We had non-income producing commercial real estate, consisting of vacant properties and properties under development, of $10.0
million at December 31, 2019, compared to $14.7 million at December 31, 2018. In addition, $11.6 million of our real estate joint
ventures were non-income producing at December 31, 2019 compared to $12.0 million at December 31, 2018.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

5. Fair Value Measurements

Under GAAP, fair value represents the price that would be received to sell an asset or paid to transfer a liability (exit price) in an
orderly transaction between market participants at the measurement date. We maximize the use of observable inputs and minimize
the use of unobservable inputs when developing fair value measurements.

We categorize our financial assets and liabilities measured at fair value in three levels, based on the inputs and assumptions used
to determine the fair value. These levels are as follows:

Level 1 - Valuations are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 - Valuations are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable
in the market. Valuations are obtained from a third-party pricing service or inputs that are observable or derived principally from
or corroborated by observable market data.

Level 3 - Valuations are generated from techniques that use significant assumptions not observable in the market. These
unobservable assumptions reflect our assumptions that market participants would use in pricing the asset or liability. Valuation
techniques include the use of discounted cash flow models, spread-based models, and similar techniques, using the best information
available in the circumstances.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair
value for financial instruments not recorded at fair value but for which fair value is disclosed.

Assets
Fixed Maturity and Equity Securities
Fixed maturity securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair value
measurement is based upon unadjusted quoted prices, if available, except as described in the subsequent paragraphs.

Short-Term Investments
Short-term investments include highly-liquid investments in institutional money market funds that are carried at NAV. The carrying
value of short-term investments approximates the fair value and are categorized as Level 1. Fair value is provided for disclosure
purposes only.

Other Investments
Other investments include hedge positions classified as derivatives that are established in relation to the Company's indexed
universal life portfolio. These positions are recorded at fair value and are classified as Level 3.

Separate Accounts
The separate account assets and liabilities, which are equal, are recorded at fair value based upon NAV of the underlying investment
holdings as derived from closing prices on a national exchange or as provided by the issuer. This is the value at which a policyholder
could transact with the issuer on that date. Separate accounts are categorized as Level 2.

Liabilities
Investment-Type Liabilities Included in Policyholder Account Balances and Other Policyholder Funds
The fair values of supplementary contracts and annuities without life contingencies are estimated to be the present value of payments
at a market yield. The fair values of deposits with no stated maturity are estimated to be the amount payable on demand at the
measurement date. These liabilities are categorized as Level 3. We have not estimated the fair value of the liabilities under contracts
that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts. Insurance
contracts are excluded from financial instruments that require disclosures of fair value.

Reserves established in relation to the Company's hedge positions on its indexed universal life portfolio are considered to be
financial derivatives and are accounted for at fair value. These reserves are classified as level 3.

Guaranteed Minimum Withdrawal Benefits Included in Other Policyholder Funds
Fair value for GMWB rider contracts is a Level 3 valuation, as it is based on models which utilize significant unobservable inputs.
These models require actuarial and financial market assumptions, which reflect the assumptions market participants would use in
pricing the contract, including adjustments for volatility, risk, and issuer non-performance.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Determination of Fair Value
We utilized external third-party pricing services at both December 31, 2019 and December 31, 2018 to determine the majority of
our fair values on fixed maturity and equity securities. At December 31, 2019, approximately 96% of the carrying value of these
investments was from an external pricing service, 3% was from brokers, and 1% was derived from internal matrices and calculations.
At December 31, 2018, approximately 97% of the carrying value of these investments was from an external pricing service, 2%
was from brokers, and 1% was derived from internal matrices and calculations. We review prices received from service providers
for reasonableness and unusual fluctuations but generally accept the price identified from the pricing service. In the event a price
is not available from the third-party pricing service, we pursue external pricing from brokers. Generally, we pursue and utilize
only one broker quote per security. In doing so, we solicit only brokers which have previously demonstrated knowledge and
experience of the subject security. If a broker price is not available, we determine a fair value through various valuation techniques
that may include discounted cash flows, spread-based models, or similar techniques, depending upon the specific security to be
priced. These techniques are primarily applied to private placement securities. We utilize available market information, wherever
possible, to identify inputs into the fair value determination, primarily prices and spreads on comparable securities.

Each quarter, we evaluate the prices received from the third-party pricing service and independent brokers to ensure that the prices
represent a reasonable estimate of the fair value within the macro-economic environment, sector factors, and overall pricing trends
and expectations. We corroborate and validate the pricing source through a variety of procedures that include but are not limited
to: comparison to brokers, where possible; a review of third-party pricing service methodologies; back testing; in-depth specific
analytics on randomly selected issues; and comparison of prices to actual trades for specific securities where observable data exists.
In addition, we analyze the third-party pricing service's methodologies and related inputs and also evaluate the various types of
securities in our investment portfolio to determine an appropriate fair value hierarchy. Finally, we also perform additional
evaluations when individual prices fall outside tolerance levels when comparing prices received from the third-party pricing service.

Fair value measurements for assets and liabilities where limited or no observable market data exists are calculated using our own
estimates and are categorized as Level 3. These estimates are based on current interest rates, credit spreads, liquidity premium or
discount, the economic and competitive environment, unique characteristics of the asset or liability, and other pertinent factors.
Therefore, these estimates cannot be determined with precision and may not be realized in an actual sale or immediate settlement
of the asset or liability. Further, changes in the underlying assumptions used, including discount rates and estimates of future cash
flows, could significantly affect the results of current or future values.

Our own estimates of fair value of fixed maturity and equity securities may be derived in a number of ways, including but not
limited to: 1) pricing provided by brokers, where the price indicates reliability as to value; 2) fair values of comparable securities,
incorporating a spread adjustment for maturity differences, collateralization, credit quality, liquidity, and other items, if applicable;
3) discounted cash flow models and margin spreads; 4) bond yield curves; 5) observable market prices and exchange transaction
information not provided by external pricing services; and 6) statement values provided to us by fund managers.

The fair value of the GMWB embedded derivative is calculated using a discounted cash flow valuation model that projects future
cash flows under multiple risk neutral stochastic equity scenarios. The risk neutral scenarios are generated using the current swap
curve and projected equity volatilities and correlations. The equity correlations are based on historical price observations. For
policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience. The
mortality assumption uses the 2012 Individual Annuity Reserving Table. The present value of cash flows is determined using the
discount rate curve, based upon London Interbank Offered Rate (LIBOR) plus a credit spread.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Categories Reported at Fair Value

The following tables present the fair value hierarchy for those assets and liabilities reported at fair value on a recurring basis at
December 31.

Level 1

Level 2

Level 3

Total

2019

15,745
—

—
15,745

—
—
—
—
—
—
—

—
—
—
—
15,745
483
75,426
—
—
91,654

Assets:

U.S. Treasury securities and
obligations of U.S. Government
Federal agencies 1
Federal agency issued residential
mortgage-backed securities 1

Subtotal

Corporate obligations:

Industrial
Energy
Communications and technology
Financial
Consumer
Public utilities
Subtotal

Corporate private-labeled residential
mortgage-backed securities
Municipal securities
Other
Redeemable preferred stocks
Fixed maturity securities
Equity securities
Short-term investments
Other investments
Separate account assets
Total

Percent of total

Liabilities:

Policyholder account balances:

Indexed universal life
Other policyholder funds:

Guaranteed minimum withdrawal benefits

Separate account liabilities

Total

176,561
1,486

116,303
294,350

461,155
174,484
248,515
386,942
684,219
309,160
2,264,475

20,264
268,195
76,032
12,076
2,935,392
10,789
—
—
431,201
$ 3,377,382

—
—

—
—
—
—
—
—
—

—
—
—
—
—
—
—
4,363
—
4,363

192,306
1,486

116,303
310,095

461,155
174,484
248,515
386,942
684,219
309,160
2,264,475

20,264
268,195
76,032
12,076
2,951,137
11,272
75,426
4,363
431,201
$ 3,473,399

97%

—%

100%

—

—
—
—

—

3,603

—
431,201
431,201

(959)
—
2,644

(959)
431,201
433,845

1 Federal agency securities are not backed by the full faith and credit of the U.S. Government.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Level 1

Level 2

Level 3

Total

2018

Assets:

U.S. Treasury securities and
obligations of U.S. Government
Federal agencies 1
Federal agency issued residential
mortgage-backed securities 1

Subtotal
Corporate obligations:

Industrial

Energy

Communications and technology

Financial

Consumer

Public utilities

Subtotal

Corporate private-labeled residential
mortgage-backed securities
Municipal securities

Other

Redeemable preferred stocks

Fixed maturity securities

Equity securities

Short-term investments

Separate account assets

Total

Percent of total

Liabilities:

25,251

157,895

—

25,251

—

—
—

—

25,251

4,264

58,712

—

2,390

112,917

273,202

479,691

166,330

249,332

289,374

585,646

265,895
2,036,268

28,842

261,679

65,427

13,410

2,678,828

10,160

—

373,734

88,227

$ 3,062,722

—

—
—

—

183,146

2,390

112,917

298,453

479,691

166,330

249,332

289,374

585,646

265,895
2,036,268

28,842

261,679

65,427

13,410

2,704,079

14,424

58,712

373,734

$ 3,150,949

97%

—%

100%

Other policyholder funds:

Guaranteed minimum withdrawal benefits

Separate account liabilities

Total

—

373,734

(3,648)
—
(3,648)

(3,648)
373,734

370,086

1 Federal agency securities are not backed by the full faith and credit of the U.S. Government.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31 are
summarized below. The fair value of the derivatives included in Other Investments and the related reserves in relation to our
indexed universal life portfolio were insignificant at December 31, 2018.

2019

Assets

Liabilities

Other
Investments

Indexed
Universal Life

GMWB

Beginning balance at January 1, 2019

498

352

Included in earnings

Included in other comprehensive
income (loss)

Purchases, issuances, sales and
other dispositions:

Purchases

Issuances

Sales

Other dispositions

Ending balance

3,265

—

2,702

—

(2,102)
—

3,251

—

—
—

4,363

3,603

(3,648)
1,338

—

412

—
939
(959)

Beginning balance

Included in earnings

Included in other comprehensive
income (loss)

Purchases, issuances, sales and
other dispositions:

Purchases

Issuances

Sales

Other dispositions

Ending balance

2018

Liabilities

GMWB

(3,252)

(921)

—

235

—

290

(3,648)

We did not have any transfers between any levels during the years ended December 31, 2019, 2018, or 2017.

The $4.4 million of other investments categorized as Level 3 were valued with broker prices using both observable inputs along
with unobservable inputs of implied volatility and other inputs in the broker proprietary model. We use the Black Scholes valuation
method, including parameters for market volatility, risk-free rate, and index level, for the $3.6 million indexed universal life
liabilities categorized as Level 3. We also use a 100% persistency assumption. Persistency of the business is an unobservable
input.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table presents the valuation method for the GMWB liability categorized as Level 3, as well as the unobservable
inputs used in the valuation of those financial instruments at December 31, 2019.

Embedded Derivative -
GMWB

(959) Actuarial cash flow

model

Fair Value
$

Valuation
Technique

Unobservable
Inputs

Mortality

Lapse

Benefit Utilization

Nonperformance
Risk

Range
85% of the 2012 IAR
Table

0%-12% depending
on product/duration/
funded status of
guarantee
0%-80% depending
on age/duration/
funded status of
guarantee
0.42%-1.16%

Embedded Derivative -
GMWB

(3,648) Actuarial cash flow

model

Fair Value
$

Valuation
Technique

Unobservable
Inputs

Mortality

Lapse

Benefit Utilization

Nonperformance
Risk

Range
85% of the 2012 IAR
Table

0%-12% depending
on product/duration/
funded status of
guarantee
0%-80% depending
on age/duration/
funded status of
guarantee
0.40%-1.60%

The GMWB liability is sensitive to changes in observable and unobservable inputs. Observable inputs include risk-free rates,
index returns, volatilities, and correlations. Increases in risk-free rates and equity returns reduce the liability, while increases in
volatilities increase the liability. Unobservable inputs include mortality, lapse, benefit utilization, and nonperformance risk
adjustments. Increases in mortality, lapses, and credit spreads used for nonperformance risk reduce the liability, while increases
in benefit utilization increase the liability.

Following are estimates of the impact from changes in unobservable inputs on the GMWB liability at December 31.

A 10% increase in the mortality assumption

A 10% decrease in the lapse assumption

A 10% increase in the benefit utilization

A 10 basis point increase in the credit spreads used for non-performance

2019

2018

Increase/(Decrease)
in millions
(0.1)
0.2

1.0
(0.4)

(0.1)
—

—
(0.3)

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following tables present a summary of fair value estimates for financial instruments at December 31. Assets and liabilities
that are not financial instruments are not included in this disclosure. The total of the fair value calculations presented below may
not be indicative of the value that can be obtained.

Assets:

Investments:

Fixed maturity securities available for sale $
Equity securities

Mortgage loans

Policy loans

Other investments

Short-term investments

Separate account assets

Liabilities:

Individual and group annuities

Supplementary contracts and annuities
without life contingencies

Separate account liabilities

Policyholder account balances - indexed
universal life

Other policyholder funds - GMWB

Assets:

Investments:

Fixed maturity securities available for sale $
Equity securities

Mortgage loans

Policy loans

Short-term investments

Separate account assets

Liabilities:

Individual and group annuities

Supplementary contracts and annuities
without life contingencies
Separate account liabilities

Other policyholder funds - GMWB

2019

Fair Value

Level 1

Level 2

Level 3

Total

Carrying
Value

15,745

$ 2,935,392

— $ 2,951,137

$ 2,951,137

483

—

75,426

—

10,789

—

431,201

—

431,201

—

597,577

87,499

4,363

—

11,272

597,577

87,499

4,363

75,426

11,272

577,699

87,499

4,363

75,426

431,201

1,077,538

1,096,588

52,186

—

3,603
(959)

52,186

431,201

53,128

431,201

3,603
(959)

2018

Fair Value

Level 1

Level 2

Level 3

Total

Carrying
Value

25,251

$ 2,678,828

— $ 2,704,079

$ 2,704,079

—
640,796

88,066

—

14,424
640,796

88,066

58,712

373,734

14,424
639,559

88,066

58,712

373,734

1,049,195

1,068,577

50,805

—
(3,648)

50,805

373,734
(3,648)

52,798

373,734
(3,648)

10,160
—

—

373,734

—

373,734

—

4,264
—

—

58,712

—

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

6. Financing Receivables

We have financing receivables with specific maturity dates that are recognized as assets in the Consolidated Balance Sheets.

The following table identifies financing receivables by classification amount at December 31.

Receivables:

Agent receivables, net
(allowance $1,482; 2018 - $1,496)

Investment-related financing receivables:

Mortgage loans, net
(allowance $2,836; 2018 - $3,129)

2019

2018

2,432

2,078

577,699

639,559

Total financing receivables

580,131

641,637

Agent Receivables
We have certain agent receivables that are classified as financing receivables. These receivables from agents are specifically
assessed for collectibility and are reduced by an allowance for doubtful accounts.

The following table details the gross receivables, allowance, and net receivables for the two types of agent receivables at December
31.

2019

2018

Gross
Receivables

Allowance

Net
Receivables

Gross
Receivables

Allowance

Net
Receivables

Agent specific loans

Other agent receivables

Total

1,245

2,669

3,914

600

882

1,482

645

1,787

2,432

1,210

2,364

3,574

600

896

1,496

610

1,468

2,078

The following table details the activity of the allowance for doubtful accounts on agent receivables at December 31. Any recoveries
are included as deductions.

Beginning of year

Additions

Deductions

End of year

2019

2018

1,496

(64)

1,482

817

812
(133)
1,496

Mortgage Loans
We classify our mortgage loan portfolio as long-term financing receivables. Mortgage loans are stated at cost, adjusted for
amortization of premium and accretion of discount, less an allowance for loan losses. Mortgage loan interest income is recognized
on an accrual basis with any premium or discount amortized over the life of the loan. Prepayment and late fees are recorded on
the date of collection. Loans in foreclosure, loans considered impaired, or loans past due 90 days or more are placed on non-
accrual status. Payments received on loans on non-accrual status for these reasons are applied first to interest income not collected
while on non-accrual status, followed by fees, accrued and past-due interest, and principal.

If a mortgage loan is placed on non-accrual status, we do not accrue interest income in the financial statements. The loan is
independently monitored and evaluated as to potential impairment or foreclosure. This evaluation includes assessing the probability
of receiving future cash flows, along with consideration of many of the factors described below. If delinquent payments are made
and the loan is brought current, then we return the loan to active status and accrue income accordingly.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table details the mortgage loan portfolio as collectively or individually evaluated for impairment at December 31.

Mortgage loans collectively evaluated
for impairment

Mortgage loans individually evaluated
for impairment

Allowance for loan losses

Carrying value

2019

2018

508,501

568,521

72,034

(2,836)

577,699

74,167
(3,129)
639,559

Generally, we consider our mortgage loans to be a portfolio segment. We consider our primary class to be property type. We
primarily use loan-to-value as our credit risk quality indicator but also monitor additional secondary risk factors, such as geographic
distribution both on a regional and specific state basis. The mortgage loan portfolio segment is presented by property type in a
table in Note 4, as are geographic distributions by both region and state. These measures are also supplemented with various other
analytics to provide additional information concerning potential impairment of mortgage loans and management's assessment of
financing receivables.

There were no mortgage loans that were past due at December 31, 2019 or at December 31, 2018. We had no troubled loans that
were restructured or modified during 2019 or 2018.

The following table details the activity within the allowance for mortgage loan losses at December 31. Any recoveries are reflected
as deductions.

Beginning of year

Provision

Deductions

End of year

2019

2018

3,129

139

(432)

2,836

4,079

323
(1,273)
3,129

The Company decreased the allowance for mortgage loan losses $0.3 million in 2019, primarily due to the lower volume of loans.
The Company decreased the allowance for mortgage loan losses $1.0 million in 2018, largely due to the settlement of a loan in
2018 that was in the process of foreclosure at December 31, 2017. In addition, the allowance for loan losses decreased due to the
lower volume of loans at December 31, 2018.

The allowance for loan losses is monitored and evaluated at multiple levels with a process that includes, but is not limited to, the
factors presented below. Generally, we establish the allowance for loan losses using the collectively evaluated impairment
methodology at an overall portfolio level and then specifically identify an allowance for loan losses on loans that contain elevated
risk profiles. If we determine through our evaluation that a loan has an elevated specific risk profile, we then individually assess
the loan’s risk profile and may assign a specific allowance value based on many factors, including those identified below.

Macro-environmental and elevated risk profile considerations:

Perceived market liquidity;

• Current industry conditions that are affecting the market, including rental and vacancy rates;
•
• Analysis of the markets and sub-markets in which we have mortgage loans;
• Analysis of industry historical loss and delinquency experience;
• Other factors that we may perceive as important or critical given our portfolio; and
• Analysis of our loan portfolio based on loan size concentrations, geographic concentrations, property type concentrations,

maturity concentrations, origination loan-to-value concentrations, and borrower concentrations.

Specific mortgage loan level considerations:

• The payment history of each borrower;
• Negative reports from property inspectors; and
• Each loan’s property financial statement including net operating income, debt service coverage, and occupancy level.

We have not acquired any mortgage loans with deteriorated credit quality during the years presented.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

As part of our process of monitoring impairments on loans, there are a number of significant risks and uncertainties inherent in
this process. These risks include, but are not limited to:

• The risk that our assessment of a borrower's ability to meet all of its contractual obligations will change based on changes

in the credit characteristics of the borrower or property;

• The risk that the economic outlook will be worse than expected or have more of an impact on the borrower than anticipated;
• The risk that the performance of the underlying property could deteriorate in the future;
• The risk that fraudulent, inaccurate, or misleading information could be provided to us;
• The risk that the methodology or assumptions used to develop estimates of the portion of the impairment of the loan prove

over time to be inaccurate; and

• The risk that other facts and circumstances change such that it becomes more likely than not that we will not obtain all

of the contractual payments.

To the extent our review and evaluation determines a loan is impaired, that amount is charged to the allowance for loan losses and
the loan balance is reduced. In the event that a property is foreclosed upon, the carrying value is recorded at fair value, less costs
to sell the property at the time of foreclosure, with a charge to the allowance and a corresponding reduction to the mortgage loan
asset. The property is then transferred to real estate where we have the ability and intent to manage these properties on an ongoing
basis.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

7. Variable Interest Entities (VIEs)

We invest in certain affordable housing and real estate joint ventures. These VIEs are included in Real Estate in the Consolidated
Balance Sheets.

The assets held in affordable housing real estate joint venture VIEs are primarily residential real estate properties that are restricted
to provide affordable housing under federal or state programs for varying periods of time. The restrictions primarily apply to the
rents that may be paid by tenants residing in the properties during the term of an agreement to remain in the affordable housing
program. Investments in these joint ventures are equity interests in partnerships or limited liability companies that may or may
not participate in profits or residual value. Our investments in these entities generate a return primarily through the realization of
federal and state income tax credits and other tax benefits, such as tax deductions from operating losses of the investments, over
specified time periods. We amortize the initial cost of the investment in proportion to the tax credits and other tax benefits received
and recognize the net investment performance in the Consolidated Statements of Comprehensive Income as a component of income
tax expense. On December 22, 2017, the newly enacted TCJA changed the expected statutory tax rate for tax years beginning
January 1, 2018. The change in tax rate from 35% to 21% required a remeasurement of the unamortized asset related to affordable
housing investments. This remeasurement resulted in a decrease to the asset and a nonrecurring increase in amortization of $0.8
million in 2017 that is included in income tax benefit in the Consolidated Statements of Comprehensive Income and the table
below. The tax credits reduce tax expense while the amortization increases tax expense.

The following table provides information regarding our VIEs that generate tax credits and related amortization for the years ended
December 31.

Federal income tax credits realized

Amortization

Amortization related to tax rate change

2019

2018

2017

2,608

1,421

—

2,752

1,452

—

2,752

1,592

768

Our investments in other real estate VIEs are recorded using the equity method. Cash distributions from the VIE and cash
contributions to the VIE are recorded as decreases or increases, respectively, in the carrying value of the VIE. Certain other equity
investments in VIEs, where permitted, are recorded on an amortized cost basis. The operating performance of investments in the
VIE is recorded in the Consolidated Statements of Comprehensive Income as investment income or as a component of income
tax expense, depending upon the nature and primary design of the investment. We evaluate the carrying value of VIEs for impairment
on an ongoing basis to assess whether the carrying value is expected to be realized during the anticipated life of the investment.
No impairments were recorded during the years ended December 31, 2019, 2018, or 2017.

Investments in the affordable housing and real estate joint ventures are interests that absorb portions of the VIE's expected losses.
These investments also receive portions of expected residual returns of the VIE's net assets exclusive of variable interests. We
make an assessment of whether we are the primary beneficiary of a VIE at the time of the initial investment and on an ongoing
basis thereafter. We consider many factors when making this determination based upon a review of the underlying investment
agreement and other information related to the specific investment. The first factor is whether we have the ability to direct the
activities of a VIE that most significantly impact the VIE's economic performance. The power to direct the activities of the VIE
is generally vested in the managing general partner or managing member of the VIE, which is not the position held by us in these
investments. Other factors include the entity's equity investment at risk, decision-making abilities, obligations to absorb economic
risks, the right to receive economic rewards of the entity, and the extent to which we share in the VIE's expected losses and residual
returns.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table presents the carrying amount and maximum exposure to loss relating to VIEs for which we hold a variable
interest, but are not the primary beneficiary, and which had not been consolidated at December 31, 2019 and December 31, 2018.
The table includes investments in five real estate joint ventures and 16 affordable housing real estate joint ventures at both
December 31, 2019 and December 31, 2018.

Real estate joint ventures

Affordable housing real estate joint ventures

Total

2019

2018

Carrying
Amount

Maximum
Exposure
to Loss

Carrying
Amount

Maximum
Exposure
to Loss

21,224

4,213

25,437

21,224

29,818

51,042

21,689

5,643

27,332

21,689

30,950

52,639

The maximum exposure to loss relating to the real estate joint ventures and affordable housing real estate joint ventures is equal
to the carrying amounts plus any unfunded equity commitments, exposure to potential recapture of tax credits, guarantees of debt,
or other obligations of the VIE with recourse. Unfunded equity and loan commitments typically require financial or operating
performance by other parties and have not yet become due or payable, but which may become due in the future.

At December 31, 2019 and December 31, 2018, we had no equity commitments outstanding to the real estate joint venture VIEs.
We have contingent commitments to fund additional equity contributions for operating support to certain real estate joint venture
VIEs, which could result in additional exposure to loss. However, we are unable to quantify the amount of these contingent
commitments.

In addition, the maximum exposure to loss on affordable housing joint ventures included $21.4 million of losses which could be
realized if the tax credits received by the VIEs were recaptured at December 31, 2019, compared to $19.7 million at December 31,
2018. Recapture events would cause us to reverse some or all of the benefit previously recognized by us or third parties to whom
the tax credit interests were transferred. A recapture event can occur at any time during a 15-year required compliance period.
The principal causes of recapture include financial default and non-compliance with affordable housing program requirements by
the properties controlled by the VIE. Guarantees from the managing member or managing partner in the VIE, insurance contracts,
or changes in the residual value accruing to our interests in the VIE may mitigate the potential exposure due to recapture.

8. Separate Accounts

Separate account assets and liabilities arise from the sale of variable universal life insurance and variable annuity products. The
separate account represents funds segregated for the benefit of certain policyholders who bear the investment risk. The assets are
legally segregated and are not subject to claims which may arise from any other business of the Company. The separate account
assets and liabilities, which are equal, are recorded at fair value based upon the NAV of the underlying investment holdings as
derived from closing prices on a national exchange or as provided by the issuer. Policyholder account deposits and withdrawals,
investment income, and realized investment gains and losses are excluded from the amounts reported in the Consolidated Statements
of Comprehensive Income. Revenues from separate accounts consist principally of contract charges, which include maintenance
charges, administrative fees, and mortality and expense charges.

The total separate account assets were $431.2 million at December 31, 2019 and $373.7 million at December 31, 2018. Variable
universal life and variable annuity assets comprised 30% and 70% of total separate account assets in 2019, compared to 28% and
72% of the total in 2018.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides a reconciliation of activity within separate account liabilities at December 31.

Balance at beginning of year

Deposits on variable policyholder contracts

Transfers to general account

Investment performance

Policyholder benefits and withdrawals

Contract charges

Balance at end of year

2019

2018

373,734

419,812

21,654
(884)
86,897
(37,677)
(12,523)
431,201

25,722
(1,989)
(24,035)
(32,909)
(12,867)
373,734

We offer a GMWB rider that can be added to new or existing variable annuity contracts. The value of the separate accounts with
the GMWB rider was recorded at fair value of $120.2 million at December 31, 2019. The fair value of the separate accounts with
the GMWB rider was $115.2 million at December 31, 2018. The GMWB guarantee liability was $(1.0) million at December 31,
2019 and $(3.6) million at December 31, 2018. The change in this value is included in Policyholder Benefits in the Consolidated
Statements of Comprehensive Income. The value of variable annuity separate accounts with the GMWB rider is recorded in
Separate Account Liabilities, and the value of the rider is included in Other Policyholder Funds in the Consolidated Balance Sheets.

We have two blocks of variable universal life policies and variable annuity contracts from which fees are received. The fees are
based upon both specific transactions and the fund value of the blocks of policies. We have a direct block of ongoing business
identified in the Consolidated Balance Sheets as separate account assets, totaling $431.2 million at December 31, 2019 and $373.7
million at December 31, 2018, and corresponding separate account liabilities of an equal amount. The fixed-rate funds for these
policies are included in our general account as Policyholder Account Balances. The Future Policy Benefits for the direct block
approximated $0.5 million at both December 31, 2019 and December 31, 2018.

In addition, we have an assumed closed block of variable universal life and variable annuity business that totaled $327.7 million
at December 31, 2019 and $285.6 million at December 31, 2018. As required under modified coinsurance transaction accounting,
the assumed separate account fund balances are not recorded as separate accounts on our consolidated financial statements. Rather,
the assumed fixed-rate funds for these policies of $31.6 million at December 31, 2019 and $30.6 million at December 31, 2018
are included in our general account as Policyholder Account Balances. The Future Policy Benefits for the assumed block
approximated $0.6 million at both December 31, 2019 and December 31, 2018.

Guarantees are offered under variable universal life and variable annuity contracts: a guaranteed minimum death benefit (GMDB)
rider is available on certain variable universal life contracts and on all variable annuities. The GMDB rider for variable universal
life contracts guarantees the death benefit for specified periods of time, regardless of investment performance, provided cumulative
premium requirements are met. The GMDB rider for variable annuity contracts guarantees the death benefit for specified periods
of time, regardless of investment performance.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Separate account balances for variable annuity contracts were $303.8 million at December 31, 2019 and $269.9 million at
December 31, 2018. The total reserve held for variable annuity GMDB was less than $0.1 million at December 31, 2019 and $0.1
million at December 31, 2018. Additional information related to the GMDB and related separate account balances and net amount
at risk (the amount by which the GMDB exceeds the account balance) as of December 31, 2019 and 2018 is provided below:

2019

Net
Amount
at Risk

Separate
Account
Balance

Weighted
Average
Attained
Age

Separate
Account
Balance

2018

Net
Amount
at Risk

Weighted
Average
Attained
Age

Return of net deposits

$ 234,373

166

62.2

$ 210,889

2,184

61.8

Return of the greater of the highest
anniversary contract value or net
deposits

Return of the greater of every fifth
year highest anniversary contract
value or net deposits

Return of the greater of net deposits
accumulated annually at 5% or the
highest anniversary contract value

Total

9,387

6,983

71.1

8,151

749

70.2

68.9

6,723

68.8

53,024

$ 303,767

2,768

3,006

64.6

63.0

44,168

7,433

$ 269,931

10,425

64.1

62.6

The following table presents the aggregate fair value of assets by major investment asset category supporting the variable annuity
separate accounts with guaranteed benefits at December 31.

Money market

Fixed income

Balanced

International equity

Intermediate equity

Aggressive equity

Total

2019

2018

1,692

16,314

84,734

20,146

151,476

29,405

2,683

17,134

77,981

17,432

131,355

23,346

303,767

269,931

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

9. Unpaid Claims Liability and Short-Duration Contracts

The liability for unpaid claims is included with Policy and Contract Claims and Future Policy Benefits in the Consolidated Balance
Sheets. Claim adjustment expenditures are expensed as incurred and were not material in any year presented.

The following tables present activity in the accident and health portion of the unpaid claims liability by segment for the years
ended December 31. Classified as policy and contract claims, but excluded from these tables due to immateriality, are amounts
recorded for group life, individual life, and deferred annuities.

2019

Individual
Insurance

Group
Insurance

Old
American

Consolidated

Gross liability at beginning of year

831

Less reinsurance recoverable

Net liability at beginning of year

Incurred benefits related to:

Current year
Prior years 1

Total incurred benefits

Paid benefits related to:

Current year

Prior years

Total paid benefits

Net liability at end of year

Reinsurance recoverable

Gross liability at end of year

(541)

290

(70)

(39)

204

455

659

31,188
(23,796)
7,392

4,434
(4,402)
32

36,453
(28,739)
7,714

28,201
(398)
27,803

23,557

3,452

27,009

8,186

23,983

32,169

48
(5)
43

3,921

3,952

28,280
(473)
27,807

23,589

3,511

27,100

8,421

28,359

36,780

1 The incurred benefits related to prior years’ unpaid accident and health claims reflect the change in these liabilities.

2018

Individual
Insurance

Group
Insurance

Old
American

Consolidated

Gross liability at beginning of year

657

Less reinsurance recoverable

Net liability at beginning of year
Incurred benefits related to:

Current year
Prior years 1

Total incurred benefits

Paid benefits related to:

Current year

Prior years

Total paid benefits

Net liability at end of year
Reinsurance recoverable

Gross liability at end of year

(372)

285

107

102

290

541

831

27,945
(21,231)
6,714

5,438
(5,346)
92

34,040
(26,949)
7,091

27,526
(647)
26,879

23,150

3,051

26,201

7,392

23,796

31,188

48
(68)
(20)

4,402

4,434

27,606
(640)
26,966

23,179

3,164

26,343

7,714

28,739

36,453

1 The incurred benefits related to prior years’ unpaid accident and health claims reflect the change in these liabilities.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

2017

Individual
Insurance

Group
Insurance

Old
American

Consolidated

Gross liability at beginning of year

785

Less reinsurance recoverable

Net liability at beginning of year

Incurred benefits related to:

Current year
Prior years 1

Total incurred benefits

Paid benefits related to:

Current year

Prior years

Total paid benefits

Net liability at end of year

Reinsurance recoverable

Gross liability at end of year

(445)

340

136

139

285

372

657

26,020
(19,850)
6,170

5,341
(5,260)
81

32,146
(25,555)
6,591

26,836
(430)
26,406

22,758

3,104

25,862

6,714

21,231

27,945

87
(53)
34

5,346

5,438

26,950
(426)
26,524

22,773

3,251

26,024

7,091

26,949

34,040

1 The incurred benefits related to prior years’ unpaid accident and health claims reflect the change in these liabilities.

The following table presents the reconciliation of amounts in the above tables to Policy and Contract Claims and claim reserves
that are included in Future Policy Benefits as presented in the Consolidated Balance Sheets at December 31.

Individual Insurance Segment:

Individual accident and health

Group life

Individual life

Deferred annuity

Subtotal

Group Insurance Segment:

Group accident and health

Group life

Subtotal

Old American Segment:

Individual accident and health

Individual life

Subtotal

Total

2019

2018

2017

659

—

33,252

5,286

39,197

32,169

3,256

35,425

3,952

7,273

11,225

831

27,141

4,289

32,291

31,188

1,994

33,182

4,434

6,814

11,248

657

—

18,506

3,047

22,210

27,945

1,846

29,791

5,438

6,240

11,678

85,847

76,721

63,679

For short-duration contracts, IBNR liabilities for the group long-term disability product that were included in the liability for
unpaid claims and claim adjustment expenses, net of reinsurance, totaled $0.6 million at December 31, 2019 and $0.7 million at
December 31, 2018. These liabilities were calculated by the reinsurers of the various blocks of group long-term disability business,
using percent of premium methodologies with varying factors. Claim frequencies were calculated for the long-term disability
product using information that includes paid and pending claims at the claimant level. Thus, frequency is measured by individual
claimant. Claims that are counted in a particular year as a liability but do not result in a liability in future years are not included
once the claim is settled. There have been no significant changes to the methodologies for calculating claim frequencies, incurred-
but-not-reported liabilities, or any other unpaid claims liabilities for the long-term disability product during the years presented.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The liabilities in the following table for group long-term disability claims involve present value of future benefits calculations.
The carrying amount of liabilities at December 31, 2019 was $5.2 million, consisting of an undiscounted amount of $6.5 million
and an aggregated discount amount deducted of $1.3 million. Discount rates ranged from 3.00% to 8.00% for the various blocks
of group long-term disability business included in the totals.

The following table provides incurred claims and allocated claim adjustment expenses, net of reinsurance, for the group long-term
disability product at December 31, 2019. The amounts for 2016 through 2019 are audited while the amounts for 2015 and earlier
are unaudited.

For the Years Ended December 31,

2012

2013

2014

2015

2016

2017

2018

2019

Total of IBNR
Liabilities
Plus Expected
Development
on Reported
Claims

Cumulative
Number of
Reported
Claims

1,132 $

1,087 $

999 $

806

836

868

993

815

955

989

1,116 $

1,104 $

1,118 $

1,130 $

838

799

918
1,694

838

768

701
1,552

2,038

822

770

697
1,382

1,727

2,473

854

728

643
1,412

1,513

2,192

2,056

Total

$ 10,528

—

—
—

—

561

626

234

182

227
235

244

260

185

Year
Incurred
2012

2013

2014

2015
2016

2017

2018

2019

The following table provides cumulative paid claims and allocated claim adjustment expenses, net of reinsurance, for the group
long-term disability product at December 31, 2019. The amounts for 2016 through 2019 are audited while the amounts for 2015
and earlier are unaudited.

Year
Incurred

2012

2013

2014

2015

2016
2017

2018

2019

For the Years Ended December 31,

2012

2013

2014

2015

2016

2017

2018

2019

373

499

336

605

449

276

100

675

501

411

390

164

733

537

481

491

505
162

All outstanding liabilities before 2012, net of reinsurance

Liabilities for claims and claim adjustment expenses, net of reinsurance

797

564

499

531

626
549

208

Total

856

600

517

545

690
703

681

251

4,843

853

6,538

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides a reconciliation of incurred and paid claims development information to the aggregate carrying
amount of the liability for unpaid claims and claim adjustment expenses at December 31. Included in other short-duration contracts
are group life, group short-term disability, group dental, group vision, and individual accident and health for the Individual and
Old American segments, none of which are individually significant.

Net outstanding liabilities:

Group long-term disability

Other short-duration contracts

2019

2018

6,538

5,535

6,172

4,282

Liabilities for unpaid claims and claim adjustment
expenses, net of reinsurance

12,073

10,454

Reinsurance recoverable on unpaid claims:

Group long-term disability

Other short-duration contracts

Total reinsurance recoverable on unpaid claims

Insurance lines other than short-duration

Unallocated claims adjustment expenses

Impact of discounting

Other

28,631

5,532

34,163

45,832
—
(6,221)
—

39,611

28,750

5,571

34,321

38,338
—
(6,392)
—

31,946

Total gross liability for unpaid claims and claim
adjustment expenses

85,847

76,721

The following table provides the historical average annual percentage payout of incurred claims by age, net of reinsurance, at
December 31, 2019.

Group long-term disability

11.00%

28.30%

12.90%

7.19%

3.74%

Years

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

10. Participating Policies

We have insurance contracts where the policyholder is entitled to share in the earnings through dividends, which reflect the
difference between the premium charged and the actual experience. These insurance contracts were directly issued by the Company
or were acquired through the purchase of participating blocks of business, largely through reinsurance assumption transactions.
Participating business approximated 6% of total statutory premiums in both 2019 and 2018. Assumed participating business from
the acquisition of closed blocks of business accounted for 99% of total participating statutory premiums in both 2019 and 2018.
Participating business equaled 5% of total life insurance in force at both December 31, 2019 and December 31, 2018. Assumed
participating business accounted for 97% of total participating life insurance in force at both December 31, 2019 and December 31,
2018.

The amount of dividends to be paid is determined annually by our Board of Directors. Provision has been made in the liability
for future policy benefits to allocate amounts to participating policyholders on the basis of dividend scales contemplated at the
time the policies were issued, as well as for policyholder dividends having been declared by the Board of Directors in excess of
the original scale.

11. Debt

We had no notes payable outstanding at December 31, 2019 or December 31, 2018.

As a member of the Federal Home Loan Bank of Des Moines (FHLB) with a capital investment of $4.8 million at December 31,
2019, we have the ability to borrow on a collateralized basis from the FHLB. We received an insignificant amount of dividends
on the capital investment in 2019, 2018, and 2017.

We had unsecured revolving lines of credit with three major commercial banks that totaled $80.0 million at December 31, 2019,
with no balances outstanding. We had unsecured revolving lines of credit with two major commercial banks that totaled $70.0
million at December 31, 2018, with no balances outstanding. The lines of credit are at variable interest rates based upon short-
term indices and will mature in June of 2020. We anticipate renewing these lines of credit as they come due. One line of credit
includes a $10.0 million portion that can be unconditionally canceled by the lending institution at its discretion at any time.

The Company has access to secured borrowings through repurchase agreements with two financial counterparties. The Company
had no transactions that occurred under these agreements during 2019 and had no outstanding borrowings as of December 31,
2019. Any borrowings drawn under these agreements require a variable interest rate based upon short-term indices and approval
from the counterparty at the time of the transaction. No securities are currently pledged under these agreements.

12. Income Taxes

The following table provides information about income taxes for the years ended December 31.

2019

2018

2017

Current income tax expense (benefit)

Deferred income tax expense

Adjustment to deferred taxes for enacted
changes in tax laws

Total income tax expense (benefit)

4,597

426

—

5,023

1,514

276

(30,487)
(22,172)

(505)
1,743

4,784

3,531

The following table provides information about taxes paid for the years ended December 31.

Cash paid (refund) for income taxes

(938)

(963)

3,569

2019

2018

2017

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides a reconciliation of the federal income tax rate to our effective income tax rate for the years ended
December 31.

Federal income tax rate

Tax credits, net of equity adjustment

Permanent differences and other

Remeasurement of deferred taxes for enacted
changes in tax laws

Effective income tax rate

2019

2018

2017

21 %

(8)%

4 %

— %

17 %

21 %

(10)%

(4)%

2 %

9 %

35 %

(2)%

(106)%

(75)%

Presented below are tax effects of temporary differences that result in significant deferred tax assets and liabilities at December 31.

Deferred tax assets:

Future policy benefits

Employee retirement benefits

Tax carryovers

Other

Deferred tax assets

Deferred tax liabilities:

Basis differences between tax and

GAAP accounting for investments

Unrealized investment gains

Capitalization of DAC, net of amortization

VOBA

Property and equipment

Deferred tax liabilities

Net deferred tax liability

Current tax asset

Income taxes payable

2019

2018

18,781

15,752

6,468

1,124

2,581

28,954

3,673

36,600

33,431

2,631

3,338

79,673

50,719
(145)
50,574

6,465

3,791

2,259

28,267

2,712

2,146

36,410

4,264

5,102

50,634

22,367
(4,259)
18,108

A valuation allowance must be established for any portion of the deferred tax asset which is believed not to be realizable.
Management reviews the need for a valuation allowance based on our anticipated future earnings, reversal of future taxable
differences, the available carryback and carryforward periods, and tax planning strategies that are prudent and feasible. In
management’s opinion, it is more likely than not that we will realize the benefit of our deferred taxes.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In general,
we are no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years prior to 2016. We are
not currently under examination by the Internal Revenue Service (IRS).

Our policy is to recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company
recognized no tax benefit related to tax penalty and interest expense in 2019, 2018, or 2017.

We had no material uncertain tax positions at December 31, 2019 or December 31, 2018.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Income tax expense (benefit) is recorded in various places in our financial statements, as detailed below, for the years ended
December 31.

Income tax expense (benefit)

Stockholders’ equity:

Related to:

2019

2018

2017

5,023

1,514

(22,172)

Change in net unrealized gains on securities available
for sale

Effect on DAC, VOBA, and DRL

Change in policyholder liabilities

Change in benefit plan obligations

34,453
(3,086)
(4,249)
809

Total income tax expense (benefit) included in financial statements $

32,950

(17,295)
2,357

3,018
(1,548)
(11,954)

426

675

1,081

3,467
(16,523)

Beginning January 1, 2018, the TCJA imposes a limitation on life insurance tax reserves based upon the greater of net surrender
value or 92.81% of the reserve method prescribed by the National Association of Insurance Commissioners (NAIC) which covers
such contracts as of the date the reserve is determined. The Company adopted SEC Staff Accounting Bulletin No. 118 (SAB 118)
as permitted by the FASB in 2017. SAB 118 allows companies to use provisional amounts to record the effects of the TCJA and
also provides a measurement period (not to exceed one year from the date of enactment) to complete the accounting of the impacts
of the TCJA. During 2017, the Company recognized the provisional tax impacts related to the change in the methodology employed
to calculate tax reserves by recording a deferred tax asset and offsetting deferred tax liability of $7.4 million in its consolidated
financial statements. The Company completed and finalized the tax impact of the life insurance tax reserves limitation in 2018
and recorded a decrease to the deferred tax asset and offsetting deferred tax liability of $0.7 million in the consolidated financial
statements at December 31, 2018. This results in a final deferred tax asset and offsetting deferred tax liability of $6.7 million at
December 31, 2018. The deferred tax liability was amortized into income in the amount of $3.6 million during 2018 per the 8-
year inclusion described in the TCJA. During 2019, the Company made final adjustments to the Grange Life tax reserves as of
January 1, 2018 and recorded an additional deferred tax asset and offsetting deferred tax liability of $1.3 million. This changed
the consolidated deferred tax asset and offsetting deferred tax liability to $5.4 million. The amortization of this liability is $0.7
million annually over 8 years, including 2019.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

13. Pensions and Other Postemployment Benefits

We have pension and other postemployment benefit plans covering substantially all of our employees for which the measurement
date is annually on December 31.

The Kansas City Life Cash Balance Pension Plan (pension plan) was amended effective December 31, 2010 to provide that
participants’ accrued benefits will be frozen, and that no further benefits or accruals will be earned after December 31, 2010.
Although participants will no longer accrue additional benefits under the pension plan at December 31, 2010, participants will
continue to earn years of service for vesting purposes under the pension plan with respect to their benefits accrued through
December 31, 2010. In addition, the cash balance account will continue to earn annual interest. Pension plan benefits are based
on a cash balance account consisting of credits to the account based upon an employee’s years of service, compensation and interest
credits on account balances calculated using the greater of the average 30-year U.S. Treasury bond rate for November of each year
or 5.00%.

The benefits expected to be paid in each year from 2020 through 2024 are as follows: $9.2 million in 2020; $8.8 million in 2021;
$8.4 million in 2022; $9.4 million in 2023; and $8.6 million in 2024. The aggregate benefits expected to be paid in the five years
from 2025 through 2029 are $39.4 million. The expected benefits to be paid are based on the same assumptions used to measure
the Company’s benefit obligation at December 31, 2019 and are the actuarial present value of the vested benefits to which the
employee is currently entitled but based upon the expected date of separation or retirement. The 2020 contribution for the pension
plan has not been determined.

The asset allocation of the fair value of pension plan assets compared to the target allocation range at December 31 was:

Equity securities

Asset allocation and alternative assets

Debt securities

Cash and cash equivalents

2019

38%

14%

48%

—%

Target
Allocation

28% - 48%

10% - 20%

30% - 60%

0% - 10%

2018

38%

16%

46%

—%

Target
Allocation

28% - 48%

10% - 20%

30% - 60%

0% - 10%

Certain of our pension plan assets consist of investments in pooled separate accounts. The NAV of the separate accounts is
calculated in a manner consistent with GAAP for investment companies and is determinative of their fair value. Several of the
separate accounts invest in publicly quoted mutual funds or actively managed stocks. The fair value of the underlying mutual
funds or stock is used to determine the NAV of the separate account, which is not publicly quoted. Some of the separate accounts
also invest in fixed income securities. The fair value of the underlying securities is based on quoted prices of similar assets and
used to determine the NAV of the separate account. Sale of plan assets may be at values less than NAV. Certain redemption
restrictions may apply to specific stock and bond funds, including written notices prior to the withdrawal of funds and a potential
redemption fee on certain withdrawals.

Hedge fund investments are recorded at NAV. The pension plan's hedge funds invest primarily in other investment funds. The
valuation policies of the hedge funds provide that the value of investments in other investment funds be stated at fair value based
on the NAV of the other investment funds and certain redemption restrictions may apply, including a 45 day prior written notice
to withdraw funds.

Plan fiduciaries set investment policies and strategies and oversee its investment allocation, which includes selecting investment
managers, commissioning periodic asset-liability studies, and setting long-term strategic targets. Long-term strategic investment
objectives include preserving the funded status of the pension plan and balancing risk and return. Target allocation ranges are
guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range. The pension
plan does not expect to return any plan assets to the Company during 2020.

The current assumption for the expected long-term rate of return on plan assets is 7.15%. This assumption is determined by
analyzing: 1) historical average returns achieved by asset allocation and active management; 2) historical data on the volatility of
returns; 3) current yields available in the marketplace; 4) actual returns on plan assets; and 5) current and anticipated future
allocation among asset classes. The asset classes used for this analysis are domestic and international equities, investment grade
corporate bonds, alternative assets, and cash. The overall rate is derived as a weighted average of the estimated long-term returns
on the asset classes represented in the investment portfolio of the pension plan. Effective January 1, 2020, the assumption for the
expected long-term rate of return on plan assets was reduced to 6.29%.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The assumed discount rate used to determine the benefit obligation was 2.88% for pension benefits and was 3.10% for
postemployment benefits. The discount rates were determined by reference to the FTSC Pension Discount Curve (formerly the
Citigroup Pension Liability Yield Curve) on December 31, 2019. Specifically, the spot rate curve represents the rates on zero
coupon securities of the quality and type included in the pension index at various maturities. By discounting benefit cash flows
at these rates, a notional amount equal to the fair value of a cash flow defeasing portfolio of bonds was determined. The discount
rate for benefits was calculated as a single rate giving the same discounted value as the notional amount.

The postemployment medical plans for eligible employees and their dependents are contributory with contributions adjusted
annually. The benefits expected to be paid in each year from 2020 through 2024 are as follows: $0.7 million in 2020; $0.8 million
in 2021; $0.8 million in 2022; $0.8 million in 2023; and $0.9 million in 2024. The aggregate benefits expected to be paid in the
five years from 2025 through 2029 are $4.5 million. The expected benefits to be paid are based on the same assumptions used to
measure the Company’s benefit obligation at December 31, 2019. The 2020 contribution for the postemployment medical plans
is estimated to be $0.7 million. The Company pays these medical costs as they become due and the postemployment plan
incorporates cost-sharing features. The postemployment plan disclosures included herein do not include the potential impact from
the Medicare Act (the Act) that became law in December 2003. The Act introduced a new federal subsidy to sponsors of certain
retiree health care plans that provide a benefit that is at least actuarially equivalent to Medicare. Since the Company does not
provide benefits that are actuarially equivalent to Medicare, the Act did not impact our disclosures.

Non-contributory defined contribution retirement plans for eligible general agents and sales agents provide supplemental payments
based upon earned agency first year individual life and annuity commissions. Contributions to these plans were $0.2 million in
2019, 2018, and 2017. Non-contributory deferred compensation plans for eligible agents based upon earned first year commissions
are also offered. Contributions to these plans were $0.3 million in 2019, 2018, and 2017.

Savings plans for eligible employees and agents match employee and agent contributions up to 8.00% of salary and 2.50% of
agents’ prior year paid commissions. Contributions to the savings plans were $2.5 million in 2019, $2.3 million in 2018, and $2.2
million in 2017. We may contribute an additional profit sharing amount up to 4% of salary for eligible employees, depending
upon corporate profits. The Company did not make a profit sharing contribution in 2019, 2018, or 2017.

We recognize the funded status of our pension and postemployment plans, measured as the difference between plan assets at fair
value and the projected benefit obligation, in the Consolidated Balance Sheets. Changes in the funded status that arise during the
period, but are not recognized as components of net periodic benefit cost, are recognized within other comprehensive income
(loss), net of taxes.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following tables provide information regarding pension benefits and other postemployment benefits (OPEB) for the years
ended December 31.

Pension Benefits

OPEB

2019

2018

2019

2018

Change in projected benefit obligation:

Benefit obligation at beginning of year

121,586

134,232

16,389

18,232

Service cost

Interest cost

Plan participants' contributions

Actuarial (gain) loss

Benefits paid

Benefit obligation at end of year

Change in plan assets:

Fair value of plan assets at beginning of year $
Return on plan assets

Plan participants' contributions

Company contributions

Benefits paid

Fair value of net plan assets at end of year $

—

4,615

—

10,803
(11,073)
125,931

134,014
24,735

—

4,028
(11,073)
151,704

Under/(over) funded status at end of year

(25,773)

—

4,274

—
(7,128)
(9,792)
121,586

147,007
(7,229)
—

4,028
(9,792)
134,014

(12,428)

169

663

462

2,208
(949)
18,942

— $
—

462

487
(949)

— $

223

631

445
(1,970)
(1,172)
16,389

—
—

445

727
(1,172)
—

18,942

16,389

Amounts recognized in accumulated other
comprehensive income (loss):

Net loss (gain)

Prior service credit

Total accumulated other comprehensive
income (loss)

Other changes in plan assets and benefit
obligations recognized in other
comprehensive income (loss):

Unrecognized actuarial net (gain) loss

Amortization of net gain (loss)

Amortization of prior service credit

Total (gain) loss recognized in other
comprehensive income (loss)

Pension Benefits

OPEB

2019

2018

2019

2018

69,392
(1,340)

68,052

76,975
(1,406)

75,569

(10,670)
—

(14,336)
—

(10,670)

(14,336)

Pension Benefits

OPEB

2019

2018

2019

2018

(4,709)
(2,874)
66

10,278
(2,394)
66

2,208

1,458

—

(1,971)
1,292

100

(7,517)

7,950

3,666

(579)

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Weighted average assumptions used to determine

benefit obligations at December 31:

Discount rate

2.88%

3.96%

3.10%

4.13%

Pension Benefits

OPEB

2019

2018

2019

2018

Weighted average assumptions used to determine
net periodic benefit cost for years ended
December 31:

Discount rate

Expected return on plan assets

3.96%

7.15%

3.30%

7.15%

4.13%

—%

3.52%

—

The following table presents the fair value of each major category of pension plan assets at December 31.

Fixed maturity securities:

U.S. Government

Industrial and public utility

Investment funds:

Mutual funds

Hedge fund

Collective trust

Limited partnerships

Other invested assets

Cash and cash equivalents

Receivables

Fair value of assets at end of year

Liabilities:

Accrued liabilities

Total liabilities

2019

2018

248

9,698

29,650

—

102,147

9,858

151,704

—

346

9,922

24,535

326

86,889

9,361

2,585

134,014

—

Fair value of net plan assets at end of year

151,704

134,014

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following tables provide the fair value hierarchy, as described in Note 5, for pension plan assets at December 31.

Fixed maturity securities:

U.S. Government

Industrial and public utility

Mutual funds

Other invested assets

Total assets in the fair value hierarchy

Investments measured at net asset value: 1

Hedge fund

Collective trust

Limited partnerships

Investments at fair value

Fixed maturity securities:

U.S. Government

Industrial and public utility

Mutual funds

Other invested assets

Total assets in the fair value hierarchy

Investments measured at net asset value: 1

Hedge fund

Collective trust

Limited partnerships

Investments at fair value

Level 1

Level 2

Level 3

Total

2019

— $

248

— $

—

29,650

—

29,650

9,698

—

9,946

—

248

9,698

29,650

39,609

—

102,147

9,858
151,614

Level 1

Level 2

Level 3

Total

2018

— $

346

— $

—

24,535

—

24,535

9,922

—

10,268

—

346

9,922

24,535

34,828

326

86,889

9,361

131,404

1 These investments are valued based on net asset value per unit. These values are provided by the fund as a practical
expedient and have not been classified in the fair value hierarchy.

The following table discloses the changes in Level 3 pension plan assets measured at fair value on a recurring basis for the years
ended December 31.

Beginning balance

Losses realized and unrealized

Ending balance

2019

2018

(12)

—

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides the components of net periodic benefit cost (credit) for the years ended December 31.

Service cost

Interest cost

Expected return on plan assets

Amortization of:

Unrecognized actuarial net (gain)
loss

Unrecognized prior service credit

Net periodic benefit credit

Total recognized in other
comprehensive income (loss)

Total recognized in net periodic
benefit cost (credit) and other
comprehensive income (loss)

Pension Benefits
2018

2019

2017

2019

OPEB
2018

2017

— $

4,615

(9,223)

4,274
(10,177)

2,874

(66)

(1,800)

2,394
(66)
(3,575)

4,725
(9,638)

2,638
(66)
(2,341)

169

663

—

223

631

—

(1,458)
—
(626)

(1,292)
(100)
(538)

307

910

—

(833)

(825)

(441)

(7,517)

7,950

(5,951)

3,666

(579)

(3,955)

(9,317)

4,375

(8,292)

3,040

(1,117)

(4,396)

The following table provides the estimated net loss (gain) and prior service credit for the pension plan and other postemployment
plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2019.

Actuarial net loss (gain)

Prior service credit

Pension
Benefits

2,514

(66)

OPEB

(1,039)
—

The assumed growth rate of health care costs has a significant effect on the benefit amounts reported, as the following table
demonstrates.

One Percentage Point
Change in the Growth Rate

Increase

Decrease

Service and interest cost components

136

Postemployment benefit obligation

2,848

(108)
(2,311)

For measurement purposes, the annual increase in the per capita cost of covered health care benefits was assumed to be 6.75%,
decreasing gradually to 5.00% in 2030 and thereafter.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

14. Share-Based Payment

The Kansas City Life Insurance Company Omnibus Incentive Plan (long-term incentive plan) includes a long-term incentive
benefit for senior management. The long-term incentive plan design includes a cash award to participants that may be paid, in
part, based on the increase in the share price of our common stock through units (phantom shares) assigned by the Board of
Directors. The cash award is calculated over a three-year interval on a calendar year basis. At the conclusion of each three-year
interval, participants will receive a cash award based on the increase in the share price during a defined measurement period,
multiplied by the number of units attributable to each participant. The increase in the share price is determined based on the change
in the share price from the beginning to the end of the three-year interval. Amounts representing dividends are accrued and paid
at the end of each three-year interval to the extent that they exceed negative stock price appreciation. Plan payments are contingent
on the continued employment of the participant unless termination is due to a qualifying event such as death, disability, or retirement.
In addition, all payments are lump sum with no deferrals allowed. The Company does not make payments in shares, warrants, or
options.

The following table provides information about the outstanding three-year intervals at December 31, 2019.

Defined
Measurement
Period
2017-2019

2018-2020

2019-2021

2020-2022*

Number
of Units

130,017

155,297

126,898

129,114

* Effective January 1, 2020

Grant
Price

$48.01

$45.62

$35.12

$32.70

The long-term incentive plan did not make a cash payment during 2019 for the three-year interval ended December 31, 2018. The
long-term incentive plan made a payment of $0.2 million during 2018 for the three-year interval ended December 31, 2017 and a
payment of $0.5 million during 2017 for the three-year interval ended December 31, 2016. The cost of share-based compensation
accrued as operating expense during 2019 was less than $0.1 million, net of tax. The change in accrual that reduced operating
expense during 2018 was $0.4 million, net of tax. The change in accrual that reduced operating expense during 2017 was $0.1
million, net of tax.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

15. Reinsurance

The following table provides information about reinsurance for the years ended December 31.

Life insurance in force (in millions) :

Direct

Ceded

Assumed

Net

Premiums:

Life insurance:

Direct

Ceded

Assumed

Net

Accident and health:

Direct

Ceded

Net

2019

2018

2017

52,752
(32,889)
4,337

53,084
(33,265)
4,601

28,592
(13,357)
3,217

24,200

24,420

18,452

266,345
(96,263)
4,717

201,823
(59,134)
2,992

178,318
(47,306)
2,232

174,799

145,681

133,244

59,681
(11,253)
48,428

58,884
(10,972)
47,912

57,324
(10,632)
46,692

Ceded Reinsurance Arrangements
Old American has a coinsurance agreement that reinsures certain whole life policies issued by Old American prior to December 1,
1986. These policies had a face value of $13.4 million at December 31, 2019 and $15.2 million at December 31, 2018. The reserve
for future policy benefits ceded under this agreement was $8.1 million at December 31, 2019 and $9.1 million at December 31,
2018.

Sunset Life entered into a yearly renewable term reinsurance agreement January 1, 2002, whereby it ceded 80% of its retained
mortality risk on traditional and universal life policies. In June 2012, Sunset Life recaptured approximately 9% of the outstanding
bulk reinsurance agreement. The insurance in force ceded approximated $628.4 million at December 31, 2019 and $692.0 million
at December 31, 2018. Premiums totaled $5.7 million during 2019, $6.2 million during 2018, and $6.5 million during 2017.

Reinsurance recoverables were $378.8 million at year-end 2019, consisting of reserves ceded of $347.7 million and claims ceded
of $31.1 million. Reinsurance recoverables were $366.2 million at year-end 2018, consisting of reserves ceded of $342.3 million
and claims ceded of $23.9 million.

In the fourth quarter of 2018, Grange Life completed a 100% recapture of a block of business previously ceded to Colorado Bankers
Life Insurance Company. The block of business recaptured approximated $54.5 million of deferred annuity reserves.

The maximum retention on any one life during 2019 and 2018 was $0.5 million for ordinary life plans and $0.1 million for group
coverage.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table reflects our reinsurance partners whose reinsurance recoverable was 5% or greater of our total reinsurance
recoverable at December 31, 2019, along with their A.M. Best credit rating.

A.M. Best
Rating

SCOR Global Life USA Reinsurance Company
RGA Reinsurance Company
Transamerica Life Insurance Company
Other (30 Companies)

A+
A+
A

Total

Reinsurance
Recoverable
97,834
90,782
45,191
144,965
378,772

% of
Recoverable
26%
24%
12%
38%
100%

A contingent liability exists with respect to reinsurance, which may become a liability of the Company in the unlikely event that
the reinsurers should be unable to meet obligations assumed under reinsurance contracts. The solvency of reinsurers is reviewed
annually.

We monitor several factors that we consider relevant as to the ongoing ability of a reinsurer to meet the obligations of the reinsurance
agreements. These factors include the credit rating of the reinsurer and significant changes or events of the reinsurer. If we believe
that any reinsurer would not be able to satisfy its obligations with us, a separate contingency reserve may be established. At year-
end 2019 and 2018, no reinsurer met these conditions. In addition, we review the credit rating and financial statements of a reinsurer
before entering into any new agreements.

Assumed Reinsurance Arrangements
We acquired a block of traditional life and universal life products in 1997 through a 100% coinsurance and servicing arrangement.
Investments equal to the statutory policy reserves are held in a trust to secure payment of the estimated liabilities relating to the
policies. This block had $660.8 million of life insurance in force at December 31, 2019 and $725.5 million of life insurance in
force at December 31, 2018. This block generated life insurance premiums of $2.0 million in both 2019 and 2018 and $2.1 million
in 2017.

We acquired a block of variable universal life insurance policies and variable annuity contracts from American Family Life Insurance
Company in 2013. The transfer was comprised of a 100% modified coinsurance transaction on the separate account business and
a 100% coinsurance transaction for the corresponding fixed account business. Included in the transaction are ongoing servicing
arrangements for this business. This block consisted of $327.7 million of separate account balances at December 31, 2019, which
are included in the financial statements of American Family, compared to $285.6 million at December 31, 2018. This block
consisted of $0.6 million of future policy benefits and $31.6 million in fixed fund balances that are included in Policyholder
Account Balances in the Company’s Consolidated Balance Sheets at December 31, 2019. This block consisted of $0.6 million of
future policy benefits and $30.6 million in fixed fund balances at December 31, 2018.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

16. Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other comprehensive income
(loss) includes the unrealized investment gains or losses on securities available for sale (net of reclassifications for realized
investment gains or losses), net of adjustments to DAC, VOBA, DRL, future policy benefits, and policyholder account balances.
In addition, other comprehensive income (loss) includes the change in the liability for benefit plan obligations. Other
comprehensive income (loss) reflects these items net of tax.

The following tables provide information about comprehensive income (loss).

Net unrealized gains arising during the year:

Fixed maturity securities

Less reclassification adjustments:

Net realized investment gains, excluding impairment
losses

Other-than-temporary impairment losses recognized in
earnings

Other-than-temporary impairment losses recognized in
other comprehensive income

Net unrealized gains excluding impairment losses

Effect on DAC, VOBA, and DRL

Change in policyholder liabilities

Change in benefit plan obligations

Other comprehensive income

Net income

Comprehensive income

Year Ended December 31, 2019

Pre-Tax
Amount

Tax Expense
(Benefit)

Net-of-Tax
Amount

166,201

34,902

131,299

2,723

(580)

(4)
164,062
(14,694)
(20,236)
3,851

132,983

572

(122)

(1)
34,453
(3,086)
(4,249)
809

27,927

2,151

(458)

(3)
129,609
(11,608)
(15,987)
3,042

105,056

24,427

129,483

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

Year Ended December 31, 2018

Pre-Tax
Amount

Tax Expense
(Benefit)

Net-of-Tax
Amount

(82,724)

(17,372)

(65,352)

(367)

—

—
(82,357)
11,224

14,372
(7,371)
(64,132)

(77)

—

—
(17,295)
2,357

3,018
(1,548)
(13,468)

(290)

—

—
(65,062)
8,867

11,354
(5,823)
(50,664)
15,672
(34,992)

Year Ended December 31, 2017

Pre-Tax
Amount

Tax Expense
(Benefit)

Net-of-Tax
Amount

2,854

1,001

827

289

2,474

—

(7)
1,214

1,929

3,089

9,906

16,138

866

—

(2)
426

675

1,081

3,467

5,649

1,853

538

1,608

—

(5)
788

1,254

2,008

6,439

10,489

51,541

62,030

Net unrealized losses arising during the year:

Fixed maturity securities

Less reclassification adjustments:

Net realized investment losses, excluding impairment
losses

Other-than-temporary impairment losses recognized in
earnings

Other-than-temporary impairment losses recognized in
other comprehensive loss

Net unrealized losses excluding impairment losses

Effect on DAC, VOBA, and DRL

Change in policyholder liabilities

Change in benefit plan obligations

Other comprehensive loss

Net income

Comprehensive loss

Net unrealized gains arising during the year:

Fixed maturity securities

Equity securities

Less reclassification adjustments:

Net realized investment gains, excluding impairment
losses

Other-than-temporary impairment losses recognized in
earnings
Other-than-temporary impairment losses recognized in
other comprehensive income

Net unrealized gains excluding impairment losses

Effect on DAC, VOBA, and DRL

Change in policyholder liabilities

Change in benefit plan obligations

Other comprehensive income

Net income

Comprehensive income

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table provides accumulated balances related to each component of accumulated other comprehensive income
(loss) at December 31, 2019, net of tax.

Unrealized
Gain on
Non-
Impaired
Securities

Unrealized
Gain on
Impaired
Securities

Benefit
Plan
Obligations

DAC/
VOBA/DRL
Impact

Policyholder
Liabilities

Total

6,555

1,517

(48,372)

(1,107)

(4,143)

(45,550)

131,860

(561)

3,042

(11,608)

(15,987)

106,746

(2,151)

461

—

(1,690)

Beginning of year

Other comprehensive
income (loss) before
reclassification

Amounts reclassified
from accumulated
other comprehensive
income (loss)

Net current-period other
comprehensive income
(loss)

End of year

136,264

1,417

129,709

(100)

3,042
(45,330)

(11,608)
(12,715)

(15,987)
(20,130)

105,056

59,506

The following table provides accumulated balances related to each component of accumulated other comprehensive income
(loss) at December 31, 2018, net of tax.

Unrealized
Gain on
Non-
Impaired
Securities

Unrealized
Gain on
Impaired
Securities

Benefit
Plan
Obligations

DAC/
VOBA/DRL
Impact

Policyholder
Liabilities

Total

72,172

2,174

(42,549)

(10,012)

(15,497)

6,288

(1,212)

—

(1,174)

70,960

2,174

(42,549)

(9,974)

(15,497)

5,114

(64,695)

(657)

(5,823)

8,867

11,354

(50,954)

290

—

290

(64,405)

(657)

(5,823)
(48,372)

8,867
(1,107)

11,354
(4,143)

(50,664)
(45,550)

Beginning of year

Cumulative effect of
adoption of new
accounting principle
(ASU No. 2016-01)

Adjusted beginning
of year

Other comprehensive
income (loss) before
reclassification

Amounts reclassified
from accumulated
other comprehensive
income (loss)

Net current-period other
comprehensive income
(loss)

End of year

6,555

1,517

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following table presents the pre-tax and the related income tax benefit (expense) components of the amounts reclassified
from accumulated other comprehensive income (loss) to the Consolidated Statements of Comprehensive Income for the years
ended December 31.

Reclassification adjustments related to unrealized gains (losses)
on investment securities:

Net realized investment gains (losses), excluding impairment
losses 1
Income tax benefit (expense) 2

Net of taxes

Other-than-temporary impairment losses 1
Income tax benefit 2
Net of taxes

Total pre-tax reclassifications

Total income tax benefit (expense)
Total reclassification, net taxes

2019

2018

2017

2,723
(572)
2,151

(584)
123
(461)

2,139
(449)
1,690

(367)
77
(290)

—

(367)
77
(290)

2,474
(866)
1,608

(7)
2
(5)

2,467
(864)
1,603

1 (Increases) decreases net realized investment gains (losses) on the Consolidated Statements of Comprehensive Income.
2 (Increases) decreases income tax expense on the Consolidated Statements of Comprehensive Income.

17. Earnings per Share

Due to our capital structure and the absence of other potentially dilutive securities, there is no difference between basic and diluted
earnings per common share for any of the years reported. The average number of shares outstanding was 9,683,414 shares during
2019, 2018, and 2017. The number of shares outstanding at both December 31, 2019 and December 31, 2018 was 9,683,414.

18. Segment Information

We have three reportable business segments, which are defined based on the nature of the products and services offered: Individual
Insurance, Group Insurance, and Old American. The Individual Insurance segment consists of individual insurance products for
Kansas City Life, Sunset Life, Grange Life, and the assumed reinsurance transactions. The Group Insurance segment consists of
sales of group life, dental, vision, disability, accident, and critical illness products. The Old American segment consists of individual
insurance products designed largely as final expense products.

Insurance revenues, as shown in the Consolidated Statements of Comprehensive Income, consist of premiums and contract charges,
less reinsurance ceded. Separate investment portfolios are maintained for Kansas City Life, Sunset Life, Old American, and Grange
Life for segment reporting purposes. Investment assets and income are allocated to the Group Insurance segment based upon its
cash flows and future policy benefit liabilities. Policyholder benefits are specifically identified to the respective segment. Most
home office functions are fully integrated for all segments in order to maximize economies of scale. Therefore, operating expenses
are allocated to the segments based upon internal cost studies, which are consistent with industry cost methodologies.

Inter-segment revenues are not material. We operate solely in the United States of America and no individual customer accounts
for 10% or more of our revenue.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

The following tables provide selected financial statement items of each of the operating segments for the years ended December 31.
Intercompany transactions have been eliminated to arrive at Consolidated Statements of Comprehensive Income.

2019

Individual
Insurance

Group
Insurance

Old
American

Consolidated

Insurance revenues

190,041

63,091

95,981

349,113

Interest credited to policyholder
account balances
Amortization of deferred
acquisition costs
Income tax expense

Net income

Assets

78,520

15,506

4,163

21,191

4,772,243

—

558

2,099

12,006

—

20,442

302

1,137

78,520

35,948

5,023

24,427

435,616

5,219,865

2018

Individual
Insurance

Group
Insurance

Old
American

Consolidated

Insurance revenues

156,604

61,632

92,273

310,509

Interest credited to policyholder
account balances
Amortization of deferred
acquisition costs
Income tax expense

Net income

Assets

74,308

20,916

854

12,198

4,552,270

—

19,700

1,314

74,308

40,616

1,514

15,672

408,666

4,971,486

—

574

2,160

10,550

2017

Individual
Insurance

Group
Insurance

Old
American

Consolidated

Insurance revenues

145,460

59,569

88,935

293,964

Interest credited to policyholder
account balances
Amortization of deferred
acquisition costs
Income tax expense (benefit)

Net income

Assets

72,921

15,965

(16,687)

41,005

4,120,410

—

910

1,690

9,710

—

72,921

18,805
(6,395)
8,846

34,770
(22,172)
51,541

400,550

4,530,670

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

19. Quarterly Consolidated Financial Data (unaudited)

The unaudited quarterly results of operations for the years ended December 31 are summarized in the following table.

2019:

Total revenues

First

Second

Third

Fourth

130,103

129,884

126,441

126,265

Total benefits and expenses

125,154

123,455

120,983

4,035

5,281

4,522

113,651

10,589

Net income

Per common share,

basic and diluted

2018:

Total revenues

0.42

0.54

0.47

1.09

109,511

112,331

115,372

123,818

Total benefits and expenses

107,768

107,386

107,698

120,994

Net income

Per common share,

basic and diluted

1,462

4,108

6,275

3,827

0.15

0.43

0.64

0.40

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

20. Statutory Information and Stockholder Dividends Restriction

The following table provides Kansas City Life’s net gain from operations, net income, and capital and surplus (stockholders' equity)
on the statutory basis used to report to regulatory authorities for the years ended December 31.

2019

2018

2017

Net gain from operations

5,965

11,529

14,440

Net income

Capital and surplus

6,929

260,804

15,510

278,157

15,977

307,501

The decrease in capital and surplus in 2019 compared to 2018 was largely attributable to changes in nonadmitted assets of $11.7
million, change in asset valuation reserve of $3.5 million, and change in net unrealized capital gains (losses) of $4.9 million. These
changes were partially offset by net income of $6.9 million, a $3.7 million change in the liability for pension and OPEB, and
change in net deferred taxes of $3.0 million. The decrease in capital and surplus in 2018 compared to 2017 was largely attributable
to changes in nonadmitted assets of $28.0 million, change in net unrealized capital losses of $8.5 million, and a $7.5 million
increase in the liability for pension and OPEB. These changes were partially offset by net income of $15.5 million, change in
asset valuation reserve of $4.6 million, and change in net deferred taxes of $4.8 million.

Kansas City Life recognizes its 100% ownership in Old American, Sunset Life, and Grange Life under the equity method with
subsidiary earnings recorded through surplus on a statutory accounting basis. Capital and surplus at December 31, 2019 in the
above table includes capital and surplus of $19.7 million for Old American, $24.9 million for Sunset Life, and $34.2 million for
Grange Life.

Stockholder dividends may not exceed statutory unassigned surplus. Additionally, under Missouri law, the Company must have
the prior approval of the Missouri Director of Insurance to pay dividends in any consecutive twelve-month period exceeding the
greater of statutory net gain from operations for the preceding year or 10% of statutory stockholders' equity at the end of the
preceding year. We believe that Kansas City Life, as the parent company, has sufficient cash resources, independent of dividends
paid by its affiliates, to satisfy its own stockholder dividend payments. In addition, we believe that individually each of the
insurance enterprises has sufficient cash flows to satisfy the anticipated cash dividends that are expected to be declared.

The maximum stockholder dividends payable by Kansas City Life without prior approval in 2020 is $26.1 million, 10% of
December 31, 2019 capital and surplus. The maximum stockholder dividends payable by Old American without prior approval
in 2020 is $2.0 million, 10% of December 31, 2019 capital and surplus. The maximum stockholder dividends payable by Sunset
Life without prior approval in 2020 is $2.5 million, 10% of December 31, 2019 capital and surplus.

Grange Life is subject to the laws in Ohio, its state of domicile. Grange Life did not pay any stockholder dividends during 2019.

We believe that the statutory limitations impose no practical restrictions on the dividend payment plans of our three insurance
companies.

Insurance companies are monitored and evaluated by state insurance departments as to the financial adequacy of statutory capital
and surplus in relation to each company's risks. One such measure is through the risk-based capital (RBC) guidelines. RBC
requirements are intended to be used by insurance regulators as an early warning tool to identify deteriorating or weakly capitalized
insurance companies for the purpose of initiating regulatory action. RBC guidelines consist of target statutory surplus levels based
on the relationship of statutory capital and surplus to the sum of weighted risk exposures. The RBC calculation determines both
an authorized control level and a total adjusted capital prepared on the RBC basis. Generally, regulatory action is at 150% of the
authorized control level. Each of the four insurance companies was within the range of approximately 600% to 900%, well in
excess of the control level at December 31, 2019.

We are required to deposit a defined amount of assets with state regulatory authorities. Such assets had a statutory carrying value
of $16.3 million at December 31, 2019, $14.7 million at December 31, 2018, and $12.3 million at December 31, 2017.

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

21. Commitments, Contingent Liabilities, Guarantees, and Indemnifications

Commitments
In the normal course of business, we have open purchase and sale commitments. At December 31, 2019, we had purchase
commitments to fund mortgage loans of $20.6 million.

Subsequent to December 31, 2019 we entered into commitments to fund additional mortgage loans of $13.9 million.

Contingent Liabilities
On March 1, 2019, the Delaware Department of Insurance requested Scottish Re (US) be placed in rehabilitation. Kansas City
Life has ceded some of its business to Scottish Re (US), a subsidiary of Scottish Re Group. Based on the information currently
available, the Company does not have sufficient information to make an assessment of the likelihood of any loss related to this
matter. The Company will continue to closely monitor developments related to the rehabilitation proceeding.

Kansas City Life is involved in various pending or threatened legal proceedings, including purported class actions, arising from
the conduct of business both in the ordinary course and otherwise. In some of the matters, very large and/or indeterminate amounts,
including punitive and treble damages, are sought.

Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss can be
difficult to ascertain. We establish liabilities for litigation and other loss contingencies when available information indicates both
that a loss is probable and the amount of the loss can be reasonably estimated. Some matters could require us to pay damages or
make other expenditures or establish accruals in amounts that cannot be estimated as of December 31, 2019. Based on information
currently known by management, management does not believe any such expenditures are likely to have a material adverse effect
on Kansas City Life’s financial condition.

Cost of Insurance Litigation
We are a defendant in three very similar putative class actions that allege that we applied cost of insurance rates in excess of
amounts permitted by the terms of certain universal life insurance policies.

The three cases are:

• Meek v. KCL, filed in the U.S. District Court for the Western District of Missouri, in which the plaintiff seeks to represent
all similar universal life policyholders residing outside of the State of Missouri and seeks damages on behalf of all such
policyholders.

• Karr v. KCL, filed in the 16th District Court for the State of Missouri (Jackson County), in which plaintiff seeks to
represent all similar universal life policyholders residing in the State of Missouri and seeks damages on behalf of all such
policyholders.

•

Sheldon v KCL, filed in the 16th District Court for the State of Missouri (Jackson County), in which plaintiff seeks to
represent all similar variable universal life policyholders and seeks damages on behalf of all such policyholders.

We are vigorously defending each of these matters.

We are subject to regular reviews and inspections by state and federal regulatory authorities. State insurance examiners - or
independent audit firms engaged by such examiners - may, from time to time, conduct examinations or investigations into industry
practices and into customer complaints. A regulatory violation discovered during a review, inspection, or investigation could result
in a wide range of remedies that could include the imposition of sanctions against us or our employees, which could have a material
adverse effect on our financial statements. The Missouri Department of Insurance most recently completed an examination based
upon our statutory financial statements for the year ended December 31, 2014 for Kansas City Life, Sunset Life, and Old American.
No recommendations or financial adjustments were required as a result of that examination. The Ohio Department of Insurance
most recently completed an examination of Grange Life for the year ended December 31, 2014. A periodic examination by the
Missouri Department of Insurance and the Ohio Department of Insurance based upon the year ended December 31, 2019 began
during the first quarter of 2020.

The life insurance industry has been the subject of significant regulatory and legal activities regarding the use of the U.S. Social
Security Administration's Death Master File (“Death Master File”) in the claims process. Certain states have proposed, and many
other states are considering, new legislation and regulations related to unclaimed life insurance benefits and the use of the Death
Master File in the claims process. Based on our analysis to date, we believe that we have adequately reserved for contingencies

Kansas City Life Insurance Company
Notes to Consolidated Financial Statements – (Continued)

from a change in statute or regulation. Ongoing regulatory developments and other future requirements related to this matter may
result in additional payments or costs that could be significant and could have a material adverse effect on our financial statements.

Guarantees and Indemnifications
We are subject to various indemnification obligations issued in conjunction with certain transactions, primarily assumption
reinsurance agreements, stock purchase agreements, mortgage servicing agreements, tax credit assignment agreements,
construction and lease guarantees, and borrowing agreements whose terms range in duration and often are not explicitly defined.
Generally, a maximum obligation is not explicitly stated. Therefore, the overall maximum amount of the obligation under the
indemnifications cannot be reasonably estimated. We are unable to estimate with certainty the ultimate legal and financial liability
with respect to these indemnifications. We believe that the likelihood is remote that material payments would be required under
such indemnifications and, therefore, such indemnifications would not result in a material adverse effect on our financial position
or financial statements.

22. Subsequent Events

We evaluated events that occurred subsequent to December 31, 2019 through March 12, 2020, the date the consolidated financial
statements were issued and have identified the following subsequent event.

On January 27, 2020, the Kansas City Life Board of Directors declared a quarterly dividend of $0.27 per share, paid on February 12,
2020 to stockholders of record on February 6, 2020.

There have been no other subsequent events that occurred during such period that require disclosure in, or adjustment to, the
consolidated financial statements as of and for the year ended December 31, 2019.

The Audit Committee and Stockholders
Kansas City Life Insurance Company

Independent Auditor's Report

We have audited the accompanying consolidated financial statements of Kansas City Life Insurance Company and subsidiaries,
which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated statements of
comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31,
2019, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance
of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Kansas City Life Insurance Company and its subsidiaries as of December 31, 2019 and 2018, and the results of their operations
and their cash flows for each of the years in the three-year period ended December 31, 2019, in accordance with accounting
principles generally accepted in the United States of America.

/s/ BKD, LLP

Kansas City, Missouri
March 12, 2020

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Amounts are stated in thousands, except share data, or as otherwise noted.

Management’s Discussion and Analysis of Financial Condition and Results of Operations provides, in narrative form, the
perspective of the management of Kansas City Life Insurance Company on its financial condition, results of operations, liquidity,
and certain other factors that may affect its future results. The terms "the Company," "we," "us," and "our" are used to refer to
Kansas City Life Insurance Company and its subsidiaries. Kansas City Life Insurance Company (Kansas City Life) is the parent
company. Sunset Life Insurance Company of America (Sunset Life), Old American Insurance Company (Old American), and
Grange Life Insurance Company (Grange Life) are wholly-owned insurance subsidiaries. We also have non-insurance subsidiaries
that individually and collectively are not material. This discussion should be read in conjunction with the consolidated financial
statements and accompanying notes included in this document.

Overview

Our profitability depends on many factors, which include but are not limited to:

Interest rates credited to policyholders;

• The sale of traditional and interest sensitive life, annuity, and accident and health products;
• The rate of mortality, lapse, and surrender of future policy benefits and policyholder account balances;
• The rate of morbidity, disability, and incurrence of other policyholder benefits;
•
• The availability of reinsurance opportunities and the effectiveness of reinsurance programs;
• The amount of investment assets under management;
• The ability to maximize investment returns and manage risks such as interest rate risk, credit risk, and equity risk;
• Timely and cost-effective access to liquidity;
• Management of distribution costs and operating expenses;
• Management of the operations of our affiliates and the management of blocks of business acquired through reinsurance

assumption transactions; and

• The ability to integrate acquisitions and to achieve anticipated operating efficiencies.

General economic conditions may affect future results. Financial market volatility can significantly impact our investments,
revenues, and policyholder benefits. The sustained low interest rate environment and volatile equity markets have presented
significant challenges to the financial markets as a whole and specifically to companies invested in fixed maturity securities and
other fixed income investments. These conditions may persist into the future, affecting our financial position and financial
statements.

Statement on Forward-Looking Information

This report reviews the consolidated financial condition and results of operations of Kansas City Life Insurance Company. Historical
information is presented and discussed. Where appropriate, factors that may affect future financial performance are also identified
and discussed. Certain statements made in this report include “forward-looking statements.” Forward-looking statements include
any statement that may predict, forecast, indicate or imply future results, performance, or achievements rather than historical facts
and may contain words like “believe,” “expect,” “estimate,” “project,” “forecast,” “anticipate,” “plan,” “will,” “shall,” and other
words, phrases, or expressions with similar meaning.

Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results
to differ materially from those contemplated by the forward-looking statements. Factors that could cause future results to differ
materially from expected results include, but are not limited to:

• Changes in general economic conditions, including the performance of financial markets and interest rates;
•

Increasing competition and changes in consumer behavior, which may affect our ability to sell our products and retain
business;
Increasing competition in the recruitment and retention of new general agents and agents;
•
• Customer and agent response to new products, distribution channels, and marketing initiatives;
•

Fluctuations in experience regarding current mortality, morbidity, persistency, and interest rates relative to expected
amounts used in pricing our products;

• Changes in assumptions related to DAC, VOBA, and DRL;
• Regulatory, accounting, or tax changes that may affect the cost of, or the demand for, our products or services;
• Unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;
• The ability to integrate acquisitions and to achieve anticipated operating efficiencies and the ability to preserve goodwill

that results from acquisitions; and

• Results of litigation we may be involved in.

No assurances can be given that such statements will prove to be correct. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements as a prediction of actual results.

Consolidated Results of Operations

Summary of Results

We earned net income of $24.4 million in 2019 compared to $15.7 million in 2018. Net income per share was $2.52 in 2019
versus $1.62 in 2018. Contributing to the higher income in 2019 were increases in insurance revenues and investment revenues
and a decrease in the amortization of deferred acquisition costs. Partially offsetting these items were increases in policyholder
benefits, interest credited to policyholder account balances, and operating expenses. Additional information on these items is
presented below.

The following table presents condensed consolidated results of operations for the years ended December 31.

Revenues:

Insurance and other revenues
Net investment income
Net investment gains
Benefits and expenses:

Policyholder benefits and interest credited
to policyholder account balances
Amortization of deferred acquisition costs
Operating expenses
Income tax expense
Net income

2019

2018

% Change

355,211
148,349
9,133

336,141
35,948
111,154
5,023
24,427

316,877
141,315
2,840

301,510
40,616
101,720
1,514
15,672

12 %
5 %
222 %

11 %
(11)%
9 %
232 %
56 %

The Company acquired Grange Life on October 1, 2018. Grange Life is domiciled in the state of Ohio and is licensed in 15 states
to sell traditional life insurance, universal life products, and fixed annuities. The acquisition of Grange Life has increased our
existing block of business and has expanded our insurance sales through access to a wider distribution network of independent
agents. Grange Life is included in the Individual Insurance segment. The results of Grange Life operations are included in our
Consolidated Statements of Comprehensive Income for the year ended December 31, 2019 and for the fourth quarter of 2018.

Insurance Revenues
Insurance revenues consist of premiums, net of reinsurance, from the sale of traditional individual and group life insurance products,
immediate annuities, and accident and health products, as well as contract charges from interest sensitive and deposit-type products.
Insurance revenues are impacted by the level of new sales, the type of products sold, the persistency of policies, general economic
conditions, and competitive forces.

The following table presents gross premiums on new and renewal business, less reinsurance ceded, for the years ended December 31.
New premiums are also detailed by product.

2019

2018

% Change

New premiums:

Traditional life insurance

Immediate annuities

Group life insurance

Group accident and health insurance

Total new premiums

Renewal premiums

Total premiums
Reinsurance ceded

26,963

29,778

2,853

10,633

70,227

260,517

330,744
(107,517)

Net premiums

223,227

22,584

27,142

2,865

11,545

64,136

199,563

263,699
(70,106)
193,593

19 %

10 %

— %

(8)%

9 %

31 %

25 %
53 %

15 %

Consolidated total premiums increased $67.0 million or 25% in 2019 compared to 2018, as new premiums increased $6.1 million
or 9% and renewal premiums increased $60.9 million or 31%. The increase in both new and renewal premiums largely resulted
from the addition of Grange Life's portfolio of traditional life insurance which contributed $5.3 million of new premium and $72.4
million of renewal premium during 2019. As Grange Life was purchased on October 1, 2018, its portfolio contributed $2.4 million
of new premium and $17.5 million of renewal premium in the fourth quarter 2018. Excluding Grange Life, new premiums increased
$3.2 million or 5%, reflecting a $2.6 million or 10% increase in new immediate annuity premiums and a $1.4 million or 7%
increase in new traditional life premiums. These were partially offset by a $0.9 million or 8% decrease in new group accident and
health premiums, primarily from the dental line. Immediate annuity receipts can have sizeable fluctuations, as receipts from
policyholders largely result from one-time premiums. Excluding Grange Life, renewal premiums increased $5.9 million or 3%.
The largest factor in this increase was a $3.2 million or 3% increase in renewal traditional life insurance premiums, largely reflecting
continued sales growth over the past several years from Old American. In addition, renewal group accident and health premiums
increased $1.7 million or 4%, largely due to increases in the disability and dental lines, and renewal group life premiums increased
$1.1 million or 8%.

Reinsurance ceded premiums increased $37.4 million or 53% in 2019 compared to one year earlier. This increase was primarily
due to the addition of the Grange Life portfolio. Excluding the Grange Life portfolio, reinsurance ceded premiums increased $2.0
million or 3%.

Deposits related to interest sensitive life (universal life, indexed universal life, and variable universal life), fixed annuity contracts,
and variable annuities are not recorded as revenue. Revenues from such contracts consist of amounts assessed on policyholder
account balances for mortality, policy administration, and surrender charges, and are recognized as contract charges in the
Consolidated Statements of Comprehensive Income. The following table provides detail by new and renewal deposits for the
years ended December 31. New deposits are also detailed by product.

New deposits:

Interest sensitive life

Fixed annuities

Variable annuities

Total new deposits

Renewal deposits

Total deposits

2019

2018

% Change

13,411

47,461

10,078

70,950

16,253

47,924

13,244

77,421

152,108

139,923

223,058

217,344

(17)%

(1)%

(24)%

(8)%

9 %

3 %

General economic conditions and interest rates available in the marketplace can influence new deposits on interest sensitive
products. In addition, fluctuations in the equity markets can influence the variable life and annuity products. Generally, low
interest rate environments present significant challenges to products such as these, and potential sizeable fluctuations in new sales
can result between periods.

Total new deposits decreased $6.5 million or 8% in 2019 compared to 2018. This reflected a $3.2 million or 24% decline in new
variable annuity deposits. Also, new interest sensitive deposits decreased $2.8 million or 17%, largely from the indexed universal
life product. Total renewal deposits increased $12.2 million or 9% in 2019 versus the prior year. Renewal interest sensitive life
deposits increased $13.7 million or 12% while renewal variable annuity deposits decreased $1.7 million or 17%. The results for
renewal interest sensitive life deposits included a $9.1 million or 11% increase in renewal universal life deposits and a $5.9 million
or 89% increase in renewal indexed universal life deposits that were partially offset by a $1.3 million or 6% decrease in renewal
variable universal life deposits. The Grange Life portfolio contributed $16.6 million in renewal universal life deposits during
2019 and $4.5 million in the fourth quarter of 2018. Excluding Grange life, renewal universal life deposits decreased $3.0 million
or 4% in 2019 compared to 2018.

Contract charges result from charges and fees on interest-sensitive and deposit-type products. Contract charges consist of cost of
insurance, expense loads, the amortization of unearned revenues, and surrender charges assessed on policyholder account balance
withdrawals. We maintain both open blocks and closed blocks of business. The closed blocks of business reflect products and
entities that have been purchased and for which we are not actively pursuing marketing efforts to generate new sales. We continue
to service these policies to support customers and to meet long-term profit objectives as these blocks of business decline over
time. Contract charges are also potentially impacted by unlocking adjustments, as discussed below.

Total contract charges increased $9.0 million or 8% in 2019 compared to the prior year. This increase reflected the addition of
the Grange Life portfolio. The Grange Life interest sensitive block of business is considered a closed block. Contract charges on
open blocks increased $0.6 million or 1% and contract charges on closed blocks increased $8.4 million or 15% in 2019 compared
78

to one year earlier. The increase in contract charges from open blocks was largely from increased cost of insurance and expense
loads. The increase in contract charges from closed blocks primarily resulted from the addition of the Grange Life portfolio.
Excluding the Grange Life portfolio, contract charges from closed blocks decreased $2.4 million or 6%, reflecting the runoff of
the business. Total contract charges on closed blocks equaled 43% of total consolidated contract charges during 2019, up from
39% in 2018.

Investment Revenues
Gross investment income increased $7.2 million or 5% in 2019 compared to one year earlier. This improvement resulted from
higher average invested assets, primarily from the addition of the Grange Life portfolio of investments. Excluding Grange Life,
gross investment income decreased $4.5 million or 3% compared to the prior year. This decline reflected lower overall yields
earned and available on certain investments.

Fixed maturity securities provide a majority of our investment income. Fixed maturity securities totaled 76% of our investments
at December 31, 2019 compared to 73% at December 31, 2018. Income from these investments increased $8.3 million or 8% in
2019 compared to 2018. This improvement was due to higher average investments, primarily from the addition of the Grange
Life portfolio.

Investment income from commercial mortgage loans declined $1.0 million or 3% in 2019 compared to 2018. This decline reflected
lower average investments compared to the prior year. Partially offsetting this was an increase in prepayment fees compared to
one year earlier.

Investment income from real estate decreased $0.8 million or 4% in 2019 versus the prior year. Investment properties sold during
2018 lowered average portfolio balances during 2019, resulting in lower real estate income in 2019 compared to 2018.

We recorded net realized investment gains of $9.1 million in 2019 compared to net investment gains of $2.8 million in 2018, an
increase of $6.3 million year-over-year. The largest factor in the increase in 2019 was the change in fair value of derivative
instruments, which resulted in a gain of $3.3 million in 2019 compared to a $1.2 million loss in 2018. In addition, the change in
fair value of equity securities resulted in a gain of $0.8 million in 2019 compared to a $0.7 million loss in 2018. Also, investment
securities sales and calls generated a net gain of $2.7 million in 2019 compared to a net loss of $0.4 million in 2018. Partially
offsetting these improvements, sales of real estate generated net gains of $2.6 million in 2019 compared to net gains of $4.8 million
in 2018.

Policyholder Benefits
Policyholder benefits, net of reinsurance, consist of death benefits, immediate annuity benefits, accident and health benefits,
surrenders, other benefits, and the associated increase or decrease in reserves for future policy benefits and policyholder account
balances. The largest component of policyholder benefits was death benefits for the periods presented. Death benefits reflect
mortality results, after consideration of the impact of reinsurance.

Policyholder benefits increased $30.4 million or 13% in 2019 compared to 2018. This increase was primarily attributable to the
acquisition of Grange Life. Included in the results for Grange Life were refinements of the valuation models used. These refinements
decreased benefit and contract reserves in the fourth quarter of 2019. Excluding Grange Life, policyholder benefits increased
$6.0 million or 3% compared to the prior year, largely resulting from an increase in benefit and contract reserves. The increase
in benefit and contract reserves reflected changes in the fair value of the embedded derivative of the indexed universal life portfolio.
In addition, changes in the fair value of the GMWB rider increased benefit and contract reserves in 2019 compared to the prior
year, largely due to lower interest rates. Partially offsetting these, death benefits, net of reinsurance, excluding Grange Life
decreased compared to the prior year.

Amortization of DAC
The amortization of DAC decreased $4.7 million or 11% in 2019 compared to the prior year. This decline reflected improved
investment performance in the separate accounts and decreases in unlocking and refinements in estimates compared to one year
earlier. In addition, the DAC for certain blocks of business became fully amortized in 2018 and thus did not contribute to
amortization in 2019. The impact of unlocking and refinements in estimates resulted in a $1.2 million reduction in the amortization
of DAC in 2019 compared to 2018. DAC unlocking adjustments and refinements in estimates decreased DAC amortization $0.4
million in 2019 compared to unlocking adjustments and refinements in estimates that increased DAC amortization $0.8 million
in 2018. The unlocking in 2019 primarily resulted from unlocking surrender rates and reinsurance as well as refinements of
expense loads. These were partially offset by interest rate fluctuations. The unlocking in 2018 largely resulted from interest rate
fluctuations.

Operating Expenses
Operating expenses consist of incurred commission expense from the sale of insurance products, net of the deferral of certain
commissions and certain expenses directly associated with the successful acquisition of new business, expenses from our operations,
the amortization of VOBA and intangibles, and other expenses. Operating expenses increased $9.4 million or 9% in 2019 compared
to one year earlier. Excluding Grange Life, operating expenses increased $5.2 million or 5% compared to the prior year. This
increase was largely from higher compensation costs and agent-related expenses.

Income Taxes
We recorded an income tax expense of $5.0 million or 17% of income before tax in 2019. We recorded an income tax expense
of $1.5 million or 9% of income before tax in 2018. The increase in the effective tax rate in 2019 versus 2018 was due to permanent
differences and a decline in tax credits from affordable housing investments.

The effective income tax rate was lower than the prevailing corporate federal income tax rate of 21% in 2019 and 2018 due to
permanent differences, including the dividends-received deduction, and tax credits from affordable housing investments. For
additional information, please see Note 12 - Income Taxes.

Analysis of Investments

This analysis of investments should be read in conjunction with Note 4 included in this document.

The following table provides asset class detail of the investment portfolio at December 31.

Fixed maturity securities
Equity securities
Mortgage loans
Real estate
Policy loans
Short-term investments
Other investments

Total

2019
$ 2,951,137
11,272
577,699
183,016
87,499
75,426
9,156
$ 3,895,205

%
of Total

2018

%
of Total

76% $ 2,704,079
14,424
—%
639,559
15%
186,994
5%
88,066
2%
58,712
2%
5,355
—
100% $ 3,697,189

73%
1%
17%
5%
2%
2%
—
100%

Fixed maturity securities were the largest component of our total investments at December 31, 2019 and December 31, 2018. The
largest categories of fixed maturity securities at December 31, 2019 consisted of 77% in corporate securities, 9% in municipal
securities, and 7% in U.S. Treasury securities and obligations of the U.S. Government.

We use actual or equivalent Standard & Poor's ratings to determine the investment grading of fixed maturity securities. Our fixed
maturity securities that were rated investment grade were 98% at December 31, 2019 and December 31, 2018.

The fair value of fixed maturity securities with unrealized losses was $147.8 million at December 31, 2019, compared with $1.3
billion one year earlier. This decrease primarily reflected falling interest rates and tighter corporate bond spreads during 2019.
At December 31, 2019, 99% of security investments with an unrealized loss were investment grade and accounted for 100% of
the total unrealized losses. At December 31, 2018, 99% of securities with an unrealized loss were investment grade and accounted
for 95% of the total unrealized losses.

At December 31, 2019, we had $177.2 million in gross unrealized gains on fixed maturity securities that offset $3.0 million in
gross unrealized losses. At December 31, 2018, we had $59.0 million in gross unrealized gains on fixed maturity and equity
securities that offset $48.8 million in gross unrealized losses. At December 31, 2019, 95% of the fixed maturity securities portfolio
had unrealized gains, up from 52% at December 31, 2018. We had a decrease in gross unrealized losses in most categories from
year-end 2018 to year-end 2019 due to changes in interest rates and market spreads during 2019. Gross unrealized losses on fixed
maturity securities for less than 12 months totaled $0.9 million and accounted for 66% of the security values in a gross unrealized
loss position at December 31, 2019. Gross unrealized losses on fixed maturity security investments of 12 months or longer
decreased from $39.0 million at December 31, 2018 to $2.0 million at December 31, 2019.

Residential mortgage-backed securities, commercial mortgage-backed securities, and asset-backed securities that were rated below
investment grade were 8% at December 31, 2019 and 13% at December 31, 2018 of the total mortgage-backed and asset-backed
securities. This decrease was primarily due to acquisitions in the investment grade portion of the portfolio during 2019 which
decreased the below investment grade percentage of the total.

We have written down certain investments in previous periods. Fixed maturity securities written down and still owned at
December 31, 2019 had a fair value of $20.5 million and net unrealized gains of $1.8 million, compared to the December 31, 2018
fair value of $26.4 million and net unrealized gains of $1.9 million. Additional information identified or further deteriorations
could result in impairments in future periods.

We evaluated the current status of all investments previously written down to determine whether we believe that these investments
remained credit-impaired to the extent previously recorded. Our evaluation process is similar to our impairment evaluation process.
If evidence exists that we will receive the contractual cash flows from securities previously written down, the accretion of income
is adjusted. We did not change our evaluation of any investments under this process during 2019 or 2018.

Investments in mortgage loans totaled $577.7 million at December 31, 2019, down from $639.6 million at December 31, 2018.
The commercial mortgage loan portfolio decreased $61.9 million during 2019, as regularly scheduled payments and the volume
of prepaid loans exceeded new loans. Mortgage loan principal paydowns increased $11.5 million in 2019 compared to 2018,
primarily due to a higher dollar volume of prepaid loans. Our mortgage loans are secured by commercial real estate. These loans
are stated at the outstanding principal balance, adjusted for amortization of premium and accrual of discount, less an allowance

for loan losses. We believe this allowance is at a level adequate to absorb estimated credit losses and was $2.8 million at
December 31, 2019 and $3.1 million at December 31, 2018. For additional information on our mortgage loan portfolio, please
see Note 4.

Investments in real estate totaled $183.0 million at December 31, 2019 and $187.0 million at December 31, 2018. The decrease
was largely due to the sale of two investment properties that resulted in a realized gain of $2.6 million before applicable income
taxes.

Liquidity and Capital Resources

Liquidity
We meet liquidity requirements primarily through positive cash flows from operations. Management believes that the Company
has sufficient sources of liquidity and capital resources to satisfy operational requirements and to finance expansion plans and
strategic initiatives as they may occur. Primary sources of cash flow are premiums, other insurance considerations and deposits,
receipts for policyholder accounts, investment sales and maturities, and investment income. In addition, we have credit facilities
that are available for additional working capital needs or investment opportunities. The principal uses of cash are for the insurance
operations, including the purchase of investments, payment of insurance benefits, operating expenses, policyholder dividends,
withdrawals from policyholder accounts, and costs related to acquiring new business. In addition, we use cash for other purposes,
including the payment of stockholder dividends and income taxes. There can be no assurance that we will continue to generate
cash flows at or above current levels or that our ability to borrow under the current credit facilities will be maintained.

We perform cash flow testing and add various levels of stress testing to potential surrender and policy loan levels in order to assess
current and near-term cash and liquidity needs. In the event of increased surrenders and other cash needs, we have several sources
of cash flow available to meet our needs.

Net cash provided by operating activities was $0.1 million for the year ended December 31, 2019. The primary sources of cash
from operating activities in 2019 were premium receipts and net investment income. The primary uses of cash from operating
activities in 2019 were for the payment of policyholder benefits and operating expenses. Net cash used from investing activities
was $23.7 million. The primary sources of cash were sales, maturities, calls, and principal paydowns of investments totaling
$371.4 million. Offsetting these, investment purchases, including new mortgage loans and new policy loans, totaled $383.2
million. In addition, net purchases of short-term investments totaled $16.7 million. Net cash provided by financing activities was
$6.1 million, primarily including $15.8 million of deposits, net of withdrawals, on policyholder account balances and $3.5 million
of net transfers from separate accounts. Partially offsetting these was the payment of $10.5 million in stockholder dividends.

Capital Resources
We believe existing capital resources provide adequate support for the current level of business activities, as identified in the
following table at December 31.

Total assets, excluding separate accounts

Total stockholders' equity

Ratio of stockholders' equity to assets, excluding separate accounts

2019

2018

4,788,664

4,597,752

810,731

17%

691,706

15%

Stockholders’ equity increased $119.0 million from year-end 2018. This increase largely reflected fluctuations in the fair value
of investments that resulted from falling interest rates and tighter corporate bond spreads. Stockholders’ equity per share, or book
value, equaled $83.72 at year-end 2019, an increase from $71.43 at year-end 2018.

Net unrealized gains on available for sale securities, which are included as part of accumulated other comprehensive income (loss)
and as a component of stockholders’ equity (net of unrealized losses on investments, related taxes, policyholder account balances,
future policy benefits, DAC, VOBA, and DRL), totaled $104.8 million at December 31, 2019, a $102.0 million increase from
December 31, 2018.

Our statutory equity exceeds the minimum capital deemed necessary to support our insurance business, as determined by the risk-
based capital calculations and guidelines established by the NAIC. We believe these statutory limitations impose no practical
restrictions on future dividend payment plans. See further discussion in Note 20 - Statutory Information and Stockholder Dividends
Restriction.

In January 2020, the Board of Directors authorized the purchase of up to one million of our shares on the open market through
January 2021. No shares were purchased under this authorization during 2019 or 2018.

On January 27, 2020, the Board of Directors declared a quarterly dividend of $0.27 per share that was paid February 12, 2020 to
stockholders of record at February 6, 2020.

Minimum Rate Guarantees
Our rate guarantees for those products with minimum crediting rate provisions are identified in the following table. The guaranteed
minimum crediting rate has been reduced over time on new products being sold, consistent with the low interest rate environment.
The actual interest rate credited to these products may be greater than the guaranteed rates, particularly for products having been
sold more recently and within the lower guaranteed rate categories. Approximately 75% of total policyholder account balances
were at the minimum guaranteed rate as of December 31, 2019 compared to 77% at December 31, 2018.

December 31, 2019

Fixed
Annuities

Universal
Life

Variable Life
and Annuities

334,953

243,222

389,397

55,565

52,925

305,064

313,768

385,411

3,140

93,866

7,261

—

Supplemental
Contracts and
Annuities
Without Life
Contingencies
2,802
$

28,006

17,438

4,882

Total

393,820

670,158

727,864

445,858

1,023,137

1,057,168

104,267

53,128

2,237,700

0% to 1%

Greater than 1% to 3%

Greater than 3% to 4%

Greater than 4%
Total

December 31, 2018

Fixed
Annuities

Universal
Life

Variable Life
and Annuities

316,625

270,305

402,129

58,721

40,061

296,087

323,388

395,727

3,834

94,761

7,424

—

Supplemental
Contracts and
Annuities
Without Life
Contingencies
4,919
$

28,335

14,399

5,145

Total

365,439

689,488

747,340

459,593

1,047,780

1,055,263

106,019

52,798

2,261,860

0% to 1%

Greater than 1% to 3%

Greater than 3% to 4%

Greater than 4%
Total

Fixed Annuity Contracts
Fixed annuities typically involve single-payment deposits that accumulate over time through interest credited, and these contracts
also typically provide the right to make additional renewal deposits. The timing and magnitude of outgoing cash flows from these
contracts is dependent upon many factors, primarily due to contract owner rights to surrender or annuitize the policy value during
the term of the contract and benefit options that are provided upon death. We make estimates and projections of future cash flows
on fixed annuities based upon the economic environment, ranges of future economic changes, and historical contract holder
behavior.

The term of the contract is dependent upon the individual needs and decisions of contract owners up to and including the time of
contractual maturity. The maturity of the contract is typically determined by a combination of the duration of ownership of the
contract and the annuity owner’s age. Deferred annuity contract owners with upcoming annuity maturities receive communication
from us regarding the various maturity settlement options that are available in the contract. The communication can result in
extension of the contract maturity date, surrender of the contract prior to maturity, or conversion of the contract to other contract
or policy types. Conversions typically involve payment of the contract value over time and often with life contingencies.

The following table provides fixed annuity contract values within maturity date ranges. The values and date ranges provided
below do not necessarily represent our expected outflow of funds from these contracts, as these cash flows may be significantly
impacted by the needs and decisions of the contract owners.

2019

%
of Total

2018

%
of Total

One year or less

202,396

20% $

133,614

Two years

Three years

Four years

Five years

Six years or more
Total

52,551

63,005

45,622

48,327

611,236

1,023,137

72,892

53,593

53,607

67,780

60%

666,294

100% $

1,047,780

13%

64%

100%

Fixed annuity contracts typically also contain provisions for charges to be paid by contract holders if the contract is surrendered
within a fixed period of time after purchase. The surrender charge typically declines on an annual basis during an initial term of
ten or fewer years. The magnitude of any surrender charge applicable to a contract is believed to impact policyholder behavior
and the timing of future cash flows. The following table provides the policy values for fixed annuities by summary ranges of
applicable surrender charges as of December 31, 2019 and 2018.

None

Less than 5%

5% and greater
Total

2019

616,394

200,299

206,444

%
of Total

60% $

20%

2018

637,038

211,080

199,662

1,023,137

100% $

1,047,780

%
of Total

61%

20%

19%

100%

Asset/Liability Management
Our asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product
lines, cash flow testing under various interest rate scenarios to evaluate the potential sensitivity of assets and liabilities to interest
rate movements, and the continuous rebalancing of assets and liabilities with respect to yield, risk, and cash flow characteristics.

We believe our asset/liability management programs and procedures, along with certain product features, provide protection for
us against the effects of changes in interest rates under various scenarios.

Cash flows and effective durations of the asset and liability portfolios are measured at points in time and are affected by changes
in the level and term structure of interest rates, as well as changes in policyholder behavior. Further, durations are managed on
an individual product level, and an aggregate portfolio basis. As a result, differences typically exist between the duration, cash
flows, and yields of assets versus liabilities on an individual portfolio and aggregate basis. Our asset/liability management programs
and procedures enable management to monitor the changes, which have varying correlations among certain portfolios, and to make
adjustments to asset mix, liability crediting rates, and product terms so as to manage risk and profitability over time.

We aggregate similar policyholder liabilities into portfolios and then match specific investments with these liability portfolios. In
2019 and 2018, all of our portfolios had investment yields near or in excess of crediting rates on matched liabilities. We monitor
the risk to portfolio investment margins on an ongoing basis.

We perform cash flow scenario testing through models of our in force business. These models reflect specific product characteristics
and include assumptions based on current and anticipated experience regarding the relationships between short-term and long-
term interest rates (i.e., the slope of the yield curve), credit spreads, market liquidity, and other factors, including policyholder
behavior in certain market conditions. In addition, these models include asset cash flow projections, reflecting interest payments,
sinking fund payments, scheduled principal payments, and optional bond calls and prepayments.

The risk exists that our asset or liability portfolio performance may differ from forecasted results as a result of unforeseen economic
circumstances, estimates or assumptions that prove incorrect, unanticipated policyholder behavior, or other factors. The result of
such deviation of actual versus expected performance could include excess or insufficient liquidity in future periods. Excess
liquidity, in turn, could result in reduced profitability on one or more product lines. Insufficient liquidity could result in the need

to generate liquidity through borrowing, asset sales, or other means. We believe that our asset/liability management programs will
provide sufficient liquidity to enable us to fulfill our obligation to pay benefits under our various insurance and deposit contracts.
On a historical basis, we have not needed to liquidate assets to ensure sufficient cash flows. We maintain borrowing lines on a
secured and unsecured basis to provide additional liquidity, if needed.

Risk Factors

The operating results of life insurance companies have historically been subject to significant fluctuations. The factors which
could affect our future results include, but are not limited to, general economic conditions and the known trends and uncertainties
which are discussed more fully below.

Strategic and Operational Risks:

We operate in a mature and highly competitive industry, which could limit our ability to grow sales or maintain our position
in the industry and negatively affect profitability.

Life insurance is a mature and highly competitive industry. We encounter significant competition in all lines of business from
other insurance companies, many of which may have greater financial resources, a greater market share, a broader range of products,
lower product prices, better name recognition, greater actual or perceived financial strength, higher claims-paying ratings, the
ability to assume a greater level of risk, lower operating or financing costs, or lower profitability expectations.

In recent years, there has been substantial consolidation and convergence among companies in the financial services industry,
resulting in increased competition from large, well-capitalized financial services firms. Furthermore, many of these larger
competitors may have lower operating costs and an ability to absorb greater risk while maintaining their financial strength ratings,
thereby allowing them to price their products more competitively.

Changes in demographics, particularly the aging of the population, and the decline in the number of agents in the industry, may
affect the sales of life insurance products. Also, as technology evolves, customers and agents may be able to compare products
of any particular company with any other, which could lead to increased competition as well as changes in agent or customer
behavior, including persistency, that differs from past behavior.

We may be unable to attract and retain agencies and agents.

We sell insurance and annuity products through independent agents and agencies. These agencies and agents are not captive and
may sell products of our competitors. Sales and our financial results could be adversely affected if we are unsuccessful in attracting
agencies and agents. Our ability to retain agents and agencies is dependent upon a number of factors, including: our ability to
maintain a competitive compensation system while also offering products with competitive features and benefits for policyholders;
our ability to maintain a level of service and assistance that effectively supports the needs of agents and agencies; and our ability
to approve and monitor sales and business practices of agents and agencies that are consistent with regulatory requirements and
our expectations.

Our results may be negatively affected should actual experience differ from management’s assumptions and estimates.

We make certain assumptions regarding mortality, persistency, expenses, interest rates, tax liability, business mix, policyholder
behavior, and other factors appropriate for the type of business results we expect to experience in future periods. These assumptions
are also used to estimate the amounts of DAC, VOBA, DRL, policy reserves and accruals, future earnings, and various components
of our financial statements. These assumptions are used in the operations of our business in making decisions that are crucial to
our success, including the pricing of products and expense structures relating to products. Our actual experience and changes in
estimates are reflected in our financial statements. Our actual experience may vary from period to period and from established
assumptions, potentially resulting in variability in the financial statements.

We establish and carry a reserve liability based on current estimates of how much will be needed to pay for future benefits and
claims. The assumptions and estimates used in connection with establishing and carrying reserves are inherently uncertain and in
some cases are mandated by regulators, irrespective of a company's actual experience. If actual experience is significantly different
from assumptions or estimates or if regulators decide to increase or change regulations, current reserves may prove to be inadequate
in relation to estimated future benefits and claims. As a result, a charge to earnings would be incurred in the quarter in which we
increase reserves.

The calculations we use to estimate various components of our financial statements are complex and involve analyzing and
interpreting large quantities of data. We employ various techniques for such calculations and from time to time will develop and
implement more sophisticated systems and procedures to facilitate calculations and improve estimates. Accordingly, our financial
results may be affected, positively or negatively, by actual results differing from assumptions, by changes in estimates, and by
changes resulting from implementing new administrative systems and procedures.

Risk management policies and procedures may not be fully effective and could leave us exposed to unidentified or unanticipated
risk, which could negatively affect business or result in losses.

We have devoted significant resources to develop risk management policies and procedures and will continue to do so in the future.
However, the policies and procedures that we use to identify, monitor, and manage risks may not be fully effective. Many of the
methods of managing risk and exposure are based upon the use of observed historical policyholder and market behavior or statistics
based on historical models. As a result, these methods may not effectively or fully identify or evaluate the magnitude of existing
or future exposure, which could be significantly greater than the historical measures or our evaluation indicate. Other risk
management methods depend upon the evaluation of information regarding markets, agents, clients, catastrophe occurrence, or
other matters that are publicly available or otherwise accessible. This information may not always be accurate, complete, up-to-
date, or properly evaluated. Management of operational, legal, and regulatory risks requires policies and procedures to record
properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective.
Additional risks and uncertainties not currently known or that we currently deem to be immaterial may adversely affect our business
and/or our financial statements.

A rating downgrade could adversely affect our ability to compete and increase the number or value of policies surrendered.

Our financial strength rating, which is intended to measure our ability to meet policyholder obligations, may be an important
consideration affecting public confidence in some of our products and, as a result, our competitiveness. A downgrade in our rating
could adversely affect our ability to sell products, retain existing business, and compete for attractive acquisition opportunities.
Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the
factors relate to the views of the rating organization, general economic conditions, and circumstances outside the rated company’s
control. We cannot predict what actions rating organizations may take or what actions we may be required to take in response to
the actions of the rating organizations.

Projected operating results for acquisitions may not be achieved and the ability to integrate acquisitions and achieve anticipated
operating efficiencies may not be successful.

Actual operating results may vary significantly from projected results of acquired companies and blocks of business. Projected
operating results are estimates of future results based on assumptions made by management at the time of the acquisition. General
economic, political, and market conditions may have a material impact on the reliability of these projections. We may not be able
to realize the projected value of acquired assets or we may underestimate the value of the liabilities assumed. Our financial position
and results of operations could be negatively impacted if the projections are materially inaccurate. This could result in the write-
down of acquired assets, impairment to goodwill, impairment to intangible assets, increases to assumed liabilities, and other
negative impacts to our financial statements.

We may not achieve efficient operational integration of acquisitions or may not achieve operating efficiencies that were projected
at the time of acquisition. Failure to achieve either or both of these could result in increased expenses and negatively impact our
financial position and results of operations.

Reinsurance Risks:

Our reinsurers could fail to meet assumed obligations or be subject to adverse developments that could impact us.

We follow the insurance practice of reinsuring a portion of the risks under the policies we issue, known as ceding. We cede
significant amounts of insurance to other insurance companies through reinsurance. This reinsurance makes the assuming reinsurer
liable to us for the reinsured portion of the risk. However, reinsurance does not discharge us from our primary obligation to pay
policyholders for losses insured under the policies that are issued. Therefore, we are subject to the credit risk of our reinsurers.
The failure of one or more of our reinsurers could negatively impact our financial position or financial statements.

Our ability to compete is dependent on the availability of reinsurance, cost of reinsurance, or other substitute capital market
solutions.

The premium rates we charge are based, in part, on the assumption that reinsurance will be available at a certain cost. Under
certain reinsurance agreements, the reinsurer may increase the rate it charges us for the reinsurance. Therefore, if the cost of
reinsurance were to increase for existing business, if reinsurance were to become unavailable for new business, or if alternatives
to reinsurance were not available, we may be exposed to reduced profitability and cash flow strain, or may not be able to sell or
price new business at competitive rates.

In recent years, the number of life reinsurers has decreased as the reinsurance industry has consolidated. The decreased number
of participants in the life reinsurance market results in increased concentration risk for insurers. If the reinsurance market further
contracts, our ability to continue to offer our products on terms favorable to us could be adversely impacted.

Investment Risks:

Our investments are subject to market and credit risks.

We hold a diversified portfolio of investments that primarily includes fixed maturity securities, mortgage loans, and real estate.
Each of these investments is subject, in varying degree, to market risks that can affect their return and their fair value.

Our invested assets, primarily including fixed maturity securities, are subject to customary risks of credit defaults and changes in
fair value. The value of our mortgage loan and real estate portfolios also depend on the financial condition of the borrowers and
tenants occupying the properties which we have financed. Factors that may affect the overall default rate on and fair value of our
invested assets include interest rate levels and changes, availability and cost of liquidity, financial market performance, and general
economic conditions, as well as particular circumstances affecting the businesses of individual borrowers and tenants.

Our investments are exposed to varying degrees of credit risk. Credit risk is the risk that the value of the investment may decline
due to deterioration in the financial strength of the issuer and that the timely or ultimate payment of principal or interest might not
occur. A default by an issuer usually involves some loss of principal to the investor. Losses can be mitigated by timely sales of
affected securities or by active involvement in a restructuring process. However, there can be no assurance that the efforts of an
investor will lead to favorable outcomes in a bankruptcy or restructuring.

We attempt to mitigate credit risk by diversifying the investment portfolio across a broad range of issuers, investment sectors and
security types, and by limiting the amount invested in any particular entity. We also invest in securities collateralized or supported
by physical assets, guarantees by insurers or other providers of financial strength, and other sources of secondary or contingent
payment. These securities can improve the likelihood of payment according to contractual terms and increase recovery amounts
in the case of issuer default, bankruptcy, or restructuring.

Interest rate fluctuations could negatively affect our spread income or otherwise impact our business.

Interest rate fluctuations or sustained low interest rate environments could negatively affect earnings because the profitability of
certain products depends in part on interest rate spreads. These products include fixed annuities, single premium immediate
annuities, interest-sensitive whole life, universal life, and the fixed portion of variable universal life insurance and variable annuity
business. In addition, we offer riders, including guaranteed minimum withdrawal benefits and guaranteed minimum death benefits.
Changes in interest rates or sustained low interest rate environments may reduce both the profitability and the return on invested
capital.

Some of our products, principally fixed annuities, interest-sensitive whole life, universal life, and the fixed portion of variable
universal life insurance and variable annuity business, have interest rate guarantees that expose us to the risk that changes in interest
rates will reduce the spread, or the difference between the amounts we are required to credit to policyholder contracts and the
amounts earned on general account investments. Because many of our policies have guaranteed minimum interest or crediting
rates, spreads could decrease and potentially become negative. Declines in spread or instances where the returns on the general
account investments are not sufficient to support the interest rate guarantees on these products could have a material adverse effect
on our financial statements. In addition, in periods of increasing interest rates, we may not be able to replace the assets in the
general account with higher yielding assets needed to fund the higher crediting rates that may be necessary to keep interest sensitive
products competitive. Therefore, we may have to accept a lower spread and profitability or face a decline in sales, loss of existing
contracts from non-renewed maturities, early withdrawals, or surrenders. In periods of declining interest rates, we may have to
reinvest the cash received from interest or return of principal on investments in lower yielding instruments then available. Moreover,
issuers of fixed income investment securities and borrowers related to our commercial mortgage investments may prepay these
obligations in order to borrow at lower market rates, which may increase our risk to have to reinvest at lower rates. Increases in
interest rates may cause increased surrenders of insurance products. In periods of increasing interest rates, policy loans and
surrenders and withdrawals of life insurance policies and annuity contracts may increase, as policyholders seek to buy products
with higher returns. These outflows may require investment assets to be sold at a time when the prices of those assets are lower
because of the increase in market interest rates, which may result in realized investment losses. Further, higher interest rates may
result in significant unrealized losses on investments. These net unrealized losses could have a negative effect on stockholders'
equity. This could negatively impact the ability to pay policyholder and stockholder dividends. In addition, higher interest rates
may reduce the fair value of policyholders' separate account investments, which may reduce our revenues from asset-based
management fees.

While we develop and maintain asset/liability management programs and procedures designed to identify and mitigate the effect
on spread income in rising or falling interest rate environments, no assurance can be given that changes in interest rates will not
affect such spreads or that our evaluation of fluctuations will be correct or allow for timely modifications. Additionally, our asset/
liability management programs incorporate assumptions about the relationship between short-term and long-term interest rates
(i.e., the slope of the yield curve) and relationships between risk-adjusted and risk-free interest rates, market liquidity, and

policyholder behavior in periods of changing interest rates and other factors. The effectiveness of our asset/liability management
programs and procedures may be negatively affected whenever actual results differ from these assumptions.

Prolonged periods of low interest rates can affect policyholder behavior and negatively impact earnings.

As interest rates decline, policyholders may become more likely to extend the retention or duration of fixed-rate products previously
purchased and may seek alternatives to fixed-rate products for new purchases. Policyholders may add premiums or deposits to
existing policies or contracts with terms upon which we are no longer offering on new products. Many of the products sold in
earlier periods may have minimum guaranteed interest crediting rates or other features that are greater than those being offered in
the current low interest rate environment. Additionally, cash flows from existing investments, including interest and principal
payments, may be reinvested at lower interest rates relative to prior periods. As a result, a prolonged low interest rate environment
can result in significant changes to cash flows, lower investment income, compressed product spreads, reduced earnings, and
statutory surplus strain. In addition, we may change our risk profiles in regards to selecting investment opportunities to reduce
the impact on earnings.

The change from a low interest rate environment to an environment of increasing interest rates can affect policyholder behavior
and negatively impact earnings.

The change from a period of low interest rates to a period of significantly higher and increasing interest rates may cause policyholders
to surrender policies or to make early withdrawals in order to maximize their returns. Accordingly, we may become more susceptible
to increased surrenders and withdrawals on policies, as surrender charges and other features that help protect us from increased
or unexpected policyholder withdrawals or lapses are ineffective. Increases in policyholder surrenders, withdrawals, or lapses
could negatively affect our operating results and liquidity.

Our valuation of fixed maturity and equity securities include estimations and assumptions and could result in changes to
investment valuations that may have a material adverse effect on our financial statements.

Fixed maturity securities, equity securities, and short-term investments are reported at fair value in the Consolidated Balance
Sheets and represent the majority of total cash and invested assets. During periods of market disruption, including periods of
significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain securities
if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were previously
acquired and valued in active markets with significant observable data that will be valued in illiquid markets with little observable
data. As such, valuations may include inputs and assumptions that are less observable or require greater estimation as well as
valuation methods which are more complex or require increased estimation, thereby resulting in values which may have greater
variance from the value at which the investments may or could be ultimately sold. Further, rapidly changing credit and equity
market conditions could materially impact the valuation of securities as reported in the consolidated financial statements, and the
period to period changes in value could vary significantly. Decreases in value could have a material adverse effect on our financial
statements.

Equity market volatility could negatively impact our profitability.

We are exposed to equity market volatility in the following ways:

• We have exposure to equity price risk through investments. However, this exposure is limited due to the relatively small

equity portfolio held during the periods presented.

• We earn investment management fees and mortality and expense fee income based upon the value of assets held in our
separate accounts from both direct and reinsurance arrangements. Revenues from these sources fluctuate with changes
in the fair value of the separate accounts.

• Volatility in equity markets may discourage customers from purchasing variable universal life and annuity products that
have returns linked to the performance of the equity markets. This volatility may also result in existing customers
withdrawing cash values or reducing investments in those products.

• We have equity price risk to the extent that it may affect the liability recognized under guaranteed minimum death benefits
and guaranteed minimum withdrawal benefit provisions of the variable contracts. Periods of significant and sustained
downturns in equity markets, increased equity volatility, or reduced interest rates could result in an increase in the valuation
of the future policy benefit or policyholder account balance liabilities associated with such products, which ultimately
could result in a reduction to net income.

• The amortization of DAC relating to variable products can fluctuate with changes in the performance of the underlying

separate accounts due to the impact on estimated gross profits.

• The Company has a defined benefit pension plan that is frozen. Declining financial markets could have several impacts
on this plan including but not limited to: a decrease in the plan's investment values; additional pension expense; a reduction
in comprehensive income; and an increase in contributions. In addition, the funding requirements of our pension plan

are sensitive to interest rate changes. Should interest rates decrease, plan liabilities may increase. Should interest rates
increase, plan assets may decrease.

The determination of the amount of realized and unrealized impairments and allowances established on our investments is
highly subjective and could materially impact our financial position or financial statements.

The determination of the amount of impairments and allowances varies by investment type and is based upon our evaluation and
assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised
as conditions change and new information becomes available. There can be no assurance that the assumptions, methodologies,
and judgments employed in these evaluations and assessments will be accurate or sufficient in later periods. As a result, additional
impairments may need to be realized or allowances provided in future periods. Further, historical trends may not be indicative of
future impairments or allowances.

Additionally, we consider a wide range of factors about security issuers and we use our best judgment in evaluating the cause of
the decline in the fair value of the security and in assessing the prospects for recovery. Inherent in management’s evaluation of
the security are assumptions and estimates about the operations of the issuer, its future earnings potential, and the ability and
timeliness of the security’s recovery in fair value.

We could be forced to sell investments at a loss to meet policyholder withdrawals.

Many of our products allow policy and contract holders to withdraw their funds under defined circumstances. We manage liabilities
and attempt to align the investment portfolio so as to provide and maintain sufficient liquidity to support anticipated withdrawal
demands, contract benefits, and maturities. While we own a significant amount of liquid assets, a certain portion of our investment
assets are relatively illiquid. If we experience unanticipated withdrawal or surrender activity, we could exhaust other sources of
liquidity and be forced to liquidate assets, possibly on unfavorable terms. If we are forced to dispose of assets on unfavorable
terms, it could have an adverse effect on our financial statements and financial condition.

Regulatory Risks:

Insurance companies are highly regulated and are subject to numerous legal restrictions and regulations.

We are subject to government regulation in each of the states in which we conduct business. Such regulation is vested in state
agencies having broad administrative and, in some instances, discretionary power dealing with many aspects of our business. This
may include, among other things, premium rates and increases thereto, reserve requirements, marketing practices, advertising,
privacy, policy forms, reinsurance reserve requirements, acquisitions, mergers, and capital adequacy. Government regulation of
insurers is concerned primarily with the protection of policyholders and other customers rather than shareholders. Interpretations
of regulations by regulators may change, and statutes, regulations, and interpretations may be applied with retroactive impact,
particularly in areas such as accounting or reserve requirements.

We cannot predict whether or in what manner regulatory reforms will be enacted and, if so, whether the enacted reforms will
positively or negatively affect the Company, or whether any effects will be material. The NAIC generally formulates and
promulgates statutory-based insurance regulations. However, each state is independent and must separately enact these financial
regulations and guidelines. As such, insurers follow the interpretations and legal approvals of their respective states of domicile.

Other types of regulation that could affect us include insurance company investment laws and regulations, state statutory accounting
practices, state escheatment practices, anti-trust laws, minimum solvency requirements, state securities laws, federal privacy laws,
insurable interest laws, federal money laundering laws, anti-terrorism laws, and federal income tax regulations. Further, because
we own and operate real property, state, federal, and local environmental laws could affect us. We cannot predict what form any
future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if any, such proposals
might have on us if enacted into law.

We are also subject to various government regulations at the federal level. As a result of economic and market conditions in recent
years, the federal government has become increasingly more active in issuing and enforcing regulations. The implementation of
these legislative or regulatory requirements may make it more expensive for us to conduct business, may have a material adverse
effect on the overall business climate, and could materially affect the profitability of the results of operations and financial condition
of financial institutions. We are uncertain as to all of the impacts that new legislation will have and cannot provide assurance that
it will not adversely affect our financial statements.

New accounting rules or changes to existing accounting rules could negatively impact our financial results.

We are required to comply with GAAP, as promulgated by the FASB. GAAP is subject to constant review and change in an effort
to address emerging accounting issues and develop interpretative accounting guidance on a continual basis. The implementation

of new accounting guidance could result in substantial costs and or changes in assumptions or estimates, which could negatively
impact our financial statements. Accordingly, we can give no assurance that future changes to GAAP will not have a negative
impact on us.

In addition, we are required to comply with statutory accounting principles (SAP). SAP and various components of SAP, such as
statutory actuarial reserving methodology, are subject to constant review by the NAIC, NAIC task forces and committees, as well
as state insurance departments to address emerging issues and otherwise improve or modify financial reporting. Various proposals
are typically pending before committees and task forces of the NAIC. If enacted, some of these may negatively affect us. The
NAIC also typically works to reform state regulation in various areas, including reforms relating to life insurance reserves and the
accounting for such reserves. We cannot predict whether or in what manner reforms will be enacted and, if so, whether the enacted
reforms will positively or negatively affect us. Although states generally defer to the interpretation of the insurance department
of the state of domicile with regards to regulations and guidelines, neither the action of the domiciliary state nor action of the
NAIC is binding on any other state. Accordingly, a state could choose to follow a different interpretation. We can give no assurance
that future changes to SAP or components of SAP will not have a negative impact on us.

Catastrophic Event Risk:

We are exposed to the risks of climate change, natural disasters, pandemics, terrorism, or other acts that could adversely affect
our operations.

While we have implemented risk management and contingency plans and taken preventive measures and other precautions, no
predictions of specific scenarios can be made nor can assurance be given that there are not scenarios that could have an adverse
effect on us. Climate change, a natural disaster, a pandemic, or an outbreak of an easily communicable disease could adversely
affect the mortality or morbidity experience of us or our reinsurers. A pandemic could also have an adverse effect on lapses and
surrenders of existing policies, as well as sales of new policies. In addition, a pandemic could result in large areas being subject
to quarantine, with the result that economic activity slows or ceases. This could adversely affect the marketing or administration
of our business. The possible macroeconomic effects of climate change, natural disasters, pandemics, or terrorism could also
adversely affect our financial statements.

Information Technology Risk:

The failure of our cybersecurity controls, other information system security controls, or the controls of our third-party providers
may result in the unauthorized disclosure of sensitive or confidential corporate or customer information. Such failures could
damage our reputation and hinder our ability to conduct business. Further, our contingency planning and disaster recovery
programs may be insufficient to address unanticipated events. In addition, our reputation could be damaged by inaccurate
presentations made in social media.

As part of the normal course of business, we use computer systems to collect, process, and retain sensitive and confidential corporate
and customer information. In addition, we use third-party vendors and cloud technology for storage, processing, and data support
of certain activities. We rely on commercial technologies and third parties to maintain the security of that information. Our
information systems are subject to computer viruses, malicious software code, and other unauthorized computer-related actions.
Preventive actions taken by the Company to reduce the risk of cyber incidents and to protect our information may be insufficient
to prevent cyber attacks or other security breaches. Any security breach involving the misappropriation, loss, or other unauthorized
disclosure of confidential information could severely damage our reputation, expose us to an increase in the risk of litigation,
disrupt our operations, cause incurrence of significant technical, legal, and operating expenses, or otherwise harm our business.

We are highly dependent on our ability to access our computer systems to perform the necessary business functions, such as
processing premium payments, processing claim payments, administration of policy data, providing customer support, managing
our investment portfolio, and conducting financial reporting and analysis. Events such as natural disasters, pandemics, blackouts,
computer viruses, terrorist attacks, or cyber attacks could result in system failures or outages that may cause our computer systems
to become inaccessible to our employees and customers for an extended period of time. Our disaster recovery program may be
insufficient to deal with such an unanticipated event. This could result in an adverse impact to our ability to conduct business
functions in a timely manner and could result in a failure to maintain the security and confidentiality of sensitive data, including
personal information of customers. This could also result in damage to our ability to conduct business, damage to our reputation,
result in substantial remediation costs, and potentially subject us to regulatory sanctions, legal claims, or other unidentified
consequences.

While we have limited social media content, we recognize that social media outlets are independent of us and our security measures.
Inaccurate presentations based upon incorrect information or assumptions could be distributed via social media outlets and could
harm us and our reputation.