Kansas City Life Insurance Company
Annual Report 2022

Plain-text annual report

KANSAS CITY LIFE INSURANCE COMPANY A Missouri Corporation 3520 Broadway Kansas City, MO 64111-2565 Telephone: (816) 753-7000 www.kclife.com Investor Relations: Craig.Mason@kclife.com SIC Code: 6311 ANNUAL REPORT For the Period Ending December 31, 2022 (the "Reporting Period") The number of shares outstanding of our Common Stock was 9,683,414 as of December 31, 2022 (the end of reporting period) The number of shares outstanding of our Common Stock was 9,683,414 as of September 30, 2022 (the end of previous reporting period) Indicate by check mark whether the company is a shell company (as defined in Rule 405 of the Securities Act of 1933 and Rule 12b-2 of the Exchange Act of 1934): Yes: o No: x Indicate by check mark whether the company’s shell status has changed since the previous reporting period: Yes: o No: x Indicate by check mark whether a Change in Control of the company has occurred over this reporting period: Yes: o No: x KANSAS CITY LIFE INSURANCE COMPANY TABLE OF CONTENTS Financial Information .............................................................................................................................................................. 3 Consolidated Balance Sheets ................................................................................................................................................ 3 Consolidated Statements of Comprehensive Income ........................................................................................................... 4 Consolidated Statements of Stockholders' Equity ................................................................................................................ 5 Consolidated Statements of Cash Flows .............................................................................................................................. 6 Notes to Consolidated Financial Statements ........................................................................................................................ 8 Independent Auditors' Report ............................................................................................................................................... 72 Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................. 74 Risk Factors ............................................................................................................................................................................. 87 Financial Information Amounts in thousands, except share data, security counts, claim counts, or as otherwise noted. Kansas City Life Insurance Company Consolidated Balance Sheets December 31, 2022 2021 ASSETS Investments: Fixed maturity securities available for sale, at fair value (amortized cost: 2022 - $2,475,443; 2021 - $2,894,877) $ 2,204,819 $ 3,088,197 Equity securities, at fair value (cost: 2022 - $1,699; 2021 - $3,097) 1,918 3,676 Mortgage loans 591,928 596,037 Real estate 141,649 142,278 Policy loans 82,739 82,060 Short-term investments 58,497 74,501 Other investments 18,749 12,840 Total investments 3,100,299 3,999,589 Cash 7,768 5,419 Accrued investment income 27,516 30,298 Deferred acquisition costs 327,544 292,027 Reinsurance recoverables 389,611 399,951 Deposit asset on reinsurance 484,410 — Other assets 246,420 201,170 Separate account assets 381,581 504,976 Total assets $ 4,965,149 $ 5,433,430 LIABILITIES Future policy benefits $ 1,388,924 $ 1,397,111 Policyholder account balances 2,280,917 2,247,392 Policy and contract claims 56,975 69,787 Other policyholder funds 204,788 185,713 Other liabilities 160,271 198,017 Separate account liabilities 381,581 504,976 Total liabilities 4,473,456 4,602,996 STOCKHOLDERS' EQUITY Common stock, par value $1.25 per share Authorized 36,000,000 shares, issued 18,496,680 shares 23,121 23,121 Additional paid in capital 41,025 41,025 Retained earnings 910,438 933,338 Accumulated other comprehensive income (loss) (241,590) 74,251 Treasury stock, at cost (2022 and 2021 - 8,813,266 shares) (241,301) (241,301) Total stockholders’ equity 491,693 830,434 Total liabilities and stockholders’ equity $ 4,965,149 $ 5,433,430 See accompanying Notes to Consolidated Financial Statements 3 Year Ended December 31, 2022 2021 2020 REVENUES Insurance revenues: Net premiums $ 208,608 $ 208,864 $ 223,756 Contract charges 124,044 121,803 126,722 Total insurance revenues 332,652 330,667 350,478 Investment revenues: Net investment income 153,879 142,468 145,684 Net investment gains (losses) (16,643) 25,417 21,835 Total investment revenues 137,236 167,885 167,519 Other revenues 6,754 12,760 5,913 Total revenues 476,642 511,312 523,910 BENEFITS AND EXPENSES Policyholder benefits 258,399 280,886 280,970 Interest credited to policyholder account balances 72,974 79,725 78,792 Amortization of deferred acquisition costs 40,593 33,217 42,141 Operating expenses 125,433 104,564 106,093 Total benefits and expenses 497,399 498,392 507,996 Income (loss) before income tax expense (benefit) (20,757) 12,920 15,914 Income tax expense (benefit) (4,539) 2,216 744 NET INCOME (LOSS) $ (16,218) $ 10,704 $ 15,170 COMPREHENSIVE INCOME (LOSS), NET OF TAXES Changes in: Net unrealized gains (losses) on securities available for sale $ (366,516) $ (100,859) $ 115,900 Effect on deferred acquisition costs, value of business acquired, and deferred revenue liabilities 31,334 7,946 (7,809) Policyholder liabilities 26,765 9,247 (15,882) Benefit plan obligations (7,424) 5,115 1,087 Other comprehensive income (loss) (315,841) (78,551) 93,296 COMPREHENSIVE INCOME (LOSS) $ (332,059) $ (67,847) $ 108,466 Basic and diluted earnings per share: Net income (loss) $ (1.67) $ 1.11 $ 1.57 See accompanying Notes to Consolidated Financial Statements Kansas City Life Insurance Company Consolidated Statements of Comprehensive Income 4 Year Ended December 31, 2022 2021 2020 COMMON STOCK, beginning and end of year $ 23,121 $ 23,121 $ 23,121 ADDITIONAL PAID IN CAPITAL, beginning and end of year 41,025 41,025 41,025 RETAINED EARNINGS Beginning of year 933,338 933,092 928,380 Net income (loss) (16,218) 10,704 15,170 Stockholder dividends (2022 - $0.69 per share, 2021 and 2020 - $1.08 per share) (6,682) (10,458) (10,458) End of year 910,438 933,338 933,092 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Beginning of year 74,251 152,802 59,506 Other comprehensive income (loss) (315,841) (78,551) 93,296 End of year (241,590) 74,251 152,802 TREASURY STOCK, at cost, beginning and end of year (241,301) (241,301) (241,301) TOTAL STOCKHOLDERS’ EQUITY $ 491,693 $ 830,434 $ 908,739 See accompanying Notes to Consolidated Financial Statements Kansas City Life Insurance Company Consolidated Statements of Stockholders’ Equity 5 Year Ended December 31, 2022 2021 2020 OPERATING ACTIVITIES Net income (loss) $ (16,218) $ 10,704 $ 15,170 Adjustments to reconcile net income (loss) to net cash provided by (used from) operating activities: Amortization of investment premium and discount 2,837 1,669 1,978 Depreciation and amortization 6,592 7,967 8,538 Acquisition costs capitalized (26,612) (38,239) (44,151) Amortization of deferred acquisition costs 40,593 33,217 42,141 Net investment losses (gains) 16,643 (25,417) (21,835) Gain on sale of subsidiary — (5,500) — Changes in assets and liabilities: Reinsurance recoverables 10,340 (8,513) (12,667) Future policy benefits 24,861 24,761 33,050 Policyholder account balances (92,909) (42,995) (34,520) Income taxes payable and deferred (7,304) (4,983) (2,923) Other, net (13,154) 1,010 21,113 Net cash provided (used) (54,331) (46,319) 5,894 INVESTING ACTIVITIES Purchases: Fixed maturity securities (441,308) (434,696) (344,098) Equity securities (8) (259) (380) Mortgage loans (69,974) (103,942) (109,060) Real estate (2,733) (36,994) (2,610) Policy loans (7,116) (8,754) (8,706) Other investments (14,553) (5,828) (3,702) Property and equipment (535) (628) (1,844) Sales or maturities, calls, and principal paydowns: Fixed maturity securities 343,993 308,361 344,071 Equity securities 2,000 3,000 5,000 Mortgage loans 74,111 109,546 85,111 Real estate 843 72,439 29,898 Policy loans 6,437 11,141 11,758 Other investments 3,639 8,599 4,204 Property and equipment 25 71 25 Net sales (purchases) of short-term investments 16,004 41,616 (43,690) Proceeds from sale of subsidiary — 28,468 — Net cash used (89,175) (7,860) (34,023) Kansas City Life Insurance Company Consolidated Statements of Cash Flows 6 Year Ended December 31, 2022 2021 2020 FINANCING ACTIVITIES Policyholder account balances - deposits $ 207,231 $ 215,598 $ 220,549 Policyholder account balances - receipts from funding agreement 70,000 30,000 — Withdrawals from policyholder account balances (172,117) (192,709) (200,717) Change in deposit asset on reinsurance, net 45,799 — — Net transfers from separate accounts 7,841 7,320 8,794 Change in other deposits (6,217) 2,644 2,930 Cash dividends to stockholders (6,682) (10,458) (10,458) Net cash provided 145,855 52,395 21,098 Increase (decrease) in cash 2,349 (1,784) (7,031) Cash at beginning of year 5,419 7,203 14,234 Cash at end of year $ 7,768 $ 5,419 $ 7,203 Non-Cash Activity In 2022, we had a non-cash investing transaction that consisted of the receipt of a $0.6 million equity security and a $1.0 million fixed maturity security in exchange for a $1.6 million fixed maturity security as a result of the Chapter 11 Bankruptcy of the issuer of one of our fixed maturity securities. The new equity and fixed maturity securities were recorded at fair value, which equaled the fair value of the fixed maturity security that was extinguished. In 2022, we entered into a reinsurance arrangement in the form of a deposit-type contract that resulted in the non-cash transfer of $493.9 million of fixed maturity securities and $516.2 million of policyholder account balance liabilities to a certified domestic reinsurer. See the Business Changes section of Note 1 - Nature of Operations and Significant Accounting Policies for further information. In 2022, we accrued $28.4 million in Other Liabilities in the Consolidated Balance Sheets related to a class action lawsuit. See Note 20 - Commitments, Contingent Liabilities, Guarantees, and Indemnifications for further information. See accompanying Notes to Consolidated Financial Statements Kansas City Life Insurance Company Consolidated Statements of Cash Flows 7 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 life insurance companies. Kansas City Life Insurance Company (Kansas City Life) is the parent company. Old American Insurance Company (Old American) and Grange Life Insurance Company (Grange Life) are wholly-owned insurance subsidiaries of Kansas City Life. Sunset Life Insurance Company of America (now Ibexis Life & Annuity Insurance Company) was an insurance subsidiary that was wholly-owned by the Company until it was sold on November 1, 2021 - see Business Changes section below. 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 and its subsidiaries. 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. For additional information on our segments, please see Note 17 - Segment Information. 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. 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. Current Economic Environment The economic environment continues to be shaped by lingering effects of COVID-19, including ongoing supply chain disruptions and an under supply of labor, due to early retirements, lower rates of immigration and a slow recovery of labor participation rates. Additionally, the Russia/Ukraine War has caused oil, gas, and agricultural product supply disruptions. Inflation jumped significantly due to the supply chain disruptions and under supply of labor with year-over-year CPI (consumer price index) and Core PCE (personal consumption expenditures) peaking in 2022 at 9.1% and 5.4%, respectively. In response, Global Central Banks increased rates and initiated quantitative tightening, with the Federal Reserve raising its benchmark overnight rate by 425 basis points (bps) in 2022. The bond market responded with the 10-year Treasury yield increasing by 236 bps from 1.51% to 3.87% in 2022. The jump in rates has impacted the economy by slowing growth and increasing the risk of recession. The investment environment has been both positively and negatively impacted. While it has created a better environment for reinvestment into fixed income assets at higher yields, it has also resulted in a significant decline in the market value of existing fixed income assets. Additionally, if the economy experiences a “hard landing” and enters a recession, risk of asset impairments, defaults, and delinquencies will increase. Business Changes On May 25, 2022, retroactive to April 1, 2022, we entered into a reinsurance arrangement whereby we reinsured a sizeable block of fixed annuity contracts to a certified domestic reinsurer. This closed block of contracts reflected business issued prior to 2015 and consisted entirely of higher guaranteed interest rate products. We are accounting for this transaction as a deposit- type contract. The contract reinsured $516.2 million in policyholder account balance liabilities in exchange for fixed maturity securities and cash, less deferred revenue. We immediately recognized $11.6 million of certain non-refundable premiums associated with the transaction in investment income. The remaining deferred revenue will be amortized in future periods. The net consideration transferred to the reinsurer was $493.9 million. This resulted in recognizing a deposit asset on reinsurance of $516.2 million at April 1, 2022. Fixed maturity securities were transferred at market value as of the closing date of the transaction, resulting in a pre-tax net realized investment loss of $12.3 million. We will continue to administer this business on an ongoing basis, and we will receive an ongoing expense allowance associated with these efforts. For additional information on this reinsurance arrangement, please see Note 14 - Reinsurance. In 2021, we sold 100% of the capital and surplus of Sunset Life (now Ibexis Life & Annuity Insurance Company) to Bona Holdings, LLC for $29.5 million, resulting in a net gain of approximately $5.5 million. In addition, we received $1.0 million for providing certain transition support services associated with this transaction. Kansas City Life Insurance Company Notes to Consolidated Financial Statements 8 Use of Estimates The preparation of the consolidated financial statements requires the Company's management 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. 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 four primary sources of investment risk, including: credit, interest rate, liquidity, and inflation. 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 3 - Investments for additional discussion of our considerations related to other-than-temporary impairments. For additional information regarding fair value, please see Note 4 - Fair Value Measurements. Equity securities are carried at fair value. Changes in the fair value of equity securities are recognized through net investment gains (losses) in the Consolidated Statements of Comprehensive Income. 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 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). Kansas City Life Insurance Company Notes to Consolidated Financial Statements 9 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. However, this fluctuation is largely offset by a corresponding change in the realized gains or losses on these derivatives. Changes in market values can result in significant fluctuations to realized gains and losses in the Consolidated Statements of Comprehensive Income. The Company includes investments in private equity security interests in Other Investments in the Consolidated Balance Sheets. The Company does not have a controlling interest and is not the primary beneficiary for these investments, which are in the form of limited partnerships. As a result, the investments are accounted for using the equity method of accounting to determine the carrying value. Adjustments to the carrying value reflect the pro rata ownership percentage of the operating results, as indicated by the net asset value in the financial statements of the limited partnership, which are reported on a three-month lag. The proportionate share of limited partnership income is reported as a component of Net Investment Income 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 (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. 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. 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. 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. 2022 2021 Life insurance $ 1,102,961 $ 1,073,503 Immediate annuities and supplementary contracts with life contingencies 259,715 293,972 Accident and health insurance 26,248 29,636 Future policy benefits $ 1,388,924 $ 1,397,111 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 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 10 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. We periodically review our assumptions and 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. The Company has a collateralized advance funding agreement with the Federal Home Loan Bank of Des Moines (FHLB). Total obligations outstanding under this agreement were $100.0 million at December 31, 2022. These obligations are also reported as Policyholder Account Balances in the Consolidated Balance Sheets. Interest is credited based on variable rates set by the FHLB. For additional information, please see Note 10 - Debt. Crediting rates for universal life insurance and fixed annuity products ranged from 1.00% to 5.50% in 2022, 2021, and 2020. The following table provides detail about the composition of policyholder account balances at December 31. 2022 2021 Universal life insurance $ 1,081,982 $ 1,086,429 Fixed annuities 1,041,914 1,076,041 Immediate annuities and supplementary contracts without life contingencies 56,407 54,899 Funding agreement 100,614 30,023 Policyholder account balances $ 2,280,917 $ 2,247,392 Deferred Acquisition Costs DAC, principally agent commissions and other selling 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. 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. 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. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 11 The following table provides information about DAC at December 31. 2022 2021 Balance at beginning of year $ 292,027 $ 276,425 Capitalization of commissions and expenses 26,612 38,239 Gross amortization (51,669) (44,785) Accrual of interest 11,076 11,568 Change in DAC due to the change in unrealized investment gains or (losses) 49,498 10,580 Balance at end of year $ 327,544 $ 292,027 Effective January 1, 2022, Old American began reinsuring 50% of new business on selected products. Effective October 1, 2022, this agreement was modified to reinsure 75% of new business on selected products. In 2022, the Company capitalized $7.3 million of ceding commission and amortized $0.6 million associated with this reinsurance agreement, thereby reducing DAC capitalization and amortization. Value of Business Acquired 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. The following table provides information about VOBA at December 31. 2022 2021 Balance at beginning of year $ 7,174 $ 7,249 Gross amortization (2,403) (3,045) Accrual of interest 611 735 Change in VOBA due to the change in unrealized investment gains or (losses) 13,078 2,235 Balance at end of year $ 18,460 $ 7,174 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. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 12 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 are included in Other Policyholder Funds in the Consolidated Balance Sheets and totaled $72.6 million at December 31, 2022 and $45.1 million at December 31, 2021. 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 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. The DRL can 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. No refinements in estimates occurred in 2022, 2021, or 2020. The following table summarizes the effects of the 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. DAC Amortization VOBA Amortization DRL Contract Charges Net Impact to Pre-Tax Income 2022: Unlocking $ (1,744) $ (26) $ 953 $ (817) 2021: Unlocking $ 380 $ (822) $ 1,137 $ 695 2020: Unlocking $ (5,219) $ (1,593) $ 3,838 $ (2,974) The unlocking in 2022, 2021, and 2020 primarily resulted from interest rate fluctuations and the impact of management actions in the various interest rate environments. In addition, we recorded a $1.4 million reserve decrease in 2022, a $0.7 million reserve decrease in 2021, and a $0.4 million reserve increase in 2020 related to the impacts of unlocking. The impact to pre-tax income of all adjustments related to unlocking, including insurance revenues, amortization of DAC and VOBA, and policyholder benefits, was a $0.6 million increase in 2022, a $1.4 million increase in 2021, and a $3.4 million decrease in 2020. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 13 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 12 - Pensions and Other Postemployment Benefits for further details. Goodwill and Intangible Asset We established goodwill from the acquisition of Grange Life. The goodwill balance was $42.3 million at both December 31, 2022 and December 31, 2021. 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, 2022 or December 31, 2021. 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. The intangible asset was valued at $17.7 million at December 31, 2022 and $18.4 million at December 31, 2021 and is included in Other Assets in the Consolidated Balance Sheets. 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 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. See Note 7 - Separate Accounts for further details. 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 GMWB rider is included in Other Policyholder Funds in the Consolidated Balance Sheets. 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 4 - Fair Value Measurements and Note 7 - Separate Accounts 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. 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 three large reinsurance assumption 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. In addition, we completed a 100% assumption reinsurance Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 14 transaction in 2020 with Sunset Life. Under GAAP guidance, this transaction was realized at the conclusion of the close of the sale of Sunset Life on November 1, 2021. We reinsured a block of fixed annuity business to a certified domestic reinsurer, effective April 1, 2022. We determined that this arrangement does not expose the reinsurer to a significant loss from insurance risk. Therefore, we have recognized the reinsurance arrangement using the deposit-type method of accounting. The reserve credit transferred to the reinsurer is reported as Deposit Asset on Reinsurance in the Consolidated Balance Sheets. As amounts are received or paid, consistent with the underlying reinsured contracts, the Deposit Asset on Reinsurance is adjusted. The Deposit Asset on Reinsurance is also accreted to the estimated ultimate cash flows using the interest method and the adjustment is reported as Net Investment Income in the Consolidated Statements of Comprehensive Income. See Note 14 - Reinsurance for additional information pertaining to reinsurance. 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 complex 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. 2022 2021 Land $ 766 $ 766 Home office complex 21,824 21,798 Furniture and equipment 36,797 36,313 59,387 58,877 Accumulated depreciation (45,378) (42,528) Property and equipment $ 14,009 $ 16,349 Depreciation expense totaled $2.9 million during 2022 and $3.7 million during both 2021 and 2020. 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. The timing of the recognition of these revenues is determined based on the nature of the charges and fees. Policy charges for the cost of insurance and expense loads are assessed periodically and are recognized as revenue when assessed and earned. Certain policy fees that represent compensation for services to be provided in the future are reported as unearned revenue and recognized over the periods benefited. Surrender charges are determined based upon contractual terms and are recognized upon surrender of a contract. Policyholder benefits include interest amounts credited to policyholder account balances and benefit claims incurred in excess of policyholder account balances during the period. 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. See the Unlocking and Refinements in Estimates section above for additional information. 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. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 15 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, 2022 and December 31, 2021 and are not material to our consolidated financial statements. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return that includes Kansas City 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. The net deferred tax asset is included in Other Assets and the net deferred tax liability is included in Other Liabilities in the Consolidated Balance Sheets. 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 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. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 16 2. New Accounting Pronouncements Accounting Pronouncements Adopted During 2023 In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 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 assets 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, for public business entities that are not U.S. Securities and Exchange Commission (SEC) filers was for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The FASB deferred the effective date of this guidance for public business entities that do not meet the definition of an SEC filer to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We adopted this guidance effective January 1, 2023, with no material impact to our consolidated financial statements. Accounting Pronouncements Issued, Not Yet Adopted 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 requires insurance entities to (1) review and update the assumptions used to measure cash flows at least annually and (2) update the discount rate assumption at each reporting date. The change in the liability estimate as a result of updating cash flow assumptions is required to be recognized in net income. The change in the liability estimate as a result of updating the discount rate assumption is required to be recognized in other comprehensive income. Expected future cash flows are required to be discounted at an upper-medium grade (low-credit-risk) fixed income instrument yield that maximizes the use of observable market inputs. • 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. The portion of any change in fair value attributable to a change in the instrument-specific credit risk is required to be recognized in other comprehensive income. • It simplifies the amortization of deferred acquisition costs by requiring amortization on a constant level basis over the expected term of the related contracts. Deferred acquisition costs are required to be written off for unexpected contract terminations but are not subject to an impairment test. • It improves the effectiveness of the required disclosures. It requires an insurance entity to provide disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. It also requires disclosures regarding significant inputs, judgments, assumptions, and methods used in measurement, including changes in those inputs, judgments, and assumptions, and the effect of those changes on measurement. The original effective date for this guidance was for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The FASB deferred the effective date of this guidance to fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. We are currently evaluating this guidance. 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) 17 3. 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, 2022. We sold all of our corporate private-labeled residential mortgage-backed securities during 2022. Amortized Cost Gross Unrealized Fair Value Gains Losses U.S. Treasury securities and obligations of U.S. Government $ 108,928 $ 58 $ 6,147 $ 102,839 Federal agency issued residential mortgage-backed securities 1 61,753 113 5,373 56,493 Subtotal 170,681 171 11,520 159,332 Corporate obligations: Industrial 340,954 1,116 41,768 300,302 Energy 77,317 905 3,056 75,166 Communications and technology 179,731 1,143 21,158 159,716 Financial 400,705 891 51,941 349,655 Consumer 490,378 416 62,472 428,322 Public utilities 314,428 1,079 43,260 272,247 Subtotal 1,803,513 5,550 223,655 1,585,408 Municipal securities 275,726 2,529 28,429 249,826 Other 219,523 36 14,532 205,027 Redeemable preferred stocks 6,000 — 774 5,226 Total $ 2,475,443 $ 8,286 $ 278,910 $ 2,204,819 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) 18 The following table provides amortized cost and fair value of fixed maturity securities by asset class at December 31, 2021. Amortized Cost Gross Unrealized Fair Value Gains Losses U.S. Treasury securities and obligations of U.S. Government $ 147,884 $ 12,696 $ 140 $ 160,440 Federal agency issued residential mortgage-backed securities 1 70,838 4,873 13 75,698 Subtotal 218,722 17,569 153 236,138 Corporate obligations: Industrial 414,391 24,897 1,570 437,718 Energy 146,181 10,049 39 156,191 Communications and technology 233,390 17,208 1,046 249,552 Financial 461,740 27,974 1,372 488,342 Consumer 647,861 39,707 3,107 684,461 Public utilities 348,164 26,765 1,578 373,351 Subtotal 2,251,727 146,600 8,712 2,389,615 Corporate private-labeled residential mortgage-backed securities 10,641 1,403 — 12,044 Municipal securities 232,470 36,913 428 268,955 Other 175,317 1,162 1,082 175,397 Redeemable preferred stocks 6,000 48 — 6,048 Total $ 2,894,877 $ 203,695 $ 10,375 $ 3,088,197 1 Federal agency securities are not backed by the full faith and credit of the U.S. Government. The following table provides information on fixed maturity securities available for sale by actual or equivalent Standard & Poor’s rating at December 31, 2022 with the percent of total unrealized losses identified. Amortized Cost Fair Value Net Unrealized Losses % of Total AAA $ 208,729 $ 194,405 $ (14,324) 5 % AA 546,851 496,436 (50,415) 19 % A 802,345 698,467 (103,878) 38 % BBB 896,722 797,573 (99,149) 37 % Total investment grade 2,454,647 2,186,881 (267,766) 99 % BB 14,643 13,386 (1,257) — % B and below 6,153 4,552 (1,601) 1 % Total below investment grade 20,796 17,938 (2,858) 1 % Total $ 2,475,443 $ 2,204,819 $ (270,624) 100 % Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 19 The following table provides information on fixed maturity securities available for sale by actual or equivalent Standard & Poor’s rating at December 31, 2021 with the percent of total unrealized gains identified. Amortized Cost Fair Value Net Unrealized Gains % of Total AAA $ 183,920 $ 197,319 $ 13,399 7 % AA 588,506 641,837 53,331 28 % A 1,043,384 1,114,086 70,702 37 % BBB 1,046,200 1,100,183 53,983 27 % Total investment grade 2,862,010 3,053,425 191,415 99 % BB 18,424 18,720 296 — % B and below 14,443 16,052 1,609 1 % Total below investment grade 32,867 34,772 1,905 1 % Total $ 2,894,877 $ 3,088,197 $ 193,320 100 % 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. December 31, 2022 December 31, 2021 Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 90,979 $ 90,357 $ 121,297 $ 122,979 Due after one year through five years 484,320 465,698 843,382 893,131 Due after five years through ten years 734,071 653,998 851,116 904,165 Due after ten years 1,036,509 875,295 918,209 994,023 Securities with variable principal payments 123,564 114,245 154,873 167,851 Redeemable preferred stocks 6,000 5,226 6,000 6,048 Total $ 2,475,443 $ 2,204,819 $ 2,894,877 $ 3,088,197 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 20 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 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 21 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 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. No impairments of this kind were recorded in the year ended December 31, 2022. The Company recorded a $0.5 million impairment of this kind in the year ended December 31, 2021. No impairments of this kind were recorded in the year ended December 31, 2020. 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. If an impairment is deemed necessary, it 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. We identified no non-U.S. agency mortgage-backed securities that were determined to have such indications at December 31, 2022, as we sold these securities during the year. We identified ten non-U.S. agency mortgage backed securities that were determined to have such indications at December 31, 2021. 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. Impairments of this kind totaling less than $0.1 million were recorded in the years ended December 31, 2022, December 31, 2021 and December 31, 2020. 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. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 22 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, 2022. We sold all of our corporate private-labeled residential mortgage-backed securities during 2022. Less Than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. Government $ 96,610 $ 5,625 $ 4,428 $ 522 $ 101,038 $ 6,147 Federal agency issued residential mortgage-backed securities 1 48,576 4,594 2,079 779 50,655 5,373 Subtotal 145,186 10,219 6,507 1,301 151,693 11,520 Corporate obligations: Industrial 223,458 28,273 46,186 13,495 269,644 41,768 Energy 49,781 3,056 — — 49,781 3,056 Communications and technology 111,704 13,322 22,710 7,836 134,414 21,158 Financial 265,816 35,260 52,654 16,681 318,470 51,941 Consumer 346,834 39,723 67,996 22,749 414,830 62,472 Public utilities 206,984 29,528 34,933 13,732 241,917 43,260 Subtotal 1,204,577 149,162 224,479 74,493 1,429,056 223,655 Municipal securities 173,299 23,719 13,582 4,710 186,881 28,429 Other 157,759 10,426 41,520 4,106 199,279 14,532 Redeemable preferred stocks 5,226 774 — — 5,226 774 Total $ 1,686,047 $ 194,300 $ 286,088 $ 84,610 $ 1,972,135 $ 278,910 1 Federal agency securities are not backed by the full faith and credit of the U.S. Government. 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, 2021. Less Than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. Government $ 2,973 $ 60 $ 1,843 $ 80 $ 4,816 $ 140 Federal agency issued residential mortgage-backed securities 1 2,828 13 3 — 2,831 13 Subtotal 5,801 73 1,846 80 7,647 153 Corporate obligations: Industrial 56,250 1,146 7,070 424 63,320 1,570 Energy 1,045 39 — — 1,045 39 Communications and technology 30,492 909 2,297 137 32,789 1,046 Financial 46,844 727 19,592 645 66,436 1,372 Consumer 80,069 2,535 9,722 572 89,791 3,107 Public utilities 35,473 969 11,702 609 47,175 1,578 Subtotal 250,173 6,325 50,383 2,387 300,556 8,712 Municipal securities 16,300 308 2,258 120 18,558 428 Other 26,604 135 13,278 947 39,882 1,082 Total $ 298,878 $ 6,841 $ 67,765 $ 3,534 $ 366,643 $ 10,375 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) 23 The following table provides information regarding the number of fixed maturity securities with unrealized losses at December 31. 2022 2021 Below cost for less than one year 1,120 185 Below cost for one year or more and less than three years 201 36 Below cost for three years or more 3 — Total 1,324 221 We do not consider the unrealized losses related to these securities to be credit-related. The unrealized losses at both December 31, 2022 and December 31, 2021 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. The following table summarizes investments in fixed maturity securities available for sale with unrealized losses at December 31, 2022. We had no securities owned with realized impairment at December 31, 2022. Amortized Cost Fair Value Gross Unrealized Losses Securities owned without realized impairment: Unrealized losses of 10% or less $ 1,129,645 $ 1,073,851 $ 55,794 Unrealized losses of 20% or less and greater than 10% 619,416 528,146 91,270 Subtotal 1,749,061 1,601,997 147,064 Unrealized losses greater than 20%: Investment grade 498,145 367,483 130,662 Below investment grade 3,839 2,655 1,184 Total securities owned without realized impairment $ 2,251,045 $ 1,972,135 $ 278,910 The following table summarizes investments in fixed maturity securities available for sale with unrealized losses at December 31, 2021. We had no securities owned with realized impairment at December 31, 2021. Amortized Cost Fair Value Gross Unrealized Losses Securities owned without realized impairment: Unrealized losses of 10% or less $ 375,032 $ 364,870 $ 10,162 Unrealized losses of 20% or less and greater than 10% 1,986 1,773 213 Subtotal 377,018 366,643 10,375 Unrealized losses greater than 20%: Investment grade — — — Below investment grade — — — Total securities owned without realized impairment $ 377,018 $ 366,643 $ 10,375 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 24 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, 2022. Fair Value % of Total Gross Unrealized Losses % of Total AAA $ 169,198 9 % $ 15,382 5 % AA 433,563 22 % 52,351 19 % A 634,047 32 % 106,442 38 % BBB 717,389 36 % 101,877 37 % Total investment grade 1,954,197 99 % 276,052 99 % BB 13,386 1 % 1,257 — % B and below 4,552 — % 1,601 1 % Total below investment grade 17,938 1 % 2,858 1 % $ 1,972,135 100 % $ 278,910 100 % 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, 2021. Fair Value % of Total Gross Unrealized Losses % of Total AAA $ 11,121 3 % $ 326 3 % AA 51,904 14 % 1,537 15 % A 145,334 40 % 4,308 41 % BBB 156,235 42 % 4,134 40 % Total investment grade 364,594 99 % 10,305 99 % BB 2,049 1 % 70 1 % Total below investment grade 2,049 1 % 70 1 % $ 366,643 100 % $ 10,375 100 % We held no non-income producing securities at December 31, 2022 or December 31, 2021. We did not hold securities of any corporation and its affiliates that exceeded 10% of stockholders' equity at December 31, 2022 or December 31, 2021. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 25 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. The following tables identify structured securities by credit ratings for all vintages owned at December 31. We sold all of our corporate private-labeled residential mortgage-backed securities during 2022. 2022 Fair Value Amortized Cost Unrealized Losses Structured securities: Investment grade $ 205,027 $ 219,523 $ (14,496) Below investment grade — — — Total structured securities $ 205,027 $ 219,523 $ (14,496) 2021 Fair Value Amortized Cost Unrealized Gains Corporate private-labeled residential mortgage-backed securities: Investment grade $ 1,506 $ 1,498 $ 8 Below investment grade 10,538 9,143 1,395 Total residential & non-agency mortgage-backed securities 12,044 10,641 1,403 Other structured securities: Investment grade 175,397 175,317 80 Below investment grade — — — Total other structured securities 175,397 175,317 80 Total structured securities $ 187,441 $ 185,958 $ 1,483 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. 2022 2021 2020 Credit losses on securities held at the beginning of the year $ 3,996 $ 3,884 $ 4,445 Additional credit losses on securities for which an other-than- temporary impairment was recognized 34 482 19 Reductions for securities sold (4,030) (370) (580) Credit losses on securities held at the end of the year $ — $ 3,996 $ 3,884 The following table provides the net unrealized gains (losses) reported in Accumulated Other Comprehensive Income (Loss) on fixed maturity securities available for sale, at December 31. 2022 2021 2020 Net unrealized gains (losses) $ (270,624) $ 193,320 $ 320,990 Amounts resulting from: DAC, VOBA, and DRL 23,740 (15,924) (25,982) Policyholder liabilities — (33,877) (45,582) Deferred income taxes 51,847 (30,139) (52,380) Total $ (195,037) $ 113,380 $ 197,046 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 26 Investment Revenues The following table provides net investment income classified by income associated with invested assets and income associated with deposit-type reinsurance for the years ended December 31. 2022 2021 2020 Invested assets $ 132,067 $ 142,468 $ 145,684 Deposit-type reinsurance 1 21,812 — — Net investment income $ 153,879 $ 142,468 $ 145,684 1 See Note 14 - Reinsurance The following table provides investment revenues by major category for the years ended December 31. 2022 2021 2020 Gross investment income: Fixed maturity securities $ 97,173 $ 103,697 $ 107,125 Equity securities 231 433 612 Mortgage loans 24,959 28,661 26,804 Real estate 17,426 21,202 22,586 Policy loans 5,554 5,625 5,758 Short-term investments 620 9 318 Other 1 27,590 220 160 Total 173,553 159,847 163,363 Less investment expenses (19,674) (17,379) (17,679) Net investment income $ 153,879 $ 142,468 $ 145,684 1 Includes investment income from the deposit-type reinsurance transaction. See Note 14 - Reinsurance. Investment Gains (Losses) The following table provides net investment gains (losses) by major category for the years ended December 31. 2022 2021 2020 Fixed maturity securities $ (10,591) $ 4,216 $ 4,955 Equity securities (332) (232) 66 Mortgage loans 39 62 (18) Real estate 656 16,597 14,649 Other investments (6,415) 4,774 2,183 Net investment gains (losses) $ (16,643) $ 25,417 $ 21,835 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 27 The following table provides detail concerning investment gains and losses for the years ended December 31. 2022 2021 2020 Gross gains resulting from: Sales of investment securities $ 2,689 $ 631 $ 283 Investment securities called and other 1,233 4,510 4,776 Sale of real estate and joint ventures 656 16,647 14,889 Total gross gains 4,578 21,788 19,948 Gross losses resulting from: Sales of investment securities (14,455) (118) (5) Investment securities called and other (24) (325) (80) Sale of real estate and joint ventures — (50) (240) Total gross losses (14,479) (493) (325) Change in allowance for loan losses 39 62 (18) Change in fair value: Equity securities (332) (232) 66 Other investments (6,415) 4,774 2,183 Total change in fair value (6,747) 4,542 2,249 Net realized investment gains (losses), excluding other-than-temporary impairment losses (16,609) 25,899 21,854 Net impairment losses recognized in earnings: Other-than-temporary impairment losses on fixed maturity securities — (467) — Portion of loss recognized in other comprehensive income (loss) (34) (15) (19) Net other-than-temporary impairment losses recognized in earnings (34) (482) (19) Net investment gains (losses) $ (16,643) $ 25,417 $ 21,835 Gains and losses from sales of investment securities in the above table includes a net loss related to the deposit-type reinsurance agreement of $12.3 million during 2022. 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 less than $0.1 million were recorded in earnings during the year ended December 31, 2022. Other-than-temporary impairments of $0.5 million were recorded in earnings during the year ended December 31, 2021. Other-than-temporary impairments of less than $0.1 million were recorded in earnings during the year ended December 31, 2020. 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. 2022 2021 2020 Proceeds $ 635,322 $ 42,779 $ 18,899 The increase in proceeds in 2022 largely resulted from the deposit-type reinsurance agreement. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 28 Mortgage Loans Investments in mortgage loans totaled $591.9 million at December 31, 2022, compared to $596.0 million at December 31, 2021. 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. This allowance was $2.8 million at both December 31, 2022 and December 31, 2021. Our 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. Please see Note 5 - Financing Receivables for additional information. We do not hold mortgage loans from any single borrower that exceed 5% of stockholders' equity. Commercial mortgage loans represented 19% of our total investments at December 31, 2022, up from 15% at December 31, 2021. New commercial loans, including refinanced loans, totaled $88.2 million during 2022 and $118.5 million during 2021. 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. The average loan balance was $2.0 million at December 31, 2022 and $1.9 million at December 31, 2021. 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 22 new loans to the portfolio during 2022, and 91% of the total balance of these loans had some amount of recourse requirement. The average loan-to-value ratio for the overall portfolio was 45% at December 31, 2022 and 46% at December 31, 2021. This ratio is 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. We have certain mortgage loans that have an unamortized premium, totaling less than $0.1 million at both December 31, 2022 and December 31, 2021. The following table identifies the gross mortgage loan principal outstanding and the allowance for loan losses at December 31. 2022 2021 Principal outstanding $ 594,681 $ 598,829 Allowance for loan losses (2,753) (2,792) Carrying value $ 591,928 $ 596,037 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. 2022 % of Total 2021 % of Total Prior to 2014 $ 30,554 5 % $ 56,024 9 % 2014 10,470 2 % 12,409 2 % 2015 46,149 8 % 64,001 11 % 2016 81,238 14 % 89,144 15 % 2017 58,073 10 % 74,107 12 % 2018 44,190 7 % 46,809 8 % 2019 25,079 4 % 27,930 5 % 2020 104,279 18 % 111,596 19 % 2021 107,620 18 % 116,809 19 % 2022 87,029 14 % — — % Principal outstanding $ 594,681 100 % $ 598,829 100 % Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 29 The following table identifies mortgage loans by geographic location at December 31. 2022 % of Total 2021 % of Total Pacific $ 122,504 20 % $ 125,167 21 % East north central 108,561 18 % 102,759 17 % West south central 77,461 13 % 81,083 14 % South Atlantic 69,340 12 % 72,021 12 % Mountain 65,903 11 % 70,415 12 % West north central 64,088 11 % 64,416 11 % Middle Atlantic 46,098 8 % 42,691 7 % East south central 29,985 5 % 29,108 5 % New England 10,741 2 % 11,169 1 % Principal outstanding $ 594,681 100 % $ 598,829 100 % The following table identifies the concentration of mortgage loans by state greater than 5% of total at December 31. 2022 % of Total 2021 % of Total California $ 77,683 13 % $ 80,037 13 % Texas 77,226 13 % 80,716 13 % Ohio 54,718 9 % 52,651 9 % Minnesota 37,860 6 % 45,787 8 % Florida 34,738 6 % 36,796 6 % Arizona 28,242 5 % 27,592 5 % All others 284,214 48 % 275,250 46 % Principal outstanding $ 594,681 100 % $ 598,829 100 % The following table identifies mortgage loans by property type at December 31. 2022 % of Total 2021 % of Total Industrial $ 412,550 69 % $ 424,553 71 % Office 107,371 18 % 102,547 17 % Retail 32,586 5 % 33,019 6 % Other 1 42,174 8 % 38,710 6 % Principal outstanding $ 594,681 100 % $ 598,829 100 % 1 The Other category consists principally of medical properties and apartments. The following table identifies mortgage loans by maturity at December 31. 2022 % of Total 2021 % of Total Due in one year or less $ 34,463 6 % $ 11,120 2 % Due after one year through five years 141,146 24 % 16,347 3 % Due after five years through ten years 327,446 55 % 315,404 53 % Due after ten years 91,626 15 % 255,958 42 % Principal outstanding $ 594,681 100 % $ 598,829 100 % Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 30 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. 2022 % of Total 2021 % of Total 70% or greater $ 36,378 6 % $ 70,951 12 % 50% to 69% 339,667 57 % 339,120 57 % Less than 50% 218,636 37 % 188,758 31 % Principal outstanding $ 594,681 100 % $ 598,829 100 % 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 six loans with a total outstanding balance of $18.3 million during the year ended December 31, 2022. We refinanced eight loans with a total outstanding balance of $14.5 million during the year ended December 31, 2021. None of these refinancings were the result of troubled debt restructuring. At December 31, 2022 and December 31, 2021, we did not have any loan defaults and no material contract modifications, deferrals, or forbearance agreements had been executed. However, certain short-term deferrals of principal and interest on a small portion of the mortgage loan portfolio were granted during 2020 related to the COVID-19 pandemic and the associated economic impacts. The mortgage loan deferrals that were granted in 2020 concluded and were fully repaid in 2021. We continue to closely monitor our mortgage loan portfolio and work closely with borrowers who are or were negatively impacted by the COVID-19 pandemic. 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 20 - Commitments, Contingent Liabilities, Guarantees, and Indemnifications. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 31 Real Estate The following table provides information concerning real estate investments by major category at December 31. 2022 2021 Land $ 56,075 $ 56,075 Buildings 131,435 131,919 Less accumulated depreciation (49,332) (48,690) Real estate, commercial 138,178 139,304 Real estate, joint ventures 3,471 2,974 Total $ 141,649 $ 142,278 Investment real estate is depreciated on a straight-line basis over periods ranging from three years to 60 years. We had real estate sales of $0.8 million during 2022, $51.0 million during 2021, and $29.7 million during 2020. In the fourth quarter of 2021, we completed the acquisition of 100% membership interests of certain land and buildings in three separate limited liability companies in Urbandale, Iowa for $36.0 million. This acquisition terminated an arrangement previously identified as a real estate joint venture in 2020 discussed in the following paragraph. We had $3.5 million in real estate joint ventures at December 31, 2022, compared with $3.0 million at December 31, 2021. At December 31, 2020, we were the holder of all shares in three subsidiary real estate joint ventures with a combined carrying value of $20.3 million. Each of the three subsidiary real estate limited liability companies held a 50% interest in three separate joint ventures, all based in Urbandale, Iowa. Our position in these joint ventures was terminated during 2021. 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 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, 2022 or 2021. We had non-income producing commercial real estate, consisting of vacant properties and properties under development, of $35.7 million at December 31, 2022, compared to $41.0 million at December 31, 2021. None of our real estate joint ventures were non-income producing at December 31, 2022 or December 31, 2021. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 32 4. 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 2. Other investments also include holdings in certain mineral rights, which are valued giving consideration to the underlying holdings of the real estate interests. These investments 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) 33 Determination of Fair Value We utilized external third-party pricing services at both December 31, 2022 and December 31, 2021 to determine the majority of our fair values on fixed maturity and equity securities. At December 31, 2022, approximately 83% of the carrying value of these investments was from an external pricing service, 17% was from brokers, and less than 1% was derived from internal matrices and calculations. At December 31, 2021, approximately 90% of the carrying value of these investments was from an external pricing service, 10% was from brokers, and less than 1% was derived from internal matrices and calculations. We review prices received from service providers for reasonableness and unusual fluctuations, but we 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 only solicit brokers who 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. Cash flows are discounted at the risk-free rate plus a spread for issuer discount (non-performance) risk. The risk neutral scenarios are generated using the current risk-free rate 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 is based on the 2012 Individual Annuity Reserving Table. The source for risk-free rates was changed in the third quarter of 2022, to use the Treasury (CMT) rate curve instead of the London Interbank Offered Rate (LIBOR) Swap curve. This change was made due to the upcoming change in publication and anticipated cessation of LIBOR rates. The change in rates did not result in a material impact to the consolidated financial statements for the year ended December 31, 2022. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 34 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. We sold all of our corporate private-labeled residential mortgage-backed securities during 2022. 2022 Level 1 Level 2 Level 3 Total Assets: U.S. Treasury securities and obligations of U.S. Government $ 8,837 $ 94,002 $ — $ 102,839 Federal agency issued residential mortgage-backed securities 1 — 56,493 — 56,493 Subtotal 8,837 150,495 — 159,332 Corporate obligations: Industrial — 300,302 — 300,302 Energy — 75,166 — 75,166 Communications and technology — 159,716 — 159,716 Financial — 349,655 — 349,655 Consumer — 428,322 — 428,322 Public utilities — 272,247 — 272,247 Subtotal — 1,585,408 — 1,585,408 Municipal securities — 249,826 — 249,826 Other — 205,027 — 205,027 Redeemable preferred stocks — 5,226 — 5,226 Fixed maturity securities 8,837 2,195,982 — 2,204,819 Equity securities 425 1,151 342 1,918 Short-term investments 58,497 — — 58,497 Other investments — 2,960 436 3,396 Separate account assets — 381,581 — 381,581 Total $ 67,759 $ 2,581,674 $ 778 $ 2,650,211 Percent of total 3 % 97 % — % 100 % Liabilities: Policyholder account balances: Indexed universal life $ — $ — $ 2,802 $ 2,802 Other policyholder funds: Guaranteed minimum withdrawal benefits — — (2,849) (2,849) Separate account liabilities — 381,581 — 381,581 Total $ — $ 381,581 $ (47) $ 381,534 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) 35 2021 Level 1 Level 2 Level 3 Total Assets: U.S. Treasury securities and obligations of U.S. Government $ 9,489 $ 150,951 $ — $ 160,440 Federal agency issued residential mortgage-backed securities 1 — 75,698 — 75,698 Subtotal 9,489 226,649 — 236,138 Corporate obligations: Industrial — 437,718 — 437,718 Energy — 156,191 — 156,191 Communications and technology — 249,552 — 249,552 Financial — 488,342 — 488,342 Consumer — 684,461 — 684,461 Public utilities — 373,351 — 373,351 Subtotal — 2,389,615 — 2,389,615 Corporate private-labeled residential mortgage-backed securities — 12,044 — 12,044 Municipal securities — 268,955 — 268,955 Other — 175,397 — 175,397 Redeemable preferred stocks — 6,048 — 6,048 Fixed maturity securities 9,489 3,078,708 — 3,088,197 Equity securities 406 3,270 — 3,676 Short-term investments 74,501 — — 74,501 Other investments — 6,688 — 6,688 Separate account assets — 504,976 — 504,976 Total $ 84,396 $ 3,593,642 $ — $ 3,678,038 Percent of total 2 % 98 % — % 100 % Liabilities: Policyholder account balances: Indexed universal life $ — $ — $ 6,264 $ 6,264 Other policyholder funds: Guaranteed minimum withdrawal benefits — — (149) (149) Separate account liabilities — 504,976 — 504,976 Total $ — $ 504,976 $ 6,115 $ 511,091 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) 36 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. 2022 Assets Liabilities Equity Securities and Other Investments Indexed Universal Life GMWB Beginning balance $ — $ 6,264 $ (149) Included in earnings 212 (3,462) (2,872) Included in other comprehensive income (loss) — — — Purchases, issuances, sales and other dispositions: Purchases 566 — — Issuances — — 308 Sales — — — Other dispositions — — (136) Transfers out of Level 3 — — — Ending balance $ 778 $ 2,802 $ (2,849) 2021 Liabilities Indexed Universal Life GMWB Beginning balance $ 5,402 $ 2,201 Included in earnings 862 (3,208) Included in other comprehensive income (loss) — — Purchases, issuances, sales and other dispositions: Purchases — — Issuances — 1,018 Sales — — Other dispositions — (160) Transfers out of Level 3 — — Ending balance $ 6,264 $ (149) We did not have any transfers between any levels during the years ended December 31, 2022 or December 31, 2021. We use the Black Scholes valuation method, including parameters for market volatility, risk-free rate, and index level, for the 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) 37 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, 2022. Fair Value Valuation Technique Unobservable Inputs Range Embedded Derivative - GMWB $ (2,849) Actuarial cash flow model Mortality 85% of the 2012 IAR Table Lapse 0%-12% depending on product/duration/ funded status of guarantee Benefit Utilization 0%-80% depending on age/duration/funded status of guarantee Nonperformance Risk 0.33%-1.40% 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, 2021. Fair Value Valuation Technique Unobservable Inputs Range Embedded Derivative - GMWB $ (149) Actuarial cash flow model Mortality 85% of the 2012 IAR Table Lapse 0%-12% depending on product/duration/ funded status of guarantee Benefit Utilization 0%-80% depending on age/duration/funded status of guarantee Nonperformance Risk 0.27%-1.13% 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. 2022 2021 Increase/(Decrease) in millions A 10% increase in the mortality assumption $ (0.1) $ (0.2) A 10% decrease in the lapse assumption — 0.3 A 10% increase in the benefit utilization 0.4 1.1 A 10 basis point increase in the credit spreads used for non-performance (0.2) (0.4) Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 38 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. 2022 Fair Value Carrying Value Level 1 Level 2 Level 3 Total Assets: Investments: Mortgage loans $ — $ — $ 538,275 $ 538,275 $ 591,928 Policy loans — — 82,739 82,739 82,739 Other investments — 9,044 — 9,044 9,044 Liabilities: Individual and group annuities — — 1,125,759 1,125,759 1,142,528 Supplementary contracts and annuities without life contingencies — — 52,242 52,242 56,407 Policyholder account balances: Funding agreement — 100,614 — 100,614 100,614 2021 Fair Value Carrying Value Level 1 Level 2 Level 3 Total Assets: Investments: Mortgage loans $ — $ — $ 613,829 $ 613,829 $ 596,037 Policy loans — — 82,060 82,060 82,060 Other investments — 6,152 — 6,152 6,152 Liabilities: Individual and group annuities — — 1,088,328 1,088,328 1,106,065 Supplementary contracts and annuities without life contingencies — — 54,248 54,248 54,899 Policyholder account balances: Funding agreement — 30,023 — 30,023 30,023 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 39 5. 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. 2022 2021 Agent receivables, net (allowance $198; 2021 - $912) $ 1,635 $ 1,819 Investment-related financing receivables: Mortgage loans, net (allowance $2,753; 2021 - $2,792) 591,928 596,037 Total financing receivables $ 593,563 $ 597,856 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. Agent receivables are included in Other Assets in the Consolidated Balance Sheets. The following table details the gross receivables, allowance, and net receivables for the two types of agent receivables at December 31. 2022 2021 Gross Receivables Allowance Net Receivables Gross Receivables Allowance Net Receivables Agent specific loans $ 543 $ 150 $ 393 $ 833 $ 266 $ 567 Other agent receivables 1,290 48 1,242 1,898 646 1,252 Total $ 1,833 $ 198 $ 1,635 $ 2,731 $ 912 $ 1,819 The following table details the activity within the allowance for doubtful accounts on agent receivables at December 31. Any recoveries are included as deductions. 2022 2021 Beginning of year $ 912 $ 1,084 Additions 261 58 Deductions (975) (230) End of year $ 198 $ 912 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) 40 The following table details the mortgage loan portfolio as collectively or individually evaluated for impairment at December 31. 2022 2021 Mortgage loans collectively evaluated for impairment $ 560,612 $ 563,196 Mortgage loans individually evaluated for impairment 34,069 35,633 Allowance for loan losses (2,753) (2,792) Carrying value $ 591,928 $ 596,037 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 3 - Investments, 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, 2022 or December 31, 2021. We had no troubled debt restructurings during 2022 or 2021. The following table details the activity within the allowance for mortgage loan losses at December 31. The provision reflects new loans and maturities, and the deductions reflect payments on loans and recoveries received. 2022 2021 Beginning of year $ 2,792 $ 2,854 Provision 387 539 Deductions (426) (601) End of year $ 2,753 $ 2,792 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: • Current industry conditions, inclusive of the COVID-19 pandemic, that are affecting the market, including rental and vacancy rates; • Perceived market liquidity; • 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) 41 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. 6. Variable Interest Entities (VIEs) We invest in certain affordable housing and real estate joint ventures that are classified as VIEs. These VIEs are included in Real Estate in the Consolidated Balance Sheets. We also invest in certain private equity security interests. These VIEs are included in Other Investments 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. 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. 2022 2021 2020 Federal income tax credits realized $ 405 $ 920 $ 1,697 Amortization 193 672 1,093 Our investments in other real estate VIEs and private equity security interest VIEs are recorded using the equity method. Cash distributions from the VIEs and cash contributions to the VIEs 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, 2022, December 31, 2021, or December 31, 2020. 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 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 42 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. 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, 2022 and December 31, 2021. The table includes investments in one real estate joint venture, six affordable housing real estate joint ventures, and one private equity security interest at December 31, 2022 and two real estate joint ventures and seven affordable housing real estate joint ventures at December 31, 2021. In 2021, we sold our membership in three real estate joint ventures for $20.2 million. 2022 2021 Carrying Amount Maximum Exposure to Loss Carrying Amount Maximum Exposure to Loss Real estate joint ventures $ 1,680 $ 1,680 $ 978 $ 978 Affordable housing real estate joint ventures 1,791 8,794 1,996 10,223 Private equity security interests 6,309 32,009 — — Total $ 9,780 $ 42,483 $ 2,974 $ 11,201 The maximum exposure to loss relating to the real estate joint ventures, affordable housing real estate joint ventures, and private equity security interests 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, 2022 and December 31, 2021, we had no equity commitments outstanding to the real estate joint venture VIEs. At December 31, 2022 and December 31, 2021, we had no contingent commitments to fund additional equity contributions for operating support to real estate joint venture VIEs. At December 31, 2022, we had unfunded commitments of $27.1 million for additional private equity security interest contributions. At December 31, 2021, we had no commitments to fund additional private equity security interest contributions. In addition, the maximum exposure to loss on affordable housing joint ventures included $5.2 million of losses which could be realized if the tax credits received by the VIEs were recaptured at December 31, 2022, compared to $6.2 million at December 31, 2021. 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. 7. 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 $381.6 million at December 31, 2022 and $505.0 million at December 31, 2021. Variable universal life and variable annuity assets comprised 32% and 68% of total separate account assets in 2022, compared to 31% and 69% of the total in 2021. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 43 The following table provides a reconciliation of activity within separate account liabilities at December 31. 2022 2021 Balance at beginning of year $ 504,976 $ 463,041 Deposits on variable policyholder contracts 21,185 29,108 Transfers to general account (5,096) (5,271) Investment performance (89,271) 77,678 Policyholder benefits and withdrawals (37,925) (46,453) Contract charges (12,288) (13,127) Balance at end of year $ 381,581 $ 504,976 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 $92.8 million at December 31, 2022. The fair value of the separate accounts with the GMWB rider was $122.5 million at December 31, 2021. The GMWB guarantee liability was $(2.8) million at December 31, 2022 and $(0.1) million at December 31, 2021. 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 $381.6 million at December 31, 2022 and $505.0 million at December 31, 2021, 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 December 31, 2022 and $0.4 million at December 31, 2021. In addition, we have an assumed closed block of variable universal life and variable annuity business that totaled $317.9 million at December 31, 2022 and $392.7 million at December 31, 2021. 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 $37.0 million at December 31, 2022 and $34.1 million at December 31, 2021 are included in our general account as policyholder account balances. The future policy benefits for the assumed block approximated $0.5 million at both December 31, 2022 and December 31, 2021. 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) 44 Separate account balances for variable annuity contracts were $258.1 million at December 31, 2022 and $347.0 million at December 31, 2021. The total reserve held for variable annuity GMDB was $0.2 million at December 31, 2022 and less than $0.1 million at December 31, 2021. 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, 2022 and 2021 is provided below: 2022 2021 Separate Account Balance Net Amount at Risk Weighted Average Attained Age Separate Account Balance Net Amount at Risk Weighted Average Attained Age Return of net deposits $ 199,394 $ 3,674 63.9 $ 264,983 $ 96 63.5 Return of the greater of the highest anniversary contract value or net deposits 8,095 1,520 71.7 11,712 7 71.2 Return of the greater of every fifth year highest anniversary contract value or net deposits 4,934 97 68.5 7,077 19 69.2 Return of the greater of net deposits accumulated annually at 5% or the highest anniversary contract value 45,676 12,125 65.7 63,227 1,460 64.8 Total $ 258,099 $ 17,416 64.6 $ 346,999 $ 1,582 64.1 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. 2022 2021 Money market $ 2,036 $ 2,154 Fixed income 11,490 14,941 Balanced 69,906 91,029 International equity 16,119 21,238 Intermediate equity 132,830 180,005 Aggressive equity 25,718 37,632 Total $ 258,099 $ 346,999 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 45 8. 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. 2022 Individual Insurance Group Insurance Old American Consolidated Gross liability at beginning of year $ 669 $ 30,670 $ 2,293 $ 33,632 Less reinsurance recoverable (353) (21,991) (2,263) (24,607) Net liability at beginning of year 316 8,679 30 9,025 Incurred benefits related to: Current year 18 27,792 34 27,844 Prior years 1 (99) (805) (20) (924) Total incurred benefits (81) 26,987 14 26,920 Paid benefits related to: Current year 3 23,125 4 23,132 Prior years 71 4,770 10 4,851 Total paid benefits 74 27,895 14 27,983 Net liability at end of year 161 7,771 30 7,962 Reinsurance recoverable 399 20,006 2,169 22,574 Gross liability at end of year $ 560 $ 27,777 $ 2,199 $ 30,536 1 The incurred benefits related to prior years’ unpaid accident and health claims reflect the change in these liabilities. 2021 Individual Insurance Group Insurance Old American Consolidated Gross liability at beginning of year $ 606 $ 31,572 $ 2,595 $ 34,773 Less reinsurance recoverable (412) (23,565) (2,565) (26,542) Net liability at beginning of year 194 8,007 30 8,231 Incurred benefits related to: Current year 240 27,851 31 28,122 Prior years 1 (1) (817) (25) (843) Total incurred benefits 239 27,034 6 27,279 Paid benefits related to: Current year 46 22,437 1 22,484 Prior years 71 3,925 5 4,001 Total paid benefits 117 26,362 6 26,485 Net liability at end of year 316 8,679 30 9,025 Reinsurance recoverable 353 21,991 2,263 24,607 Gross liability at end of year $ 669 $ 30,670 $ 2,293 $ 33,632 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) 46 2020 Individual Insurance Group Insurance Old American Consolidated Gross liability at beginning of year $ 659 $ 32,169 $ 3,952 $ 36,780 Less reinsurance recoverable (455) (23,983) (3,921) (28,359) Net liability at beginning of year 204 8,186 31 8,421 Incurred benefits related to: Current year 66 24,148 31 24,245 Prior years 1 22 (802) 11 (769) Total incurred benefits 88 23,346 42 23,476 Paid benefits related to: Current year 35 20,013 1 20,049 Prior years 63 3,512 42 3,617 Total paid benefits 98 23,525 43 23,666 Net liability at end of year 194 8,007 30 8,231 Reinsurance recoverable 412 23,565 2,565 26,542 Gross liability at end of year $ 606 $ 31,572 $ 2,595 $ 34,773 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. 2022 2021 2020 Individual Insurance Segment: Individual accident and health $ 560 $ 669 $ 606 Individual life 32,966 42,915 42,860 Deferred annuity 2,936 4,306 5,743 Subtotal 36,462 47,890 49,209 Group Insurance Segment: Group accident and health 27,777 30,670 31,572 Group life 3,453 3,978 3,573 Subtotal 31,230 34,648 35,145 Old American Segment: Individual accident and health 2,199 2,293 2,595 Individual life 10,141 11,050 12,105 Subtotal 12,340 13,343 14,700 Total $ 80,032 $ 95,881 $ 99,054 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 both December 31, 2022 and December 31, 2021. 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) 47 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, 2022 was $4.5 million, consisting of an undiscounted amount of $5.7 million and an aggregated discount amount deducted of $1.2 million. Discount rates ranged from 2.60% 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, 2022. The information about incurred claims development for the years ended December 31, 2013 to December 31, 2021 is presented as unaudited supplementary information. For the Years Ended December 31, Total of IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims Year Incurred 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 806 $ 836 $ 815 $ 838 $ 838 $ 822 $ 854 $ 869 $ 863 $ 868 $ — 236 2014 868 955 799 768 770 728 735 729 736 — 186 2015 989 918 701 697 643 646 641 644 — 230 2016 1,694 1,552 1,382 1,412 1,284 962 947 — 244 2017 2,038 1,727 1,513 1,436 1,431 1,369 — 257 2018 2,473 2,192 2,135 1,745 1,620 — 297 2019 2,056 2,036 1,879 1,778 — 331 2020 1,483 1,094 936 — 198 2021 1,873 1,496 — 227 2022 1,609 643 128 $ 12,003 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, 2022. The information about paid claims development for the years ended December 31, 2013 to December 31, 2021 is presented as unaudited supplementary information. For the Years Ended December 31, Year Incurred 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 91 $ 336 $ 449 $ 501 $ 537 $ 564 $ 600 $ 630 $ 657 $ 684 2014 71 276 411 481 499 517 550 579 605 2015 100 390 491 531 545 561 573 584 2016 164 505 626 690 736 783 804 2017 162 549 703 785 867 926 2018 208 681 869 1,012 1,108 2019 251 752 980 1,108 2020 162 469 604 2021 237 706 2022 177 Total $ 7,306 All outstanding liabilities before 2013, net of reinsurance $ 994 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 5,691 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 48 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 Insurance and Old American segments, none of which are individually significant. 2022 2021 Net outstanding liabilities: Group long-term disability $ 5,691 $ 6,049 Other short-duration contracts 6,351 7,549 Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance 12,042 13,598 Reinsurance recoverable on unpaid claims: Group long-term disability 24,459 26,214 Other short-duration contracts 3,183 3,294 Total reinsurance recoverable on unpaid claims 27,642 29,508 Insurance lines other than short-duration 46,061 58,289 Unallocated claims adjustment expenses — — Impact of discounting (5,713) (5,514) Other — — 40,348 52,775 Total gross liability for unpaid claims and claim adjustment expenses $ 80,032 $ 95,881 The following table provides the historical average annual percentage payout of incurred claims by age, net of reinsurance, at December 31, 2022. Years 1 2 3 4 5 Group long-term disability 13.60 % 31.90 % 13.70 % 7.30 % 4.20 % Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 49 9. 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 2022 and 2021. Assumed participating business from the acquisition of closed blocks of business accounted for 98% of total participating statutory premiums in both 2022 and 2021. Participating business equaled 5% of total life insurance in force at both December 31, 2022 and December 31, 2021. Assumed participating business accounted for 97% of total participating life insurance in force at both December 31, 2022 and December 31, 2021. 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. 10. Debt Notes Payable We had no notes payable outstanding at December 31, 2022 or December 31, 2021. We had unsecured revolving lines of credit with two major commercial banks that totaled $80.0 million at December 31, 2022, with no balances outstanding. We had unsecured revolving lines of credit with three major commercial banks that totaled $70.0 million at December 31, 2021, with no balances outstanding. The lines of credit are at variable interest rates based upon short- term indices maturing in June of 2023. We anticipate renewing these lines of credit as they come due. One line of credit includes a $20.0 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 major financial counterparties. The Company had no transactions that occurred under these agreements during 2022 or 2021 and had no outstanding borrowings as of December 31, 2022 or December 31, 2021. 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. As a member of the FHLB, we have the ability to borrow on a collateralized basis from the FHLB. Through this membership, we will have a specific borrowing capacity based upon the amount of collateral we establish. At December 31, 2022, collateral comprised primarily of securities and mortgages in the amount of $295.6 million, with a fair value of $264.2 million, were pledged to the FHLB, providing a borrowing capacity of $209.7 million. At December 31, 2021, collateral comprised primarily of securities and mortgages in the amount of $254.5 million, with a fair value of $254.6 million, were pledged to the FHLB, providing a borrowing capacity of $196.3 million. The rates of interest are variable and set by the FHLB at the time of the advance. The Company's capital investment totaled $9.0 million at December 31, 2022 and $6.2 million at December 31, 2021 and is included in Other Investments in the Consolidated Balance Sheets. Dividends received on the capital investment totaled $0.3 million for the year ended December 31, 2022, $0.2 million for the year ended December 31, 2021, and $0.1 million for the year ended December 31, 2020. Funding Agreements During 2021, the Company began entering into advance funding agreements with the FHLB. Under the agreements, the Company pledges fixed maturity security and commercial mortgage loan collateral and receives cash, which is then reinvested, primarily into other fixed maturity securities. Securities pledged as collateral may not be sold or re-pledged by the Company. The investments pledged and outstanding advance agreements are included in the overall borrowing capacity established with the FHLB. We have established a maximum participation of $100.0 million with this program. Total obligations outstanding under these agreements, which mature between 2024 and 2027, were $100.0 million at December 31, 2022 and $30.0 million at December 31, 2021 and are reported as Policyholder Account Balances in the Consolidated Balance Sheets. Accrued interest on these obligations totaled $0.6 million at December 31, 2022 and less than $0.1 million at December 31, 2021. Interest is credited based on variable rates set by the FHLB and totaled $2.0 million for the year ended December 31, 2022 and less than $0.1 million for the year ended December 31, 2021. Interest income on the variable rate fixed maturity securities totaled $3.1 million for the year ended December 31, 2022 and $0.2 million for the year ended December 31, 2021. Cash interest payments were $1.5 million during the year ended December 31, 2022 and less than $0.1 million during the year ended December 31, 2021. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 50 11. Income Taxes The following table provides information about income taxes for the years ended December 31. 2022 2021 2020 Current income tax expense $ 2,496 $ 7,587 $ 6,695 Deferred income tax benefit (7,035) (5,371) (5,951) Total income tax expense (benefit) $ (4,539) $ 2,216 $ 744 The following table provides information about taxes paid for the years ended December 31. 2022 2021 2020 Cash paid for income taxes $ 2,766 $ 7,273 $ 3,667 The following table provides a reconciliation of the federal income tax rate to our effective income tax rate for the years ended December 31. 2022 2021 2020 Federal income tax rate 21 % 21 % 21 % Tax credits, net of equity adjustment 2 % (5) % (6) % Impact of CARES Act — % — % (7) % Permanent differences and other (1) % 1 % (3) % Effective income tax rate 22 % 17 % 5 % Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 51 Presented below are tax effects of temporary differences that result in significant deferred tax assets and liabilities at December 31. 2022 2021 Deferred tax assets: Future policy benefits $ 17,650 $ 23,691 Unrealized investment losses 56,830 — Employee retirement benefits 4,010 6,855 Tax carryovers 508 831 Legal reserve 5,956 — Other 5,988 1,788 Deferred tax assets 90,942 33,165 Valuation allowance (189) — Deferred tax assets, net of valuation allowance 90,753 33,165 Deferred tax liabilities: Basis differences between tax and GAAP accounting for investments (3,028) (2,683) Unrealized investment gains — (40,597) Capitalization of DAC, net of amortization (33,901) (28,814) VOBA (3,877) (1,507) Property and equipment (2,266) (2,876) Deferred tax liabilities (43,072) (76,477) Net deferred tax asset (liability) 47,681 (43,312) Current tax liability (1,048) (1,510) Income taxes receivable (payable) $ 46,633 $ (44,822) 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 2019. 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 (Benefit) in the Consolidated Statements of Comprehensive Income. The Company recognized no tax benefit related to tax penalty and interest expense in 2022, 2021, or 2020. We had no material uncertain tax positions at December 31, 2022 or December 31, 2021. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 52 Income tax expense (benefit) is recorded in various places in our financial statements, as detailed below, for the years ended December 31. 2022 2021 2020 Income tax expense (benefit) $ (4,539) $ 2,216 $ 744 Stockholders’ equity: Related to: Change in net unrealized gains (losses) on securities available for sale (97,428) (26,811) 30,809 Effect on DAC, VOBA, and DRL 8,330 2,112 (2,076) Change in policyholder liabilities 7,112 2,458 (4,222) Change in benefit plan obligations (1,970) 1,360 289 Total income tax expense (benefit) included in financial statements $ (88,495) $ (18,665) $ 25,544 The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27, 2020, in an effort to provide fast and direct economic assistance to Americans during the COVID-19 health crisis. The CARES Act had several income tax provisions that were utilized, which had a direct impact on our effective tax rate and income tax expense for 2020. The benefits that applied to us included, but were not limited to, the ability to carry back net operating losses and the acceleration of the recovery of Alternative Minimum Tax (AMT) credits. The 7% decrease in the effective tax rate noted above for 2020 was primarily the result of our ability to carry back net operating losses from the taxable years 2018 through 2020, which were taxed at a federal income tax rate of 21%, to the taxable years 2013 through 2017, which were taxed at a federal income tax rate of 35%. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 53 12. Pensions and Other Postemployment Benefits We have pension and other postemployment benefit plans covering substantially all of our employees for which the annual measurement date is December 31. The Kansas City Life Cash Balance Pension Plan (pension plan) was amended effective December 31, 2010 to provide that participants’ accrued benefits were frozen, and that no further benefits or accruals were earned after December 31, 2010. Although participants no longer accrue additional benefits under the pension plan at December 31, 2010, participants 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 continues 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%. Annual interest was calculated using 5.00% for 2022 and 2021. The benefits expected to be paid in each year from 2023 through 2027 are as follows: $10.2 million in 2023; $8.4 million in 2024; $8.1 million in 2025; $7.7 million in 2026; and $7.7 million in 2027. The aggregate benefits expected to be paid in the five years from 2028 through 2032 are $36.3 million. The expected benefits to be paid are based on the same assumptions used to measure the Company’s benefit obligation at December 31, 2022 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 2023 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: 2022 Target Allocation 2021 Target Allocation Equity securities 41 % 28% - 48% 39 % 28% - 48% Asset allocation and alternative assets 15 % 10% - 20% 15 % 10% - 20% Debt securities 44 % 30% - 60% 46 % 30% - 60% Cash and cash equivalents —% 0% - 10% —% 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 is 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. 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 current assumption for the expected long-term rate of return on plan assets is 5.80%. 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, 2023, the assumption for the expected long-term rate of return on plan assets was 6.83%. The assumed discount rate used to determine the benefit obligation was 4.90% for pension benefits and 4.96% 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, 2022. 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. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 54 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 2023 through 2027 are as follows: $0.9 million in 2023; $0.9 million in 2024; $1.0 million in 2025; $0.9 million in 2026; and $0.9 million in 2027. The aggregate benefits expected to be paid in the five years from 2028 through 2032 are $3.9 million. The expected benefits to be paid are based on the same assumptions used to measure the Company’s benefit obligation at December 31, 2022. The 2023 contribution for the postemployment medical plans is estimated to be $0.9 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 first year individual life and annuity commissions. Contributions to these plans were $0.1 million in 2022 and $0.1 million in 2021 and $0.2 million in 2020. Non-contributory deferred compensation plans for eligible agents based upon earned first year commissions are also offered. Contributions to these plans were $0.2 million in 2022, $0.2 million in 2021, and $0.3 million in 2020. 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 $2.4 million in 2022, $2.5 million in 2021, and $2.6 million in 2020. 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 2022, 2021, or 2020. We recognize the funded status of our pension and postemployment plans in the Consolidated Balance Sheets, measured as the difference between plan assets at fair value and the projected benefit obligation. 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. Significant sources of actuarial gains and losses for the pension plan included the impact of changes to the discount rate resulting in gains of $24.0 million during 2022 and gains of $5.8 million during 2021. The pension plan included losses from asset returns compared to expected returns of $35.2 million in 2022 and gains of $5.5 million in 2021. The mortality assumption and lump sum interest changes resulted in losses of $1.9 million in 2022 and losses of $0.7 million in 2021. The pension plan included losses from census change of $1.0 million and future cost of living adjustment of $2.3 million in 2022. The pension plan included losses from census change of $3.9 million and future cost of living adjustment of $2.4 million in 2021. The significant sources of actuarial gains and losses for other postretirement benefits included the impact of changes to the discount rate resulting in gains of $3.9 million in 2022 and gains of $0.9 million in 2021 and gains from updated claims costs of $1.0 million in 2022 and losses of $0.6 million in 2021. The postretirement benefits did not include any gains or losses from spouse participation assumption in 2022, compared to gains of $0.6 million in 2021. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 55 The following tables provide information regarding pension benefits and other postemployment benefits (OPEB) for the years ended December 31. Pension Benefits OPEB 2022 2021 2022 2021 Change in projected benefit obligation: Benefit obligation at beginning of year $ 124,107 $ 130,242 $ 19,006 $ 20,105 Service cost — — 124 181 Interest cost 2,942 2,505 498 460 Plan participants' contributions — — 605 547 Actuarial loss (gain) (19,146) 1,222 (5,575) (781) Benefits paid (10,225) (9,862) (1,683) (1,506) Benefit obligation at end of year $ 97,678 $ 124,107 $ 12,975 $ 19,006 Change in plan assets: Fair value of plan assets at beginning of year $ 171,562 $ 165,647 $ — $ — Return on plan assets (25,545) 14,749 — — Plan participants' contributions — — 605 547 Company contributions 100 1,028 1,078 959 Benefits paid (10,225) (9,862) (1,683) (1,506) Fair value of net plan assets at end of year $ 135,892 $ 171,562 $ — $ — Under (over) funded status at end of year $ (38,214) $ (47,455) $ 12,975 $ 19,006 Pension Benefits OPEB 2022 2021 2022 2021 Amounts recognized in accumulated other comprehensive income (loss): Net loss (gain) $ 73,413 $ 59,413 $ (13,346) $ (8,672) Prior service credit (1,142) (1,208) — — Total accumulated other comprehensive income (loss) $ 72,271 $ 58,205 $ (13,346) $ (8,672) Pension Benefits OPEB 2022 2021 2022 2021 Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): Unrecognized actuarial net loss (gain) $ 16,067 $ (4,248) $ (5,575) $ (781) Amortization of net gain (loss) (2,066) (2,374) 902 864 Amortization of prior service credit 66 66 — — Total loss (gain) recognized in other comprehensive income (loss) $ 14,067 $ (6,556) $ (4,673) $ 83 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 56 Pension Benefits OPEB 2022 2021 2022 2021 Weighted average assumptions used to determine benefit obligations at December 31: Discount rate 4.90 % 2.47 % 4.96 % 2.68 % Weighted average assumptions used to determine net periodic benefit cost for years ended December 31: Discount rate 2.47 % 2.00 % 2.68 % 2.33 % Expected return on plan assets 5.80 % 5.77 % — % — The following table presents the fair value of each major category of pension plan assets at December 31. 2022 2021 Fixed maturity securities: U.S. Government $ 33 $ 85 Industrial and public utility 5,117 6,615 Investment funds: Mutual funds 30,688 41,092 Collective trust 97,469 120,301 Limited partnerships 2,460 3,375 Other invested assets 30 31 Cash and cash equivalents 46 6 Receivables 49 57 Fair value of assets at end of year $ 135,892 $ 171,562 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 57 The following tables provide the fair value hierarchy, as described in Note 4 - Fair Value Measurements, for pension plan assets at December 31. 2022 Level 1 Level 2 Level 3 Total Fixed maturity securities: U.S. Government $ — $ 33 $ — $ 33 Industrial and public utility — 5,117 — 5,117 Mutual funds 30,688 — — 30,688 Other invested assets — — 30 30 Total assets in the fair value hierarchy 30,688 5,150 30 35,868 Investments measured at net asset value: 1 Collective trust 97,469 Limited partnerships 2,460 Investments at fair value $ 135,797 2021 Level 1 Level 2 Level 3 Total Fixed maturity securities: U.S. Government $ — $ 85 $ — $ 85 Industrial and public utility — 6,615 — 6,615 Mutual funds 41,092 — — 41,092 Other invested assets — — 31 31 Total assets in the fair value hierarchy 41,092 6,700 31 47,823 Investments measured at net asset value: 1 Collective trust 120,301 Limited partnerships 3,375 Investments at fair value $ 171,499 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. 2022 2021 Beginning balance $ 31 $ 10 Gains (losses) realized and unrealized (1) 21 Ending balance $ 30 $ 31 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 58 The following table provides the components of net periodic benefit cost (credit) for the years ended December 31. Pension Benefits OPEB 2022 2021 2020 2022 2021 2020 Service cost $ — $ — $ — $ 124 $ 181 $ 184 Interest cost 2,942 2,505 3,494 498 460 576 Expected return on plan assets (9,667) (9,279) (9,255) — — — Amortization of: Unrecognized actuarial net loss (gain) 2,066 2,374 2,514 (902) (864) (1,039) Unrecognized prior service credit (66) (66) (66) — — — Net periodic benefit credit (4,725) (4,466) (3,313) (280) (223) (279) Total recognized in other comprehensive income (loss) 14,067 (6,556) (3,291) (4,673) 83 1,915 Total recognized in net periodic benefit cost (credit) and other comprehensive income (loss) $ 9,342 $ (11,022) $ (6,604) $ (4,953) $ (140) $ 1,636 For measurement purposes, the annual increase in the per capita cost of covered health care benefits was assumed to be 7.50%, decreasing gradually to 5.00% in 2030 and thereafter. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 59 13. 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 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, 2022. Defined Measurement Period Number of Units Grant Price 2020-2022 129,114 $32.70 2021-2023 114,167 $37.39 2022-2024 116,859 $42.03 2023-2025* 179,314 $27.60 * Effective January 1, 2023 The Company made a cash payment of $1.3 million under the long-term incentive plan during 2022 for the three-year interval ended December 31, 2021. The Company did not make any cash payments under the long-term incentive plan during 2021 for the three-year interval ended December 31, 2020. The Company did not make any cash payments under the long-term incentive plan during 2020 for the three-year interval ended December 31, 2019. The change in accrual that reduced operating expense during 2022 was $1.1 million, net of tax. The cost of share-based compensation accrued as an operating expense during 2021 was $1.5 million, net of tax. The cost of share-based compensation accrued as an operating expense during 2020 was $0.6 million, net of tax. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 60 14. Reinsurance The following table provides information about reinsurance for the years ended December 31. 2022 2021 2020 Life insurance in force (in millions): Direct $ 50,479 $ 50,757 $ 52,334 Ceded (31,667) (32,269) (32,884) Assumed 4,316 5,082 4,121 Net $ 23,128 $ 23,570 $ 23,571 Premiums: Life insurance: Direct $ 259,646 $ 253,348 $ 265,564 Ceded (106,060) (98,507) (94,074) Assumed 5,776 7,030 4,855 Net $ 159,362 $ 161,871 $ 176,345 Accident and health: Direct $ 59,253 $ 57,043 $ 58,131 Ceded (10,007) (10,050) (10,720) Net $ 49,246 $ 46,993 $ 47,411 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 $9.4 million at December 31, 2022 and $10.6 million at December 31, 2021. The reserve for future policy benefits ceded under this agreement was $5.8 million at December 31, 2022 and $6.5 million at December 31, 2021. 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. Effective with the sale of Sunset Life on November 1, 2021, Kansas City Life assumed the responsibility for this agreement. The insurance in force ceded approximated $494.0 million at December 31, 2022 and $531.6 million at December 31, 2021. Premiums totaled $5.3 million during 2022, $5.4 million during 2021, and $5.6 million during 2020. On January 1, 2022, Old American entered into a reinsurance agreement whereby it began reinsuring 50% of new business on selected products. Effective October 1, 2022, this agreement was modified to reinsure 75% of new business on selected products. As part of this arrangement, the assuming entity agreed to provide certain administrative support in the form of underwriting services. In 2022, this support was not material to the reinsurance arrangement or to the Company's operating expenses. The insurance in force ceded approximated $66.7 million at December 31, 2022 and premiums totaled $5.4 million during 2022. In the second quarter of 2022, the Company reinsured a block of fixed annuity business with an average crediting rate of 3.75% to a certified domestic reinsurer. This reinsurance arrangement was effective April 1, 2022. The contract reinsured $516.2 million in policyholder account balance liabilities in exchange for fixed maturity securities and cash, less deferred revenue. We immediately recognized $11.6 million of certain non-refundable premiums associated with the transaction in investment income. The remaining deferred revenue will be amortized in future periods. The net consideration transferred to the reinsurer was $493.9 million. This resulted in recognizing a deposit asset on reinsurance of $516.2 million at April 1, 2022. Fixed maturity securities were transferred at market value as of the closing date of the transaction, resulting in a pre-tax net realized investment loss of $12.3 million. We will continue to administer this business on an ongoing basis, and we will receive an ongoing expense allowance associated with these efforts. The remaining deferred revenue liability is included in Other Liabilities in the Consolidated Balances Sheets and will be amortized over future periods consistent with the amortization of the Deposit Asset on Reinsurance. The Company determined that the reinsurance agreement does not expose the reinsurer to a Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 61 significant loss from insurance risk. Therefore, the Company has recognized the reinsurance agreement using the deposit-type method of accounting. The reserve credit transferred to the reinsurer is reported as Deposit Asset on Reinsurance in the Consolidated Balance Sheets. As amounts are received or paid, consistent with the underlying reinsured contracts, the Deposit Asset on Reinsurance is adjusted. The Deposit Asset on Reinsurance is also accreted to the estimated ultimate cash flows using the interest method and the adjustment is reported as Net Investment Income in the Consolidated Statements of Comprehensive Income. In 2022, the investment income recognized was $25.6 million less $3.8 million in transferred investment income. The interest credited on the block was $13.9 million. As of December 31, 2022, the Deposit Asset on Reinsurance balance was $484.4 million. Reinsurance recoverables were $389.6 million at year-end 2022, consisting of reserves ceded of $356.2 million and claims ceded of $33.4 million. Reinsurance recoverables were $400.0 million at year-end 2021, consisting of reserves ceded of $353.1 million and claims ceded of $46.9 million. The maximum retention on any one life during 2022 and 2021 was $0.5 million for ordinary life plans and $0.1 million for group coverage. The following table reflects our reinsurance partners whose recoverable was 5% or greater of our total reinsurance recoverable and deposit asset on reinsurance at December 31, 2022, along with their A.M. Best credit rating. A.M. Best Rating Reinsurance Recoverable and Deposit Asset on Reinsurance % of Recoverable RGA Reinsurance Company A+ $ 600,539 69 % Transamerica Life Insurance Company A 120,846 14 % Other (26 Companies) 152,636 17 % Total $ 874,021 100 % 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 it is probable that any reinsurer would not be able to satisfy its obligations with us, a separate contingency reserve may be established. At year-end 2022 and 2021, 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 $516.7 million of life insurance in force at December 31, 2022 and $559.1 million of life insurance in force at December 31, 2021. This block generated life insurance premiums of $1.6 million in 2022, $1.7 million in 2021, and $1.9 million in 2020. 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 $317.9 million of separate account balances at December 31, 2022, which are included in the financial statements of American Family, compared to $392.7 million at December 31, 2021. This block consisted of $0.5 million of future policy benefits and $37.0 million in fixed fund balances that are included in Policyholder Account Balances in the Company’s Consolidated Balance Sheets at December 31, 2022. This block consisted of $0.5 million of future policy benefits and $34.1 million in fixed fund balances at December 31, 2021. Effective December 31, 2020, Kansas City Life entered into a 100% assumption reinsurance agreement with Sunset Life for all direct policyholder liabilities written by Sunset Life. Effective November 1, 2021, Kansas City Life recognized 100% of the future policy benefits and policyholder account balances as well as other related liabilities in the reinsurance assumption that Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 62 occurred December 31, 2020. As Sunset Life was still part of the consolidated entity prior to November 1, 2021, this agreement had no impact on consolidated reporting. Effective with the sale of Sunset Life on November 1, 2021, the treaty is now accounted for as an assumption reinsurance agreement from an unaffiliated third party. The Company is pursuing a novation plan, whereby policies under this agreement will be converted to direct business of Kansas City Life. In order to novate, certain conditions must be met as identified under state regulations. As these conditions are met, a policy is converted to a direct policy and the reinsurance aspect is eliminated. As of December 31, 2022, approximately two-thirds of the reserves for these policies have been converted. This block had $1.0 billion of life insurance in force at December 31, 2022 and generated life insurance premiums of $1.2 million in 2022. This block had $1.1 billion of life insurance in force at December 31, 2021 and generated life insurance premiums of $2.4 million in 2021. This block consisted of $30.5 million of future policy benefits and $201.7 million of policyholder account balances at December 31, 2022. This block consisted of $33.6 million of future policy benefits and $210.1 million of policyholder account balances at December 31, 2021. 15. Comprehensive Income (Loss) Comprehensive Income (Loss) is comprised of Net Income (Loss) 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). Year Ended December 31, 2022 Pre-Tax Amount Tax Expense (Benefit) Net-of-Tax Amount Net unrealized losses arising during the year: Fixed maturity securities $ (474,535) $ (99,652) $ (374,883) Less reclassification adjustments: Net realized investment losses, excluding impairment losses (10,557) (2,217) (8,340) Other-than-temporary impairment losses recognized in earnings — — — Other-than-temporary impairment losses recognized in other comprehensive loss (34) (7) (27) Net unrealized losses excluding impairment losses (463,944) (97,428) (366,516) Effect on DAC, VOBA, and DRL 39,664 8,330 31,334 Change in policyholder liabilities 33,877 7,112 26,765 Change in benefit plan obligations (9,394) (1,970) (7,424) Other comprehensive loss $ (399,797) $ (83,956) $ (315,841) Net loss (16,218) Comprehensive loss $ (332,059) Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 63 Year Ended December 31, 2021 Pre-Tax Amount Tax Expense (Benefit) Net-of-Tax Amount Net unrealized losses arising during the year: Fixed maturity securities $ (123,342) $ (25,902) $ (97,440) Less reclassification adjustments: Net realized investment gains, excluding impairment losses 4,810 1,010 3,800 Other-than-temporary impairment losses recognized in earnings (467) (98) (369) Other-than-temporary impairment losses recognized in other comprehensive loss (15) (3) (12) Net unrealized losses excluding impairment losses (127,670) (26,811) (100,859) Effect on DAC, VOBA, and DRL 10,058 2,112 7,946 Change in policyholder liabilities 11,705 2,458 9,247 Change in benefit plan obligations 6,475 1,360 5,115 Other comprehensive loss $ (99,432) $ (20,881) $ (78,551) Net income 10,704 Comprehensive loss $ (67,847) Year Ended December 31, 2020 Pre-Tax Amount Tax Expense (Benefit) Net-of-Tax Amount Net unrealized gains arising during the year: Fixed maturity securities $ 151,735 $ 31,864 $ 119,871 Less reclassification adjustments: Net realized investment gains, excluding impairment losses 5,045 1,059 3,986 Other-than-temporary impairment losses recognized in earnings — — — Other-than-temporary impairment losses recognized in other comprehensive income (19) (4) (15) Net unrealized gains excluding impairment losses 146,709 30,809 115,900 Effect on DAC, VOBA, and DRL (9,885) (2,076) (7,809) Change in policyholder liabilities (20,104) (4,222) (15,882) Change in benefit plan obligations 1,376 289 1,087 Other comprehensive income $ 118,096 $ 24,800 $ 93,296 Net income 15,170 Comprehensive income $ 108,466 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 64 The following table provides accumulated balances related to each component of Accumulated Other Comprehensive Income (Loss) at December 31, 2022, net of tax. Unrealized Gain (Loss) on Non- Impaired Securities Unrealized Gain (Loss) on Impaired Securities Benefit Plan Obligations DAC/ VOBA/DRL Impact Policyholder Liabilities Total Beginning of year $ 151,660 $ 1,062 $ (39,128) $ (12,578) $ (26,765) $ 74,251 Other comprehensive income (loss) before reclassification (373,794) (1,089) (7,424) 31,334 26,765 (324,208) Amounts reclassified from accumulated other comprehensive income (loss) 8,340 27 — — — 8,367 Net current-period other comprehensive income (loss) (365,454) (1,062) (7,424) 31,334 26,765 (315,841) End of year $ (213,794) $ — $ (46,552) $ 18,756 $ — $ (241,590) The following table provides accumulated balances related to each component of Accumulated Other Comprehensive Income (Loss) at December 31, 2021, net of tax. Unrealized Gain on Non- Impaired Securities Unrealized Gain (Loss) on Impaired Securities Benefit Plan Obligations DAC/ VOBA/DRL Impact Policyholder Liabilities Total Beginning of year $ 252,334 $ 1,247 $ (44,243) $ (20,524) $ (36,012) $ 152,802 Other comprehensive income (loss) before reclassification (96,874) (566) 5,115 7,946 9,247 (75,132) Amounts reclassified from accumulated other comprehensive income (loss) (3,800) 381 — — — (3,419) Net current-period other comprehensive income (loss) (100,674) (185) 5,115 7,946 9,247 (78,551) End of year $ 151,660 $ 1,062 $ (39,128) $ (12,578) $ (26,765) $ 74,251 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 65 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. 2022 2021 2020 Reclassification adjustments related to unrealized gains (losses) on investment securities: Net realized investment gains (losses), excluding impairment losses 1 $ (10,557) $ 4,810 $ 5,045 Income tax benefit (expense) 2 2,217 (1,010) (1,059) Net of taxes (8,340) 3,800 3,986 Other-than-temporary impairment losses 1 (34) (482) (19) Income tax benefit 2 7 101 4 Net of taxes (27) (381) (15) Total pre-tax reclassifications (10,591) 4,328 5,026 Total income tax benefit (expense) 2,224 (909) (1,055) Total reclassification, net taxes $ (8,367) $ 3,419 $ 3,971 1 (Increases) decreases Net Investment Gains (Losses) in the Consolidated Statements of Comprehensive Income. 2 (Increases) decreases Income Tax Expense (Benefit) in the Consolidated Statements of Comprehensive Income. 16. 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 2022, 2021, and 2020. The number of shares outstanding at both December 31, 2022 and December 31, 2021 was 9,683,414. 17. 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, Grange Life, and the assumed reinsurance transactions. Sunset Life was also included in the Individual Insurance segment until its sale on November 1, 2021. The results of Sunset Life operations are included in the Individual Insurance segment for the first ten months of 2021 and the year ended December 31, 2020. For additional information on the sale of Sunset Life, please see the Business Changes section of Note 1 - Nature of Operations and Significant Accounting Policies. 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, 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) 66 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. 2022 Individual Insurance Group Insurance Old American Consolidated Insurance revenues $ 174,168 $ 64,662 $ 93,822 $ 332,652 Interest credited to policyholder account balances 72,974 — — 72,974 Amortization of deferred acquisition costs 20,225 — 20,368 40,593 Income tax expense (benefit) (4,262) 447 (724) (4,539) Net income (loss) (15,176) 1,681 (2,723) (16,218) Assets 4,524,863 9,322 430,964 4,965,149 2021 Individual Insurance Group Insurance Old American Consolidated Insurance revenues $ 168,675 $ 62,145 $ 99,847 $ 330,667 Interest credited to policyholder account balances 79,725 — — 79,725 Amortization of deferred acquisition costs 12,520 — 20,697 33,217 Income tax expense (benefit) 3,537 (106) (1,215) 2,216 Net income (loss) 15,698 (401) (4,593) 10,704 Assets 4,959,634 10,030 463,766 5,433,430 2020 Individual Insurance Group Insurance Old American Consolidated Insurance revenues $ 189,081 $ 62,695 $ 98,702 $ 350,478 Interest credited to policyholder account balances 78,792 — — 78,792 Amortization of deferred acquisition costs 21,444 — 20,697 42,141 Income tax expense (benefit) 793 904 (953) 744 Net income (loss) 15,327 3,405 (3,562) 15,170 Assets 4,989,424 11,438 462,150 5,463,012 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 67 18. Quarterly Consolidated Financial Data (unaudited) The unaudited quarterly results of operations for the years ended December 31 are summarized in the following table. 2022 First Second Third Fourth Total revenues $ 119,231 $ 114,579 $ 119,998 $ 122,834 Total benefits and expenses 128,665 109,538 114,689 144,507 Net income (loss) (7,676) 4,485 4,315 (17,342) Per common share, basic and diluted (0.79) 0.46 0.45 (1.79) 2021 First Second Third Fourth Total revenues $ 122,331 $ 124,804 $ 121,282 $ 142,895 Total benefits and expenses 122,974 119,537 128,271 127,610 Net income (loss) (668) 4,286 (6,006) 13,092 Per common share, basic and diluted (0.07) 0.44 (0.62) 1.36 19. Statutory Information and Stockholder Dividends Restriction The following table provides Kansas City Life’s net loss from operations, net income (loss), and capital and surplus (stockholders' equity) on the statutory basis used to report to regulatory authorities for the years ended December 31. 2022 2021 2020 Net loss from operations $ (20,319) $ (5,494) $ (1,287) Net income (loss) (21,532) 24,165 11,554 Capital and surplus 220,044 245,300 265,341 Kansas City Life recognizes its 100% ownership in Old American and Grange Life under the equity method with subsidiary earnings recorded through surplus on a statutory accounting basis. Capital and surplus at December 31, 2022 in the above table includes capital and surplus of $21.5 million for Old American and $25.9 million for Grange Life. Stockholder dividends may not exceed statutory unassigned surplus. Additionally, under Missouri law, a 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. Both Kansas City Life and Old American are Missouri-domiciled insurance companies. The maximum stockholder dividends payable by Kansas City Life without prior approval in 2023 is $22.0 million, 10% of December 31, 2022 capital and surplus. The maximum stockholder dividends payable by Old American without prior approval in 2023 is $2.1 million, net gain from operations for the year ended December 31, 2022. Grange Life is subject to the laws in Ohio, its state of domicile. Ohio law limits the Company’s payment of dividends to its parent company, Kansas City Life. The maximum dividend that may be paid by an Ohio-domiciled insurance company to its shareholders in any year without the prior approval of the Ohio Director of the Department of Insurance is limited to the greater of the net income of the preceding calendar year or 10% of capital and surplus as of the preceding December 31. Ohio law also requires that any dividend be paid from earned surplus. The maximum dividend payments that can be made in 2023, without obtaining prior approval, are $2.6 million subject to the amount of earned surplus available at the time of payment. We believe that the statutory limitations described above impose no practical restrictions on the declaration and subsequent payment of any dividend that may be declared on any of our three insurance companies. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 68 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 insurance companies was within the range of approximately 445% to 680%, well in excess of the control level at December 31, 2022. We are required to deposit a defined amount of assets with state regulatory authorities. Such assets had a statutory carrying value of $8.8 million at December 31, 2022, $9.5 million at December 31, 2021, and $16.2 million at December 31, 2020. 20. Commitments, Contingent Liabilities, Guarantees, and Indemnifications Commitments In the normal course of business, we have open purchase and sale commitments. At December 31, 2022, we had purchase commitments to fund mortgage loans of $1.5 million and commitments to fund investments in private equity security interests of $27.1 million. Subsequent to December 31, 2022, we entered into commitments to fund additional mortgage loans of $1.7 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 probable 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, 2022. 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 the defendant in five related litigation matters (including three certified class actions and two putative class actions) that allege that we determined cost of insurance rates in excess of amounts permitted by the terms of certain life insurance policies. • Karr v. Kansas City Life is a class action filed in the 16th Circuit Court for the State of Missouri (Jackson County). In July 2021, the Court certified a class that includes current Missouri residents who purchased certain universal life policies (described below) in the State of Missouri that were active on or after January 1, 2002. In February of 2022, the Court granted partial Summary Judgment to plaintiffs on three of the five counts at issue in the class action. In December of 2022, a jury trial based solely on determining damages under the Court’s summary judgment ruling was held in Jackson County, Missouri. The jury in that trial rendered a verdict of $28.4 million in favor of the plaintiffs related to the first three counts. As of this date, the Court has not entered a judgment on the verdict nor has it issued a final verdict in the case. We have opposed entry of judgment and plan to challenge any judgment that may be entered by the Court both with the trial court and, if necessary, through the appellate process. While the verdict is not final, and while we will continue to challenge any judgment, the Company is establishing a contingent liability reserve related to the jury’s verdict in the amount of $28.4 million related to this matter. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 69 • Meek v. Kansas City Life is a class action filed in the U.S. District Court for the Western District of Missouri. In February of 2022, the Court certified a class on the first four claims of Plaintiff’s petition that includes current and former policyholders who purchased certain universal life policies (described below) that were issued in the State of Kansas and whose policies were active on or after January 1, 2002. The Court has not ruled on the merits of plaintiff’s claims, but instead has determined that the class of policyholders certified in lawsuit meet the requirements of Federal Rule of Civil Procedure 23(b)(3), which governs class actions in federal courts. We will vigorously defend this matter and believe we have meritorious defenses to all of the claims asserted. The Meek and Karr matters include different defenses and matters of law. We have not concluded that a loss is probable in this matter and have not accrued any liability related thereto. However, there can be no assurances as to the outcome of this matter. In the event of an unfavorable outcome, the amount that may be required to be paid to discharge or settle the matter could have a material adverse impact on our business and financial statements. • Sheldon v. Kansas City Life is a class action filed in the 16th Circuit Court for the State of Missouri (Jackson County). In May of 2022, the Court certified a class that includes policyholders who purchased certain Century II Variable Universal Life policies that were issued in the State of Missouri and whose policies were active on or after January 1, 2002. The Court’s decision means that the class of policyholders certified in the Sheldon v. Kansas City Life lawsuit meets the requirements of Federal Rule of Civil Procedure 23(b)(3), which governs class actions in federal courts. While the ruling establishes a class at this stage of the litigation and permits the future issuance of a notice to class members, the Court has not decided who will win this case. The Sheldon and Karr matters include different defenses and matters of law. We have not concluded that a loss is probable in this matter and have not accrued any liability related thereto. However, there can be no assurances as to the outcome of this matter. In the event of an unfavorable outcome, the amount that may be required to be paid to discharge or settle the matter could have a material adverse impact on our business and financial statements. • Fine v. Kansas City Life is a putative class action filed in the U.S. District Court for the Central District of California. The proposed class would include current and former policyholders who purchased certain universal life and certain variable universal life policies issued in the State of California. This case was filed on March 29, 2022, and is in its preliminary stages. The Court has not certified a class of policyholders or identified the policies at issue in this matter. The Fine and Karr matters include different defenses and matters of law. We have not concluded that a loss is probable in this matter and have not accrued any liability related thereto. However, there can be no assurances as to the outcome of this matter. In the event of an unfavorable outcome, the amount that may be required to be paid to discharge or settle the matter could have a material adverse impact on our business and financial statements. • McMillan v. Kansas City Life is a putative class action filed in the U.S. District Court for the District of Maryland. The proposed class would include current and former policyholders who purchased certain universal life and certain variable universal life policies originally issued in the State of Maryland. This case was filed on May 5, 2022, and is in its preliminary stages. The Court has not certified a class of policyholders or identified the policies at issue in this matter. The McMillan and Karr matters include different defenses and matters of law. We have not concluded that a loss is probable in this matter and have not accrued any liability related thereto. However, there can be no assurances as to the outcome of this matter. In the event of an unfavorable outcome, the amount that may be required to be paid to discharge or settle the matter could have a material adverse impact on our business and financial statements. The classes certified in Karr v. Kansas City Life and Meek v. Kansas City Life include policyholders who purchased one of the following Universal Life policies issued by Kansas City Life: Better Life Plan, Better Life Plan Qualified, LifeTrack, AGP, MGP, PGP, Chapter One, Classic, Rightrack (89), Performer (88), Performer (91), Prime Performer, Competitor (88), Competitor (91), Executive (88), Executive (91), Protector 50, LewerMax, Ultra 20 (93), Competitor II, Executive II, Performer II, or Ultra 20 (96). Regulatory 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 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 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 Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 70 contingencies 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. 21. Subsequent Events We evaluated events that occurred subsequent to December 31, 2022 through March 6, 2023, the date the consolidated financial statements were issued and have identified the following subsequent event. On January 23, 2023, the Kansas City Life Board of Directors declared a quarterly dividend of $0.14 per share, paid on February 8, 2023 to stockholders of record on February 2, 2023. 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, 2022. Kansas City Life Insurance Company Notes to Consolidated Financial Statements – (Continued) 71 Independent Auditor’s Report The Audit Committee and Stockholders Kansas City Life Insurance Company Kansas City, Missouri Opinion We have audited the consolidated financial statements of Kansas City Life Insurance Company and subsidiaries, which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the consolidated financial statements. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Kansas City Life Insurance Company and subsidiaries as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2022 in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. We are required to be independent of Kansas City Life Insurance Company and subsidiaries and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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. In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Kansas City Life Insurance Company and subsidiaries’ ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. • Obtain an understanding of internal control relevant to the audit 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 Kansas City Life Insurance Company and subsidiaries’ internal control. Accordingly, no such opinion is expressed. 72 • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Kansas City Life Insurance Company and subsidiaries’ ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits, significant audit findings, and certain internal control-related matters that we identified during the audits. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the incurred and paid claims development information for the years 2013 through 2021 in Note 8 be presented to supplement the basic consolidated financial statements. Such information is the responsibility of management and, although not a part of the basic consolidated financial statements, is required by the Financial Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic consolidated financial statements, and other knowledge we obtained during our audit of the basic consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. /s/ FORVIS Kansas City, Missouri March 6, 2023 73 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 Kansas City Life Insurance Company management 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. Old American Insurance Company (Old American) and Grange Life Insurance Company (Grange Life) are wholly-owned insurance subsidiaries. Sunset Life Insurance Company of America (Sunset Life) is an insurance subsidiary that was wholly-owned by the Company until it was sold on November 1, 2021. Sunset Life is now Ibexis Life & Annuity Insurance Company. For additional information on the sale of Sunset Life, please see the Business Changes section of Note 1 - Nature of Operations and Significant Accounting Policies. We also have non-insurance subsidiaries that individually and collectively are not material. On May 25, 2022, retroactive to April 1, 2022, we entered into a reinsurance arrangement whereby we reinsured a sizeable block of fixed annuity contracts to a certified domestic reinsurer. This closed block of contracts reflected business issued prior to 2015 and consisted entirely of higher guaranteed interest rate products. We are accounting for this transaction as a deposit- type contract. The contract reinsured $516.2 million in policyholder account balance liabilities in exchange for fixed maturity securities and cash, less deferred revenue. We immediately recognized $11.6 million of certain non-refundable premiums associated with the transaction in investment income. The remaining deferred revenue will be amortized in future periods. The net consideration transferred to the reinsurer was $493.9 million. This resulted in recognizing a deposit asset on reinsurance of $516.2 million at April 1, 2022. Fixed maturity securities were transferred at market value as of the closing date of the transaction, resulting in a pre-tax net realized investment loss of $12.3 million. We will continue to administer this business on an ongoing basis, and we will receive an expense allowance associated with these efforts. For additional information on this reinsurance arrangement, please see Note 14 - Reinsurance. The following is a discussion and analysis of the results of operations for the year ended December 31, 2022 and our financial condition at December 31, 2022. 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: • 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; • Interest rates credited to policyholders; • 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, equity risk, and inflation risk; • Timely and cost-effective access to liquidity; • Management of distribution costs and operating expenses; • Management of the operations of our affiliates; • Management of blocks of business associated with reinsurance 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 increased inflationary environment and volatile equity markets have presented significant challenges to the interest rate environment, financial markets as a whole, and specifically to companies invested in fixed maturity securities and other fixed income investments. In addition, the COVID-19 pandemic and other events have caused increased economic uncertainty, financial market volatility, significant stress to businesses, supply chain shortages, decreased consumer confidence, and increased labor shortages. These conditions may persist into the future, affecting our financial position and financial statements. However, future conditions are highly uncertain and difficult to predict. 74 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 economic conditions, including the performance of financial markets, inflation, and interest rates; • Competition and changes in consumer behavior, which may affect our ability to sell our products and retain business; • Competition in the recruitment and retention of general agents, agents, and employees; • 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 achieve anticipated operating efficiencies and the ability to preserve goodwill that results from acquisitions; • The availability and effectiveness of reinsurance arrangements; • Results of litigation we may be involved in; and • The extent of the impacts resulting from catastrophic events such as natural disasters, pandemics, terrorist attacks, cyber attacks, international conflicts, and wars. 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. 75 Consolidated Results of Operations Summary of Results We incurred a net loss of $16.2 million in 2022 compared to net income of $10.7 million in 2021. Net loss per share was $1.67 in 2022 compared to $1.11 net income per share in 2021. The following table presents condensed consolidated results of operations for the years ended December 31. 2022 2021 % Change Revenues: Insurance and other revenues $ 339,406 $ 343,427 (1) % Net investment income 153,879 142,468 8 % Net investment gains (losses) (16,643) 25,417 (165) % Benefits and expenses: Policyholder benefits and interest credited to policyholder account balances 331,373 360,611 (8) % Amortization of deferred acquisition costs 40,593 33,217 22 % Operating expenses 125,433 104,564 20 % Income tax expense (benefit) (4,539) 2,216 (305) % Net income (loss) $ (16,218) $ 10,704 (252) % In the fourth quarter of 2022, we accrued pretax operating expenses of $28.4 million related to a class action lawsuit. Excluding this accrual, net income for 2022 would have amounted to $6.2 million. The Company sold Sunset Life on November 1, 2021. The results of Sunset Life operations are included in our Consolidated Statements of Comprehensive Income for the first ten months of 2021. 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 Company uses a sales approach which generally involves personal interaction with our clients. The COVID-19 pandemic has resulted in many challenges and disruptions for our sales approach. The environment continues to evolve as the pandemic lengthens, and in many ways has still not returned to historical levels. We continue to make strides to minimize the effects of this challenging environment by implementing more remote styles of client interaction, creating electronic applications, and streamlining medical examination requirements for underwriting. In addition, we review, update, and enhance our products on an ongoing basis to ensure that they comply with regulatory requirements, remain profitable, and continue to fulfill the needs of our clients. We also periodically discontinue sales and reprice certain products that become outdated, unprofitable, or that cannot support our business and client needs. 76 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. 2022 2021 % Change New premiums: Traditional life insurance $ 19,105 $ 21,230 (10) % Immediate annuities 20,373 13,807 48 % Group life insurance 2,513 2,436 3 % Group accident and health insurance 9,074 7,462 22 % Total new premiums 51,065 44,935 14 % Renewal premiums 273,610 272,486 — % Total premiums 324,675 317,421 2 % Reinsurance ceded (116,067) (108,557) 7 % Net premiums $ 208,608 $ 208,864 — % Consolidated total premiums increased $7.2 million or 2% in 2022 compared to 2021, reflecting a $6.1 million or 14% increase in new premiums and a $1.1 million or less than 1% increase in renewal premiums. The growth in new premiums was largely due to a $6.6 million or 48% increase in new immediate annuity premiums. Immediate annuity receipts can have sizeable fluctuations, as receipts from policyholders largely result from one-time premiums. Internal rollovers from various individual annuity products were $4.3 million higher in 2022 than in 2021. In addition, new group accident and health premiums increased $1.6 million or 22%, reflecting improvements in all lines of business. Partially offsetting these premium improvements, new individual life insurance premiums decreased $2.1 million or 10% compared to the prior year. The increase in renewal premiums was primarily due to a $0.7 million or 1% increase in renewal group accident and health insurance premiums, due to improvements for all lines of business. In addition, renewal traditional life insurance premiums increased $0.2 million or less than 1% and renewal group life insurance premiums increased $0.3 million or 2% compared to one year earlier. Reinsurance ceded premiums increased $7.5 million or 7% in 2022 compared to 2021. This increase reflected a reinsurance agreement that became effective January 1, 2022, whereby Old American began reinsuring 50% of new business on selected products. Effective October 1, 2022, this agreement was modified to reinsure 75% of new business on selected products. 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. 2022 2021 % Change New deposits: Interest sensitive life $ 10,313 $ 10,598 (3) % Fixed annuities 40,458 38,010 6 % Variable annuities 10,691 17,942 (40) % Total new deposits 61,462 66,550 (8) % Renewal deposits 145,769 149,048 (2) % Total deposits $ 207,231 $ 215,598 (4) % Reinsurance ceded (5,894) — — % Net deposits $ 201,337 $ 215,598 (7) % General economic conditions and interest rates available in the marketplace influence new deposits on interest sensitive products. In addition, fluctuations in the equity markets influence the variable life and annuity products. Generally, low interest rate and increased inflationary environments present significant challenges to products such as these, and potential sizeable fluctuations in new sales can result between periods. Further, as described above, the COVID-19 pandemic and the related economic impacts, as well as general economic conditions, have affected both new and renewal deposits. 77 Total new deposits declined $5.1 million or 8% in 2022 compared to 2021. This decline reflected a $7.3 million or 40% decrease in new variable annuity deposits and a $0.3 million or 3% decrease in new interest sensitive deposits compared to the prior year. Partially offsetting these declines, new fixed annuity deposits increased $2.4 million or 6%. Total renewal deposits decreased $3.3 million or 2% in 2022 versus the prior year. Renewal interest sensitive life deposits declined $1.5 million or 1%, renewal variable annuity deposits declined $1.1 million or 13%, and renewal fixed annuity deposits declined $0.6 million or 4% versus one year earlier. The results for renewal interest sensitive life deposits included a $2.7 million or 17% increase in renewal indexed universal life deposits that was offset by a $3.4 million or 4% decrease in renewal universal life deposits and a $0.8 million or 4% decrease in renewal variable universal life deposits. Reinsurance ceded on deposits totaled $5.9 million in 2022, resulting from the deposit-type reinsurance agreement previously mentioned that became effective April 1, 2022. 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 $2.2 million or 2% in 2022 compared to 2021. Contract charges on open blocks increased $3.0 million or 4% versus the prior year, largely from an increase in deferred revenue. Contract charges on closed blocks decreased $0.8 million or 2% in 2022 compared to 2021, reflecting the runoff of the blocks of business. Total contract charges on closed blocks equaled 41% of total consolidated contract charges during 2022, down from 42% in 2021. Unlocking increased deferred revenue $1.0 million in 2022 compared to an increase of $1.1 million in 2021. Investment Revenues Total net investment income increased $11.4 million or 8% in 2022 compared with 2021. Net investment income resulting from the deposit-type reinsurance agreement which was effective April 1, 2022, was $21.8 million in 2022. Net investment income on invested assets decreased $10.4 million or 7% in 2022 compared with 2021. This result reflected lower average invested assets and a decrease in prepayment fees on mortgage loans. The lower invested assets primarily resulted from the sale of fixed maturity securities with a book value of approximately $502.0 million during the second quarter of 2022 as part of the deposit-type reinsurance transaction. Fixed maturity securities provide a majority of our investment income. Net investment income from these investments decreased $6.5 million or 6% in 2022 compared to 2021 as lower average invested assets were partially offset by higher yields earned. The lower invested assets primarily resulted from the sale of fixed maturity securities as part of the deposit-type reinsurance transaction. Net investment income from commercial mortgage loans declined $3.7 million or 13% in 2022 versus 2021, primarily from lower prepayment fees as well as lower yields earned. As interest rates have increased in 2022, fewer mortgage loans have refinanced. This has resulted in decreases in prepayment fees of $1.5 million in 2022 compared to 2021. Net investment income from real estate decreased $3.2 million or 36% in 2022 compared to the prior year. This decline largely resulted from the loss of revenue from a real estate property that was sold in the fourth quarter of 2021. Investment Gains (Losses) Net investment losses for 2022 totaled $16.6 million compared to net investment gains of $25.4 million for 2021. The sale of investment securities resulted in a net loss of $11.8 million in 2022 compared to a net gain of $0.5 million in 2021. The loss in 2022 reflected the transfer of investment securities for the deposit-type reinsurance agreement that generated a pretax net loss of $12.3 million, as previously mentioned. In addition, the change in fair value of derivative instruments resulted in a loss of $6.9 million in 2022 compared to a gain of $4.8 million in the prior year. Also, sales of real estate and joint ventures generated a net gain of $0.7 million in 2022, compared to a net gain of $16.6 million in 2021. We recognized impairments of less than $0.1 million on our securities portfolio during 2022 compared to impairments of $0.5 million during 2021. The impairments recognized in 2022 were on residential mortgage-backed securities, which were sold during the year. We will continue to monitor and evaluate our portfolio for potential strain in the individual holdings and sectors due to the added stress in the current economic environment. 78 Other Revenues Other revenues decreased $6.0 million or 47% in 2022 compared to the prior year. This decline was largely due to the gain from the sale of Sunset Life of approximately $5.5 million that occurred during 2021. 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. Total policyholder benefits decreased $22.5 million or 8% in 2022 compared to 2021. The largest factor in this decline was a $19.8 million or 11% decline in death benefits, net of reinsurance. Death benefits have been heavily affected by the COVID-19 pandemic and have remained significantly higher since the pandemic began in 2020. Mortality cost resulting specifically from the COVID-19 pandemic was 6% of the total mortality cost for 2022, down from 13% in 2021. Mortality cost is defined as death benefits net of reinsurance and reserves released. In addition, benefit and contract reserves decreased $2.8 million or 19% compared to the prior year. The change in the fair value of derivative instruments decreased reserves compared to the prior year. In addition, reserves decreased at the Old American segment due to ceded reserves on the reinsurance arrangement mentioned above and more reserves released for death benefits and surrenders. Partially offsetting these items was an increase in annuity and supplemental contract reserves. Interest Credited to Policyholder Account Balances Interest is credited to policyholder account balances according to terms of the policies or contracts for universal life, fixed deferred annuities, and other investment-type products. There are minimum levels of interest crediting stipulated in certain policies or contracts, as well as allowances for adjustments to be made to reflect current market conditions in certain policies or contracts. Accordingly, the Company reviews and adjusts crediting rates as necessary and appropriate. Amounts credited are a function of account balances and current period crediting rates. As account balances fluctuate, so will the amount of interest credited to policyholder account balances. Interest credited to policyholder account balances decreased $6.8 million or 8% in 2022 compared to 2021. This decline reflects lower interest crediting on the indexed universal life product. Amortization of DAC The amortization of DAC increased $7.4 million or 22% in 2022 compared to 2021. This increase reflected the impact of unlocking, better mortality experience, and decreased investment performance in the separate accounts. Unlocking adjustments increased DAC amortization $1.7 million in 2022 compared to unlocking adjustments that decreased DAC amortization $0.4 million in 2021. In addition, DAC amortization increased $0.6 million in 2022 due to the write-off of DAC resulting from the deposit-type reinsurance arrangement. 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 $20.9 million or 20% in 2022 compared to 2021. The largest contributor to this increase was a $28.4 million legal reserve that was accrued related to a class action lawsuit. Excluding this accrual, operating expenses declined $7.5 million or 7% in 2022 compared to 2021. This decrease largely resulted from lower employee compensation expenses, in part due to staffing fluctuations and to a decline in the market value of deferred compensation benefits. In addition, the amortization of VOBA decreased $0.5 million or 22% compared to the prior year, primarily due to unlocking. This unlocking increased operating expenses less than $0.1 million in 2022 compared to an increase of $0.8 million in 2021. Partially offsetting these declines in operating expenses, agent meeting expenses increased as our agent conferences resumed in 2022 after being cancelled in 2021. Income Taxes We recorded an income tax benefit of $4.5 million or 22% of income before tax in 2022. We recorded an income tax expense of $2.2 million or 17% of income before tax in 2021. The decrease in income tax expense in 2022 was primarily related to a decrease in pretax income in 2022 as compared to pretax income in 2021. The accrued legal reserve previously mentioned resulted in a $6.0 million deferred tax benefit in 2022. The increase in the effective tax rate in 2022 was primarily due to tax credits from affordable housing investments and permanent differences, including the dividends-received deduction, having more impact on the effective tax rate due to a decrease in pre-tax income. The effective income tax rate was higher than the prevailing corporate federal income tax rate of 21% for 2022. The higher effective income tax rate was primarily due to the effect of favorable tax adjustments relative to a pretax loss. Favorable tax adjustments include tax credits from affordable housing investments, research and development credits, and permanent differences, which includes the dividend-received deduction. The effective income tax rate was lower than the prevailing 79 corporate federal income tax rate of 21% for 2021. The lower effective income tax rate was primarily due to tax credits from affordable housing investments and from permanent differences, which includes the dividends-received deduction. 80 Analysis of Investments This analysis of investments should be read in conjunction with Note 3 - Investments included in this document. The following table provides asset class detail of the investment portfolio at December 31. 2022 % of Total 2021 % of Total Fixed maturity securities $ 2,204,819 71 % $ 3,088,197 77 % Equity securities 1,918 — % 3,676 — % Mortgage loans 591,928 19 % 596,037 15 % Real estate 141,649 4 % 142,278 4 % Policy loans 82,739 3 % 82,060 2 % Short-term investments 58,497 2 % 74,501 2 % Other investments 18,749 1 % 12,840 — Total $ 3,100,299 100 % $ 3,999,589 100 % Fixed maturity securities were the largest component of our total investments at December 31, 2022 and December 31, 2021. Fixed maturity securities declined from 77% of total investments at December 31, 2021 to 71% of total investments at December 31, 2022. This decline was primarily from an increase in unrealized losses on the portfolio due to increasing interest rates as well as from the sale of fixed maturity securities with a book value of approximately $502.0 million during 2022 as part of the deposit-type reinsurance transaction. The largest categories of fixed maturity securities at December 31, 2022 consisted of 72% in corporate securities, 11% in municipal securities, and 5% in U.S. Treasury securities and obligations of the U.S. Government. We had 26% of the fixed maturity securities in private placements at December 31, 2022 compared to 22% at December 31, 2021. The use of private placements offers an enhancement to our portfolio returns by providing access to higher yielding securities that choose to have a more limited offering at often lower cost. 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 99% at both December 31, 2022 and December 31, 2021. The fair value of fixed maturity securities with unrealized losses was $2.0 billion at December 31, 2022, compared with $366.6 million one year earlier. This increase primarily reflected higher interest rates at December 31, 2022 compared to December 31, 2021. At both December 31, 2022 and December 31, 2021, 99% of security investments with an unrealized loss were investment grade and accounted for 99% of the total unrealized losses. At December 31, 2022, we had $278.9 million in gross unrealized losses on fixed maturity securities that offset $8.3 million in gross unrealized gains. At December 31, 2021, we had $203.7 million in gross unrealized gains on fixed maturity securities that offset $10.4 million in gross unrealized losses. At December 31, 2022, 11% of the fixed maturity securities portfolio had unrealized gains, down from 88% at December 31, 2021. We had an increase in gross unrealized losses in all categories from December 31, 2021 to December 31, 2022, primarily due to changes in interest rates. Gross unrealized losses on fixed maturity securities for less than 12 months totaled $194.3 million and accounted for 85% of the security values in a gross unrealized loss position at December 31, 2022. Gross unrealized losses on fixed maturity securities of 12 months or longer increased from $3.5 million at December 31, 2021 to $84.6 million at December 31, 2022. We have written down certain investments in previous periods. There were no fixed maturity securities written down and still owned at December 31, 2022. Fixed maturity securities written down and still owned at December 31, 2021 had a fair value of $11.9 million and net unrealized gains of $1.3 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 reduced the value of five investments in 2022 totaling less than $0.1 million under this process. We reduced the value of one investment in 2021 by less than $0.1 million under this process. Investments in mortgage loans totaled $591.9 million at December 31, 2022, down from $596.0 million at December 31, 2021. The commercial mortgage loan portfolio decreased $4.1 million during 2022, as regularly scheduled payments and prepayments exceeded the volume of new 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. 81 We believe this allowance is at a level adequate to absorb estimated credit losses and was $2.8 million at both December 31, 2022 and December 31, 2021. For additional information on our mortgage loan portfolio, please see Note 3 - Investments. 82 Liquidity and Capital Resources Liquidity 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. We have a spread-based investment program utilizing advances from the Federal Home Loan Bank of Des Moines (FHLB) to provide additional liquidity. 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. 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 used from operating activities was $54.3 million for the year ended December 31, 2022. The primary sources of cash from operating activities in 2022 were premium receipts and net investment income. The primary uses of cash from operating activities in 2022 were for the payment of policyholder benefits and operating expenses. Net cash used from investing activities was $89.2 million. The primary sources of cash were sales, maturities, calls, and principal paydowns of investments totaling $431.0 million. Offsetting these, investment purchases, including new mortgage loans and new policy loans, totaled $535.7 million. In addition, net sales of short-term investments totaled $16.0 million. Net cash provided by financing activities was $145.9 million, primarily including $70.0 million of receipts from the FHLB funding agreement, $45.8 million change in deposit asset on reinsurance, $35.1 million of deposits, net of withdrawals, on policyholder account balances, and $7.8 million of net transfers from separate accounts. Partially offsetting these was the payment of $6.7 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. 2022 2021 Total assets, excluding separate accounts $ 4,583,568 $ 4,928,454 Total stockholders' equity 491,693 830,434 Ratio of stockholders' equity to assets, excluding separate accounts 11% 17% Stockholders’ equity decreased $338.7 million from year-end 2021, primarily due to an increase in net unrealized losses, reflecting higher interest rates at December 31, 2022. In addition, stockholders’ equity decreased from the recognition of the $28.4 million legal reserve. Stockholders’ equity per share, or book value, equaled $50.78 at year-end 2022, a decline from $85.76 at year-end 2021. Net unrealized losses 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 $195.0 million at December 31, 2022, a $308.4 million decrease from net unrealized gains of $113.4 million at December 31, 2021. This decline reflected higher interest rates at December 31, 2022. In 2021, the Company entered into a collateralized advance funding agreement with the FHLB. Total obligations outstanding under these agreements, which mature between 2024 and 2027, were $100.0 million at December 31, 2022 and are reported as Policyholder Account Balances in the Consolidated Balance Sheets. Interest is credited based on variable rates set by the FHLB. Interest payments during the year ended December 31, 2022 were $1.5 million. Interest payments during the year ended December 31, 2021 were less than $0.1 million. 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 National Association of Insurance Commissioners (NAIC). We believe these statutory limitations impose no practical restrictions on future dividend payment plans. See further discussion in Note 19 - Statutory Information and Stockholder Dividends Restriction. 83 In January 2023, the Board of Directors authorized the purchase of up to one million of our shares on the open market through January 2024. No shares were purchased under this authorization during 2022 or 2021. The timing and amount of any share repurchases will be determined by our management based on market conditions and other factors. On January 23, 2023, the Board of Directors declared a quarterly dividend of $0.14 per share that was paid February 8, 2023 to stockholders of record at February 2, 2023. Minimum Rate Guarantees Our rate guarantees for those products with minimum crediting rate provisions are identified in the following table. 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 74% of total policyholder account balances were at the minimum guaranteed rate as of December 31, 2022 compared to 76% at December 31, 2021. December 31, 2022 Fixed Annuities Universal Life Variable Life and Annuities Supplemental Contracts and Annuities Without Life Contingencies Total 0% to 1% $ 423,425 $ 103,710 $ 8,398 $ 4,317 $ 539,850 Greater than 1% to 3% 147,178 313,236 96,801 31,176 588,391 Greater than 3% to 4% 345,550 286,168 7,758 17,727 657,203 Greater than 4% 44,603 347,069 — 3,187 394,859 Total $ 960,756 $ 1,050,183 $ 112,957 $ 56,407 $ 2,180,303 December 31, 2021 Fixed Annuities Universal Life Variable Life and Annuities Supplemental Contracts and Annuities Without Life Contingencies Total 0% to 1% $ 428,959 $ 90,379 $ 7,836 $ 5,950 $ 533,124 Greater than 1% to 3% 151,844 313,343 93,621 32,837 591,645 Greater than 3% to 4% 367,672 294,109 7,560 12,961 682,302 Greater than 4% 48,745 358,402 — 3,151 410,298 Total $ 997,220 $ 1,056,233 $ 109,017 $ 54,899 $ 2,217,369 Effective April 1, 2022, the Company reinsured a block of fixed annuity business with an average crediting rate of 3.75% to a certified domestic reinsurer. The contract reinsured $516.2 million in policyholder account balance liabilities and created a deposit asset on reinsurance. The above table includes those amounts on a gross basis. The Deposit Asset on Reinsurance balance included in the Consolidated Balances Sheets was $484.4 million at December 31, 2022. Fixed Annuity Contracts Fixed annuity contracts accumulate deposits over time with interest credited. Deposits may be flexible or single-premium. 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. 84 The following table provides fixed annuity contract values within maturity date ranges as of December 31. 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. 2022 % of Total 2021 % of Total One year or less $ 136,864 14 % $ 135,123 14 % Two years 80,952 9 % 102,670 10 % Three years 42,046 4 % 44,275 4 % Four years 53,041 6 % 48,333 5 % Five years 71,528 7 % 56,100 6 % Six years or more 576,325 60 % 610,719 61 % Total $ 960,756 100 % $ 997,220 100 % 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. 2022 % of Total 2021 % of Total None $ 574,481 60 % $ 592,322 59 % Less than 5% 187,150 19 % 186,471 19 % 5% and greater 199,125 21 % 218,427 22 % Total $ 960,756 100 % $ 997,220 100 % As previously mentioned, the Company reinsured a block of fixed annuity business to a certified domestic reinsurer effective April 1, 2022. The contract reinsured $516.2 million in policyholder account balance liabilities and created a deposit asset on reinsurance. The Deposit Asset on Reinsurance balance included in the Consolidated Balances Sheets was $484.4 million at December 31, 2022. 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 2022 and 2021, 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 85 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. 86 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 sale 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 change 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. 87 We may face difficult economic conditions that could adversely affect our operations. Market factors, including inflation, changes in interest rates, consumer spending, government actions, market volatility, recession, and disruptions and strength of the capital markets may result in investment losses, changes in insurance liabilities, impairments, increased valuation allowances, increases in reserves, reduced net investment income and changes in unrealized gain or loss positions. Inflation risk is the risk that inflation will undermine the performance of an investment, the value of an asset, or the purchasing power of a stream of income. In periods of elevated inflation, the sales and persistency of insurance products may be negatively impacted. In addition, the cost of various selling and general operating expenses may increase during periods of high inflationary pressure. In addition, higher unemployment, lower personal income, lower corporate earnings, lower consumer spending, elevated incidence of claims, lapses or surrenders of policies, reduced demand for our products, and deferred or canceled payments of insurance premiums may negatively affect our operating results. 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. 88 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 we 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, credit, and inflation 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, state and federal regulations, 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 89 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. Inflation erodes the value of fixed rate assets. When inflation increases, the value of the fixed interest payments on bonds decreases. As a result, investors demand higher yields on fixed income bonds to compensate for the risk of inflation eroding the purchasing power of the bond's returns. Increasing rates of inflation could lead to significant increases in unrealized losses on investments. 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 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. 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. 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 a 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. 90 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 risk arising from equity market volatility in the following ways: • We have exposure to equity price risk through investments. • 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 variable 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. 91 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 92 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. Litigation Risk: Legal proceedings are unpredictable and could produce one or more unexpected outcomes that could materially and adversely affect our financial results. We are, from time to time, subject to litigation and other legal proceedings in the ordinary course of business. Some of these proceedings may involve matters particular to our unique business practices, the conduct of our agents, or to matters that pertain to general industry business practices. Some lawsuits may seek class action status that, if granted, could expose the Company to potentially significant liability by virtue of the size of the putative classes. These matters often raise difficult factual and legal issues and are subject to uncertainties and complexities. The outcomes of these matters are difficult to predict, and the amounts or ranges of potential loss at particular stages in the proceedings are in most cases difficult or impossible to ascertain. Judges and juries have substantial discretion in awarding punitive and compensatory damages which creates the potential for material adverse judgments or awards. Given the inherent unpredictability of litigation, there can be no assurance that any current or future litigation will not have a material adverse effect on the Company’s results of operations or cash flows in any particular reporting period. 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. The COVID-19 pandemic has adversely affected our business, financial condition, and results of operations. The COVID-19 pandemic created significant volatility, uncertainty, and disruption in economic activity and financial markets globally, the effects of which are still continuing. The pandemic has increased mortality worldwide, raising the risk of increased mortality for our Company. While certain outcomes have been noted from the impacts of the pandemic, the full extent to which the COVID-19 pandemic may impact our business, financial condition, or results of operations is uncertain and will continue to evolve over time. Factors and developments impacting the Company include, but are not limited to: the duration, severity and spread of COVID-19 and its variants, including a resurgence of the pandemic; the effects on the U.S. and global economies and financial markets; the overall impact on the businesses of our customers, agents, partners, and vendors; the health of and effect on our workforce; and increased cybersecurity and information security risk resulting from the transition of our employees to a hybrid or remote work environment. Negative financial impacts that could occur include, but are not limited to asset impairments, deferrals of interest and principal on certain investments, reduced investment income from lower available interest rates, a reduction in sales, a reduction in business retention, an increase in policyholder benefit payments, and fluctuations in certain operating expenses. 93 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, incur 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 damage 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. 94

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