|Edgar Online, Inc.|
Amounts are stated in thousands, except share data, or as otherwise noted.
Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide in narrative form the perspective of the management of
Kansas City Life Insurance Company(the Company) on its financial condition, results of operations, liquidity, and certain other factors that may affect its future results. The following is a discussion and analysis of the results of operations for the quarters ended September 30, 2012and 2011 and the financial condition of the Company at September 30, 2012. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in this document, as well as the Company's 2011 Form 10-K. Overview Kansas City Life Insurance Companyis a financial services company that is predominantly focused on the underwriting, sales, and administration of life insurance and annuity products. The consolidated entity (the Company) primarily consists of three life insurance companies. Kansas City Life Insurance Company(Kansas City Life) is the parent company. Sunset Life Insurance Company of America(Sunset Life) and Old American Insurance Company(Old American) are wholly-owned subsidiaries. For additional information, please refer to the Overview included in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2011 Form 10-K.
Cautionary Statement on Forward-Looking Information
This report reviews the Company's financial condition and results of operations, and 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" that fall within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties. Those risks and uncertainties include, but are not limited to, the risk factors listed in Item 1A. Risk Factors as filed in the Company's 2011 Form 10-K. For additional information, please refer to the Overview included in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2011 Form 10-K. 37
Table of Contents
Consolidated Results of Operations
Summary of Results
The Company earned net income of
$4.1 millionand $4.5 millionin the third quarters of 2012 and 2011, respectively. Net income per share was $0.38in the third quarter of 2012, compared to $0.39in the same period in the prior year. Net income for the first nine months of 2012 was $32.0 million, an increase of $11.5 millionor 56% compared to last year. Net income per share for the nine months was $2.88, an increase of $1.10per share versus the same period one year earlier. The following table presents variances between the results for the third quarters and nine months ended September 30, 2012and 2011. Additional information on these items is presented below. Quarter Ended Nine Months Ended September 30 September 30 2012 Versus 2011 2012 Versus 2011 Insurance and other revenues $ (459 ) $ 2,184 Net investment income 1,552 (1,088 ) Net realized investment gains (104 ) 14,276 Policyholder benefits and interest credited to policyholder account balances (277 ) 4,428 Amortization of deferred acquisition costs 4,426 1,693 Operating expenses (6,350 ) (5,027 ) Income tax expense 878 (4,926 ) Total variance $ (334 ) $ 11,540 Sales The Company measures sales in terms of new premiums and deposits. Sales of traditional life insurance, immediate annuities, and accident and health products are reported as premium income for financial statement purposes. Deposits received from the sale of interest sensitive products, including universal life insurance, fixed deferred annuities, variable universal life, variable annuities, and supplementary contracts without life contingencies are reflected as deposits in the Consolidated Statements of Cash Flows. The Company's marketing plan for individual products focuses on three main aspects: providing financial security with respect to life insurance, the accumulation of long-term value, and future retirement income needs. The primary emphasis is on the growth of individual life insurance business, including new premiums for individual life products and new deposits for universal life and variable universal life products. Sales are primarily made through the Company's existing sales force. The Company emphasizes growth of the sales force with the addition of new general agents and agents. The Company believes that increased sales will result through both the number and productivity of general agents and agents. In addition, the Company places an emphasis on training and direct support to the field force to assist new agents in their start-up phase. Also, the Company provides support to existing agents to stay abreast of the ever-changing regulatory environment and to introduce agents to new products and enhanced features of existing products. On occasion, the Company may also selectively utilize third-party marketing arrangements to enhance its sales objectives. This allows the Company the flexibility to identify niches or pursue unique avenues in the existing market environment and to react quickly to take advantage of opportunities as they occur. The Company also markets a series of group products. These products include group life, dental, disability, and vision products. The primary growth strategies for these products include increased productivity of the existing group representatives; planned expansion of the group distribution system; and to selectively utilize third-party marketing arrangements. Further, growth is to be supported by the addition of new products to the portfolio, particularly voluntary-type products. 38