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National Western Life Group, Inc. Message Board

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  • bbarberayr bbarberayr Feb 23, 2012 8:31 PM Flag

    Kansas City Life Insurance Co.

    A lot of the book value at KCLI is from AOCI (Accumulated Other Comprehensive Income), so their book valoue is overstated as liabilities are not revalued in the way they have done with their assets.

    NWLI is much more conservative as they used amortized cost for their assets which better matches their liabilities.

    The advantage of KCLI is their dividend, but it is not nearly as cheap as NWLI and NWLI should outperform in the long run.

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    • agreed. although there is zero support for the stock.

      looks like the low 150s we saw in early feb was just a mirage.

      this makes a tender even more attractive. clearly there are folks who want to get out and management can reward themselves and us by tendering for shares at 160.

      i think they can do 500k shares at 160 and do us all well.

    • bbarberayr:

      Are you suggesting that KCLI has understated its liabilities? If so, what evidence do you have for that position?

      I agree that NWLI is probably more conservative and that NWLI should do better in the long run, but right now I am doing better in KCLI. My position in NWLI is considerably larger than my position in KCLI.

      • 1 Reply to pmlljl
      • No, they have not understated their liabilities, the liabilities don't change - they have overstated their assets.

        Let me give you an example. Let's say KCLI buys a $10 million bond yielding 6% and sell insurance which has expected liabilities of $500,000 per year, leaving $100,000 for admin/profit.

        Interest rates go down (like they have), so the market value of that bond goes to $11 million, but the bond interest is still $600,000 per year covering their liabilities and the liabilities have not changed. The catch though is one their balance sheet the bond is valued at market value, so it appears their book value has gone up. NWLI stores bonds on their balance sheet at amortized cost, so their book value won't change. The reality is though, unless KCLI actually sell the bond, the value of it will reduce back to the $10 million at the end of the term when they cash it back in, so that additional book value will essentially be amortized over the term of the bond, so NWLI's way of doing is more accurate and more conservative.

        To be fair, I think most companies do it like KCLI and they do disclose the amount in their OCCI, but you really should subtract it out if you are doing a P/B evaluation.

        I think KCLI is fine as a stock - it has not debt and they run a good business. I believe it is doing better in the market because it pays a real dividend and people are chasing yield in the market these days. In the long run, all stocks go back to fair value, so I think NWLI has more upside for this and the other reasons discussed on this board.

193.47-1.47(-0.75%)4:00 PMEDT