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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-38945

 

VERICITY, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

46-2348863

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

8700 W. Bryn Mawr Avenue, Suite 900S, Chicago Illinois

 

60631

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (312) 288-0073

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name on each exchange on which registered

Common Stock, Par Value $0.001 per share

 

VERY

 

NASDAQ Capital Market

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO

The number of shares of Registrant’s Common Stock outstanding as of November 12, 2021 was 14,875,000.

 

 


Table of Contents

 

 

 

 

 

Page

 

 

 

 

 

PART I –

 

Financial Information

 

 

1

Item 1.

 

Financial Statements (Unaudited) (at September 30, 2021 and December 31, 2020 and for the Three Months and Six Months Ended September 30, 2021 and 2020)

 

1

 

 

 

 

 

 

 

Interim Condensed Consolidated Balance Sheets

 

1

 

 

Interim Condensed Consolidated Statements of Operations

 

2

 

 

Interim Condensed Consolidated Statements of Comprehensive Income (Loss)

 

3

 

 

Interim Condensed Consolidated Statements of Changes in Equity

 

4

 

 

Interim Condensed Consolidated Statements of Cash Flows

 

5

 

 

Notes to the Interim Condensed Consolidated Financial Statements

 

6

 

 

 

Note 1 – Summary of Significant Accounting Policies

 

6

 

 

 

Note 2 – Investments

 

6

 

 

 

Note 3 – Policy Liabilities

 

11

 

 

 

Note 4 – Reinsurance

 

12

 

 

 

Note 5 – Closed Block

 

12

 

 

 

Note 6 – Commitments and Contingencies

 

14

 

 

 

Note 7 – Assets and Liabilities Measured at Fair Value

 

15

 

 

 

Note 8 – Long and Short-term Debt

 

18

 

 

 

Note 9– Accumulated Other Comprehensive Income (Loss)

 

18

 

 

 

Note 10 – Business Segments

 

18

 

 

 

Note 11 – Subsequent Events

 

20

 

 

 

 

 

 

Item 2.

 

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

 

21

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

 

PART II –

 

Other Information

 

34

Item 1.

 

Legal Proceedings

 

34

Item 1A.

 

Risk Factors

 

34

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

Item 3.

 

Default upon Senior Securities

 

35

Item 4.

 

Mine Safety Disclosures

 

35

Item 5.

 

Other Information

 

35

Item 6.

 

Exhibits

 

36

Signature

 

 

 

37

 

 


Part 1. Financial Information

Item I. Financial Statements

Vericity, Inc.

Interim Condensed Consolidated Balance Sheets

(dollars in thousands)

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

(Audited)

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities – available-for-sale – at fair value (amortized cost; $333,412
   and $
328,263)

 

$

361,138

 

 

$

363,851

 

Equity securities – at fair value (cost; $0 and $6,530)

 

 

 

 

 

3,848

 

Mortgage loans (net of valuation allowances of $126 and $141)

 

 

48,874

 

 

 

50,427

 

Policyholder loans

 

 

6,269

 

 

 

6,414

 

Other invested assets

 

 

1,363

 

 

 

273

 

Total investments

 

 

417,644

 

 

 

424,813

 

Cash, cash equivalents and restricted cash

 

 

20,712

 

 

 

36,242

 

Accrued investment income

 

 

2,588

 

 

 

2,633

 

Reinsurance recoverables (net of allowances of $131 and $131)

 

 

175,631

 

 

 

158,015

 

Deferred policy acquisition costs

 

 

93,740

 

 

 

87,212

 

Commissions and agent balances (net of allowances of $707 and $749)

 

 

31,064

 

 

 

19,526

 

Intangible assets

 

 

1,635

 

 

 

1,635

 

Deferred income tax assets, net

 

 

13,075

 

 

 

10,926

 

Other assets

 

 

31,127

 

 

 

27,762

 

Total assets

 

 

787,216

 

 

 

768,764

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Future policy benefits and claims

 

 

407,876

 

 

 

381,563

 

Policyholder account balances

 

 

81,708

 

 

 

83,869

 

Other policyholder liabilities

 

 

45,859

 

 

 

37,789

 

Policy dividend obligations

 

 

13,028

 

 

 

13,282

 

Reinsurance liabilities and payables

 

 

8,472

 

 

 

6,696

 

Long-term debt

 

 

22,798

 

 

 

24,933

 

Short-term debt

 

 

3,966

 

 

 

5,545

 

Other liabilities

 

 

25,700

 

 

 

19,854

 

Total liabilities

 

 

609,407

 

 

 

573,531

 

Commitments and Contingencies (Note 6)

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Common stock, $.001 par value, 30,000,000 shares authorized, 14,875,000 shares, issued and outstanding

 

 

15

 

 

 

15

 

Additional paid-in capital

 

 

39,840

 

 

 

39,840

 

Retained earnings

 

 

125,960

 

 

 

138,777

 

Accumulated other comprehensive income (loss)

 

 

11,994

 

 

 

16,601

 

Total shareholders' equity

 

 

177,809

 

 

 

195,233

 

Total liabilities and shareholders' equity

 

$

787,216

 

 

$

768,764

 

 

See notes to interim condensed consolidated financial statements

1


Vericity, Inc.

Interim Condensed Consolidated Statements of Operations

(dollars in thousands, except earnings per share)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Net insurance premiums

 

$

24,932

 

 

$

25,089

 

 

$

75,662

 

 

$

81,457

 

Net investment income

 

 

3,377

 

 

 

3,440

 

 

 

10,241

 

 

 

10,468

 

Net realized investment (losses) gains

 

 

(126

)

 

 

(275

)

 

 

2,687

 

 

 

(2,025

)

Other-than-temporary-impairments (OTTI)

 

 

 

 

 

(13

)

 

 

(3

)

 

 

(67

)

Earned commissions

 

 

11,632

 

 

 

7,101

 

 

 

34,062

 

 

 

15,629

 

Insurance lead sales

 

 

2,057

 

 

 

1,130

 

 

 

5,289

 

 

 

3,779

 

Other income

 

 

65

 

 

 

63

 

 

 

202

 

 

 

262

 

Total revenues

 

 

41,937

 

 

 

36,535

 

 

 

128,140

 

 

 

109,503

 

Benefits and expenses

 

 

 

 

 

 

 

 

 

 

 

 

Life, annuity, and health claim benefits

 

 

19,192

 

 

 

16,183

 

 

 

58,574

 

 

 

57,860

 

Interest credited to policyholder account balances

 

 

746

 

 

 

769

 

 

 

2,219

 

 

 

2,333

 

Operating costs and expenses

 

 

24,537

 

 

 

18,466

 

 

 

70,613

 

 

 

60,651

 

Amortization of deferred policy acquisition costs

 

 

3,297

 

 

 

4,429

 

 

 

10,475

 

 

 

9,196

 

Total benefits and expenses

 

 

47,772

 

 

 

39,847

 

 

 

141,881

 

 

 

130,040

 

(Loss) income before income tax

 

 

(5,835

)

 

 

(3,312

)

 

 

(13,741

)

 

 

(20,537

)

Income tax (benefit) expense

 

 

(248

)

 

 

(56

)

 

 

(924

)

 

 

(1,931

)

Net (loss) income

 

$

(5,587

)

 

$

(3,256

)

 

$

(12,817

)

 

$

(18,606

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share for the periods

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Weighted average shares outstanding, basic and diluted

 

 

14,875,000

 

 

 

14,875,000

 

 

 

14,875,000

 

 

 

14,875,000

 

Basic earnings per share

 

$

(0.38

)

 

$

(0.22

)

 

$

(0.86

)

 

$

(1.25

)

Diluted earnings per share

 

$

(0.38

)

 

$

(0.22

)

 

$

(0.86

)

 

$

(1.25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to interim condensed consolidated financial statements

2


Vericity, Inc.

Interim Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net (loss) income

 

$

(5,587

)

 

$

(3,256

)

 

$

(12,817

)

 

$

(18,606

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized (losses) gains on investments

 

 

(1,292

)

 

 

2,378

 

 

 

(4,607

)

 

 

5,356

 

Total other comprehensive (loss) income

 

 

(1,292

)

 

 

2,378

 

 

 

(4,607

)

 

 

5,356

 

Total comprehensive income (loss)

 

$

(6,879

)

 

$

(878

)

 

$

(17,424

)

 

$

(13,250

)

 

See notes to interim condensed consolidated financial statements

3


Vericity, Inc.

Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

Common stock

 

 

 

 

 

 

Balance – beginning of period

 

$

15

 

 

$

15

 

Balance – end of period

 

$

15

 

 

$

15

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 

 

 

 

Balance – beginning of period

 

$

39,840

 

 

$

39,840

 

Balance – end of period

 

$

39,840

 

 

$

39,840

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

Balance – beginning of period

 

$

138,777

 

 

$

163,805

 

Net (loss) income

 

 

(12,817

)

 

 

(18,606

)

Balance – end of period

 

$

125,960

 

 

$

145,199

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

Balance – beginning of period

 

$

16,601

 

 

$

8,757

 

Other comprehensive (loss) income

 

 

(4,607

)

 

 

5,356

 

Balance – end of period

 

$

11,994

 

 

$

14,113

 

Total shareholders' equity

 

$

177,809

 

 

$

199,167

 

 

See notes to interim condensed consolidated financial statements

4


Vericity, Inc.

Interim Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

Net (loss) income

 

$

(12,817

)

 

$

(18,606

)

Adjustments to reconcile net (loss)income to net cash provided (used) by operating activities:

 

 

 

 

 

 

Depreciation and amortization and other non-cash items

 

 

2,477

 

 

 

1,887

 

Interest credited to policyholder account balances

 

 

2,219

 

 

 

2,333

 

Deferred income tax

 

 

(924

)

 

 

(2,711

)

Net realized investment gains (losses)

 

 

(2,687

)

 

 

2,025

 

Other-than-temporary-impairments

 

 

3

 

 

 

67

 

Interest expense

 

 

1,149

 

 

 

1,019

 

Change in:

 

 

 

 

 

 

Equity securities

 

 

4,887

 

 

 

(390

)

Accrued investment income

 

 

45

 

 

 

364

 

Reinsurance recoverables

 

 

(17,616

)

 

 

(17,452

)

Deferred policy acquisition costs

 

 

(6,528

)

 

 

(2,625

)

Commissions and agent balances

 

 

(11,538

)

 

 

(6,785

)

Other assets

 

 

(1,186

)

 

 

8,375

 

Insurance liabilities

 

 

36,141

 

 

 

37,798

 

Other liabilities

 

 

7,640

 

 

 

(3,187

)

Net cash provided (used) by operating activities

 

 

1,265

 

 

 

2,112

 

Cash flows from investing activities

 

 

 

 

 

 

Sales, maturities and repayments of:

 

 

 

 

 

 

Fixed maturities

 

 

45,495

 

 

 

49,266

 

Short-term investments

 

 

 

 

 

30,050

 

Mortgage loans

 

 

3,654

 

 

 

2,349

 

Other invested assets

 

 

94

 

 

 

 

Purchases of:

 

 

 

 

 

 

Fixed maturities

 

 

(50,022

)

 

 

(75,399

)

Short-term investments

 

 

 

 

 

(250

)

Mortgage loans

 

 

(2,042

)

 

 

(1,751

)

Other invested assets

 

 

(90

)

 

 

(611

)

Change in policyholder loans, net

 

 

145

 

 

 

(210

)

Other, net

 

 

(4,922

)

 

 

(4,369

)

Net cash (used) provided by investing activities

 

 

(7,688

)

 

 

(925

)

Cash flows from financing activities

 

 

 

 

 

 

Debt issued

 

 

1,246

 

 

 

12,634

 

Debt repaid

 

 

(6,109

)

 

 

(6,087

)

Deposits to policyholder account balances

 

 

427

 

 

 

394

 

Withdrawals from policyholder account balances

 

 

(4,671

)

 

 

(5,718

)

Net cash (used) by financing activities

 

 

(9,107

)

 

 

1,223

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(15,530

)

 

 

2,410

 

Cash, cash equivalents and restricted cash – beginning of period

 

 

36,242

 

 

 

37,842

 

Cash, cash equivalents and restricted cash – end of period

 

$

20,712

 

 

$

40,252

 

Supplemental cash flow information

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

See notes to interim condensed consolidated financial statements

5


Vericity, Inc.

Notes to Interim Condensed Consolidated Financial Statements

(dollars in thousands)

Note 1 – Summary of Significant Accounting Policies

Description of Business

Vericity, Inc. (the Company) is a Delaware corporation organized to be the stock holding company for Members Holding Company (Members) and its subsidiaries. On August 7, 2019, the Company completed the initial public offering of 14,875,000 shares of its common stock at a price of $10.00 per share (the IPO). The IPO was conducted in connection with the conversion of Members Mutual Holding Company from mutual to stock form and the acquisition by the Company of all of the capital stock of Members following its conversion to stock form after its plan of conversion and amended and restated articles of incorporation were approved at a special meeting of eligible members on August 6, 2019 (the Conversion). As a result of the Conversion, the Company became the holding company for converted Members Mutual Holding Company and its indirect subsidiaries, including Fidelity Life Association (Fidelity Life) and Efinancial, LLC (Efinancial).

The Company operates as a holding company and currently has no other business operations. Fidelity Life is an Illinois‑domiciled life insurance company that was founded in 1896. Fidelity Life markets life insurance products through independent and affiliated distributors and is licensed in the District of Columbia and all states, except New York and Wyoming. Efinancial markets life and other products for non‑affiliated insurance companies and sells life products for Fidelity Life.

The accompanying interim condensed consolidated financial statements present the accounts of the Company and subsidiaries for the nine months ended September 30, 2021 and September 30, 2020 and at September 30, 2021 and December 31, 2020. These interim condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report in the Form 10-K for the year ended December 31, 2020. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

Basis of Presentation

These interim condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The unaudited interim condensed consolidated financial information furnished herein reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. All such adjustments are of a normal recurring nature. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted from this report, as is permitted by such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the financial statements as of and for the year ended December 31, 2020, and notes thereto, included in the Form 10-K.

Use of Estimates

The preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The more significant estimates employed in the preparation of the interim condensed consolidated financial statements include the determination of the valuation of investments in fixed maturity and equity securities, investment impairments, the valuation of deferred tax assets, future policy benefits and other policyholder liabilities.  

 

Note 2 Investments

The Company continuously monitors its investment strategies and individual holdings with consideration of current and projected market conditions, the composition of the Company’s liabilities, projected liquidity and capital investment needs, and compliance with investment policies and state regulatory guidelines.

6


Fixed Maturities

The amortized cost, gross unrealized gains, gross unrealized losses, fair value, and OTTI loss included in accumulated other comprehensive income (AOCI) of fixed maturities available-for-sale are as follows:

 

 

 

September 30, 2021

 

Fixed maturities

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

OTTI
Losses

 

U.S. government and agencies

 

$

9,841

 

 

$

2,096

 

 

$

 

 

$

11,937

 

 

$

 

U.S. agency mortgage-backed

 

 

16,550

 

 

 

1,066

 

 

 

(2

)

 

 

17,614

 

 

 

 

State and political subdivisions

 

 

59,663

 

 

 

2,700

 

 

 

(375

)

 

 

61,988

 

 

 

 

Corporate and miscellaneous

 

 

160,394

 

 

 

20,901

 

 

 

(316

)

 

 

180,979

 

 

 

 

Foreign government

 

 

378

 

 

 

33

 

 

 

 

 

 

411

 

 

 

 

Residential mortgage-backed

 

 

6,083

 

 

 

247

 

 

 

(26

)