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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 March 31, 2023

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.)

1350 E Touhy Avenue, Suite 205W, Des Plaines, Illinois

 

60018

(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 May 12, 2023 was 14,875,000.

 

 


Table of Contents

 

 

 

Page

 

 

 

 

 

PART I –

 

Financial Information

 

 

1

Item 1.

 

Financial Statements (Unaudited) (at March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 and 2022

 

1

 

 

 

 

 

 

 

Interim Condensed Consolidated Balance Sheets

 

1

 

 

Interim Condensed Consolidated Statements of Operations

 

2

 

 

Interim Condensed Consolidated Statements of Comprehensive (Loss) Income

 

3

 

 

Interim Condensed Consolidated Statements of Changes in Shareholders' 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

 

7

 

 

 

Note 3 – Policy Liabilities

 

12

 

 

 

Note 4 – Reinsurance

 

13

 

 

 

Note 5 – Closed Block

 

13

 

 

 

Note 6 – Commitments and Contingencies

 

15

 

 

 

Note 7 – Assets and Liabilities Measured at Fair Value

 

16

 

 

 

Note 8 – Long and Short-term Debt

 

19

 

 

 

Note 9– Accumulated Other Comprehensive (Loss) Income

 

19

 

 

 

Note 10 – Business Segments

 

20

 

 

 

Note 11 – Subsequent Events

 

21

 

 

 

 

 

 

Item 2.

 

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

 

22

Item 4.

 

Controls and Procedures

 

33

 

 

 

 

PART II –

 

Other Information

 

33

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

Item 3.

 

Default upon Senior Securities

 

34

Item 4.

 

Mine Safety Disclosures

 

34

Item 5.

 

Other Information

 

34

Item 6.

 

Exhibits

 

35

Signature

 

 

 

36

 

 


Part 1. Financial Information

Item I. Financial Statements

Vericity, Inc.

Interim Condensed Consolidated Balance Sheets

(dollars in thousands)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities – available-for-sale – at fair value (amortized cost; $330,039
   and $
331,946, net of allowances for credit losses of $0 and $0)

 

$

304,158

 

 

$

298,138

 

Mortgage loans (net of allowances for credit losses of $334 and $83)

 

 

43,454

 

 

 

45,270

 

Policyholder loans

 

 

6,853

 

 

 

6,699

 

Other invested assets

 

 

3,312

 

 

 

3,693

 

Total investments

 

 

357,777

 

 

 

353,800

 

Cash, cash equivalents and restricted cash

 

 

5,295

 

 

 

9,776

 

Accrued investment income

 

 

3,332

 

 

 

3,006

 

Reinsurance recoverables (net of allowances for credit losses of $126 and $126)

 

 

224,513

 

 

 

214,862

 

Deferred policy acquisition costs

 

 

88,674

 

 

 

90,189

 

Commissions and agent balances (net of allowances for credit losses of $336 and $338)

 

 

43,500

 

 

 

34,766

 

Intangible assets

 

 

1,635

 

 

 

1,635

 

Deferred income tax assets, net

 

 

28,123

 

 

 

28,437

 

Other assets

 

 

38,140

 

 

 

33,607

 

Total assets

 

 

790,989

 

 

 

770,078

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Future policy benefits and claims

 

 

464,183

 

 

 

453,763

 

Policyholder account balances

 

 

74,728

 

 

 

77,443

 

Other policyholder liabilities

 

 

46,308

 

 

 

47,486

 

Policy dividend obligations

 

 

9,837

 

 

 

9,515

 

Reinsurance liabilities and payables

 

 

6,932

 

 

 

6,246

 

Long-term debt

 

 

31,822

 

 

 

30,213

 

Short-term debt

 

 

7,852

 

 

 

6,976

 

Other liabilities

 

 

33,739

 

 

 

27,093

 

Total liabilities

 

 

675,401

 

 

 

658,735

 

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

 

 

99,592

 

 

 

101,660

 

Accumulated other comprehensive (loss) income

 

 

(23,859

)

 

 

(30,172

)

Total shareholders' equity

 

 

115,588

 

 

 

111,343

 

Total liabilities and shareholders' equity

 

$

790,989

 

 

$

770,078

 

 

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 March 31,

 

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Net insurance premiums

 

 

$

24,338

 

 

$

22,160

 

Net investment income

 

 

 

4,347

 

 

 

3,467

 

Net (losses) gains on investments

 

 

 

(539

)

 

 

1,548

 

Earned commissions

 

 

 

14,749

 

 

 

11,037

 

Insurance lead sales

 

 

 

1,222

 

 

 

1,238

 

Other income

 

 

 

505

 

 

 

62

 

Total revenues

 

 

 

44,622

 

 

 

39,512

 

Benefits and expenses

 

 

 

 

 

 

 

Life, annuity, and health claim benefits

 

 

 

16,371

 

 

 

14,798

 

Interest credited to policyholder account balances

 

 

 

689

 

 

 

728

 

Operating costs and expenses

 

 

 

25,769

 

 

 

25,154

 

Amortization of deferred policy acquisition costs

 

 

 

3,648

 

 

 

4,912

 

Total benefits and expenses

 

 

 

46,477

 

 

 

45,592

 

(Loss) income before income tax

 

 

 

(1,855

)

 

 

(6,080

)

Income tax (benefit) expense

 

 

 

26

 

 

 

(418

)

Net (loss) income

 

 

$

(1,881

)

 

$

(5,662

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share for the periods

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2023

 

 

2022

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Weighted average shares outstanding, basic and diluted

 

 

 

14,875,000

 

 

 

14,875,000

 

Basic earnings per share

 

 

$

(0.13

)

 

$

(0.38

)

Diluted earnings per share

 

 

$

(0.13

)

 

$

(0.38

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to interim condensed consolidated financial statements

2


Vericity, Inc.

Interim Condensed Consolidated Statements of Comprehensive (Loss) Income

(dollars in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

Net (loss) income

 

$

(1,881

)

 

$

(5,662

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

Change in net unrealized (losses) gains

 

 

6,313

 

 

 

(15,226

)

Total other comprehensive income (loss)

 

 

6,313

 

 

 

(15,226

)

Total comprehensive income (loss)

 

$

4,432

 

 

$

(20,888

)

 

See notes to interim condensed consolidated financial statements

3


Vericity, Inc.

Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(dollars in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

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

 

$

101,660

 

 

$

122,120

 

Cumulative effect adjustment from changes in accounting guidance, net of tax

 

 

(187

)

 

 

 

Balance after adjustments - beginning of period

 

$

101,473

 

 

$

122,120

 

Net (loss) income

 

 

(1,881

)

 

 

(5,662

)

Balance – end of period

 

$

99,592

 

 

$

116,458

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

Balance – beginning of period

 

$

(30,172

)

 

$

10,929

 

Other comprehensive (loss) income

 

 

6,313

 

 

 

(15,226

)

Balance – end of period

 

$

(23,859

)

 

$

(4,297

)

Total shareholders' equity

 

$

115,588

 

 

$

152,016

 

 

See notes to interim condensed consolidated financial statements

4


Vericity, Inc.

Interim Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net (loss) income

 

$

(1,881

)

 

$

(5,662

)

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

 

 

 

 

 

 

Depreciation and amortization and other non-cash items

 

 

1,221

 

 

 

1,199

 

Interest credited to policyholder account balances

 

 

689

 

 

 

728

 

Deferred income tax

 

 

(999

)

 

 

(1,201

)

Net investment losses (gains)

 

 

539

 

 

 

(1,548

)

Interest expense

 

 

492

 

 

 

325

 

Change in:

 

 

 

 

 

 

Accrued investment income

 

 

(326

)

 

 

(148

)

Reinsurance recoverables net

 

 

(9,651

)

 

 

(20,269

)

Deferred policy acquisition costs

 

 

1,515

 

 

 

3,398

 

Commissions and agent balances

 

 

(8,734

)

 

 

(447

)

Other assets

 

 

(2,134

)

 

 

(2,227

)

Insurance liabilities

 

 

9,283

 

 

 

14,071

 

Other liabilities

 

 

4,632

 

 

 

6,217

 

Net cash (used) provided by operating activities

 

 

(5,354

)

 

 

(5,564

)

Cash flows from investing activities

 

 

 

 

 

 

Sales, maturities and repayments of:

 

 

 

 

 

 

Fixed maturities

 

 

22,384

 

 

 

12,759

 

Mortgage loans

 

 

1,709

 

 

 

1,761

 

Purchases of:

 

 

 

 

 

 

Fixed maturities

 

 

(20,273

)

 

 

(11,685

)

Mortgage loans

 

 

(144

)

 

 

(1,323

)

Other invested assets

 

 

(164

)

 

 

(137

)

Change in policyholder loans, net

 

 

(154

)

 

 

(78

)

Other, net

 

 

(1,120

)

 

 

(2,121

)

Net cash provided (used) by investing activities

 

 

2,238

 

 

 

(824

)

Cash flows from financing activities

 

 

 

 

 

 

Debt issued

 

 

12,876

 

 

 

 

Debt repaid

 

 

(10,883

)

 

 

(708

)

Deposits to policyholder account balances

 

 

210

 

 

 

104

 

Withdrawals from policyholder account balances

 

 

(3,568

)

 

 

(1,424

)

Net cash (used) provided by financing activities

 

 

(1,365

)

 

 

(2,028

)

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

 

 

(4,481

)

 

 

(8,416

)

Cash, cash equivalents and restricted cash – beginning of period

 

 

9,776

 

 

 

22,399

 

Cash, cash equivalents and restricted cash – end of period

 

$

5,295

 

 

$

13,983

 

Supplemental cash flow information

 

 

 

 

 

 

 

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 three months ended March 31, 2023 and March 31, 2022 and at March 31, 2023 and December 31, 2022. 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, 2022. 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, 2022, 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, investment impairments, the valuation of deferred tax assets, future policy benefits and other policyholder liabilities.

 

Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance requires that Other-Than-Temproary Impairment (OTTI)on a debt security will be recognized as an allowance going forward, such that improvements in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net investment income, but rather a reversal of the previous impairment and recognized through net gains (losses) on investments. The guidance also requires enhanced disclosures. In March 2022, the FASB issued ASU 2022-02 – Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosure. This ASU was issued to eliminate the troubled debt restructuring recognition and measurement guidance for creditors that have adopted the current expected credit loss guidance while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. The Company has assessed the impact of ASU 2016-13 and has established an additional for credit losses on our mortgage portfolio of $237. The tax effected amount of $187 is reflected as a beginning of year equity as a

6


Cumulative effect adjustment from changes in accounting guidance, net of tax. The Company has also assessed fixed maturities - available-for-sale, reinsurance recoverables and commissions and agent balances and determined no additional allowance for credit losses is needed. We also adopted the required disclosures within Note 2 Investments, Note 4 Reinsurance, Note 9 Accumulated Other Comprehensive Income and Note 10 Business Segments.

 

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.

Fixed Maturities

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

 

 

 

March 31, 2023

Fixed maturities

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

U.S. government and agencies

 

$

9,741

 

 

$

491

 

 

$

(390

)

 

$

9,842

 

 

U.S. agency mortgage-backed

 

 

7,382

 

 

 

50

 

 

 

(517

)

 

 

6,915

 

 

State and political subdivisions

 

 

69,095

 

 

 

178

 

 

 

(9,568

)

 

 

59,705

 

 

Corporate and miscellaneous

 

 

177,331

 

 

 

2,486

 

 

 

(13,553

)

 

 

166,264

 

 

Foreign government

 

 

130

 

 

 

8

 

 

 

 

 

 

138

 

 

Residential mortgage-backed

 

 

5,802

 

 

 

94

 

 

 

(590

)

 

 

5,306

 

 

Commercial mortgage-backed

 

 

22,157

 

 

 

24

 

 

 

(1,625

)

 

 

20,556

 

 

Asset-backed

 

 

38,401

 

 

 

47

 

 

 

(3,016

)

 

 

35,432

 

 

Total fixed maturities

 

$

330,039

 

 

$

3,378

 

 

$

(29,259

)

 

$

304,158

 

 

 

 

 

December 31, 2022

 

Fixed maturities

 

Amortized
Cost