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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, 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 November 10, 2023 was 14,875,000.

 

 


Table of Contents

 

 

 

Page

 

 

 

 

 

PART I –

 

Financial Information

 

 

1

Item 1.

 

Financial Statements (Unaudited) (at September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 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

 

13

 

 

 

Note 4 – Reinsurance

 

14

 

 

 

Note 5 – Closed Block

 

14

 

 

 

Note 6 – Commitments and Contingencies

 

16

 

 

 

Note 7 – Assets and Liabilities Measured at Fair Value

 

17

 

 

 

Note 8 – Long and Short-term Debt

 

20

 

 

 

Note 9– Accumulated Other Comprehensive (Loss) Income

 

22

 

 

 

Note 10 – Business Segments

 

22

 

 

 

Note 11 – Subsequent Events

 

24

 

 

 

 

 

 

Item 2.

 

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

 

25

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

PART II –

 

Other Information

 

38

Item 1.

 

Legal Proceedings

 

38

Item 1A.

 

Risk Factors

 

39

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

Item 3.

 

Default upon Senior Securities

 

39

Item 4.

 

Mine Safety Disclosures

 

39

Item 5.

 

Other Information

 

39

Item 6.

 

Exhibits

 

40

Signature

 

 

 

41

 

 


 

Part 1. Financial Information

Item I. Financial Statements

Vericity, Inc.

Interim Condensed Consolidated Balance Sheets

(dollars in thousands)

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

(Audited)

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities – available-for-sale – at fair value (amortized cost; $334,600
   and $
331,946, net of allowances for credit losses of $21 and $0)

 

$

295,524

 

 

$

298,138

 

Mortgage loans (net of allowances for credit losses of $571 and $83)

 

 

42,005

 

 

 

45,270

 

Policyholder loans

 

 

7,062

 

 

 

6,699

 

Other invested assets

 

 

2,803

 

 

 

3,693

 

Total investments

 

 

347,394

 

 

 

353,800

 

Cash, cash equivalents and restricted cash

 

 

7,625

 

 

 

9,776

 

Accrued investment income

 

 

4,064

 

 

 

3,006

 

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

 

 

230,585

 

 

 

214,862

 

Deferred policy acquisition costs

 

 

88,171

 

 

 

90,189

 

Commissions and agent balances (net of allowances for credit losses of $337 and $338)

 

 

50,415

 

 

 

34,766

 

Intangible assets

 

 

1,635

 

 

 

1,635

 

Deferred income tax assets, net

 

 

32,003

 

 

 

28,437

 

Other assets

 

 

34,293

 

 

 

33,607

 

Total assets

 

 

796,185

 

 

 

770,078

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Future policy benefits and claims

 

 

490,506

 

 

 

453,763

 

Policyholder account balances

 

 

72,245

 

 

 

77,443

 

Other policyholder liabilities

 

 

41,012

 

 

 

47,486

 

Policy dividend obligations

 

 

9,544

 

 

 

9,515

 

Reinsurance liabilities and payables

 

 

6,959

 

 

 

6,246

 

Long-term debt

 

 

37,311

 

 

 

30,213

 

Short-term debt

 

 

9,172

 

 

 

6,976

 

Other liabilities

 

 

30,113

 

 

 

27,093

 

Total liabilities

 

 

696,862

 

 

 

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

 

 

93,596

 

 

 

101,660

 

Accumulated other comprehensive (loss) income

 

 

(34,128

)

 

 

(30,172

)

Total shareholders' equity

 

 

99,323

 

 

 

111,343

 

Total liabilities and shareholders' equity

 

$

796,185

 

 

$

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Net insurance premiums

 

 

$

23,434

 

 

$

24,468

 

 

$

71,515

 

 

$

73,474

 

Net investment income

 

 

 

4,010

 

 

 

4,126

 

 

 

12,846

 

 

 

11,390

 

Net (losses) gains on investments

 

 

 

(883

)

 

 

(1,570

)

 

 

(1,759

)

 

 

89

 

Earned commissions

 

 

 

15,354

 

 

 

11,267

 

 

 

45,535

 

 

 

32,792

 

Insurance lead sales

 

 

 

1,026

 

 

 

1,259

 

 

 

3,052

 

 

 

3,773

 

Other income

 

 

 

720

 

 

 

144

 

 

 

1,831

 

 

 

419

 

Total revenues

 

 

 

43,661

 

 

 

39,694

 

 

 

133,020

 

 

 

121,937

 

Benefits and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Life, annuity, and health claim benefits

 

 

 

22,583

 

 

 

17,505

 

 

 

51,567

 

 

 

47,622

 

Interest credited to policyholder account balances

 

 

 

627

 

 

 

646

 

 

 

2,000

 

 

 

2,100

 

Operating costs and expenses

 

 

 

26,755

 

 

 

23,133

 

 

 

78,239

 

 

 

72,859

 

Amortization of deferred policy acquisition costs

 

 

 

3,283

 

 

 

4,086

 

 

 

9,913

 

 

 

13,237

 

Total benefits and expenses

 

 

 

53,248

 

 

 

45,370

 

 

 

141,719

 

 

 

135,818

 

Income (loss) before income tax

 

 

 

(9,587

)

 

 

(5,676

)

 

 

(8,699

)

 

 

(13,881

)

Income tax expense (benefit)

 

 

 

(1,612

)

 

 

(591

)

 

 

(822

)

 

 

(785

)

Net income (loss)

 

 

$

(7,975

)

 

$

(5,085

)

 

$

(7,877

)

 

$

(13,096

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share for the periods

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

(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

 

 

$

(0.54

)

 

$

(0.34

)

 

$

(0.53

)

 

$

(0.88

)

Diluted earnings per share

 

 

$

(0.54

)

 

$

(0.34

)

 

$

(0.53

)

 

$

(0.88

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net income (loss)

 

$

(7,975

)

 

$

(5,085

)

 

$

(7,877

)

 

$

(13,096

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized (losses) gains

 

 

(8,082

)

 

 

(10,964

)

 

 

(3,956

)

 

 

(40,993

)

Total other comprehensive (loss) income

 

 

(8,082

)

 

 

(10,964

)

 

 

(3,956

)

 

 

(40,993

)

Total comprehensive (loss) income

 

$

(16,057

)

 

$

(16,049

)

 

$

(11,833

)

 

$

(54,089

)

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

Balance – beginning of period

 

$

15

 

 

$

15

 

 

$

15

 

 

$

15

 

Balance – end of period

 

$

15

 

 

$

15

 

 

$

15

 

 

$

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

Balance – beginning of period

 

$

39,840

 

 

$

39,840

 

 

$

39,840

 

 

$

39,840

 

Balance – end of period

 

$

39,840

 

 

$

39,840

 

 

$

39,840

 

 

$

39,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

 

Balance – beginning of period

 

$

101,571

 

 

$

114,109

 

 

$

101,660

 

 

$

122,120

 

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

 

 

 

 

 

 

 

 

(187

)

 

 

 

Balance after adjustments - beginning of period

 

$

101,571

 

 

$

114,109

 

 

$

101,473

 

 

$

122,120

 

Net income (loss)

 

 

(7,975

)

 

 

(5,085

)

 

 

(7,877

)

 

 

(13,096

)

Balance – end of period

 

$

93,596

 

 

$

109,024

 

 

$

93,596

 

 

$

109,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Balance – beginning of period

 

$

(26,046

)

 

$

(19,100

)

 

$

(30,172

)

 

$

10,929

 

Other comprehensive income (loss)

 

 

(8,082

)

 

 

(10,964

)

 

 

(3,956

)

 

 

(40,993

)

Balance – end of period

 

$

(34,128

)

 

$

(30,064

)

 

$

(34,128

)

 

$

(30,064

)

Total shareholders' equity

 

$

99,323

 

 

$

118,815

 

 

$

99,323

 

 

$

118,815

 

 

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,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

(7,877

)

 

$

(13,096

)

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

 

 

 

 

 

 

Depreciation and amortization and other non-cash items

 

 

3,899

 

 

 

3,187

 

Interest credited to policyholder account balances

 

 

2,000

 

 

 

2,100

 

Deferred income tax

 

 

(2,673

)

 

 

(3,908

)

Net investment losses (gains)

 

 

1,759

 

 

 

(89

)

Interest expense

 

 

1,775

 

 

 

931

 

Change in:

 

 

 

 

 

 

Accrued investment income

 

 

(1,058

)

 

 

(957

)

Reinsurance recoverables, net

 

 

(15,723

)

 

 

(27,932

)

Deferred policy acquisition costs

 

 

2,018

 

 

 

3,529

 

Commissions and agent balances

 

 

(15,649

)

 

 

(4,719

)

Other assets

 

 

1,638

 

 

 

(2,407

)

Insurance liabilities

 

 

30,766

 

 

 

30,687

 

Other liabilities

 

 

1,002

 

 

 

5,580

 

Net cash (used) provided by operating activities

 

 

1,877

 

 

 

(7,094

)

Cash flows from investing activities

 

 

 

 

 

 

Sales, maturities and repayments of:

 

 

 

 

 

 

Fixed maturities

 

 

39,190

 

 

 

33,176

 

Mortgage loans

 

 

3,796

 

 

 

4,515

 

Purchases of:

 

 

 

 

 

 

Fixed maturities

 

 

(42,018

)

 

 

(34,685

)

Mortgage loans

 

 

(964

)

 

 

(3,965

)

Other invested assets

 

 

(190

)

 

 

(724

)

Change in policyholder loans, net

 

 

(363

)

 

 

(289

)

Other, net

 

 

(3,934

)

 

 

(4,156

)

Net cash (used) provided by investing activities

 

 

(4,483

)

 

 

(6,128

)

Cash flows from financing activities

 

 

 

 

 

 

Debt issued

 

 

35,321

 

 

 

13,600

 

Debt repaid

 

 

(27,803

)

 

 

(6,127

)

Deposits to policyholder account balances

 

 

387

 

 

 

294

 

Withdrawals from policyholder account balances

 

 

(7,450

)

 

 

(4,241

)

Net cash (used) provided by financing activities

 

 

455

 

 

 

3,526

 

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

 

 

(2,151

)

 

 

(9,696

)

Cash, cash equivalents and restricted cash – beginning of period

 

 

9,776

 

 

 

22,399

 

Cash, cash equivalents and restricted cash – end of period

 

$

7,625

 

 

$

12,703

 

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).

On October 3, 2023, the Company, announced that it entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, iA American Holdings Inc. (“iA” or “Parent”), Long Grove Acquisition Corp., a wholly owned subsidiary of Parent (“Merger Sub”), and, solely for purposes of Section 6.03 and Article IX thereof, iA Financial Corporation, Inc. (“Guarantor”).

On the terms and subject to the conditions of the Merger Agreement, at the closing, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity, which will become a wholly-owned subsidiary of Parent. The time that the Merger becomes effective is referred to as the “Effective Time.” The Merger was unanimously approved by the Company’s board of directors.

Following execution of the Merger Agreement, Apex Holdco L.P. (the “Consenting Stockholder” or “Apex”) executed and delivered to the Company a written consent (the “Stockholder Written Consent”), adopting the Merger Agreement and the transactions contemplated thereby, including the Merger.

As a result of the execution and delivery of the Stockholder Written Consent, the holders of at least a majority of the outstanding shares of Common Stock have adopted the Merger Agreement. No further approval of the stockholders of the Company is required to adopt the Merger Agreement.

As a result of the Merger, each share of Common Stock outstanding immediately prior to the Effective Time (subject to certain exceptions, including shares of Common Stock owned by stockholders of the Company who have not voted in favor of the adoption of the Merger Agreement and have properly exercised appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware) will, at the Effective Time, automatically be converted into the right to receive $11.43 in cash, without interest and subject to applicable withholding taxes (the “Merger Consideration”). The aggregate equity value of the Common Stock acquired by Parent will be approximately $170 million.

If the Merger is consummated, the Company’s Common Stock will be delisted from The Nasdaq Capital Market and deregistered under the Securities Exchange Act of 1934, as amended. The completion of the Merger is subject to satisfaction or waiver of certain closing conditions, including: (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”), and receipt of certain regulatory approvals; (ii) there being no law or injunction prohibiting consummation of the Merger; (iii) subject to specified materiality standards, the accuracy of the representations and warranties of the other party; and (iv) compliance by the other party in all material respects with its covenants. Parent’s and Merger Sub’s obligations are also conditioned upon the absence of a material adverse effect on the Company and the absence of any burdensome condition (as defined in the Merger Agreement) imposed by any regulators as part of the regulatory approval process.

On October 3, 2023, the Company issued a Form 8-K and press release announcing the execution of the Merger Agreement and the Form 8-K is incorporated into this filing by reference. The Merger is expected to close in the first half of 2024.

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 and nine months ended September 30, 2023 and at September 30, 2022 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.

6


 

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