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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, 2024

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 1, 2024 was 14,875,000.

 

 


Table of Contents

 

 

 

Page

 

 

 

 

 

PART I –

 

Financial Information

 

 

1

Item 1.

 

Financial Statements (Unaudited) (at March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023

 

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

 

21

 

 

 

Note 9– Accumulated Other Comprehensive (Loss) Income

 

21

 

 

 

Note 10 – Business Segments

 

22

 

 

 

Note 11 – Subsequent Events

 

23

 

 

 

 

 

 

Item 2.

 

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

 

24

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

PART II –

 

Other Information

 

35

Item 1.

 

Legal Proceedings

 

35

Item 1A.

 

Risk Factors

 

35

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3.

 

Default upon Senior Securities

 

35

Item 4.

 

Mine Safety Disclosures

 

35

Item 5.

 

Other Information

 

35

Item 6.

 

Exhibits

 

37

Signature

 

 

 

38

 

 


 

Part 1. Financial Information

Item I. Financial Statements

Vericity, Inc.

Interim Condensed Consolidated Balance Sheets

(dollars in thousands)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

 

(Audited)

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities – available-for-sale – at fair value (amortized cost; $326,313
   and $
336,142, net of allowances for credit losses of $28 and $28)

 

$

301,524

 

 

$

313,382

 

Short-term investments - at fair value (amortized cost, $793 and $0)

 

 

830

 

 

 

 

Mortgage loans (net of allowances for credit losses of $566 and $573)

 

 

39,603

 

 

 

40,534

 

Policyholder loans

 

 

7,216

 

 

 

7,149

 

Other invested assets

 

 

2,603

 

 

 

2,364

 

Total investments

 

 

351,776

 

 

 

363,429

 

Cash, cash equivalents and restricted cash

 

 

13,740

 

 

 

8,044

 

Accrued investment income

 

 

3,727

 

 

 

3,630

 

Reinsurance recoverables (net of allowances for credit losses of $167 and $167)

 

 

240,224

 

 

 

238,598

 

Deferred policy acquisition costs

 

 

89,186

 

 

 

88,076

 

Commissions and agent balances (net of allowances for credit losses of $328 and $336)

 

 

58,291

 

 

 

53,494

 

Intangible assets

 

 

1,635

 

 

 

1,635

 

Deferred income tax assets, net

 

 

33,396

 

 

 

32,396

 

Other assets

 

 

35,359

 

 

 

33,516

 

Total assets

 

 

827,334

 

 

 

822,818

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Future policy benefits and claims

 

 

512,494

 

 

 

502,464

 

Policyholder account balances

 

 

69,414

 

 

 

70,726

 

Other policyholder liabilities

 

 

40,580

 

 

 

41,450

 

Policy dividend obligations

 

 

9,783

 

 

 

9,636

 

Reinsurance liabilities and payables

 

 

12,032

 

 

 

6,262

 

Long-term debt

 

 

38,283

 

 

 

39,761

 

Short-term debt

 

 

12,976

 

 

 

9,249

 

Other liabilities

 

 

28,564

 

 

 

33,057

 

Total liabilities

 

 

724,126

 

 

 

712,605

 

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

 

 

86,054

 

 

 

91,580

 

Accumulated other comprehensive (loss) income

 

 

(22,701

)

 

 

(21,222

)

Total shareholders' equity

 

 

103,208

 

 

 

110,213

 

Total liabilities and shareholders' equity

 

$

827,334

 

 

$

822,818

 

 

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,

 

 

 

 

2024

 

 

2023

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues

 

 

 

 

 

 

 

Net insurance premiums

 

 

$

22,557

 

 

$

24,338

 

Net investment income

 

 

 

4,135

 

 

 

4,347

 

Net (losses) gains on investments

 

 

 

(380

)

 

 

(539

)

Earned commissions

 

 

 

16,798

 

 

 

14,749

 

Insurance lead sales

 

 

 

1,404

 

 

 

1,222

 

Other income

 

 

 

979

 

 

 

505

 

Total revenues

 

 

 

45,493

 

 

 

44,622

 

Benefits and expenses

 

 

 

 

 

 

 

Life, annuity, and health claim benefits

 

 

 

17,875

 

 

 

16,371

 

Interest credited to policyholder account balances

 

 

 

613

 

 

 

689

 

Operating costs and expenses

 

 

 

29,468

 

 

 

25,769

 

Amortization of deferred policy acquisition costs

 

 

 

3,749

 

 

 

3,648

 

Total benefits and expenses

 

 

 

51,705

 

 

 

46,477

 

Income (loss) before income tax

 

 

 

(6,212

)

 

 

(1,855

)

Income tax expense (benefit)

 

 

 

(686

)

 

 

26

 

Net (loss) income

 

 

$

(5,526

)

 

$

(1,881

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share for the periods

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Weighted average shares outstanding, basic and diluted

 

 

 

14,875,000

 

 

 

14,875,000

 

Basic earnings per share

 

 

$

(0.37

)

 

$

(0.13

)

Diluted earnings per share

 

 

$

(0.37

)

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

Net (loss) income

 

$

(5,526

)

 

$

(1,881

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

Change in net unrealized (losses) gains

 

 

(1,479

)

 

 

6,313

 

Total other comprehensive (loss) income

 

 

(1,479

)

 

 

6,313

 

Total comprehensive (loss) income

 

$

(7,005

)

 

$

4,432

 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(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

 

$

91,580

 

 

$

101,660

 

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

 

 

 

 

 

(187

)

Balance after adjustments - beginning of period

 

$

91,580

 

 

$

101,473

 

Net (loss) income

 

 

(5,526

)

 

 

(1,881

)

Balance – end of period

 

$

86,054

 

 

$

99,592

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

Balance – beginning of period

 

$

(21,222

)

 

$

(30,172

)

Other comprehensive (loss) income

 

 

(1,479

)

 

 

6,313

 

Balance – end of period

 

$

(22,701

)

 

$

(23,859

)

Total shareholders' equity

 

$

103,208

 

 

$

115,588

 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

Net (loss) income

 

$

(5,526

)

 

$

(1,881

)

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

 

 

 

 

 

 

Depreciation and amortization and other non-cash items

 

 

1,661

 

 

 

1,221

 

Interest credited to policyholder account balances

 

 

613

 

 

 

689

 

Deferred income tax

 

 

(686

)

 

 

(999

)

Net investment losses (gains)

 

 

380

 

 

 

539

 

Interest expense

 

 

719

 

 

 

492

 

Change in:

 

 

 

 

 

 

Accrued investment income

 

 

(97

)

 

 

(326

)

Reinsurance recoverables, net

 

 

(1,626

)

 

 

(9,651

)

Deferred policy acquisition costs

 

 

(1,110

)

 

 

1,515

 

Commissions and agent balances

 

 

(4,797

)

 

 

(8,734

)

Other assets

 

 

(4,625

)

 

 

(2,134

)

Insurance liabilities

 

 

9,464

 

 

 

9,283

 

Other liabilities

 

 

4,180

 

 

 

4,632

 

Net cash (used) provided by operating activities

 

 

(1,450

)

 

 

(5,354

)

Cash flows from investing activities

 

 

 

 

 

 

Sales, maturities and repayments of:

 

 

 

 

 

 

Fixed maturities

 

 

21,951

 

 

 

22,384

 

Mortgage loans

 

 

938

 

 

 

1,709

 

Purchases of:

 

 

 

 

 

 

Fixed maturities

 

 

(12,664

)

 

 

(20,273

)

Short-term investments

 

 

(792

)

 

 

 

Mortgage loans

 

 

 

 

 

(144

)

Other invested assets

 

 

(127

)

 

 

(164

)

Change in policyholder loans, net

 

 

(67

)

 

 

(154

)

Other, net

 

 

(1,745

)

 

 

(1,120

)

Net cash provided (used) by investing activities

 

 

7,494

 

 

 

2,238

 

Cash flows from financing activities

 

 

 

 

 

 

Debt issued

 

 

4,945

 

 

 

12,876

 

Debt repaid

 

 

(3,415

)

 

 

(10,883

)

Deposits to policyholder account balances

 

 

141

 

 

 

210

 

Withdrawals from policyholder account balances

 

 

(2,019

)

 

 

(3,568

)

Net cash (used) provided by financing activities

 

 

(348

)

 

 

(1,365

)

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

 

 

5,696

 

 

 

(4,481

)

Cash, cash equivalents and restricted cash – beginning of period

 

 

8,044

 

 

 

9,776

 

Cash, cash equivalents and restricted cash – end of period

 

$

13,740

 

 

$

5,295

 

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 Q2, 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 months ended March 31, 2024 and March 31, 2023 and at March 31, 2024 and December 31, 2023. 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, 2023. 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, 2023, 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.

 

Accounting Standards Adopted and Pending

There were no significant accounting changes in 2024 that had a material impact on the Company's GAAP-basis financial statements.

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-Temporary 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 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. Due to the adoption of the measurement of credit losses on financial instruments accounting standard, prior change in valuation allowance is now presented as a change in allowance for credit losses

 

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.

7


 

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, 2024

Fixed maturities

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

U.S. government and agencies

 

$

10,171

 

 

$

257

 

 

$

(572

)

 

$

9,856

 

 

U.S. agency mortgage-backed

 

 

7,018

 

 

 

37

 

 

 

(595

)

 

 

6,460

 

 

State and political subdivisions

 

 

80,891

 

 

 

359

 

 

 

(9,692

)

 

 

71,558

 

 

Corporate and miscellaneous

 

 

165,521

 

 

 

1,796

 

 

 

(12,641

)

 

 

154,676

 

 

Foreign government

 

 

130

 

 

 

3

 

 

 

 

 

 

133

 

 

Residential mortgage-backed

 

 

8,194

 

 

 

80

 

 

 

(535

)

 

 

7,739

 

 

Commercial mortgage-backed

 

 

22,101

 

 

 

11

 

 

 

(1,512

)

 

 

20,600

 

 

Asset-backed

 

 

32,287

 

 

 

62

 

 

 

(1,847

)

 

 

30,502

 

 

Total fixed maturities

 

$

326,313

 

 

$

2,605

 

 

$

(27,394

)

 

$

301,524

 

 

 

 

 

December 31, 2023

Fixed maturities

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

U.S. government and agencies

 

$

10,188

 

 

$

365

 

 

$

(488

)

 

$

10,065

 

 

U.S. agency mortgage-backed

 

 

7,173

 

 

 

61

 

 

 

(516

)

 

 

6,718

 

 

State and political subdivisions

 

 

79,362

 

 

 

347

 

 

 

(9,490

)

 

 

70,219

 

 

Corporate and miscellaneous

 

 

174,263

 

 

 

2,733

 

 

 

(11,700

)

 

 

165,296

 

 

Foreign government

 

 

130

 

 

 

5

 

 

 

 

 

 

135

 

 

Residential mortgage-backed

 

 

7,302

 

 

 

96

 

 

 

(523

)

 

 

6,875

 

 

Commercial mortgage-backed

 

 

22,043

 

 

 

23

 

 

 

(1,678

)

 

 

20,388

 

 

Asset-backed

 

 

35,681

 

 

 

86

 

 

 

(2,081

)

 

 

33,686

 

 

Total fixed maturities

 

$

336,142

 

 

$

3,716

 

 

$

(26,476

)

 

$

313,382

 

 

 

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Maturities of mortgage-backed and asset-backed securities may be substantially shorter than their contractual maturity because they may require monthly principal installments and such loans may prepay principal. The amortized cost and fair value of fixed maturities available-for-sale by contractual maturity, are presented in the following table:

 

 

 

March 31, 2024

 

 

 

Amortized
Cost

 

 

Fair
Value

 

Due in one year or less

 

$

6,207

 

 

$

6,126

 

Due after one year through five years

 

 

33,569

 

 

 

32,728

 

Due after five years through ten years

 

 

75,051

 

 

 

71,357

 

Due after ten years

 

 

141,885

 

 

 

126,012

 

Securities not due at a single maturity date — primarily mortgage and asset-backed

 

 

69,601

 

 

 

65,301

 

Total fixed maturities

 

$

326,313

 

 

$

301,524

 

 

8


 

Fixed maturities with a carrying value of $2,610 and $2,689 were on deposit with governmental authorities, as required by law at March 31, 2024 and December 31, 2023, respectively.

The Company’s fixed maturities portfolio was primarily composed of investment grade securities, defined as a security having a rating of Aaa, Aa, A, or Baa from Moody’s, AAA, AA, A, or BBB from Standard & Poor’s, or National Association of Insurance Commissioners (NAIC) rating of NAIC 1 or NAIC 2. Investment grade securities comprised 96.2% and 96.0% of the Company’s total fixed maturities portfolio at March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024 and December 31, 2023, the Company had commitments to make investments in available-for-sale securities in the amount of $411 and $0, respectively.

Mortgage Loans

The Company makes investments in commercial mortgage loans. The Company, along with other investors, owns a pro rata share of each loan. The Company participates in 33 such investment instruments with ownership shares ranging from 0.6% to 30.0% of the trust at March 31, 2024. The Company owns a share of 307 mortgage loans with an average loan balance of $130 and a maximum exposure related to any single loan of $600. Mortgage loan holdings are diversified by geography and property type as follows:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

Gross Carrying
Value

 

 

% of Total

 

 

Gross Carrying
Value

 

 

% of Total

 

Property Type:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

12,367

 

 

 

30.7

%

 

$

12,812

 

 

 

31.2

%

Office

 

 

10,530

 

 

 

26.2

%

 

 

10,635

 

 

 

25.9

%

Industrial

 

 

7,386

 

 

 

18.4

%

 

 

7,476

 

 

 

18.2

%

Mixed use

 

 

4,654

 

 

 

11.6

%

 

 

4,798

 

 

 

11.7

%

Apartments

 

 

1,960

 

 

 

4.9

%

 

 

2,077

 

 

 

5.0

%

Medical office

 

 

2,393

 

 

 

6.0

%

 

 

2,423

 

 

 

5.9

%

Other

 

 

879

 

 

 

2.2

%

 

 

886

 

 

 

2.1

%

Gross carrying value of mortgage loans

 

 

40,169

 

 

 

100.0

%

 

 

41,107

 

 

 

100.0

%

Credit loss allowance

 

 

(566

)

 

 

 

 

 

(573

)

 

 

 

Net carrying value of mortgage loans

 

$

39,603

 

 

 

 

 

$

40,534

 

 

 

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

Gross Carrying
Value

 

 

% of Total

 

 

Gross Carrying
Value

 

 

% of Total

 

U.S. Region:

 

 

 

 

 

 

 

 

 

 

 

 

West South Central

 

$

9,935

 

 

 

24.7

%

 

$

10,038

 

 

 

24.3

%

East North Central

 

 

11,588

 

 

 

28.8

%

 

 

12,184

 

 

 

29.6

%

South Atlantic

 

 

7,938

 

 

 

19.8

%

 

 

8,046

 

 

 

19.6

%

West North Central

 

 

2,300

 

 

 

5.7

%

 

 

2,328

 

 

 

5.7

%

Mountain

 

 

2,524

 

 

 

6.3

%

 

 

2,560

 

 

 

6.2

%

Middle Atlantic

 

 

1,966

 

 

 

4.9

%

 

 

1,986

 

 

 

4.8

%

East South Central

 

 

3,480

 

 

 

8.7

%

 

 

3,519

 

 

 

8.7

%

Pacific

 

 

438

 

 

 

1.1

%

 

 

446

 

 

 

1.1

%

Gross carrying value of mortgage loans

 

 

40,169

 

 

 

100.0

%

 

 

41,107

 

 

 

100.0

%

Credit loss allowance

 

 

(566

)

 

 

 

 

 

(573

)

 

 

 

Net carrying value of mortgage loans

 

$

39,603

 

 

 

 

 

$

40,534

 

 

 

 

 

During the three months ended March 31, 2024 and March 31, 2023, $0 and $144 of new mortgage loans were purchased, respectively, which did not include second lien mortgage loans. There were no taxes, assessments, or any amounts advanced that were not included in the mortgage loan balances at March 31, 2024 and December 31, 2023. At March 31, 2024 and December 31, 2023, the Company had no mortgage loans that were in a restructured status, respectively. There were no impairments for mortgage loans during the three months ended March 31, 2024 and December 31, 2023.

9


 

The changes in the allowances for credit losses for commercial mortgage loans were as follows:

 

 

 

Three Months Ended March 31, 2024

 

 

Year Ended December 31, 2023

 

Beginning balance

 

$

573

 

 

$

83

 

Net increase in allowances for credit losses related to change in accounting standards

 

 

 

 

 

237

 

Net (decrease) increase in allowances for credit losses

 

 

(7

)

 

 

253

 

    Ending balance

 

$

566

 

 

$

573

 

 

At March 31, 2024 and December 31, 2023, the Company had no mortgage loans that were on non-accrual status.

At March 31, 2024 and December 31, 2023, the Company had commitments to make investments in mortgage loans in the amount of $3,828 and $3,734, respectively.

Net Investment Income

The sources of net investment income are as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Income from:

 

 

 

 

 

 

Fixed maturities

 

$

3,875

 

 

$

3,868

 

Policyholder loans

 

 

85

 

 

 

97

 

Mortgage loans

 

 

479

 

 

 

726

 

Cash, cash equivalents and restricted cash

 

 

44

 

 

 

31

 

Gross investment income

 

 

4,483

 

 

 

4,722

 

Investment expenses

 

 

(348

)

 

 

(375

)

Net investment income

 

$

4,135

 

 

$

4,347

 

 

Investment expenses include investment management fees, some of which include incentives based on market performance, custodial fees and internal costs for investment-related activities.

Net Investment (Losses) Gains

The sources of net investment gains (losses) are as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Investment (losses) gains from sales:

 

 

 

 

 

 

Fixed maturities

 

$

(500

)

 

$

36

 

Mortgage loans

 

 

 

 

 

 

Gains and losses from sales

 

 

(500

)

 

 

36

 

Valuation change of other invested assets - (decline) appreciation:

 

 

113

 

 

 

(545

)

Change in allowance for credit losses

 

 

7

 

 

 

(30

)

Total net gains (losses) on investments

 

$

(380

)

 

$

(539

)

 

Change in Allowance for Credit Losses

The Company regularly reviews its fixed income portfolio to identify and evaluate whether a security may require a credit loss allowance. For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with incremental losses recorded in earnings. For all other securities in an unrealized loss position in which the Company does not expect to recover the entire amortized cost basis, the security is deemed to have a credit loss.

10


 

Significant judgment is required in the determination of whether a credit loss has occurred for a security. The Company has developed a consistent methodology and has identified significant inputs for determining whether a credit loss has occurred. Some of the factors considered in evaluating whether a decline in fair value is a credit loss are the financial condition and prospects of the issuer, payment status, the probability of collecting scheduled principal and interest payments when due, credit ratings of the securities, and the duration and severity of the decline.

The credit loss component of fixed maturity impairment is calculated as the difference between amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate of cash flows discounted at the effective rate implicit to the security at the date of purchase or prior impairment. The methodology and assumptions for estimating the cash flows vary depending on the type of security. For mortgage-backed and asset-backed securities, cash flow estimates, including prepayment assumptions, are based on data from widely accepted third-party sources or internal estimates. In addition to prepayment assumptions, cash flow estimates vary based on assumptions regarding the underlying collateral characteristics, expectations of delinquency and default rates, and structural support, including subordination and guarantees. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss exists. The non-credit component, determined as the difference between the adjusted amortized cost basis and fair value, is recognized in other comprehensive (loss) income. The credit loss component of a fixed maturity security impairment is calculated as the difference between amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate of cash flows discounted at the effective rate implicit to the security at the date of purchase or prior impairment. The methodology and assumptions for estimating the cash flows vary depending on the type of security. For mortgage-backed and asset-backed securities, cash flow estimates, including prepayment assumptions, are based on data from widely accepted third-party sources or internal estimates. In addition to prepayment assumptions, cash flow estimates vary based on assumptions regarding the underlying collateral characteristics, expectations of delinquency and default rates, and structural support