(Mark One) | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016 | |
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 000-10685
Midwest Holding
Inc.
(Exact name of registrant
as specified in its charter)
Nebraska | 20-0362426 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
2900 S. 70th, Suite 400, Lincoln, Nebraska | 68506 |
(Address of principal executive offices) | (Zip Code) |
Registrants CUSIP number: 59833J 107
Registrants telephone number, including area code: (402) 489-8266
Former name, former address and former fiscal year, if changed since last report: Not applicable
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☒ |
(Do not check if a | |
smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐ No ☒
As of August 1, 2016, there were 22,558,956 shares of Voting Common Stock, par value $0.001 per share, issued and outstanding.
MIDWEST HOLDING
INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item No. | Item Caption | Page | ||
Item 1. | Financial Statements | 3 | ||
Consolidated Balance Sheets | 3 | |||
Consolidated Statements of Comprehensive Income | 4 | |||
Consolidated Statements of Cash Flows | 5 | |||
Notes to Consolidated Financial Statements | 7 | |||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 24 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 31 | ||
Item 4. | Controls and Procedures | 31 | ||
PART II OTHER INFORMATION | ||||
Item No. | Item Caption | Page | ||
Item 1. | Legal Proceedings | 32 | ||
Item 1A. | Risk Factors | 32 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 32 | ||
Item 3. | Defaults Upon Senior Securities | 32 | ||
Item 4. | Mine Safety Disclosures | 32 | ||
Item 5. | Other Information | 32 | ||
Item 6. | Exhibits | 33 | ||
Signatures | 34 |
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Midwest Holding Inc. and
Subsidiaries
Consolidated Balance Sheets
June 30, 2016 | December 31, 2015 | ||||||
(unaudited) | |||||||
Assets | |||||||
Investments, available-for-sale, at fair value | |||||||
Fixed maturies (amortized cost: $24,400,678 and $24,279,231, respectively) | $ | 24,354,666 | $ | 23,271,277 | |||
Equity securities, at cost | 53,816 | 140,250 | |||||
Real estate, held for investment | 523,749 | 529,769 | |||||
Policy loans | 393,492 | 420,775 | |||||
Total investments | 25,325,723 | 24,362,071 | |||||
Cash and cash equivalents | 3,214,086 | 1,192,336 | |||||
Amounts recoverable from reinsurers | 11,859,279 | 12,212,656 | |||||
Interest and dividends due and accrued | 261,206 | 264,791 | |||||
Due premiums | 636,734 | 640,073 | |||||
Deferred acquisition costs, net | 2,649,927 | 2,765,063 | |||||
Value of business acquired, net | 1,897,986 | 2,039,110 | |||||
Intangible assets | 700,000 | 700,000 | |||||
Goodwill | 1,129,824 | 1,129,824 | |||||
Property and equipment, net | 191,053 | 217,565 | |||||
Assets associated with business held for sale (see Note 3) | 16,345,892 | 16,870,241 | |||||
Other assets | 1,141,958 | 532,674 | |||||
Total assets | $ | 65,353,668 | $ | 62,926,404 | |||
Liabilities and Stockholders' Equity | |||||||
Liabilities: | |||||||
Benefit reserves | $ | 24,459,542 | $ | 24,155,140 | |||
Policy claims | 461,792 | 839,859 | |||||
Deposit-type contracts | 15,165,556 | 13,897,421 | |||||
Advance premiums | 56,481 | 57,699 | |||||
Total policy liabilities | 40,143,371 | 38,950,119 | |||||
Accounts payable and accrued expenses | 1,088,578 | 1,013,313 | |||||
Liabilities associated with business held for sale (see Note 3) | 14,988,764 | 15,508,998 | |||||
Surplus notes | 550,000 | 550,000 | |||||
Total liabilities | 56,770,713 | 56,022,430 | |||||
Commitments and Contingencies (See Note 9) | |||||||
Stockholders' Equity: | |||||||
Preferred stock, Series A, $0.001 par value. Liquidation preference $6.00 per share. | |||||||
Authorized 2,000,000 shares; issued and outstanding 74,159 shares | |||||||
as of June 30, 2016 and December 31, 2015. | 74 | 74 | |||||
Preferred stock, Series B, $0.001 par value. Liquidation preference $6.00 per share. | |||||||
Authorized 1,000,000 shares; issued and outstanding 102,669 shares | |||||||
as of June 30, 2016 and December 31, 2015. | 103 | 103 | |||||
Common stock, $0.001 par value. Authorized 120,000,000 shares; | |||||||
issued and outstanding 22,558,956 as of June 30, 2016 | |||||||
and 18,006,301 shares as of December 31, 2015. | 22,559 | 18,006 | |||||
Additional paid-in capital | 33,964,290 | 31,584,529 | |||||
Accumulated deficit | (25,374,520 | ) | (23,685,525 | ) | |||
Accumulated other comprehensive loss | (29,551 | ) | (1,013,213 | ) | |||
Total stockholders' equity | 8,582,955 | 6,903,974 | |||||
Total liabilities and stockholders' equity | $ | 65,353,668 | $ | 62,926,404 |
See Notes to Consolidated Financial Statements.
3
Midwest Holding Inc. and
Subsidiaries
Consolidated Statements of Comprehensive
Income
(Unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Income: | ||||||||||||||||
Premiums | $ | 932,042 | $ | 993,554 | $ | 1,859,475 | $ | 1,872,105 | ||||||||
Investment income, net of expenses | 201,778 | 100,121 | 414,906 | 295,745 | ||||||||||||
Net realized (loss) gain on investments | (56,629 | ) | (74,543 | ) | (53,744 | ) | 3,705 | |||||||||
Miscellaneous income | 13,250 | 44,392 | 63,557 | 99,244 | ||||||||||||
1,090,441 | 1,063,524 | 2,284,194 | 2,270,799 | |||||||||||||
Expenses: | ||||||||||||||||
Death and other benefits | 179,096 | 262,432 | 408,118 | 461,299 | ||||||||||||
Interest credited | 182,395 | 126,246 | 352,989 | 255,598 | ||||||||||||
Increase in benefit reserves | 224,644 | 247,927 | 391,669 | 498,551 | ||||||||||||
Amortization of deferred acquisition costs | 25,233 | 123,503 | 147,727 | 253,850 | ||||||||||||
Salaries and benefits | 593,093 | 479,284 | 1,113,323 | 991,835 | ||||||||||||
Other operating expenses | 806,055 | 647,217 | 1,559,363 | 1,412,871 | ||||||||||||
2,010,516 | 1,886,609 | 3,973,189 | 3,874,004 | |||||||||||||
Loss before income taxes | (920,075 | ) | (823,085 | ) | (1,688,995 | ) | (1,603,205 | ) | ||||||||
Income tax expense | - | - | - | - | ||||||||||||
Net loss | (920,075 | ) | (823,085 | ) | (1,688,995 | ) | (1,603,205 | ) | ||||||||
Comprehensive income: | ||||||||||||||||
Unrealized gains (losses) on investments | ||||||||||||||||
arising during period | 478,024 | (646,053 | ) | 929,918 | (501,910 | ) | ||||||||||
Less: reclassification adjustment for net | ||||||||||||||||
realized losses (gains) on investments | 56,629 | 74,543 | 53,744 | (3,705 | ) | |||||||||||
Other comprehensive income | 534,653 | (571,510 | ) | 983,662 | (505,615 | ) | ||||||||||
Comprehensive (loss) | $ | (385,422 | ) | $ | (1,394,595 | ) | $ | (705,333 | ) | $ | (2,108,820 | ) | ||||
Net loss per common share, basic and diluted | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.12 | ) |
See Notes to Consolidated Financial Statements.
4
Midwest Holding Inc. and
Subsidiaries
Consolidated Statements of Cash
Flows
(Unaudited)
Six Months ended June 30, | |||||||
2016 | 2015 | ||||||
Cash Flows from Operating Activities: | |||||||
Net loss | $ | (1,688,995 | ) | $ | (1,603,205 | ) | |
Adjustments to reconcile net loss to net cash and cash equivalents provided by | |||||||
(used in) operating activities: | |||||||
Net adjustment for premium and discount on investments | 105,673 | 74,421 | |||||
Depreciation and amortization | 208,235 | 196,192 | |||||
Deferred acquisition costs capitalized | (66,951 | ) | (453,647 | ) | |||
Amortization of deferred acquisition costs | 147,727 | 253,850 | |||||
Net realized loss (gain) on investments | 53,744 | (4,768 | ) | ||||
Loss from equity method investments | - | 16,650 | |||||
Changes in operating assets and liabilities: | |||||||
Amounts recoverable from reinsurers | 353,377 | 388,325 | |||||
Interest and dividends due and accrued | 3,585 | (1,085 | ) | ||||
Due premiums | 3,339 | 522 | |||||
Policy liabilities | 275,049 | 677,602 | |||||
Other assets and liabilities | (569,165 | ) | (202,324 | ) | |||
Other assets and liabilities held for sale | 1,877 | (76,993 | ) | ||||
Net cash (used for) operating activities | (1,172,505 | ) | (734,460 | ) | |||
Cash Flows from Investing Activities: | |||||||
Securities available for sale: | |||||||
Purchases | (7,878,585 | ) | (8,324,853 | ) | |||
Proceeds from sale or maturity | 7,671,898 | 7,129,385 | |||||
Securities held for sale: | |||||||
Purchases | - | (305,675 | ) | ||||
Proceeds from sale or maturity | 52,703 | 287,236 | |||||
Net change in equity securities carried at cost: | |||||||
Proceeds from sale or maturity | 26,434 | 6,000 | |||||
Proceeds from payments on mortgage loans on real estate, held for investment | - | 349,386 | |||||
Acquisition of Northstar Financial Corporation | 2,427,394 | - | |||||
Net change in policy loans | 27,283 | (35,686 | ) | ||||
Purchases of property and equipment | (29,515 | ) | (4,566 | ) | |||
Net cash provided by (used for) investing activities | 2,297,612 | (898,773 | ) | ||||
Cash Flows from Financing Activities: | |||||||
Issuance of common stock | - | 214,720 | |||||
Preferred stock dividend | (21,560 | ) | (34,497 | ) | |||
Receipts on deposit-type contracts | 1,339,406 | 1,191,753 | |||||
Withdrawals on deposit-type contracts | (421,203 | ) | (288,496 | ) | |||
Net cash provided by financing activities | 896,643 | 1,083,480 | |||||
Net increase (decrease) in cash and cash equivalents | 2,021,750 | (549,753 | ) | ||||
Cash and cash equivalents: | |||||||
Beginning | 1,192,336 | 2,310,047 | |||||
Ending | $ | 3,214,086 | $ | 1,760,294 |
See Notes to Consolidated Financial Statements.
5
Midwest Holding Inc. and
Subsidiaries
Supplemental Cash Flow
Information
(Unaudited)
June 30, 2016 | June 30, 2015 | ||||
Supplemental Disclosure of Non-Cash Information | |||||
Common stock issued on Northstar Acquisition | $ | 2,405,874 | $ | - | |
$ | 2,405,874 | $ | 1,811,612 |
See Notes to Consolidated Financial Statements.
6
Midwest Holding Inc. and
Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of operations: Midwest Holding Inc. and its wholly owned subsidiaries (Midwest or the Company, which also may be referred to as we, our or us) operate multiple insurance businesses through one business segment. These insurance companies are: American Life & Security Corporation (American Life), Capital Reserve Life Insurance Company (Capital Reserve), First Wyoming Life Insurance Company (First Wyoming Life) and Great Plains Life Assurance Company (Great Plains). Through these insurance companies we sell traditional, non-traditional and multi-benefit life insurance policies.
Basis of presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (GAAP) for interim financial information and with the instructions from the Securities and Exchange Commission (SEC) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2105 (2015 Form 10-K), should be read in connection with the reading of these interim unaudited consolidated financial statements.
In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Companys results. Operating results for the six month period ended June 30, 2016, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016. All material inter-company accounts and transactions have been eliminated in consolidation.
Investments: All fixed maturities and a portion of the equity securities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value as of the financial statement date. Bond premiums and discounts are amortized using the scientific-yield method (calculated by multiplying the adjusted basis by the yield at issuance and then subtracting the coupon interest) over the term of the bonds. Realized gains and losses on securities sold during the year are determined by the specific security sold. Unrealized holding gains and losses, net of applicable income taxes, are included in comprehensive loss.
Declines in the fair value of available for sale securities below their amortized cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining if these losses are expected to be other-than-temporary, we consider severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings and the intent and ability of us to hold the investment until the recovery of the cost.
The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the statement of comprehensive income as an other-than-temporary impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The credit component of the other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Companys best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. No other-than-temporary impairments were recognized during the six months ended June 30, 2016 or 2015.
Investment income consists of interest, dividends, gains and losses from equity method investments, and real estate income, which are recognized on an accrual basis and amortization of premiums and discounts.
7
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Included within the Companys equity securities are certain privately purchased common stocks. These investments are recorded using the cost basis method of accounting. These securities do not have a readily determinable fair value. The Company does not control these entities economically, and therefore does not consolidate these entities in its financial statements.
Policy loans: Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value.
Real estate, held for investment: Real estate, held for investment is comprised of ten condominiums in Hawaii. Real estate is carried at depreciated cost. Depreciation on residential real estate is computed on a straight-line basis over 50 years.
Cash and cash equivalents: The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents. At June 30, 2016 and December 31, 2015, the Company had no cash equivalents. The Company has cash on deposit with financial institutions which at times may exceed the Federal Deposit Insurance Corporation insurance limits. The Company has not suffered any losses in the past and does not believe it is exposed to any significant credit risk in these balances.
Deferred acquisition costs: Deferred acquisition costs consist of incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions.
Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter of its fiscal year unless events occur which require an immediate review. The Company determined during its December 31, 2015 analysis that all deferred acquisition costs were recoverable.
The following table provides information about deferred acquisition costs for the periods ended June 30, 2016 and December 31, 2015, respectively.
Six Months Ended | Year Ended | ||||||
June 30, | December 31, | ||||||
2016 | 2015 | ||||||
Balance at beginning of period | $ | 2,765,063 | $ | 2,646,970 | |||
Capitalization of commissions, sales and issue expenses | 66,951 | 552,466 | |||||
Change in DAC due to unrealized investment (gains) losses | (34,360 | ) | 35,301 | ||||
Gross amortization | (147,727 | ) | (469,674 | ) | |||
Balance at end of period | $ | 2,649,927 | $ | 2,765,063 |
8
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Value of business acquired: Value of business acquired represents the estimated value assigned to purchased companies or insurance in force of the assumed policy obligations at the date of acquisition of a block of policies. American Life purchased Capital Reserve during 2010, resulting in an initial capitalized asset for value of business acquired of $116,326. Additionally, the Company paid an upfront ceding commission of $375,000 to Security National Life (SNL) in respect of the purchase of Capital Reserve. An initial asset was established for the value of this business acquired totaling $348,010, representing primarily the ceding commission. The agreement has an automatic renewal provision unless the Company notifies SNL of its intention not to renew, no less than 180 days prior to the expiration of the then current agreement. Each automatic renewal period is for one year. This reinsurance remains in place. The remaining capitalized and SNL asset balances at June 30, 2016, of $43,622 and $130,504, respectively, will be included in the accounting for the anticipated sale of Capital Reserve in the second half of 2016. Midwest acquired Great Plains Financial in 2014 and established an asset for value of business acquired of $1,288,207. Midwest acquired First Wyoming Capital during 2015 and established an asset for value of business acquired of $506,600. These assets are being amortized on a straight-line basis, which approximates the earnings pattern of the related policies, over ten years. The accounting for the First Wyoming acquisition is still preliminary and is expected to be final in the third quarter of 2016. The Company recognized amortization expense of $56,478 and $43,814 for the three months ended June 30, 2016 and 2015, respectively relative to these transactions. The Company recognized amortization expense of $112,957 and $87,627 for the six months ended June 30, 2016 and 2015, respectively related to these transactions.
Additionally, American Life purchased Old Reliance in August 2011, resulting in an initial capitalized asset for value of business acquired of $824,485. This asset is being amortized over the life of the related policies (refer to revenue recognition and related expenses discussed later regarding amortization methods). Amortization recognized during the three months ended June 30, 2016 totaled $13,135 and the accretion recognized during the three months ended June 30, 2015 totaled $653. Amortization recognized during the six months ended June 30, 2016 and 2015 totaled $28,166 and $99, respectively.
Recoverability of value of business acquired is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. If this current estimate is less than the existing balance, the difference is charged to expense. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken.
Goodwill and Other Intangible Assets: Goodwill represents the excess of the amounts paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. Goodwill is tested for impairment at least annually in the fourth quarter or more frequently if events or circumstances change that would indicate that a triggering event has occurred. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken.
The Company assesses the recoverability of indefinite-lived intangible assets at least annually or whenever events or circumstances suggest that the carrying value of an identifiable indefinite-lived intangible asset may exceed the sum of the future discounted cash flows expected to result from its use and eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken.
Property and equipment: Property and equipment are stated at cost net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over 3 to 7 years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $25,601 and $40,342 for the three months ended June 30, 2016 and 2015, respectively. Depreciation expense totaled $61,091 and 82,834 for the six months ended June 30, 2016 and 2015, respectively. Accumulated depreciation totaled $925,617 and $864,526 as of June 30, 2016 and December 31, 2015, respectively.
Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings.
9
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the six months ended June 30, 2016 that would indicate the carrying amounts may not be recoverable.
Reinsurance: In the normal course of business, the Company seeks to limit any single exposure to losses on large risks by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. The Company generally strives to diversify its credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Companys primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers including their activities with respect to claim settlement practices and commutations, and establishes allowances for uncollectible reinsurance recoverable as appropriate. There were no allowances as of June 30, 2016 or December 31, 2015.
Benefit reserves: The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables.
Policy claims: Policy claims are based on reported claims plus estimated incurred but not reported claims developed from trends of historical data applied to current exposure.
Deposit-type contracts: Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies.
Income taxes: The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2010. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company had no accruals for payments of interest and penalties at June 30, 2016 and December 31, 2015.
Revenue recognition and related expenses: Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due.
Amounts received as payment for annuities and/or non-traditional contracts such as interest sensitive whole life contracts, single payment endowment contracts, single payment juvenile contracts and other contracts without life contingencies are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the Consolidated Statements of Cash Flows.
10
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Amounts received under our multi-benefit policy form are allocated to the life insurance portion of the multi-benefit life insurance arrangement and the annuity portion based upon the signed policy.
Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts. Acquisition costs are amortized over the premium paying period using the net level premium method. Traditional life insurance products are treated as long duration contracts, which generally remain in force for the lifetime of the insured.
Comprehensive loss: Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses from marketable securities classified as available-for-sale, net of applicable taxes.
Common and preferred stock and earnings (loss) per share: The par value per common share is $0.001 with 100,000,000 shares authorized and 20,000,000 preferred shares authorized. At June 30, 2016 and December 31, 2015, the Company had 22,558,956 and 18,006,301 common shares issued and outstanding, respectively.
At June 30, 2016 and December 31, 2015, the Company had 1,179 warrants outstanding. The warrants are exercisable through December 31, 2016 for 10 shares of voting common stock at an exercise price of $6.50 per share.
The Class A preferred shares are non-cumulative, non-voting and convertible by the holder to voting common shares after May 2015, at a rate of 1.3 common shares for each preferred share (subject to customary anti-dilution adjustments). There is no stated dividend rate on the Class A shares, but the holders of Class A shares will receive a dividend on each outstanding share of Class A preferred stock in an amount equal to the amount of the dividend payable on each share of common stock. The par value per preferred Class A share is $0.001 with 2,000,000 shares authorized. At June 30, 2016 and December 31, 2015, the Company had 74,159 Class A preferred shares issued and outstanding.
The Class B preferred shares are non-cumulative, non-voting and convertible by the holder to voting common shares after May 1, 2017 at a rate of 2.0 common shares for each preferred share. The Company may only affect a conversion through a deemed liquidation or initial public offering. The par value per preferred Class B share is $0.001 with 1,000,000 shares authorized. The stated dividend rate on the Class B preferred shares is 7%. Dividends of $21,560 and $56,057 were paid as of June 30, 2016 and December 31, 2015 respectively. At June 30, 2016, and December 31, 2015, the Company had 102,669 Class B preferred shares issued and outstanding.
Earnings (loss) per share attributable to the Companys common stockholders were computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended June 30, 2016 and 2015 were 22,558,956 and 13,212,653 shares, respectively. The weighted average number of shares outstanding during the six months ended June 30, 2016 and 2015 were 20,682,546 and 13,195,416 shares, respectively.
Risk and uncertainties: Certain risks and uncertainties are inherent in our day-to-day operations and in the process of preparing our consolidated financial statements. The more significant of those risks and uncertainties, as well as the Companys method for mitigating the risks, can be referenced in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2105 (2015 Form 10-K), and should be read in connection with the reading of these interim unaudited consolidated financial statements.
New accounting standards: In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326). Under the new guidance, this replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to perform credit loss estimates. This update changes the methodology from an incurred loss to an expected credit loss. An allowance for the expected credit loss will be set up and the net income will be impacted. The credit losses will be evaluated in the current period and an adjustment to the allowance can be made. The new standard becomes effective after December 15, 2019. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.
11
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
In March 2016, the FASB issued ASU 2016-07, Investments Equity Method and Joint Ventures (Topic323). Under the new guidance, when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investors previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The new standard becomes effective December 15, 2016. Early adoption of this update is permitted and we will adopt this Update should an investment change from the cost method to the equity method due to a change in ownership or degree of influence.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-1, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity investments that do not have readily determinable fair values; however; the exception requires the Company to adjust the carrying amount for impairment and observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This guidance also changes certain disclosure requirements and other aspects of current GAAP. This guidance is effective for fiscal years beginning after December 15, 2017, and is applicable to the Company in fiscal 2018. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements.
Note 2. Acquisitions
On March 15, 2016, Midwest acquired Northstar Financial Corporation (Northstar), an inactive Minnesota corporation, pursuant to an Agreement and Plan of Merger dated December 18, 2015, under which Midwest Acquisition Minnesota, Inc. (Acquisition) a wholly owned subsidiary of Midwest merged (the Merger) with and into Northstar, with Northstar being the survivor. Pursuant to the Merger, Midwest exchanged 1.27 shares of its voting common stock for each share of Northstar common stock, or approximately 4,553,000 shares.
We are treating the merger of Northstar into Midwest as an asset acquisition. The assets (primarily cash) and liabilities of Northstar were recorded in the Companys consolidated financial statements at their estimated fair values as of the acquisition date.
12
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
On October 27, 2015, Midwest acquired 100% of the remaining outstanding shares of First Wyoming, a Wyoming corporation, that it did not previously own pursuant to an Agreement and Plan of Merger dated July 31, 2015. The accounting for this acquisition is still preliminary. The fair value of the Midwest common stock issued as consideration, the fair value of our previously held equity interest in First Wyoming, and the assets acquired and liabilities assumed from our acquisition of First Wyoming was based on a preliminary valuation and our estimates and assumptions are subject to change within the measurement period of approximately twelve months. The primary areas that are not yet finalized are related to the fair value of Midwest common stock issued, the fair value of our previously held equity interest in First Wyoming, and the fair value of Value of Business Acquired (VOBA). Measurement period adjustments will be applied to the period that the adjustment is identified in our consolidated financial statements.
The following table presents unaudited pro forma consolidated total income and net loss as if the acquisition had occurred as of January 1, 2015.
Three months ended | Six months ended | ||||||
June 30, 2015 | June 30, 2015 | ||||||
(unaudited) | (unaudited) | ||||||
Premiums | $ | 1,101,124 | $ | 2,094,691 | |||
Investment income | 99,727 | 361,485 | |||||
Miscellaneous income | 5,872 | 34,750 | |||||
Total income | $ | 1,206,723 | $ | 2,490,926 | |||
Net loss | $ | (1,017,758 | ) | $ | (2,018,728 | ) |
The unaudited pro forma total income and net loss above was adjusted to eliminate the equity method investment loss of $55,711 for the three months ended June 30, 2015 and a loss of $16,650 for the six months ended June 30, 2015. The elimination of TPA fees paid by First Wyoming to Midwest of $38,620 for the three months ended June 30, 2015 and of $64,594 for the six months ended June 30, 2015. The unaudited pro forma net loss presented above also includes adjustments for the amortization of VOBA for the three months ended June 30, 2015 of $12,665 and for the six months ended June 30, 2015 of $25,330.
Note 3. Assets and Liabilities Held for Sale
In December, 2015, American Life entered into a purchase agreement with an outside third party to sell its interest in Capital Reserve Life Insurance Company (Capital Reserve), which is dormant. Under the terms of the purchase agreement, American Life will receive cash which approximates the statutory surplus of Capital Reserve. American Life does not anticipate any gain or loss from this transaction to be significant. The sale of Capital Reserve is subject to insurance regulatory approval.
As of June 30, 2016 and December 31, 2015, Midwest classified $16.3 million and $16.9 million, respectively, of assets related to Capital Reserve as a business held-for-sale within total assets and $15.0 million and $15.5 million, respectively, of liabilities related to Capital Reserve as a business held-for-sale within total liabilities on the Consolidated Balance Sheet. The held for sale assets are primarily comprised of amounts recoverable from reinsurers, and the held for sale liabilities are primarily comprised of benefit reserves and deposit-type contracts. Closing is expected in the fourth quarter 2016.
Note 4. Investments
See Note 1 in our 2015 Form 10-K for information regarding our accounting policy relating to available-for-sale (AFS) securities, which also includes additional disclosures regarding our fair value measurements.
13
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The cost or amortized cost and estimated fair value of investments classified as available-for-sale as of June 30, 2016 and December 31, 2015 are as follows:
Cost or | Gross | Gross | ||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||
Cost | Gains | Losses | Fair Value | |||||||||
June 30, 2016: | ||||||||||||
Fixed maturities: | ||||||||||||
U.S. government obligations | $ | 4,206,158 | $ | 74,749 | $ | 109 | $ | 4,280,798 | ||||
States and political subdivisions -- general obligations | 721,784 | $ | 12,883 | - | 734,667 | |||||||
States and political subdivisions -- special revenue | 275,307 | $ | 16,675 | - | 291,982 | |||||||
Corporate | 19,197,429 | $ | 144,454 | 294,664 | 19,047,219 | |||||||
Total fixed maturities | $ | 24,400,678 | $ | 248,761 | $ | 294,773 | $ | 24,354,666 | ||||
December 31, 2015: | ||||||||||||
Fixed maturities: | ||||||||||||
U.S. government obligations | $ | 3,256,704 | $ | 6,610 | $ | 69,815 | $ | 3,193,499 | ||||
States and political subdivisions -- general obligations | 1,001,993 | - | 6,942 | 995,051 | ||||||||
States and political subdivisions -- special revenue | 275,333 | - | 1,997 | 273,336 | ||||||||
Corporate | 19,745,201 | 1,468 | 937,278 | 18,809,391 | ||||||||
Total fixed maturities | $ | 24,279,231 | $ | 8,078 | $ | 1,016,032 | $ | 23,271,277 |
The Company has six securities that individually exceed 10% of the total of the state and political subdivisions categories as of June 30, 2016. The amortized cost, fair value, credit ratings, and description of the security is as follows:
Amortized | Estimated | |||||||
Cost | Fair Value | Credit Rating | ||||||
June 30, 2016: | ||||||||
Fixed maturities: | ||||||||
States and political subdivisions -- general obligations | ||||||||
Bellingham Wash | $ | 111,501 | $ | 116,242 | AA+ | |||
Longview Washington Refunding | 164,760 | 168,273 | NR | |||||
Memphis Tenn | 110,369 | 114,872 | AA | |||||
Maricopa County Arizona School District No. 31 | 335,154 | 335,280 | AA | |||||
States and political subdivisions -- special revenue | ||||||||
Philadelphia PA Auth For Indl Dev City Svc Agreem | 149,385 | 155,741 | AA | |||||
Riviera Beach FLA Pub Impt Rev | 100,407 | 110,485 | AA | |||||
Total | $ | 971,576 | $ | 1,000,893 |
14
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The following table summarizes, for all securities in an unrealized loss position at June 30, 2016 and December 31, 2015, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position.
June 30, 2016 | December 31, 2015 | |||||||||||||||
Gross | Number | Gross | Number | |||||||||||||
Estimated | Unrealized | of | Estimated | Unrealized | of | |||||||||||
Fair Value | Loss | Securities | Fair Value | Loss | Securities | |||||||||||
Fixed Maturities: | ||||||||||||||||
Less than 12 months: | ||||||||||||||||
U.S. government obligations | $ | 8,299 | $ | 109 | 1 | $ | 2,484,188 | $ | 62,343 | 14 | ||||||
States and political subdivisions -- | ||||||||||||||||
general obligations | - | - | - | 660,569 | 5,004 | 5 | ||||||||||
States and political subdivisions -- | ||||||||||||||||
special revenue | - | - | - | 248,146 | 1,618 | 2 | ||||||||||
Corporate | 3,824,751 | 44,670 | 18 | 15,320,916 | 796,204 | 97 | ||||||||||
Greater than 12 months: | ||||||||||||||||
U.S. government obligations | - | - | - | 305,055 | 7,472 | 3 | ||||||||||
States and political subdivisions -- | ||||||||||||||||
general obligations | - | - | - | 334,481 | 1,938 | 1 | ||||||||||
States and political subdivisions -- | ||||||||||||||||
special revenue | - | - | - | 25,190 | 379 | 1 | ||||||||||
Corporate | 7,633,585 | 249,994 | 36 | 3,166,108 | 141,074 | 22 | ||||||||||
Total fixed maturities | $ | 11,466,585 | $ | 294,773 | 55 | $ | 22,544,653 | $ | 1,016,032 | 145 |
Based on our review of the securities in an unrealized loss position at June 30, 2016 and December 31, 2015, no other-than-temporary impairments were deemed necessary. Management believes that the Company will fully recover its cost basis in the securities held at June 30, 2016, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment.
The amortized cost and estimated fair value of fixed maturities at June 30, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized | Estimated | ||||
Cost | Fair Value | ||||
Due in one year or less | $ | - | $ | - | |
Due after one year through five years | 2,067,384 | 2,093,965 | |||
Due after five years through ten years | 13,563,010 | 13,513,005 | |||
Due after ten years | 8,770,284 | 6,747,696 | |||
$ | 24,400,678 | $ | 24,354,666 |
15
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At June 30, 2016 and December 31, 2015, these required deposits had a total amortized cost of $7,701,787 and $6,186,865 and fair values of $7,759,577 and $6,000,376, respectively.
The components of net investment income for the three and six months ended June 30, 2016 and 2015 are as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Fixed maturities | $ | 207,495 | $ | 161,652 | $ | 417,151 | $ | 320,615 | ||||||||
Equity securities | - | 162 | 5,250 | 186 | ||||||||||||
Cash and short-term investments | 1 | 1 | 5 | 2 | ||||||||||||
Loss for equity method investments | - | (55,711 | ) | - | (16,650 | ) | ||||||||||
Other | 15,627 | 15,799 | 27,282 | 30,416 | ||||||||||||
223,123 | 121,903 | 449,688 | 334,569 | |||||||||||||
Less investment expenses | (21,345 | ) | (21,782 | ) | (34,782 | ) | (38,824 | ) | ||||||||
$ | 201,778 | $ | 100,121 | $ | 414,906 | $ | 295,745 |
Proceeds for the three months ended June 30, 2016 and 2015 from sales of investments classified as available-for-sale were $3,897,138 and $2,840,976, respectively. Gross gains of $45,897 and $14,613 and gross losses of $35,026 and $89,156 were realized on those sales during the three months ended June 30, 2016 and 2015, respectively. Proceeds for the six months ended June 30, 2016 and 2015 from sales of investments classified as available-for-sale were $7,516,601 and $7,166,021, respectively. Gross gains of $69,653 and $118,401 and gross losses of $55,897 and $114,696 were realized on those sales during the six months ended June 30, 2016 and 2015, respectively.
As of June 30, 2016, all mortgage loans were sold. The following table summarizes the activity in the mortgage loans on real estate, held for investment account for the periods ended June 30, 2016 and December 31, 2015.
Six months ended | Year ended | |||||
June 30, 2016 | December 31, 2015 | |||||
Balance at beginning of period | $ | - | $ | 349,386 | ||
Proceeds from settlement on mortgage loans on real estate, held for investment | - | (349,386 | ) | |||
Balance at end of period | $ | - | $ | - |
Note 5. Fair Values of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
● |
Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement
date. |
● |
Level 2: Significant other observable inputs
other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data.
|
● |
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
16
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur.
A description of the valuation methodologies used for assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Fixed maturities: Fixed maturities are recorded at fair value on a recurring basis utilizing a third-party pricing source. The valuations are reviewed and validated quarterly through random testing by comparisons to separate pricing models or other third party pricing services. For the period ended June 30, 2016, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third party prices were changed from the values received. Securities with prices based on validated quotes from pricing services are reflected within Level 2.
Cost method investments: The cost method investments are comprised of New Mexico Capital Corporation. This security has no active trading and the fair value for this security is not readily determinable. Therefore, this investment has been omitted from the fair value disclosure tables.
Cash: The carrying value of cash and cash equivalents and short-term investments approximate the fair value because of the short maturity of the instruments.
Policy loans: Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value. Policy loans are categorized as Level 3 in the fair value hierarchy.
Deposit-type contracts: The fair value for direct and assumed liabilities under deposit-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and nonperformance risk of the liabilities. Liabilities under deposit-type insurance contracts that are wholly ceded by Capital Reserve to a non-affiliated reinsurer are carried at cash surrender value which approximates fair value. These liabilities are categorized as Level 3 in the fair value hierarchy.
Surplus notes: The fair value for surplus notes is calculated using a discounted cash flow approach. Cash flows are projected utilizing scheduled repayments and discounted to the valuation date using market rates currently available for debt with similar remaining maturities. These notes are structured such that all interest is paid at maturity. In the following fair value tables, the Company has included accrued interest expense, which is recorded in the accounts payable and accrued expenses, of approximately $237,502 and $229,405 in carrying value of the surplus notes as of June 30, 2016 and December 31, 2015, respectively. These liabilities are categorized as Level 3 in the fair value hierarchy.
17
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The following table presents the Companys fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015.
Significant | |||||||||||
Quoted | Other | Significant | |||||||||
In Active | Observable | Unobservable | Estimated | ||||||||
Markets | Inputs | Inputs | Fair | ||||||||
(Level 1) | (Level 2) | (Level 3) | Value | ||||||||
June 30, 2016 | |||||||||||
Fixed maturities: | |||||||||||
U.S. government obligations | $ | - | $ | 4,280,798 | $ | - | $ | 4,280,798 | |||
States and political subdivisions general obligations | - | 734,667 | - | 734,667 | |||||||
States and political subdivisions special revenue | - | 291,982 | - | 291,982 | |||||||
Corporate | - | 19,047,219 | - | 19,047,219 | |||||||
Total fixed maturities | $ | - | $ | 24,354,666 | $ | - | $ | 24,354,666 | |||
December 31, 2015 | |||||||||||
Fixed maturities: | |||||||||||
U.S. government obligations | $ | - | $ | 3,193,499 | $ | - | $ | 3,193,499 | |||
States and political subdivisions general obligations | - | 995,051 | - | 995,051 | |||||||
States and political subdivisions special revenue | - | 273,336 | - | 273,336 | |||||||
Corporate | - | 18,809,391 | - | 18,809,391 | |||||||
$ | - | $ | 23,271,277 | $ | - | $ | 23,271,277 |
There were no transfers of financial instruments between any levels during the six months ended June 30, 2016 or during the year ended December 31, 2015.
Accounting standards require disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis are discussed above. There were no financial assets or financial liabilities measured at fair value on a non-recurring basis. Equity securities carried at cost are privately purchased common stocks. These common stocks are recorded using the cost basis of accounting. These securities have no active trading and the fair value for these securities is not readily determinable. The Company does not control these entities economically, and therefore does not consolidate these entities.
18
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy, for financial assets and financial liabilities as of June 30, 2016 and December 31, 2015, respectively:
June 30, 2016 | |||||||||||||||
Fair Value Measurements at Date Using | |||||||||||||||
Quoted Prices in | |||||||||||||||
Active Markets | |||||||||||||||
for Identical | Significant Other | Significant | |||||||||||||
Assets and | Observable | Unobservable | |||||||||||||
Carrying | Liabilities | Inputs | Inputs | Fair | |||||||||||
Amount | (Level 1) | (Level 2) | (Level 3) | Value | |||||||||||
Assets: | |||||||||||||||
Policy loans | $ | 393,492 | $ | - | $ | - | $ | 393,492 | $ | 393,492 | |||||
Cash and cash equivalents | 3,214,086 | 3,214,086 | - | - | 3,214,086 | ||||||||||
Liabilities: | |||||||||||||||
Policyholder deposits | |||||||||||||||
(Deposit-type contracts) | 15,165,556 | - | - | 15,165,556 | 15,165,556 | ||||||||||
Surplus notes and accrued interest payable | 795,599 | - | - | 791,798 | 791,798 | ||||||||||
December 31, 2015 | |||||||||||||||
Fair Value Measurements at Date Using | |||||||||||||||
Quoted Prices in | |||||||||||||||
Active Markets | |||||||||||||||
for Identical Assets and |
Significant Other | Significant | |||||||||||||
Observable | Unobservable | ||||||||||||||
Carrying | Liabilities | Inputs | Inputs | Fair | |||||||||||
Amount | (Level 1) | (Level 2) | (Level 3) | Value | |||||||||||
Assets: | |||||||||||||||
Policy loans | $ | 420,775 | $ | - | $ | - | $ | 420,775 | $ | 420,775 | |||||
Cash and cash equivalents | 1,192,336 | 1,192,336 | - | - | 1,192,336 | ||||||||||
Liabilities: | |||||||||||||||
Policyholder deposits | |||||||||||||||
(Deposit-type contracts) | 13,897,421 | - | - | 13,897,421 | 13,897,421 | ||||||||||
Surplus notes and accrued interest payable | 779,405 | - | - | 768,022 | 768,022 |
19
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 6. Income Tax Matters
Significant components of the Companys deferred tax assets and liabilities as of June 30, 2016 and December 31, 2015 are as follows:
June 30, 2016 | December 31, 2015 | ||||||
Deferred tax assets: | |||||||
Loss carry forwards | $ | 9,563,021 | $ | 8,962,587 | |||
Capitalized costs | 628,768 | 667,264 | |||||
Unrealized losses on investments | 10,367 | 356,495 | |||||
Benefit reserves | 1,022,824 | 1,071,997 | |||||
Total deferred tax assets | 11,224,980 | 11,058,343 | |||||
Less valuation allowance | (9,471,333 | ) | (9,287,024 | ) | |||
Total deferred tax assets, net of valuation allowance | 1,753,647 | 1,771,319 | |||||
Deferred tax liabilities: | |||||||
Policy acquisition costs | 634,200 | 593,654 | |||||
Due premiums | 234,432 | 234,468 | |||||
Value of business acquired | 645,315 | 693,297 | |||||
Intangible assets | 238,000 | 238,000 | |||||
Property and equipment | 1,700 | 11,900 | |||||
Total deferred tax liabilities | 1,753,647 | 1,771,319 | |||||
Net deferred tax assets | $ | - | $ | - |
At June 30, 2016 and December 31, 2015, the Company recorded a valuation allowance of $9,471,333 and $9,287,024, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income.
Loss carryforwards for tax purposes as of June 30, 2016, have expiration dates that range from 2024 through 2035.
There was no income tax expense for the three or six months ended June 30, 2016 and 2015. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 34% to pretax income, as a result of the following:
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Computed expected income tax benefit | $ | (312,825 | ) | $ | (279,849 | ) | $ | (574,258 | ) | $ | (545,090 | ) | |||
Increase (reduction) in income taxes resulting from: | |||||||||||||||
Meals, entertainment and political contributions | 9,598 | 12,862 | 18,755 | 16,534 | |||||||||||
Dividends received deduction | - | (38 | ) | - | (44 | ) | |||||||||
Other | 56,760 | 193,054 | 25,066 | 259,220 | |||||||||||
66,358 | 205,878 | 43,821 | 275,710 | ||||||||||||
Tax benefit before valuation allowance | (246,467 | ) | (73,971 | ) | (530,437 | ) | (269,380 | ) | |||||||
Change in valuation allowance | 246,467 | 73,971 | 530,437 | 269,380 | |||||||||||
Net income tax expense | $ | - | $ | - | $ | - | $ | - |
20
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 7. Reinsurance
A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015 is as follows:
June 30, 2016 | December 31, 2015 | ||||
Balance sheets: | |||||
Benefit and claim reserves assumed | $ | 2,695,539 | $ | 2,763,779 | |
Benefit and claim reserves ceded | 11,859,279 | 12,212,656 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Statements of comprehensive income: | |||||||||||||||
Premiums assumed | $ | 5,466 | $ | 6,417 | $ | 12,231 | $ | 13,668 | |||||||
Premiums ceded | 84,117 | 75,748 | 150,274 | 157,370 | |||||||||||
Benefits assumed | 25,135 | 47,370 | 30,158 | 51,959 | |||||||||||
Benefits ceded | 216,531 | 273,537 | 571,656 | 532,493 | |||||||||||
Commissions assumed | 9 | 6 | 17 | 10 | |||||||||||
Commissions ceded | 650 | 900 | 1,288 | 1,854 |
The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by reinsurer along with the A.M. Best credit rating as of June 30, 2016:
Recoverable on |
Total Amount | ||||||||||||||||
Recoverable | Recoverable | Benefit | Ceded | Recoverable | |||||||||||||
AM Best | on Paid | on Unpaid | Reserves/Deposit- | Due | from | ||||||||||||
Reinsurer | Rating | Losses | Losses | type Contracts | Premiums | Reinsurer | |||||||||||
Optimum Re Insurance Company | A- | $ | - | $ | 30,450 | $ | 189,504 | $ | - | $ | 219,954 | ||||||
Sagicor Life Insurance Company | A- | - | 281,272 | 11,597,158 | 239,105 | 11,639,325 | |||||||||||
$ | - | $ | 311,722 | $ | 11,786,662 | $ | 239,105 | $ | 11,859,279 |
During 1999, Old Reliance entered into a 75% coinsurance agreement with Sagicor Life (Sagicor) whereby 75% of the business written by Old Reliance is ceded to Sagicor. During 2000, Old Reliance coinsured the remaining 25% with Sagicor. At June 30, 2016 and December 31, 2015 total benefit reserves, policy claims, deposit-type contracts, and due premiums ceded by Old Reliance to Sagicor were $11,639,325 and $11,873,254, respectively. Old Reliance remains contingently liable on this ceded reinsurance should Sagicor be unable to meet their obligations.
The use of reinsurance does not relieve the Company of its primary liability to pay the full amount of the insurance benefit in the event of the failure of a reinsurer to honor its contractual obligation. No reinsurer of business ceded by the Company has failed to pay policy claims (individually or in the aggregate) with respect to our ceded business.
The Company monitors several factors that it considers relevant to satisfy itself as to the ongoing ability of a reinsurer to meet all obligations of the reinsurance agreements. These factors include the credit rating of the reinsurer, the financial strength of the reinsurer, significant changes or events of the reinsurer, and any other relevant factors. If the Company believes that any reinsurer would not be able to satisfy its obligations with the Company, a separate contingency reserve may be established. At June 30, 2016 and December 31, 2015, no contingency reserve was established.
21
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 8. Deposit-Type Contracts
The Companys deposit-type contracts represent the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. Liabilities for these deposit-type contracts are included without reduction for potential surrender charges. This liability is equal to the accumulated account deposits, plus interest credited, and less policyholder withdrawals. The following table provides information about deposit-type contracts for the six months ended June 30, 2016 and year ended December 31, 2015:
Six Months Ended | Year Ended | ||||||
June 30, 2016 | December 31, 2015 | ||||||
Beginning balance | $ | 13,897,421 | $ | 10,722,227 | |||
First Wyoming Life beginning balance | - | 799,990 | |||||
Change in deposit-type contracts assumed from SNL | - | (1,200 | ) | ||||
Deposits received | 1,339,406 | 2,387,104 | |||||
Investment earnings | 352,989 | 533,646 | |||||
Withdrawals | (421,203 | ) | (533,762 | ) | |||
Contract Charges | (3,057 | ) | (10,584 | ) | |||
Ending Balance | $ | 15,165,556 | $ | 13,897,421 |
Under the terms of American Lifes coinsurance agreement with SNL, American Life assumes certain deposit-type contract obligations, as shown in the table above. The remaining deposits, withdrawals and interest credited represent those for American Lifes direct business.
Note 9. Commitments and Contingencies
Legal Proceedings: We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of our business, and we are not aware of any claims that could materially affect our financial position or results of operations.
Regulatory Matters: State and federal regulatory bodies regularly make inquiries and conduct examinations or investigations concerning the Companys compliance with laws in relation to, but not limited to, insurance and securities. The issues involved in information requests and regulatory matters vary widely. The Company cooperates in these inquiries.
Office Lease: The Company leases office space in Lincoln, Nebraska under an agreement executed October 17, 2013 that expires on January 31, 2024. Great Plains entered into a lease on October 4, 2013 for office space in Mitchell, South Dakota, which expires on November 30, 2016. First Wyoming leases space in Cheynne, Wyoming, which expires on August 31, 2016. Rent expense for the three months ended June 30, 2016 and 2015 was $99,833 and $55,377 respectively. Rent expense for the six months ended June 30, 2016 and 2015 was $173,043 and $111,752 respectively. Future minimum payments rental are as follows:
2016 | $ | 92,292 |
2017 | 149,481 | |
2018 | 136,557 | |
2019 | 141,412 | |
2020 | 146,477 | |
Later years | 483,333 | |
Total | $ | 1,149,552 |
22
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 10. Statutory Net Income and Surplus
American Life is required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Arizona Department of Insurance. Likewise, Capital Reserve, Great Plains Life, and First Wyoming Life are required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Missouri, South Dakota, and Wyoming Departments of Insurance, respectively Statutory practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. The following table summarizes the statutory net loss and statutory capital and surplus of American Life, Capital Reserve, and Great Plains Life, and First Wyoming Life as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015.
Statutory Capital and Surplus as of | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
American Life | $ | 1,938,747 | $ | 2,526,392 | ||||
Capital Reserve | 1,381,445 | 1,464,044 | ||||||
Great Plains Life | 1,582,416 | 1,663,368 | ||||||
First Wyoming Life | 2,625,322 | 2,715,494 | ||||||
Statutory Net Income (Loss) for the six months ended June 30, | ||||||||
2016 | 2015 | |||||||
American Life | $ | (397,388 | ) | $ | (697,981 | ) | ||
Capital Reserve | (80,322 | ) | (25,490 | ) | ||||
Great Plains Life | (71,036 | ) | (261,506 | ) | ||||
First Wyoming Life | (223,940 | ) | (165,211 | ) |
Note 11. Surplus Notes
The following provides a summary of the Companys surplus notes along with issue dates, maturity dates, face amounts, and interest rates as of June 30, 2016:
Creditor | Issue Date | Maturity Date | Face Amount | Interest Rate | |||||
David G. Elmore | September 1, 2006 | September 1, 2016 | $ | 250,000 | 7% | ||||
David G. Elmore | August 4, 2011 | August 1, 2016 | 300,000 | 5% |
Any payments and/or repayments must be approved by the Nebraska Department of Insurance. As of June 30, 2016, the Company has accrued $245,599 of interest expense under accounts payable and accrued expenses on the consolidated balance sheet. No payments were made in the six months ending June 30, 2016, or during the year ended December 31, 2015. The surplus note for $300,000 matured on August 1, 2016. Due to the nature of surplus notes, a repayment cannot be made without the prior approval of the Nebraska regulators.
Note 12. Related Party Transactions
The Company commenced its third party administrative (TPA) services in 2012 as an additional revenue source. These agreements, for various levels of administrative services on behalf of each customer, generate fee income for the Company. Services provided to each customer vary based on their needs and can include some or all aspects of back-office accounting and policy administration. We have been able to perform our TPA services using our existing in-house resources. Fees earned during the three months ended June 30, 2016 and 2015 were $13,500 and $40,608, respectively. Fees earned during the six months ended June 30, 2016 and 2015 were $28,000 and $95,594, respectively.
23
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 13. Subsequent Events
All of the effects of subsequent events that provide additional evidence about conditions that existed at June 30, 2016, including the estimates inherent in the process of preparing consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the date of the consolidated financial statements but arose after, but before the consolidated financial statements were available to be issued. In some cases, non-recognized subsequent events are disclosed to keep the consolidated financial statements from being misleading.
The Company has evaluated subsequent events through the date that the consolidated financial statements were issued and found no events to report.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following Managements Discussion and Analysis (MD&A) is intended to help the reader understand the financial condition as of June 30, 2016, compared with December 31, 2015, and the results of operations for the three and six months ended June 30, 2016, compared with the corresponding periods in 2015 of Midwest Holding Inc. and its consolidated subsidiaries. The MD&A is provided as a supplement to, and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements (Notes) presented in Part 1 Item 1. Financial Statements; our Form 10-K for the year ended December 31, 2015 (2015 Form 10-K), including the sections entitled Part I Item 1A. Risk Factors, and Part II Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
Except for certain historical information contained herein, this report contains certain statements that may be considered "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended, and such statements are subject to the safe harbor created by those sections. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of revenues, earnings, cash flows, capital expenditures, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed acquisition plans, new services, or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statement of assumptions underlying any of the foregoing. Words such as "believe," "may," "could," "expects," "hopes," "estimates," "projects," "intends," "anticipates," and "likely," and variations of these words, or similar expressions, terms, or phrases, are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks, assumptions, and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Item 1A. Risk Factors," set forth in our 2015 Form 10-K.
All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the our expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.
24
Overview
Midwest Holding Inc., a Nebraska corporation, (we, us, our, Midwest, the Company or the Registrant) was formed on October 31, 2003 for the primary purpose of becoming a financial services holding company. We presently conduct our business through our wholly owned life insurance subsidiary, American Life & Security Corp. (American Life). Capital Reserve Life Insurance Company of Jefferson City, Missouri (Capital Reserve) is a dormant, wholly owned subsidiary of American Life. On August 5, 2014, Great Plains Financial (Great Plains) was acquired by us. The wholly owned subsidiary of Great Plains, Great Plains Life Assurance Company (Great Plains Life) became a subsidiary of Midwest and then became a wholly owned subsidiary of American Life through a capital contribution from us. On October 27, 2015, we acquired First Wyoming Capital Corporation (First Wyoming). The subsidiary of First Wyoming, First Wyoming Life Insurance Company (First Wyoming Life), became a 99.9% owned subsidiary of ours.
From our inception, we have raised approximately $18.0 million through sales of shares of voting common stock and convertible non-voting preferred stock in several private placements exempt from registration under Section 4(2) of the Securities Act of 1933, Regulation D thereunder and an intrastate offering in the State of Nebraska.
The Company was a development stage company until American Life commenced insurance operations in 2009. We have incurred significant net losses since inception in 2003 totaling approximately $25.4 million through June 30, 2016. These losses have resulted primarily from costs incurred while raising capital and establishing American Life. We expect to continue to incur significant operating losses until we achieve a volume of in-force life insurance policies that provides premiums that are sufficient to cover our operating expenses.
In July 2016, Midwests wholly owned subsidiary, American Life, received regulatory approval to change its state of domicile from Arizona to Nebraska.
Critical Accounting Policies and Estimates
The MD&A included in our 2015 Form 10-K contains a detailed discussion of our critical accounting policies and estimates. This report should be read in conjunction with the Critical Accounting Policies and Estimates discussed in our 2015 Form 10-K.
Consolidated Results of Operations Three Months Ended June 30, 2016
Revenues are primarily generated from premium revenues and investment income. Revenues for the three months ended June 30, 2016 and 2015 are summarized in the table below.
Three months ended June 30, | |||||||
2016 | 2015 | ||||||
Premiums | $ | 932,042 | $ | 993,554 | |||
Investment income, net of expenses | 201,778 | 100,121 | |||||
Net realized gain (loss) on investments | (56,629 | ) | (74,543 | ) | |||
Miscellaneous income | 13,250 | 44,392 | |||||
$ | 1,090,441 | $ | 1,063,524 |
Premium revenue: Premium revenue for the three months ended June 30, 2016 decreased compared to the same period in 2015 primarily due to the reduction of our selling efforts in the last twelve months to preserve our regulatory capital and surplus. We expect to have limited production of new business in order to preserve surplus for the next twelve months. The decline is also related to the GAAP accounting for premiums from our Accumulator life insurance product (our primary product). We recognize 100% of the first year payments received for our Accumulator life insurance products as premiums earned when due. In subsequent years, 50% of the payments received on the Accumulator life insurance products are applied toward the traditional life insurance premium and the other 50% of the payments received are applied towards the annuity premium which is recognized as deposits to policyholder account balances rather than revenues. These decreases were offset by $100,000 of premium earned by First Wyoming as a result of our purchase of First Wyoming which were not included in the 2015 results.
25
Investment income, net of expenses: The components of net investment income for the three months ended June 30, 2016 and 2015 are as follows:
Three months ended June 30, | |||||||
2016 | 2015 | ||||||
Fixed maturities | $ | 207,495 | $ | 161,652 | |||
Equity securities | - | 162 | |||||
Cash and short-term investments | 1 | 1 | |||||
Loss for equity method investments | - | (55,711 | ) | ||||
Other | 15,627 | 15,799 | |||||
223,123 | 121,903 | ||||||
Less investment expenses | (21,345 | ) | (21,782 | ) | |||
$ | 201,778 | $ | 100,121 |
The increase in investment income was due primarily to the increased size of our bond portfolio due to the cash of $2.4 million received from our acquisition of Northstar which was partially invested, the consolidation of First Wyoming Life and its investment income of $63,000, and the losses from equity method investments decreasing due to restating prior year treatment for the investment in Pacific Northwest Corporation from cost to equity method of accounting. Policy loan interest, real estate investments, and miscellaneous investment income is included in the Other line item above.
Miscellaneous income: Miscellaneous income decreased primarily due to decreased third party administration fee income due to the acquisition of First Wyoming in 2015 and the acquisition of Northstar in March 2016. We expect this source of revenue to remain small as these services are not performed for any companies in which we do not have an equity ownership. At June 30, 2016, we had two customers for whom we performed these services. Fees earned during the three months ended June 30, 2016 and 2015 were $13,500 and $40,608, respectively.
Expenses for the three months ended June 30, 2016 and 2015 are summarized in the table below.
Three months ended June 30, | |||||
2016 | 2015 | ||||
Death and other benefits | $ | 179,096 | $ | 262,432 | |
Interest credited | 182,395 | 126,246 | |||
Increase in benefit reserves | 224,644 | 247,927 | |||
Amortization of deferred acquisition costs | 25,233 | 123,503 | |||
Salaries and benefits | 593,093 | 479,284 | |||
Other operating expenses | 806,055 | 647,217 | |||
$ | 2,010,516 | $ | 1,886,609 |
Death and other benefits: Death benefits decreased compared to the same period in 2015. A decrease in our pending claims and incurred but not reported claims contributed to the change. Death benefits are expected to continue on the Old Reliance block of business as a result of the age of the block and the type of policy sold prior to the acquisition by Midwest in 2010. The Company maintains policy reserves to offset the effect of such claims. No claims have been incurred on the new business written as of the three months ended June 30, 2016, or related to the inclusion of First Wyoming.
Interest credited: The increase was due to the increase in the deposit-type liabilities owed to the policyholders and inclusion of First Wyoming which added $967,000 of annuities.
26
Increase in benefit reserves: The decrease in benefit reserves reflects the maturity of our in-force block of business, the decrease in new business written, and the increase in surrenders. The decrease was offset by the inclusion of First Wyoming which added $4,000 of reserves.
Amortization of deferred acquisition costs: The decline was due primarily to the decrease in surrenders in 2016 and the decline in new business written to conserve capital and surplus.
Salaries and benefits: The increase was due the salaries that were previously related to Northstar of $76,000 and the inclusion of First Wyoming salaries and benefits of $49,000. These were offset by decreases in salaries and benefits due to staff reductions.
Other operating expenses: Other operating expenses increased due to the inclusion of First Wyoming of $107,000, stock transfer, legal, and other expenses related to the Northstar acquisition of $70,000, travel due to capital raising of $30,000, legal expenses related to insurance subsidiary redomestication and merger of $27,000, and various other smaller net increases. These increases were offset by a decrease in marketing fees of $65,000.
Net Loss: Net loss was ($920,075) for the three months ended June 30, 2016, compared to a net loss of ($823,085) for the same period in 2015. The increase in net loss was primarily due to a decrease in premium revenue and the net loss of $93,000 as a result of the inclusion of First Wyoming, and non-recurring expenses relating to the Northstar merger and redomestication of our life insurance subsidiaries, offset by a decrease in death benefits, an increase in investment income, and a decrease in the amortization of deferred acquisition costs.
Consolidated Results of Operations Six Months Ended June 30, 2016
Revenues are primarily generated from premium revenues and investment income. Revenues for the six months ended June 30, 2016 and 2015 are summarized in the table below.
Six months ended June 30, | ||||||
2016 | 2015 | |||||
Premiums | 1,859,475 | $ | 1,872,105 | |||
Investment income, net of expenses | 414,906 | 295,745 | ||||
Net realized gain (loss) on investments | (53,744 | ) | 3,705 | |||
Miscellaneous income | 63,557 | 99,244 | ||||
$ | 2,284,194 | $ | 2,270,799 |
Premium revenue: Premium revenue for the six months ended June 30, 2016 decreased compared to the same period in 2015 primarily due to the reduction of our selling efforts in the last twelve months to preserve our regulatory capital and surplus. We expect to have limited production of new business over the next year in order to preserve surplus. The decline was also related to the GAAP accounting for premiums from our Accumulator life insurance product (our primary product). We recognize 100% of the first year payments received for our Accumulator life insurance products as premiums earned when due. In subsequent years, 50% of the payments received on the Accumulator life insurance products are applied toward the traditional life insurance premium and the other 50% of the payments received are applied towards the annuity premium which is recognized as deposits to policyholder account balances rather than revenues. These decreases were offset by $200,000 of premiums earned by First Wyoming as a result of our purchase of First Wyoming which was not included in prior year results.
27
Investment income, net of expenses: The components of net investment income for the six months ended June 30, 2016 and 2015 are as follows:
Six months ended June 30, | |||||||
2016 | 2015 | ||||||
Fixed maturities | $ | 417,151 | $ | 320,615 | |||
Equity securities | 5,250 | 186 | |||||
Cash and short-term investments | 5 | 2 | |||||
Loss from equity method investments | - | (16,650 | ) | ||||
Other | 27,282 | 30,416 | |||||
449,688 | 334,569 | ||||||
Less investment expenses | (34,782 | ) | (38,824 | ) | |||
$ | 414,906 | $ | 295,745 |
The increase in investment income was due primarily to the increased size of our bond portfolio due to the cash of $2.4 million received from our acquisition of Northstar which was partially invested, the consolidation of First Wyoming Life investment income of $63,000, and the losses from equity method investments decreasing due to restating prior year treatment for the investment in Pacific Northwest Corporation from cost to equity method of accounting. Policy loan interest, real estate investments, and miscellaneous investment income is included in the Other line item above.
Miscellaneous income: Miscellaneous income decreased primarily due to our TPA (as discussed above) fee income declined due to the First Wyoming and Northstar mergers. We expect this source of revenue to remain small as these services are not performed for any companies in which we do not have an equity ownership. At June 30, 2016, we had two customers for whom we performed these services. Fees earned during the six months ended June 30, 2016 and 2015 were $28,000 and $95,594, respectively.
Expenses for the six months ended June, 2016 and 2015 are summarized in the table below.
Six months ended June 30, | |||||
2016 | 2015 | ||||
Death and other benefits | $ | 408,118 | $ | 461,299 | |
Interest credited | 352,989 | 255,598 | |||
Increase in benefit reserves | 391,669 | 498,551 | |||
Amortization of deferred acquisition costs | 147,727 | 253,850 | |||
Salaries and benefits | 1,113,323 | 991,835 | |||
Other operating expenses | 1,559,363 | 1,412,871 | |||
$ | 3,973,189 | $ | 3,874,004 |
Death and other benefits: Death benefits decreased compared to the same period in 2015, as a decrease in our pending claims and incurred but not reported claims for American Life contributed primarily to the change. Death benefits are expected to continue on the Old Reliance block of business as a result of the age of the block and the type of policy sold prior to the acquisition of Midwest in 2010. The Company maintains policy reserves to offset the effect of such claims. No claims have been incurred on the new business written during the first six months ended June 30, 2016 for American Life or Great Plains Life. These decreases were offset by $30,000 of claims relating to the inclusion of First Wyoming.
Interest credited: The increase was due to the increase in the deposit-type liabilities owed to the policyholders and the inclusion of First Wyoming which added $967,000 of annuities.
Increase in benefit reserves: The decrease in benefit reserves reflects the maturity of our in-force block of business, the decrease in new business written and the increase in surrenders. These decreases were offset by First Wyoming which added $31,000.
28
Amortization of deferred acquisition costs: The decline is due primarily to the decrease in surrenders in 2016 and the decline in new business written to conserve capital and surplus.
Salaries and benefits: The increase was due to the inclusion of First Wyoming salaries and benefits of $160,000.
Other operating expenses: Other operating expenses increased due to the inclusion of First Wyoming of $239,000, expenses related to Northstar and First Wyoming mergers and the redomestication and merger of our life subsidiaries of $186,000, and increase in travel expenses due to capital raising efforts of $35,000, offset by decreases in marketing fees of $88,000, and the reimbursement for Great Plains Life examination fees of $67,000.
Net Loss: Net loss was ($1,688,995) for the six months ended June 30, 2016, compared to a net loss of ($1,603,205) for the same period in 2015. The increase in net loss was due to the net loss of $185,000 as a result of the inclusion of First Wyoming, the decline in premium revenue, increase in interest credited, and other operating expenses, offset by higher investment income, lower death benefits, decrease in reserves, and decrease in amortization of deferred acquisition costs.
Investments
The Companys overall investment philosophy is reflected in the allocation of its investments. The Company emphasizes investment grade debt securities, with smaller holdings in equity securities, real estate held for investment, and policy loans. The following table shows the carrying value of our investments by investment category and cash and cash equivalents, and the percentage of each to total invested assets as of June 30, 2016 and December 31, 2015.
June 30, 2016 | December 31, 2015 | |||||||||||
Carrying | Percent | Carrying | Percent | |||||||||
Value | of Total | Value | of Total | |||||||||
Fixed maturity securities: | ||||||||||||
U.S. government obligations | $ | 4,280,798 | 15.0 | % | $ | 3,193,499 | 12.5 | % | ||||
States and political subdivisions - general | ||||||||||||
obligation | 734,667 | 2.6 | 822,094 | 3.2 | ||||||||
States and political subdivisions - special revenue | 291,982 | 1.0 | 334,481 | 1.3 | ||||||||
Corporate | 19,047,219 | 66.7 | 18,921,203 | 74.0 | ||||||||
Total fixed maturity securities | 24,354,666 | 85.3 | 23,271,277 | 91.0 | ||||||||
Cash and cash equivalents | 3,214,086 | 11.3 | 1,192,336 | 4.8 | ||||||||
Equity securities, at cost | 53,816 | 0.2 | 140,250 | 0.5 | ||||||||
Other investments: | ||||||||||||
Real estate, held for investment | 523,749 | 1.8 | 529,769 | 2.1 | ||||||||
Policy loans | 393,492 | 1.4 | 420,775 | 1.6 | ||||||||
Total | $ | 28,539,809 | 100.0 | % | $ | 25,554,407 | 100.0 | % |
Increases in fixed maturity securities primarily resulted from the acquisition of Northstar.
29
The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of June 30, 2016 and December 31, 2015.
June 30, 2016 | December 31, 2015 | |||||||||||
Carrying | Carrying | |||||||||||
Value | Percent | Value | Percent | |||||||||
AAA and U.S. Government | $ | 4,498,321 | 18.5 | % | $ | 3,406,770 | 14.6 | % | ||||
AA | 1,713,445 | 7.0 | 1,711,366 | 7.4 | ||||||||
A | 6,136,744 | 25.2 | 6,341,991 | 27.2 | ||||||||
BBB | 11,837,883 | 48.6 | 11,534,042 | 49.6 | ||||||||
Total investment grade | 24,186,393 | 99.3 | 22,994,169 | 98.8 | ||||||||
BB and other | 168,273 | 0.7 | 277,108 | 1.2 | ||||||||
Total | $ | 24,354,666 | 100.0 | % | $ | 23,271,277 | 100.0 | % |
Reflecting the quality of securities maintained by the Company, 99.3% and 98.8% of all fixed maturity securities were investment grade as of June 30, 2016 and December 31, 2015, respectively. Due to the low interest rate environment, the Company has invested in bonds with A or BBB ratings.
Market Risks of Financial Instruments
The Company holds a portfolio of investments that primarily includes cash, bonds, stocks, and real estate, held for investment. Each of these investments is subject to market risks that can affect their return and their fair value. A majority of the investments are fixed maturity securities including debt issues of corporations, U.S. Treasury securities, or securities issued by government agencies. The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and equity risk.
Interest Rate Risk
Interest rate risk arises from the price sensitivity of investments to changes in interest rates. Interest and dividend income represent the greatest portion of an investments return for most fixed maturity securities in stable interest rate environments. The changes in the fair value of such investments are inversely related to changes in market interest rates. As interest rates fall, the interest and dividend streams of existing fixed-rate investments become more valuable and fair values rise. As interest rates rise, the opposite effect occurs.
The Company seeks to mitigate its exposure to adverse interest rate movements through staggering the maturities of the fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet its obligations and to address reinvestment risk considerations. Due to the composition of our book of insurance business, we believe it is unlikely that we would encounter large surrender activity due to an interest rate increase that would force the disposal of fixed maturities at a loss.
Credit Risk
The Company is exposed to credit risk through counterparties and within the investment portfolio. Credit risk relates to the uncertainty associated with an obligors ability to make timely payments of principal and interest in accordance with the contractual terms of an instrument or contract. The Company manages its credit risk through established investment credit policies and guidelines which address the quality of creditors and counterparties, concentration limits, diversification practices and acceptable risk levels. These policies and guidelines are regularly reviewed and approved by senior management.
Liquidity and Capital Resources
Since inception in 2003, the Companys operations have been financed primarily through the sale of voting common stock and non-voting preferred stock. Its operations have not been profitable and have generated significant operating losses.
30
Premium income, deposits to policyholder account balances, and investment income are the primary sources of funds while withdrawals of policyholder account balances, investment purchases, policy benefits in the form of claims, and operating expenses are the primary uses of funds. To ensure we will be able to pay future commitments, the funds received as premium payments and deposits are invested in primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will meet our ongoing cash flow needs. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. The Companys investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. Cash flow projections and cash flow tests under various market interest scenarios are also performed annually to assist in evaluating liquidity needs and adequacy. We currently anticipate that available liquidity sources and future cash flows will be adequate to meet our needs for funds.
Net cash used by operating activities was $1,172,505 for the six months ended June 30, 2016. The primary sources of cash from operating activities were from premium receipts and collection amounts due from reinsurers. The primary uses of cash from operating activities were from payments of commissions to agents and policy liabilities. Net cash provided by investing activities was $2,297,612. The primary source of cash was from the acquisition of Northstar Financial Corporation and sales of available-for-sale securities. Offsetting this source of cash was the Companys investments in available-for-sale securities and the purchase of property and equipment. Net cash provided by financing activities was $896,643. The primary source of cash was receipts on deposit type contracts. These were offset by withdrawals on deposit type contracts and a preferred stock dividend.
At June 30, 2016, the Company had cash and cash equivalents totaling $3,214,086. The Company believes that its existing cash and cash equivalents will be sufficient to fund the anticipated operating expenses and capital expenditures for at least twelve months. The Company has based this estimate upon assumptions that may prove to be wrong and the Company could use its capital resources sooner than they currently expect. The surplus notes for $300,000 and $200,000 matured on August 1, 2016 and September 1, 2016, respectively. Due to the nature of surplus notes a repayment cannot be made without the prior approval of the Nebraska regulators.
Although we believe we have sufficient cash to fund anticipated operating expenses and pay claims for at least the next twelve months, at present, we do not have sufficient regulatory capital and surplus for our life insurance subsidiaries in order to seek to sell a meaningful amount of new life insurance products. We are seeking to address this lack of capital through (i) our recent acquisition of Northstar, in which we contributed approximately $1.0 million of capital to American Life, our primary insurance subsidiary, (ii) we intend to seek to raise additional equity capital during the last half of 2016, and (iii) we are in the process of redomesticating First Wyoming Life in Nebraska and merge it into American Life, which will significantly increase the capital and surplus of American Life. However, we cannot assure investors in our company that we will be able to alleviate our capital constraints. A lack of new insurance policy sales will have a negative long-term impact on our profitability.
Impact of Inflation
Insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may affect such losses and expenses, are known. The Company attempts, in establishing premiums, to anticipate the potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by us. Inflation also affects the rate of investment return on the investment portfolio with a corresponding effect on investment income.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual Obligations
As a smaller reporting company the Company is not required to provide the table of contractual obligations required pursuant to this Item.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, the Company is not required to provide disclosure pursuant to this Item.
ITEM 4. CONTROLS AND PROCEDURES.
We have established disclosure controls and procedures to ensure, among other things, material information relating to our Company, including our consolidated subsidiaries, is made known to our officers who certify our financial reports and to the other members of our senior management and the Board of Directors.
As required by Exchange Act Rule 13a-15(b), management of the Company, including the Chief Executive Officer and the Vice President, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Companys disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e). Based upon an evaluation at the end of the period, the Chief Executive Officer and the Vice President concluded that disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the Exchange Act.
There were no changes to the Companys internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the six months ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
31
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of our business, and we are not aware of any claims that could materially affect our financial position or results of operations.
ITEM 1A. RISK FACTORS.
There have been no material changes from the risk factors described in the Companys Annual Report on Form 10-K for the year ended December 31, 2015 in response to Item 1A of Part I of such Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
32
ITEM 6. EXHIBITS.
EXHIBIT | ||
NUMBER | DESCRIPTION | |
31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32* | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS ** | XBRL Instance Document. | |
101.SCH ** | XBRL Taxonomy Extension Schema Document. | |
101.CAL ** | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB ** | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE ** | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF ** | XBRL Taxonomy Extension Definition Linkbase Document. |
* | Filed herewith. |
** | Furnished herewith. |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: August 12, 2016
MIDWEST HOLDING INC. | ||
By: | /s/ Mark A. Oliver | |
Name: | Mark A. Oliver | |
Title: | Chief Executive Officer | |
(Principal Executive Officer, | ||
Principal Financial Officer, and | ||
Principal Accounting Officer) |
34
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark A. Oliver, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Midwest Holding Inc. and subsidiaries (the Company); | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 12, 2016 | /s/ Mark A. Oliver |
Mark A. Oliver | |
Chief Executive Officer | |
Principal Executive Officer & Principal Financial Officer |
35
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark A. Oliver, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Midwest Holding Inc. and subsidiaries (the Company); | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 12, 2016 | /s/ Mark A. Oliver |
Mark A. Oliver | |
Chief Executive Officer | |
Principal Accounting Officer |
36
Exhibit 32
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Midwest Holding Inc. and subsidiaries (the Company) on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the Report), we certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 12, 2016 | /s/ Mark A. Oliver |
Mark A. Oliver | |
Chief Executive Officer | |
Principal Executive Officer & Principal Financial Officer, | |
& Principal Accounting Officer |
37
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Aug. 01, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | MIDWEST HOLDING INC. | |
Entity Central Index Key | 0000355379 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 22,558,956 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2016 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2016 |
Consolidated Statements of Comprehensive Income - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Income: | ||||
Premiums | $ 932,042 | $ 993,554 | $ 1,859,475 | $ 1,872,105 |
Investment income, net of expenses | 201,778 | 100,121 | 414,906 | 295,745 |
Net realized (loss) gain on investments | (56,629) | (74,543) | (53,744) | 3,705 |
Miscellaneous income | 13,250 | 44,392 | 63,557 | 99,244 |
Total Income | 1,090,441 | 1,063,524 | 2,284,194 | 2,270,799 |
Expenses: | ||||
Death and other benefits | 179,096 | 262,432 | 408,118 | 461,299 |
Interest credited | 182,395 | 126,246 | 352,989 | 255,598 |
Increase in benefit reserves | 224,644 | 247,927 | 391,669 | 498,551 |
Amortization of deferred acquisition costs | 25,233 | 123,503 | 147,727 | 253,850 |
Salaries and benefits | 593,093 | 479,284 | 1,113,323 | 991,835 |
Other operating expenses | 806,055 | 647,217 | 1,559,363 | 1,412,871 |
Total Expenses | 2,010,516 | 1,886,609 | 3,973,189 | 3,874,004 |
Loss before income taxes | (920,075) | (823,085) | (1,688,995) | (1,603,205) |
Income tax expense | ||||
Net loss | (920,075) | (823,085) | (1,688,995) | (1,603,205) |
Comprehensive income: | ||||
Unrealized gains (losses) on investments arising during period | 478,024 | (646,053) | 929,918 | (501,910) |
Less: reclassification adjustment for net realized losses (gains) on investments | 56,629 | 74,543 | 53,744 | (3,705) |
Other comprehensive income | 534,653 | (571,510) | 983,662 | (505,615) |
Comprehensive (loss) | $ (385,422) | $ (1,394,595) | $ (705,333) | $ (2,108,820) |
Net loss per common share, basic and diluted | $ (0.04) | $ (0.06) | $ (0.08) | $ (0.12) |
Nature of Operations and Summary of Significant Accounting Policies |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Operations and Summary of Significant Accounting Policies |
Note 1. Nature of Operations and Summary of Significant Accounting Policies Nature of operations: Midwest Holding Inc. and its wholly owned subsidiaries (Midwest or the Company, which also may be referred to as we, our or us) operate multiple insurance businesses through one business segment. These insurance companies are: American Life & Security Corporation (American Life), Capital Reserve Life Insurance Company (Capital Reserve), First Wyoming Life Insurance Company (First Wyoming Life) and Great Plains Life Assurance Company (Great Plains). Through these insurance companies we sell traditional, non-traditional and multi-benefit life insurance policies. Basis of presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (GAAP) for interim financial information and with the instructions from the Securities and Exchange Commission (SEC) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2105 (2015 Form 10-K), should be read in connection with the reading of these interim unaudited consolidated financial statements. In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Companys results. Operating results for the six month period ended June 30, 2016, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016. All material inter-company accounts and transactions have been eliminated in consolidation. Investments: All fixed maturities and a portion of the equity securities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value as of the financial statement date. Bond premiums and discounts are amortized using the scientific-yield method (calculated by multiplying the adjusted basis by the yield at issuance and then subtracting the coupon interest) over the term of the bonds. Realized gains and losses on securities sold during the year are determined by the specific security sold. Unrealized holding gains and losses, net of applicable income taxes, are included in comprehensive loss. Declines in the fair value of available for sale securities below their amortized cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining if these losses are expected to be other-than-temporary, we consider severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings and the intent and ability of us to hold the investment until the recovery of the cost. The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the statement of comprehensive income as an other-than-temporary impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The credit component of the other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Companys best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. No other-than-temporary impairments were recognized during the six months ended June 30, 2016 or 2015. Investment income consists of interest, dividends, gains and losses from equity method investments, and real estate income, which are recognized on an accrual basis and amortization of premiums and discounts. Included within the Companys equity securities are certain privately purchased common stocks. These investments are recorded using the cost basis method of accounting. These securities do not have a readily determinable fair value. The Company does not control these entities economically, and therefore does not consolidate these entities in its financial statements. Policy loans: Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value. Real estate, held for investment: Real estate, held for investment is comprised of ten condominiums in Hawaii. Real estate is carried at depreciated cost. Depreciation on residential real estate is computed on a straight-line basis over 50 years. Cash and cash equivalents: The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents. At June 30, 2016 and December 31, 2015, the Company had no cash equivalents. The Company has cash on deposit with financial institutions which at times may exceed the Federal Deposit Insurance Corporation insurance limits. The Company has not suffered any losses in the past and does not believe it is exposed to any significant credit risk in these balances. Deferred acquisition costs: Deferred acquisition costs consist of incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions. Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter of its fiscal year unless events occur which require an immediate review. The Company determined during its December 31, 2015 analysis that all deferred acquisition costs were recoverable. The following table provides information about deferred acquisition costs for the periods ended June 30, 2016 and December 31, 2015, respectively.
Value of business acquired: Value of business acquired represents the estimated value assigned to purchased companies or insurance in force of the assumed policy obligations at the date of acquisition of a block of policies. American Life purchased Capital Reserve during 2010, resulting in an initial capitalized asset for value of business acquired of $116,326. Additionally, the Company paid an upfront ceding commission of $375,000 to Security National Life (SNL) in respect of the purchase of Capital Reserve. An initial asset was established for the value of this business acquired totaling $348,010, representing primarily the ceding commission. The agreement has an automatic renewal provision unless the Company notifies SNL of its intention not to renew, no less than 180 days prior to the expiration of the then current agreement. Each automatic renewal period is for one year. This reinsurance remains in place. The remaining capitalized and SNL asset balances at June 30, 2016, of $43,622 and $130,504, respectively, will be included in the accounting for the anticipated sale of Capital Reserve in the second half of 2016. Midwest acquired Great Plains Financial in 2014 and established an asset for value of business acquired of $1,288,207. Midwest acquired First Wyoming Capital during 2015 and established an asset for value of business acquired of $506,600. These assets are being amortized on a straight-line basis, which approximates the earnings pattern of the related policies, over ten years. The accounting for the First Wyoming acquisition is still preliminary and is expected to be final in the third quarter of 2016. The Company recognized amortization expense of $56,478 and $43,814 for the three months ended June 30, 2016 and 2015, respectively relative to these transactions. The Company recognized amortization expense of $112,957 and $87,627 for the six months ended June 30, 2016 and 2015, respectively related to these transactions. Additionally, American Life purchased Old Reliance in August 2011, resulting in an initial capitalized asset for value of business acquired of $824,485. This asset is being amortized over the life of the related policies (refer to revenue recognition and related expenses discussed later regarding amortization methods). Amortization recognized during the three months ended June 30, 2016 totaled $13,135 and the accretion recognized during the three months ended June 30, 2015 totaled $653. Amortization recognized during the six months ended June 30, 2016 and 2015 totaled $28,166 and $99, respectively. Recoverability of value of business acquired is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. If this current estimate is less than the existing balance, the difference is charged to expense. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken. Goodwill and Other Intangible Assets: Goodwill represents the excess of the amounts paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. Goodwill is tested for impairment at least annually in the fourth quarter or more frequently if events or circumstances change that would indicate that a triggering event has occurred. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken. The Company assesses the recoverability of indefinite-lived intangible assets at least annually or whenever events or circumstances suggest that the carrying value of an identifiable indefinite-lived intangible asset may exceed the sum of the future discounted cash flows expected to result from its use and eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken. Property and equipment: Property and equipment are stated at cost net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over 3 to 7 years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $25,601 and $40,342 for the three months ended June 30, 2016 and 2015, respectively. Depreciation expense totaled $61,091 and 82,834 for the six months ended June 30, 2016 and 2015, respectively. Accumulated depreciation totaled $925,617 and $864,526 as of June 30, 2016 and December 31, 2015, respectively. Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the six months ended June 30, 2016 that would indicate the carrying amounts may not be recoverable. Reinsurance: In the normal course of business, the Company seeks to limit any single exposure to losses on large risks by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. The Company generally strives to diversify its credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Companys primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers including their activities with respect to claim settlement practices and commutations, and establishes allowances for uncollectible reinsurance recoverable as appropriate. There were no allowances as of June 30, 2016 or December 31, 2015. Benefit reserves: The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. Policy claims: Policy claims are based on reported claims plus estimated incurred but not reported claims developed from trends of historical data applied to current exposure. Deposit-type contracts: Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies. Income taxes: The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2010. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company had no accruals for payments of interest and penalties at June 30, 2016 and December 31, 2015. Revenue recognition and related expenses: Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due. Amounts received as payment for annuities and/or non-traditional contracts such as interest sensitive whole life contracts, single payment endowment contracts, single payment juvenile contracts and other contracts without life contingencies are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the Consolidated Statements of Cash Flows. Amounts received under our multi-benefit policy form are allocated to the life insurance portion of the multi-benefit life insurance arrangement and the annuity portion based upon the signed policy. Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts. Acquisition costs are amortized over the premium paying period using the net level premium method. Traditional life insurance products are treated as long duration contracts, which generally remain in force for the lifetime of the insured. Comprehensive loss: Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses from marketable securities classified as available-for-sale, net of applicable taxes. Common and preferred stock and earnings (loss) per share: The par value per common share is $0.001 with 100,000,000 shares authorized and 20,000,000 preferred shares authorized. At June 30, 2016 and December 31, 2015, the Company had 22,558,956 and 18,006,301 common shares issued and outstanding, respectively. At June 30, 2016 and December 31, 2015, the Company had 1,179 warrants outstanding. The warrants are exercisable through December 31, 2016 for 10 shares of voting common stock at an exercise price of $6.50 per share. The Class A preferred shares are non-cumulative, non-voting and convertible by the holder to voting common shares after May 2015, at a rate of 1.3 common shares for each preferred share (subject to customary anti-dilution adjustments). There is no stated dividend rate on the Class A shares, but the holders of Class A shares will receive a dividend on each outstanding share of Class A preferred stock in an amount equal to the amount of the dividend payable on each share of common stock. The par value per preferred Class A share is $0.001 with 2,000,000 shares authorized. At June 30, 2016 and December 31, 2015, the Company had 74,159 Class A preferred shares issued and outstanding. The Class B preferred shares are non-cumulative, non-voting and convertible by the holder to voting common shares after May 1, 2017 at a rate of 2.0 common shares for each preferred share. The Company may only affect a conversion through a deemed liquidation or initial public offering. The par value per preferred Class B share is $0.001 with 1,000,000 shares authorized. The stated dividend rate on the Class B preferred shares is 7%. Dividends of $21,560 and $56,057 were paid as of June 30, 2016 and December 31, 2015 respectively. At June 30, 2016, and December 31, 2015, the Company had 102,669 Class B preferred shares issued and outstanding. Earnings (loss) per share attributable to the Companys common stockholders were computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended June 30, 2016 and 2015 were 22,558,956 and 13,212,653 shares, respectively. The weighted average number of shares outstanding during the six months ended June 30, 2016 and 2015 were 20,682,546 and 13,195,416 shares, respectively. Risk and uncertainties: Certain risks and uncertainties are inherent in our day-to-day operations and in the process of preparing our consolidated financial statements. The more significant of those risks and uncertainties, as well as the Companys method for mitigating the risks, can be referenced in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2105 (2015 Form 10-K), and should be read in connection with the reading of these interim unaudited consolidated financial statements. New accounting standards: In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326). Under the new guidance, this replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to perform credit loss estimates. This update changes the methodology from an incurred loss to an expected credit loss. An allowance for the expected credit loss will be set up and the net income will be impacted. The credit losses will be evaluated in the current period and an adjustment to the allowance can be made. The new standard becomes effective after December 15, 2019. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements. In March 2016, the FASB issued ASU 2016-07, Investments Equity Method and Joint Ventures (Topic323). Under the new guidance, when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investors previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The new standard becomes effective December 15, 2016. Early adoption of this update is permitted and we will adopt this Update should an investment change from the cost method to the equity method due to a change in ownership or degree of influence. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements. In January 2016, the FASB issued ASU 2016-1, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity investments that do not have readily determinable fair values; however; the exception requires the Company to adjust the carrying amount for impairment and observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This guidance also changes certain disclosure requirements and other aspects of current GAAP. This guidance is effective for fiscal years beginning after December 15, 2017, and is applicable to the Company in fiscal 2018. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements. |
Acquisitions |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | Note 2. Acquisitions On March 15, 2016, Midwest acquired Northstar Financial Corporation (Northstar), an inactive Minnesota corporation, pursuant to an Agreement and Plan of Merger dated December 18, 2015, under which Midwest Acquisition Minnesota, Inc. (Acquisition) a wholly owned subsidiary of Midwest merged (the Merger) with and into Northstar, with Northstar being the survivor. Pursuant to the Merger, Midwest exchanged 1.27 shares of its voting common stock for each share of Northstar common stock, or approximately 4,553,000 shares. We are treating the merger of Northstar into Midwest as an asset acquisition. The assets (primarily cash) and liabilities of Northstar were recorded in the Companys consolidated financial statements at their estimated fair values as of the acquisition date. On October 27, 2015, Midwest acquired 100% of the remaining outstanding shares of First Wyoming, a Wyoming corporation, that it did not previously own pursuant to an Agreement and Plan of Merger dated July 31, 2015. The accounting for this acquisition is still preliminary. The fair value of the Midwest common stock issued as consideration, the fair value of our previously held equity interest in First Wyoming, and the assets acquired and liabilities assumed from our acquisition of First Wyoming was based on a preliminary valuation and our estimates and assumptions are subject to change within the measurement period of approximately twelve months. The primary areas that are not yet finalized are related to the fair value of Midwest common stock issued, the fair value of our previously held equity interest in First Wyoming, and the fair value of Value of Business Acquired (VOBA). Measurement period adjustments will be applied to the period that the adjustment is identified in our consolidated financial statements. The following table presents unaudited pro forma consolidated total income and net loss as if the acquisition had occurred as of January 1, 2015.
The unaudited pro forma total income and net loss above was adjusted to eliminate the equity method investment loss of $55,711 for the three months ended June 30, 2015 and a loss of $16,650 for the six months ended June 30, 2015. The elimination of TPA fees paid by First Wyoming to Midwest of $38,620 for the three months ended June 30, 2015 and of $64,594 for the six months ended June 30, 2015. The unaudited pro forma net loss presented above also includes adjustments for the amortization of VOBA for the three months ended June 30, 2015 of $12,665 and for the six months ended June 30, 2015 of $25,330. |
Assets and Liabilities Held for Sale |
6 Months Ended |
---|---|
Jun. 30, 2016 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Assets and Liabilities Held for Sale | Note 3. Assets and Liabilities Held for Sale In December, 2015, American Life entered into a purchase agreement with an outside third party to sell its interest in Capital Reserve Life Insurance Company (Capital Reserve), which is dormant. Under the terms of the purchase agreement, American Life will receive cash which approximates the statutory surplus of Capital Reserve. American Life does not anticipate any gain or loss from this transaction to be significant. The sale of Capital Reserve is subject to insurance regulatory approval. As of June 30, 2016 and December 31, 2015, Midwest classified $16.3 million and $16.9 million, respectively, of assets related to Capital Reserve as a business held-for-sale within total assets and $15.0 million and $15.5 million, respectively, of liabilities related to Capital Reserve as a business held-for-sale within total liabilities on the Consolidated Balance Sheet. The held for sale assets are primarily comprised of amounts recoverable from reinsurers, and the held for sale liabilities are primarily comprised of benefit reserves and deposit-type contracts. Closing is expected in the fourth quarter 2016. |
Investments |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketable Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Note 4. Investments See Note 1 in our 2015 Form 10-K for information regarding our accounting policy relating to available-for-sale (AFS) securities, which also includes additional disclosures regarding our fair value measurements. The cost or amortized cost and estimated fair value of investments classified as available-for-sale as of June 30, 2016 and December 31, 2015 are as follows:
The Company has six securities that individually exceed 10% of the total of the state and political subdivisions categories as of June 30, 2016. The amortized cost, fair value, credit ratings, and description of the security is as follows:
The following table summarizes, for all securities in an unrealized loss position at June 30, 2016 and December 31, 2015, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position.
Based on our review of the securities in an unrealized loss position at June 30, 2016 and December 31, 2015, no other-than-temporary impairments were deemed necessary. Management believes that the Company will fully recover its cost basis in the securities held at June 30, 2016, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment. The amortized cost and estimated fair value of fixed maturities at June 30, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At June 30, 2016 and December 31, 2015, these required deposits had a total amortized cost of $7,701,787 and $6,186,865 and fair values of $7,759,577 and $6,000,376, respectively. The components of net investment income for the three and six months ended June 30, 2016 and 2015 are as follows:
Proceeds for the three months ended June 30, 2016 and 2015 from sales of investments classified as available-for-sale were $3,897,138 and $2,840,976, respectively. Gross gains of $45,897 and $14,613 and gross losses of $35,026 and $89,156 were realized on those sales during the three months ended June 30, 2016 and 2015, respectively. Proceeds for the six months ended June 30, 2016 and 2015 from sales of investments classified as available-for-sale were $7,516,601 and $7,166,021, respectively. Gross gains of $69,653 and $118,401 and gross losses of $55,897 and $114,696 were realized on those sales during the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, all mortgage loans were sold. The following table summarizes the activity in the mortgage loans on real estate, held for investment account for the periods ended June 30, 2016 and December 31, 2015.
|
Fair Values of Financial Instruments |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments, All Other Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Values of Financial Instruments | Note 5. Fair Values of Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur. A description of the valuation methodologies used for assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Fixed maturities: Fixed maturities are recorded at fair value on a recurring basis utilizing a third-party pricing source. The valuations are reviewed and validated quarterly through random testing by comparisons to separate pricing models or other third party pricing services. For the period ended June 30, 2016, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third party prices were changed from the values received. Securities with prices based on validated quotes from pricing services are reflected within Level 2. Cost method investments: The cost method investments are comprised of New Mexico Capital Corporation. This security has no active trading and the fair value for this security is not readily determinable. Therefore, this investment has been omitted from the fair value disclosure tables. Cash: The carrying value of cash and cash equivalents and short-term investments approximate the fair value because of the short maturity of the instruments. Policy loans: Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value. Policy loans are categorized as Level 3 in the fair value hierarchy. Deposit-type contracts: The fair value for direct and assumed liabilities under deposit-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and nonperformance risk of the liabilities. Liabilities under deposit-type insurance contracts that are wholly ceded by Capital Reserve to a non-affiliated reinsurer are carried at cash surrender value which approximates fair value. These liabilities are categorized as Level 3 in the fair value hierarchy. Surplus notes: The fair value for surplus notes is calculated using a discounted cash flow approach. Cash flows are projected utilizing scheduled repayments and discounted to the valuation date using market rates currently available for debt with similar remaining maturities. These notes are structured such that all interest is paid at maturity. In the following fair value tables, the Company has included accrued interest expense, which is recorded in the accounts payable and accrued expenses, of approximately $237,502 and $229,405 in carrying value of the surplus notes as of June 30, 2016 and December 31, 2015, respectively. These liabilities are categorized as Level 3 in the fair value hierarchy. The following table presents the Companys fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015.
There were no transfers of financial instruments between any levels during the six months ended June 30, 2016 or during the year ended December 31, 2015. Accounting standards require disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis are discussed above. There were no financial assets or financial liabilities measured at fair value on a non-recurring basis. Equity securities carried at cost are privately purchased common stocks. These common stocks are recorded using the cost basis of accounting. These securities have no active trading and the fair value for these securities is not readily determinable. The Company does not control these entities economically, and therefore does not consolidate these entities. The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy, for financial assets and financial liabilities as of June 30, 2016 and December 31, 2015, respectively:
|
Income Tax Matters |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Matters | Note 6. Income Tax Matters Significant components of the Companys deferred tax assets and liabilities as of June 30, 2016 and December 31, 2015 are as follows:
At June 30, 2016 and December 31, 2015, the Company recorded a valuation allowance of $9,471,333 and $9,287,024, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. Loss carryforwards for tax purposes as of June 30, 2016, have expiration dates that range from 2024 through 2035. There was no income tax expense for the three or six months ended June 30, 2016 and 2015. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 34% to pretax income, as a result of the following:
|
Reinsurance |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance | Note 7. Reinsurance A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015 is as follows:
The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by reinsurer along with the A.M. Best credit rating as of June 30, 2016:
During 1999, Old Reliance entered into a 75% coinsurance agreement with Sagicor Life (Sagicor) whereby 75% of the business written by Old Reliance is ceded to Sagicor. During 2000, Old Reliance coinsured the remaining 25% with Sagicor. At June 30, 2016 and December 31, 2015 total benefit reserves, policy claims, deposit-type contracts, and due premiums ceded by Old Reliance to Sagicor were $11,639,325 and $11,873,254, respectively. Old Reliance remains contingently liable on this ceded reinsurance should Sagicor be unable to meet their obligations. The use of reinsurance does not relieve the Company of its primary liability to pay the full amount of the insurance benefit in the event of the failure of a reinsurer to honor its contractual obligation. No reinsurer of business ceded by the Company has failed to pay policy claims (individually or in the aggregate) with respect to our ceded business. The Company monitors several factors that it considers relevant to satisfy itself as to the ongoing ability of a reinsurer to meet all obligations of the reinsurance agreements. These factors include the credit rating of the reinsurer, the financial strength of the reinsurer, significant changes or events of the reinsurer, and any other relevant factors. If the Company believes that any reinsurer would not be able to satisfy its obligations with the Company, a separate contingency reserve may be established. At June 30, 2016 and December 31, 2015, no contingency reserve was established. |
Deposit-Type Contracts |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Separate Accounts Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposit-Type Contracts | Note 8. Deposit-Type Contracts The Companys deposit-type contracts represent the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. Liabilities for these deposit-type contracts are included without reduction for potential surrender charges. This liability is equal to the accumulated account deposits, plus interest credited, and less policyholder withdrawals. The following table provides information about deposit-type contracts for the six months ended June 30, 2016 and year ended December 31, 2015:
Under the terms of American Lifes coinsurance agreement with SNL, American Life assumes certain deposit-type contract obligations, as shown in the table above. The remaining deposits, withdrawals and interest credited represent those for American Lifes direct business. |
Commitments and Contingencies |
6 Months Ended | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||
Commitments and Contingencies | Note 9. Commitments and Contingencies Legal Proceedings: We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of our business, and we are not aware of any claims that could materially affect our financial position or results of operations. Regulatory Matters: State and federal regulatory bodies regularly make inquiries and conduct examinations or investigations concerning the Companys compliance with laws in relation to, but not limited to, insurance and securities. The issues involved in information requests and regulatory matters vary widely. The Company cooperates in these inquiries. Office Lease: The Company leases office space in Lincoln, Nebraska under an agreement executed October 17, 2013 that expires on January 31, 2024. Great Plains entered into a lease on October 4, 2013 for office space in Mitchell, South Dakota, which expires on November 30, 2016. First Wyoming leases space in Cheynne, Wyoming, which expires on August 31, 2016. Rent expense for the three months ended June 30, 2016 and 2015 was $99,833 and $55,377 respectively. Rent expense for the six months ended June 30, 2016 and 2015 was $173,043 and $111,752 respectively. Future minimum payments rental are as follows:
|
Statutory Net Income and Surplus |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory Net Income and Surplus [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory Net Income and Surplus | Note 10. Statutory Net Income and Surplus American Life is required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Arizona Department of Insurance. Likewise, Capital Reserve, Great Plains Life, and First Wyoming Life are required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Missouri, South Dakota, and Wyoming Departments of Insurance, respectively Statutory practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. The following table summarizes the statutory net loss and statutory capital and surplus of American Life, Capital Reserve, and Great Plains Life, and First Wyoming Life as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015.
|
Surplus Notes |
6 Months Ended | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||
Surplus Notes [Abstract] | |||||||||||||||||||||||||||||||
Surplus Notes | Note 11. Surplus Notes The following provides a summary of the Companys surplus notes along with issue dates, maturity dates, face amounts, and interest rates as of June 30, 2016:
Any payments and/or repayments must be approved by the Nebraska Department of Insurance. As of June 30, 2016, the Company has accrued $245,599 of interest expense under accounts payable and accrued expenses on the consolidated balance sheet. No payments were made in the six months ending June 30, 2016, or during the year ended December 31, 2015. The surplus note for $300,000 matured on August 1, 2016. Due to the nature of surplus notes, a repayment cannot be made without the prior approval of the Nebraska regulators. |
Related Party Transactions |
6 Months Ended |
---|---|
Jun. 30, 2016 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Note 12. Related Party Transactions The Company commenced its third party administrative (TPA) services in 2012 as an additional revenue source. These agreements, for various levels of administrative services on behalf of each customer, generate fee income for the Company. Services provided to each customer vary based on their needs and can include some or all aspects of back-office accounting and policy administration. We have been able to perform our TPA services using our existing in-house resources. Fees earned during the three months ended June 30, 2016 and 2015 were $13,500 and $40,608, respectively. Fees earned during the six months ended June 30, 2016 and 2015 were $28,000 and $95,594, respectively. |
Subsequent Events |
6 Months Ended |
---|---|
Jun. 30, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 13. Subsequent Events All of the effects of subsequent events that provide additional evidence about conditions that existed at June 30, 2016, including the estimates inherent in the process of preparing consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the date of the consolidated financial statements but arose after, but before the consolidated financial statements were available to be issued. In some cases, non-recognized subsequent events are disclosed to keep the consolidated financial statements from being misleading. The Company has evaluated subsequent events through the date that the consolidated financial statements were issued and found no events to report. |
Nature of Operations and Summary of Significant Accounting Policies (Policy) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of presentation | Basis of presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (GAAP) for interim financial information and with the instructions from the Securities and Exchange Commission (SEC) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2105 (2015 Form 10-K), should be read in connection with the reading of these interim unaudited consolidated financial statements. In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Companys results. Operating results for the six month period ended June 30, 2016, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016. All material inter-company accounts and transactions have been eliminated in consolidation. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Investments: All fixed maturities and a portion of the equity securities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value as of the financial statement date. Bond premiums and discounts are amortized using the scientific-yield method (calculated by multiplying the adjusted basis by the yield at issuance and then subtracting the coupon interest) over the term of the bonds. Realized gains and losses on securities sold during the year are determined by the specific security sold. Unrealized holding gains and losses, net of applicable income taxes, are included in comprehensive loss. Declines in the fair value of available for sale securities below their amortized cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining if these losses are expected to be other-than-temporary, we consider severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings and the intent and ability of us to hold the investment until the recovery of the cost. The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the statement of comprehensive income as an other-than-temporary impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The credit component of the other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Companys best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. No other-than-temporary impairments were recognized during the six months ended June 30, 2016 or 2015. Investment income consists of interest, dividends, gains and losses from equity method investments, and real estate income, which are recognized on an accrual basis and amortization of premiums and discounts. Included within the Companys equity securities are certain privately purchased common stocks. These investments are recorded using the cost basis method of accounting. These securities do not have a readily determinable fair value. The Company does not control these entities economically, and therefore does not consolidate these entities in its financial statements. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Policy loans | Policy loans: Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate, held for investment | Real estate, held for investment: Real estate, held for investment is comprised of ten condominiums in Hawaii. Real estate is carried at depreciated cost. Depreciation on residential real estate is computed on a straight-line basis over 50 years. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | Cash and cash equivalents: The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents. At June 30, 2016 and December 31, 2015, the Company had no cash equivalents. The Company has cash on deposit with financial institutions which at times may exceed the Federal Deposit Insurance Corporation insurance limits. The Company has not suffered any losses in the past and does not believe it is exposed to any significant credit risk in these balances. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred acquisition costs | Deferred acquisition costs: Deferred acquisition costs consist of incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions. Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter of its fiscal year unless events occur which require an immediate review. The Company determined during its December 31, 2015 analysis that all deferred acquisition costs were recoverable. The following table provides information about deferred acquisition costs for the periods ended June 30, 2016 and December 31, 2015, respectively.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Value of business acquired | Value of business acquired: Value of business acquired represents the estimated value assigned to purchased companies or insurance in force of the assumed policy obligations at the date of acquisition of a block of policies. American Life purchased Capital Reserve during 2010, resulting in an initial capitalized asset for value of business acquired of $116,326. Additionally, the Company paid an upfront ceding commission of $375,000 to Security National Life (SNL) in respect of the purchase of Capital Reserve. An initial asset was established for the value of this business acquired totaling $348,010, representing primarily the ceding commission. The agreement has an automatic renewal provision unless the Company notifies SNL of its intention not to renew, no less than 180 days prior to the expiration of the then current agreement. Each automatic renewal period is for one year. This reinsurance remains in place. The remaining capitalized and SNL asset balances at June 30, 2016, of $43,622 and $130,504, respectively, will be included in the accounting for the anticipated sale of Capital Reserve in the second half of 2016. Midwest acquired Great Plains Financial in 2014 and established an asset for value of business acquired of $1,288,207. Midwest acquired First Wyoming Capital during 2015 and established an asset for value of business acquired of $506,600. These assets are being amortized on a straight-line basis, which approximates the earnings pattern of the related policies, over ten years. The accounting for the First Wyoming acquisition is still preliminary and is expected to be final in the third quarter of 2016. The Company recognized amortization expense of $56,478 and $43,814 for the three months ended June 30, 2016 and 2015, respectively relative to these transactions. The Company recognized amortization expense of $112,957 and $87,627 for the six months ended June 30, 2016 and 2015, respectively related to these transactions. Additionally, American Life purchased Old Reliance in August 2011, resulting in an initial capitalized asset for value of business acquired of $824,485. This asset is being amortized over the life of the related policies (refer to revenue recognition and related expenses discussed later regarding amortization methods). Amortization recognized during the three months ended June 30, 2016 totaled $13,135 and the accretion recognized during the three months ended June 30, 2015 totaled $653. Amortization recognized during the six months ended June 30, 2016 and 2015 totaled $28,166 and $99, respectively. Recoverability of value of business acquired is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. If this current estimate is less than the existing balance, the difference is charged to expense. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets: Goodwill represents the excess of the amounts paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. Goodwill is tested for impairment at least annually in the fourth quarter or more frequently if events or circumstances change that would indicate that a triggering event has occurred. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken. The Company assesses the recoverability of indefinite-lived intangible assets at least annually or whenever events or circumstances suggest that the carrying value of an identifiable indefinite-lived intangible asset may exceed the sum of the future discounted cash flows expected to result from its use and eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Management has determined that no events occurred in the six months ended June 30, 2016 that suggest a review should be undertaken. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and equipment | Property and equipment: Property and equipment are stated at cost net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over 3 to 7 years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $25,601 and $40,342 for the three months ended June 30, 2016 and 2015, respectively. Depreciation expense totaled $61,091 and 82,834 for the six months ended June 30, 2016 and 2015, respectively. Accumulated depreciation totaled $925,617 and $864,526 as of June 30, 2016 and December 31, 2015, respectively. Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the six months ended June 30, 2016 that would indicate the carrying amounts may not be recoverable. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance | Reinsurance: In the normal course of business, the Company seeks to limit any single exposure to losses on large risks by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. The Company generally strives to diversify its credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Companys primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers including their activities with respect to claim settlement practices and commutations, and establishes allowances for uncollectible reinsurance recoverable as appropriate. There were no allowances as of June 30, 2016 or December 31, 2015. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit reserves | Benefit reserves: The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Policy claims | Policy claims: Policy claims are based on reported claims plus estimated incurred but not reported claims developed from trends of historical data applied to current exposure. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposit-type contracts | Deposit-type contracts: Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | Income taxes: The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2010. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company had no accruals for payments of interest and penalties at June 30, 2016 and December 31, 2015. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue recognition and related expenses | Revenue recognition and related expenses: Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due. Amounts received as payment for annuities and/or non-traditional contracts such as interest sensitive whole life contracts, single payment endowment contracts, single payment juvenile contracts and other contracts without life contingencies are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the Consolidated Statements of Cash Flows. Amounts received under our multi-benefit policy form are allocated to the life insurance portion of the multi-benefit life insurance arrangement and the annuity portion based upon the signed policy. Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts. Acquisition costs are amortized over the premium paying period using the net level premium method. Traditional life insurance products are treated as long duration contracts, which generally remain in force for the lifetime of the insured. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive loss | Comprehensive loss: Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses from marketable securities classified as available-for-sale, net of applicable taxes. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common and preferred stock and earnings (loss) per share | Common and preferred stock and earnings (loss) per share: The par value per common share is $0.001 with 100,000,000 shares authorized and 20,000,000 preferred shares authorized. At June 30, 2016 and December 31, 2015, the Company had 22,558,956 and 18,006,301 common shares issued and outstanding, respectively. At June 30, 2016 and December 31, 2015, the Company had 1,179 warrants outstanding. The warrants are exercisable through December 31, 2016 for 10 shares of voting common stock at an exercise price of $6.50 per share. The Class A preferred shares are non-cumulative, non-voting and convertible by the holder to voting common shares after May 2015, at a rate of 1.3 common shares for each preferred share (subject to customary anti-dilution adjustments). There is no stated dividend rate on the Class A shares, but the holders of Class A shares will receive a dividend on each outstanding share of Class A preferred stock in an amount equal to the amount of the dividend payable on each share of common stock. The par value per preferred Class A share is $0.001 with 2,000,000 shares authorized. At June 30, 2016 and December 31, 2015, the Company had 74,159 Class A preferred shares issued and outstanding. The Class B preferred shares are non-cumulative, non-voting and convertible by the holder to voting common shares after May 1, 2017 at a rate of 2.0 common shares for each preferred share. The Company may only affect a conversion through a deemed liquidation or initial public offering. The par value per preferred Class B share is $0.001 with 1,000,000 shares authorized. The stated dividend rate on the Class B preferred shares is 7%. Dividends of $21,560 and $56,057 were paid as of June 30, 2016 and December 31, 2015 respectively. At June 30, 2016, and December 31, 2015, the Company had 102,669 Class B preferred shares issued and outstanding. Earnings (loss) per share attributable to the Companys common stockholders were computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended June 30, 2016 and 2015 were 22,558,956 and 13,212,653 shares, respectively. The weighted average number of shares outstanding during the six months ended June 30, 2016 and 2015 were 20,682,546 and 13,195,416 shares, respectively. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risks and uncertainties | Risk and uncertainties: Certain risks and uncertainties are inherent in our day-to-day operations and in the process of preparing our consolidated financial statements. The more significant of those risks and uncertainties, as well as the Companys method for mitigating the risks, can be referenced in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2105 (2015 Form 10-K), and should be read in connection with the reading of these interim unaudited consolidated financial statements. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New accounting standards | New accounting standards: In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326). Under the new guidance, this replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to perform credit loss estimates. This update changes the methodology from an incurred loss to an expected credit loss. An allowance for the expected credit loss will be set up and the net income will be impacted. The credit losses will be evaluated in the current period and an adjustment to the allowance can be made. The new standard becomes effective after December 15, 2019. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements. In March 2016, the FASB issued ASU 2016-07, Investments Equity Method and Joint Ventures (Topic323). Under the new guidance, when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investors previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The new standard becomes effective December 15, 2016. Early adoption of this update is permitted and we will adopt this Update should an investment change from the cost method to the equity method due to a change in ownership or degree of influence. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements. In January 2016, the FASB issued ASU 2016-1, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity investments that do not have readily determinable fair values; however; the exception requires the Company to adjust the carrying amount for impairment and observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This guidance also changes certain disclosure requirements and other aspects of current GAAP. This guidance is effective for fiscal years beginning after December 15, 2017, and is applicable to the Company in fiscal 2018. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements. |
Nature of Operations and Summary of Significant Accounting Policies (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Deferred Policy Acquisition Costs |
|
Acquisitions (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Pro Forma Information |
|
Investments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketable Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Available for Sale Investments |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Amortized Cost, Fair Value, Credit Rating |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Unrealized Loss of Securities |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fixed Maturities |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Net Investment Income |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Mortgage Loan Activity |
|
Fair Values of Financial Instruments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments, All Other Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Financial Instruments at Fair Value Measured on a Recurring Basis |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Financial Assets and Liabilities at Fair Value |
|
Income Tax Matters (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Deferred Tax Assets and Liabilities |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Effective Tax Rate Reconciliation |
|
Reinsurance (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Reinsurance Amounts |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Significant Reinsurance Balances |
|
Deposit-Type Contracts (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposit Type Contracts [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Contracts |
|
Commitments and Contingencies (Tables) |
6 Months Ended | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||
Schedule of Future Minimum Payments |
|
Statutory Net Income and Surplus (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory Net Income and Surplus [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory Accounting Practices Disclosure |
|
Surplus Notes (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||
Surplus Notes [Abstract] | |||||||||||||||||||||||||||||||
Summary of Surplus Notes |
|
Nature of Operations and Summary of Significant Accounting Policies (Schedule of Deferred Acquisition Costs) (Details) - USD ($) |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Accounting Policies [Abstract] | |||
Balance at beginning of period | $ 2,765,063 | $ 2,646,970 | $ 2,646,970 |
Capitalization of commissions, sales and issue expenses | 66,951 | 552,466 | |
Change in DAC due to unrealized investment (gains) losses | (34,360) | 35,301 | |
Gross amortization | (147,727) | $ (253,850) | (469,674) |
Balance at the end of period | $ 2,649,927 | $ 2,765,063 |
Acquisitions (Narrative) (Details) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2015
USD ($)
|
Jun. 30, 2016
USD ($)
shares
|
Jun. 30, 2015
USD ($)
|
Oct. 27, 2015 |
|
Business Acquisition [Line Items] | ||||
Equity in the net (loss) income of unconsolidated subsidiaries | $ (16,650) | |||
Northstar Financial Corporation [Member] | ||||
Business Acquisition [Line Items] | ||||
Conversion Ratio | 1.27 | |||
Shares converted | shares | 4,553,000 | |||
Equity in the net (loss) income of unconsolidated subsidiaries | $ (55,711) | (16,650) | ||
Elimination of TPA fees | 38,620 | 64,594 | ||
Amortization of Other Deferred Charges | $ 12,665 | $ 25,330 | ||
First Wyoming Life Insurance Company [Member] | ||||
Business Acquisition [Line Items] | ||||
Ownership percentage acquired | 100.00% |
Acquisitions (Schedule of Pro Forma Information) (Details) - First Wyoming Life Insurance Company [Member] - USD ($) |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2015 |
Jun. 30, 2015 |
|
Business Acquisition [Line Items] | ||
Premiums | $ 1,101,124 | $ 2,094,691 |
Investment income | 99,727 | 361,485 |
Miscellaneous income | 5,872 | 34,750 |
Total income | 1,206,723 | 2,490,926 |
Net loss | $ (1,017,758) | $ (2,018,728) |
Assets and Liabilities Held for Sale (Details) - USD ($) |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Discontinued Operations and Disposal Groups [Abstract] | ||
Assets of discontinued operations | $ 16,345,892 | $ 16,870,241 |
Liabilities of discontinued operations | $ 14,988,764 | $ 15,508,998 |
Investments (Schedule of Fixed Maturities) (Details) - USD ($) |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Marketable Securities [Abstract] | ||
Amortized Cost, Due in one year or less | ||
Amortized Cost, Due after one year through five years | 2,067,384 | |
Amortized Cost, Due after five years through ten years | 13,563,010 | |
Amortized Cost, Due after ten years | 8,770,284 | |
Available-for-sale Securities, Debt Maturities, Amortized Cost | 24,400,678 | $ 24,279,231 |
Estimated Fair Value, Due in one year or less | ||
Estimated Fair Value, Due after one year through five years | 2,093,965 | |
Estimated Fair Value, Due after five years through ten years | 13,513,005 | |
Estimated Fair Value, Due after ten years | 6,747,696 | |
Available-for-sale Securities, Debt Securities, Estimated Fair Value | $ 24,354,666 | $ 23,271,277 |
Investments (Components of Net Investment Income) (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Net investment income | $ 223,123 | $ 121,903 | $ 449,688 | $ 334,569 |
Less investment expenses | (21,345) | (21,782) | (34,782) | (38,824) |
Total | 201,778 | 100,121 | 414,906 | 295,745 |
Other Long Term Investment [Member] | ||||
Net investment income | 15,627 | 15,799 | 27,282 | 30,416 |
Cash and Cash Equivalents [Member] | ||||
Net investment income | 1 | 1 | 5 | 2 |
Equity Securities [Member] | ||||
Net investment income | 162 | 5,250 | 186 | |
Fixed Maturities [Member] | ||||
Net investment income | 207,495 | 161,652 | 417,151 | 320,615 |
Equity Method Investments [Member] | ||||
Net investment income | $ (55,711) | $ (16,650) |
Investments (Schedule of Mortgage Loan Activity) (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Marketable Securities [Abstract] | ||
Balance at beginning of period | $ 349,386 | |
Proceeds from settlement on mortgage loans on real estate, held for investment | (349,386) | |
Balance at end of period |
Investments (Narrative) (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Marketable Securities [Abstract] | |||||
Separate Account Assets | $ 7,701,787 | $ 7,701,787 | $ 6,186,865 | ||
Assets On Deposits Fair Value | 7,759,577 | 7,759,577 | $ 6,000,376 | ||
Proceeds From Sale Of Available-For-Sale Securities | 3,897,138 | $ 2,840,976 | 7,516,601 | $ 7,166,021 | |
Available-for-sale Securities, Gross Realized Gains | 45,897 | 14,613 | 69,653 | 118,401 | |
Available-for-sale Securities, Gross Realized Losses | $ 35,026 | $ 89,156 | $ 55,897 | $ 114,696 |
Fair Values of Financial Instruments (Narrative) (Details) - USD ($) |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Investments, All Other Investments [Abstract] | ||
Accrued interest | $ 237,502 | $ 229,405 |
Income Tax Matters (Schedule of Deferred Tax Assets and Liabilities) (Details) - USD ($) |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Deferred tax assets: | ||
Loss carryforwards | $ 9,563,021 | $ 8,962,587 |
Capitalized costs | 628,768 | 667,264 |
Unrealized losses on investments | 10,367 | 356,495 |
Benefit reserves | 1,022,824 | 1,071,997 |
Total deferred tax assets | 11,224,980 | 11,058,343 |
Less valuation allowance | (9,471,333) | (9,287,024) |
Total deferred tax assets, net of valuation allowance | 1,753,647 | 1,771,319 |
Deferred tax liabilities: | ||
Policy acquisition costs | 634,200 | 593,654 |
Due premiums | 234,432 | 234,468 |
Value of business acquired | 645,315 | 693,297 |
Intangible assets | 238,000 | 238,000 |
Property and equipment | 1,700 | 11,900 |
Total deferred tax liabilities | 1,753,647 | 1,771,319 |
Net deferred tax assets |
Income Tax Matters (Schedule of Effective Tax Rate Reconciliation) (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Income Tax Disclosure [Abstract] | ||||
Computed expected income tax benefit | $ (312,825) | $ (279,849) | $ (574,258) | $ (545,090) |
Increase (reduction) in income taxes resulting from: | ||||
Meals, entertainment and political contributions | 9,598 | 12,862 | 18,755 | 16,534 |
Dividends received deduction | (38) | (44) | ||
Other | 56,760 | 193,054 | 25,066 | 259,220 |
Total deductions | 66,358 | 205,878 | 43,821 | 275,710 |
Tax benefit before valuation allowance | (246,467) | (73,971) | (530,437) | (269,380) |
Change in valuation allowance | 246,467 | 73,971 | 530,437 | 269,380 |
Net income tax expense |
Income Tax Matters (Narrative) (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Deferred Tax Assets, Valuation Allowance | $ 9,471,333 | $ 9,287,024 |
Minimum [Member] | ||
Operating Loss Carryforwards, Expiration Dates | Dec. 31, 2024 | |
Maximum [Member] | ||
Operating Loss Carryforwards, Expiration Dates | Dec. 31, 2035 |
Reinsurance (Summary of Significant Reinsurance Amounts) (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Balance sheets: | |||||
Benefit and claim reserves assumed | $ 2,695,539 | $ 2,695,539 | $ 2,763,779 | ||
Benefit and claim reserves ceded | 11,859,279 | 11,859,279 | $ 12,212,656 | ||
Statements of comprehensive income: | |||||
Premiums assumed | 5,466 | $ 6,417 | 12,231 | $ 13,668 | |
Premiums ceded | 84,117 | 75,748 | 150,274 | 157,370 | |
Benefits assumed | 25,135 | 47,370 | 30,158 | 51,959 | |
Benefits ceded | 216,531 | 273,537 | 571,656 | 532,493 | |
Commissions assumed | 9 | 6 | 17 | 10 | |
Commissions ceded | $ 650 | $ 900 | $ 1,288 | $ 1,854 |
Reinsurance (Schedule of Significant Reinsurance Balances) (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Recoverable on Paid Losses | ||
Recoverable on Unpaid Losses | 311,722 | |
Recoverable on Benefit Reserves/Deposit-type Contracts | 11,786,662 | |
Ceded Due Premiums | 239,105 | |
Total Amount Recoverable from Reinsurer | $ 11,859,279 | $ 12,212,656 |
Sagicor Life Insurance Company [Member] | ||
AM Best Rating | A-
|
|
Recoverable on Paid Losses | ||
Recoverable on Unpaid Losses | 281,272 | |
Recoverable on Benefit Reserves/Deposit-type Contracts | 11,597,158 | |
Ceded Due Premiums | 239,105 | |
Total Amount Recoverable from Reinsurer | $ 11,639,325 | |
Optimum Reinsurance Company [Member] | ||
AM Best Rating | A-
|
|
Recoverable on Paid Losses | ||
Recoverable on Unpaid Losses | 30,450 | |
Recoverable on Benefit Reserves/Deposit-type Contracts | 189,504 | |
Ceded Due Premiums | ||
Total Amount Recoverable from Reinsurer | $ 219,954 |
Reinsurance (Narrative) (Details) - USD ($) |
12 Months Ended | |||
---|---|---|---|---|
Dec. 31, 2000 |
Dec. 31, 1999 |
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Amounts recoverable from reinsurers | $ 11,859,279 | $ 12,212,656 | ||
Sagicor Life Insurance Company [Member] | ||||
Percentage Of Co Insurance Agreement | 25.00% | 75.00% | ||
Premiums, Percentage Assumed to Net | 75.00% | |||
Amounts recoverable from reinsurers | $ 1,163,932,500 | $ 11,873,254 |
Deposit-Type Contracts (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Beginning balance | $ 13,897,421 | $ 10,722,227 |
Change in deposit-type contracts assumed from Security National | (1,200) | |
Deposits received | 1,339,406 | 2,387,104 |
Investment earnings | 352,989 | 533,646 |
Withdrawals | (421,203) | (533,762) |
Contract Charges | (3,057) | (10,584) |
Ending balance | 15,165,556 | 13,897,421 |
First Wyoming Life Insurance Company [Member] | ||
Beginning balance | 799,990 | |
Change in deposit-type contracts assumed from Security National | ||
Ending balance |
Commitments and Contingencies (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Commitments and Contingencies Disclosure [Abstract] | ||||
Operating Leases, Rent Expense | $ 99,833 | $ 55,377 | $ 173,043 | $ 111,752 |
2016 | 92,292 | 92,292 | ||
2017 | 149,481 | 149,481 | ||
2018 | 136,557 | 136,557 | ||
2019 | 141,412 | 141,412 | ||
2020 | 146,477 | 146,477 | ||
Later years | 483,333 | 483,333 | ||
Total | $ 1,149,552 | $ 1,149,552 |
Statutory Net Income and Surplus (Details) - USD ($) |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
American Life and Security Corporation [Member] | |||
Statutory capital and surplus | $ 1,938,747 | $ 2,526,392 | |
Statutory net loss | (397,388) | $ (697,981) | |
Capital Reserve Life Insurance Company [Member] | |||
Statutory capital and surplus | 1,381,445 | 1,464,044 | |
Statutory net loss | (80,322) | (25,490) | |
Great Plains Financial Corporation [Member] | |||
Statutory capital and surplus | 1,582,416 | 1,663,368 | |
Statutory net loss | (71,036) | $ (261,506) | |
First Wyoming Life Insurance Company [Member] | |||
Statutory capital and surplus | $ 2,625,322 | $ 2,715,494 |
Surplus Notes (Summary of Surplus Notes) (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Face Amount | $ 550,000 | $ 550,000 |
David Elmore [Member] | Surplus Notes Two [Member] | ||
Issue Date | Aug. 04, 2011 | |
Maturity Date | Aug. 01, 2016 | |
Face Amount | $ 300,000 | |
Interest Rate | 5.00% | |
David Elmore [Member] | Surplus Notes One [Member] | ||
Issue Date | Sep. 01, 2006 | |
Maturity Date | Sep. 01, 2016 | |
Face Amount | $ 250,000 | |
Interest Rate | 7.00% |
Surplus Notes (Narrative) (Details) - USD ($) |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Interest Payable | $ 237,502 | $ 229,405 |
Surplus Notes [Member] | ||
Interest Payable | $ 245,599 |
Related Party Transactions (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Related Party Transaction [Line Items] | ||||
Amount of transaction | $ 13,500 | $ 40,608 | ||
TPA [Member] | ||||
Related Party Transaction [Line Items] | ||||
Amount of transaction | $ 28,000 | $ 95,594 |