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  • Midwest Holding Inc. Reports Third Quarter 2021 Results

    November 16, 2021 by Midwest Holding Inc

    LINCOLN, Neb.Nov. 11, 2021 /PRNewswire/ — Midwest Holding Inc. (“Midwest”) (NASDAQ: MDWT), today announced financial results for its third quarter ended September 30, 2021.

    Third Quarter 2021 Highlights

    • GAAP net loss was $3.1 million in the third quarter of 2021, down compared to a net loss of $5.5 million in the third quarter of 2020
    • GAAP revenue was $5.8 million in the third quarter of 2021, compared to negative $0.5 million in the third quarter of 2020 driven by an increase in investment income from growth in the asset portfolio and market performance along with increase in service fee revenue
    • Annuity direct written premiums under statutory accounting principles (SAP, non-GAAP) decreased 11% to $117.9 million in the third quarter of 2021, compared to $132.1 million in the third quarter of 2020 from a competitive market impacting fixed annuities directly offset by the introduction of new multi-year guaranteed annuity products
    • Ceded premiums (SAP) was up slightly to $60.1 million at third quarter of 2021 compared to $59.0 million at third quarter of 2020
    • Invested assets grew to $942.8 million at September 30, 2021, up from $518.2 million at December 31, 2020

    From Co-Chief Executive Officer A. Michael Salem

    We continue to be proud of the progress we are making as a company. We are executing across each aspect of our business, including products, distribution, asset management, technology, and operations. We are on track to finish out 2021 with a solid performance and well positioned for future growth. 

    When this year is said and done, we expect that we will have achieved double digit topline year-over-year premium growth, that’s 200% premium growth over the last two years. We expect that we will have ceded upwards of 80% of our total production – through three institutional reinsurance relationships.

    While short-term forecasting for a high-growth company like ours is difficult, and we will fall short of our 2021 premium target, we are doing the important work to position ourselves for long-term sustained growth. While the market remains competitive, we will maintain our disciplined approach. We have strong, profitable products, with leading technology and customer service operations. Our market share is less than 25 basis points of the individual annuity market and we are confident in our ability to reach our long-term target of $2 billion of premium per annum.

    From Co-Chief Executive Officer Mike Minnich

    We continue to build on our solid foundation, broadening our reach in insurance products as well as our reinsurance income product offering. 

    In the last year alone, we’ve launched six new insurance products; entered the RIA channel with innovative commission-free insurance products; grown our active agents by almost 50% and expanded our geographic footprint by 15%.

    On the asset and reinsurance side, we have successfully invested our capital and the capital of our reinsurance partners, with strong alignment and solid returns. We have developed strong asset management relationships and built a differentiated asset pipeline.

    We have built a deep pipeline of institutional investors for our reinsurance income products. Additionally, we continue to innovate with a new syndicated reinsurance income product that will be distributed to both individual and institutional investors.

    Going forward we will continue to enhance our insurance and income products, including adding innovated index options, enter new distribution channels, and grow our geographic footprint – which we can also accelerate through acquisition.

    We are able to accomplish all of this only because of our incredible team and culture, which we continue to strengthen with talented and committed people such as Georgette Nicholas, who recently joined Midwest as our new President and CFO. Georgette brings to Midwest decades of success as a leader in operations, financial reporting, and investor relations.  

    Q3 2021 Key Performance Indicators (Operating Metrics) and Non-GAAP Financial Measures

    The following data are used internally by the Company’s management and Board of Directors in conjunction with reviewing the Company’s GAAP financial results in order to facilitate comparison of operating performance between periods and to better understand core business and future outlook.

    Operating Metric – Annuity Premiums (SAP)*

    For the third quarter of 2021, annuity direct written premiums (SAP, non-GAAP) decreased 11% to $117.9 million, compared to $132.1 million in the third quarter of 2020. Ceded premiums (SAP) for the third quarter of 2021, increased 2% to $60.1 million, compared to $59.0 million in the third quarter of 2020. 

    MYGA and FIA direct written premiums accounted for 40% and 60%, respectively, of total annuity direct written premiums in the third quarter of 2021.

    *Non-GAAP; see discussion below.

    Operating Metric – Operating Components of GAAP Revenue

    For the third quarter of 2021, key operating components of GAAP revenue in the third quarter of 2021 include:

    • $6.2 million of investment income, net of expenses
    • $0.6 million service fee revenue, net of expenses
    • $0.4 million of other revenue

    Operating Metric – Fees Received for Reinsurance*

    For the third quarter of 2021, fees received for reinsurance totaled $3.6 million compared to $4.5 million in the third quarter of 2020.

    *Non-GAAP; see discussion below for a reconciliation to GAAP.

    General & Administrative Expenses

    For the third quarter of 2021, general and administrative or “G&A” expenses totaled $6.2 million compared to $3.3 million in the third quarter of 2020. G&A expenses include salaries, benefits and other operating expenses, while excluding $1.0 million of non-cash stock-based compensation and $0.9 million of non-cash mark-to-market of our derivative option allowance.*

    *Non-GAAP; see discussion below for a reconciliation to GAAP.

    Explanation of Non-GAAP Financial Measures

    We have discussed certain GAAP and non-GAAP financial measures that our management uses in conjunction with GAAP financial measures as an integral part of managing our business and to, among other things:

    • monitor and evaluate the performance of our business operations and financial performance;
    • facilitate internal comparisons of the historical operating performance of our business operations;
    • review and assess the operating performance of our management team;
    • analyze and evaluate financial and strategic planning decisions regarding future operations; and
    • plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

    Non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to, our operating performance measures as prescribed by GAAP.

    Annuity Premiums – SAP

    Annuity premiums, also referred to as sales or direct written premiums, do not correspond to revenues under GAAP, but are relevant metrics to understand our business performance. Under statutory accounting principles, or SAP, our annuity premiums received are treated as premium revenue. Our premium metrics include all sums paid into an individual annuity in a given period. We typically transfer all or a substantial portion of the premium and policy obligations to reinsurers. Ceded premium represents the premium we transfer to reinsurers in a given period. Retained premium represents the portion of premium received during a given period that was not ceded to reinsurers and will either be reinsured in a subsequent period or retained by us. We typically retain premiums prior to transferring them to reinsurers to facilitate block and other reinsurance transactions involving portfolios of annuity premiums.

    Fees Received for Reinsurance

    We utilize fees received for reinsurance as an economic measure to evaluate our financial performance. We calculate fees received for reinsurance by summing two components: 1) amortization of deferred gain on reinsurance, which is a line item from our GAAP Consolidated Statements of Comprehensive Loss; and 2) deferred coinsurance ceding commission, which is a line item from our GAAP Consolidated Statements of Cash Flows.

    Management Expenses

    In addition to total expenses, we utilize management expenses as an economic measure to evaluate our financial performance. Management expenses consist of total GAAP expenses adjusted to eliminate items that fluctuate from quarter to quarter in a manner unrelated to core operations, which we believe are useful in analyzing operating trends. The most significant adjustments to arrive at management expenses include the use of management interest credited (as discussed below), the exclusion of stock-based compensation and the exclusion of the mark-to-market option allowance expense (included in other operating expenses) payable to reinsurers to cover their obligations under FIA policies we have reinsured with them. We believe the combined presentation and evaluation of total expenses together with management expenses provides information that can enhance an investor’s understanding of our underlying operating results.

    Management Interest Credited

    We utilize management interest credited, a component of management expenses, as an economic measure to evaluate our financial performance. GAAP interest credited contains significant technical considerations related to fair value accounting with respect to the mark-to-market change in the FIA embedded derivative liability and change in actuarial valuation of the FIA reserve, both of which are sensitive to changes in the market as well as changes in actuarial assumptions. Due to these technical considerations that we believe are less meaningful to management and investors, we exclude the GAAP interest credited expense related to our FIA products and include the amortized cost of options we purchase to service our FIA policy obligations. The sum of GAAP interest credited related to our multi-year guaranteed annuity (“MYGA”) products and the amortized cost of options we purchase to service our FIA products constitutes management interest credited.

    SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    Certain statements contained or incorporated by reference in this release constitute forward-looking statements. These statements are based on management’s expectations, estimates, projections and assumptions. In some cases, you can identify forward-looking statements by terminology including “could,” “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “intend,” or “continue,” the negative of these terms, or other comparable terminology used in connection with any discussion of future operating results or financial performance. These statements are only predictions and reflect our management’s good faith present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

    Factors that may cause our actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward-looking statements include among others, the following possibilities:

    • our business plan, particularly including our reinsurance strategy, may not prove to be successful;
    • our reliance on third-party insurance marketing organizations to market and sell our annuity insurance products through a network of independent agents;
    • adverse changes in our ratings obtained from independent rating agencies;
    • failure to maintain adequate reinsurance;
    • our inability to expand our insurance operations outside the 21 states and District of Columbia in which we are currently licensed;
    • our annuity insurance products may not achieve significant market acceptance;
    • we may continue to experience operating losses in the foreseeable future;
    • the possible loss or retirement of one or more of our key executive personnel;
    • intense competition, including the intensification of price competition, competitive pressures from established insurers with greater financial resources, the entry of new competitors, and the introduction of new products by new and existing competitors;
    • adverse state and federal legislation or regulation, including decreases in rates, limitations on premium levels, increases in minimum capital and reserve requirements, benefit mandates and tax treatment of insurance products;
    • fluctuations in interest rates causing a reduction of investment income or increase in interest expense and in the market value of interest-rate sensitive investment;
    • failure to obtain new customers, retain existing customers, or reductions in policies in force by existing customers;
    • higher service, administrative, or general expense due to the need for additional advertising, marketing, administrative or management information systems expenditures;
    • changes in our liquidity due to changes in asset and liability matching;
    • possible claims relating to sales practices for insurance products; and
    • lawsuits in the ordinary course of business.

    Earnings Teleconference Information

    The Company will host a conference call to discuss financial and operating results for the third quarter 2021 on Friday, November 12, 2021, at 12:00 p.m. Eastern Time. The Company also plans to release its third quarter 2021 results on the investor relations section of its website at https://ir.midwestholding.com after the close of the financial markets on Thursday, November 11, 2021.

    CONFERENCE CALL DETAILS

    To pre-register for this call, please go to the following link (you will receive your access details via email): https://www.incommglobalevents.com/registration/q4inc/9183/midwest-holding-inc-q3-2021/

    WEBCAST DETAILS (Audience)

    Use this link to access the audience view of the webcast.

    https://event.on24.com/wcc/r/3404966/6EBC21EAB0BB883E50A4E414A5517FCD

    A replay of the webcast will be made available after the call on the Investor Relations page of the Company’s website at https://ir.midwestholding.com

    About Midwest Holding Inc.

    Midwest Holding Inc. is a growing, technology-enabled, services-oriented annuity platform. Midwest designs and develops annuity products that are distributed through independent distribution channels, to a large and growing demographic of U.S. retirees. Midwest originates, manages and typically transfers these annuities through reinsurance arrangements to asset managers and other third-party investors. Midwest also provides the operational and regulatory infrastructure and expertise to enable asset managers and third-party investors to form and manage their own reinsurance capital vehicles.

    For more information, please visit www.midwestholding.com

    Investor contact: ir@midwestholding.com

    Media inquiries: press@midwestholding.com

     
     

    Consolidated Balance Sheets

    (in thousands)

                 
       

    September 30, 2021

     

    December 31, 2020

       

    (Unaudited)

       

    Assets

               

    Fixed maturities, available for sale, at fair value(amortized cost in thousands: $649,483 and $369,156, respectively)

     

    $

    656,781

     

    $

    377,163

    Mortgage loans on real estate, held for investment

       

    168,184

       

    94,990

    Derivative instruments

       

    17,262

       

    11,361

    Equity securities, at fair value (cost in thousands: $38,988 in 2021 and zero in 2020)

       

    38,910

       

    Other invested assets

       

    47,021

       

    21,897

    Investment escrow

       

    1,307

       

    3,174

    Federal Home Loan Bank (FHLB) stock

       

    500

       

    Preferred stock

       

    6,934

       

    3,898

    Notes receivable

       

    5,885

       

    5,665

    Policy loans

       

    55

       

    46

    Total investments

       

    942,839

       

    518,195

    Cash and cash equivalents

       

    81,487

       

    151,679

    Deferred acquisition costs, net

       

    24,037

       

    13,456

    Premiums receivable

       

    334

       

    314

    Accrued investment income

       

    12,175

       

    6,807

    Reinsurance recoverables

       

    37,720

       

    32,146

    Intangible assets

       

    700

       

    700

    Property and equipment, net

       

    121

       

    104

    Operating lease right of use assets

       

    258

       

    348

    Other assets

       

    6,889

       

    1,533

    Assets associated with business held for sale

       

    1,065

       

    1,119

    Total assets

     

    $

    1,107,625

     

    $

    726,401

    Liabilities and Stockholders’ Equity

               

    Liabilities:

               

    Benefit reserves

     

    $

    12,388

     

    $

    12,776

    Policy claims

       

    5,579

       

    162

    Deposit-type contracts

       

    960,507

       

    597,868

    Advance premiums

       

    1

       

    2

    Deferred gain on coinsurance transactions

       

    27,799

       

    18,199

    Lease liabilities:

               

    Operating lease

       

    299

       

    397

    Other liabilities

       

    19,865

       

    9,553

    Liabilities associated with business held for sale

       

    1,060

       

    1,114

    Total liabilities

       

    1,027,498

       

    640,071

    Contingencies and Commitments

               

    Stockholders’ Equity:

               

    Preferred stock, $0.001 par value; authorized 2,000,000 shares; no shares issued and outstanding as of September 30, 2021 or December 31, 2020

       

       

    Voting common stock, $0.001 par value; authorized 20,000,000 shares; 3,737,564 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively; non-voting common stock, $0.001 par value, 2,000,000 shares authorized; no shares issued and outstanding September 30, 2021 and December 31, 2020, respectively

       

    4

       

    4

    Additional paid-in capital

       

    136,236

       

    133,592

    Treasury stock

       

    (175)

       

    (175)

    Accumulated deficit

       

    (63,179)

       

    (53,522)

    Accumulated other comprehensive income

       

    7,241

       

    6,431

    Total stockholders’ equity

       

    80,127

       

    86,330

    Total liabilities and stockholders’ equity

     

    $

    1,107,625

     

    $

    726,401

     
     
     
     

    Consolidated Statements of Comprehensive Loss

    (Unaudited)

    (in thousands, except per share amounts)

                             
       

    Three months ended September 30,

     

    Nine months ended September 30,

       

    2021

     

    2020

     

    2021

     

    2020

    Revenues

                           

    Investment income, net of expenses

     

    $

    6,196

     

    $

    434

     

    $

    12,303

     

    $

    1,277

    Net realized (loss) gain on investments

       

    (2,115)

       

    (1,951)

       

    (2,704)

       

    7,829

    Amortization of deferred gain on reinsurance

       

    662

       

    293

       

    1,711

       

    814

    Service fee revenue, net of expenses

       

    628

       

    590

       

    1,738

       

    1,359

    Other revenue

       

    400

       

    117

       

    1,007

       

    134

    Total revenue (loss)

       

    5,771

       

    (517)

       

    14,055

       

    11,413

    Expenses

                           

    Interest credited

       

    284

       

    380

       

    1,868

       

    464

    Benefits

       

       

    (3)

       

       

    (6)

    Amortization of deferred acquisition costs

       

    753

       

    235

       

    1,780

       

    376

    Salaries and benefits

       

    4,025

       

    1,444

       

    11,466

       

    3,624

    Other operating expenses

       

    4,124

       

    1,706

       

    6,769

       

    5,337

    Total expenses

       

    9,186

       

    3,762

       

    21,883

       

    9,795

    (Loss) income continuing from operations before taxes

       

    (3,415)

       

    (4,279)

       

    (7,828)

       

    1,618

    Income tax expense

       

    351

       

    (1,258)

       

    (1,828)

       

    (2,145)

    Net (loss) income attributable to Midwest Holding, Inc.

       

    (3,064)

       

    (5,537)

       

    (9,656)

       

    (527)

    Comprehensive income (loss):

                           

    Unrealized gains on investments arising during the three months ended September 30 2021 and 2020, net of offsets, net of tax ($154 and $104, respectively); unrealized gains on investments arising during the nine months ended September 30, 2021 and 2020, net of offsets, net of tax ($216 and $77, respectively)

       

    1,085

       

    2,451

       

    2,421

       

    4,954

    Unrealized losses on foreign currency

       

       

    406

       

       

    Less:  Reclassification adjustment for net realized gains on investments, net of tax for the three months ended September 30, 2021 and 2020 ($134 and $23, respectively), and net of tax for the nine months ended September 30, 2021 and 2020 ($428 and $266, respectively)

       

    (505)

       

    1,951

       

    (1,611)

       

    (7,829)

    Other comprehensive income (loss)

       

    580

       

    4,808

       

    810

       

    (2,875)

    Comprehensive loss

     

    $

    (2,484)

     

    $

    (729)

     

    $

    (8,846)

     

    $

    (3,402)

    Loss per common share

                           

    Basic

     

    $

    (0.82)

     

    $

    (2.04)

     

    $

    (2.58)

     

    $

    (0.22)

    Diluted

     

    $

    (0.82)

     

    $

    (2.00)

     

    $

    (2.58)

     

    $

    (0.21)

     
     
     
     

    Consolidated Statements of Cash Flows

    (Unaudited)

    (in thousands)

                 
       

    Nine months ended September 30,

       

    2021

     

    2020

    Cash Flows from Operating Activities:

               

    Loss attributable to Midwest Holding, Inc.

     

    $

    (9,656)

     

    $

    (527)

    Adjustments to arrive at cash provided by operating activities:

               

    Net premium and discount on investments

       

    (1,529)

       

    (18)

    Depreciation and amortization

       

    38

       

    44

    Stock options

       

    2,765

       

    30

    Amortization of deferred acquisition costs

       

    1,780

       

    376

    Deferred acquisition costs capitalized

       

    (12,449)

       

    (6,784)

    Net realized losses (gains) on investments

       

    2,704

       

    (7,829)

    Deferred coinsurance ceding commission

       

    9,601

       

    8,161

    Changes in operating assets and liabilities:

               

    Reinsurance recoverables

       

    (6,658)

       

    (7,142)

    Interest and dividends due and accrued

       

    (5,368)

       

    (3,436)

    Premiums receivable

       

    (20)

       

    (1)

    Policy liabilities

       

    14,763

       

    6,429

    Other assets and liabilities

       

    4,948

       

    13,538

    Other assets and liabilities – discontinued operations

       

    (1)

       

    15

    Net cash provided by operating activities

       

    918

       

    2,856

    Cash Flows from Investing Activities:

               

    Fixed maturities available for sale:

               

    Purchases

       

    (480,700)

       

    (158,933)

    Proceeds from sale or maturity

       

    204,452

       

    24,050

    Mortgage loans on real estate, held for investment

               

    Purchases

       

    (97,075)

       

    (52,503)

    Proceeds from sale

       

    25,749

       

    8,918

    Derivatives

               

    Purchases

       

    (14,496)

       

    (5,065)

    Proceeds from sale

       

    4,314

       

    Purchase of equity securities

       

    (38,972)

       

    Other invested assets

               

    Purchases

       

    (58,437)

       

    (26,788)

    Proceeds from sale

       

    34,965

       

    13,671

    Purchase of restricted common stock in FHLB

       

    (500)

       

    Preferred stock

       

    (3,128)

       

    Notes receivable

       

       

    (5,516)

    Net change in policy loans

       

    (9)

       

    (41)

    Net purchases of property and equipment

       

    (54)

       

    (44)

    Net cash used in investing activities

       

    (423,891)

       

    (202,251)

    Cash Flows from Financing Activities:

               

    Capital contribution

       

    (121)

       

    14,941

    Repurchase of common stock

       

       

    (150)

    Acquisition of noncontrolling interest

       

       

    (500)

    Receipts on deposit-type contracts

       

    367,446

       

    279,537

    Withdrawals on deposit-type contracts

       

    (14,543)

       

    (1,718)

    Net cash provided by financing activities

       

    352,782

       

    292,110

    Net (decrease) increase in cash and cash equivalents

       

    (70,191)

       

    92,715

    Cash and cash equivalents:

               

    Beginning

       

    151,679

       

    43,716

    Ending

     

    $

    81,488

     

    $

    136,431

                 

    Supplementary information

               

    Cash paid for taxes

     

    $

    3,711

     

    $

     

    Supplemental Information – Operating Metrics – Annuity Premiums

    (in thousands)

     

    The following data, together with a management reporting tax rate of 21%, are used internally by the Company’s management and Board of Directors to adjust the Company’s GAAP financial results in order to facilitate comparison of its operating performance between periods and to better understand its core business and future outlook. In order to calculate net income per diluted share for management reporting purposes for the third quarter of 2021, the Company uses its fully diluted share count of 3.769 million.

     

    Operating Metric – Annuity Premiums

                             
       

    Three months ended September 30,

     

    Nine months ended September 30,

       

    2021

     

    2020

     

    2021

     

    2020

    Annuity Premiums (SAP)

                           

    MYGA direct written premiums

     

    $

    46,719

     

    $

    27,537

     

    $

    82,279

     

    $

    86,503

    FIA direct written premiums

       

    71,208

       

    104,514

       

    285,167

       

    193,034

    Annuity direct written premiums

       

    117,927

       

    132,051

       

    367,446

       

    279,537

    Ceded premiums

       

    60,062

       

    58,992

       

    193,632

       

    177,979

                             

    Annuity Premiums Statistics

                           

    Premiums ceded %

       

    51%

       

    45%

       

    53%

       

    64%

                             

    Direct written premiums growth y-o-y %:

                           

    MYGA

       

    70%

       

    (33)%

       

    (5)%

       

    9%

    FIA

       

    (32)%

       

    NMF

       

    48%

       

    NMF

    Total

       

    (11)%

       

    220%

       

    31%

       

    252%

                             

    Direct written premiums composition %:

                           

    MYGA

       

    40%

       

    21%

       

    22%

       

    31%

    FIA

       

    60%

       

    79%

       

    78%

       

    69%

    Total

       

    100%

       

    100%

       

    100%

       

    100%

     
     
     

    We had annuity direct written premiums of $117.9 million and $132.1 million in 2021 and 2020, respectively. The decrease in annuity direct written premiums reflected the challenging sales and competitive environment.

     

    We sell annuities through the independent marketing organization (“IMO”) channel. We aim to grow annuity direct written premiums by further developing our relationships with existing IMOs and increasing the number of IMO partners that distribute our annuity products, as well as increasing the number of states in which we are licensed to sell our annuity products. We also aim to distribute to new channels, including the registered investment advisor (RIA) channel as well as the bank and broker-dealer channels.

     

    We had ceded premiums of $60.1 million and $59.0 million in 2021 and 2020, respectively. The flat to slight increase in ceded premiums was partially attributable to the decrease in annuity direct written premiums discussed above.

     
     
     
     

    Supplemental Information – Operating Metrics – Operating Components of GAAP Revenue

    (in thousands)

     

    Operating Metric – Operating Components of GAAP Revenue

                             
       

    Three months ended September 30,

     

    Nine months ended September 30,

       

    2021

     

    2020

     

    2021

     

    2020

    Operating Components of GAAP Revenue

                     

    Investment income, net of expenses

     

    $

    6,196

     

    $

    434

     

    $

    12,303

     

    $

    1,277

    Service fee revenue, net of expenses

       

    628

       

    590

       

    1,738

       

    1,359

    Other revenue

       

    400

       

    117

       

    1,007

       

    134

    Operating components of GAAP revenue – total

     

    $

    7,224

     

    $

    1,141

     

    $

    15,048

     

    $

    2,770

     
     
     

    We monitor key, select operating components of our GAAP revenue as key operating metrics in evaluating the performance of our business: 1) Investment (loss) income, net of expenses; 2) Service fee revenue, net of expenses; and 3) Other revenue.

     

    For the three months ended September 30, 2021, investment (loss) income, net of expenses, was $6.2 million, compared to $0.4 million in the same period last year. Investment (loss) income, net of expenses, consists of investment income generated from our retained investment assets that are not ceded to reinsurers. The increase in investment income was due to the investment income earned on the bonds and mortgage loans purchased with the sales of our MYGA and FIA products that were not ceded to reinsurers during the period, as well as deployment of excess cash towards credit investments with attractive yields and risk-return profiles. On a gross consolidated basis, our investment portfolio (excluding cash) was $942.8 million as of September 30, 2021 compared to $518.2 million as of December 31, 2020, as a result of proceeds from our MYGA and FIA product sales.

     

    For the three months ended September 30, 2021, service fee revenue, net of expenses, was $0.6 million, compared to $0.6 million in the same period last year. Service fee revenue, net of expenses, consists of fee revenue generated by our internal asset manager 1505 Capital for asset management services provided to third-party clients, some of whom are our reinsurers. The flat performance was due primarily to the flat performance in the level of asset management services provided by 1505 Capital to third-party clients.

     

    For the three months ended September 30, 2021, other revenue was $0.4 million, compared to $0.1 million in the same period last year. Other revenue consists of revenue generated by us for providing ancillary services such as third-party administration (“TPA”) to clients. The increase in 2021 was due to the increased provision of ancillary services, including TPA, to clients.

     
     
     

    Supplemental Information – Operating Metrics – Fees Received for Reinsurance

    (in thousands)

     

    Operating Metric – Fees Received for Reinsurance

                             
       

    Three months ended September 30,

     

    Nine months ended September 30,

       

    2021

     

    2020

     

    2021

     

    2020

    Fees Received for Reinsurance(1)

                           

    Fees received for reinsurance – total

     

    $

    3,589

     

    $

    4,545

     

    $

    11,312

     

    $

    8,975

    _______________

    (1) Consists of: 1) amortization of deferred gain on reinsurance, which is a line item from our GAAP Consolidated Statements of Comprehensive Loss; and 2) deferred coinsurance ceding commission, which is a line item from our GAAP Consolidated Statements of Cash Flows.

     
     
     

    Fees received for reinsurance is defined as the net fees received for reinsurance transactions completed during the period and includes ceding commission. We calculate fees received for reinsurance by summing two components: 1) amortization of deferred gain on reinsurance, which is a line item from our GAAP Consolidated Statements of Comprehensive Loss; and 2) deferred coinsurance ceding commission, which is a line item from our GAAP Consolidated Statements of Cash Flows.

     

    For the three months ended September 30, 2021, fees received for reinsurance decreased by $1.0 million compared to the prior year period due to lower ceded premiums. For the three months ended September 30, 2021, the components of fees received for reinsurance included $0.7 million of amortization of deferred gain on reinsurance from our GAAP Consolidated Statements of Comprehensive Loss and $2.9 million of deferred coinsurance ceding commission from our GAAP Consolidated Statements of Cash Flows.

     

    For the nine months ended September 30, 2021, fees received for reinsurance increased by $2.3 million compared to the prior year period due to higher ceded premiums. For the nine months ended September 30, 2021, the components of fees received for reinsurance included $1.7 million of amortization of deferred gain on reinsurance from our GAAP Consolidated Statements of Comprehensive (Loss) Income and $9.6 million of deferred coinsurance ceding commission from our GAAP Consolidated Statements of Cash Flows.

    Supplemental Information – Reconciliation – Management Expenses to GAAP Expenses

    (Unaudited)

    (in thousands)

                             
       

    Three months ended September 30,

     

    Nine months ended September 30,

       

    2021

     

    2020

     

    2021

     

    2020

    Management Expenses

                           

    G&A

     

    $

    6,213

     

    $

    3,279

     

    $

    17,357

     

    $

    9,152

                             

    Management interest credited

       

    3,229

       

    639

       

    6,111

       

    856

    Amortization of deferred acquisition costs

       

    753

       

    235

       

    1,780

       

    376

    Expenses related to retained business

       

    3,982

       

    874

       

    7,891

       

    1,232

    Management expenses – total

     

    $

    10,195

     

    $

    4,153

     

    $

    25,247

     

    $

    10,384

                             
       

    Three months ended September 30,

     

    Nine months ended September 30,

       

    2021

     

    2020

     

    2021

     

    2020

    G&A

                           

    Salaries and benefits – GAAP

     

    $

    4,025

     

    $

    1,444

     

    $

    11,466

     

    $

    3,624

    Other operating expenses – GAAP

       

    4,124

       

    1,706

       

    6,769

       

    5,337

    Subtotal

       

    8,149

       

    3,150

       

    18,235

       

    8,961

    Adjustments:

                           

    Less: Stock-based compensation

       

    (996)

       

    (12)

       

    (2,765)

       

    (25)

    Less: Mark-to-market option allowance

       

    (941)

       

    141

       

    1,887

       

    216

    G&A

     

    $

    6,213

     

    $

    3,279

     

    $

    17,357

     

    $

    9,152

                             
       

    Three months ended September 30,

     

    Nine months ended September 30,

       

    2021

     

    2020

     

    2021

     

    2020

    Management Interest Credited

                           

    Interest credited – GAAP

     

    $

    284

     

    $

    380

     

    $

    1,868

     

    $

    464

    Adjustments:

                           

    Less: FIA interest credited – GAAP

       

    549

       

    (115)

       

    (38)

       

    (109)

    Add: FIA options cost – amortized

       

    2,397

       

    374

       

    4,280

       

    501

    Management interest credited

     

    $

    3,229

     

    $

    639

     

    $

    6,111

     

    $

    856

                             
       

    Three months ended September 30,

     

    Nine months ended September 30,

       

    2021

     

    2020

     

    2021

     

    2020

    Reconciliation – Management Expenses to GAAP Expenses

                           

    Total expenses – GAAP

     

    $

    9,186

     

    $

    3,762

     

    $

    21,883

     

    $

    9,795

    Adjustments:

                           

    Less: Benefits

       

       

    3

       

       

    6

    Less: Stock-based compensation

       

    (996)

       

    (12)

       

    (2,765)

       

    (25)

    Less: Mark-to-market option allowance

       

    (941)

       

    141

       

    1,887

       

    216

    Less: FIA interest credited – GAAP

       

    549

       

    (115)

       

    (38)

       

    (109)

    Add: FIA options cost – amortized

       

    2,397

       

    374

       

    4,280

       

    501

    Management expenses – total

     

    $

    10,195

     

    $

    4,153

     

    $

    25,247

     

    $

    10,384

    Supplemental Information – Reconciliation – Management Expenses to GAAP Expenses (cont’d)

    (Unaudited)

    (in thousands)

     

    Operating Metric – Management Expenses

     

    For the three months ended September 30, 2021, GAAP general and administrative expenses totaled $8.1 million compared to $3.2 million for the prior year. For the three months ended September 30, 2021, as disclosed in our 10-Q Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in these expenses is mainly salaries, benefits and other operating expenses, along with $1.0 million of non-cash stock-based compensation and $0.9 million of non-cash mark-to-market expense of our derivative option allowance, which we exclude in our management G&A.

     

    For the nine months ended September 30, 2021, GAAP general and administrative expenses totaled $18.2 million compared to $9.0 million for the prior year. For the nine months ended September 30, 2021, as disclosed in our 10-Q Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in these expenses is mainly salaries, benefits and other operating expenses, along with $2.8 million of non-cash stock-based compensation and negative $1.9 million of non-cash mark-to-market expense of our derivative option allowance, which we exclude in our management G&A.

     

    Operating Metric – Management Interest Credited

     

    For the three months ended September 30, 2021, GAAP interest credited totaled $0.3 million compared to $0.4 million for the prior year. For the three months ended September 30, 2021, as disclosed in our 10-Q Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in these expenses is GAAP interest credited related to our retained FIA policies of approximately negative $0.5 million. For the three months ended September 30, 2021, as disclosed in our 10-Q Management’s Discussion and Analysis of Financial Condition and Results of Operations, management’s estimated, amortized cost of servicing our retained FIA policies was approximately $2.4 million.

     

    For the nine months ended September 30, 2021, GAAP interest credited totaled $1.9 million compared to $0.5 million for the prior year. For the nine months ended September 30, 2021, as disclosed in our 10-Q Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in these expenses is GAAP interest credited related to our retained FIA policies of approximately positive $38 thousand. For the nine months ended September 30, 2021, as disclosed in our 10Q Management’s Discussion and Analysis of Financial Condition and Results of Operations, management’s estimated, amortized cost of servicing our retained FIA policies was approximately $4.3 million.

     
     
     

    Supplemental Information – Retained and Reinsurance Balance Sheets (GAAP)

    (Unaudited)

    (in thousands)

                                         
       

    September 30, 2021

     

    December 31, 2020

                                         
       

    Retained

     

    Reinsurance

     

    Consolidated

     

    Retained

     

    Reinsurance

     

    Consolidated

    Assets

                                       

    Total investments

     

    $

    418,170

     

    $

    524,669

     

    $

    942,839

     

    $

    185,368

     

    $

    332,827

     

    $

    518,195

    Cash and cash equivalents

       

    51,583

       

    29,904

       

    81,487

       

    102,335

       

    49,344

       

    151,679

    Accrued investment income

       

    3,471

       

    8,704

       

    12,175

       

    1,956

       

    4,851

       

    6,807

    Deferred acquisition costs, net

       

    24,037

       

       

    24,037

       

    13,456

       

       

    13,456

    Reinsurance recoverables

       

       

    37,720

       

    37,720

       

       

    32,146

       

    32,146

    Other assets

       

    8,921

       

    446

       

    9,367

       

    2,685

       

    1,433

       

    4,118

    Total assets

     

    $

    506,182

     

    $

    601,443

     

    $

    1,107,625

     

    $

    305,800

     

    $

    420,601

     

    $

    726,401

    Liabilities and Stockholders’ Equity

                                       

    Liabilities:

                                       

    Policyholder liabilities

     

    $

    364,439

     

    $

    614,036

     

    $

    978,475

     

    $

    191,887

     

    $

    418,921

     

    $

    610,808

    Deferred gain on coinsurance transactions

       

    27,799

       

       

    27,799

       

    18,199

       

       

    18,199

    Other liabilities

       

    33,816

       

    (12,593)

       

    21,223

       

    9,384

       

    1,680

       

    11,064

    Total liabilities

     

    $

    426,054

     

    $

    601,443

     

    $

    1,027,497

     

    $

    219,470

     

    $

    420,601

     

    $

    640,071

    Stockholders’ Equity:

                                       

    Voting common stock

       

    4

       

       

    4

       

    4

       

       

    4

    Additional paid-in capital

       

    136,061

       

       

    136,061

       

    133,417

       

       

    133,417

    Accumulated deficit

       

    (63,178)

       

       

    (63,178)

       

    (53,522)

       

       

    (53,522)

    Accumulated other comprehensive income

       

    7,241

       

       

    7,241

       

    6,431

       

       

    6,431

    Total Midwest Holding Inc.’s stockholders’ equity

     

    $

    80,128

     

    $

     

    $

    80,128

     

    $

    86,330

     

    $

     

    $

    86,330

    Total liabilities and stockholders’ equity

     

    $

    506,182

     

    $

    601,443

     

    $

    1,107,625

     

    $

    305,800

     

    $

    420,601

     

    $

    726,401

     
     

    Note: 1505 Capital had approximately $407 million of total third-party assets under management as of September 30, 2021.

    SOURCE Midwest Holding Inc.

    Related Links

    https://www.midwestholding.com/

    Originally Posted at CISION PR Newswire on November 11, 2021 by Midwest Holding Inc.

    Categories: Industry Articles
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