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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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FORM 10-K

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PART I​

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PART III

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See “Risk Factors” beginning on page 18 for further discussion of the material risks associated with our business.

You should not place undue reliance on any forward-looking statements. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.

Unless the context otherwise requires, we use the terms “Midwest Holding,” the “Company,” “we,” “us” and “our” in this Form 10-K to refer to Midwest Holding Inc. together with its consolidated subsidiaries and any reference to “Midwest” relates to Midwest Holding Inc. (parent) only.

PART I.Summary of Risks Associated with our Business and Voting Common Stock

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Our business is subject to risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this report. A summary of these risks include, but are not limited to, the following:

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We provide an end-to-end solution to manage annuity products that includes a broad set of product development, distribution support, policy administration, and asset/liability management services. Our technology platform enables us to efficiently develop, sell and administer a wide range of products. Our asset management services are also provided to third-party insurers and reinsurers.

We currently offer annuity products, consisting of multi-year guaranteed annuity (“MYGA”) and fixed indexed annuity (“FIA”) policies, through IMOs that in turn distribute our products and services to independent insurance agents in 22 states and the District of Columbia. We further provide IMOs with our product development expertise, administrative capabilities and technology platform.

We seek to reinsure substantially all of our annuity policies with third-party reinsurers and our captive reinsurance subsidiary, Seneca Reinsurance Company, LLC (“Seneca Re”). Our third-party reinsurers include traditional reinsurers and capital markets reinsurers, which are third-party investors seeking Our third-party reinsurers include traditional reinsurers and capital markets reinsurers, who are seeking exposure to reinsurance revenue and typically do not have their own reinsurance platforms or insurance related operations.

We were formed in 2003 as a financial services company and began our insurance operations in 2009. Following a change in control transaction in 2018, we began implementing our current business model and strategic plan. In December 2020, our voting common stock was listed on The Company’s sole operating subsidiary,Nasdaq Capital Market under the ticker symbol MDWT.

We operate our core business through four subsidiaries under one reportable segment. American Life & Security Corp. (“American Life”) was formed in 2009 asis a Nebraska-domiciled life insurance company.

The principal executive offices for Midwestcompany, that is also commercially domiciled in Texas and is currently licensed to sell, underwrite, and market life insurance and annuity products in 22 states and the District of Columbia. American Life are at 2900 South 70th Street, Suite 400, Lincoln, Nebraska 68506, phone number is (402) 489-8266.

Developmentobtained a financial strength rating of Our Business

We raised approximately $18.0 million of capital to build Midwest through various exempt intra-state offerings between 2003 and 2009. Since that time, Midwest has acquired eight other small holding company/lifeB++ (“Good”) from A.M. Best Company (“A.M. Best”), a leading rating agency for insurance companies, in December 2018 that was affirmed in December 2020 and consolidated them with MidwestFebruary 2022. A.M. Best also upgraded American Life’s long-term issuer credit rating to bbb+ from bbb in December 2020 and American Life such that commencing December 31, 2016, Midwest operated its life insurance business exclusively throughaffirmed in February 2022. All of our annuities are written by American Life.

In 2009,Our other insurance subsidiary, Seneca Re, is a Vermont-domiciled sponsored captive reinsurance company established in early 2020 to reinsure various types of risks on behalf of American Life began conducting lifeand third-party capital providers through special purpose reinsurance entities known as “protected cells.”  Through Seneca Re, we assist capital market investors in establishing and licensing new protected cells. 1505 Capital LLC, a Delaware limited liability company (“1505 Capital”), is an SEC registered investment adviser that provides financial, investment advisory, and management services.

We seek to deliver long-term value by growing our annuity volumes and generating profitable fee-based revenue. We generate fees and other revenue based on the gross deposits received on the annuity policies we issue, reinsure, and administer.

By reinsuring a significant portion of the annuity policies we issue, the level of capital needed for American Life is significantly less than retaining all of the business on its books. We believe this “capital light” approach has the potential to produce enhanced returns for our business compared to a traditional insurance business in Nebraska. company capital structure. This strategy helps alleviate our insurance regulatory capital requirements because policies that are reinsured require substantially less capital and surplus than policies retained by us. We also have the flexibility to selectively retain assets and liabilities associated with our policies for a period of time when we expect that doing so will provide an attractive return on our capital.

As of December 31, 2016, statutory capital and surplus2021, approximately 50% of American Life was approximately $3.8 million. the deposits received, in the current year, relating to our annuity products were ceded to reinsurance vehicles capitalized by third party reinsurers or held in protected cells within Seneca Re for future reinsurance transactions.

For the years ended December 31, 20162021 and 2015, American Life2020, we generated approximately $5.9$30.1 million and $6.4$10.6 million of revenue from investment income, realized gains on investments, ceding commissions earned, policy administration, and asset management fees.

In 2018, we launched our business plan to become a capital efficient, technology-enabled, and service-oriented solutions provider to the annuity and life markets. We provide insurance distributors and reinsurers with an end-to-end solution to develop, issue and administer annuity products.

We utilize our insurance and ancillary services businesses to develop and issue annuities through IMOs. We generally seek to reinsure substantially all of the financial risk associated with our policies to third-party reinsurers, including traditional and capital markets

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reinsurers, and Seneca Re. We also have the flexibility to selectively retain assets and liabilities associated with our policies for a period of time when we expect that doing so will provide an attractive return on our capital.

Through our ancillary services businesses we administer the policies we issue and offer asset management services to our reinsurance partners for a fee. Through Seneca Re, we also assist capital market investors in premiumestablishing and licensing new special purpose reinsurance entities. We believe our broad service offering provides a growing and valuable fee stream, and expect that our policy administration and asset management fee income will increase as we grow our number of administered policies and the associated assets that we manage. In the future, we expect to have opportunities to increase our policy administration and asset management revenue by providing these services on a statutory accounting reportingstand-alone basis respectively.to new customers.

AcquisitionsWe seek to create value for our distribution and Divestitures Since 2014

On July 21, 2014, we consummated an exchange agreement with Great Plains Financial Corporation, a South Dakota corporation (“Great Plains”)reinsurance partners by facilitating product innovation, rapid speed to market for new products, competitively-priced products, streamlined customer and Security Capital Corporation, an Arkansas corporation (“Security Capital”), acquiring the outstanding shares of each company held by their shareholders (other than those shares already held by us). Shortly thereafter, Great Plainsagent experience, and Security Capital were merged into us.efficient technology-enabled operations. We issued a total of 4,120,000 voting common shares pursuant to these transactions. On December 1, 2016, the former principal subsidiary of Great Plains, Great Plains Life Assurance Company (“Great Plains Life”), a life insurance company, was merged into American life.

On October 27, 2015, we acquired the shares of First Wyoming Capital Corporation not already owned by us, a Wyoming corporation (“First Wyoming”) by issuing approximately 4,767,000 shares to the former shareholders of First Wyoming. Subsequent to the closing, First Wyoming merged into us. On September 1, 2016, the former principal subsidiary of First Wyoming, First Wyoming Life Insurance Company (“First Wyoming Life”), was merged into American Life.

American Life utilizes information from applications and, in some cases, telephone interviews with applicants, inspection reports, doctors’ statements and/or medical examinations to determine whether a policy should be issued in accordance with an application, with a different rating, with a rider, with reduced coverage or rejected. In addition to an applicant’s medical history, the company also considers other factors such as financial profile, foreign travel, vocations and alcohol, drug and tobacco use. Requests for coverage are reviewed on their merits and a policy is not issued unless the particular risk has been examined and approved by our underwriters.Miller and Newberg, Inc., and reinsurers assistAmerican Life in establishing its underwriting standards. The underwriting for American Life is performed by its third party administrator, Midwest. The Company’s Chief Underwriter has more than 20 years’ experience in such business.

Marketing

The insurance products of American Life are marketed using a personal, face-to-face marketing concept. The insurance agents use the shareholder base and the current policyholders of ours and their referrals as potential clients for life insurance products. For most of 2016, we were unable to generate a significant amount of new life insurance sales due to the lack of excess capital and surplus. We focused on new policy sales after our life insurance subsidiaries were consolidated with American Life. During the final two months of 2016, new annualized premiums totaling more than $75,000 were submitted.

Candidate agents that lack insurance experience must complete a multiple interview process. These individuals are secured through a recruiting agency, referrals from shareholders, newspaper advertisements, and solicitation through the use of on-line job sites. If hired to sell insurance, the candidate must complete a 40-hour training course conducted by a third party as well as pass the applicable state examination. Once licensed, each agent must complete a week long product and sales training class. Following course completion, each agent has a training week where his or her manager will work side by side with the agent by conducting sales meetings.

Operating Results

There are certain factors unique to the life insurance business in which we operate which have an adverse effect on our operating results. One factor is that the cost of putting a new policy in force is usually greater than the first year’s policy premium and, accordingly, in the early years of a new life insurance company, these initial costs and the required provisions for reserves have an adverse effect on operating results. American Life, as is common among relatively young life insurance companies, may be expected to sustain losses for several years until such time as the block of business matures and the profit stream offsets the cost of new business. The aggregate cost of writing new life insurance includes such significant, nonrecurring items such as first year commissions, medical and investigation expenses, and other expenses incidental to the issuance of new policies, together with the initial reserves required to be established. For our ordinary life products, the costs to cover expenses and the policyholder liability that must be set up at policy issuance exceed the first year premium by approximately 35%. Additionally, there is no excess of costs to cover expenses and the policyholder liability for the Future Cornhusker product. However, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), incremental direct costs that result directly from and are essential to a life insurance company acquisition transaction and would not have been incurred by us had the transaction not occurred, are capitalized and amortized over the life of the premiums produced.

Our operating results are reported in accordancewith GAAP for stock life companies; althoughThe table below sets forth American Life will also prepare financial statements in accordance with accounting practices prescribed or permitted by its state of domicile (statutory basis of accounting) for the purpose of reporting to insurance regulatory authorities. The statutory basis of accounting has many significant differences to GAAP. For example, the incremental direct costs for acquiring new business, which are capitalized under GAAP, as discussed in the preceding paragraph, are expensed immediately under the statutory basis of accounting. In addition, under GAAP, assumptions used in calculating reserves are less conservative than those used under the statutory basis, thereby further reducing adverse effects on operating results.

Administration

We commenced ourthird party administration ("TPA") services in 2012 by first offering the services to our life insurance subsidiariesLife’s MYGA and other entities. These agreements, for various levels of administrative services on behalf of each company, generate fee income for us. Services provided to each company 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. Management does not expect such service to be a significant source of future revenue.

Investments

The type and amount of investments which can be made by a life insurance company are specifically controlled by applicable state statutes and rules and regulations of the respective state departments of insurance. American Life has adopted investment policies in compliance with the insurance laws of the State of Nebraska.

As an unseasoned company ages, investment income will increase as a percent of total income due to investment of policy reserves; therefore, it is critical that an insurer invests its assets conservatively to ensure that investment income can become a significant component of total revenue. Accordingly, American Life has developed a conservative investment policy in an effort to minimize investment risk. Our investments are managed by our Chief Executive Officer (“CEO”), who has over 30 years of portfolio management experience. He consults with a number of investment bankers and traders in the management of our portfolio. Trades are cleared through a common broker after competitive bids are solicited.

Reinsurance

American Life reinsures with other companies (reinsurers) portions of the life insurance risks it underwrites. The primary purpose of reinsurance is to allow a company to reduce the amount of its risk on any particular policy by transferring a portion of the risk to the reinsurers. However, American Life remains contingently liable for the risk in the event any reinsurer is not able to meet its obligations under the applicable reinsurance agreements. Further, when life insurance risks are ceded to another insurer, the ceding company must pay a reinsurance premium to the reinsurance company as consideration for the risk being transferred. The payment of this reinsurance premium to the reinsurer represents a reduction of the premium revenueFIA deposits received by American Life. This reduction in premium income has a direct impact on the profitability of the ceding company. The types of reinsurance treaties utilized are yearly renewable term based. As such, we pay the assuming carrier an annual premium based upon “term life” rates which are typically lower than those we charge.

The average face amount of all of our life insurance policies in force is approximately $34,000, with the American Accumulator averaging $63,000, Future Cornhusker Plan averaging $9,000, the Accelerator averaging $81,000, the AmericanProtector averaging $10,000, the Accumulator X averaging $79,000, and death benefit policies acquired averaging $9,000. With respect to the new policies written, American Life retains $40,000 of risk on any one life. As of December 31, 2016, approximately 22% of our gross outstanding life insurance policies in force are reinsured with third parties. Overall, ceded premium represents approximately $11.34 of premium per year for each $1,000 of gross life insurance in force. All accidental death benefits are reinsured.

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an upgrade of American Life’s A.M. Best rating to A-, it would increase the demand for our annuities, and would attract additional distribution and reinsurance partners, including small to mid-sized banks and broker-dealers.

Reinsurance.

As indicated above, reinsurance is an integral part of our business plan. We market, underwrite and issue annuity products through American Life and seek to reinsure the policies with third-party reinsurers and Seneca Re. We partner with traditional third-party reinsurers and reinsurers sponsored by capital markets investors, including asset managers and institutional investors. We believe this strategy helps us preserve our capital while supporting sales growth because we have lower capital requirements when the policy liabilities are reinsured than when we retain all of the policy liabilities.

In some cases, we will retain our policies for a period of time in our captive reinsurance company in order to create block reinsurance transactions. We expect that our ability to accumulate and reinsure larger portfolios of policies over time should increase the size and number of reinsurers who seek to reinsure our liabilities.

Seneca Re was formed to operate as a sponsored captive insurance company for the purpose of reinsuring insurance policies through protected cells, under Vermont insurance regulations. Seneca Re provides an efficient structure for capital markets investors to reinsure our policies through protected cells that we manage. As of December 31, 2021, through Seneca Re and American Life we had five reinsurance agreements with third parties and a reinsurance agreement with an affiliate of Crestline Assurance Holdings LLC, discussed below.

Our Technology

Our business model utilizes a modern, end-to-end, cloud-based technology platform that we began implementing in 2018. This platform enables us to develop, sell and administer a broad range of competitive annuity products. We license key components of our technology from third-party software providers, including product development, new business, distribution management and policy administration applications. We believe this strategy allows us to provide high quality technology capabilities with limited capital investment and increased flexibility. In addition, we have added several core technology integrations to optimize the speed and efficiency of our interactions with IMOs, their agents and policyholders, including document management, electronic application capability, secure log-ins, and an agent and policyholder portal. We believe our technology platform provides cost effective product development, sales and administration that enables us to control the growth of our operating and other expenses while expanding our operations and growing our sales volume.

Our Market Opportunity

We participate in a large U.S. market that we expect to grow in part due to a number of demographic trends. As measured by annual premiums written, annuities are the largest product line in the life, annuity, and accident and health sector. Annuities play an important role in retirement planning by providing individuals with stable, tax-efficient sources of income. In 2020 annuity premiums, accounted for $295 billion of annual premiums, or approximately 31% of the $963 billion of total annual life, annuity, and accident and health premiums according to Insurance Information Institute.The most common annuities are fixed and variable and can be written on an individual or group basis. Our current products are FIA’s written on an individual basis.

An increasing portion of the U.S. population is of retirement age and is expected to increase the retirement income needs of retirees. The number of people of retirement age has increased significantly since 2010, driven by the aging of the “Baby Boomer” generation. The U.S. population over 65 years old is forecast to grow from 56 million in 2020 to an estimated 81 million in the next 20 years, according to the U.S. Census Bureau, Population Estimates and Projections.This study also forecasted that U.S. population aged over 65 years old is expected to grow by 44% from 2020 to 2040, while the total U.S. population is expected to grow by only 12%.

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Annuities in the U.S. are distributed through a number of channels, most of which are independent from the insurance companies that issue annuities. Independent distribution channels serve as the primary and a growing source of annuity distribution. In 2020, approximately 77% of U.S. individual annuity sales occurred through independent distributors, including independent agents, broker-dealers, and banks, representing an increase from approximately 70% in 2016 according to U.S. Individual Annuities, 2020 Year in Review, Life Insurance Marketing and 2015,Research Association (“LIMRA”), 2021.Independent agents are the second largest distribution channel, behind independent broker-dealers, accounting for approximately 19% of U.S. individual annuity sales in 2020. IMOs provide independent agents with access to annuity products along with operational support services and functionality to support the distribution services of the agents. The infrastructure and support services provided by IMOs to independent agents are critical to the success of independent agents and their ability to serve their customers and generate additional sales.

We believe that capital markets investors have been actively seeking investing in and acquiring insurance and reinsurance companies in recent years. Fixed annuities provide upfront premiums and stable, long-term payment obligations and are thus attractive sources of liability-funded assets for a variety of traditional and alternative asset managers and investors. However, there are significant regulatory and operational hurdles for capital providers looking to enter the insurance market. These hurdles are exacerbated by the limited legacy administrative capabilities, product development processes and technology systems, of traditional insurers and reinsurers. We provide asset managers and investors the ability to seamlessly access funding from annuities through a variety of reinsurance entities that we can form quickly and operate efficiently with lower upfront and ongoing regulatory and operating costs.

We operate in highly competitive markets with a variety of participants, including insurance companies, financial institutions, asset managers, and reinsurance companies. These companies compete in various forms in the annuity market, for investment assets and for services. We seek to build strong relationships along with offering technology-enabled and services-oriented solutions for our partners.

Our Competitive Strengths

Differentiated Value Proposition

We provide annuity product development and asset management services, enhanced by American Life’s A.M. Best financial strength rating and licenses to sell annuity products in 22 states and the District of Columbia. We have developed and implemented a technology platform and administrative services that we believe provides us with the opportunity to expand our revenue opportunities, lower our operating costs on a per policy basis and increase customer value for our distribution partners. We believe our business model and multi-service capabilities provide our reinsurance and capital provider participants with attractive capital deployment opportunities.

We  also believe our ongoing strategy to have American Life become licensed to sell insurance in additional states and seek a higher A.M. Best rating will further strengthen our value.

Multiple Revenue Sources

Our business model generates upfront ceding commissions and fee-based revenue from recurring policy administration and asset management fees. We receive ceding commissions and expense reimbursement from reinsurers at the time we cede our primary insurance liabilities to them, providing meaningful cash flow. During the years ended December 31, 2021 and 2020, we generated $11.2 and $10.6 million, respectively, in upfront ceding commissions. On our balance sheet is an item “deferred gains on reinsurance” equaling $28.5 million and $18.2 million as of December 31, 2021 and 2020, respectively which will be earned as revenue over the contract periods. Amortization of the deferred gain on reinsurance was $3.0 million and $1.8 million for the years ended December 31, 2021, and 2020, respectively, and was recognized as revenue under GAAP. We also receive policy administration fees on annuities that we issue and manage, and we receive asset management fees from most of our third-party reinsurers relating to assets they deposit as collateral to cover claims on the policies they reinsure. These fees are typically received over the life of our annuity products, usually over five to ten years, thereby providing a stable revenue stream.

Capital Structure

Our business model utilizes our insurance and reinsurance industry participants to transfer assets and liabilities associated with our issued annuities to third-party capital providers and Seneca Re via reinsurance agreements. This strategy reduces our regulatory capital and surplus requirements because policies that are reinsured require less capital and surplus reserves than policies retained by us, allowing us to grow our business without significant capital constraints.

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Effective Use of Technology

We believe we are well-positioned to capitalize on the accelerating trend of digital transformation across the insurance industry. We believe our modern, fully functional technology platform provides us a significant opportunity to penetrate large addressable markets with our compressed product development cycles.

Scalable, Low-Cost Operations

We focus on investing in technology enhanced processes that improve the efficiency and effectiveness of developing, distributing, issuing and managing our annuity products. We believe our model allows us to develop attractively priced products that are desirable for our IMOs to market. We currently operate on a small scale in a large addressable market. Going forward, our technology platform and streamlined processes should enable us to be scalable and allow us to produce incremental premium volumes without significant additional investment in infrastructure and with low incremental fixed operating costs.

Lower-Risk, Business Model

We believe our business model enables us to operate with reduced risk because we reinsure a substantial portion of our business. While we would have to pay policy claims in the event of non-payment of them by any of our reinsurers, we often obtain collateral from reinsurers to provide for policy claims or use reinsurers who have creditworthy ratings.Further, we have designed American Life’s MYGA and FIA products to have fixed, predictable costs with low volatility and surrender charges that discourage redemptions prior to maturity and contain features to reward persistency.

We generate revenue through the ceding commissions and other fee income we receive from our reinsurance providers and the ancillary services we provide. Also, we incur minimal direct expenses associated with the ceding commissions we generate, and we incur low incremental expenses on additional policy volumes we produce. As a result, we believe we will be able to achieve profitable incremental fee-based revenue from additional premium volume. Because we have a fully integrated technology platform, we also expect that we will be able to increase our operating margins as we continue to scale our business.

Entrepreneurial, Highly Experienced and Aligned Management Team

Our highly experienced, entrepreneurial senior management team has extensive experience in insurance, technology, and investment management. Georgette Nicholas, our Chief Executive Officer has more than 30 years’ experience in the global financial services industry including insurance reinsurance and capital markets. She has a commitment to developing strong culture and leadership in organizations, supporting diversity and inclusion to grow engagement. Ms. Nicholas previously held the position of CEO and Managing Director for Genworth Mortgage Insurance Australia, a publicly listed Australian Securities Exchange Ltd company in Sydney, Australia. She also held various roles with Genworth Financial, Inc. in investor relations, chief financial officer roles in the mortgage insurance business and controllership. Ms. Nicholas also worked in public accounting, including as a firm director with Deloitte.

Michael Minnich, our President, has over 25 years of experience in asset management, insurance company management, technology and risk management. Prior to joining Midwest, Mr. Minnich served as managing member of Rendezvous Capital LLC, a New York firm advising insurers on capital and investments. Previously, he was a Managing Director at Swiss Re, where he managed a multibillion-dollar investment portfolio.

Our Growth Strategy

Expand Market Presence

We believe that our current product offerings should enable us to achieve policy sales growth as we increase the number of states in which we become licensed to sell insurance. Many of our IMOs distribute to insurance agents throughout the United States, and we expect they will increase their sales volume as American Life enters new states.

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Develop Additional Distribution and Reinsurance Relationships

We currently distribute annuity products through eight third-party IMOs. We believe our product development, prompt policy processing, operating flexibility and speed to market make us a desirable partner for insurance distributors. We will seek to grow by increasing volumes with our current IMOs and by establishing new IMO relationships.

We are seeking to leverage the relationships we have with reinsurers, capital markets investors and reinsurance intermediaries to develop additional reinsurance relationships. In addition, as indicated above we established Seneca Re in early 2020 to operate as a sponsored captive insurance company for the purpose of insuring and reinsuring various types of insurance risks for American Life and various and third-party capital providers through protected cells. Also, in early 2020, we developed a strategic relationship with Crestline Assurance Holdings LLC and its affiliates discussed below to provide reinsurance capital and access to quality assets with attractive risk-adjusted returns.

Exploit Established Corporate Platform

We believe that we have the leadership and corporate culture, industry relationships, infrastructure and technology to achieve growth and improve operating margins with increased annuity sales. We believe we have an efficient corporate platform to support increased sales volumes, an expansion of our distribution relationships and the development of new annuity products without significant additional incremental costs.

Revenue from Policy Administration and Asset Management Services

In addition to the ceding commissions we receive through our reinsurance strategy, we generate recurring fee income for providing policy administration and asset management services to third-party reinsurers. We are contracted to administer all of our policies ceded under various reinsurance agreements. We also provide asset management services for most of our third-party reinsurers. We believe these complementary services provide a differentiated solution to third-party reinsurers that should assist us in developing additional reinsurer relationships.

Continue to Invest in Technology Capabilities

Our business strategy is centered upon our commitment to apply technology to improve and expand our business. We have developed a modern technology platform with a combination of proprietary and third-party systems that enables us to efficiently develop, sell and administer a broad range of annuity products. We expect to continue to develop our technology platform to expand the technology-enabled capabilities we offer to distributors and reinsurers.

History

We are a financial services holding company that was originally incorporated in Nebraska in October 2003. In September 2009, American Life was issued a certificate of authority to conduct life insurance business in Nebraska. In June 2018, we underwent a change in control as a result of the closing of a Loan, Convertible Preferred Stock and Convertible Senior Secured Note Purchase Agreement (the “Xenith Agreement”) with a then non-affiliated third-party, Xenith Holdings LLC (“Xenith”). Xenith was a wholly controlled subsidiary of Vespoint LLC (“Vespoint”), which was also the manager of Xenith. Pursuant to the Xenith Agreement, we issued Series C Preferred Stock and convertible senior secured notes to Xenith between June and December 2018. Of the funds received from Xenith, we contributed $20.5 million to American Life through capital contributions. Following the closing of the Xenith Agreement, we embarked on implementing our current business plan.

In June 2019, the Xenith Series C Preferred Stock and convertible senior secured notes were converted into 145,709 shares and 1,855,361 shares of our voting common stock, respectively. In August 2020, Xenith distributed all of its shares of our voting common stock to its members, including Vespoint. On November 10, 2020, Vespoint distributed all of its shares of our voting common stock to its members.

In August 2020, we effected a 500 for one reverse stock split of our issued and outstanding shares of voting common stock, and we reincorporated in Delaware.

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On December 17, 2020, our voting common stock was listed on The Nasdaq Capital Market under the symbol “MDWT.”  On December 21, 2020, we completed a public offering of 1,000,000 shares of our voting common stock at a price to the public of $70.00 per share. The aggregate net proceeds of the offering were approximately $65.1 million, after deducting underwriting discounts and commissions.

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regulated and supervised by the NDOI and the Texas Department of Insurance, respectively. Seneca Re is domiciled in Vermont where it is regulated and supervised by the Vermont Department of Financial Regulation. Our insurance subsidiaries are also subject to regulation by all states in which they transact business, which oversight in practice often focuses on review of their market conduct. American Life is licensed to conduct insurance business and is therefore subject to regulation and supervision by insurance regulators, in 22 states and the District of Columbia. Seneca Re, a Vermont limited liability company, was formed by Midwest to operate as a sponsored captive insurance company for the purpose of reinsuring various types of risks of its participants through one or more special purpose reinsurance or “protected cell” entities and to conduct any other business that is permitted for sponsored captive insurance companies under Vermont insurance regulations. The extent and scope of insurance regulation varies between jurisdictions, but most jurisdictions have laws and regulations governing the financial security of insurers, including admittance of assets for purposes of calculating statutory surplus, standards of solvency, reserves, reinsurance, capital adequacy and the business conduct of insurers.

In addition, statutes and regulations require the licensing of insurers and their agents, the approval of policy forms and related materials and the approval of rates. State statutes and regulations also prescribe the permitted types and concentrations of investments by insurers. The primary purpose of this insurance industry regulation is to protect policyholders. Life insurance companies are required to file detailed quarterly and annual financial statements with insurance regulatory authorities in each of the jurisdictions in which they are licensed to do business, and their operations are subject to periodic examination by such authorities. Regulators have discretionary authority, in connection with the continued licensing of insurance companies, to limit or prohibit the ability to continue to do business policies if, in their judgment, the regulators determine that an insurer is not maintaining necessary statutory surplus or capital or if the further transaction of business will be detrimental to its policyholders.

The amount of dividends that our insurance subsidiaries may pay in any twelve-month period, without prior approval by their respective domestic insurance regulators, is restricted under the laws of Nebraska, Texas and Vermont.

Under Nebraska law, dividends payable from American Life during any twelve-month period without the prior approval of the state’s Insurance Director are limited to the greater of 10% of American Life’s surplus as shown on the immediately preceding calendar year’s statutory financial statement on file with the NDOI or 100% of net gain from operations for the prior calendar year. Any dividend in excess of such limitation must be approved by the Insurance Director.

Insurance holding company regulation

We are an insurance holding company and, together with our insurance subsidiaries and our other subsidiaries and affiliates, are subject to the insurance holding company system laws of Nebraska, Texas and Vermont. These laws vary across jurisdictions, but generally require insurers that are members of such insurance holding company’s system to register with the jurisdiction’s insurance regulatory authorities, to file reports disclosing certain information, including their capital structure, ownership, management, financial condition, enterprise risk and own risk and solvency assessment.

These laws also require disclosure of certain qualifying transactions between or among our insurance subsidiaries and us or any of our other subsidiaries or affiliates to which one or more of our insurance subsidiaries is a party. Such transactions could include loans, investments, sales, service agreements and reinsurance agreements among other similar inter-affiliate transactions. These laws also require that intercompany transactions be fair and reasonable and not adversely affect the interests of policyholders. In certain circumstances, the insurance company must give prior notice of the transaction to the insurance department in its state of domicile, and the insurance department must either approve or disapprove the subject intercompany transaction within defined periods. Further, these laws require that an insurer’s surplus following any dividends or distributions to shareholder affiliates is reasonable in relation to the insurer’s outstanding liabilities and its financial needs.

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The insurance holding company laws in some states, including Nebraska, Texas and Vermont, require regulatory approval of a direct or indirect change of control of an insurer or an insurer’s parent company. Generally, to obtain approval from the insurance commissioner for any acquisition of control of an insurance company or its parent company, the proposed acquirer must file with the applicable commissioner an application containing information regarding: (i) the identity and background of the acquirer and its affiliates; (ii) the nature, source and amount of funds to be used to carry out the acquisition; (iii) the financial statements of the acquirer and its affiliates; (iv) any potential plans for disposition of the securities or business of the insurer; (v) the number and type of securities to be acquired; (vi) any contracts with respect to the securities to be acquired; (vii) any agreements with broker-dealers; and (viii) other relevant matters. Different jurisdictions may have similar or additional requirements for prior approval of any acquisition of control of an insurance or reinsurance company licensed or authorized to transact business in those jurisdictions. Additional requirements may include re-licensing or subsequent approval for renewal of existing licenses upon an acquisition of control.

Credit for reinsurance

State insurance laws permit U.S. insurance companies, as ceding insurers, to take financial statement credit for reinsurance that is ceded, so long as the assuming reinsurer satisfies the state’s credit for reinsurance laws. Credit for reinsurance means the ceding company is permitted to reflect in its statutory financial statements a credit in an amount equal to the ceding company’s liability that is reinsured. In general, credit for reinsurance is allowed if the reinsurer is licensed or “accredited” in the state in which the ceding insurer is domiciled; or if neither of the above applies, to the extent that the reinsurance obligations of the reinsurer are collateralized appropriately, typically through the posting of a letter of credit for the benefit of the ceding insurer, or the deposit of assets into a trust fund established for the benefit of the ceding insurer.

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Statutory examinations

Our insurance subsidiaries are required to file detailed quarterly and annual financial statements, in accordance with SAP with regulatory officials in each of the jurisdictions in which they conduct business. As part of their routine regulatory oversight process, the NDOI, the Texas Department of Insurance and the Vermont Insurance Department conduct periodic detailed examinations, generally once every three to five years of the books, records, accounts and operations of our insurance subsidiaries domiciled in their states. The State of Nebraska began a scheduled examination of American Life for the period of 2017-2019 in January 2021. On September 30, 2021, the NDOI completed their examination for American Life through 2019 and issued the final report.

Financial tests

The NAIC has developed a set of financial relationships or “tests,” known as the Insurance Regulatory Information System or IRIS, which is designed for early identification of companies that may require special attention or action by insurance regulatory authorities. Insurance companies submit data annually to the NAIC, which in turn analyzes the data by utilizing ratios. State insurance regulators review this statistical report, which is available to the public, together with an analytical report, prepared by and available only to state insurance regulators, to identify insurance companies that appear to require immediate regulatory attention. A “usual range” of results for each ratio is used as a benchmark.

Risk-based capital requirements

In order to enhance the regulation of insurers’ solvency, the National Association of Insurance Commissioners (“ NAIC”) adopted a model law to implement Risk Based Capital (“RBC”) requirements for life insurers. All states have adopted the NAIC’s model law or a substantively similar law. The NAIC Risk-Based Capital Model Act requires insurance companies to submit an annual RBC Report, which compares an insurer’s total adjusted capital with its authorized control level RBC. A company’s RBC is calculated by using a specified formula that applies factors to various specified assets, premium, claim, expense and reserve items. The factors are higher for those items with greater underlying risk and lower for items with less underlying risk.

The RBC Report is used by insurance regulators to set in motion appropriate regulatory actions relating to insurers that show indications of weak or deteriorating conditions. RBC is an additional standard for minimum capital requirements that insurers must meet to avoid being placed in receivership by regulators. The annual RBC Report, and the information contained therein, is not intended by the NAIC as a means to rank insurers.

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RBC is a method of measuring the minimum amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile. It provides a means of setting the capital requirement in which the degree of risk taken by the insurer is the primary determinant. The value of an insurer’s Total Adjusted Capital, which is the sum of its year-end statutory capital and surplus, in relation to its RBC, together with its trend in its Total Adjusted Capital, is used as a basis for determining regulatory action that a state insurance regulator may be authorized or required to take with respect to an insurer.

Market Conduct Exams

Our insurance subsidiaries are subject to periodic market conduct exams (“MCE”) in any jurisdiction where they do business. A MCE typically entails review of business activities, such as operations and management, complaint handling, marketing and sales, producer licensing, policyholder service, underwriting, and claims handling. Regulators may impose fines and penalties upon finding violations of regulations governing such business activities. To date, neither American Life nor Seneca Re have been the subject of such market conduct exam.

Form approvals

Our insurance subsidiaries are subject to state laws and regulations regarding form approvals. In most states, insurance policies are subject to prior regulatory approval in the state in which the policy is sold.

Unfair claims practices

Insurance companies are prohibited by state statutes from engaging in unfair claims practice. Unfair claims practices include, but are not limited to, misrepresenting pertinent facts or insurance policy provisions; failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies; and attempting to settle a claim for less than the amount to which a reasonable person would have believed such person was entitled.

Assessments against insurers

Under the insurance guaranty fund laws, which exist in each state and the District of Columbia, licensed insurers can be assessed by insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Most of these laws provide for annual limits on the assessments and for an offset against state premium taxes. These premium tax offsets must be spread over future periods ranging from five to 20 years. Since these assessments typically are not made for several years after an insurer fails and depend upon the final outcome of liquidation or rehabilitation proceedings, we cannot accurately determine the amount or timing of any future assessments.

Regulation of investments

Our insurance subsidiaries are subject to state laws that restrict the kinds of investments they can make. These laws require diversification of our investment portfolios and limit the amounts of investments in certain asset categories, such as below-investment grade fixed income securities, equity real estate, other equity investments and derivatives. Failure to comply with these requirements and limitations cause affected investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some instances, could require the divestiture of such nonqualifying investments. American Life’s investment guidelines, including its Derivative Use Plan, have been filed with the Nebraska Department of Insurance.

Statutory accounting practices

SAP are a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency of insurance companies. SAP is primarily concerned with measuring an insurer’s solvency. Statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with appropriate insurance law and regulatory provisions applicable in each insurer’s domiciliary state.

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GAAP is concerned with a company’s solvency, but is also concerned with other financial measurements, principally income and cash flows. Accordingly, GAAP gives more consideration to appropriately matching revenue and expenses and accounting for management’s stewardship of assets than does SAP. As a direct result, different assets and liabilities and different amounts of assets and liabilities will be reflected in financial statements prepared in accordance with GAAP as compared to SAP.

Unfair trade practices

State insurance laws prohibit insurers from engaging in unfair trade practices. The kinds of practices addressed are (i) misrepresentation and false advertising, (ii) unfair discrimination in premiums and policy benefits, (iii) boycott, coercion and intimidation, (iv) discrimination based on race, color, creed or national origin, sex or marital status, and (v) rebating of premium.

Enterprise risk and other developments

The NAIC, as part of its solvency modernization initiative, has engaged in a concerted effort to strengthen the ability of U.S. state insurance regulators to monitor U.S. insurance holding company groups. The holding company reform efforts at the NAIC culminated in December 2010 in the adoption of significant amendments to the NAIC’s Insurance Holding Company System Regulatory Act (the “Model Holding Company Act”) and its Insurance Holding Company System Model Regulation (the “Model Holding Company Regulation”). Among other things, the revised Model Holding Company Act and Model Holding Company Regulation explicitly address “enterprise” risk — the risk that an activity, circumstance, event or series of events involving one or more affiliates of an insurer will, if not remedied promptly, be likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole - and require annual reporting of potential enterprise risk as well as access to information to allow the state insurance regulator to assess such risk. In addition, the Model Holding Company Act amendments include a requirement to the effect that any person divesting control over an insurer must provide 30 days’ notice to the regulator and the insurer (with an exception for cases where a Form A is being filed). The amendments direct the domestic state insurance regulator to determine those instances in which a divesting person will be required to file for and obtain approval of the transaction. Some form of the 2010 amendments to the Model Holding Company Act has been adopted in all states.

In 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment (“ORSA”) Model Act, which requires domestic insurers to maintain a risk management framework and establishes a legal requirement for domestic insurers to conduct an ORSA in accordance with the NAIC’s ORSA Guidance Manual. The ORSA Model Act provides that domestic insurers, or their insurance group, must regularly conduct an ORSA consistent with a process comparable to the ORSA Guidance Manual process. The ORSA Model Act also provides that, no more than once a year, an insurer’s domiciliary regulator may request that an insurer submit an ORSA summary report, or any combination of reports that together contain the information described in the ORSA Guidance Manual, with respect to the insurer and the insurance group of which it is a member. The ORSA Model Act imposes more extensive filing requirements on parents and other affiliates of domestic insurers. Our insurance company subsidiaries are not subject currently to the requirements of the ORSA Model Act adopted in Nebraska, Texas and Vermont, respectively, however, will be when their direct written premiums and unaffiliated assumed premiums, if any, exceed $500 million. As of December 31, 2021, had direct written premiums of approximately $472 million.

Privacy regulation

Federal and state law and regulation require financial institutions to protect the security and confidentiality of personal information, including health-related and customer information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-related and customer information and their practices relating to protecting the security and confidentiality of that information. State laws regulate the use and disclosure of social security numbers and federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain personal information, including social security numbers. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e-mail or fax messages to consumers and customers. Federal and state lawmakers and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information.

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Cybersecurity regulation

The NAIC adopted the Insurance Data Security Model Law in October 2017. This law establishes standards for data security and for the investigation and notification of certain cybersecurity events. As of the date of this filing, 11 states have adopted the model law or a variation of it. We expect that additional regulations could be enacted in other jurisdictions that could impact our cybersecurity program. Depending on these and other potential implementation requirements, we will likely incur additional costs of compliance.

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Our strategy to reinsure the annuity policies we write may fluctuatenot be successful.

As part of our business plan, American Life intends to cede its annuity policies to other companies through reinsurance agreements. However, American Life will remain liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by that reinsurer. The failure of any one of American Life’s reinsurers would likely have a material adverse economic effect on American Life, and fall below expectations. This could cause the value of our voting common stock would likely decline significantly as well. Thus, it is critical that we adequately assess the financial strength of our reinsurers on an ongoing basis. If we fail to decline.adequately assess reinsurer payment risk including any amounts of collateral we may hold as security for claims payments we may require them to back up their potential obligations, we could be faced with severe economic consequences in the event any reinsurer does not meet its financial obligations to the policyholders of the annuities that we cede to the reinsurer. Also, we have a concentrated group of reinsurers, which heightens the risks we face should any reinsurer not meet its obligations to annuitants who purchase annuities from us.

We face a risk of non-availability and increased cost of reinsurance.

Market conditions beyond our control determine the availability and cost of the reinsurance we may seek to purchase. We can offer no assurance that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as are currently available to us. If we are unable to maintain our current level of reinsurance or to purchase new reinsurance in amounts that we consider sufficient and at prices that we consider acceptable, we would either have to accept an increase in our net insurance liability exposures or reduce our insurance writings. A reinsurer’s insolvency or inability to make payments under the terms of a reinsurance treaty could subject us to credit risk with respect to our ability to recover amounts due from reinsurers. Because of these risks, we may not be able to collect all amounts due to us from reinsurers. Further, reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all.

We may be unable to expand insurance operations to other states to any significant degree.

A significant part of our business plan is expanding the ability of American Life to sell insurance in more states. At present, American Life is licensed to sell insurance in 22 states and the District of Columbia. While we are seeking to expand to additional states, we cannot assure you that these efforts will be successful, and to the extent they are not, our ability to achieve product scale and significant annuity sales will be adversely affected. Our results of operations and future prospects will in turn be adversely affected.

Our business success depends, in part, on effective information technology systems and on continuing to develop and implement improvements in our technology.

We depend in large part on our technology systems for conducting our business, as well as for providing the data and analytics we utilize to manage our business. Our business success is dependent on maintaining the effectiveness of existing technology systems and on continuing to develop and enhance technology systems in a cost efficient manner. System development projects may not deliver the benefits we expect, or may be replaced or become obsolete more quickly than expected, which could result in increased expenses. If we do not effectively and efficiently manage and upgrade our technology systems, or if the costs of doing so are higher than we expect, our ability to provide services to new and existing customers in a cost-effective manner and our ability to implement our business plan could be adversely impacted.

We are faced with credit risks of our counterparties, which may have a material adverse effect on our operating results and financial condition.

In our investments we are exposed to many different industries, issuers and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutions. Many of these transactions expose us to credit risk in the event of default of the counterparty. In addition, with respect to secured transactions, our credit risk may be exacerbated when the collateral that we hold cannot be realized upon or is liquidated at prices not sufficient to recover the full amount due to us. We may have further exposure to these issuers in our holdings in unsecured debt instruments and derivative transactions of these issuers. There can be no guarantee that any such realized losses or impairments to the carrying value of these assets would not materially and adversely affect our results of operations and financial condition.

In addition to exposure to credit risks related to our investment portfolio, we are exposed to credit risks in several other areas of our business operations as discussed above and credit risks in our operations related to reinsurance. The collectability of reinsurance

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recoverables is subject to uncertainty arising from a number of factors, including changes in market conditions, whether insured losses meet the qualifying conditions of the reinsurance contract and whether reinsurers, or their affiliates, have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract. Since we are primarily liable to an insured for the full amount of insurance coverage, our inability to collect a material recovery from a reinsurer could have a material adverse effect on our operating results and financial condition.

We operate in a highly competitive industry, and our business will suffer if we are unable to compete effectively.

The operating results of insurance companies are subject to significant fluctuations due to competition, economic conditions, interest rates, investment performance, maintenance of insurance ratings from rating agencies such as A.M. Best and other factors. The insurance business is intensely competitive. Our ability to compete with other insurance companies is dependent upon, among other things, our ability to attract and retain IMOs to market our insurance products, our ability to develop competitive and profitable products and our ability to obtain acceptable financial strength ratings. In connection with the development and sale of products, American Life encounters competition from other insurance companies, most of whom offer annuity products and have financial and human resources substantially greater than American Life’s, as well as competition from other investment alternatives available to potential annuitants.

American Life competes with several hundred other insurance companies in the United States. Most of these companies have greater financial resources, longer business histories, and more diversified lines of insurance coverage than American Life. These larger companies also generally have large sales forces. We also face competition from direct mail and email sales marketers. We may not be able to executecompete successfully against these competitors.

Changes in the tax laws could adversely affect our business.

Congress has from time to time considered possible legislation that would eliminate the deferral of taxation on the accretion of value within certain annuity products. This and similar legislation could adversely affect the sale of annuities and life insurance compared with other financial products if such legislation were to be enacted. In addition, we could be unable to attract reinsurance capital. There can be no assurance as to whether any such legislation will be enacted or, if enacted, whether such legislation would contain provisions with possible adverse effects on any annuity products that we develop.

Under the Internal Revenue Code of 1986, income taxes payable by policyholders on investment earnings is deferred during the accumulation period of certain annuity and life insurance products. This favorable tax treatment may give certain insurance products a competitive advantage over other non-insurance products. To the extent that the Internal Revenue Code may be revised to reduce the tax-deferred status of annuity and life insurance products, or to increase the tax-deferred status of competing products, American Life and its industry as a whole would be adversely affected with respect to their ability to sell products. In addition, annuity and related life insurance products are often used to fund estate tax obligations. We cannot predict what future tax initiatives may be proposed with respect to the estate tax or other taxes that may materially adversely affect us.

Some of our investments are relatively illiquid.

We hold certain investments that may lack liquidity, such as certain fixed maturity securities (including collateralized loan obligations,  and mortgage loans). We do not have the present intent to sell, nor is it more likely than not that we will be required to sell, debt securities in an acquisitionunrealized loss position. Investment losses, however, may be realized to the extent liquidity needs require the disposition of debt securities in unfavorable interest rate, liquidity or credit spread environments.

We have exposure to mortgage loans on real estate, which could cause declines in the value of our investment portfolio.

Securities and other capital markets products with respect to mortgage lending may become less liquid than conventional securities such as stocks and bonds. The value of our investments in mortgage loans may be negatively impacted by an unfavorable change in or increased uncertainty regarding delinquency rates, and refinancing availability. In addition, commercial mortgages are sensitive to the strength of the related underlying mortgage loans, the U.S. economy, and the supply and demand for commercial real estate. The value of our investments in mortgage loans and determination in loss allowances regarding such investments may be negatively impacted by declining loan to value ratios, especially with respect to loan to value ratios that exceed 80%. For the year ended December 31, 2021, our commercial mortgage loans investment portfolio had approximately $5.2 million in loans at or exceeding an 80% loan-to-value ratio compared to zero for the preceding year. Deterioration in the performance of the residential and commercial mortgage sector,

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including as a result of the COVID-19 pandemic or additional risk of loss in connection with increasing loan-to-value ratios, could cause declines in the value of that portion of our investment portfolio. The carrying value of our mortgage loans on real estate as of December 31, 2021 and 2020, was $183.2 million and $95.0 million, respectively. See “Management’s Discussion of Financial Condition and Results of Operations.”

Changes in regulations regarding suitability of product sales and fiduciary/best interest standards may affect our operations and profitability.

Our annuity sales practices are subject to strict regulation. State insurance regulators are becoming more active in adopting and enforcing suitability standards with respect to sales of annuities. In addition, our insurance operations may be impacted by actions taken by the NAIC, the U.S. standard setting and regulatory support organization created and governed by the chief insurance regulatory authorities of the 50 states, the District of Columbia and the five U.S. territories. Some states have enacted or proposed legislation to impose new or expanded fiduciary/best interest standards on broker dealers, investment advisors and/or insurance agents providing services to customers. Any material changes to the standards governing our sales practices, including applicable laws and regulations, could adversely affect our business, results of operations and financial condition.

The inability to obtain upgrades to our financial strength and other ratings from A.M. Best, or the possibility of a downgrade in our ratings, may have a material adverse effect on our competitive position, the marketability of our annuity product offerings, and our liquidity, operating results, financial condition and prospects.

Financial strength ratings are important factors in establishing the competitive position of insurance companies and generally have an effect on an insurance company’s business. Many insurance buyers, agents, brokers, and secured lenders use the ratings assigned by A.M. Best and other agencies to assist them in assessing the financial strength and overall quality of the companies from which they are considering purchasing insurance or in determining the financial strength of the company that provides insurance with respect to the collateral they hold. American Life currently has an A.M. Best financial strength rating of B++ (Good) and long-term issuer credit rating of bbb+. A.M. Best ratings are derived from an in-depth evaluation of an insurance company’s balance sheet strengths, operating performances, and business profiles. A.M. Best evaluates, among other factors, the company’s capitalization, underwriting leverage, financial leverage, asset leverage, capital structure, quality and appropriateness of reinsurance, adequacy of reserves, quality and diversification of assets, liquidity, profitability, spread of risk, revenue composition, market position, management, market risk, and event risk. On an ongoing basis, rating agencies such as A.M. Best review the financial performance and condition of insurers and can downgrade or change the outlook on an insurer’s ratings due to, for example, a change in an insurer’s statutory capital, a reduced confidence in management or a host of other considerations that may or may not be under the insurer’s control. All ratings are subject to continuous review; therefore, the retention of these ratings cannot be assured. A downgrade in any of these ratings could have a material adverse effect on our competitiveness, the marketability of our product offerings, and our ability to grow in the marketplace.

Our new insurance products and other products we may develop may not achieve market penetration.

As discussed elsewhere in this Annual Report on Form 10-K, our marketing strategy withis focused on the sale of MYGA and FIA products through IMOs. These products may not achieve market acceptance or penetration to any meaningful degree, and any significant sales of these products cannot be assured, nor can we assure that any other insurance products we attempt to sell will achieve any degree of success,sustained marketing success. We are seeking to streamline the costs of developing and placing our annuity products into the marketplace to be sold by IMOs. We may encounter unexpected development costs or lack of IMO acceptance of our products, in which case our financial results would be disappointing.

We are highly dependent upon Georgette Nicholas and Michael Minnich, and the loss of any of these officers could causematerially and adversely affect our businessbusiness.

Our ability to operate successfully is dependent primarily upon the efforts of Georgette Nicholas and future growth prospects to suffer.

We intend to continue to pursue acquisitions of insurance related companies. However, suitable acquisition candidates may not be available on terms and conditions that are economic to us, particularly withMike Minnich, our limited capital resources. In pursuing acquisitions, we will compete with other companies, most of which have greater financial and other resources than us. Further, if we succeed in consummating acquisitions, our business, financial condition and results of operations may be negatively affected because:

Our insurance marketing efforts may fail to achieve their proposed business plan.

American Life markets its insurance products through the services of licensed insurance agents. New agents are recruited through a staffing agency, referrals from shareholders, newspaper advertisements, and solicitation through use of on-line job sites. Mostany of these agents do not become successful life insurance agents. Our agency force may not be successful in generating any significant insurance policy sales on cost efficient terms for us.

Also, insurance products have been marketed by us using a face-to-face, referral based marketing concept. Historically our insurance agents have used our shareholder base and their referrals as potential clients for our life insurance products. We cannot predict how marketing efforts will succeed when our agents conduct general public solicitation regarding insurance products.

It should be expected that many of our agents will have little or no prior insurance selling experience and, accordingly, this lack of experience mayindividuals could have a negative impact on the amount of premium volume we write. The extent of this negative impact on the premium volume written will depend primarilymaterial adverse effect on our ability to timelypursue our business plan. We have employment agreements with Ms. Nicholas and adequately train agentsMr. Minnich and we have limited “key person” life insurance on Mr. Minnich, but there are no restrictions on their termination of employment with us.

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Midwest is a holding company whose principal operating subsidiary is American Life.

Midwest depends primarily on reimbursement of costs from American Life, Seneca Re, and 1505 Capital and has no other significant source of revenue. Our change in control that occurred in 2018 with the infusion of capital from Xenith, discussed above, along with net proceeds of 2020 public offering of our voting common stock, may not provide adequate long-term financing to sellsupport our contemplated expansion of American Life’s business or any continued reimbursements to Midwest. If there is not a substantial expansion of American Life’s business, it may not be able to provide funds to Midwest to enable Midwest to meet its obligations. American Life is also restricted by state insurance laws as to fund transfers, by way of dividends or otherwise, to Midwest.

Our investment adviser subsidiary is subject to numerous laws and regulations with substantial compliance costs.

Our wholly owned investment adviser subsidiary, 1505 Capital LLC, is subject to substantial regulation. It is registered with the SEC as an investment adviser and is required to file detailed reports with the SEC concerning its business. It is subject to the Investment Advisers Act of 1940 as well as other state securities laws regarding the conduct of its business. Compliance with these regulations is time consuming and is a burden on the operations of 1505 Capital LLC. It is also subject to examination by the SEC. There can be no assurance that our investment adviser subsidiary will not be adversely affected by the results of any future examination.

We have experienced significant operating losses and may not be able to reverse them in the foreseeable future.

We commenced our business plan in mid-2018 and introduced our first annuity products in 2019. We incurred a substantial operating loss in 2021 and 2020 and there can be no assurance of our future profitability. Because ceding commissions from reinsurance are amortized over the effectivenesslife of the face-to-face marketing concept used by us. 

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Risks Related to Our Voting Common Stock

Ownership of shares of Midwest voting common stock involves substantial risk, and the entire value of those shares may be lost.

Shares of our voting common stock constitute a high-risk, speculative investment in a business that has incurred substantial losses to date and expects to continue to incur losses in the foreseeable future. No assurance can be given that any of the potential benefits envisioned by our business plan will prove to be available to our stockholders, nor can any assurance be given as to the financial return, if any, which may result from ownership of our voting common stock. The entire value of your shares of Midwest voting common stock may be lost.

The market price and trading volume of our voting common stock may be volatile, which could result in rapid and substantial losses for our stockholders.

Trading and prices of our voting common stock was highly volatile in 2021 and could be subject to wide fluctuations in the future. There are many factors that will impact our stock price and trading volume, including, but not limited to, the factors listed above under “Risks Related to Our Business.” In addition, the low trading volume in our voting common stock may fluctuate and cause significant price variations to occur. If the market price of our voting common stock declines significantly, you may be unable to resell your shares at or above your purchase price, if at all. The market price of our voting common stock may fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our voting common stock include:

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Stock markets in the United States have experienced significant price and volume fluctuations. Market fluctuations, as well as general political and economic conditions such as the global COVID-19 pandemic and the associated economic and market disruption, acts of terrorism, war, prolonged economic uncertainty, a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our voting common stock.

Our failure to meet the continued listing requirements of the Nasdaq Capital Market could result in a delisting of our voting common stock.

Our shares of voting common stock are listed on the Nasdaq Capital Market. If we fail to satisfy the continued listing requirements of the Nasdaq Capital Market, Nasdaq may take steps to delist our voting common stock. Such a delisting would likely have a negative effect on the price of our voting common stock, and would impair your ability to sell our voting common stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our voting common stock to become listed again, stabilize the market price or improve the liquidity of our voting common stock, or prevent future non-compliance with Nasdaq’s listing requirements.

As a smaller reporting company, we are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our results of operations and financial prospects.

Currently, we are a “smaller reporting company,” which generally means that our outstanding common stock held by non-affiliates had a market value of less than $250 million as of the last business day of our second fiscal quarter. As a “smaller reporting company,” we are able to provide simplified executive compensation disclosures in our filings; are exempt from the provisions of Section 404(b) of the Sarbanes Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in our filings with the SEC, including being required to provide only two years of audited financial statements in annual reports. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects. Further, a material weakness in internal controls may remain undetected for a longer period because of our extended exemption from the auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act.

There may be future issuances or resales of our voting common stock which may materially and adversely affect the market price of our voting common stock.

Subject to any required state insurance regulatory approvals, we are not restricted from issuing additional shares of our voting common stock in the future, including securities convertible into, or exchangeable or exercisable for, shares of our voting common stock. Our issuance of additional shares of voting common stock in the future will dilute the ownership interests of our then existing stockholders.

The sale of a substantial number of shares of our voting common stock or securities convertible into, or exchangeable or exercisable for, shares of our voting common stock, whether directly by us in future offerings or by our existing stockholders in the secondary market, the perception that such issuances or resales could occur or the availability for future issuances or resale of shares of our voting common stock or securities convertible into, or exchangeable or exercisable for, shares of our voting common stock could materially and adversely affect the market price of our voting common stock and our ability to raise capital through future offerings of equity or equity-related securities on attractive terms or at all.

In addition, our board of directors is authorized to designate and issue preferred stock without further stockholder approval, and we may issue other equity and equity-related securities that are senior to our voting common stock in the future for a number of reasons, including, without limitation, to support operations and growth, to maintain our capital ratios, and to comply with any future changes in regulatory standards.

Our executive officers and directors own a substantial number of shares of our voting common stock. This will enable them to significantly influence the vote on all matters submitted to a vote of our stockholders.

As of December 31, 2021, our executive officers and directors beneficially owned 954,081 shares of our voting common stock, representing approximately 25.3% of the outstanding shares of our voting common stock.

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Accordingly, our executive officers and directors, through their beneficial ownership of our voting common stock, will be able to significantly influence the vote on all matters submitted to a vote of our stockholders, including the election of directors, amendments to our certificate of incorporation or bylaws, mergers or other business combination transactions, and certain sales of assets outside the regular course of business. The interests of our executive officers and directors may not coincide with the interests of our other stockholders, and they could take actions that advance their own interests to the detriment of our other stockholders.

The indemnification rights provided to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against them.

Our certificate of incorporation and Delaware law provide for broad indemnification of our directors, officers and employees. We have also entered into indemnification agreements with each of our directors. Our indemnification obligations could result in us incurring substantial expenditures to cover the costs of settlement or damage awards against directors, officers and employees, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing an action against our directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors or officers even though such actions, if successful, might otherwise benefit us and our stockholders.

We do not expect to pay any cash dividends to stockholders.

To date, we have never declared or paid any cash dividends to our stockholders and do not expect to do so for the foreseeable future. The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial conditions, operating and capital requirements, and other factors as the board of directors considers relevant. In addition, our ability to pay cash dividends depends, in part, upon on the ability of American Life to provide us with payments from its operations, which are subject to prior regulatory approval for the most part. American Life, as an insurance company is subject to significant regulatory restrictions limiting its ability to declare and make payments to Midwest, such as dividends.

If securities or industry analysts do not publish research or reports about our business, or if they issue adverse or misleading opinions regarding us, our voting common stock price and trading value could decline.

The trading market for our voting common stock is influenced by research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model or our voting common stock performance, or if our target operating results fail to meet the expectations of analysts, our voting common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price and trading volume to decline.

Anti-takeover provisions and the regulations to which we may be subject may make it more difficult for a third-party to acquire control of us, even if the change in control would be beneficial to our stockholders.

We are a holding company incorporated in Delaware. Anti-takeover provisions in Delaware law and our certificate of incorporation and bylaws, as well as regulatory approvals required under state insurance laws, could make it more difficult for a third-party to acquire control of us and may prevent stockholders from receiving a premium for their shares of voting common stock. Our certificate of incorporation provides that our board of directors may issue up to 2,000,000 shares of preferred stock, in one or more series, without stockholder approval and with such terms, preferences, rights and privileges as the board of directors may deem appropriate. These provisions, the control of our executive officers and directors over the election of our directors, and other factors may hinder or prevent a change in control, even if the change in control would be beneficial to, or sought by, our stockholders.

Nine individuals currently serve on our board of directors, which is divided into three classes with staggered three-year terms. At each annual meeting of stockholders, a class of directors is to be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. As a result, a portion of our board of directors will be elected each year. Our certificate of incorporation authorizes our board of directors to fix the number of directors from time to time by a resolution of the majority of our board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class shall consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control. Between stockholder meetings, directors may be removed by our stockholders only for cause, and the board of directors may appoint new directors to fill

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the vacancies. These provisions may prevent a stockholder from removing incumbent directors and simultaneously gaining control of the board of directors by filling the resulting vacancies with its own nominees. Consequently, the existence of these provisions may have the effect of deterring hostile takeovers, which could depress the market price of our voting common stock.

General Risks

The ongoing events resulting from the outbreak of the COVID-19 pandemic, and the uncertainty regarding future similar events, could have an adverse impact on our financial condition, results of operations, cash flows, liquidity and prospects.

We continue to closely monitor developments related to the coronavirus (COVID-19) pandemic to assess potential adverse impacts on our business. Due to the evolving and highly uncertain nature of this pandemic, it currently is not possible provide a longer-term estimate of potential insurance or reinsurance exposure or the indirect effects the pandemic may have on our results of operations, financial condition or liquidity. Management implemented the Company’s business continuity plan in early March 2020 and operated through July 2020 with the majority of employees working remotely. Operations continued as normal despite a sharp increase in sales during the period. We continue to monitor the Centers for Disease Control and Prevention and Nebraska guidelines regarding employee safety.

If the COVID-19 pandemic and associated economic slowdown continues it could adversely impact our future results of operations, financial condition, cash flows, liquidity and prospects in a number of ways, including:

Finally, we cannot predict how legal and regulatory responses to concerns about COVID-19 and related public health issues, will impact our business. The continued spread of COVID-19 and its variants has led to disruption and volatility in the global capital markets which could increase our funding costs and limit our access to the capital markets. Accordingly, we may in the future have difficulty accessing capital on attractive terms, or at all, which could have a material adverse effect on our business, results of operations, financial condition and liquidity.

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Catastrophes may adversely impact liabilities for policyholder claims and reinsurance availability.

Claims resulting from catastrophic events could harm our financial results, profitability, and financial condition. Catastrophic events could impact our insurance business by significantly impacting our assumptions as to mortality, morbidity, and other rates, as well as product sales. Catastrophic events may also reduce economic activity in affected areas, which could harm our prospects for new business. In addition, catastrophes could cause unanticipated financial strain on our insureds as well as increase the cost of reinsurance to us and decrease the availability of reinsurance, which could in turn harm our business, results of operations or financial condition.

Claims loss reserves may be inadequate.

We maintain loss reserves to cover estimated liabilities for unpaid losses and loss expenses, including legal and other fees, as well as other claims and settlement costs for reported and unreported claims incurred as of the end of each accounting period. Loss reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what we expect the ultimate settlement and administration of claims will cost. These estimates, which generally involve actuarial projections, are based on the assessment of facts and circumstances then known, as well as estimates of future trends in claims severity, frequency, and other factors. The variables described above are affected by both internal and external events, such as changes in claims handling procedures, economic inflation, judicial and litigation trends and legislative changes. Many of these items are not directly quantifiable in advance. Additionally, there may be a significant delay between the occurrence of the insured event and the time it is reported to us.

Reserve estimates are continually refined as experience develops and further claims are reported and settled. Adjustments to reserves are reflected in the results of the periods in which such estimates are changed. Because setting reserves is inherently uncertain, we cannot assure that our current reserves will prove adequate in light of subsequent events, including for example the uncertainties relating to the COVID-19 pandemic. Accordingly, the ultimate settlement of losses may be significantly greater or less than the loss and loss expense reserves as of the date of the balance sheet. If our loss reserves are determined to be inadequate, we will be required to increase loss reserves at the time of such determination with a corresponding decrease in our profitability. If the increase in loss reserves is large enough, we could incur a net loss and a net reduction of our capital.

Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs and access the capital required to operate our business.

In the insurance industry, liquidity refers to the ability of an insurance company to generate adequate amounts of cash from its normal operations, including from its investment portfolio, in order to meet its financial commitments, which are principally obligations under the insurance policies it has written.

The capital and credit markets experienced significant volatility and disruption. In some cases, the markets have exerted downward pressure on the availability of liquidity and credit capacity. In the event that we need access to additional capital to pay our operating expenses, or increase the amount of insurance that we seek to underwrite, or otherwise grow our business, our ability to obtain such capital may be limited and the cost of any such capital may be significant. In addition, the availability of additional financing will depend on a variety of factors, including capital and credit market conditions, the availability of credit generally and specifically to the financial services industries, market liquidity, our creditworthiness, as well as the possibility that customers or capital providers could develop a negative perception of our long or short-term financial prospects if we incur large investment losses or if our level of business activity decreases. Similarly, our access to capital may be impaired if regulatory authorities or rating agencies take negative actions against us. Our internal sources of liquidity may prove to be insufficient, and we may not be able to successfully obtain additional financing on favorable terms, or at all. As such, we may be forced to issue securities with terms and conditions that may be unfavorable to us, to accept an unattractive cost of capital or to sell certain assets, any of which could decrease our profitability and significantly reduce our financial flexibility. If a combination of these factors occurs, our internal sources of liquidity may prove to be insufficient and, in such case, we may not be able to successfully obtain additional financing on terms favorable to us.

The transition from LIBOR to alternative reference “benchmark” interest rates is uncertain and could adversely affect the value of or the interest rates on our investments and obligations indexed to LIBOR, as well as the revenue and expenses associated with those assets and obligations.

LIBOR is an interest rate benchmark that has been widely used in financial contracts around the world for decades. In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced

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that it intended to phase out LIBOR by the end of 2021. Following discussions with the FCA and other official sector bodies, the Intercontinental Exchange Benchmark Administration announced in March 2021 the publication of certain USD LIBOR settings will continue through June 30, 2023. The Alternative Reference Rates Committee of the Federal Reserve Board (“ARRC”), a group of market participants convened to help ensure a successful transition away from LIBOR, has recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative reference rate and has proposed a transition plan and timeline designed to encourage the adoption of SOFR from LIBOR.

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We are in the process of analyzing and identifying our population of securities, financial instruments and contracts that utilize LIBOR (collectively “LIBOR Instruments”) to determine if we have any material exposure to the transition from LIBOR. To the extent we hold LIBOR Instruments, the terms of these instruments may have fallback provisions that provide for an alternative reference rate when LIBOR ceases to exist. For securities without adequate fallback provisions already in place, legislation governing securities under New York law has been enacted to provide a safe harbor for transition to the recommended alternative reference rate. In addition, federal legislation has been introduced to provide the same protection for securities not governed by New York law.

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Notwithstanding, in preparation for the phase out of LIBOR, we may need to renegotiate our LIBOR Instruments that utilize LIBOR. However, these efforts may not be successful in mitigating the legal and financial risk from changing the reference rate in our LIBOR Instruments. Furthermore, the discontinuation of LIBOR may adversely impact our ability to manage and hedge exposures to fluctuations in interest rates using derivative instruments.

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As a result, the transition of our LIBOR Instruments to alternative reference rates may result in adverse changes to the net investment income, fair market value and return on those investments. We intend to continue to evaluate and monitor the risks associated with the LIBOR transition which include identifying and monitoring our exposure to LIBOR, monitoring the market adoption of alternative reference rates and ensuring operational processes are updated to accommodate alternative rates. Due to uncertainty surrounding alternative rates, we are unable to predict the overall impact of this change at this time.

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The insurance industry is subject to numerous laws and regulations, and compliance costs and/or changes in the regulatory environment that could adversely affect our business.

Our insurance operations are subject to government regulation in each of the states in which we conduct business. Such regulatory authority is vested in state agencies having broad administrative power dealing with all aspects of the insurance business, including premium rates, policy forms, and capital adequacy, and isthat are concerned primarily with the protection of policyholders rather than shareholders. During the past several years, increased scrutiny has been placed uponThese state insurance regulatory authorities have broad administrative powers dealing with all aspects of the insurance business, including, among other areas, regulation of the advertising and marketing of insurance, privacy of policyholders, acquisitions of regulated insurance entities, payment of dividends, reinsurance, the form and content of insurance policies (including pricing), operating and agent licenses, regulation of premium rates, premium tax increases, rating and underwriting restrictions and limitations, asset and reserve valuation requirements, enterprise risk management, surplus requirements, the type or amount of investments, accounting standards, Risk-Based Capital (“RBC”) requirements, statutory reserve and capital requirements, assessments by guaranty associations, affiliate transactions, and unfair trade and claims practice.

In addition, our insurance operations may be impacted by actions taken by the NAIC. A primary mandate of the NAIC is to benefit state insurance regulatory framework,authorities and certain state legislatures have considered or enactedconsumers by promulgating model insurance laws that alter, and in many cases increase, state authority to regulate insurance companies and insurance holding companysystems.regulations for adoption by the states. The NAIC also provides standardized insurance industry accounting and reporting guidance through the NAIC Accounting Manual. However, model insurance laws and regulations are only effective when adopted by the states, and statutory accounting and reporting principles continue to be established by individual state laws, regulations and permitted practices. Changes to the NAIC Accounting Manual or modifications by the various state insurance departments may adversely affect the statutory capital and surplus of American Life. See “Regulation” for further discussion.

The NAIC and state insurance regulators reexamine existing laws and regulations on an ongoing basis, and focus on insurance company investments and solvency issues, risk-based capital guidelines, interpretations of existing laws, the development of new laws, the implementation of non-statutory guidelines and the circumstances under which dividends may be paid. Future NAIC initiatives, and other regulatory changes, could have a material adverse impact on our insurance business. There can be no assurance that American Life will be able to satisfy the regulatory requirements of the Nebraska Department of InsuranceNDOI or a similar department in any other state in which it may wishtransacts business. A significant component of our new business plan is to transactreinsure substantially all of our new insurance business.

Individual It should be assumed that state guaranty associations assess insurance companies to pay benefits to policyholders of insolvent or failed insurance companies. The impact of such assessments may be partly offset by credits against future state premium taxes. We cannot predictregulators will monitor carefully the amountfinancial strength of any future assessments, nor have we attemptedthird-party reinsurer and in certain instances may require that sufficient funds be reserved by us in order to estimate the amountalleviate risks associated with reinsurers being unable to meet their financial

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On July 21, 2010, President Obama signed into law financial regulatory reform legislation, known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act reshapes financial regulationscommitments in the United States by creating new regulators, regulating new marketscase of claims on insurance policies with a reinsurer. This oversight may result in our operations being less economically successful than we are seeking and firms, and providing new enforcement powers to regulators. Virtually all major areas of the Dodd-Frank Act will be subject to regulatory interpretation and implementation rules requiring rulemaking that may take several years to complete.

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Increases in market interest rates may also negatively affect profitability. In periods of increasing interest rates, we may not be able to replace invested assets with higher yielding assets needed to fund the higher crediting rates that may be necessary to keep interest sensitive products competitive. American Life, therefore, may have to accept a lower spread and thus lower profitability or face a decline in sales and greater losssurrender of existing annuity contracts.

Our investments are subject to risks of default and reductions in market values.

We are subject to credit riskextensive regulation.

As stated above, we are subject to extensive state regulatory oversight in the jurisdictions in which we do business, as well as federal oversight with respect to certain portions of our investment portfolio. Defaultsbusiness. Changes in state regulations, or in the interpretation or application of existing state laws or regulations, may adversely impact our pricing, capital requirements, reserve adequacy or exposure to litigation and could increase the costs of our regulatory compliance.

Changes are often implemented by state regulators in order to benefit policyholders to the detriment of insurers. State insurance regulators and the NAIC continually reexamine existing laws and regulations and may impose changes in the future that put further regulatory burdens on us and, thus, could have an adverse effect on our results of operations and financial condition.

In addition, state insurance laws, rather than federal bankruptcy laws, govern the liquidation or restructuring of insurance companies. Virtually all states in which we operate require that we bear a portion of the loss suffered by some insureds as the result of impaired or insolvent insurance companies via participation in state guaranty associations. The effect of these and similar arrangements could reduce our profitability in any given period and/or limit our ability to grow our business. Finally, some insurers of the programs or associations to make payments to insureds for losses could have a material adverse effect on our results of operations and financial condition.

From time to time, increased scrutiny has been placed upon the U.S. insurance regulatory framework, and a number of state legislatures have considered or enacted legislative measures that alter, and in many cases increase, state authority to regulate insurance and reinsurance companies. In addition to legislative initiatives of this type, the NAIC and insurance regulators are regularly involved in a process of reexamining existing laws and regulations and their application to insurance and reinsurance companies.

We cannot predict the effect that any proposed or future legislation or change in the interpretation or application of existing laws or regulations may have on our financial condition or results of operations.

A failure to comply with rules and regulations in a jurisdiction could lead to disciplinary action, the imposition of fines or the revocation of the license, permission or authorization necessary to conduct our businesses in that jurisdiction, all of which could have a material adverse effect on the continued conduct of business in a particular jurisdiction.

The impact on potential customers and vendors of sustained or significant deterioration in economic conditions could adversely affect our business.

We are exposed to risks associated with the potential financial instability of our customers, many of whom may be adversely affected by an economic slowdown. As a result of macroeconomic challenges currently or potentially affecting the economy of the U.S. and other parts of the world, customers may experience serious cash flow problems and other financial difficulties. In addition, events in the U.S. or foreign markets, such as the outbreak of the COVID-19 pandemic and the United Kingdom’s exit from the EU, may continue to impact the global economy and capital markets. The impact of such events is difficult to predict. As a result, customers and potential customers may modify, delay, or cancel plans to purchase our products. Additionally, if customers are not successful in generating sufficient incomes, they may not be able to pay, or may delay payment of, premiums and other amounts that are owed to us. Any liability of current or potential customers to pay us for our products may adversely affect our earnings and cash flow.

A general economic slowdown could potentially adversely affect us in the form of consumer behavior, particularly through decreased demand for our products. In addition, we are susceptible to risks associated with the potential financial instability of the vendors on which we rely to provide services or to whom we delegate certain functions. The same conditions that may affect our customers also could adversely affect our vendors, causing them to significantly and quickly increase their prices or reduce their output. Our business depends on our ability to perform, in an efficient and uninterrupted fashion, our necessary business functions, and any interruption in the services provided by third parties could also adversely affect us.

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Defaults on commercial mortgage loans and volatility in the payment or performance of their obligations under these securities, bankruptcy filings and other events could reduce our investment income and realized investment gains or result in the recognition of investment losses and restrict our access to cash and investments. The value of our investments may be materially adversely affected by increases in interest rates, downgrades in bonds included in our portfolio, financial market performance, general economic conditions, and by other factors that may result in the recognition of other-than-temporary impairments. Each of these events may cause us to reduce the carrying value of our investment portfolio and may adversely affect our results of operations.operations and financial condition.

Reinsurers with which we do business may not honor their obligations, leaving us liable for the reinsured coverage, and our reinsurers could increase their premium rates.

American Life cedes a substantial amount of its insurance to other insurance companies. However, it remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by the reinsurer. The cost of reinsurance is, in some cases, reflected in its premium rates. Under certain reinsurance agreements, the reinsurer may increase the rate it charges American Life for the reinsurance. However, if the cost of reinsurance were to increase with respect to policies for whichAmerican Life has guaranteed the rates, the costs to American Life would increase could be adversely affected, which would in turn adversely affect our profitability.

ChangesA decline in the tax laws could adversely affect our business.

Congress hascommercial real estate market within the U.S. resulting from time to time considered possible legislation that would eliminate the deferral of taxation on the accretion of value within certain annuities and life insurance products. This and similar legislation, including a simplified “flat tax” income tax structure withchanges in interest rates, real estate market conditions or an exemption from taxation for investment income, could adversely affect the sale of life insurance compared with other financial products if such legislation were to be enacted. There can be no assurance as to whether such legislation will be enacted or, if enacted, whether such legislation would contain provisions with possible adverse effects on any annuity and life insurance products that we and our operatingsubsidiary develop. 

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engineering to simple extortion or threats, which can lead to unauthorized access or disclosure, disruption or further attacks. Such events may expose us to civil and criminal liability, regulatory action, harm our reputation among customers, deter people from purchasing our products, cause system interruptions, require significant technical, legal, and other remediation expenses, and otherwise have an adverse impact on our business. Third parties to whom we outsource certain functions are also subject to the risks outlined above, and if a third-party suffers a breach of information security involving our lapseSensitive Information, the breach may result in substantial costs and surrender rates wereother negative consequences, including a material adverse effect on our business, financial condition, results of operations and liquidity. We offer no guarantees that we will be able to exceedimplement information security measures to prevent all breaches of information security.

Employee error, misconduct, or excessive risks may be difficult to detect and prevent and could adversely affect us.

Persons who conduct our business, including executive officers and other members of management, other employees and our IMOs and their sales agents, do so in part by making decisions and choices that involve exposing us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining what assets to purchase for investment and when to sell them, deciding which business opportunities to pursue, and other business decisions. Losses may result from, among other things, excessive risk, fraud, errors, failure to document transactions properly, failure to obtain proper internal authorization, or failure to comply with regulatory requirements. Although we employ controls and procedures designed to monitor business decisions and prevent us from taking excessive risks, it is not always possible to deter or prevent employee misconduct or errors in judgment, and the assumptions uponprecautions that we take to prevent and detect this activity may not be effective in all cases. The impact of those losses and excessive risks could harm our reputation and have a material adverse effect on our financial condition and business operations.

We face a risk of noncompliance with and enforcement action under the anti-money laundering statutes and regulations.

A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra territorial jurisdiction of the United States, and by expanding the categories of financial institutions to which we priced oursuch laws and regulations apply to include some categories of insurance policies. Policy sales costscompanies. Certain financial institutions are deferredalso prohibited from entering into specified financial transactions and recognized overaccount relationships and must use enhanced due diligence procedures in their dealings with certain types of high risk clients and implement a written client identification program. Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions without notifying the lifeaffected clients. Regulatory authorities routinely examine financial institutions to ensure that they have policies and procedures reasonably designed to comply with applicable requirements and for compliance with the policies and procedures and these substantive obligations. Failure of a policy. Excess policy lapses, however, causefinancial institution to maintain and implement adequate programs, including policies and procedures, to combat money laundering and terrorist financing, or to comply with all of the immediate expensingrelevant laws or amortizing of deferred policy sales costs.

The insurance industry is highly regulatedregulations, could have serious legal and reputational consequences for the institution. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. We and our activitiessubsidiaries are restricted assubject to anti-money laundering statutes and certain regulations, and our compliance obligations under these rules may result in increased costs and allocation of internal resources.

Litigation or regulatory actions could have a result. material adverse impact on us.

Current and future litigation or regulatory investigations and actions in the ordinary course of operating our business, including class action lawsuits, may negatively affect us by resulting in the payment of substantial awards or settlements, increasing legal and compliance costs, requiring us to change certain aspects of our business operations, diverting management attention from other business issues, harming our reputation with customers or making it more difficult to retain current customers and to recruit and retain employees or IMOs.

Guarantees within certain of our products may adversely affect our financial condition or results of operations.

We expend substantial amountsoffer guarantees which can include a return of timeno less than the total deposits made on the contract less any customer withdrawals, total deposits made on the contract less any customer withdrawals plus a minimum return, or the highest contract value on a specified anniversary date minus any customer withdrawals following the contract anniversary. These guarantees can also include benefits payable in the event of death, upon annuitization, upon periodic withdrawal or at specified dates during the accumulation period.

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Periods of significant and incur significant expensessustained downturns in connectionequity markets, increased equity volatility, and/or reduced interest rates could result in an increase in the valuation of the future policy benefit or policyholder account balance liabilities associated with complyingsuch products, resulting in a reduction of our potential profitability. We use risk management techniques including product design, asset liability management, reinsurance and hedge strategies to manage the risk associated with applicable regulations,liability exposures and the volatility of net income associated with these liabilities.

We remain ultimately liable for the specific guaranteed benefits and are subject to the risk that reinsurers or derivative counterparties are unable or unwilling to pay. In addition, we are subject to the risk that more burdensome regulations could be imposed on us.

Compliancehedging and other risk management procedures prove ineffective, or the estimates and assumptions made in connection with insurance regulation by us is costly and time consuming. Insurance companies intheir use fail to reflect or correspond to the U.S.actual liability exposure, or that unanticipated policyholder behavior or mortality, combined with adverse market events, produces economic losses beyond the scope of the risk management techniques employed. We are also subject to extensive regulation in the states where they do business.risk that the cost of hedging these guaranteed minimum benefits may materially increase. These risks, individually or collectively, may have a material adverse effect on our financial condition or results of operations.

We regularly analyze overall risk position at the enterprise level and decide how much risk to retain (that is, to hold capital) and how much risk to transfer off the balance sheet. This regulation primarily protects policyholders rather than stockholders. The regulations require:

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production by providing reinsurance capacity for American Life to write certain kinds of FIAs and MYGAs. Concurrently with the Reinsurance Agreement, American Life and SRC2 each entered into investment management agreements with Crestline, pursuant to which Crestline manages the assets that support the reinsured business; and American Life and SRC2 entered into a trust agreement whereby SRC2 maintains for American Life’s benefit a trust account that supports the reinsured business.

Under the Master Agreement, Crestline agreed to provide reinsurance funding for a quota share percentage of 25% of the liabilities of American Life arising from MYGAs and a quota share percentage of 40% for American Life’s FIAs. The Master Agreement expires on April 24, 2023.

In addition, pursuant to the Master Agreement, agreed to enter into a separate agreement whereby, among other entities. things and subject to certain conditions, American Life will agree to reinsure additional new business production to one or more reinsurers formed and/or capitalized by Crestline, Midwest or an appropriate affiliate will refer potential advisory clients to Crestline, and American Life will consider investing in certain assets originated or sourced by Crestline.

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Effective December 8, 2020, American Life entered into a novation agreement with SRC2 and Crestline Re SPC,  for and on behalf of Crestline Re SP1, under which the above-described reinsurance, trust and related asset management agreements were novated and replaced with substantially similar agreements entered into by American Life and Crestline Re SP1.

In December 2020, we completed a public offering of our voting common stock for gross proceeds of $70.0 million (see Note 17 to the Consolidated financial statements herein). In connection therewith, our common stock was approved for listing and began trading on the Nasdaq Capital Market under the symbol “MDWT.”

On June 26, 2021, the Nebraska Department of Insurance (‘NDOI”) issued its non-disapproval of the Modified Coinsurance Agreement (“Modco AEG Agreement”) of American Life with American Republic Insurance Company (“AEG”), an Iowa domiciled reinsurance company. The agreement closed on June 30, 2021.

Under the Modco AEG Agreement, American Life cedes to AEG, on a modified coinsurance basis, 20% quota share of certain liabilities with respect to its MYGA-5 business and an initial 20% quota share of certain liabilities with respect to its FIA products. American Life has established a Modco Deposit Account to hold the assets for the Modco Agreement. The initial settlement included net premium income of $37.5 million and net statutory reserves of $34.8 million for the modified coinsurance account. The amount paid to the Modified Deposit Account from AEG was $2.4 million.

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On November 10, 2021, Midwest purchased 1,000 shares of Common Stock, $.01 par value per share for a total purchase price of $5.7 million for 100% ownership in an intermediary holding company. Also, on November 10, 2021, Seneca Re Protected Cell 2021-03 (“SRC3”) was granted a Certificate of Authority by the Vermont Department of Financial Regulation. The intermediary holding company contributed capital of $5.5 million to purchase 100% of SRC3 Class A and B capital stock. Also, on November 10, 2021, American Life and SRC3 entered into a Funds Withheld and Modified Coinsurance Agreement, whereby, SRC3 agreed to provide reinsurance funding for a quota share percentage of 45% of the liabilities of American Life arising from its MYGA and quota share percentage of 45% of American Life’s FIA products.

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On December 30, 2021, Midwest closed the sale of approximately 70% of SRC1 to a subsidiary of ORIX Corporation USA for $15.0 million. Under the terms of the agreement, Midwest holds a 30% ownership interest in SRC1. ORIX Advisers, LLC, another subsidiary of ORIX USA, will be the manager of the assets underlying SRC1’s reinsurance obligations going forward, replacing Midwest’s asset management arm, 1505 Capital LLC.

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COVID-19

We expectcontinue to closely monitor developments related to the COVID-19 pandemic to assess any potential adverse impact on our business. Due to the evolving and highly uncertain nature of this pandemic, it currently is not possible to provide a longer-term estimate of potential insurance or reinsurance exposure or the indirect effects the pandemic may have on our results of operations, financial condition or liquidity. Management implemented our business continuity plan in early March 2020 and operated through July 2020 with the majority of employees working remotely. Operations continued as normal despite a sharp increase in sales during the period. We continue to monitor the Center for Disease Control and Prevention and State of Nebraska guidelines regarding employee safety. Our management continues to monitor our investments and cash flows to evaluate the impact as this pandemic evolves.

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Industry Trends and Market Conditions

Interest Rate Environment

Overall, interest rates remained at historically low levels in 2021, however the Federal Reserve is expected to begin increasing short-term interest rates in early 2022. We seek to address our interest rate risk through managing the duration of the liabilities and purchasing and holding high quality, long-term assets that mirror that duration.

Competition

We are operating in a highly competitive market with various sizes of diversified financial institutions, established insurance and reinsurance companies. Our annuity market is being impacted by the growing aging population and the need to evaluate their retirement options. We believe our technology and customer service along with our ability to structure solutions position us to provide value to annuity consumers through various distribution channels.

Discontinuation of Libor

The Financial Conduct Authority (“FCA”), the U.K. regulator of the London Interbank Offered Rate ("LIBOR"), previously indicated that it intends to stop persuading or compelling panel banks to submit quotes used to determine LIBOR after 2021. On November 30, 2020, the Intercontinental Exchange (“ICE”) Benchmark Administration (“IBA”), the administrator of LIBOR, announced a consultation regarding its intention to cease the publication of one week and two-month U.S. Dollar LIBOR settings at the end of December 2021, but to extend the publication of the remaining U.S. Dollar LIBOR settings (overnight and one, three, six and 12 month U.S. Dollar LIBOR) until the end of June 2023. The IBA intends to share the results of the consultation with the FCA and publish a summary of the responses. U.S. bank regulators acknowledged the announcement and, subject to certain limited exceptions, advised banks to cease writing new U.S. Dollar LIBOR contracts by the end of 2021.

We are in the process of analyzing and identifying our population of securities, financial instruments and contracts that utilize LIBOR (collectively “LIBOR Instruments”) to determine if we have any material exposure to the transition from LIBOR. To the extent we hold LIBOR Instruments, the terms of these instruments may have fallback provisions that provide for an alternative reference rate when LIBOR ceases to exist. For securities without adequate fallback provisions already in place, legislation governing securities under New York law has been enacted to provide a safe harbor for transition to the recommended alternative reference rate. In addition, federal legislation has been introduced to provide the same protection for securities not governed by New York law.

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Notwithstanding, in preparation for the phase out of LIBOR, we may need to renegotiate our LIBOR Instruments that utilize LIBOR. However, these efforts may not be successful in mitigating the legal and financial risk from changing the reference rate in our LIBOR Instruments. Furthermore, the discontinuation of LIBOR may adversely impact our ability to manage and hedge exposures to fluctuations in interest rates using derivative instruments.

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As a result, the transition of our LIBOR Instruments to alternative reference rates may result in adverse changes to the net investment income, fair market value and return on those investments. We intend to continue to incur operating losses until American Life achieves a volumeevaluate and monitor the risks associated with the LIBOR transition which include identifying and monitoring our exposure to LIBOR, monitoring the market adoption of in-force life insurance policies that provides premiums thatalternative reference rates and ensuring operational processes are sufficientupdated to cover our operating expenses.accommodate alternative rates. Due to uncertainty surrounding alternative rates, we are unable to predict the overall impact of this change at this time.

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Critical Accounting Policies and Estimates

Our accounting and reporting policies are in accordance with generally accepted accounting principles (GAAP) in the United States of America.GAAP. Preparation of our consolidatedConsolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is a summary of our significant accounting policies and estimates. These accounting policies inherently require significant judgment and assumptions, and actual operating results could differ significantly from management’s estimates determined using these policies. We believe the following accounting policies, judgments and estimates are the most critical to the understanding of our results of operations and financial position. A detailedOur accounting policies, judgments and estimates have not changed significantly over our disclosed accounting periods. For further discussion of significantour accounting policies is provided in this report in Noteand estimates see “Note 1 — Nature of Operations and Summary of Significant Accounting PoliciesPolicies” to our Consolidated financial statements.

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Valuation of Investments

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Reinsurance

We expect to reinsure most of the risks associated with our issued annuities. Our reinsurers may be domestic, foreign or capital markets investors seeking to assume U.S. insurance business. In most reinsurance transactions, American Life will remain exposed to the credit risk of reinsurers, or the risk that one or more reinsurers may become insolvent or otherwise unable or unwilling to pay for policyholder claims. We seek to mitigate the credit risk relating to reinsurers by generally either requiring that the reinsurer post substantial collateral or make other financial commitments as a security for the reinsured risks. Under these reinsurance agreements, there typically is a monthly or quarterly settlement of premiums, claims, surrenders, collateral, and estimates used to determine future values are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our revenue forecasts.

Reinsuranceother administration fees.

In a typical reinsurance transaction, we receive a ceding commission and reimbursement of certain expenses at the normal coursetime liabilities are reinsured, plus ongoing fees for the administration of the business ceded. Our reinsurers are typically not “accredited” or qualified as reinsurers under Nebraska law. In order to receive credit for reinsurance for transactions with these reinsurers and to reduce potential credit risk, we seekusually hold collateral from the reinsurer on a FW basis or require the reinsurer to limit aggregate and single exposuremaintain a trust that holds assets backing up its obligation to lossespay claims on large risksthe business it assumes. In some cases, the reinsurer may appoint an investment manager to manage these assets pursuant to guidelines approved 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 liabilitiesus that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities relatedstate investment statutes and regulations relating to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. We generally strivereinsurance. When our investment advisor subsidiary, 1505 Capital, is appointed to diversify our 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 our primary liability under the policies written.manage these assets, we receive additional ongoing asset management fees.

Future Policy Benefits

We establish liabilities for amounts payable under insuranceour policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities forUnder GAAP, our annuities are treated as deposit liabilities, where we use account value in lieu of future policy benefits of traditional life insurance have been computed by using 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 assumptionsreserves. Our FIA reserves are based on industry experience expressed as a percentage of standard mortality tables. Such liabilities are reviewed quarterlycalculated by an independent consulting actuary.

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designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the multi-benefithedged item. Hedge effectiveness is also assessed periodically throughout the life insurance arrangementof the designated hedging relationship.

In late 2019, we began investing in options to hedge our interest rate risks on our FIA product. Options typically do not qualify for hedge accounting; therefore, we chose not to use hedge accounting for the related options that we currently have. We value our derivatives at fair market value with the offset being recorded on our consolidated statement of comprehensive loss as a realized gain or (loss).

Additionally, reinsurance agreements written on a FW basis contain embedded derivatives on our FIA product. Gains or (losses) associated with the performance of assets maintained in the relevant deposit and funds withheld accounts are reflected as realized gains or (losses) in our consolidated statement of comprehensive loss.

Derivatives

The Company entered into derivative instruments to hedge FIA products that guarantee the return of principal to the policyholders and credit interest based on a percentage of the gain in a specified market index. To hedge against adverse changes in equity indices, the Company entered into contracts to buy equity indexed options. The change in fair value of the derivatives for hedging the FIA index credits and the annuity portionrelated embedded derivative liability fluctuated from period to period based uponon the signed policy.

New Accounting Standards

A discussion of new accounting standards is provided in Note 1 — Nature of Operations and Summary of Significant Accounting Policieschange in the Notesmarket interest rates. The indexed reserves are measured at fair value for the current period and future periods. We hedge with options that align with the terms of our FIA product which is between three and seven years. We have analyzed our hedging strategy on our FIA product and believe it is effective as of December 31, 2021.

American Life also has agreements with several third-party reinsurers that have FW and Modco provisions under which the assets related to Consolidated Financial Statements.

Consolidated Results of Operations

Net Loss: Theincrease in net lossin 2016 compared to 2015 was due to theimpairment reinsured business are maintained by American Life as collateral; however, ownership of the goodwill of $1,129,824,assets and the loss of $420,720total return on the revised valuationasset portfolios belong to the third-party reinsurers. Under GAAP, this arrangement is considered an embedded derivative as discussed in “Note 5 — Derivative Instruments” to our Consolidated financial statements. Assets carried as investments on American Life’s financial statements for the third-party reinsurers contained unrealized gains as of Midwest's equity method investment in FirstWyoming mentioned below, the net lossDecember 31, 2021 and 2020, of $185,000 as a resultapproximately $ 161,000 and $2.9 million, respectively. The terms of the inclusioncontracts with the third-party reinsurers provide that unrealized gains on the portfolios accrue to the third-party reinsurers. We account for these unrealized gains by recording equivalent realized gains or losses on our consolidated statement of First Wyoming Life.comprehensive loss. Accordingly, the decline in premium revenue, increase in interest credited, and other operating expenses. Theseunrealized gains on the assets held by American Life on behalf of the third-party reinsurers were offset by the bargain purchaserecording an embedded derivative gain onof $2.7 million and loss of $2.9 million as of December 31, 2021 and 2020, respectively. If prices of investments fluctuate, the revised valuationunrealized gains or losses of the Midwest and First Wyoming merger of $1,326,526. Midwest engaged a third party to prepare a valuation of Midwest and First Wyoming. The total bargain purchasethird-party reinsurers may also fluctuate; therefore, the associated embedded derivative gain recorded based upon(loss) recognized by us would be increased or decreased accordingly.

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Other reasons for 2021’s increase in consolidated statement of comprehensive loss:

Our FIA products have three components influencing our consolidated statement of comprehensive loss:

Expenses are summarized​

The derivatives we purchase to hedge stock market risk we would otherwise face from our FIA. We carry these derivatives at fair value on our balance sheet, recording the change in the table below.

Table of First Wyoming Life which added$72,000Contents

Investment income, net of expenses: The components of net investment income for the full year2021 and 2020 were as follows:

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Expenses

Our expenses for the periods indicated are summarized in the table below:

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Investments

InvestmentsMost investments on our Consolidated balance sheets are held on behalf of our reinsurers as collateral under our reinsurance agreements. As a result, our investment allocations are largely a function of our collective reinsurer investment allocations. While the reinsurers own the investment risk on these assets, we typically restrict their investment allocations via control over the selection of the asset manager as well as asset restrictions set forth in investment guidelines and control over the investment manager. In many of our reinsurance agreements, 1505 Capital acts as the asset manager for a fee.

Our overall investment philosophy is reflected in the allocationguidelines typically include U.S. government bonds, corporate bonds, commercial mortgages, asset backed securities, municipal bonds, and collateral loans. The duration of our investments.investments is 5 to 10 years in line with that of our liabilities. We emphasize investment grade debt securities, with smaller holdings in equity securities, real estate held for investment, policy loans, and other investments. do allow non-U.S. dollar denominated investments where the foreign exchange risk is hedged back to U.S. dollars.

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.