Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2020 | May 01, 2020 | |
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
Entity Registrant Name | MIDWEST HOLDING INC. | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 1,360,675,242 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q1 | |
Entity Central Index Key | 0000355379 | |
Amendment Flag | false |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Assets | ||
Investments, available for sale, at fair value fixed maturities (amortized cost: $152,339,447 and $116,676,312, respectively) (See Note 5) | $ 125,832,863 | $ 117,241,861 |
Mortgage loans on real estate, held for investment | 48,982,622 | 13,810,041 |
Derivatives | 463,330 | 575,294 |
Other invested assets | 2,796,352 | 2,468,947 |
Investment escrow | 3,899,986 | |
Preferred stock | 500,000 | 500,000 |
Policy loans | 128,734 | 106,014 |
Total investments | 178,703,901 | 138,602,143 |
Cash and cash equivalents | 25,506,856 | 43,716,205 |
Deferred acquisition costs, net | 1,633,037 | |
Premiums receivable | 350,360 | 355,959 |
Accrued investment income | 2,563,529 | 1,511,200 |
Reinsurance recoverables (Note 9) | 51,200,947 | 30,579,524 |
Intangible assets | 700,000 | 700,000 |
Property and equipment, net | 81,165 | 85,395 |
Operating lease right of use assets | 439,648 | 470,132 |
Other assets | 322,358 | 241,580 |
Assets associated with business held for sale (see Note 3) | 2,526,376 | 3,653,748 |
Total assets | 264,028,177 | 219,915,886 |
Liabilities: | ||
Benefit reserves | 16,413,606 | 16,319,912 |
Policy claims | 156,820 | 225,228 |
Deposit-type contracts | 220,462,679 | 171,168,785 |
Advance premiums | 8,536 | 261 |
Deferred gain on coinsurance transactions | 8,612,135 | 7,578,195 |
Lease liabilities (See Note 14): | ||
Finance lease | 1,860 | 1,860 |
Operating lease | 490,870 | 524,248 |
Other liabilities | 6,756,091 | 6,291,782 |
Liabilities associated with business held for sale (See Note 3) | 2,520,198 | 3,646,867 |
Total liabilities | 255,422,795 | 205,757,138 |
Commitments and Contingencies (See Note 13) | ||
Stockholders' Equity: | ||
Common stock, $0.001 par value; authorized 1,970,000,000 shares; issued and outstanding as of March 31, 2020 and 1,023,408,553 as of December 31, 2019. | 1,023,409 | 1,023,409 |
Additional paid-in capital | 53,484,922 | 53,472,988 |
Accumulated deficit | (19,533,252) | (41,081,710) |
Accumulated other comprehensive income (loss) (See Note 6) | (26,556,674) | 619,584 |
Total Midwest Holding Inc.'s stockholders' equity | 8,418,405 | 14,034,271 |
Noncontrolling interest | 186,977 | 124,477 |
Total stockholders' equity | 8,605,382 | 14,158,748 |
Total liabilities and stockholders' equity | $ 264,028,177 | $ 219,915,886 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 | May 09, 2019 | May 09, 2018 |
Assets | ||||
Cost or Amortized Cost | $ 152,339,447 | $ 116,676,312 | ||
Stockholders' Equity: | ||||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 | ||
Common stock, shares authorized | 1,970,000,000 | 1,970,000,000 | 1,970,000,000 | 1,970,000,000 |
Common stock, shares issued | 1,023,408,553 | 1,023,408,553 | ||
Common stock, shares outstanding | 1,023,408,553 | 1,023,408,553 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenues | ||
Insurance premiums | $ 21 | $ (2,479) |
Investment income, net of expenses | 1,240,978 | 190,995 |
Net realized gains on investments (See Note 5) | 22,600,010 | (4,397) |
Amortization of deferred gain on reinsurance | 182,438 | 806,047 |
Miscellaneous income | 390,044 | 15,540 |
Total revenues | 24,413,491 | 1,005,706 |
Expenses: | ||
Interest credited | 211,202 | 20,821 |
Benefits | (7,103) | 3,395 |
Amortization of deferred acquisition costs | 40,509 | 2,069 |
Salaries and benefits | 824,896 | 539,449 |
Other operating expenses | 1,325,113 | 1,934,990 |
Total expenses | 2,394,617 | 2,500,724 |
Gain (loss) from continuing operations before taxes | 22,018,874 | (1,495,018) |
Income tax expense | (407,916) | 0 |
Net gain (loss) | 21,610,958 | (1,495,018) |
Less: Gain attributable to noncontrolling interest | (62,500) | |
Net gain (loss) attributable to Midwest Holding Inc. | 21,548,458 | (1,495,018) |
Comprehensive loss: | ||
Unrealized (losses) gains on investments arising during period, net of tax | (4,170,973) | 847,971 |
Unrealized losses on foreign currency | (405,275) | |
Less: reclassification adjustment for net realized gains on investments | (22,600,010) | 4,397 |
Other comprehensive (loss) income | (27,176,258) | 852,368 |
Comprehensive loss: | $ (5,627,800) | $ (642,650) |
Net gain (loss) per common share | ||
Basic | $ 0.021 | $ (0.070) |
Diluted | $ 0.016 | $ (0.001) |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) | Common Stock [Member] | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | AOCI | Noncontrolling Interest. | Total |
Balance at Dec. 31, 2018 | $ 22,874 | $ 33,006,242 | $ (35,348,052) | $ (1,818,014) | $ (4,136,950) | |
Net income (loss) | (5,733,658) | (5,733,658) | ||||
Xenith note interest waived | 845,536 | 845,536 | ||||
Xenith note conversion | 927,680 | 18,172,320 | 19,100,000 | |||
Class C preferred stock conversion | 72,855 | 1,427,145 | 1,500,000 | |||
Employee stock options | 21,745 | 21,745 | ||||
Change in equity of noncontrolling interests | $ 124,477 | 124,477 | ||||
Unrealized gains(losses) on investments, net of taxes | 2,291,413 | 2,291,413 | ||||
Unrealized gain(losses) on foreign currency | 146,185 | 146,185 | ||||
Balance at Dec. 31, 2019 | 1,023,409 | 53,472,988 | (41,081,710) | 619,584 | 124,477 | 14,158,748 |
Net income (loss) | 21,548,458 | 21,548,458 | ||||
Employee stock options | 11,934 | 11,934 | ||||
Change in equity of noncontrolling interests | 62,500 | 62,500 | ||||
Unrealized gains(losses) on investments, net of taxes | (26,770,983) | (26,770,983) | ||||
Unrealized gain(losses) on foreign currency | (405,275) | (405,275) | ||||
Balance at Mar. 31, 2020 | $ 1,023,409 | $ 53,484,922 | $ (19,533,252) | $ (26,556,674) | $ 186,977 | $ 8,605,382 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Cash Flows from Operating Activities: | ||
Net income (loss) | $ 21,548,458 | $ (1,495,018) |
Adjustments to arrive at cash provided by operating activities: | ||
Net premium and discount on investments | 37,978 | 24,777 |
Depreciation and amortization | 15,321 | 18,013 |
Stock options | 11,934 | |
Net transfers to noncontrolling interest | 62,500 | |
Amortization of deferred acquisition costs | 40,509 | 2,069 |
Deferred acquisition costs capitalized | (1,483,941) | (253,186) |
Net realized gains on investments | (22,600,010) | 4,397 |
Deferred coinsurance ceding commission | 1,033,940 | (792,325) |
Notes payable interest accrued | 271,142 | |
Preferred stock dividend | 90,667 | |
Changes in operating assets and liabilities: | ||
Reinsurance recoverables | 2,617,495 | (204,111) |
Interest and dividends due and accrued | (1,052,329) | (86,946) |
Premiums receivable | 5,599 | (1,980) |
Policy liabilities | 1,699,134 | 276,747 |
Other assets and liabilities | 379,158 | 2,042,291 |
Other assets and liabilities - discontinued operations | 703 | (145,981) |
Net cash provided by or (used in) operating activities | 2,316,449 | (249,444) |
Securities available for sale: | ||
Purchases | (39,723,572) | (7,446,737) |
Proceeds from sale or maturity | 3,852,943 | 360,600 |
Mortgage loans on real estate, held for investment purchases | ||
Purchases | (33,342,545) | |
Proceeds from sale | 2,069,950 | |
Purchase of derivatives | (651,661) | |
Other invested assets | ||
Purchases | (2,715,965) | |
Proceeds from sale | 2,388,560 | |
Net change in policy loans | (22,720) | 733 |
Net purchases of property and equipment | (8,998) | (3,818) |
Net cash used in investing activities | (68,154,008) | (7,089,222) |
Cash Flows from Financing Activities: | ||
Finance lease | (111) | (111) |
Receipts on deposit-type contracts | 47,815,010 | 8,320,749 |
Withdrawals on deposit-type contracts | (186,689) | |
Net cash provided by financing activities | 47,628,210 | 8,320,638 |
Net increase (decrease) in cash and cash equivalents | (18,209,349) | 981,972 |
Cash and cash equivalents: | ||
Beginning | 43,716,205 | 2,832,567 |
Ending | $ 25,506,856 | $ 3,814,539 |
Nature of Operations and Basis
Nature of Operations and Basis of Presentation | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Nature of Operations and Basis of Presentation | Note 1. Nature of Operations and Basis of Presentation Nature of Operations Midwest Holding Inc. (“Midwest,” “the Company,” “we,” “our,” or “us”) was incorporated in Nebraska on October 31, 2003 for the primary purpose of operating a financial services company. The Company is in the life and annuity insurance business and operates through its wholly owned subsidiary, American Life & Security Corp. (“American Life”). As discussed in Note 3, on June 28, 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 dated May 9, 2018 with a non-affiliated third party, Xenith Holdings LLC, a Delaware limited liability company (“Xenith”). On April 2, 2019, we obtained a 51% ownership in 1505 Capital, a Delaware limited liability company, that was established in 2018 to provide financial and investment advisory and management services to clients and related investment activities. 1505 Capital’s financial results are consolidated with the Company’s from the date of its acquisition. Management evaluates the Company as one reporting segment in the life insurance industry. The Company is primarily engaged in the underwriting and marketing of annuity products and life insurance through American Life. The product offerings, the underwriting processes, and the marketing processes are similar. The Company’s historical product offerings consisted of a multi-benefit life insurance policy that combined cash value life insurance with a tax deferred annuity and a single premium term life product. These product offerings were underwritten, marketed, and managed as a group of similar products on an overall portfolio basis. The American Life presently offers two products, a multi-year guaranteed annuity ("MYGA") and a fixed indexed annuity (“FIA”). Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions from the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10‑Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019 (“2019 Form 10‑K”), should be read in connection with the reading of these interim unaudited consolidated financial statements. Certain GAAP policies that significantly affect the determination of financial condition, results of operations and cash flows, are summarized in our 2019 Form 10‑K. In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020. All intercompany accounts and transactions have been eliminated in consolidation and certain immaterial reclassifications have been made to the prior period results to conform to the current period’s presentation with no impact on results of operations or total stockholders’ equity. Investments All fixed maturities and a portion of the equity securities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value as of the financial statement date. Bond premiums and discounts are amortized using the scientific-yield method over the term of the bonds. Realized gains and losses on securities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in accumulated other comprehensive income. Declines in the fair value of available-for-sale securities below their amortized cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining if these losses are expected to be other-than-temporary, the Company considers severity of impairment, duration of impairment, forecasted recovery period, industry outlook, the financial condition of the issuer, issuer credit ratings, and the intent and ability of the Company to hold the investment until the recovery of the cost. The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the statement of comprehensive income as an other-than-temporary impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. The Company has analyzed the securities portfolio and determined that there was not an other-than-temporary impairment for the three months ended March 31, 2020. Investment income consists of interest, dividends, gains and losses from equity method investments, and real estate income, which are recognized on an accrual basis and amortization of premiums and discounts. Mortgage loans on real estate, held for investment Mortgage loans on real estate, held for investment are carried at unpaid principal balances. Interest income on mortgage loans on real estate, held for investment is recognized in net investment income at the contract interest rate when earned. A mortgage loan is considered to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. Valuation allowances on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlements of mortgage loans, including foreclosures. The Company establishes valuation allowances for estimated impairments on an individual loan basis as of the balance sheet date. Such valuation allowances are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan’s original effective interest rate. These evaluations are revised as conditions change and new information becomes available. No such valuation allowance was established as of March 31, 2020. Investment escrow The Company held in escrow as of December 31, 2019, cash used to settle a mortgage loan that closed in January 2020. As of March 31, 2020, the Company did not hold any cash related to investments in escrow. Other invested assets The Company purchases and sells leases in its investment portfolio. As of March 31, 2020, the Company owned several lease investments. Derivative Instruments Derivatives are used to hedge the risks experienced in our ongoing operations, such as equity, interest rate and cash flow risks, or for other risk management purposes, which primarily involve managing liability risks associated with our indexed annuity products and reinsurance agreements. Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or other underlying notional amounts. Derivative assets and liabilities are carried at fair value on the consolidated balance sheets. To qualify for hedge accounting, at the inception of the hedging relationship, we would formally document our designation of the hedge as a cash flow or fair value hedge and our risk management objective and strategy for undertaking the hedging transaction. In this documentation, we would identify how the hedging instrument is expected to hedge the designated risks related to the hedged item, the method that would be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method which would be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship. In the fourth quarter of 2019, the Company 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 our options that we currently have. We value our derivatives at fair market value with the offset being recorded on our income statement as a realized gain or (loss). Additionally, reinsurance agreements written on a funds withheld or modified coinsurance basis contain embedded derivatives on our fixed indexed annuity product. Gains or (losses) associated with the performance of assets maintained in the modified coinsurance deposit and funds withheld accounts are reflected as realized gains or (losses ) in the income statement. Preferred Stock Preferred stock of a non-affiliated company was purchased during the third quarter of 2019. The Company believes the cost of the preferred stock equals fair market value as of March 31, 2020. Policy loans Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value. Cash and cash equivalents The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents. At March 31, 2020 and December 31, 2019, the Company had no cash equivalents. At March 31, 2020, the Company held approximately 1.0 million in Great British Pounds in cash in two of our custody accounts. The USD equivalent held was approximately $1.2 million. Deferred acquisition costs Deferred acquisition costs (“DAC”) consist of incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions. Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which require an immediate review. The Company determined that no events occurred in the three months ended March 31, 2020 that suggest a review should be undertaken. Property and equipment Property and equipment are stated at cost net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over 3 to 7 years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $10,316 and $9,506 for the three months ended March 31, 2020 and 2019, respectively. Accumulated depreciation totaled $985,796 and $975,480 as of March 31, 2020 and December 31, 2019, respectively. Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the three months ended March 31, 2020 that would indicate the carrying amounts may not be recoverable. Reinsurance As indicated in our 2019 Form 10-K, reinsurance is an integral part of our business plan. We expect to reinsure substantially all of our new insurance policies with a variety of third party reinsurers in exchange for upfront ceding commissions, expense reimbursements and administrative fees. Under these reinsurance agreements, we expect there will be a monthly or quarterly settlement of premiums, claims, surrenders, collateral and other administration fees. We believe this will help preserve American Life’s capital while supporting its growth because American Life will have lower capital requirements when its business is reinsured due to lower overall financial exposure versus retaining the insurance policy business itself. There are two main categories of reinsurance transactions: 1) “indemnity,” where we cede a portion of our risk but retain the legal responsibility to our policyholders should our reinsurers not meet their financial obligations; and 2) “assumption,” where we transfer the risk and legal responsibilities to the reinsurers. The reinsurers are required to acquire the appropriate regulatory and policyholder approvals to convert indemnity policies to assumption policies. Our reinsurers may be domestic or foreign capital markets investors or traditional reinsurance companies seeking to assume U.S. insurance business. We plan to mitigate the credit risk relating to reinsurers generally by requiring other financial commitments from the reinsurers to secure the reinsured risks (such as posting substantial collateral). It should be noted that under indemnity reinsurance agreements American Life remains exposed to the credit risk of its reinsurers. If one or more reinsurers becomes insolvent or is otherwise unable or unwilling to pay claims under the terms of the applicable reinsurance agreement, American Life retains legal responsibility to pay policyholder claims, which, in such event would likely materially and adversely affect the capital and surplus of American Life. Some reinsurers are not and may not be “accredited” or qualified as reinsurers under Nebraska Law. In order to enter into reinsurance agreements with such reinsurers and to reduce potential credit risk, American Life may hold a deposit or withhold funds from the reinsurer or require the reinsurer to maintain a trust that holds assets backing up the reinsurer’s obligation to pay claims on the business it assumes. The reinsurer may also appoint an investment manager for such funds, which is some cases may be our investment adviser subsidiary, 1505 Capital, to manage these assets pursuant to guidelines adopted by us that are consistent with state investment statutes and reinsurance regulations. American Life has treaties with two third-party reinsurers that have funds withheld provisions. Under those provisions, the assets backing the treaties are maintained by American Life as investments but the assets and total returns or losses on the investments are owned by the reinsurers. Under GAAP this arrangement is considered an embedded derivative as discussed in Note 6 to our consolidated financial statements above. As a result of recent market volatility, assets carried as investments on American Life’s financial statements for the third-party reinsurers contained unrealized losses of approximately $23.2 million as of March 31, 2020. The terms of the contracts with the third party reinsurers provide that unrealized losses on the portfolios accrue to the reinsurers. We account for this loss pass through by recording equivalent realized gains on our income statement. Accordingly, the unrealized losses on the assets held by American Life were offset by a gain in the embedded derivative of $23.2 million. American Life currently has five reinsurance agreements in effect and has earned ceding commissions on four out of those agreements. See Note 9 to the consolidated financial statements in this report for further information on each of our reinsurance agreements. The table below shows the ceding commissions earned on the four most recent reinsurance transactions where American Life is earning ceding commissions on a statutory accounting principles basis: Three months ended March 31, 2020 2019 Reinsurer Effective Date Ceding Expense (1) Ceding Expense (1) US Alliance Life and Security Company September 2017 $ 15,262 $ — $ 15,262 $ — Unified Life Insurance Company July 2018 60,609 — 702,788 — Ironbound Reinsurance Company Limited July 2019 674,645 673,612 — — SDA Annuity & Life Re November 2019 298,982 548,464 — — $ 1,049,498 $ 1,222,076 $ 718,050 $ — (1) Includes: acquisition and administrative expenses, commission expense allowance and product development fees. Under GAAP, the ceding commission is deferred on the balance sheet and are amortized over the period of the policyholder contracts. The tables below shows the ceding commissions from the reinsurers and what was earned on a GAAP accounting basis: Three months ended March 31, 2020 2019 Reinsurer Gross Ceding Commission Expense (1) Commissions and Acquisition Expenses Interest on Ceding Commissions Earned Earned US Alliance Life and Security Company $ - $ - $ - $ - $ 12,094 $ 25,816 Unified Life Insurance Company - - - - 67,451 780,231 Ironbound Reinsurance Company Limited 674,645 673,612 615,111 53,602 95,740 — SDA Annuity & Life Re 298,982 548,464 503,207 12,966 7,153 — $ 973,627 $ 1,222,076 $ 1,118,318 $ 66,568 $ 182,438 $ 806,047 (1) Includes: acquisition and administrative expenses, commission expense allowance and product development fees. The tables below show the ceding commissions deferred on each reinsurance transaction on a GAAP accounting basis: March 31, 2020 December 31, 2019 Reinsurer Effective Date Deferred Ceding Commission Deferred Ceding Commission US Alliance Life and Security Company (1) September 2017 $ 846,581 $ 858,675 Unified Life Insurance Company (1) July 2018 515,444 582,894 Ironbound Reinsurance Company Limited (2) July 2019 5,741,686 5,060,359 SDA Annuity & Life Re (2) November 2019 1,508,424 1,076,267 $ 8,612,135 $ 7,578,195 (1) These reinsurance transactions received gross ceding commissions on the effective dates of the transaction. The difference between the statutory net adjusted reserves and the GAAP adjusted reserves plus the elimination of DAC and VOBA related to these businesses reduces the gross ceding commission with the remaining deferred and amortized over the lifetime of the blocks of business. (2) These reinsurance transactions include the ceding commissions and expense allowances which are accounted for as described in (1). Benefit reserves The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. Policy claims Policy claims are based on reported claims plus estimated incurred but not reported claims developed from trends of historical data applied to current exposure. Deposit-type contracts Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies. Deferred gain on ceding commissions American Life has entered into several indemnity reinsurance contracts where it is earning ceding commissions. These ceding commissions are recorded as a deferred liability and amortized over the life of the business ceded. American Life receives commission, administrative, and option allowances from reinsurance transactions that represent recovery of acquisition costs. These allowances first reduce the DAC associated with that reinsured block of business with the remainder being included in the deferred gain on ceding commissions to also be amortized. Income taxes The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2015. The Company is not currently under examination for any open years. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. Revenue recognition and related expenses Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the consolidated statements of cash flows. Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due. Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts. Acquisition costs are amortized over the expected life of the annuity contracts. Comprehensive loss Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses from marketable securities classified as available for sale and unrealized gains and losses from foreign currency transactions, net of applicable taxes. American Life has treaties with two third-party reinsurers that have funds withheld and modified coinsurance provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral but are owned by the reinsurers, thus, the total return on the asset portfolio belongs to the reinsurers. Under GAAP this is considered an embedded derivative as discussed in Note 6 below. As a result of recent volatility, the investments carried by American Life for the third-party reinsurers contained unrealized losses of approximately $23.2 million as of March 31, 2020. The terms of the contracts with the third-party reinsurers, provided that unrealized losses on the portfolios shall accrue to the reinsurers. We account for this loss pass through by booking equivalent realized gains on our income statement. Accordingly, for the first quarter of 2020, our recognized embedded derivative gains were $23.2 million. The remaining unrealized loss of approximately $3.3 million is related to the investments retained by American Life. The majority of these unrealized losses are related to our asset-backed securities or collateralized loan obligations (“CLOs”). CLOs are typically illiquid and are intended to be held to maturity thus loss risk is minimal, the Company has monitored the underlying unrealized losses and believe they pose little chance of loss in the long-term due to the quality of the underlying credits. Basic earnings per share in the first quarter of fiscal 2020 were $0.021 which included the aforementioned gain of $23.2 million. Basic loss per share in the first quarter of fiscal 2020 without the aforementioned gain was ($0.002). Common and preferred stock and earnings (loss) per share The par value per each Company share is $0.001 with 1,970,000,000 voting common shares authorized, 20,000,000 non-voting common shares authorized, and 10,000,000 preferred shares authorized. On June 18, 2019, Xenith exercised the right to convert its 1,500,000 Series C preferred stock and the $19,100,000 notes payable to voting common stock at the conversion rate of approximately $0.02 per common share. At March 31, 2020 and December 31, 2019, the Company had 1,023,408,553 voting common shares issued and outstanding. The Series C preferred shares were converted by Xenith to voting common shares on June 18, 2019 at a rate of approximately $0.02 per share for 72,854,474 voting common shares. The stated annual dividend rate on the Series C preferred shares was 8%. At the time of the conversion, Xenith forgave all previously accrued dividends from June 28, 2018 through the conversion date. Loss per basic share attributable to the Company’s common stockholders was computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended March 31, 2020 and the year ended December 31, 2019 were 1,023,408,553 and 576,594,387 shares, respectively. Loss per diluted share attributable to the Company’s common stockholders was computed based on the average shares outstanding and options granted under our Long-Term Incentive Plan (“LTIP”), as if all were vested and exercised, which for the three months ended March 31, 2020 and the year ended December 31, 2019 were 1,361,622,261 and 577,541,406 shares, respectively. |
New Accounting Standards
New Accounting Standards | 3 Months Ended |
Mar. 31, 2020 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
New Accounting Standards | Note 2. New Accounting Standards Adoption of New Accounting Standards In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018‑15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computer Arrangement That is a Service Contract . Under ASU No. 2018‑15, the amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. In order to determine which costs can be capitalized, we are to follow the guidance in Subtopic 350‑40. Cost for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and the post-implementation stage are expensed as the activities are performed. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Management has reviewed and evaluated the impact of this pending new standard and will implement this starting in fiscal year 2020. We reviewed our software enhancements as of March 31, 2020 to determine the impact of implementing ASU No. 2018‑12 and determined that none of those enhancements should be capitalized as they did not meet the requirements of this ASU. In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016‑02, Leases (Topic 842) . The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The lease liability is measured at the present value of the lease payments over the lease term with the right-of-use asset measured as the lease liability amount and including adjustments for certain lease incentives and initial direct costs. Lease expense recognition will continue to differentiate between finance leases and operating leases resulting in a similar pattern of lease expense recognition as under current GAAP. This ASU permitted a modified retrospective adoption approach that includes a number of optional practical expedients that entities may elect upon adoption. On January 1, 2019, the Company adopted this standard using a modified retrospective adoption approach. The adoption resulted in the Company identifying three operating leases and one financial lease which were subject to this guidance. The impact to the Consolidated Statements of Comprehensive Income (Loss) was minimal. We identified four leases with net assets of $439,648 and $473,04 5 , and lease liabilities of $492,730 and $526,108 for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively. Future adoption of New Accounting Standards In January 2020, the FASB issued ASU No. 2020-2, Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) -Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this Update clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We are unable to determine the impact at this time of ASU No. 2020-1 as we are still in the process of evaluating the standard. In February 2020, the FASB issued ASU No. 2020-02, Financials Services Instruments-Credit Losses (Topic 326), and Leases (topic 842). The amendments in this Update adds language to Accounting Bulletin N. 119. In November 2019, the FASB issued ASU No. 2019-10, Financials Services Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (topic 842). The Board developed a philosophy to extend and simplify how effective dates are staggered between larger public companies and all other entities. For business entities that meet the definition of a smaller reporting company (“SRC”), the amendments in ASU 2018-12 are effective for fiscal years beginning after December 15, 2021. In August 2018, the FASB issued ASU No. 2018‑12, Financial Services-Insurance (Topic 944). This update 1) modifies the timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows, 2) simplifies the accounting for certain market-based options or guarantees associated with deposit contracts, 3) simplifies the amortization of deferred acquisition costs, and 4) addresses the effectiveness of the required disclosures. This ASU becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2023. We anticipate that the adoption of ASU 2018‑12 will have a broad impact on our consolidated financial statements and related disclosures and will require us to make changes to certain of our processes, systems and controls. We are unable to determine the impact at this time of ASU No. 2018‑12 as we are still in the process of evaluating the standard. In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The scope of this amendment is to clarify the interaction of ASC 842 (Leases) and ASC 326 (credit losses). In November 2018, the FASB issued ASU No. 2018‑10, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in this update include items brought to the Board’s attention by stakeholders to clarify the guidance in the amendments in ASU 2016‑13, Financial Instruments – Credit Losses (Topic 326) which was issued in June 2016. These updated amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326‑20. Under ASU 2016‑13, this replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to perform credit loss estimates. This update changes the methodology from an incurred loss to an expected credit loss. An allowance for the expected credit loss will be set up and the net income will be impacted. The credit losses will be evaluated in the current period and an adjustment to the allowance can be made. The new standard becomes effective after December 15, 2022. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements. |
Assets and Liabilities Held for
Assets and Liabilities Held for Sale | 3 Months Ended |
Mar. 31, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Assets and Liabilities Held for Sale | Note 3. Assets and Liabilities Held for Sale On November 30, 2018, American Life entered into an Assumption and Indemnity Reinsurance Agreement (“Reinsurance Agreement”) with Unified Life Insurance Company (“Unified”), a Texas domiciled stock insurance company. The Reinsurance Agreement provides that American Life ceded and Unified agreed to reinsure, on an indemnity reinsurance basis, 100% of the liabilities and obligations under substantially all of American Life’s life, annuity and health policies (“Policies”). The Agreement closed on December 10, 2018, as previously disclosed in Midwest’s Current Report on Form 8‑K filed with the Securities and Exchange Commission (the “SEC”) on December 12, 2018. The effective date of the Agreement was July 1, 2018. After the closing of the Reinsurance Agreement, Unified began the process of preparing and delivering certificates of assumption and other materials to policyholders of American Life in order to effect an assumption of the Policies by Unified such that all of American Life’s rights and obligations under the policies arising on and after July 1, 2018 would be completely assumed by Unified without further indemnification or other obligations, except for liabilities, claims and obligations incurred before July 1, 2018. Unified is obligated to indemnify American Life against all liabilities and claims and all of its policy obligations from and after the July 1, 2018. As of March 31, 2020, 81% of the indemnity policies were converted to assumptive policies thereby releasing American Life from its legal obligations related to those policies. The consideration paid by Unified to American Life under the Reinsurance Agreement upon closing was $3,500,000 (“Ceding Commission”), subject to minor settlement adjustments. At closing, American Life transferred the Statutory Reserves and Liabilities, as defined in the Reinsurance Agreement, directly related to the policies, to Unified. The Ceding Commission is being amortized on a straight-line basis over the life of the policies. When the policies are converted to assumptive, meaning American Life has no liability exposure for those policies, the remaining Ceding Commission will be recognized in our income statement. Our balance sheet was required to be restated for all periods shown with the assets and liabilities which were ceded by American Life to Unified into separate line items as assets and liabilities held for sale. The table below summarizes the assets and liabilities that are included in discontinued operations as of March 31, 2020 and as of December 31, 2019: As of March 31, As of December 31, 2020 2019 Carrying amounts of major classes of assets included as part of discontinued operations: Policy loans $ 45,491 $ 50,387 Reinsurance recoverables 2,430,884 3,569,849 Premiums receivable 50,001 33,512 Total assets held for sale in the Consolidated Balance Sheet $ 2,526,376 $ 3,653,748 Carrying amounts of major classes of liabilities included as part of discontinued operations: Benefit reserves $ 1,021,284 $ 1,403,953 Policy claims 35,431 28,203 Deposit-type contracts 1,457,536 2,209,195 Advance premiums 2,327 2,226 Accounts payable and accrued expenses 3,620 3,290 Total liabilities held for sale in the Consolidated Balance Sheets $ 2,520,198 $ 3,646,867 |
Non-controlling Interest
Non-controlling Interest | 3 Months Ended |
Mar. 31, 2020 | |
Noncontrolling Interest [Abstract] | |
Non-controlling Interest | Note 4. Non-controlling Interest On April 2, 2019, Midwest entered into a contract to acquire a 51% ownership in 1505 Capital LLC (“1505 Capital”), a Delaware limited liability company, located in New York. 1505 Capital was organized to provide financial and investment advisory and management services to clients and any related investment, trading or financial activities. Class A Units were authorized to be issued up to 1,000 shares. Midwest purchased for $1 a total of 510 of the Class A Units and Aurora Financial Services, Inc. owns the remaining 490 Class A Units. As of March 31, 2020, Midwest consolidated the 1505 Capital income of $260,345 into the consolidated financials. Midwest’s portion of income was $197,84 5 and the non-controlling interest income was $6 2,500 . |
Investments
Investments | 3 Months Ended |
Mar. 31, 2020 | |
Marketable Securities [Abstract] | |
Investments | Note 5. Investments The cost or amortized cost and estimated fair value of investments classified as available-for-sale as of March 31, 2020 and December 31, 2019 are as follows: Cost or Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value March 31, 2020: Fixed maturities: U.S. government obligations $ 2,086,391 $ 129,809 $ — $ 2,216,200 Mortgage-backed securities 764,277 957 12,254 752,980 Asset-backed securities 128,469,099 66,021 25,756,095 102,779,025 States and political subdivisions -- general obligations 239,454 11,779 — 251,233 States and political subdivisions -- special revenue 2,884,223 95,600 8,112 2,971,711 Corporate 17,896,003 227,680 1,261,969 16,861,714 Total fixed maturities $ 152,339,447 $ 531,846 $ 27,038,430 $ 125,832,863 Mortgage loans on real estate, held for investment 48,982,622 — — 48,982,622 Derivatives 1,142,492 68,904 748,066 463,330 Investment Escrow — — — — Other invested assets 2,796,352 — — 2,796,352 Preferred stock 500,000 — — 500,000 Total Investments $ 205,760,913 $ 600,750 $ 27,786,496 $ 178,575,167 December 31, 2019: U.S. government obligations 2,091,710 7,073 17,559 2,081,224 Mortgage-backed securities 819,678 — 21,070 798,608 Asset-backed securities 95,006,241 646,335 404,752 95,247,824 States and political subdivisions -- general obligations 240,494 8,788 — 249,282 States and political subdivisions -- special revenue 25,112 179 — 25,291 Corporate 18,493,077 501,022 154,467 18,839,632 Total fixed maturities 116,676,312 1,163,397 597,848 117,241,861 Mortgage loans on real estate, held for investment 13,810,041 — — 13,810,041 Derivatives 490,831 87,684 3,221 575,294 Investment Escrow 3,899,986 — — 3,899,986 Other invested assets 2,468,947 — — 2,468,947 Preferred stock 500,000 — — 500,000 Total fixed maturities $ 137,846,117 $ 1,251,081 $ 601,069 $ 138,496,129 The Company has two securities that individually exceed 10% of the total of the state and political subdivisions categories as of March 31, 2020. The amortized cost, fair value, credit ratings, and description of each security is as follows: Amortized Estimated Cost Fair Value Credit Rating March 31, 2020: Fixed maturities: States and political subdivisions -- general obligations Bellingham, Washington $ 107,420 $ 118,061 AA+ Longview, Washington Refunding 132,034 133,172 Aa3 Total $ 239,454 $ 251,233 The following table summarizes, for all securities in an unrealized loss position at March 31, 2020 and December 31, 2019, the estimated fair value, pre-tax gross unrealized loss and number of securities by consecutive months they have been in an unrealized loss position. March 31, 2020 December 31, 2019 Gross Number Gross Number Estimated Unrealized of Estimated Unrealized of Fair Value Loss Securities (1) Fair Value Loss Securities (1) Fixed Maturities: Less than 12 months: U.S. government obligations $ — $ — — $ 1,518,772 $ 14,935 9 Asset-backed securities 95,658,862 25,665,232 67 39,114,732 404,752 26 Mortgage-back securities 165,282 589 4 160,010 4,844 4 States and political subdivisions -- general obligations 1,764,400 8,112 1 — — — Corporate 8,965,800 854,457 27 2,800,815 13,618 4 Greater than 12 months: U.S. government obligations — — — 353,834 2,624 2 Asset-backed securities 909,767 90,863 1 — — — Mortgage-back securities 464,615 11,665 8 638,598 16,226 14 Corporate 491,033 407,512 4 2,201,658 140,849 13 Total fixed maturities $ 108,419,759 $ 27,038,430 112 $ 46,788,419 $ 597,848 72 (1) We may reflect a security in more than one aging category based on various purchase dates. Due to significant price decreases in the capital markets because of the coronavirus (“COVID-19”) pandemic, our securities positions resulted in a substantial unrealized loss at March 31, 2020. We performed an analysis of the unrealized losses and determined that since they had only been in that position for less than three months, and approximately 80% had durations of 10 to 20 years, it would not be appropriate to write down any investments as of March 31, 2020. Management believes that the Company will fully recover its cost basis in the securities held at March 31, 2020, and management does not have the intent to sell, nor is it more likely than not that the Company will be required to sell, such securities until they recover or mature. We will continue to monitor the world and U.S. economy and the capital markets throughout the remainder of 2020 to determine if any impairment is required. The majority of the unrealized losses are related to our CLOs. CLOs are typically illiquid and are intended to be held to maturity thus risk of loss is minimal. The Company has monitored the underlying unrealized losses and believes they pose little chance of loss in the long-term due to the quality of the underlying credits. American Life has treaties with two reinsurance companies that have funds withheld and modified coinsurance provisions. Under these provisions, the assets backing the treaties are maintained by American Life as collateral but the assets and the total return on the asset portfolios are owned by the reinsurers. The mortgage loans and CLOs primarily make up that asset portfolio. Under GAAP, these assets are considered embedded derivatives. The impact of these embedded derivatives is shown below in Note 6 Derivative investments. The amortized cost and estimated fair value of fixed maturities at March 31, 2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. No securities due in the next year are in an unrealized loss position, further supporting management’s decision not to recognize an other-than-temporary impairment. Amortized Estimated Cost Fair Value Due in one year or less $ 202,956 $ 204,177 Due after one year through five years 3,284,845 3,281,374 Due after five years through ten years 27,511,001 23,467,777 Due after ten years through twenty years 109,927,220 88,586,999 Due after twenty years 11,413,425 10,292,536 $ 152,339,447 $ 125,832,863 The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At March 31, 2020 and December 31, 2019, these required deposits had a total amortized cost of $3,361,830 and $3 ,611,292 and fair values of $3,486,914 and $3,612,844, respectively. The following table presents a reconciliation of the beginning balance for investments measured at fair value on a recurring basis using Level 3 inputs at March 31, 2020 and December 31, 2019: Carrying Value Interest Income Interest Income March 31, 2020: Industrial $ 500,000 $ 2,708 $ 8,215 Commercial mortgage loan - multi-family 46,423,549 348,699 652,708 Other 2,059,073 18,251 49,633 Total mortgage loans $ 48,982,622 $ 369,658 $ 710,556 December 31, 2019: Industrial $ 500,000 $ — $ 15,889 Commercial mortgage loan - multi-family 11,320,924 116,860 329,684 Other 1,989,117 195,168 7,386 Total mortgage loans $ 13,810,041 $ 312,028 $ 352,959 American Life has treaties with two third-party reinsurers that have funds withheld and modified coinsurance provisions. Under those provisions, the mortgage loans backing the treaties are maintained by American Life as collateral but the assets and total returns or losses on the asset portfolios belong to the reinsurers; therefore, the Company derives minimal investment income from these mortgages. The components of net investment income for the three months ended March 31, 2020 and 2019 are as follows: Three months ended March 31, 2020 2019 Fixed maturities $ 1,167,614 $ 195,691 Mortgage loans 2,524 — Other — 1,244 Gross investment income 1,170,138 196,935 Less: refund received on investment expenses (investment expense) 70,840 (5,940) Investment income, net of expenses $ 1,240,978 $ 190,995 Proceeds for the three months ended March 31, 2020 and 2019 from sales of investments classified as available-for-sale were $3,852,943 and $360,600, respectively. Gross gains of $149,548 and $1,624 and gross losses of $24,832 and $6,021 were realized on those sales during the three months ended March 31, 2020 and 2019, respectively. |
Derivative Instruments
Derivative Instruments | 3 Months Ended |
Mar. 31, 2020 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Instruments | Note 6. Derivative Instruments The Company entered into derivative instruments to hedge fixed indexed annuity 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. However, these derivatives are not designated as hedge under GAAP. American Life has treaties with two reinsurance companies that have funds withheld and modified coinsurance provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral and are carried on the balance sheet for A but are owned by the reinsurer, thus, the total return on the asset portfolio belongs to the reinsurers. Under GAAP this is considered an embedded derivative. However, this embedded derivative is not designated as a hedge under GAAP. The following is a summary of the asset derivatives not designated as hedges and embedded derivatives in our FIA product as of March 31, 2020 and December 31, 2019: March 31, 2020 December 31, 2019 Location in the Derivatives Not Designated Consolidated Statement Notional Number of Estimated Notional Number of Estimated as Hedging Instruments of Balance Sheets Amount Contracts Fair Value Amount Contracts Fair Value Equity-indexed options Derivatives $ 24,097,066 54 $ 463,330 $ 9,698,863 24 $ 575,294 Equity-indexed embedded derivative Deposit-type contracts 24,374,089 243 561,759 10,720,324 108 576,634 Due to significant price decreases in the capital markets because of the COVID-19 pandemic, our securities positions resulted in a substantial unrealized loss at March 31, 2020, reported in accumulated other comprehensive loss on the balance sheet. The following table summarizes the impact of those embedded derivatives related to the Funds Withheld provision where the total return on the asset portfolio belongs to the reinsurers: March 31, 2020 Book Value of Market Value of Total Return Portfolio Assets Assets Swap Value Ironbound $ 97,863,315 $ 78,198,346 $ 19,664,969 SDA 17,756,548 14,182,598 3,573,950 Total $ 115,619,863 $ 92,380,944 $ 23,238,919 This was recorded as an increase in our amounts recoverable from reinsurers of $23,238,919 on our balance sheet and a realized gains of $23,238,919 on our income statement. |
Fair Values of Financial Instru
Fair Values of Financial Instruments | 3 Months Ended |
Mar. 31, 2020 | |
Investments, All Other Investments [Abstract] | |
Fair Values of Financial Instruments | Note 7. Fair Values of Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: · Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. · Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. · Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur. A description of the valuation methodologies used for assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Level 1 measurements Cash: The carrying value of cash and cash equivalents and short-term investments approximate the fair value because of the short maturity of the instruments. Level 2 measurements Fixed maturities: Fixed maturities are recorded at fair value on a recurring basis utilizing a third-party pricing source. The valuations are reviewed and validated quarterly through random testing by comparisons to separate pricing models or other third party pricing services. For the period ended March 31, 2020, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third party prices were changed from the values received. Derivatives: Derivatives are reported at fair market value utilizing a third-party pricing source. Investment escrow: The Company held in escrow as of December 31, 2019, cash that was used to settle a mortgage loan that did not close until January 2020. Level 3 measurements Mortgage loans on real estate, held for investment: Mortgage loans are carried at their unpaid principal value as there are no traded market values for these loans. Other invested assets: Short-term equipment leases are carried at their principal value as there are no traded market values for these leases. Preferred stock: The preferred stock investment was recorded at its principal value as there was no traded market values for this stock. Policy loans: Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value. Deposit-type contracts: The fair value for direct and assumed liabilities under deposit-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and nonperformance risk of the liabilities. The fair values for insurance contracts other than deposit-type contracts are not required to be disclosed. The following table presents the Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019. Significant Quoted Other Significant In Active Observable Unobservable Estimated Markets Inputs Inputs Fair (Level 1) (Level 2) (Level 3) Value March 31, 2020 Financial assets Fixed maturities: U.S. government obligations $ — $ 2,216,200 $ — $ 2,216,200 Mortgage-backed securities — 752,980 — 752,980 Asset-backed securities — 102,779,025 — 102,779,025 States and political subdivisions — general obligations — 251,233 — 251,233 States and political subdivisions — special revenue — 2,971,711 — 2,971,711 Corporate — 16,861,714 — 16,861,714 Total fixed maturities — 125,832,863 — 125,832,863 Mortgage loans on real estate, held for investment — — 48,982,622 48,982,622 Derivatives — 463,330 — 463,330 Investment escrow — — — — Other invested assets — — 2,796,352 2,796,352 Preferred stock — — 500,000 500,000 Total Investments $ — $ 126,296,193 $ 52,278,974 $ 178,575,167 Financial liabilities Embedded derivative for equity-indexed contracts $ — $ 561,759 $ — 561,759 December 31, 2019 Fixed maturities: — U.S. government obligations — 2,081,224 — 2,081,224 Mortgage-backed securities — 798,608 — 798,608 Asset-backed securities — 95,247,824 — 95,247,824 States and political subdivisions — general obligations — 249,282 — 249,282 States and political subdivisions — special revenue — 25,291 — 25,291 Corporate — 18,839,632 — 18,839,632 Total fixed maturities — 117,241,861 — 117,241,861 Mortgage loans on real estate, held for investment — — 13,810,041 13,810,041 Derivatives — 575,294 — 575,294 Investment escrow — 3,899,986 — 3,899,986 Other invested assets — — 2,468,947 2,468,947 Preferred stock — — 500,000 500,000 Total Investments $ — $ 121,717,141 $ 16,778,988 $ 138,496,129 Financial liabilities Embedded derivative for equity-indexed contracts $ — $ 576,634 $ — 576,634 There were no transfers of financial instruments between any levels during the three months ended March 31, 2020 or during the year ended December 31, 2019. Accounting standards require disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis are discussed above. There were no financial assets or financial liabilities measured at fair value on a non-recurring basis. The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy for financial assets and financial liabilities as of March 31, 2020 and December 31, 2019, respectively: March 31, 2020 Fair Value Measurements Using Quoted Prices in Active Markets Significant Other Significant for Identical Assets Observable Unobservable Carrying and Liabilities Inputs Inputs Fair Amount (Level 1) (Level 2) (Level 3) Value Assets: Policy loans $ 128,734 $ — $ — $ 128,734 $ 128,734 Cash 25,506,856 25,506,856 — — 25,506,856 Liabilities: Policyholder deposits (Deposit-type contracts) 220,462,679 — — 220,462,679 220,462,679 December 31, 2019 Fair Value Measurements Using Quoted Prices in Active Markets Significant Other Significant for Identical Assets Observable Unobservable Carrying and Liabilities Inputs Inputs Fair Amount (Level 1) (Level 2) (Level 3) Value Assets: Policy loans $ 106,014 $ — $ — $ 106,014 $ 106,014 Cash 43,716,205 43,716,205 — — 43,716,205 Liabilities: Policyholder deposits (Deposit-type contracts) 171,168,785 — — 171,168,785 171,168,785 The following tables present a reconciliation of the beginning balance for all investments measured at fair value on a recurring basis using level three inputs during the three months ended March 31, 2020. Beginning Ending Balance Realized Balance As of Gain/ As of December 31, 2019 Additions Sales (Loss) March 31, 2020 Assets Policy loans $ 106,014 $ 22,720 $ — $ — $ 128,734 Mortgage loans on real estate, held for investment 13,810,041 37,242,531 2,100,192 30,242 48,982,622 Other invested assets 2,468,947 2,458,792 2,131,387 — 2,796,352 Preferred stock 500,000 — — — 500,000 Total Investments $ 16,885,002 $ 39,724,043 $ 4,231,579 $ 30,242 $ 52,407,708 |
Income Tax Matters
Income Tax Matters | 3 Months Ended |
Mar. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Tax Matters | Note 8. Income Tax Matters Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2020 and December 31, 2019 are as follows: March 31, 2020 December 31, 2019 Deferred tax assets: Loss carryforwards $ 427,075 $ 436,777 Capitalized costs 210,030 221,918 Stock option granted 7,072 4,566 Unrealized losses on investments 5,568,896 — Policy acquisition costs 1,728,134 1,468,030 Charitable contribution carryforward 1,230 1,020 Property and equipment 23,362 15,508 Benefit reserves 1,338,072 848,643 Total deferred tax assets 9,303,871 2,996,462 Less valuation allowance (4,156,035) (2,618,741) Total deferred tax assets, net of valuation allowance 5,147,836 377,721 Deferred tax liabilities: Unrealized losses on investments 4,880,173 116,088 Due premiums 84,076 81,789 Intangible assets 147,000 147,000 Policy loans 36,587 32,844 Property and equipment — — Total deferred tax liabilities 5,147,836 377,721 Net deferred tax assets $ — $ — At March 31, 2020 and December 31, 2019, the Company recorded a valuation allowance of $4,156,035 and $2,618,741, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. There was income tax expense of $407,916 for the three months ended March 31, 2020 and no income tax expense for the three months ended March 31, 2019. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to pretax income, as a result of the following: Three months ended March 31, 2020 2019 Computed expected income tax benefit $ 4,610,839 $ (313,954) Increase (reduction) in income taxes resulting from: Meals, entertainment and political contributions 2,611 2,583 Change in valuation allowance (4,147,690) 234,398 Other (57,844) 76,973 Subtotal of increases (4,202,923) 313,954 Tax expense (benefit) 407,916 — Section 382 of the Internal Revenue Code limits the utilization of U.S. net operating loss (“NOL”) carryforwards following a change of control, which occurred on June 28, 2018. As of March 31, 2020, the deferred tax assets included the expected tax benefit attributable to federal NOLs of $1,896,207. The federal NOLs generated prior to June 28, 2018 which are subject to Section 382 limitation can be carried forward. If not utilized, the NOLs of $890,636 prior to 2017 will expire through the year of 2032, and the NOLs generated from June 28, 2018 to March 31, 2020 do not expire and will carry forward indefinitely, but their utilization in any carry forward year is limited to 80% of taxable income in that year. Loss carry forwards for tax purposes as of March 31, 2020, have expiration dates that range from 2024 through 2039. |
Reinsurance
Reinsurance | 3 Months Ended |
Mar. 31, 2020 | |
Reinsurance Disclosures [Abstract] | |
Reinsurance | Note 9. Reinsurance A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 is as follows: March 31, 2020 December 31, 2019 Balance sheets: Benefit and claim reserves ceded $ 51,200,947 $ 30,579,524 Three months ended March 31, 2020 2019 Statements of comprehensive income: Premiums ceded 231,674 273,101 Benefits ceded 31,287 77,703 Commissions ceded 3,108 2,914 The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by reinsurers except for a reinsurance with Unified as it was accounted for as discontinued operations: Recoverable on Total Amount Recoverable Recoverable Benefit Ceded Recoverable AM Best on Paid on Unpaid Reserves/Deposit- Due from Reinsurer Rating Losses Losses type Contracts Premiums Reinsurer Ironbound Reinsurance Company Limited NR $ — $ — $ 21,325,367 $ — $ 21,325,367 Optimum Re Insurance Company A — — 479,884 — 479,884 Sagicor Life Insurance Company A- — 134,417 11,367,938 267,808 11,234,546 SDA Annuity & Life Re NR — — 5,761,090 — 5,761,088 US Alliance Life and Security Company NR — — 12,458,766 58,704 12,400,062 $ — $ 134,417 $ 51,393,045 $ 326,512 $ 51,200,947 Due to the volatility of the markets resulting from the COVID-19 pandemic, certain assets that were carried on our balance sheet have resulted in approximately $27 million of unrealized losses. American Life has treaties with two third-party reinsurers that have funds withheld and modified coinsurance provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral but the assets and total returns or losses on the asset portfolios belong to the reinsurers. Under GAAP this arrangement is considered an embedded derivative as discussed in Note 6. As a result of the COVID-19 pandemic, the assets had unrealized losses of approximately $23.2 million as of March 31, 2020. The terms of the contracts with the third party reinsurers provide that unrealized losses on the portfolios accrue to the reinsurers. We account for this loss pass through by recording equivalent realized gains on our income statement. Accordingly, the unrealized losses on the assets held by American Life were offset by a gain in the embedded derivative of $23.2 million. The remaining unrealized loss of approximately $3.3 million related to the investments retained by American Life primarily in CLOs. The CLOs have unique characteristics, including being typically illiquid and usually intended by us to be held to term. Effective November 7, 2019, American Life entered into a Funds Withheld Coinsurance and Modified Coinsurance Agreement (“FW/Modco SDA Agreement”) with SDA Annuity & Life Re (“SDA”), a Cayman Islands-domiciled reinsurance company. In a modified coinsurance arrangement (“Modco”), the ceding entity retains the assets equal to the modified coinsurance reserves retained. In a funds withheld coinsurance agreement (“FW”), assets that would normally be paid over to a reinsurer are withheld by the ceding company to permit statutory credit for unauthorized reinsurance, to reduce the potential credit risk. Under the FW/Modco SDA Agreement, American Life cedes to SDA, on a funds withheld coinsurance and modified coinsurance basis, (5%) quota share of certain liabilities with respect to its multi-year guaranteed annuity (“MYGA”) business and an initial ninety-five (95%) quota share of certain liabilities with respect to its fixed indexed annuity (“FIA”) through December 31, 2019 and thirty (30%) through March 31, 2020. American Life has established two accounts to hold the assets for the FW/Modco Agreement, a Funds Withheld Account and a Modco Deposit Account. In addition, a trust account was established on November 7, 2019 among American Life, SDA and Wells Fargo Bank, National Association for the sole benefit of American Life to fund the SDA Funds Withheld Account and the SDA Modco deposit account for any shortage in required reserves. The initial settlement included net premium income of $3,970,509 and net statutory reserves of $3,986,411. The initial settlement for the Funds Withheld Account was $2,256,802 and for the Modco Deposit Account was $1,504,535 and the reserves required was $2,391,847 and $1,594,564, respectively. The amount owed to the Funds Withheld Account and the Modco Deposit Account from the trust account was $135,044 and $90,029, respectively which was funded at the closing of the SDA transaction. American Life earned a ceding commission of $298,982 and $996,701 and commission and administrative allowances of $548,464 and $1,734,184 as of March 31, 2020 and December 31, 2019, respectively. The commission and administrative allowances of $548,464 and $1,734,184 first reduced costs that would have been deferred acquisitions costs incurred and the remainder of the allowances were classified as deferred ceding commissions along with the $298,982 and $996,701 ceding commission earned as of March 31, 2020 and December 31, 2019, respectively. Effective July 25, 2019, American Life entered into a Funds Withheld Coinsurance and Modified Coinsurance Agreement (“FW/Modco Ironbound Agreement”) with Ironbound Reinsurance Company Limited, an unaffiliated reinsurance company organized under the laws of Barbados (“Ironbound”). Under the FW/Modco Ironbound Agreement, American Life ceded to Ironbound, on a funds withheld coinsurance and modified coinsurance basis, an initial ninety-five (95%) quota share of certain liabilities with respect to its MYGA business. Starting on March 1, 2020, the quota share dropped to (30%) and then again on March 11, 2020 the quota share dropped to (0%). American Life has established two accounts to hold the assets for the FW/Modco Ironbound Agreement, a Funds Withheld Account and a Modco Deposit Account. In addition, a trust account was established on June 30, 2019 among American Life, Ironbound and Wells Fargo Bank, National Association for the sole benefit of American Life to fund the Funds Withheld Account and the Modco Deposit Account for any shortage in required reserves. The initial settlement included net premium income of $45,005,536 (gross premiums of $46,568,321 minus gross commissions paid of $1,562,786) and net statutory reserves of $47,271,267. The initial settlement for the Funds Withheld Account was $24,928,934 and for the Modco Deposit Account was $16,619,289 and the reserves required was $26,944,622 and $17,963,081, respectively. The amount owed to the Funds Withheld Account and the Modco Deposit Account from the trust account was $2,015,688 and $1,343,792, respectively which was funded at the closing of the Ironbound transaction. American Life earned a ceding commission of $674,645 and $4,843,120 and commission and administrative allowances of $673,612 and $4,734,926 as of March 31, 2020 and December 31, 2019, respectively. The commission and administrative allowances of $673,612 and $4,734,926 first reduced costs that would have been deferred acquisitions costs incurred and the remainder of the allowances were classified as deferred ceding commissions along with the $674,645 and $4,843,120 ceding commission earned as of March 31, 2020 and December 31, 2019, respectively. At March 31, 2020 and December 31, 2019 total benefit reserves, policy claims, deposit-type contracts, and due premiums ceded by American Life to Sagicor were $11,234,546 and $11,208,227, respectively. At March 31, 2020 and December 31, 2019, total benefit reserves, policy claims, deposit-type contracts, and due premiums ceded by American Life to US Alliance were $12,400,062 and $12,160,917, respectively. American Life remains contingently liable on the ceded reinsurance should Sagicor or US Alliance be unable to meet their respective obligations. At March 31, 2020 and December 31, 2019, total deposit-type contract ceded by American Life to Ironbound were $21,325,367 and $4,213,699, respectively. At March 31, 2020 and December 31, 2019, total deposit-type contract ceded by American Life to SDA were $5,761,088 and $2,506,911, respectively. The use of reinsurance does not relieve American Life of its primary liability to pay the full amount of the insurance benefit in the event of the failure of a reinsurer to honor its contractual obligation for all blocks of business except what is included in the Unified transaction. The reinsurance agreement with Unified discharges American Life’s responsibilities once all the policies have changed from indemnity to assumptive reinsurance. No reinsurer of business ceded by American Life has failed to pay policy claims (individually or in the aggregate) with respect to our ceded business. American Life monitors several factors that it considers relevant to satisfy itself as to the ongoing ability of a reinsurer to meet all obligations of the reinsurance agreements. These factors include the credit rating of the reinsurer, the financial strength of the reinsurer, significant changes or events of the reinsurer, and any other relevant factors. If American Life believes that any reinsurer would not be able to satisfy its obligations with American Life, separate contingency reserves may be established. At March 31, 2020 and December 31, 2019, no contingency reserves was established. |
Notes Payable
Notes Payable | 3 Months Ended |
Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Notes Payable | Note 10. Notes Payable On June 28, 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 dated May 9, 2018 (the “Agreement”) with a non-affiliated third party, Xenith. Vespoint LLC, a Delaware limited liability company (“Vespoint”), owns 100% of the voting stock of Xenith. Vespoint is owned and managed by AMS Advisors LLC, a Delaware limited liability company, and Rendezvous Capital LLC, a New York limited liability company. Each of these three companies is a private investment company; they are controlled by Michael Minnich and A. Michael Salem, who are Co-Chief Executive Officers of Vespoint and Executive Officers of Midwest and American Life. At closing of the Agreement with Xenith, it loaned a total of $600,000 to Midwest, repayable upon maturity in 10 years with interest of 8% per annum with 4% payable quarterly and another 4% accrued and payable upon maturity. The loans were made under two notes of $500,000 and $100,000, respectively. The Agreement further provided that Xenith, in its sole discretion, could loan up to an additional $23,500,000 to Midwest. Any loans made by Xenith under this election (“Subsequent Loans”) could also to be converted into Midwest’s voting common stock at $0.02 per share. Xenith contributed an additional $18,500,000 in the fourth quarter of 2018 following the amendment of the Midwest Articles of Incorporation to increase its authorized voting common shares to 1,970,000,000. All loans were later converted into Midwest voting common stock on June 18, 2019. Any additional borrowing capacity was terminated by written mutual consent in April 2020. The Company had total accrued interest of $845,536 on the Xenith notes through June 18, 2019. All interest on the notes from inception through June 18, 2019 was waived by Xenith. The accrued interest was accounted for as an additional capital contribution. The legal fees of $161,000 associated with the Xenith transaction were capitalized and subsequently written off when the notes were converted. The following table sets forth information regarding loans made to us by Xenith through June 18, 2019 and the number of shares of voting common stock each loan was converted into on June 28, 2019: Shares of Common Loan Stock into which Principal Loans Were Date of Loan Amount Converted June 28, 2018 $ 500,000 24,284,825 June 28, 2018 100,000 4,856,965 October 10, 2018 1,000,000 48,569,650 December 7, 2018 17,500,000 849,968,875 Total $ 19,100,000 927,680,315 As of March 31, 2020, Midwest had no notes outstanding to Xenith. |
Long Term Incentive Plan
Long Term Incentive Plan | 3 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Long Term Incentive Plan | Note 11. Long-Term Incentive Plan On June 11, 2019, our Board of Directors (the “Board”) approved the Midwest Holding Inc. Long-Term Incentive Plan. The purposes of this Long-Term Incentive Plan (“LTIP”) is to create incentives which are designed to motivate participants to put forth maximum effort toward the success and growth of the Company and to enable the Company to attract and retain experienced individuals who by their position, ability and diligence are able to make important contributions to the Company’s success. Toward these objectives, this Plan provides for the grant of Options, Restricted Stock Awards, Restricted Stock Units, SARs, Performance Units, Performance Bonuses, Stock Awards and Other Incentive Awards to Eligible Employees and the grant of Nonqualified Stock Options, Restricted Stock Awards, Restricted Stock Units, SARs, Performance Units, Stock Awards and Other Incentive Awards to Consultants and Eligible Directors, subject to the conditions set forth in this Plan. All awards are required to be established, approved and/or granted by our Board. On July 19, 2019, the Company granted stock options for 8,950,000 shares at an exercisable during a ten year period after the date of grant at a price of $0.05 per share with one-third exercisable after July 17, 2021 and two-thirds exercisable after July 17, 2023. The fair market value of the shares was approximately $0.016 a share at grant date. The Company’s management team considered the stock options as compensation. Using the Black-Scholes Model we determined the consideration should be $143,200. The factors we used to determine the consideration were the following: the weighted average fair market value at grant date of $0.016 a share, exercise price of $0.05 a share, time to maturity of 10 years, annual risk-free interest rate of 1.84% based upon the 10 year U.S. Treasury rate at grant date, and a 200% volatility based on the change in price of the stock between the decision and grant date, the amount of shares and the closely held nature of the stock before the grant. As of March 31, 2020, we have amortized the consideration over the two and four year vesting tranches for an expense and additional paid in capital of $11,933. As of March 31, 2020, and December 31, 2019, the cumulative amortization and additional paid in capital was $33,678 and $21,745, respectively. No options had been or forfeited as of March 31, 2020 or December 31, 2019. |
Deposit-Type Contracts
Deposit-Type Contracts | 3 Months Ended |
Mar. 31, 2020 | |
Separate Accounts Disclosure [Abstract] | |
Deposit-Type Contracts. | Note 12. Deposit-Type Contracts The Company’s deposit-type contracts represent the contract value that has accrued to the benefit of policyholders as of the balance sheet date. Liabilities for these deposit-type contracts are included without reduction for potential surrender charges. This liability is equal to the accumulated account deposits, plus interest credited, and less policyholder withdrawals. The following table provides information about deposit-type contracts for the three months ended March 31, 2020 and the year ended December 31, 2019: March 31, 2020 December 31, 2019 Beginning balance $ 171,168,785 $ 7,234,927 US Alliance 190,802 657,986 Ironbound Reinsurance Company Limited — 1,839,551 SDA Annuity & Life Re (includes MVA adjustment and embedded derivative) — 194,940 Deposits received 47,815,010 161,392,700 Investment earnings (includes MVA adjustment and embedded derivative) 1,474,771 9,271 Withdrawals (186,689) (160,590) Ending balance $ 220,462,679 $ 171,168,785 |
Contingencies and Commitments
Contingencies and Commitments | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contingencies and Commitments | Note 13. Contingencies and Commitments Legal Proceedings: We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of our business, and we are not aware of any claims that could materially affect our financial position or results of operations. Regulatory Matters : State regulatory bodies and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning the Company’s compliance with laws in relation to, but not limited to, insurance and securities matters. American Life received a Certificate of Authority to conduct business in Iowa during the first quarter of 2019. American Life received a Certificate of Authority to conduct business during 2020 from each of the following states: Utah, Montana, Louisiana, Ohio, and the District of Columbia. American Life has pending applications six additional states that are expected to be approved by the end of 2020. The Nebraska Department of Insurance (“NDOI”) granted American Life approval to enter into the Funds Withheld Coinsurance and Modified Coinsurance Agreement with Ironbound prior to closing of the agreement in July 2019. The NDOI granted American Life approval to enter into the Funds Withheld Coinsurance and Modified Coinsurance Agreement with SDA prior to closing of the agreement in December 2019. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Leases | Note 14. Leases Our operating lease activities consist of leases for office space and equipment. Our finance lease activities consist of leases for hardware which we will own at the end of the lease agreement. None of our lease agreements include variable lease payments. See the discussion of our January 1, 2019 implementation of a new accounting standard for leases and its impact on our Consolidated Financial Statements in Note 2. New Accounting Standards. Supplemental balance sheet information as of March 31, 2020 regarding our leases is as follows: As of As of Leases Classification March 31, 2020 December 31, 2019 Assets Noncurrent: Finance Office and other equipment, net of accumulated depreciation and amortization $ — $ 2,913 Operating Operating lease right-of-use assets 439,648 470,132 Total leased assets $ 439,648 $ 473,045 Liabilities Current: Finance lease Finance lease liabilities $ — $ 1,860 Noncurrent: Operating lease Operating lease liabilities 492,730 524,248 Total leased liabilities $ 492,730 $ 526,108 Our operating and finance leases expenses for the three months ended March 31, 2020 and 2019, were as follows: Three months ended March 31, Leases Classification 2020 2019 Operating General and administrative expense $ 2,092 $ 3,766 Finance lease cost: Amortization expense 2,913 2,914 Interest expense 111 111 Minimum contractual obligations for our operating leases at March 31, 2020, are as follows: Operating Leases 2020 (excluding three months ended March 31, 2020) $ 121,279 2021 164,081 2022 156,608 2023 161,674 2024 13,508 Total remaining lease payments $ 617,150 Supplemental cash flow information related to leases was as follows: Three months ended March 31, 2020 2019 Cash payments Operating cash flows from operating leases $ (1,035) $ 232 Operating cash flows from finance leases 1,164 1,165 Financing cash flows from finance leases (111) (111) The weighted average remaining lease terms and discount rate of our finance and operating leases was follows: As of As of March 31, 2020 December 31, 2019 Weighted Average Remaining Lease Term Finance lease — 3 months Operating lease 2.2 years 2.5 years Weighted Average Discount Rate Finance lease Operating lease |
Statutory Net Income and Surplu
Statutory Net Income and Surplus | 3 Months Ended |
Mar. 31, 2020 | |
Statutory Net Income and Surplus [Abstract] | |
Statutory Net Income and Surplus | Note 15. Statutory Net Income and Surplus American Life is required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Nebraska Department of Insurance. Statutory practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. As filed in the statutory-basis annual statement with the Nebraska Department of Insurance, American Life’s statutory net gains (losses) for the three months ended March 31, 2020 and 2019 were $423,474 and $(1,308,563), respectively. Capital and surplus of American Life as of March 31, 2020 and December 31, 2019 was $18,504,524 and $19,507,325, respectively. The net gain was primarily due to the ceding commission and reserve adjustments earned on the Ironbound and SDA reinsurance transactions; offset by continuing expenses incurred to provide services on new software and related technology to distribute products through national marketing organizations. For the quarter ended March 31, 2020, the MYGA and FIA sales were $31,565,506 and $16,249,504 compared to the $8,292,617 of MYGA sales as of March 31, 2019. An additional $8,092,612 of MYGA and $6,786,557 of FIA sales were pending as of March 31, 2020. As discussed in Note 9 Reinsurance above, American Life entered into the FW/Modco Agreement with Ironbound to cede 95% of American Life’s MYGA business. On March 1, 2020, the quota share ceded to Ironbound was reduced to 30% and on March 11, 2020 the quota share was further reduced to 0%. Premiums net of commissions and ceding commission and administrative fees ceded to Ironbound were $17,757,301 and $128,760,161 and the reserve requirement of $20,701,016 and $139,093,289 was ceded to Ironbound as of March 31, 2020 and December 31, 2019, respectively. Also included in Note 9. Reinsurance above, American Life entered into the FW/Modco Agreement with SDA to cede 5% of the MYGA and 95% of the FIA business through December 31, 2019. Effective January 1, 2020, the FIA quota share was reduced to 30%. Premiums net of commissions and ceding commission and administrative fees ceded to SDA were $5,427,396 and $18,984,045 and the reserve requirements of $6,111,782 and $20,822,364 were ceded to SDA for the quarter ended March 31, 2020 and the year ended December 31, 2019. State insurance laws require American Life to maintain certain minimum capital and surplus amounts on a statutory basis. Our insurance subsidiary is subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from its domiciliary insurance regulatory authorities. American Life is also subject to risk-based capital (“RBC”) requirements that may further affect its ability to pay dividends. American Life’s statutory capital and surplus as March 31, 2020 and December 31, 2019, exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements. As of March 31, 2020, and December 31, 2019, American Life did not hold any participating policyholder contracts where dividends were required to be paid. |
Third Party Administration
Third Party Administration | 3 Months Ended |
Mar. 31, 2020 | |
Related Party Transactions [Abstract] | |
Third Party Administration | Note 16. Third Party Administration The Company commenced its third party administrative (“TPA”) services in 2012 as an additional revenue source. These services are offered to non-affiliated entities. These agreements, for various levels of administrative services on behalf of each company, generate fee income for the Company. Services provided vary based on their needs and can include some or all aspects of back-office accounting and policy administration. We have been able to perform our TPA services using our existing in-house resources. Fees earned during the three months ended March 31, 2020 and 2019 amounted to $8,160 and $15,540, respectively. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 17. Subsequent Events COVID-19 Pandemic Beginning in March 2020, the global pandemic associated with novel COVI-19 and related economic conditions began to impact the Company’s results. Due to the unprecedented volatility in the economy related to COVID-19, the Company’s available for sale assets values were reduced by approximately $26.5 million and was reflected in the accumulated other comprehensive income on the balance sheet. This was offset by a realized gain of $23.2 million on the related embedded derivative. Also, the derivative assets were reduced by $679,000 and were reflected in our realized gains and losses in the income statement. Approximately 80% of the unrealized losses were in our CLO portfolio and are typically illiquid which are intended to be held to maturity, thus we believe the risk of loss is not significant. The Company has monitored the underlying unrealized losses and believe they pose little threat in the long-term due to the quality of the underlying credits. We believe that the quality and duration of our investments provide reasonable assurance of continued performance of the portfolio despite the recent economic volatility. As mentioned above in Items Impacting Comparability, the assets backing the treaties are maintained by American Life as collateral whereas the assets and total return on the asset portfolios are owned by the reinsurers. The Company has only contingent exposure to these losses as the CLO’s are held as collateral in and funds withheld and modification coinsurance accounts for the performance of the reinsurers under the coinsurance treaties. The reinsurer bears the risk of loss. Under GAAP, this arrangement is considered an embedded derivative as discussed in Note 6 to our consolidated financial statements. The COVD-19 pandemic has not materially impacted our sales of our annuity products as evidenced by new sales of $47.8 million in issued premium and pending applications of $14.9 million. Our policies sold have surrender charges over their duration that would tend to offset future income accruals. Operationally, the Company has the vast majority of its workforce working remotely with a skeleton crew in the office. Our technology has allowed us to move to this work environment without a reduction in our productivity. The Company’s business continuity plan has performed as expected. The Company’s management will continue to monitor our investments and cash flows to evaluate the impact as this pandemic evolves. On April 7, 2020, the Nebraska Department of Insurance (“NDOI”) approved the Funds Withheld and Funds Paid Coinsurance Agreement (“US Alliance Agreement”) between American Life and US Alliance Life and Security Company, a Kansas reinsurance company (“US Alliance”). The US Alliance Agreement closed on April 15, 2020. Under the US Alliance Agreement, American Life will cede to US Alliance, on a funds withheld and funds paid coinsurance basis, an initial forty-nine percent (49%) quota share of certain liabilities with respect to American Life’s FIA business effective January 1, 2020 through March 31, 2020. Effective from March 1, 2020 through March 10, 2020, American Life will cede a forty-five point five percent (45.5%) quota share of certain liabilities with respect to its MYGA business to US Alliance. Effective March 11, 2020 through March 31, 2020, on a funds withheld and funds paid coinsurance basis, the quota share will increase to sixty-six point five percent (66.5%) of certain liabilities with respect to its MYGA business. Effective April 1, 2020, the FIA quota share was reduced to forty (40%) and the MYGA quota share was reduced to twenty-five percent (25%). American Life has established a US Alliance Funds Withheld Account to hold the assets for the US Alliance Agreement. The NDOI approved the inclusion of the US Alliance coinsurance in American Life’s March 31, 2020 statutory financials. Effective March 12, 2020, Seneca Reinsurance Company, LLC (“Seneca Re”), a Vermont limited liability company was formed to operate as a sponsored captive insurance company for the purpose of insuring and reinsuring various types of risks of its participants through one or more protected cells and to carry on and conduct any other business or activity that is permitted for sponsored captive insurance companies under Vermont regulations. On March 30, 2020, Seneca Re received its Certification of Authority to transact the business of a captive insurance company. On May 12, 2020, Midwest contributed $300,000 to Seneca Re for a 100% ownership in it. On April 15, 2020, Midwest entered into an operating agreement with Seneca Re. On May 13, 2020 the Nebraska Department of Insurance (“NDOI”) approved the Funds Withheld and Modified Coinsurance Agreement (“Seneca Re Agreement”) between American Life and Seneca Re, which is entering into this Seneca Re Agreement by and through Protected Cell 2020-01 (“SRC1”). The Seneca Re Agreement closed on May 13, 2020. Under the Seneca Re Agreement, American Life will cede to SRC1, on a funds withheld and modified coinsurance basis, an initial twenty-one percent (21%) quota share of certain liabilities with respect to American Life’s FIA business effective January 1, 2020 through March 31, 2020. Effective from March 1, 2020 through March 10, 2020, American Life will cede a nineteen point five percent (19.5%) quota share of certain liabilities with respect to its MYGA business to SRC1. Effective March 11, 2020 through March 31, 2020, on a funds withheld and funds paid coinsurance basis, the quota share will increase to twenty-eight point five percent (28.5%) of certain liabilities with respect to its MYGA business. Effective April 1, 2020, the FIA quota share was increased to forty-five (45%) and the MYGA quota share was increased to seventy-two point five percent (72.5%). American Life has established a SRC1 Funds Withheld Account to hold the assets for the Seneca Re Agreement. The NDOI approved the inclusion of the SRC1 coinsurance in American Life’s March 31, 2020 statutory financials. On April 24, 2020, the Company entered into a Securities Purchase Agreement with Xenith, Vespoint LLC, and Crestline Assurance Holdings LLC, a Delaware limited liability company (“Crestline”). Pursuant to the Agreement, Crestline purchased 222,222,222 shares of the Company’s voting common stock, par value $0.001 per share, at a purchase price of $0.045 per share for $10 million. Also on April 24, 2020, in a separate transaction, the Company sold 115,044,467 shares of common stock to various investors at $0.045 per share for $5.177 million. Midwest will contribute $5 million of proceeds received under this agreement to American Life. The remaining proceeds will be used by the Company for general working capital and corporate purposes. For more information, see the Current Report on Form 8-K that was filed with the Securities and Exchange Commission on April 24, 2020. |
Nature of Operations and Basi_2
Nature of Operations and Basis of Presentation (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Nature of operations | Nature of Operations Midwest Holding Inc. (“Midwest,” “the Company,” “we,” “our,” or “us”) was incorporated in Nebraska on October 31, 2003 for the primary purpose of operating a financial services company. The Company is in the life and annuity insurance business and operates through its wholly owned subsidiary, American Life & Security Corp. (“American Life”). As discussed in Note 3, on June 28, 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 dated May 9, 2018 with a non-affiliated third party, Xenith Holdings LLC, a Delaware limited liability company (“Xenith”). On April 2, 2019, we obtained a 51% ownership in 1505 Capital, a Delaware limited liability company, that was established in 2018 to provide financial and investment advisory and management services to clients and related investment activities. 1505 Capital’s financial results are consolidated with the Company’s from the date of its acquisition. Management evaluates the Company as one reporting segment in the life insurance industry. The Company is primarily engaged in the underwriting and marketing of annuity products and life insurance through American Life. The product offerings, the underwriting processes, and the marketing processes are similar. The Company’s historical product offerings consisted of a multi-benefit life insurance policy that combined cash value life insurance with a tax deferred annuity and a single premium term life product. These product offerings were underwritten, marketed, and managed as a group of similar products on an overall portfolio basis. The American Life presently offers two products, a multi-year guaranteed annuity ("MYGA") and a fixed indexed annuity (“FIA”). |
Basis of presentation | Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions from the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10‑Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019 (“2019 Form 10‑K”), should be read in connection with the reading of these interim unaudited consolidated financial statements. Certain GAAP policies that significantly affect the determination of financial condition, results of operations and cash flows, are summarized in our 2019 Form 10‑K. In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020. All intercompany accounts and transactions have been eliminated in consolidation and certain immaterial reclassifications have been made to the prior period results to conform to the current period’s presentation with no impact on results of operations or total stockholders’ equity. |
Investments | Investments All fixed maturities and a portion of the equity securities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value as of the financial statement date. Bond premiums and discounts are amortized using the scientific-yield method over the term of the bonds. Realized gains and losses on securities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in accumulated other comprehensive income. Declines in the fair value of available-for-sale securities below their amortized cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining if these losses are expected to be other-than-temporary, the Company considers severity of impairment, duration of impairment, forecasted recovery period, industry outlook, the financial condition of the issuer, issuer credit ratings, and the intent and ability of the Company to hold the investment until the recovery of the cost. The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the statement of comprehensive income as an other-than-temporary impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. The Company has analyzed the securities portfolio and determined that there was not an other-than-temporary impairment for the three months ended March 31, 2020. Investment income consists of interest, dividends, gains and losses from equity method investments, and real estate income, which are recognized on an accrual basis and amortization of premiums and discounts. |
Mortgage loans on real estate, held for investment | Mortgage loans on real estate, held for investment Mortgage loans on real estate, held for investment are carried at unpaid principal balances. Interest income on mortgage loans on real estate, held for investment is recognized in net investment income at the contract interest rate when earned. A mortgage loan is considered to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. Valuation allowances on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlements of mortgage loans, including foreclosures. The Company establishes valuation allowances for estimated impairments on an individual loan basis as of the balance sheet date. Such valuation allowances are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan’s original effective interest rate. These evaluations are revised as conditions change and new information becomes available. No such valuation allowance was established as of March 31, 2020. |
Investment escrow | Investment escrow The Company held in escrow as of December 31, 2019, cash used to settle a mortgage loan that closed in January 2020. As of March 31, 2020, the Company did not hold any cash related to investments in escrow. |
Other invested assets | Other invested assets The Company purchases and sells leases in its investment portfolio. As of March 31, 2020, the Company owned several lease investments. |
Derivative Instruments | Derivative Instruments Derivatives are used to hedge the risks experienced in our ongoing operations, such as equity, interest rate and cash flow risks, or for other risk management purposes, which primarily involve managing liability risks associated with our indexed annuity products and reinsurance agreements. Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or other underlying notional amounts. Derivative assets and liabilities are carried at fair value on the consolidated balance sheets. To qualify for hedge accounting, at the inception of the hedging relationship, we would formally document our designation of the hedge as a cash flow or fair value hedge and our risk management objective and strategy for undertaking the hedging transaction. In this documentation, we would identify how the hedging instrument is expected to hedge the designated risks related to the hedged item, the method that would be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method which would be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship. In the fourth quarter of 2019, the Company 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 our options that we currently have. We value our derivatives at fair market value with the offset being recorded on our income statement as a realized gain or (loss). Additionally, reinsurance agreements written on a funds withheld or modified coinsurance basis contain embedded derivatives on our fixed indexed annuity product. Gains or (losses) associated with the performance of assets maintained in the modified coinsurance deposit and funds withheld accounts are reflected as realized gains or (losses ) in the income statement. |
Preferred Stock | Preferred Stock Preferred stock of a non-affiliated company was purchased during the third quarter of 2019. The Company believes the cost of the preferred stock equals fair market value as of March 31, 2020. |
Policy loans | Policy loans Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value. |
Cash and cash equivalents | Cash and cash equivalents The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents. At March 31, 2020 and December 31, 2019, the Company had no cash equivalents. At March 31, 2020, the Company held approximately 1.0 million in Great British Pounds in cash in two of our custody accounts. The USD equivalent held was approximately $1.2 million. |
Deferred acquisition costs | Deferred acquisition costs Deferred acquisition costs (“DAC”) consist of incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions. Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which require an immediate review. The Company determined that no events occurred in the three months ended March 31, 2020 that suggest a review should be undertaken. |
Property and equipment | Property and equipment Property and equipment are stated at cost net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over 3 to 7 years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $10,316 and $9,506 for the three months ended March 31, 2020 and 2019, respectively. Accumulated depreciation totaled $985,796 and $975,480 as of March 31, 2020 and December 31, 2019, respectively. Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the three months ended March 31, 2020 that would indicate the carrying amounts may not be recoverable. |
Reinsurance | Reinsurance As indicated in our 2019 Form 10-K, reinsurance is an integral part of our business plan. We expect to reinsure substantially all of our new insurance policies with a variety of third party reinsurers in exchange for upfront ceding commissions, expense reimbursements and administrative fees. Under these reinsurance agreements, we expect there will be a monthly or quarterly settlement of premiums, claims, surrenders, collateral and other administration fees. We believe this will help preserve American Life’s capital while supporting its growth because American Life will have lower capital requirements when its business is reinsured due to lower overall financial exposure versus retaining the insurance policy business itself. There are two main categories of reinsurance transactions: 1) “indemnity,” where we cede a portion of our risk but retain the legal responsibility to our policyholders should our reinsurers not meet their financial obligations; and 2) “assumption,” where we transfer the risk and legal responsibilities to the reinsurers. The reinsurers are required to acquire the appropriate regulatory and policyholder approvals to convert indemnity policies to assumption policies. Our reinsurers may be domestic or foreign capital markets investors or traditional reinsurance companies seeking to assume U.S. insurance business. We plan to mitigate the credit risk relating to reinsurers generally by requiring other financial commitments from the reinsurers to secure the reinsured risks (such as posting substantial collateral). It should be noted that under indemnity reinsurance agreements American Life remains exposed to the credit risk of its reinsurers. If one or more reinsurers becomes insolvent or is otherwise unable or unwilling to pay claims under the terms of the applicable reinsurance agreement, American Life retains legal responsibility to pay policyholder claims, which, in such event would likely materially and adversely affect the capital and surplus of American Life. Some reinsurers are not and may not be “accredited” or qualified as reinsurers under Nebraska Law. In order to enter into reinsurance agreements with such reinsurers and to reduce potential credit risk, American Life may hold a deposit or withhold funds from the reinsurer or require the reinsurer to maintain a trust that holds assets backing up the reinsurer’s obligation to pay claims on the business it assumes. The reinsurer may also appoint an investment manager for such funds, which is some cases may be our investment adviser subsidiary, 1505 Capital, to manage these assets pursuant to guidelines adopted by us that are consistent with state investment statutes and reinsurance regulations. American Life has treaties with two third-party reinsurers that have funds withheld provisions. Under those provisions, the assets backing the treaties are maintained by American Life as investments but the assets and total returns or losses on the investments are owned by the reinsurers. Under GAAP this arrangement is considered an embedded derivative as discussed in Note 6 to our consolidated financial statements above. As a result of recent market volatility, assets carried as investments on American Life’s financial statements for the third-party reinsurers contained unrealized losses of approximately $23.2 million as of March 31, 2020. The terms of the contracts with the third party reinsurers provide that unrealized losses on the portfolios accrue to the reinsurers. We account for this loss pass through by recording equivalent realized gains on our income statement. Accordingly, the unrealized losses on the assets held by American Life were offset by a gain in the embedded derivative of $23.2 million. American Life currently has five reinsurance agreements in effect and has earned ceding commissions on four out of those agreements. See Note 9 to the consolidated financial statements in this report for further information on each of our reinsurance agreements. The table below shows the ceding commissions earned on the four most recent reinsurance transactions where American Life is earning ceding commissions on a statutory accounting principles basis: Three months ended March 31, 2020 2019 Reinsurer Effective Date Ceding Expense (1) Ceding Expense (1) US Alliance Life and Security Company September 2017 $ 15,262 $ — $ 15,262 $ — Unified Life Insurance Company July 2018 60,609 — 702,788 — Ironbound Reinsurance Company Limited July 2019 674,645 673,612 — — SDA Annuity & Life Re November 2019 298,982 548,464 — — $ 1,049,498 $ 1,222,076 $ 718,050 $ — (1) Includes: acquisition and administrative expenses, commission expense allowance and product development fees. Under GAAP, the ceding commission is deferred on the balance sheet and are amortized over the period of the policyholder contracts. The tables below shows the ceding commissions from the reinsurers and what was earned on a GAAP accounting basis: Three months ended March 31, 2020 2019 Reinsurer Gross Ceding Commission Expense (1) Commissions and Acquisition Expenses Interest on Ceding Commissions Earned Earned US Alliance Life and Security Company $ - $ - $ - $ - $ 12,094 $ 25,816 Unified Life Insurance Company - - - - 67,451 780,231 Ironbound Reinsurance Company Limited 674,645 673,612 615,111 53,602 95,740 — SDA Annuity & Life Re 298,982 548,464 503,207 12,966 7,153 — $ 973,627 $ 1,222,076 $ 1,118,318 $ 66,568 $ 182,438 $ 806,047 (1) Includes: acquisition and administrative expenses, commission expense allowance and product development fees. The tables below show the ceding commissions deferred on each reinsurance transaction on a GAAP accounting basis: March 31, 2020 December 31, 2019 Reinsurer Effective Date Deferred Ceding Commission Deferred Ceding Commission US Alliance Life and Security Company (1) September 2017 $ 846,581 $ 858,675 Unified Life Insurance Company (1) July 2018 515,444 582,894 Ironbound Reinsurance Company Limited (2) July 2019 5,741,686 5,060,359 SDA Annuity & Life Re (2) November 2019 1,508,424 1,076,267 $ 8,612,135 $ 7,578,195 (1) These reinsurance transactions received gross ceding commissions on the effective dates of the transaction. The difference between the statutory net adjusted reserves and the GAAP adjusted reserves plus the elimination of DAC and VOBA related to these businesses reduces the gross ceding commission with the remaining deferred and amortized over the lifetime of the blocks of business. (2) These reinsurance transactions include the ceding commissions and expense allowances which are accounted for as described in (1). |
Benefit reserves | Benefit reserves The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. |
Policy claims | Policy claims Policy claims are based on reported claims plus estimated incurred but not reported claims developed from trends of historical data applied to current exposure. |
Deposit-type contracts | Deposit-type contracts Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies. |
Deferred gain on ceding commissions | Deferred gain on ceding commissions American Life has entered into several indemnity reinsurance contracts where it is earning ceding commissions. These ceding commissions are recorded as a deferred liability and amortized over the life of the business ceded. American Life receives commission, administrative, and option allowances from reinsurance transactions that represent recovery of acquisition costs. These allowances first reduce the DAC associated with that reinsured block of business with the remainder being included in the deferred gain on ceding commissions to also be amortized. |
Income taxes | Income taxes The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2015. The Company is not currently under examination for any open years. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. |
Revenue recognition and related expenses | Revenue recognition and related expenses Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the consolidated statements of cash flows. Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due. Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts. Acquisition costs are amortized over the expected life of the annuity contracts. |
Comprehensive loss | Comprehensive loss Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses from marketable securities classified as available for sale and unrealized gains and losses from foreign currency transactions, net of applicable taxes. American Life has treaties with two third-party reinsurers that have funds withheld and modified coinsurance provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral but are owned by the reinsurers, thus, the total return on the asset portfolio belongs to the reinsurers. Under GAAP this is considered an embedded derivative as discussed in Note 6 below. As a result of recent volatility, the investments carried by American Life for the third-party reinsurers contained unrealized losses of approximately $23.2 million as of March 31, 2020. The terms of the contracts with the third-party reinsurers, provided that unrealized losses on the portfolios shall accrue to the reinsurers. We account for this loss pass through by booking equivalent realized gains on our income statement. Accordingly, for the first quarter of 2020, our recognized embedded derivative gains were $23.2 million. The remaining unrealized loss of approximately $3.3 million is related to the investments retained by American Life. The majority of these unrealized losses are related to our asset-backed securities or collateralized loan obligations (“CLOs”). CLOs are typically illiquid and are intended to be held to maturity thus loss risk is minimal, the Company has monitored the underlying unrealized losses and believe they pose little chance of loss in the long-term due to the quality of the underlying credits. Basic earnings per share in the first quarter of fiscal 2020 were $0.021 which included the aforementioned gain of $23.2 million. Basic loss per share in the first quarter of fiscal 2020 without the aforementioned gain was ($0.002). |
Common and preferred stock and earnings (loss) per share | Common and preferred stock and earnings (loss) per share The par value per each Company share is $0.001 with 1,970,000,000 voting common shares authorized, 20,000,000 non-voting common shares authorized, and 10,000,000 preferred shares authorized. On June 18, 2019, Xenith exercised the right to convert its 1,500,000 Series C preferred stock and the $19,100,000 notes payable to voting common stock at the conversion rate of approximately $0.02 per common share. At March 31, 2020 and December 31, 2019, the Company had 1,023,408,553 voting common shares issued and outstanding. The Series C preferred shares were converted by Xenith to voting common shares on June 18, 2019 at a rate of approximately $0.02 per share for 72,854,474 voting common shares. The stated annual dividend rate on the Series C preferred shares was 8%. At the time of the conversion, Xenith forgave all previously accrued dividends from June 28, 2018 through the conversion date. Loss per basic share attributable to the Company’s common stockholders was computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended March 31, 2020 and the year ended December 31, 2019 were 1,023,408,553 and 576,594,387 shares, respectively. Loss per diluted share attributable to the Company’s common stockholders was computed based on the average shares outstanding and options granted under our Long-Term Incentive Plan (“LTIP”), as if all were vested and exercised, which for the three months ended March 31, 2020 and the year ended December 31, 2019 were 1,361,622,261 and 577,541,406 shares, respectively. |
Nature of Operations and Basi_3
Nature of Operations and Basis of Presentation (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of ceding commissions earned | Three months ended March 31, 2020 2019 Reinsurer Gross Ceding Commission Expense (1) Commissions and Acquisition Expenses Interest on Ceding Commissions Earned Earned US Alliance Life and Security Company $ - $ - $ - $ - $ 12,094 $ 25,816 Unified Life Insurance Company - - - - 67,451 780,231 Ironbound Reinsurance Company Limited 674,645 673,612 615,111 53,602 95,740 — SDA Annuity & Life Re 298,982 548,464 503,207 12,966 7,153 — $ 973,627 $ 1,222,076 $ 1,118,318 $ 66,568 $ 182,438 $ 806,047 (1) Includes: acquisition and administrative expenses, commission expense allowance and product development fees. March 31, 2020 December 31, 2019 Reinsurer Effective Date Deferred Ceding Commission Deferred Ceding Commission US Alliance Life and Security Company (1) September 2017 $ 846,581 $ 858,675 Unified Life Insurance Company (1) July 2018 515,444 582,894 Ironbound Reinsurance Company Limited (2) July 2019 5,741,686 5,060,359 SDA Annuity & Life Re (2) November 2019 1,508,424 1,076,267 $ 8,612,135 $ 7,578,195 (1) These reinsurance transactions received gross ceding commissions on the effective dates of the transaction. The difference between the statutory net adjusted reserves and the GAAP adjusted reserves plus the elimination of DAC and VOBA related to these businesses reduces the gross ceding commission with the remaining deferred and amortized over the lifetime of the blocks of business. (2) These reinsurance transactions include the ceding commissions and expense allowances which are accounted for as described in (1). |
American Life & Security Corp [Member] | |
Schedule of ceding commissions earned | Three months ended March 31, 2020 2019 Reinsurer Effective Date Ceding Expense (1) Ceding Expense (1) US Alliance Life and Security Company September 2017 $ 15,262 $ — $ 15,262 $ — Unified Life Insurance Company July 2018 60,609 — 702,788 — Ironbound Reinsurance Company Limited July 2019 674,645 673,612 — — SDA Annuity & Life Re November 2019 298,982 548,464 — — $ 1,049,498 $ 1,222,076 $ 718,050 $ — Includes: acquisition and administrative expenses, commission expense allowance and product development fees. |
Assets and Liabilities Held f_2
Assets and Liabilities Held for Sale (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of Assets and Liabilities Discontinued Operations | The table below summarizes the assets and liabilities that are included in discontinued operations as of March 31, 2020 and as of December 31, 2019: As of March 31, As of December 31, 2020 2019 Carrying amounts of major classes of assets included as part of discontinued operations: Policy loans $ 45,491 $ 50,387 Reinsurance recoverables 2,430,884 3,569,849 Premiums receivable 50,001 33,512 Total assets held for sale in the Consolidated Balance Sheet $ 2,526,376 $ 3,653,748 Carrying amounts of major classes of liabilities included as part of discontinued operations: Benefit reserves $ 1,021,284 $ 1,403,953 Policy claims 35,431 28,203 Deposit-type contracts 1,457,536 2,209,195 Advance premiums 2,327 2,226 Accounts payable and accrued expenses 3,620 3,290 Total liabilities held for sale in the Consolidated Balance Sheets $ 2,520,198 $ 3,646,867 |
Investments (Tables)
Investments (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Schedule of available for sale investments | Cost or Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value March 31, 2020: Fixed maturities: U.S. government obligations $ 2,086,391 $ 129,809 $ — $ 2,216,200 Mortgage-backed securities 764,277 957 12,254 752,980 Asset-backed securities 128,469,099 66,021 25,756,095 102,779,025 States and political subdivisions -- general obligations 239,454 11,779 — 251,233 States and political subdivisions -- special revenue 2,884,223 95,600 8,112 2,971,711 Corporate 17,896,003 227,680 1,261,969 16,861,714 Total fixed maturities $ 152,339,447 $ 531,846 $ 27,038,430 $ 125,832,863 Mortgage loans on real estate, held for investment 48,982,622 — — 48,982,622 Derivatives 1,142,492 68,904 748,066 463,330 Investment Escrow — — — — Other invested assets 2,796,352 — — 2,796,352 Preferred stock 500,000 — — 500,000 Total Investments $ 205,760,913 $ 600,750 $ 27,786,496 $ 178,575,167 December 31, 2019: U.S. government obligations 2,091,710 7,073 17,559 2,081,224 Mortgage-backed securities 819,678 — 21,070 798,608 Asset-backed securities 95,006,241 646,335 404,752 95,247,824 States and political subdivisions -- general obligations 240,494 8,788 — 249,282 States and political subdivisions -- special revenue 25,112 179 — 25,291 Corporate 18,493,077 501,022 154,467 18,839,632 Total fixed maturities 116,676,312 1,163,397 597,848 117,241,861 Mortgage loans on real estate, held for investment 13,810,041 — — 13,810,041 Derivatives 490,831 87,684 3,221 575,294 Investment Escrow 3,899,986 — — 3,899,986 Other invested assets 2,468,947 — — 2,468,947 Preferred stock 500,000 — — 500,000 Total fixed maturities $ 137,846,117 $ 1,251,081 $ 601,069 $ 138,496,129 |
Schedule of Amortized cost, Fair value, Credit rating | The Company has two securities that individually exceed 10% of the total of the state and political subdivisions categories as of March 31, 2020. The amortized cost, fair value, credit ratings, and description of each security is as follows: Amortized Estimated Cost Fair Value Credit Rating March 31, 2020: Fixed maturities: States and political subdivisions -- general obligations Bellingham, Washington $ 107,420 $ 118,061 AA+ Longview, Washington Refunding 132,034 133,172 Aa3 Total $ 239,454 $ 251,233 |
Schedule of unrealized loss of securities | The following table summarizes, for all securities in an unrealized loss position at March 31, 2020 and December 31, 2019, the estimated fair value, pre-tax gross unrealized loss and number of securities by consecutive months they have been in an unrealized loss position. March 31, 2020 December 31, 2019 Gross Number Gross Number Estimated Unrealized of Estimated Unrealized of Fair Value Loss Securities (1) Fair Value Loss Securities (1) Fixed Maturities: Less than 12 months: U.S. government obligations $ — $ — — $ 1,518,772 $ 14,935 9 Asset-backed securities 95,658,862 25,665,232 67 39,114,732 404,752 26 Mortgage-back securities 165,282 589 4 160,010 4,844 4 States and political subdivisions -- general obligations 1,764,400 8,112 1 — — — Corporate 8,965,800 854,457 27 2,800,815 13,618 4 Greater than 12 months: U.S. government obligations — — — 353,834 2,624 2 Asset-backed securities 909,767 90,863 1 — — — Mortgage-back securities 464,615 11,665 8 638,598 16,226 14 Corporate 491,033 407,512 4 2,201,658 140,849 13 Total fixed maturities $ 108,419,759 $ 27,038,430 112 $ 46,788,419 $ 597,848 72 (1) We may reflect a security in more than one aging category based on various purchase dates. |
Schedule of amortized cost and estimated fair value of fixed maturities | The amortized cost and estimated fair value of fixed maturities at March 31, 2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. No securities due in the next year are in an unrealized loss position, further supporting management’s decision not to recognize an other-than-temporary impairment. Amortized Estimated Cost Fair Value Due in one year or less $ 202,956 $ 204,177 Due after one year through five years 3,284,845 3,281,374 Due after five years through ten years 27,511,001 23,467,777 Due after ten years through twenty years 109,927,220 88,586,999 Due after twenty years 11,413,425 10,292,536 $ 152,339,447 $ 125,832,863 |
Schedule of investments measured at fair value on a recurring basis using level three inputs | Beginning Ending Balance Realized Balance As of Gain/ As of December 31, 2019 Additions Sales (Loss) March 31, 2020 Assets Policy loans $ 106,014 $ 22,720 $ — $ — $ 128,734 Mortgage loans on real estate, held for investment 13,810,041 37,242,531 2,100,192 30,242 48,982,622 Other invested assets 2,468,947 2,458,792 2,131,387 — 2,796,352 Preferred stock 500,000 — — — 500,000 Total Investments $ 16,885,002 $ 39,724,043 $ 4,231,579 $ 30,242 $ 52,407,708 |
Schedule of components of net investment income | The components of net investment income for the three months ended March 31, 2020 and 2019 are as follows: Three months ended March 31, 2020 2019 Fixed maturities $ 1,167,614 $ 195,691 Mortgage loans 2,524 — Other — 1,244 Gross investment income 1,170,138 196,935 Less: refund received on investment expenses (investment expense) 70,840 (5,940) Investment income, net of expenses $ 1,240,978 $ 190,995 |
Mortgage-back securities | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Schedule of investments measured at fair value on a recurring basis using level three inputs | Carrying Value Interest Income Interest Income March 31, 2020: Industrial $ 500,000 $ 2,708 $ 8,215 Commercial mortgage loan - multi-family 46,423,549 348,699 652,708 Other 2,059,073 18,251 49,633 Total mortgage loans $ 48,982,622 $ 369,658 $ 710,556 December 31, 2019: Industrial $ 500,000 $ — $ 15,889 Commercial mortgage loan - multi-family 11,320,924 116,860 329,684 Other 1,989,117 195,168 7,386 Total mortgage loans $ 13,810,041 $ 312,028 $ 352,959 |
Derivative Instruments (Tables)
Derivative Instruments (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Summary of the derivatives not designated as hedges | The following is a summary of the asset derivatives not designated as hedges and embedded derivatives in our FIA product as of March 31, 2020 and December 31, 2019: March 31, 2020 December 31, 2019 Location in the Derivatives Not Designated Consolidated Statement Notional Number of Estimated Notional Number of Estimated as Hedging Instruments of Balance Sheets Amount Contracts Fair Value Amount Contracts Fair Value Equity-indexed options Derivatives $ 24,097,066 54 $ 463,330 $ 9,698,863 24 $ 575,294 Equity-indexed embedded derivative Deposit-type contracts 24,374,089 243 561,759 10,720,324 108 576,634 |
Summary of embedded derivatives related to the funds withheld provision | March 31, 2020 Book Value of Market Value of Total Return Portfolio Assets Assets Swap Value Ironbound $ 97,863,315 $ 78,198,346 $ 19,664,969 SDA 17,756,548 14,182,598 3,573,950 Total $ 115,619,863 $ 92,380,944 $ 23,238,919 |
Fair Values of Financial Inst_2
Fair Values of Financial Instruments (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Investments, All Other Investments [Abstract] | |
Schedule of financial instruments at fair value measured on a recurring basis | The following table presents the Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019. Significant Quoted Other Significant In Active Observable Unobservable Estimated Markets Inputs Inputs Fair (Level 1) (Level 2) (Level 3) Value March 31, 2020 Financial assets Fixed maturities: U.S. government obligations $ — $ 2,216,200 $ — $ 2,216,200 Mortgage-backed securities — 752,980 — 752,980 Asset-backed securities — 102,779,025 — 102,779,025 States and political subdivisions — general obligations — 251,233 — 251,233 States and political subdivisions — special revenue — 2,971,711 — 2,971,711 Corporate — 16,861,714 — 16,861,714 Total fixed maturities — 125,832,863 — 125,832,863 Mortgage loans on real estate, held for investment — — 48,982,622 48,982,622 Derivatives — 463,330 — 463,330 Investment escrow — — — — Other invested assets — — 2,796,352 2,796,352 Preferred stock — — 500,000 500,000 Total Investments $ — $ 126,296,193 $ 52,278,974 $ 178,575,167 Financial liabilities Embedded derivative for equity-indexed contracts $ — $ 561,759 $ — 561,759 December 31, 2019 Fixed maturities: — U.S. government obligations — 2,081,224 — 2,081,224 Mortgage-backed securities — 798,608 — 798,608 Asset-backed securities — 95,247,824 — 95,247,824 States and political subdivisions — general obligations — 249,282 — 249,282 States and political subdivisions — special revenue — 25,291 — 25,291 Corporate — 18,839,632 — 18,839,632 Total fixed maturities — 117,241,861 — 117,241,861 Mortgage loans on real estate, held for investment — — 13,810,041 13,810,041 Derivatives — 575,294 — 575,294 Investment escrow — 3,899,986 — 3,899,986 Other invested assets — — 2,468,947 2,468,947 Preferred stock — — 500,000 500,000 Total Investments $ — $ 121,717,141 $ 16,778,988 $ 138,496,129 Financial liabilities Embedded derivative for equity-indexed contracts $ — $ 576,634 $ — 576,634 |
Schedule of financial assets and liabilities at fair value | The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy for financial assets and financial liabilities as of March 31, 2020 and December 31, 2019, respectively: March 31, 2020 Fair Value Measurements Using Quoted Prices in Active Markets Significant Other Significant for Identical Assets Observable Unobservable Carrying and Liabilities Inputs Inputs Fair Amount (Level 1) (Level 2) (Level 3) Value Assets: Policy loans $ 128,734 $ — $ — $ 128,734 $ 128,734 Cash 25,506,856 25,506,856 — — 25,506,856 Liabilities: Policyholder deposits (Deposit-type contracts) 220,462,679 — — 220,462,679 220,462,679 December 31, 2019 Fair Value Measurements Using Quoted Prices in Active Markets Significant Other Significant for Identical Assets Observable Unobservable Carrying and Liabilities Inputs Inputs Fair Amount (Level 1) (Level 2) (Level 3) Value Assets: Policy loans $ 106,014 $ — $ — $ 106,014 $ 106,014 Cash 43,716,205 43,716,205 — — 43,716,205 Liabilities: Policyholder deposits (Deposit-type contracts) 171,168,785 — — 171,168,785 171,168,785 |
Schedule of Recurring Basis Using Level Three Inputs | Beginning Ending Balance Realized Balance As of Gain/ As of December 31, 2019 Additions Sales (Loss) March 31, 2020 Assets Policy loans $ 106,014 $ 22,720 $ — $ — $ 128,734 Mortgage loans on real estate, held for investment 13,810,041 37,242,531 2,100,192 30,242 48,982,622 Other invested assets 2,468,947 2,458,792 2,131,387 — 2,796,352 Preferred stock 500,000 — — — 500,000 Total Investments $ 16,885,002 $ 39,724,043 $ 4,231,579 $ 30,242 $ 52,407,708 |
Income Tax Matters (Tables)
Income Tax Matters (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Schedule of deferred tax assets and liabilities | Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2020 and December 31, 2019 are as follows: March 31, 2020 December 31, 2019 Deferred tax assets: Loss carryforwards $ 427,075 $ 436,777 Capitalized costs 210,030 221,918 Stock option granted 7,072 4,566 Unrealized losses on investments 5,568,896 — Policy acquisition costs 1,728,134 1,468,030 Charitable contribution carryforward 1,230 1,020 Property and equipment 23,362 15,508 Benefit reserves 1,338,072 848,643 Total deferred tax assets 9,303,871 2,996,462 Less valuation allowance (4,156,035) (2,618,741) Total deferred tax assets, net of valuation allowance 5,147,836 377,721 Deferred tax liabilities: Unrealized losses on investments 4,880,173 116,088 Due premiums 84,076 81,789 Intangible assets 147,000 147,000 Policy loans 36,587 32,844 Property and equipment — — Total deferred tax liabilities 5,147,836 377,721 Net deferred tax assets $ — $ — |
Schedule of effective tax rate reconciliation | There was income tax expense of $407,916 for the three months ended March 31, 2020 and no income tax expense for the three months ended March 31, 2019. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to pretax income, as a result of the following: Three months ended March 31, 2020 2019 Computed expected income tax benefit $ 4,610,839 $ (313,954) Increase (reduction) in income taxes resulting from: Meals, entertainment and political contributions 2,611 2,583 Change in valuation allowance (4,147,690) 234,398 Other (57,844) 76,973 Subtotal of increases (4,202,923) 313,954 Tax expense (benefit) 407,916 — |
Reinsurance (Tables)
Reinsurance (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Reinsurance Disclosures [Abstract] | |
Summary of significant reinsurance amounts | A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 is as follows: March 31, 2020 December 31, 2019 Balance sheets: Benefit and claim reserves ceded $ 51,200,947 $ 30,579,524 Three months ended March 31, 2020 2019 Statements of comprehensive income: Premiums ceded 231,674 273,101 Benefits ceded 31,287 77,703 Commissions ceded 3,108 2,914 |
Schedule of significant reinsurance balances | The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by reinsurers except for a reinsurance with Unified as it was accounted for as discontinued operations: Recoverable on Total Amount Recoverable Recoverable Benefit Ceded Recoverable AM Best on Paid on Unpaid Reserves/Deposit- Due from Reinsurer Rating Losses Losses type Contracts Premiums Reinsurer Ironbound Reinsurance Company Limited NR $ — $ — $ 21,325,367 $ — $ 21,325,367 Optimum Re Insurance Company A — — 479,884 — 479,884 Sagicor Life Insurance Company A- — 134,417 11,367,938 267,808 11,234,546 SDA Annuity & Life Re NR — — 5,761,090 — 5,761,088 US Alliance Life and Security Company NR — — 12,458,766 58,704 12,400,062 $ — $ 134,417 $ 51,393,045 $ 326,512 $ 51,200,947 |
Notes Payable (Tables)
Notes Payable (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Summary of information regarding loans | Shares of Common Loan Stock into which Principal Loans Were Date of Loan Amount Converted June 28, 2018 $ 500,000 24,284,825 June 28, 2018 100,000 4,856,965 October 10, 2018 1,000,000 48,569,650 December 7, 2018 17,500,000 849,968,875 Total $ 19,100,000 927,680,315 |
Deposit-Type Contracts (Tables)
Deposit-Type Contracts (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Deposit Type Contracts [Abstract] | |
Schedule of deposit-type contracts | March 31, 2020 December 31, 2019 Beginning balance $ 171,168,785 $ 7,234,927 US Alliance 190,802 657,986 Ironbound Reinsurance Company Limited — 1,839,551 SDA Annuity & Life Re (includes MVA adjustment and embedded derivative) — 194,940 Deposits received 47,815,010 161,392,700 Investment earnings (includes MVA adjustment and embedded derivative) 1,474,771 9,271 Withdrawals (186,689) (160,590) Ending balance $ 220,462,679 $ 171,168,785 |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Schedule of Supplemental Balance Sheet Information Related to Leases | Supplemental balance sheet information as of March 31, 2020 regarding our leases is as follows: As of As of Leases Classification March 31, 2020 December 31, 2019 Assets Noncurrent: Finance Office and other equipment, net of accumulated depreciation and amortization $ — $ 2,913 Operating Operating lease right-of-use assets 439,648 470,132 Total leased assets $ 439,648 $ 473,045 Liabilities Current: Finance lease Finance lease liabilities $ — $ 1,860 Noncurrent: Operating lease Operating lease liabilities 492,730 524,248 Total leased liabilities $ 492,730 $ 526,108 |
Schedule of Components of Lease Expenses | Our operating and finance leases expenses for the three months ended March 31, 2020 and 2019, were as follows: Three months ended March 31, Leases Classification 2020 2019 Operating General and administrative expense $ 2,092 $ 3,766 Finance lease cost: Amortization expense 2,913 2,914 Interest expense 111 111 |
Schedule of Finance and Operating Leases Minimum | Minimum contractual obligations for our operating leases at March 31, 2020, are as follows: Operating Leases 2020 (excluding three months ended March 31, 2020) $ 121,279 2021 164,081 2022 156,608 2023 161,674 2024 13,508 Total remaining lease payments $ 617,150 |
Schedule of Supplemental Cash Flow Information Related to Leases | Supplemental cash flow information related to leases was as follows: Three months ended March 31, 2020 2019 Cash payments Operating cash flows from operating leases $ (1,035) $ 232 Operating cash flows from finance leases 1,164 1,165 Financing cash flows from finance leases (111) (111) |
Schedule of Weighted-average Remaining Lease Terms and Discount Rate | The weighted average remaining lease terms and discount rate of our finance and operating leases was follows: As of As of March 31, 2020 December 31, 2019 Weighted Average Remaining Lease Term Finance lease — 3 months Operating lease 2.2 years 2.5 years Weighted Average Discount Rate Finance lease Operating lease |
Nature of Operations and Basi_4
Nature of Operations and Basis of Presentation (Narrative) (Details) $ / shares in Units, £ in Millions | Jun. 18, 2019USD ($)shares | Jun. 18, 2019USD ($)shares | Mar. 31, 2020USD ($)segmentitem$ / sharesshares | Mar. 31, 2019USD ($)$ / shares | Dec. 31, 2019USD ($)$ / sharesshares | Mar. 31, 2020GBP (£)shares | Mar. 31, 2020USD ($)$ / sharesshares | May 09, 2019shares | Apr. 02, 2019 | May 09, 2018shares |
Number of segments | segment | 1 | |||||||||
Cash equivalents | $ | $ 0 | $ 0 | ||||||||
Cash held in custody accounts | £ 1 | $ 1,200,000 | ||||||||
Number of custody accounts | $ | $ 2 | |||||||||
Number of reinsurance agreements | item | 5 | |||||||||
Number of reinsurance agreements earned ceding commission | item | 4 | |||||||||
Preferred stock, shares authorized (in shares) | shares | 10,000,000 | 10,000,000 | 10,000,000 | |||||||
Common stock par value | $ / shares | $ 0.001 | $ 0.001 | ||||||||
Common stock, shares authorized | shares | 1,970,000,000 | 1,970,000,000 | 1,970,000,000 | 1,970,000,000 | 1,970,000,000 | |||||
Common stock, shares issued (in shares) | shares | 1,023,408,553 | 1,023,408,553 | 1,023,408,553 | |||||||
Common stock, shares outstanding (in shares) | shares | 1,023,408,553 | 1,023,408,553 | 1,023,408,553 | |||||||
Basic earnings per share | $ / shares | $ 0.021 | $ (0.070) | ||||||||
Basic earnings per share, excluding embedded derivative gain | $ / shares | $ 0.002 | |||||||||
Weighted average number of shares outstanding, Basic (in shares) | shares | 1,023,408,553 | 576,594,387 | ||||||||
Weighted average number of shares outstanding, Diluted (in shares) | shares | 1,361,622,261 | 577,541,406 | ||||||||
Depreciation | $ | $ 10,316 | $ 9,506 | ||||||||
Accumulated depreciation | $ | $ 975,480 | $ 985,796 | ||||||||
Unrealized gains(losses) | $ | 26,770,983 | $ (2,291,413) | ||||||||
Embedded derivative gains | $ | 23,200,000 | |||||||||
Unrealized loss | $ | $ 23,200,000 | |||||||||
Series C Preferred Stock [Member] | ||||||||||
Conversion rate | 0.02 | |||||||||
Series C Preferred Stock [Member] | Xenith | ||||||||||
Stated dividend rate | 8.00% | |||||||||
Conversion amount | $ | $ 19,100,000 | $ 19,100,000 | ||||||||
Voting common stock | shares | 72,854,474 | |||||||||
Series C Preferred Stock [Member] | Xenith1Member | ||||||||||
Voting common stock | shares | 1,500,000 | |||||||||
Conversion rate | 0.02 | |||||||||
Non-voting common shares [Member] | ||||||||||
Common stock, shares authorized | shares | 20,000,000 | 20,000,000 | 20,000,000 | |||||||
Furniture and Fixtures [Member] | Minimum | ||||||||||
Useful life | 3 years | |||||||||
Furniture and Fixtures [Member] | Maximum | ||||||||||
Useful life | 7 years | |||||||||
Computer Software, Intangible Asset [Member] | ||||||||||
Useful life | 3 years | |||||||||
1505 Capital LLC | ||||||||||
Ownership percentage acquired | 51.00% | |||||||||
American Life [Member] | ||||||||||
Unrealized gains(losses) | $ | $ 3,300,000 |
Nature of Operations and Basi_5
Nature of Operations and Basis of Presentation (Ceding commissions earned) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Ceded Commission Earned | $ 973,627 | |
Expense Allowances | 1,222,076 | |
Ironbound Reinsurance Company Limited [Member] | ||
Ceded Commission Earned | 674,645 | |
Expense Allowances | 673,612 | |
SDA Annuity and Life Re [Member] | ||
Ceded Commission Earned | 298,982 | |
Expense Allowances | 548,464 | |
American Life & Security Corp [Member] | ||
Ceded Commission Earned | 1,049,498 | $ 718,050 |
Expense Allowances | 1,222,076 | |
American Life & Security Corp [Member] | US Alliance Life and Security Company [Member] | ||
Ceded Commission Earned | 15,262 | 15,262 |
American Life & Security Corp [Member] | Unified Life Insurance Company [Member] | ||
Ceded Commission Earned | 60,609 | $ 702,788 |
American Life & Security Corp [Member] | Ironbound Reinsurance Company Limited [Member] | ||
Ceded Commission Earned | 674,645 | |
Expense Allowances | 673,612 | |
American Life & Security Corp [Member] | SDA Annuity and Life Re [Member] | ||
Ceded Commission Earned | 298,982 | |
Expense Allowances | $ 548,464 |
Nature of Operations and Basi_6
Nature of Operations and Basis of Presentation (Ceding commissions deferred) (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Ceded Commission Earned | $ 973,627 | ||
Expense Allowances | 1,222,076 | ||
Commissions and Acquisition Expenses | 1,118,318 | ||
Interest On Ceding Commissions | 66,568 | ||
Earned Ceding Commission | 182,438 | $ 806,047 | |
Deferred Ceding Commission | 8,612,135 | $ 7,578,195 | |
US Alliance Life and Security Company [Member] | |||
Earned Ceding Commission | 12,094 | 25,816 | |
Deferred Ceding Commission | 846,581 | 858,675 | |
Unified Life Insurance Company [Member] | |||
Earned Ceding Commission | 67,451 | $ 780,231 | |
Deferred Ceding Commission | 515,444 | 582,894 | |
Ironbound Reinsurance Company Limited [Member] | |||
Ceded Commission Earned | 674,645 | ||
Expense Allowances | 673,612 | ||
Commissions and Acquisition Expenses | 615,111 | ||
Interest On Ceding Commissions | 53,602 | ||
Earned Ceding Commission | 95,740 | ||
Deferred Ceding Commission | 5,741,686 | 5,060,359 | |
SDA Annuity and Life Re [Member] | |||
Ceded Commission Earned | 298,982 | ||
Expense Allowances | 548,464 | ||
Commissions and Acquisition Expenses | 503,207 | ||
Interest On Ceding Commissions | 12,966 | ||
Earned Ceding Commission | 7,153 | ||
Deferred Ceding Commission | $ 1,508,424 | $ 1,076,267 |
New Accounting Standards (Detai
New Accounting Standards (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | ||
Total leased assets | $ 439,648 | $ 470,132 |
Total leased assets | 439,648 | 473,045 |
Total leased liabilities | $ 492,730 | $ 526,108 |
Assets and Liabilities Held f_3
Assets and Liabilities Held for Sale (Narrative) (Details) | 3 Months Ended |
Mar. 31, 2020USD ($) | |
Discontinued Operations and Disposal Groups [Abstract] | |
Percentage of indemnity reinsurance basis of liabilities and obligations | 100.00% |
Ceding commission | $ 3,500,000 |
Percentage of indemnity policies | 81.00% |
Assets and Liabilities Held f_4
Assets and Liabilities Held for Sale (Schedule of Assets and Liabilities Discontinued Operations) (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Carrying amounts of major classes of assets included as part of discontinued operations: | ||
Policy loans | $ 45,491 | $ 50,387 |
Reinsurance recoverables | 2,430,884 | 3,569,849 |
Premiums receivable | 50,001 | 33,512 |
Total assets held for sale in the Consolidated Balance Sheet | 2,526,376 | 3,653,748 |
Carrying amounts of major classes of liabilities included as part of discontinued operations: | ||
Benefit reserves | 1,021,284 | 1,403,953 |
Policy claims | 35,431 | 28,203 |
Deposit-type contracts | 1,457,536 | 2,209,195 |
Advance premiums | 2,327 | 2,226 |
Accounts payable and accrued expenses | 3,620 | 3,290 |
Total liabilities held for sale in the Consolidated Balance Sheet | $ 2,520,198 | $ 3,646,867 |
Non-controlling Interest (Detai
Non-controlling Interest (Details) - USD ($) | Apr. 02, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 |
Noncontrolling Interest [Line Items] | ||||
Net income, including portion attributable to non-controlling interest | $ 21,610,958 | $ (1,495,018) | ||
Net income | 21,548,458 | $ (1,495,018) | $ (5,733,658) | |
1505 Capital LLC | Class A Units | Maximum | ||||
Noncontrolling Interest [Line Items] | ||||
Capital units authorized | 1,000 | |||
Aurora Financial Services, Inc. | Class A Units | ||||
Noncontrolling Interest [Line Items] | ||||
Capital units outstanding | 490 | |||
1505 Capital LLC | ||||
Noncontrolling Interest [Line Items] | ||||
Ownership percentage acquired | 51.00% | |||
Net income, including portion attributable to non-controlling interest | 260,345 | |||
Income attributable to non-controlling interest | 62,500 | |||
Net income | $ 197,845 | |||
1505 Capital LLC | Class A Units | ||||
Noncontrolling Interest [Line Items] | ||||
Capital units acquired, purchase price | $ 1 | |||
Number of capital units acquired | 510 |
Investments (Schedule of Availa
Investments (Schedule of Available for Sale Investments) (Details) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020 | Dec. 31, 2019 | |
Cost or Amortized Cost | $ 152,339,447 | $ 116,676,312 |
Total fixed maturities | 125,832,863 | 117,241,861 |
Mortgage loans on real estate, held for investment | 48,982,622 | 13,810,041 |
Derivatives, Cost | 1,142,492 | 490,831 |
Derivatives, Gross Unrealized Gains | 68,904 | 87,684 |
Derivatives, Gross Unrealized Losses | 748,066 | 3,221 |
Derivatives | 463,330 | 575,294 |
Investment escrow | 3,899,986 | |
Other invested assets | 2,796,352 | 2,468,947 |
Preferred stock | 500,000 | 500,000 |
Total investments, Amortized Cost | 205,760,913 | |
Investments, Gross Unrealized Gains | 600,750 | |
Investments, Gross Unrealized Losses | 27,786,496 | |
Investments, Fair Value Disclosure | 178,575,167 | 138,496,129 |
Fixed Maturities | ||
Cost or Amortized Cost | 152,339,447 | 116,676,312 |
Gross Unrealized Gains | 531,846 | 1,163,397 |
Gross Unrealized Losses | 27,038,430 | 597,848 |
Total fixed maturities | 125,832,863 | 117,241,861 |
Total investments, Amortized Cost | 137,846,117 | |
Investments, Gross Unrealized Gains | 1,251,081 | |
Investments, Gross Unrealized Losses | 601,069 | |
Investments, Fair Value Disclosure | 138,496,129 | |
U.S. government obligations | Fixed Maturities | ||
Cost or Amortized Cost | 2,086,391 | 2,091,710 |
Gross Unrealized Gains | 129,809 | 7,073 |
Gross Unrealized Losses | 17,559 | |
Total fixed maturities | 2,216,200 | 2,081,224 |
Mortgage-back securities | Fixed Maturities | ||
Cost or Amortized Cost | 764,277 | 819,678 |
Gross Unrealized Gains | 957 | |
Gross Unrealized Losses | 12,254 | 21,070 |
Total fixed maturities | 752,980 | 798,608 |
Asset-backed securities | Fixed Maturities | ||
Cost or Amortized Cost | 128,469,099 | 95,006,241 |
Gross Unrealized Gains | 66,021 | 646,335 |
Gross Unrealized Losses | 25,756,095 | 404,752 |
Total fixed maturities | 102,779,025 | 95,247,824 |
States and Political Subdivisions - general obligations | Fixed Maturities | ||
Cost or Amortized Cost | 239,454 | 240,494 |
Gross Unrealized Gains | 11,779 | 8,788 |
Total fixed maturities | 251,233 | 249,282 |
States and Political Subdivisions - special revenue | Fixed Maturities | ||
Cost or Amortized Cost | 2,884,223 | 25,112 |
Gross Unrealized Gains | 95,600 | 179 |
Gross Unrealized Losses | 8,112 | |
Total fixed maturities | 2,971,711 | 25,291 |
Corporate | Fixed Maturities | ||
Cost or Amortized Cost | 17,896,003 | 18,493,077 |
Gross Unrealized Gains | 227,680 | 501,022 |
Gross Unrealized Losses | 1,261,969 | 154,467 |
Total fixed maturities | $ 16,861,714 | $ 18,839,632 |
Investments (Schedule of Amorti
Investments (Schedule of Amortized Cost, Fair Value, Credit Rating) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Amortized Cost | $ 152,339,447 | $ 116,676,312 |
States and Political Subdivisions - general obligations | US States and Political Subdivisions Debt Securities | ||
Amortized Cost | 239,454 | |
Estimated Fair Value | 251,233 | |
States and Political Subdivisions - general obligations | US States and Political Subdivisions Debt Securities | Bellingham, Washington | ||
Amortized Cost | 107,420 | |
Estimated Fair Value | $ 118,061 | |
Credit Rating | AA+ | |
States and Political Subdivisions - general obligations | US States and Political Subdivisions Debt Securities | Longview, Washington | ||
Amortized Cost | $ 132,034 | |
Estimated Fair Value | $ 133,172 | |
Credit Rating | Aa3 |
Investments (Schedule of Unreal
Investments (Schedule of Unrealized Loss of Securities) (Details) - Fixed Maturities | Mar. 31, 2020USD ($)security | Dec. 31, 2019USD ($)security |
Estimated Fair Value, Total | $ 108,419,759 | $ 46,788,419 |
Gross Unrealized Loss, Total | $ 27,038,430 | $ 597,848 |
Number of Securities, Total | security | 112 | 72 |
U.S. government obligations | ||
Estimated Fair Value, Less than 12 months | $ 1,518,772 | |
Gross Unrealized Loss, Less than 12 months | $ 14,935 | |
Number of Securities, Less than 12 months | security | 9 | |
Estimated Fair value, Greater than 12 months | $ 353,834 | |
Gross Unrealized Loss, Greater than 12 months | $ 2,624 | |
Number of Securities, Greater than 12 months | security | 2 | |
Asset-backed securities | ||
Estimated Fair Value, Less than 12 months | $ 95,658,862 | $ 39,114,732 |
Gross Unrealized Loss, Less than 12 months | $ 25,665,232 | $ 404,752 |
Number of Securities, Less than 12 months | security | 67 | 26 |
Estimated Fair value, Greater than 12 months | $ 909,767 | |
Gross Unrealized Loss, Greater than 12 months | $ 90,863 | |
Number of Securities, Greater than 12 months | security | 1 | |
Mortgage-back securities | ||
Estimated Fair Value, Less than 12 months | $ 165,282 | $ 160,010 |
Gross Unrealized Loss, Less than 12 months | $ 589 | $ 4,844 |
Number of Securities, Less than 12 months | security | 4 | 4 |
Estimated Fair value, Greater than 12 months | $ 464,615 | $ 638,598 |
Gross Unrealized Loss, Greater than 12 months | $ 11,665 | $ 16,226 |
Number of Securities, Greater than 12 months | security | 8 | 14 |
States and Political Subdivisions - general obligations | ||
Estimated Fair Value, Less than 12 months | $ 1,764,400 | |
Gross Unrealized Loss, Less than 12 months | $ 8,112 | |
Number of Securities, Less than 12 months | security | 1 | |
Corporate | ||
Estimated Fair Value, Less than 12 months | $ 8,965,800 | $ 2,800,815 |
Gross Unrealized Loss, Less than 12 months | $ 854,457 | $ 13,618 |
Number of Securities, Less than 12 months | security | 27 | 4 |
Estimated Fair value, Greater than 12 months | $ 491,033 | $ 2,201,658 |
Gross Unrealized Loss, Greater than 12 months | $ 407,512 | $ 140,849 |
Number of Securities, Greater than 12 months | security | 4 | 13 |
Investments (Schedule of Fixed
Investments (Schedule of Fixed Maturities) (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Marketable Securities [Abstract] | ||
Amortized Cost, Due in one year or less | $ 202,956 | |
Amortized Cost, Due after one year through five years | 3,284,845 | |
Amortized Cost, Due after five years through ten years | 27,511,001 | |
Amortized Cost, Due after ten years through twenty years | 109,927,220 | |
Amortized Cost, Due after twenty years | 11,413,425 | |
Amortized Cost | 152,339,447 | $ 116,676,312 |
Estimated Fair Value, Due in one year or less | 204,177 | |
Estimated Fair Value, Due after one year through five years | 3,281,374 | |
Estimated Fair Value, Due after five years through ten years | 23,467,777 | |
Estimated Fair Value, Due after ten years through twenty years | 88,586,999 | |
Estimated Fair Value, Due after twenty years | 10,292,536 | |
Estimated Fair Value | $ 125,832,863 | $ 117,241,861 |
Investments (Schedule of Invest
Investments (Schedule of Investments Measured at Fair Value on a Recurring Basis) (Details) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020 | Dec. 31, 2019 | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Carrying Value | $ 48,982,622 | $ 13,810,041 |
Interest Income Accrued | 369,658 | 312,028 |
Interest Income Earned | 710,556 | 352,959 |
Industrial | ||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Carrying Value | 500,000 | 500,000 |
Interest Income Accrued | 2,708 | |
Interest Income Earned | 8,215 | 15,889 |
Commercial mortgage loan - multi-family | ||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Carrying Value | 46,423,549 | 11,320,924 |
Interest Income Accrued | 348,699 | 116,860 |
Interest Income Earned | 652,708 | 329,684 |
Other. | ||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Carrying Value | 2,059,073 | 1,989,117 |
Interest Income Accrued | 18,251 | 195,168 |
Interest Income Earned | 49,633 | 7,386 |
Fair Value, Inputs, Level 3 | ||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Carrying Value | $ 48,982,622 | $ 13,810,041 |
Investments (Components of Net
Investments (Components of Net Investment Income) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Gross investment income | $ 1,170,138 | $ 196,935 |
Less: refund received on investment expenses (investment expenses) | 70,840 | (5,940) |
Investment income, net of expenses | 1,240,978 | 190,995 |
Fixed Maturities | ||
Gross investment income | 1,167,614 | 195,691 |
Mortgage loans | ||
Gross investment income | $ 2,524 | |
Other | ||
Gross investment income | $ 1,244 |
Investments (Narrative) (Detail
Investments (Narrative) (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Amortized cost | $ 3,361,830 | $ 3,611,292 | |
Fair value | 3,486,914 | $ 3,612,844 | |
Proceeds from sales of available-for-sale investments | 3,852,943 | $ 360,600 | |
Gross realized gain | 149,548 | 1,624 | |
Gross realized losses | $ 24,832 | $ 6,021 | |
percentage of total investments having a longer duration | 80.00% | ||
Minimum | |||
period of maturity of debt instruments | 10 years | ||
Maximum | |||
period of maturity of debt instruments | 20 years |
Derivative Instruments (Details
Derivative Instruments (Details) | Mar. 31, 2020USD ($)contract | Dec. 31, 2019USD ($)contract |
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Estimated Fair Value | $ 463,330 | $ 575,294 |
Derivatives not designated as hedge | Equity options | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Notional Amount | $ 24,097,066 | $ 9,698,863 |
Number of Contracts | contract | 54 | 24 |
Estimated Fair Value | $ 463,330 | $ 575,294 |
Derivatives not designated as hedge | Equity-indexed embedded derivative | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Notional Amount | $ 24,374,089 | $ 10,720,324 |
Number of Contracts | contract | 243 | 108 |
Estimated Fair Value | $ 561,759 | $ 576,634 |
Derivative Instruments - Funds
Derivative Instruments - Funds Withheld Provision (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Amounts recoverable from reinsurers | $ 51,200,947 | $ 30,579,524 |
Funds With held Provision Agreement | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Book value of assets | 115,619,863 | |
Market value of assets | 92,380,944 | |
Total return swap value | 23,238,919 | |
Amounts recoverable from reinsurers | 23,238,919 | |
Funds With held Provision Agreement | Ironbound Reinsurance Company Limited | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Book value of assets | 97,863,315 | |
Market value of assets | 78,198,346 | |
Total return swap value | 19,664,969 | |
Funds With held Provision Agreement | SDA | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Book value of assets | 17,756,548 | |
Market value of assets | 14,182,598 | |
Total return swap value | $ 3,573,950 |
Fair Values of Financial Inst_3
Fair Values of Financial Instruments (Schedule of Financial Instruments at Fair Value Measured on a Recurring Basis) (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | $ 125,832,863 | $ 117,241,861 |
Mortgage loans on real estate, held for investment | 48,982,622 | 13,810,041 |
Derivatives | 463,330 | 575,294 |
Investment escrow | 3,899,986 | |
Other Investments | 2,796,352 | 2,468,947 |
Preferred stock | 500,000 | 500,000 |
Investments, Fair Value Disclosure | 178,575,167 | 138,496,129 |
Embedded derivative for equity-indexed contracts | 561,759 | 576,634 |
Transfers between levels | 0 | 0 |
Fair Value, Inputs, Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivatives | 463,330 | 575,294 |
Investment escrow | 3,899,986 | |
Investments, Fair Value Disclosure | 126,296,193 | 121,717,141 |
Embedded derivative for equity-indexed contracts | 561,759 | 576,634 |
Fair Value, Inputs, Level 3 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Mortgage loans on real estate, held for investment | 48,982,622 | 13,810,041 |
Other Investments | 2,796,352 | 2,468,947 |
Preferred stock | 500,000 | 500,000 |
Investments, Fair Value Disclosure | 52,278,974 | 16,778,988 |
Fixed Maturities | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 125,832,863 | 117,241,861 |
Investments, Fair Value Disclosure | 138,496,129 | |
Fixed Maturities | Fair Value, Inputs, Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 125,832,863 | 117,241,861 |
Fixed Maturities | U.S. government obligations | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 2,216,200 | 2,081,224 |
Fixed Maturities | U.S. government obligations | Fair Value, Inputs, Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 2,216,200 | 2,081,224 |
Fixed Maturities | Mortgage-back securities | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 752,980 | 798,608 |
Fixed Maturities | Mortgage-back securities | Fair Value, Inputs, Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 752,980 | 798,608 |
Fixed Maturities | Asset-backed securities | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 102,779,025 | 95,247,824 |
Fixed Maturities | Asset-backed securities | Fair Value, Inputs, Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 102,779,025 | 95,247,824 |
Fixed Maturities | States and Political Subdivisions - general obligations | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 251,233 | 249,282 |
Fixed Maturities | States and Political Subdivisions - general obligations | Fair Value, Inputs, Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 251,233 | 249,282 |
Fixed Maturities | States and Political Subdivisions - special revenue | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 2,971,711 | 25,291 |
Fixed Maturities | States and Political Subdivisions - special revenue | Fair Value, Inputs, Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 2,971,711 | 25,291 |
Fixed Maturities | Corporate | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | 16,861,714 | 18,839,632 |
Fixed Maturities | Corporate | Fair Value, Inputs, Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total fixed maturities | $ 16,861,714 | $ 18,839,632 |
Fair Values of Financial Inst_4
Fair Values of Financial Instruments (Schedule of Financial Assets and Liabilities at Fair Value) (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Assets: | ||
Cash | $ 25,506,856 | $ 43,716,205 |
Fair Value, Inputs, Level 1 | ||
Assets: | ||
Cash | 25,506,856 | 43,716,205 |
Fair Value, Inputs, Level 3 | ||
Assets: | ||
Policy loans | 128,734 | 106,014 |
Liabilities: | ||
Policyholder deposits (Deposit-type contracts) | 220,462,679 | 171,168,785 |
Carrying Amount | ||
Assets: | ||
Policy loans | 128,734 | 106,014 |
Cash | 25,506,856 | 43,716,205 |
Liabilities: | ||
Policyholder deposits (Deposit-type contracts) | 220,462,679 | 171,168,785 |
Fair Value | ||
Assets: | ||
Policy loans | 128,734 | 106,014 |
Cash | 25,506,856 | 43,716,205 |
Liabilities: | ||
Policyholder deposits (Deposit-type contracts) | $ 220,462,679 | $ 171,168,785 |
Fair Values of Financial Inst_5
Fair Values of Financial Instruments (Recurring Basis Level 3) (Details) | 3 Months Ended |
Mar. 31, 2020USD ($) | |
Beginning Balance | $ 16,885,002 |
Additions | 39,724,043 |
Sales | 4,231,579 |
Realized gain/(loss) | 30,242 |
Ending Balance | 52,407,708 |
Policy loans. | |
Beginning Balance | 106,014 |
Additions | 22,720 |
Ending Balance | 128,734 |
Mortgage loans on real estate, held for investment | |
Beginning Balance | 13,810,041 |
Additions | 37,242,531 |
Sales | 2,100,192 |
Realized gain/(loss) | 30,242 |
Ending Balance | 48,982,622 |
Other invested assets | |
Beginning Balance | 2,468,947 |
Additions | 2,458,792 |
Sales | 2,131,387 |
Ending Balance | 2,796,352 |
Preferred Stock | |
Beginning Balance | 500,000 |
Ending Balance | $ 500,000 |
Income Tax Matters (Schedule of
Income Tax Matters (Schedule of Deferred Tax Assets and Liabilities) (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Deferred tax assets: | ||
Loss carryforwards | $ 427,075 | $ 436,777 |
Capitalized costs | 210,030 | 221,918 |
Stock option granted | 7,072 | 4,566 |
Unrealized losses on investments | 5,568,896 | |
Policy acquisition costs | 1,728,134 | 1,468,030 |
Charitable contribution carryforward | 1,230 | 1,020 |
Property and equipment | 23,362 | 15,508 |
Benefit reserves | 1,338,072 | 848,643 |
Total deferred tax assets | 9,303,871 | 2,996,462 |
Less valuation allowance | (4,156,035) | (2,618,741) |
Total deferred tax assets, net of valuation allowance | 5,147,836 | 377,721 |
Deferred tax liabilities: | ||
Unrealized losses on investments | 4,880,173 | 116,088 |
Due premiums | 84,076 | 81,789 |
Intangible assets | 147,000 | 147,000 |
Policy loans | 36,587 | 32,844 |
Total deferred tax liabilities | $ 5,147,836 | $ 377,721 |
Income Tax Matters (Schedule _2
Income Tax Matters (Schedule of Effective Tax Rate Reconciliation) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | ||
Computed expected income tax benefit | $ 4,610,839 | $ (313,954) |
Increase (reduction) in income taxes resulting from: | ||
Meals, entertainment and political contributions | 2,611 | 2,583 |
Change in valuation allowance | (4,147,690) | 234,398 |
Other | (57,844) | 76,973 |
Subtotal of increases | (4,202,923) | 313,954 |
Tax expense (benefit) | $ 407,916 | $ 0 |
Income Tax Matters (Narrative)
Income Tax Matters (Narrative) (Details) - USD ($) | 3 Months Ended | |||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | Jun. 28, 2018 | |
Deferred tax assets, valuation allowance | $ 4,156,035 | $ 2,618,741 | ||
U.S. federal income tax rate | 21.00% | |||
Net operating loss ("NOL") carryforwards | $ 1,896,207 | $ 890,636 | ||
Percentage of carry forward year limited taxable income | 80.00% | |||
Income tax expense | $ 407,916 | $ 0 | ||
Minimum | ||||
Operating Loss Carryforwards, Expiration Dates | Dec. 31, 2024 | |||
Maximum | ||||
Operating Loss Carryforwards, Expiration Dates | Dec. 31, 2039 |
Reinsurance (Summary of Signifi
Reinsurance (Summary of Significant Reinsurance Amounts) (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Balance sheets: | |||
Amounts recoverable from reinsurers | $ 51,200,947 | $ 30,579,524 | |
Statements of comprehensive income: | |||
Premiums ceded | 231,674 | $ 273,101 | |
Benefits ceded | 31,287 | 77,703 | |
Commissions ceded | $ 3,108 | $ 2,914 |
Reinsurance (Schedule of Signif
Reinsurance (Schedule of Significant Reinsurance Balances) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Total Amount Recoverable from Reinsurer | $ 51,200,947 | $ 30,579,524 |
Ironbound Reinsurance Company Limited [Member] | ||
AM Best Rating | NR | |
Recoverable on Benefit Reserves/Deposit-type Contracts | $ 21,325,367 | |
Total Amount Recoverable from Reinsurer | $ 21,325,367 | 4,213,699 |
Optimum Reinsurance Company [Member] | ||
AM Best Rating | A | |
Recoverable on Benefit Reserves/Deposit-type Contracts | $ 479,884 | |
Total Amount Recoverable from Reinsurer | $ 479,884 | |
Sagicor Life Insurance Company [Member] | ||
AM Best Rating | A- | |
Recoverable on Unpaid Losses | $ 134,417 | |
Recoverable on Benefit Reserves/Deposit-type Contracts | 11,367,938 | |
Ceded Due Premiums | 267,808 | |
Total Amount Recoverable from Reinsurer | $ 11,234,546 | 11,208,227 |
SDA Annuity and Life Re [Member] | ||
AM Best Rating | NR | |
Recoverable on Benefit Reserves/Deposit-type Contracts | $ 5,761,090 | |
Total Amount Recoverable from Reinsurer | $ 5,761,088 | 2,506,911 |
US Alliance Life and Security Company [Member] | ||
AM Best Rating | NR | |
Recoverable on Benefit Reserves/Deposit-type Contracts | $ 12,458,766 | |
Ceded Due Premiums | 58,704 | |
Total Amount Recoverable from Reinsurer | $ 12,400,062 | $ 12,160,917 |
Reinsurance (Narrative) (Detail
Reinsurance (Narrative) (Details) | Mar. 11, 2020 | Mar. 01, 2020 | Nov. 07, 2019USD ($)item | Jul. 25, 2019USD ($) | Mar. 31, 2020USD ($) | Mar. 31, 2019USD ($) | Dec. 31, 2019USD ($) |
Amounts recoverable from reinsurers | $ 51,200,947 | $ 30,579,524 | |||||
Unrealized gains(losses) | 26,770,983 | (2,291,413) | |||||
Embedded derivative gains | 23,200,000 | ||||||
Number of accounts established to hold assets | item | 2 | ||||||
Net premium income | 21 | $ (2,479) | |||||
Amount owned | 19,100,000 | ||||||
Deferred coinsurance ceding commission | 1,033,940 | $ (792,325) | |||||
Percentage of indemnity coinsurance | 0.00% | 30.00% | 95.00% | ||||
Contingency reserves | 0 | 0 | |||||
American Life & Security Corp [Member] | |||||||
Unrealized gains(losses) | 3,300,000 | ||||||
COVID 19 | |||||||
Unrealized gains(losses) | 27,000,000 | ||||||
Net premium income | 47,800,000 | ||||||
FW, Modco SDA Agreement | |||||||
Net premium income | $ 3,970,509 | ||||||
Net statutory reserves | 3,986,411 | ||||||
Coinsurance ceding commission and administrative allowance | 548,464 | 1,734,184 | |||||
Coinsurance ceding commission earned | 298,982 | 996,701 | |||||
FW, Modco SDA Agreement | Funds Withheld Account [Member] | |||||||
Net statutory reserves | 2,391,847 | ||||||
Initial settlement | 2,256,802 | ||||||
Amount owned | 135,044 | ||||||
FW, Modco SDA Agreement | Modco Deposit Account [Member] | |||||||
Net statutory reserves | 1,594,564 | ||||||
Initial settlement | 1,504,535 | ||||||
Amount owned | $ 90,029 | ||||||
FW, Modco Agreement | |||||||
Net premium income | $ 45,005,536 | ||||||
Gross premiums income | 46,568,321 | ||||||
Gross Commission paid | 1,562,786 | ||||||
Net statutory reserves | 47,271,267 | ||||||
Coinsurance ceding commission and administrative allowance | 673,612 | 4,734,926 | |||||
Coinsurance ceding commission earned | 674,645 | 4,843,120 | |||||
FW, Modco Agreement | Funds Withheld Account [Member] | |||||||
Net statutory reserves | 26,944,622 | ||||||
Initial settlement | 24,928,934 | ||||||
Amount owned | 2,015,688 | ||||||
FW, Modco Agreement | Modco Deposit Account [Member] | |||||||
Net statutory reserves | 17,963,081 | ||||||
Initial settlement | 16,619,289 | ||||||
Amount owned | $ 1,343,792 | ||||||
Ironbound Reinsurance Company Limited [Member] | |||||||
Amounts recoverable from reinsurers | 21,325,367 | 4,213,699 | |||||
Optimum Reinsurance Company [Member] | |||||||
Amounts recoverable from reinsurers | 479,884 | ||||||
Sagicor Life Insurance Company [Member] | |||||||
Amounts recoverable from reinsurers | 11,234,546 | 11,208,227 | |||||
SDA Annuity and Life Re [Member] | |||||||
Amounts recoverable from reinsurers | 5,761,088 | 2,506,911 | |||||
SDA Annuity and Life Re [Member] | MYGA | |||||||
Ceded percentage of certain liabilities | 5.00% | ||||||
SDA Annuity and Life Re [Member] | FIA | |||||||
Ceded percentage of certain liabilities through previous fiscal year | 95.00% | ||||||
Ceded percentage of certain liabilities through current fiscal year | 30.00% | ||||||
US Alliance Life and Security Company [Member] | |||||||
Amounts recoverable from reinsurers | $ 12,400,062 | $ 12,160,917 |
Notes Payable (Narrative) (Deta
Notes Payable (Narrative) (Details) | May 09, 2018USD ($)itemshares | Dec. 31, 2018USD ($)$ / shares | Mar. 31, 2020USD ($)shares | Dec. 31, 2019shares | Jun. 18, 2019USD ($) | May 09, 2019shares |
Common stock, shares authorized | shares | 1,970,000,000 | 1,970,000,000 | 1,970,000,000 | 1,970,000,000 | ||
Vespoint LLC | Xenith | ||||||
Ownership (as a percent) | 100.00% | |||||
Xenith | ||||||
Proceeds From Issuance of Debt | $ 600,000 | |||||
Debt term | 10 years | |||||
Debt instrument, stated interest rate (as a percent) | 8.00% | |||||
Additional per annum interest due at maturity (as a percent) | 4.00% | |||||
Number of notes | item | 2 | |||||
Accrued interest | $ 845,536 | |||||
Debt issuance costs | $ 161,000 | |||||
Notes outstanding | $ 0 | |||||
Xenith | Note One [Member] | ||||||
Proceeds From Issuance of Debt | 500,000 | |||||
Xenith | Note Two [Member] | ||||||
Proceeds From Issuance of Debt | $ 100,000 | |||||
Xenith | Additional Loan [Member] | ||||||
Proceeds From Issuance of Debt | $ 18,500,000 | |||||
Conversion price | $ / shares | $ 0.02 | |||||
Xenith | Additional Loan [Member] | Maximum | ||||||
Borrowing capacity | $ 23,500,000 |
Notes Payable (Summary of Infor
Notes Payable (Summary of Information Regarding Loans) (Details) - USD ($) | Jun. 18, 2019 | Mar. 31, 2020 |
Loan Principal Amount | $ 19,100,000 | |
Shares of Common Stock into which Loan Were Converted | 927,680,315 | |
June 28, 2018 [Member] | ||
Loan Principal Amount | $ 500,000 | |
Shares of Common Stock into which Loan Were Converted | 24,284,825 | |
June 28, 2018 [Member] | ||
Loan Principal Amount | $ 100,000 | |
Shares of Common Stock into which Loan Were Converted | 4,856,965 | |
October 10, 2018 [Member] | ||
Loan Principal Amount | $ 1,000,000 | |
Shares of Common Stock into which Loan Were Converted | 48,569,650 | |
December 7, 2018 [Member] | ||
Loan Principal Amount | $ 17,500,000 | |
Shares of Common Stock into which Loan Were Converted | 849,968,875 |
Long Term Incentive Plan (Detai
Long Term Incentive Plan (Details) - USD ($) | Jul. 19, 2019 | Mar. 31, 2020 | Dec. 31, 2019 |
Share based compensation | $ 11,934 | ||
Stock Options | |||
Grants, weighted average exercise price (in dollars per share) | $ 0.05 | ||
Grant date fair value (in dollars per share) | $ 0.016 | ||
Consideration | $ 143,200 | ||
Risk free interest rate (as a percent) | 1.84% | ||
Time to maturity | 10 years | ||
Volatility rate (as a percent) | 200.00% | ||
Share based compensation | $ 11,933 | ||
Accumulated amortization expense | $ 33,678 | $ 21,745 | |
Forfeited (in shares) | 0 | 0 | |
Minimum | Stock Options | |||
Vesting period | 2 years | ||
Maximum | Stock Options | |||
Vesting period | 4 years | ||
2019 LTIP | Stock Options | |||
Granted (in shares) | 8,950,000 | ||
Grants, weighted average exercise price (in dollars per share) | $ 0.05 | ||
Grant date fair value (in dollars per share) | $ 0.016 | ||
Exercisable period | 10 years | ||
Exercisable after July 17, 2021 | 2019 LTIP | Stock Options | |||
Vesting percentage | 33.30% | ||
Exercisable after July 17, 2023 | 2019 LTIP | Stock Options | |||
Vesting percentage | 66.60% |
Deposit-Type Contracts (Details
Deposit-Type Contracts (Details) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020 | Dec. 31, 2019 | |
Beginning balance | $ 171,168,785 | $ 7,234,927 |
US Alliance | 190,802 | 657,986 |
Deposits received | 47,815,010 | 161,392,700 |
Investment earnings (includes MVA adjustment and embedded derivative) | 1,474,771 | 9,271 |
Withdrawals | (186,689) | (160,590) |
Ending balance | $ 220,462,679 | 171,168,785 |
Ironbound Reinsurance Company Limited | ||
Deposit contract | 1,839,551 | |
SDA | ||
Deposit contract | $ 194,940 |
Leases (Schedule of Supplementa
Leases (Schedule of Supplemental Balance Sheet Information Related to Leases) (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Noncurrent: | ||
Finance lease (Office and other equipment, net of accumulated depreciation and amortization) | $ 2,913 | |
Operating lease right-of-use assets | $ 439,648 | 470,132 |
Total leased assets | 439,648 | 473,045 |
Current: | ||
Finance lease | 1,860 | |
Noncurrent: | ||
Operating lease | 492,730 | 524,248 |
Total leased liabilities | $ 492,730 | $ 526,108 |
Leases (Schedule of Components
Leases (Schedule of Components of Leases Expenses) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Leases [Abstract] | ||
Operating lease cost (General and administrative expense) | $ 2,092 | $ 3,766 |
Finance lease cost: | ||
Amortization of right of use assets | 2,913 | 2,914 |
Interest on lease liabilities | $ 111 | $ 111 |
Leases (Schedule of Finance and
Leases (Schedule of Finance and Operating Leases Mature) (Details) | Mar. 31, 2020USD ($) |
Operating Leases | |
2020 (excluding three months ended March 31, 2020) | $ 121,279 |
2021 | 164,081 |
2022 | 156,608 |
2023 | 161,674 |
2024 | 13,508 |
Total remaining lease payments | $ 617,150 |
Leases (Schedule of Supplemen_2
Leases (Schedule of Supplemental Cash Flow Information Related to Leases) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Cash payments | ||
Operating cash flows from operating leases | $ (1,035) | $ 232 |
Operating cash flows from finance leases | 1,164 | 1,165 |
Financing cash flows from finance leases | $ (111) | $ (111) |
Leases (Schedule of Weighted Av
Leases (Schedule of Weighted Average Lease Term And Discount Rate) (Details) | Mar. 31, 2020 | Dec. 31, 2019 |
Leases [Abstract] | ||
Weighted Average Remaining Term - Finance lease | 0 years | 3 years |
Weighted Average Remaining Term - Operating lease | 2 years 2 months 12 days | 2 years 6 months |
Weighted Average Discount Rate - Finance lease | 6.00% | 6.00% |
Weighted Average Discount Rate - Operating lease | 8.00% | 8.00% |
Statutory Net Income and Surp_2
Statutory Net Income and Surplus (Details) - USD ($) | 3 Months Ended | 12 Months Ended | ||||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | Mar. 11, 2020 | Mar. 01, 2020 | Jan. 01, 2020 | |
Ironbound Reinsurance Company Limited | FW, Modco Agreement | ||||||
Ceded percentage | 95.00% | 0.00% | 30.00% | |||
Ceded Premiums Written | $ 17,757,301 | $ 128,760,161 | ||||
Reserve requirement ceded | 20,701,016 | 139,093,289 | ||||
SDA | FW, Modco Agreement | ||||||
Ceded Premiums Written | 5,427,396 | 18,984,045 | ||||
Reserve requirement ceded | 6,111,782 | $ 20,822,364 | ||||
SDA | FW, Modco Agreement | Multi Year Guaranteed Annuity | ||||||
Ceded percentage | 5.00% | |||||
SDA | FW, Modco Agreement | Fixed Index Annuity | ||||||
Ceded percentage | 95.00% | 30.00% | ||||
Nebraska Department of Insurance | American Life and Security Corporation | ||||||
Statutory Net Loss | 423,474 | $ (1,308,563) | ||||
Capital and Surplus | 18,504,524 | $ 19,507,325 | ||||
Nebraska Department of Insurance | American Life and Security Corporation | Multi Year Guaranteed Annuity | ||||||
Annuity sales | 31,565,506 | $ 8,292,617 | ||||
Annuity sales pending | 8,092,612 | |||||
Nebraska Department of Insurance | American Life and Security Corporation | Fixed Index Annuity | ||||||
Annuity sales | 16,249,504 | |||||
Annuity sales pending | $ 6,786,557 |
Third Party Administration (Det
Third Party Administration (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
TPA [Member] | ||
Related Party Transaction [Line Items] | ||
Amount of transaction | $ 8,160 | $ 15,540 |
Subsequent Events (Details)
Subsequent Events (Details) - USD ($) | Apr. 24, 2020 | Mar. 30, 2020 | Jul. 25, 2019 | Mar. 31, 2020 | Mar. 31, 2020 | Mar. 31, 2019 | Apr. 01, 2020 | Mar. 10, 2020 | Dec. 31, 2019 |
Subsequent Event [Line Items] | |||||||||
Net premium income | $ 21 | $ (2,479) | |||||||
Common stock par value | $ 0.001 | $ 0.001 | $ 0.001 | ||||||
Seneca Re | |||||||||
Subsequent Event [Line Items] | |||||||||
Contributions made | $ 300,000 | ||||||||
Ownership percentage acquired | 100.00% | ||||||||
Seneca Re | MYGA | |||||||||
Subsequent Event [Line Items] | |||||||||
Ceded percentage of certain liabilities | 28.50% | 28.50% | 19.50% | ||||||
FW, Modco Agreement | |||||||||
Subsequent Event [Line Items] | |||||||||
Net premium income | $ 45,005,536 | ||||||||
US Alliance | MYGA | |||||||||
Subsequent Event [Line Items] | |||||||||
Ceded percentage of certain liabilities | 66.50% | 66.50% | 45.50% | ||||||
US Alliance | FIA | |||||||||
Subsequent Event [Line Items] | |||||||||
Ceded percentage of certain liabilities | 49.00% | 49.00% | |||||||
Seneca Re Agreement | FIA | |||||||||
Subsequent Event [Line Items] | |||||||||
Ceded percentage of certain liabilities | 21.00% | 21.00% | |||||||
Subsequent Event | |||||||||
Subsequent Event [Line Items] | |||||||||
Common stock shares | 115,044,467 | ||||||||
Common stock par value | $ 0.045 | ||||||||
Proceeds from issuance | $ 5,177,000 | ||||||||
Proceeds received that will be contributed | $ 5,000,000 | ||||||||
Subsequent Event | US Alliance | MYGA | |||||||||
Subsequent Event [Line Items] | |||||||||
Ceded percentage of certain liabilities | 25.00% | ||||||||
Subsequent Event | US Alliance | FIA | |||||||||
Subsequent Event [Line Items] | |||||||||
Ceded percentage of certain liabilities | 40.00% | ||||||||
Subsequent Event | Seneca Re Agreement | MYGA | |||||||||
Subsequent Event [Line Items] | |||||||||
Ceded percentage of certain liabilities | 72.50% | ||||||||
Subsequent Event | Seneca Re Agreement | FIA | |||||||||
Subsequent Event [Line Items] | |||||||||
Ceded percentage of certain liabilities | 45.00% | ||||||||
Subsequent Event | Crestline Assurance Holdings LLC | Securities Purchase Agreement | |||||||||
Subsequent Event [Line Items] | |||||||||
Common stock shares | 222,222,222 | ||||||||
Common stock par value | $ 0.001 | ||||||||
Share price | $ 0.045 | ||||||||
Proceeds from issuance | $ 10,000,000 | ||||||||
COVID 19 | |||||||||
Subsequent Event [Line Items] | |||||||||
Embedded derivatives gain loss | $ 23,200,000 | ||||||||
Percenatge of unrealized losses | 80.00% | 80.00% | |||||||
Net premium income | $ 47,800,000 | ||||||||
Pending applications | $ 14,900,000 | 14,900,000 | |||||||
COVID 19 | Gain (Loss) on Investments | |||||||||
Subsequent Event [Line Items] | |||||||||
Reduction in derivative assets | $ (679,000) | ||||||||
COVID 19 | AOCI | |||||||||
Subsequent Event [Line Items] | |||||||||
Available for sale assets reduction | $ 26,500,000 |