10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020.

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________________ to _________________________________

Commission File Number: 000-55627

US ALLIANCE CORPORATION
(Exact name of registrant as specified in its charter)

KANSAS	26-4824142
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4123 SW Gage Center Drive, Suite 240, Topeka, Kansas	66604
(Address of principal executive offices)	(Zip Code)

(785) 228-0200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑ Emerging growth company ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $0.10 par value

7,740,743 shares outstanding

as of May 5, 2020

Securities registered pursuant to Section 12(b) of the Act: 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

1

US ALLIANCE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item	Item Description	Page
Item 1	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Comprehensive Income (Loss)	4
	Consolidated Statements of Changes in Shareholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4	Controls and Procedures	26
Part II - Other Information
Item	Item Description	Page
Item 1	Legal Proceedings	27
Item 1A	Risk Factors	27
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3	Defaults Upon Senior Securities	27
Item 4	Mine Safety Disclosures	27
Item 5	Other Information	27
Item 6	Exhibits	27
	Signatures	28

2

ITEM 1.      FINANCIAL STATEMENTS

US Alliance Corporation

Consolidated Balance Sheets 

	March 31, 2020			December 31, 2019
	(unaudited)
Assets
Investments:
Available for sale fixed maturity securities (amortized cost: $32,248,318 and $30,823,397 as of March 31, 2020 and December 31, 2019, respectively)	$	32,872,792		$	33,152,892
Available for sale equity securities (cost: $8,680,693 and $9,982,950 as of March 31, 2020 and December 31, 2019, respectively)		7,687,435			10,141,503
Policy loans		141,650			118,930
Total investments		40,701,877			43,413,325
Cash and cash equivalents		7,227,537			6,678,805
Investment income due and accrued		354,528			321,362
Reinsurance related assets		13,782,795			188,382
Deferred acquisition costs, net		3,873,837			2,652,674
Value of business acquired, net		554,918			559,994
Property, equipment and software, net		41,282			43,841
Goodwill		277,542			277,542
Deferred tax asset, net of valuation allowance		431,158			431,158
Other assets		416,404			372,166
Total assets	$	67,661,878		$	54,939,249
Liabilities and Shareholders' Equity
Liabilities:
Policy liabilities
Deposit-type contracts	$	35,409,722		$	19,396,614
Policyholder benefit reserves		18,316,000			17,326,524
Dividend accumulation		121,016			123,038
Advance premiums		90,562			78,709
Total policy liabilities		53,937,300			36,924,885
Accounts payable and accrued expenses		163,397			122,981
Federal Home Loan Bank advance		1,000,000			1,000,000
Other liabilities		98,079			15,186
Total liabilities		55,198,776			38,063,052
Shareholders' Equity:
Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,740,700 and 7,734,004 shares as of March 31, 2020 and December 31, 2019, respectively		774,071			773,401
Additional paid-in capital		23,204,894			23,210,257
Accumulated deficit		(12,140,327	)		(9,436,956	)
Accumulated other comprehensive income		624,464			2,329,495
Total shareholders' equity		12,463,102			16,876,197
Total liabilities and shareholders' equity	$	67,661,878		$	54,939,249

See Notes to Consolidated Financial Statements.

3

US Alliance Corporation

Consolidated Statements of Comprehensive Income (Loss)

	Three Months Ended March 31,
	2020			2019
	(Unaudited)
Income:
Premium income	$	2,715,761		$	2,392,976
Net investment income		514,708			397,646
Net investment gains (losses)		(1,370,761	)		727,203
Other income		13,656			12,799
Total income		1,873,364			3,530,624
Expenses:
Death claims		481,712			395,667
Policyholder benefits		1,249,083			1,136,828
Increase in policyholder reserves		923,248			680,560
Commissions, net of deferrals		206,956			219,535
Amortization of deferred acquisition costs		575,210			62,902
Amortization of value of business acquired		5,076			5,076
Salaries & benefits		263,205			251,832
Other operating expenses		872,245			402,356
Total expense		4,576,735			3,154,756
Net income (loss)	$	(2,703,371	)	$	375,868
Net income (loss) per common share, basic and diluted	$	(0.35	)	$	0.05
Unrealized net holding gains (losses) arising during the period		(1,674,158	)		1,245,778
Reclassification adjustment for gains included in net loss		(30,873	)		-
Other comprehensive income (loss)		(1,705,031	)		1,245,778
Comprehensive income (loss)	$	(4,408,402	)	$	1,621,646

See Notes to Consolidated Financial Statements.

4

US Alliance Corporation

Consolidated Statements of Changes in Shareholders' Equity

Three Months Ended March 31, 2020 and 2019 (Unaudited)

								Accumulated
	Number of							Other
	Shares of		Common		Additional			Comprehensive			Accumulated
	Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total
Balance, December 31, 2018		7,650,551	$	765,056	$	22,989,443		$	(2,184,429	)	$	(8,937,404	)	$	12,632,666
Common stock issued, $7 per share		42,857		4,286		295,713			-			-			299,999
Costs associated with common stock issued		-		-		(143,109	)		-			-			(143,109	)
Cumulative effect, adoption of accounting guidance for equity securities									1,098,760			(1,098,760	)		-
Other comprehensive income		-		-		-			1,245,778			-			1,245,778
Net income		-		-		-			-			375,868			375,868
Balance, March 31, 2019		7,693,408	$	769,342	$	23,142,047		$	160,109		$	(9,660,296	)	$	14,411,202
Balance, December 31, 2019		7,734,004	$	773,401	$	23,210,257		$	2,329,495		$	(9,436,956	)	$	16,876,197
Common stock issued, $7 per share		6,696		670		46,202			-			-			46,872
Costs associated with common stock issued		-		-		(51,565	)		-			-			(51,565	)
Other comprehensive loss		-		-		-			(1,705,031	)		-			(1,705,031	)
Net loss		-		-		-			-			(2,703,371	)		(2,703,371	)
Balance, March 31, 2020		7,740,700	$	774,071	$	23,204,894		$	624,464		$	(12,140,327	)	$	12,463,102

See Notes to Consolidated Financial Statements.

5

US Alliance Corporation

Consolidated Statements of Cash Flows

	Three Months Ended March 31,
	2020			2019
	(unaudited)
Cash Flows from Operating Activities:
Net income (loss)	$	(2,703,371	)	$	375,868
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,559			2,559
Net realized (gains) losses on the sale of securities		218,953			-
Unrealized (gains) losses on equity securities		1,151,808			(727,203	)
Amortization of investment securities, net		20,201			11,881
Deferred acquisition costs capitalized		(1,796,373	)		(74,961	)
Deferred acquisition costs amortized		575,210			62,902
Value of business acquired amortized		5,076			5,076
Interest credited on deposit type contracts		194,549			160,494
(Increase) decrease in operating assets:
Investment income due and accrued		(33,166	)		(24,508	)
Reinsurance related assets		(13,594,413	)		60,531
Other assets		(44,238	)		17,033
Increase (decrease) in operating liabilities:
Policyowner benefit reserves		989,476			631,551
Dividend Accumulation		(2,022	)		(9,519	)
Advance premiums		11,853			(6,587	)
Other liabilities		82,893			(3,279	)
Accounts payable and accrued expenses		40,416			12,463
Net cash provided by (used in) operating activities		(14,880,589	)		494,301
Cash Flows from Investing Activities:
Available-for-sale securities
Purchase of fixed income investments		(876,333	)		(615,289	)
Purchase of equity investments		(2,974,768	)		(173,630	)
Proceeds from fixed income sales and repayments		523,611			52,582
Proceeds from equity sales and repayments		2,965,665			-
Interest on policy loans		(2,477	)		(674	)
Increase in policy loans		(20,243	)		(222	)
Net cash used in investing activities		(384,545	)		(737,233	)
Cash Flows from Financing Activities:
Receipts on deposit-type contracts		16,468,780			965,438
Withdrawals on deposit-type contracts		(650,221	)		(471,668	)
Proceeds from FHLB advance		-
Proceeds received from issuance of common stock, net of costs of issuance		(4,693	)		156,890
Net cash provided by financing activities		15,813,866			650,660
Net increase in cash and cash equivalents		548,732			407,728
Cash and Cash Equivalents:
Beginning		6,678,805			2,077,646
Ending	$	7,227,537		$	2,485,374

See Notes to Consolidated Financial Statements (unaudited).

6

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 1.     Description of Business and Significant Accounting Policies

Description of business: US Alliance Corporation ("USAC") was formed as a Kansas corporation on April 24, 2009 to raise capital to form a new Kansas-based life insurance company. Our offices are located at 4123 SW Gage Center Drive, Suite 240, Topeka, Kansas 66604. Our telephone number is 785-228-0200 and our website address is www.usalliancecorporation.com.

USAC has five wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was formed June 9, 2011, to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was formed April 23, 2012, to serve as a marketing resource. US Alliance Investment Corporation ("USAIC") was formed April 23, 2012 to serve as investment manager for USAC. Dakota Capital Life Insurance Company (“DCLIC”) was acquired on August 1, 2017 when USAC merged with Northern Plains Capital Corporation (“NPCC”). US Alliance Life and Security Company - Montana ("USALSC-Montana") was acquired December 14, 2018. Both DCLIC and USALSC-Montana are wholly-owned subsidiaries of USALSC.

The Company terminated its initial public offering on February 24, 2013. During the balance of 2013, the Company achieved approval of an array of life insurance and annuity products, began development of various distribution channels and commenced insurance operations and product sales. The Company sold its first insurance product on May 1, 2013. The Company continued to expand its product offerings and distribution channels throughout 2014 and 2015. On February 24, 2015, the Company commenced a warrant exercise offering set to expire on February 24, 2016. On February 24, 2016, the Company extended the offering until February 24, 2017 and made additional shares available for purchase. All outstanding warrants expired on April 1, 2016. The Company has extended this offering to February 24, 2021. During the 4th quarter of 2017, the Company began a private placement offering to accredited investors in the state of North Dakota.

USALSC and DCLIC seek opportunities to develop and market additional products.

Our business model also anticipates the acquisition by USAC and/or USALSC of other insurance and insurance related companies, including third-party administrators, marketing organizations, and rights to other blocks of insurance business through reinsurance or other transactions.

Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.

The results of operation for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ended December 31, 2020 or for any other interim period or for any other future year. In particular, the impact of COVID-19 on the Company is evolving and its future effects on the Company's business, financial condition, results of operations, liquidity, and capital position are uncertain.  Certain financial information which is normally included in notes to financial statements prepared in accordance with US GAAP, but which are not required for interim reporting purposes, has been condensed or omitted. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s report on Form 10-K and amendments thereto for the year ended December 31, 2019.

Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated from the consolidated financial statements.

Area of Operation: USALSC is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska and Oklahoma. DCLIC is authorized to operate in the states of North Dakota and South Dakota. USALSC-Montana is authorized to operate in the state of Montana.

7

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Reclassifications: Certain reclassifications of a minor nature have been made to prior-year balances to conform to current-year presentation with no net impact to net loss/income or equity.

Common stock and earnings (loss) per share: The par value for common stock is $0.10 per share with 20,000,000 shares authorized. As of March 31, 2020, and December 31, 2019, the Company had 7,740,700 and 7,734,004 common shares issued and outstanding, respectively.

Earnings (loss) per share attributable to the Company’s common stockholders were computed based on the net loss and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the quarters ended March 31, 2020 and 2019 were 7,736,236 and 7,664,837 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net loss per common share is the same for the quarters ended March 31, 2020 and 2019.

New accounting standards 

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's fee income related to providing services will be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services.

The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

In July 2015, the FASB deferred the effective date of the updated guidance on revenue recognition by one year to the quarter ending March 31, 2018.  As an emerging growth company, the Company chose to defer implementation of this accounting standard until the year ending December 31, 2019. The adoption of this guidance did not have a material effect on the Company’s result of operations, financial position or liquidity.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued updated guidance regarding financial instruments. This guidance intends to enhance reporting for financial instruments and addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The significant amendments in this update generally require equity investments to be measured at fair value with changes in fair value recognized in net income, require the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. This guidance also intends to enhance the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments.

This guidance was effective for the Company for the year ended December 31, 2019 and required a cumulative effect adjustment to opening retained earnings to be recorded for equity investments with readily determinable fair values. As of the adoption date, the Company held publicly traded equity investments with a fair value of $ 10,987,539 million in a net unrealized gain position of $ 1,098,760 million. The Company has recorded a cumulative-effect adjustment of $1,098,760 to decrease Accumulated Other Comprehensive Income (AOCI) with a corresponding increase to accumulated deficit for unrealized gains as of the beginning of fiscal year 2019. As a result of the implementation of ASU 2016-01, unrealized gains and losses in equity investments with readily determinable fair values are recorded on the Consolidated Statements of Comprehensive Income (Loss) within net investment gains (losses). The Company recorded a gain in net investment gains (losses) of $1.1 million for year ended December 31, 2019 as a result of adopting this standard. The implementation of this guidance is expected to increase volatility in our net income as the volatility previously recorded in Statements of Comprehensive Income (Loss) (OCI) related to changes in the fair market value of available-for-sale equity investments will now be reflected in net income (loss) effective with the adoption date.

8

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Leases

In February 2016, the FASB issued updated guidance to require lessees to recognize a right-to-use asset and a lease liability for leases with terms of more than 12 months.  The updated guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease).  Both lease classifications require the lessee to record the right-to-use asset and the lease liability based upon the present value of cash flows.  Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-to-use asset.  Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease.   The accounting by lessors is not significantly changed by the updated guidance.  The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements.

The updated guidance is effective for reporting periods beginning after December 15, 2018, and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied.  Early adoption is permitted.  As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after December 15, 2020. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued updated guidance for the accounting for credit losses for financial instruments.  The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

 The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value.  In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.

The updated guidance is effective for reporting periods beginning after December 15, 2019.  Early adoption is permitted for reporting periods beginning after December 15, 2018.  As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after December 15, 2022. The Company will not be able to determine the impact that the updated guidance will have on its results of operations, financial position or liquidity until the updated guidance is adopted.

9

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Classification of Certain Cash Receipts and Cash Payment

In August 2016, the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows under eight different scenarios including, but not limited to: (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies including bank-owned life insurance policies; (iii) distributions received from equity method investees; and (iv) separately identifiable cash flows and application of the predominance principle. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2018. The implementation of this standard did not have a material impact on the Company’s statement of cash flows.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act). In February 2018, FASB issued guidance to address certain issues related to the Tax Cuts and Jobs Act. This new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU 2018-12 requires periodic reassessment of actuarial and discount rate assumptions used in the valuation of policyholder liabilities and deferred acquisition costs arising from the issuance of long-duration insurance and reinsurance contracts, with the effects of the changes in cash flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Under current accounting guidance, the actuarial and discount rate assumptions are set at the contract inception date and not subsequently changed, except in limited circumstances. ASU 2018-12 also requires new disclosures and is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did not relate to accounting policies and procedures pertinent or material to the Company at this time.

10

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 2.     Investments

The amortized cost and fair value of available for sale and held to maturity investments as of March 31, 2020 and December 31, 2019 is as follows:

	March 31, 2020
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	607,488	$	44,731	$	-		$	652,219
Corporate bonds		19,275,711		1,181,877		(799,794	)		19,657,794
Municipal bonds		6,229,825		517,035		(1,991	)		6,744,869
Redeemable preferred stock		3,154,668		-		(337,743	)		2,816,925
Mortgage backed and asset backed securities		2,980,626		50,942		(30,583	)		3,000,985
Total fixed maturities		32,248,318		1,794,585		(1,170,111	)		32,872,792
Equities:
Common stock		6,737,247		64,271		(1,002,104	)		5,799,414
Preferred stock		1,943,446		13,880		(69,305	)		1,888,021
Total equities		8,680,693		78,151		(1,071,409	)		7,687,435
Total available for sale	$	40,929,011	$	1,872,736	$	(2,241,520	)	$	40,560,227

	December 31, 2019
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Available for sale:
Fixed maturities:
US Treasury securities	$	608,477	$	24,162	$	-		$	632,639
Corporate bonds		18,407,211		1,697,265		(20,079	)		20,084,397
Municipal bonds		6,538,883		518,059		(1,883	)		7,055,059
Redeemable preferred stock		2,097,206		36,687		-			2,133,893
Mortgage backed and asset backed securities		3,171,620		77,593		(2,309	)		3,246,904
Total fixed maturities		30,823,397		2,353,766		(24,271	)		33,152,892
Equities:
Common stock		9,064,262		239,490		(89,058	)		9,214,694
Preferred stock		918,688		8,121		-			926,809
Total equities		9,982,950		247,611		(89,058	)		10,141,503
Total available for sale	$	40,806,347	$	2,601,377	$	(113,329	)	$	43,294,395

11

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

The amortized cost and fair value of debt securities as of March 31, 2020 and December 31, 2019, by contractual maturity, are shown in the following table. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of March 31, 2020				As of December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(unaudited)
Amounts maturing in:
One year or less	$	99,991	$	100,174	$	99,987	$	100,239
After one year through five years		1,424,877		1,441,107		1,424,337		1,471,552
After five years through ten years		3,212,049		3,430,423		3,286,937		3,574,191
More than 10 years		21,376,107		22,083,178		20,743,310		22,626,113
Redeemable preferred stocks		3,154,668		2,816,925		2,097,206		2,133,893
Mortgage backed and asset backed securities		2,980,626		3,000,985		3,171,620		3,246,904
Total amortized cost and fair value	$	32,248,318	$	32,872,792	$	30,823,397	$	33,152,892

Proceeds from the sale of securities, maturities, and asset paydowns for the first three months of 2020 and 2019 were $3,489,276 and $52,582 respectively. Realized gains and losses related to the sale of securities are summarized below:

	Three Months Ended March 31,
	(unaudited)
	2020			2019
Gross gains	$	44,295		$	-
Gross losses		(263,248	)		-
Net security gains (losses)	$	(218,953	)	$	-

Gross unrealized losses by duration are summarized as follows:

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
March 31, 2020	(unaudited)
Available for sale:
Fixed maturities:
Corporate bonds	$	4,647,625	$	(799,794	)	$	-	$	-		$	4,647,625	$	(799,794	)
Municipal bonds		147,391		(1,991	)		-		-			147,391		(1,991	)
Redeemable preferred stock		2,816,926		(337,743	)		-		-			2,816,926		(337,743	)
Mortgage backed and asset backed securities		1,029,824		(30,583	)		-		-			1,029,824		(30,583	)
Total fixed maturities		8,641,766		(1,170,111	)		-		-			8,641,766		(1,170,111	)
Equities:
Common stock		4,816,906		(905,942	)		604,695		(96,162	)		5,421,601		(1,002,104	)
Preferred stock		1,402,290		(69,305	)		-		-			1,402,290		(69,305	)
Total equities		6,219,196		(975,247	)		604,695		(96,162	)		6,823,891		(1,071,409	)
Total available for sale	$	14,860,962	$	(2,145,358	)	$	604,695	$	(96,162	)	$	15,465,657	$	(2,241,520	)

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
December 31, 2019
Available for sale:
Fixed maturities:
Corporate bonds	$	967,848	$	(20,079	)	$	-	$	-		$	967,848	$	(20,079	)
Municipal bonds		46,646		(1,883	)		-		-			46,646		(1,883	)
Mortgage backed and asset backed securities		-		-			296,576		(2,309	)		296,576		(2,309	)
Total fixed maturities		1,014,494		(21,962	)		296,576		(2,309	)		1,311,070		(24,271	)
Equities:
Common stock		68,789		(6,920	)		3,174,847		(82,138	)		3,243,636		(89,058	)
Total equities		68,789		(6,920	)		3,174,847		(82,138	)		3,243,636		(89,058	)
Total available for sale	$	1,083,283	$	(28,882	)	$	3,471,423	$	(84,447	)	$	4,554,706	$	(113,329	)

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Unrealized losses occur from market price declines that may be due to a number of factors, including economic downturns, changes in interest rates, competitive forces within an industry, issuer specific events, operational difficulties, lawsuits, and market pricing anomalies caused by factors such as temporary lack of liquidity.

The total number of securities in the investment portfolio in an unrealized loss position as of March 31, 2020 was 71, which represented an unrealized loss of $2,241,520 of the aggregate carrying value of those securities. The 71 securities breakdown as follows: 27 bonds, 15 mortgage and asset backed securities, 18 preferred stocks, 1 preferred stock index fund, 1 senior loan fund, and 9 common stocks. The Company determined that no securities were considered to be other-than-temporarily impaired as of March 31, 2020 and December 31, 2019.

Note 3.     Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. The Company uses 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 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement rate.

● Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

● Level 3 inputs are unobservable for the asset or liability and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Investments, available for sale: Fair values of available for sale fixed maturity securities are provided by a third party pricing service. The pricing service uses a variety of sources to determine fair value of securities. The Company’s fixed maturity securities are highly liquid, which allows for a high percentage of the portfolio to be priced through pricing sources. Fair values for equity securities are also provided by a third party pricing service and are derived from active trading on national market exchanges.

13

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 3.     Fair Value Measurements (Continued)

The following table presents the amounts of assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:

	March 31, 2020
	Total		Level 1		Level 2		Level 3
	(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	652,219	$	652,219	$	-	$	-
Corporate bonds		19,657,794		-		19,466,194		191,600
Municipal bonds		6,744,869		-		6,744,869		-
Redeemable preferred stock		2,816,925		-		2,816,925		-
Mortgage backed and asset backed securities		3,000,985		-		3,000,985		-
Total fixed maturities		32,872,792		652,219		32,028,973		191,600
Equities:
Common stock		5,799,414		5,389,644		409,770		-
Preferred stock		1,888,021		-		1,888,021		-
Total equities		7,687,435		5,389,644		2,297,791		-
Total	$	40,560,227	$	6,041,863	$	34,326,764	$	191,600

	December 31, 2019
	Total		Level 1		Level 2		Level 3
Available for sale:
Fixed maturities:
US Treasury securities	$	632,639	$	632,639	$	-	$	-
Corporate bonds		20,084,397		-		19,892,797		191,600
Municipal bonds		7,055,059		-		7,055,059		-
Redeemable preferred stock		2,133,893		-		2,133,893		-
Mortgage backed and asset backed securities		3,246,904		-		3,246,904		-
Total fixed maturities		33,152,892		632,639		32,328,653		191,600
Equities:
Common stock		9,214,694		9,169,694		45,000		-
Preferred stock		926,809		-		926,809		-
Total equities		10,141,503		9,169,694		971,809		-
Total	$	43,294,395	$	9,802,333	$	33,300,462	$	191,600

The Company discloses 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 or non-recurring basis are discussed above. The estimated fair value approximates carrying value for accrued interest. The methodologies for other financial assets and financial liabilities are discussed below:

Cash and cash equivalents: The carrying amounts approximate fair value because of the short maturity of these instruments.

Investment income due and accrued: The carrying amounts approximate fair value because of the short maturity of these instruments.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

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.

Federal Home Loan Bank Advances: FHLB advances are stated at the outstanding principal balances and the carrying value approximates fair value.

Policyholder deposits in deposit-type contracts: The fair value for policyholder deposits in 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 the nonperformance risk of the liabilities.

The estimated fair values of the Company’s financial assets and liabilities at March 31, 2020 and December 31, 2019 are as follows:

	March 31, 2020
	(unaudited)
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	7,227,537	$	7,227,537	$	7,227,537	$	-	$	-
Investment income due and accrued		354,528		354,528		-		354,528		-
Policy loans		141,650		141,650		-		-		141,650
Total Financial Assets (excluding available for sale investments)	$	7,723,715	$	7,723,715	$	7,227,537	$	354,528	$	141,650
Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		35,409,722		37,721,270		-		-		37,721,270
Total Financial Liabilities	$	36,409,722	$	38,721,270	$	-	$	-	$	38,721,270

	December 31, 2019
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	6,678,805	$	6,678,805	$	6,678,805	$	-	$	-
Investment income due and accrued		321,362		321,362		-		321,362		-
Policy loans		118,930		118,930		-		-		118,930
Total Financial Assets (excluding available for sale investments)	$	7,119,097	$	7,119,097	$	6,678,805	$	321,362	$	118,930
Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		19,396,614		19,186,265		-		-		19,186,265
Total Financial Liabilities	$	20,396,614	$	20,186,265	$	-	$	-	$	20,186,265

Note 4.     Income Tax Provision

No income tax expense or (benefit) has been reflected for the quarters ended March 31, 2020 and 2019 due to the lack of taxable net income generated by the Company and a change in the valuation allowance pertaining to the deferred tax asset. The difference between the reported amount of income tax expense and the amount expected based upon statutory rates is primarily due to the increase in the valuation allowance on deferred taxes.

The net operating loss carryforwards for the Company are $13,088,121 and $12,577,367 as of March 31, 2020 and December 31, 2019, respectively. The components of the deferred tax assets and liabilities due to book and tax differences are the following: fixed asset depreciation, net operating loss carryforward, net unrealized gains (losses) on investment securities, policyowner benefit reserves and deferred acquisition costs. The deferred tax asset net of valuation allowance is $431,158 as of March 31, 2020 and December 31, 2019, respectively.

15

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 5.   Subsequent Events

All of the effects of subsequent events that provide additional evidence about conditions that existed at the balance sheet date, including the estimates inherent in the process of preparing the consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after, but before the consolidated financial statements are issued. In some cases, unrecognized subsequent events are disclosed to keep the consolidated financial statements from being misleading.

The Company has evaluated subsequent events through May 11, 2020, the date on which the consolidated financial statements were issued.  

New Reinsurance Agreement

On April 15, 2020, The Company entered into a reinsurance agreement with American Life and Security Corporation.  The agreement was effective January 1, 2020.  Under this agreement, USALSC will assume a quota share percentage of a block of certain annuity contracts issued by American Life and Security Corporation.  The Company recognized $15.4 million of annuity deposits in the first quarter and had a receivable from reinsurer of $13.5 as of March 31, 2020 as a result of this agreement.   

Uncertainty Due to Covid-19 Pandemic

As a result of  Covid-19, which was declared a pandemic on March 11, 2020, the United States, State and Local Governments, and other countries have taken measures that have suddenly limited economic output.  Due to the decline in economic activity, the Company is faced with a sudden uncertainty as of the date of this report on its operations when considering its revenue sources and potential future liquidity needs.  Management is actively monitoring the situation and the impact to its operations.   

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Form 10-Q. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, including disruptions to  our business due to the COVID-19 pandemic, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

Overview

US Alliance Corporation (“USAC”) was formed as a Kansas corporation on April 24, 2009 for the purpose of raising capital to form a new Kansas-based life insurance company. We presently conduct our business through our five wholly-owned subsidiaries: USALSC, a life insurance corporation; DCLIC, a life insurance corporation; USALSC-Montana, a life insurance corporation; USAMC, an insurance marketing corporation; and USAIC, an investment management corporation.

On January 2, 2012, USALSC was issued a Certificate of Authority to conduct life insurance business in the State of Kansas. We began third party administrative services in 2015.

On August 1, 2017, the Company merged with Northern Plains Capital Corporation (“Northern Plains”) with the Company being the ultimate surviving entity. As a result of this merger, the Company acquired Dakota Capital Life Insurance Company which became a wholly owned subsidiary of USALSC.

On December 14, 2018, the Company acquired Great Western Life Insurance Company. Great Western Life Insurance Company was renamed US Alliance Life and Security Company – Montana and is a subsidiary of USALSC.

The Company assumes business under two reinsurance treaties. On January 1, 2013, the Company entered into an agreement to assume 20% of a certain block of health insurance policies from Unified Life Insurance Company. On September 30, 2018, the Company entered into a coinsurance agreement to assume 100% of a certain block of life insurance policies from American Life and Security Company ("ALSC"). On April 15, 2020, with an effective date of January 1, 2020, the Company entered into a second coinsurance agreement with ALSC to assume a quota share percentage of a block of annuity policies.  As of March 31, 2020, the Company had assumed $15.4 million in annuity deposits under this agreement.

Critical Accounting Policies and Estimates

Our accounting and reporting policies are in accordance with GAAP. Preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is an explanation of our accounting policies and the estimates considered most significant by management. These accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies. We believe the following accounting policies, judgments and estimates are the most critical to the understanding of our results of operations and financial position. A detailed discussion of significant accounting policies is provided in this report in the Notes to Consolidated Financial Statements included with this quarterly report.

17

Valuation of Investments

The Company's principal investments are in fixed maturity and equity securities. Fixed maturity and equity securities, classified as available for sale, are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in comprehensive income (loss). Our fixed income investment manager utilizes external independent third-party pricing services to determine the fair values of investment securities available for sale.  The Covid-19 Pandemic and its related economic uncertainty has created additional volatility in the valuation of our investments. 

We have a policy and process in place to identify securities that could potentially have an impairment that is other-than-temporary. The assessment of whether impairments have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value. We consider severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings and whether we intend to sell a security, or it is more likely than not that we would be required to sell a security, prior to the recovery of the amortized cost. New England Asset Management, our investment manager, provides analysis and support to the Company in making these determinations.

The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If we intend to sell a security or it is more likely than not that we 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 income statement as an other-than-temporary impairment. As it relates to debt securities, if we do not expect to recover the amortized basis, do not plan to sell the security and if it is not more likely than not that we would be required to sell a security before the recovery of its amortized cost, the other-than-temporary impairment would be recognized. We would recognize the credit loss portion through earnings in the income statement and the noncredit loss portion in accumulated other comprehensive loss.

Deferred Acquisition Costs

Incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to a product sale and would not have been incurred by us had the sale not occurred, are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. 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.

Value of Business Acquired

Value of business acquired (VOBA) represents the estimated value assigned to purchased companies or insurance in force of the assumed policy obligations at the date of acquisition of a block of policies. At least annually, a review is performed of the models and the assumptions used to develop expected future profits, based upon management’s current view of future events. VOBA is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. Management’s view primarily reflects our experience but can also reflect emerging trends within the industry. Short-term deviations in experience affect the amortization of VOBA in the period, but do not necessarily indicate that a change to the long-term assumptions of future experience is warranted. If it is determined that it is appropriate to change the assumptions related to future experience, then an unlocking adjustment is recognized for the block of business being evaluated. Certain assumptions, such as interest spreads and surrender rates, may be interrelated. As such, unlocking adjustments often reflect revisions to multiple assumptions. The VOBA balance is immediately impacted by any assumption changes, with the change reflected through the statements of comprehensive income as an unlocking adjustment in the amount of VOBA amortized. These adjustments can be positive or negative with adjustments reducing amortization limited to amounts previously deferred plus interest accrued through the date of the adjustment.

In addition, we may consider refinements in estimates due to improved capabilities resulting from administrative or actuarial system upgrades. We consider such enhancements to determine whether and to what extent they are associated with prior periods or simply improvements in the projection of future expected gross profits due to improved functionality. To the extent they represent such improvements, these items are applied to the appropriate financial statement line items in a manner similar to unlocking adjustments.

18

VOBA is also reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. If it is determined from emerging experience that the premium margins or gross profits are less than the unamortized value of business acquired, then the asset will be adjusted downward with the adjustment recorded as an expense in the current period.

Goodwill

Goodwill represents the excess of the amounts paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. Goodwill is tested for impairment at least annually in the fourth quarter or more frequently if events or circumstances change that would indicate that a triggering event has occurred.

We assess the recoverability of indefinite-lived intangible assets at least annually or whenever events or circumstances suggest that the carrying value of an identifiable indefinite-lived intangible asset may exceed the sum of the future discounted cash flows expected to result from its use and eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

Reinsurance

In the normal course of business, we seek to limit aggregate and single exposure to losses on risk by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. We diversify our credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish our primary liability under the policies written. We regularly evaluate the financial condition of our reinsurers including their activities with respect to claim settlement practices and commutations, and establish allowances for uncollectible reinsurance recoverable as appropriate.

Future Policy Benefits

We establish 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 using a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. Such liabilities are reviewed quarterly by an independent consulting actuary.  We are uncertain as to the impact of the Covid-19 Pandemic on our future policy benefits.

Income Taxes

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. We have no uncertain tax positions that we believe are more-likely-than-not that the benefit will not to be realized.

Recognition of Revenues

   Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due.

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 investment earnings of the deposits, 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.

19

Mergers and Acquisitions

On May 23, 2017 the Company entered into a definitive merger agreement with Northern Plains Capital Corporation. The merger transaction closed on July 31, 2017. Northern Plains shareholders received .5841 shares of US Alliance Corporation stock for each share of Northern Plains stock owned. USAC issued 1,644,458 shares of common stock to holders of Northern Plains shares.

On October 11, 2018 the Company entered into a stock purchase agreement with Great Western Insurance Company to acquire Great Western Life Insurance Company. The transaction closed on December 14, 2018. USALSC paid $500,000 to acquire all of the outstanding shares of GWLIC.

New Accounting Standards

A detailed discussion of new accounting standards is provided in the Notes to Consolidated Financial Statements beginning on p. 8 of this quarterly report.

Discussion of Consolidated Results of Operations

Revenues. Insurance revenues are primarily generated from premium revenues and investment income. Insurance revenues for the three months ended March 31, 2020 and 2019 are summarized in the table below.

	Three Months Ended March 31,
	2020			2019
	(Unaudited)
Income:
Premium income	$	2,715,761		$	2,392,976
Net investment income		514,708			397,646
Net investment gains (losses)		(1,370,761	)		727,203
Other income		13,656			12,799
Total income		1,873,364			3,530,624

Our 2020 first quarter revenues decreased to $1,873,364, a decrease of $1,657,260 from the 2019 first quarter revenues of $3,530,624. The Company was required to implement a new accounting standard in 2019 which results in unrealized gains and losses on equity securities being included in total income. This standard has resulted in increased volatility in our total income.

Premium revenue: Premium revenue for the first three months of 2020 was $2,715,761 compared to $2,392,976 in the first three months of 2019, an increase of $322,785. The increase was driven by an increase in our direct premiums primarily as a result of increased pre-need sales. Even though it is a reduction in revenue, ceded premium increases reflect the growth of our group policy premiums as we focused on small companies to assist them with their employee benefits.

Direct, assumed and ceded premiums for the three months ended March 31, 2020 and 2019 are summarized in the following table.

	Three Months Ended March 31,
	2020			2019
Direct	$	1,577,225		$	1,191,780
Assumed		1,360,386			1,403,793
Ceded		(221,850	)		(202,597	)
Total	$	2,715,761		$	2,392,976

20

The Company is pursuing new product and distribution opportunities to continue to increase premium production on both a direct and assumed basis.

Investment income, net of expenses: 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
	(unaudited)
Fixed maturities	$	366,731		$	302,294
Equity securities		150,189			114,586
Cash and short term investments		9,312			4,199
		526,232			421,079
Less investment expenses		(11,524	)		(23,433	)
	$	514,708		$	397,646

Net investment income for the first three months of 2020 was $514,708, compared to $397,646 in 2019, an increase of $117,062 or 29%. This increase in investment income is primarily a result of increased invested assets as a result of our premium income, annuity deposits, and our new coinsurance treaty with American Life.

Net investments gains (losses): Net investment losses for the quarter ended March 31, 2020 were $1,370,761, compared to gains of $727,203 in 2019, a decrease of $2,097,964. The decrease in net investment gains is attributable to unrealized losses in our equity portfolio as a result of the Covid-19 pandemic. Net investments losses for 2020 were comprised of $1,151,808 of unrealized losses in our equity portfolio and realized losses of $218,953. Net investment gains for 2019 were comprised of $727,203 of unrealized gains in our equity portfolio. Realized gains and losses related to the sale of securities for the quarters ended March 31, 2020 and 2019 are summarized as follows:

	Three Months Ended March 31,
	(unaudited)
	2020			2019
Gross gains	$	44,295		$	-
Gross losses		(263,248	)		-
Net security gains (losses)	$	(218,953	)	$	-

Other income: Other income for the three months ended March 31, 2020 was $13,656 compared to $12,799 in 2019, an increase of $857.

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Expenses. Expenses for the three months ended March 31, 2020 and 2019 are summarized in the table below.

	Three Months Ended March 31,
	2020		2019
Expenses:
Death claims	$	481,712	$	395,667
Policyholder benefits		1,249,083		1,136,828
Increase in policyholder reserves		923,248		680,560
Commissions, net of deferrals		206,956		219,535
Amortization of deferred acquisition costs		575,210		62,902
Amortization of value of business acquired		5,076		5,076
Salaries & benefits		263,205		251,832
Other operating expenses		872,245		402,356
Total expense	$	4,576,735	$	3,154,756

Death and other benefits: Death benefits were $481,712 in the three months ended March 31, 2020 compared to $395,667 in 2019, an increase of $86,045. This increase is attributable to our growing block of in-force life insurance policies. We expect these claims to grow as we continue to increase the size of our in-force business. 

Policyholder benefits: Policyholder benefits were $1,249,083 in the three months ended March 31, 2020 compared to $1,136,828 in 2019, an increase of $112,255. The primary driver of this increase is the growth of interest credited on our direct and assumed annuities.

Increase in policyholder reserves: Policyholder reserves increased $923,248 in the three months ended March 31, 2020, compared to $680,560 in 2019, an increase of $242,688. The growth in reserve increase is the result of higher pre-need sales.

Commissions, net of deferrals: The Company pays commissions to the ceding company on a block of assumed policies as well as commissions to agents on directly written business. Commissions, net of deferrals, were $206,956 in the three months ended March 31, 2020, compared to $219,535 in 2019, a decrease of $12,579. This decrease is driven by a change in composition of premiums collected.

Amortization of deferred acquisition costs: The amortization of deferred acquisition costs ("DAC") was $575,210 in the three months ended March 31, 2020, compared to $62,902 in 2019, an increase of $512,308. As a result of the covid-19 pandemic and the resulting historic low interest rates, the Company reassessed its DAC assumptions regarding reinvestment rates. As a result, the Company reduced its DAC balance by $430,000 to reflect the current reinvestment environment and the uncertainty of when interest rates will return to historic levels.

Amortization of value of business acquired: The amortization of value of business acquired (“VOBA”) was $5,076 in the three months ended March 31, 2020 and 2019. Our VOBA balance was established August 1, 2017 with acquisition of DCLIC. VOBA is being amortized straight-line over 30 years.

Salaries and benefits: Salaries and benefits were $263,205 for the three months ended March 31, 2020, compared to $251,832 in 2019, an increase of $11,373.  The Company has maintained its staffing levels during the coronavirus pandemic to insure that customer service needs continue to be met.

Other expenses: Other operating expenses were $872,245 in the three months ended March 31, 2020, compared to $402,356 in 2019, an increase of $469,889. Operating costs were driven higher due to our pre-paid software asset being recognized as an expense ($250,000), increased accounting and actuarial fees ($72,568), and expenses associated with implementing a new disability reinsurance program ($50,000).

Net Income (Loss): Our net loss was $2,703,371 in the three months ended March 31, 2020 compared to a net income of $375,868 in the same period of 2019, a decrease of $3,079,239. Our net loss per share decreased to $0.35 from a net income of $0.05 in 2019, basic and diluted. This decrease is primarily attributable to covid-19 impacts on unrealized losses on our equity securities and on deferred acquisition costs as well as our software upgrade, increased accounting and actuarial costs, and the implementation of our new disability reinsurance program.

22

Discussion of Consolidated Balance Sheet

Assets. Assets have increased to $67,661,878 as of March 31, 2020, an increase of $12,772,629 from December 31, 2019. This is primarily the result of our new coinsurance agreement with ALSC.

Available for sale fixed maturity securities: As of March 31, 2020, we had available for sale fixed maturity assets of $32,872,792, a decrease of $280,100 from the December 31, 2019 balance of $33,152,892. The decrease is driven by a decrease in the market value of these securities.

Available for sale equity securities: As of March 31, 2020, we had available for sale equity assets of $7,687,435, a decrease of $2,454,068 from the December 31, 2019 balance of $10,141,503. This reduction is driven by a decrease in the market value of our equity securities due primarily to the instability of equity markets and economic disruption caused by the COVID-19 pandemic. 

Policy loans: As of March 31, 2020, our policy loans were $141,650, an increase of $22,720 from the December 31, 2019 balance of $118,930. The increase is the result of normal loan activity associated with increased policies.

Cash and cash equivalents: As of March 31, 2020, we had cash and cash equivalent assets of $7,227,537, an increase of $548,742 from the December 31, 2019 balance of $6,678,805. This increase is primarily the result of cash received from premium income.

Investment income due and accrued: As of March 31, 2020, our investment income due and accrued was $354,528 compared to $321,362 as of December 31, 2019. This increase is attributable to normal investment activity and the growth of our invested assets.

Reinsurance related assets: As of March 31, 2020, our reinsurance related assets were $13,782,795, an increase of $13,594,413 from the December 31, 2019 balance of $188,382. This increase reflects the initial settlement amount due from ALSC on our new coinsurance agreement.

Deferred acquisition costs, net: As of March 31, 2020, our deferred acquisition costs were $3,873,837, an increase of $1,221,163 from the December 31, 2019 balance of $2,652,674. The increase is the result of costs deferred on our new coinsurance agreement with American Life.

Value of business acquired, net: As of March 31, 2020, our value of business acquired asset was $554,918, a decrease of $5,076 from the December 31, 2019 balance of $559,994. This asset was established in the third quarter of 2017 as a result of our acquisition of DCLIC. The decrease is the result of amortization of the asset.

Goodwill: As of March 31, 2020, our goodwill was $277,542 and was unchanged from the December 31, 2019 balance. Goodwill was established as a result of our merger with Northern Plains.

Property, equipment and software, net: As of March 31, 2020, our property, equipment and software assets were $41,282, a decrease of $2,559 from the December 31, 2019 balance of $43,841. This decrease is a result of normal amortization during the period.

Deferred tax asset, net of valuation allowance: As of March 31, 2020, the Company had a deferred tax asset of $431,158 and was unchanged from the December 31, 2019 balance.

Other assets: As of March 31, 2020, our other assets were $416,404, an increase of $44,238 from the December 31, 2019 balance of $372,166. This increase was the result of pre-paid option expenses offset by a reduction in our pre-paid software asset.

Liabilities. Our total liabilities were $55,198,776 as of March 31, 2020, an increase of $17,135,174 from our December 31, 2019 liability of $38,063,052. This increase is driven by an increase in our policyholder liabilities as a result of our new ALSC agreement.

Policy liabilities: Our total policy liabilities as of March 31, 2020 were $53,937,300, an increase of $17,012,415 from the December 31, 2019 balance of $36,924,885. This increase is driven by annuities assumed under our new coinsurance agreement with ALSC.

Accounts payable and accrued expenses: As of March 31, 2020, our accounts payable and accrued expenses were $163,397, an increase of $40,416 from the December 31, 2019 balance of $122,981. This increase is the result of normal operating activity.

23

Federal Home Loan Bank advance: In October of 2019, the Company took an advance of $1,000,000 from the Federal Home Loan Bank of Topeka (“FHLB”), which was outstanding as of March 31, 2020 and December 31, 2019.

Other liabilities: As of March 31, 2020, our other liabilities were $98,079, an increase of $82,893 from the December 31, 2019 balance of $15,186. The increase is the result of securities payable at the end of the first quarter.

Shareholders’ Equity. Our shareholders’ equity was $12,463,102 as of March 31, 2020, a decrease of $4,413,095 from our December 31, 2019 shareholders’ equity of $16,876,197. The decrease in shareholders’ equity was driven by a decrease in other comprehensive income and our net loss during the period, both of which were materially impacted by the Covid-19 pandemic.

Investments and Cash and Cash Equivalents

Our investment philosophy is reflected by the allocation of our investments. We emphasize investment grade debt securities with smaller holdings in equity securities and other investments. The following table shows the carrying value of our investments by investment category and cash and cash equivalents, and the percentage of each to total invested assets as of March 31, 2020 and December 31, 2019.

	March 31, 2020					December 31, 2019
	Fair		Percent			Fair		Percent
	Value		of Total			Value		of Total
	(unaudited)
Fixed maturities:
US Treasury securities	$	652,219		1.4	%	$	632,639		1.3	%
Corporate bonds		19,657,794		41.1	%		20,084,397		40.2	%
Municipal bonds		6,744,869		14.1	%		7,055,059		14.1	%
Redeemable preferred stocks		2,816,925		5.9	%		2,133,893		4.3	%
Mortgage backed and asset backed securities		3,000,985		6.3	%		3,246,904		6.5	%
Total fixed maturities		32,872,792		68.8	%		33,152,892		66.3	%
Equities:
Common stock		5,799,414		12.1	%		9,214,694		18.4	%
Preferred stock		1,888,021		4.0	%		926,809		1.9	%
Total equities		7,687,435		16.1	%		10,141,503		20.3	%
Cash and cash equivalents		7,227,537		15.1	%		6,678,805		13.4	%
Total	$	47,787,764		100.0	%	$	49,973,200		100.0	%

The total value of our investments and cash and cash equivalents decreased to $47,787,764 as of March 31, 2020 from $49,973,200 at December 31, 2019, a decrease of $2,185,436. Decreases in investments are primarily attributable to a reduction in market values.

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, 2020 and December 31, 2019.

	March 31, 2020					December 31, 2019
	Fair		Percent			Fair		Percent
	Value		of Total			Value		of Total
	(unaudited)
AAA and U.S. Government	$	1,103,998		3.4	%	$	1,201,046		3.6	%
AA		7,494,611		22.8	%		7,901,834		23.8	%
A		8,349,561		25.4	%		8,446,360		25.5	%
BBB		12,693,702		38.6	%		13,832,629		41.7	%
BB		3,039,320		9.2	%		1,579,423		4.8	%
Not Rated - Private Placement		191,600		0.6	%		191,600		0.6	%
Total	$	32,872,792		100.0	%	$	33,152,892		100.0	%

24

Reflecting the high quality of securities maintained by us, 94.6% of all fixed maturity securities were investment grade as of December 31, 2019. As of March 31, 2020, 90.2% of all fixed maturity securities were investment grade.

The amortized cost and fair value of debt securities as of March 31, 2020 and December 31, 2019, by contractual maturity, are shown below. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of March 31, 2020				As of December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Amounts maturing in:	(unaudited)
One year or less	$	99,991	$	100,174	$	99,987	$	100,239
After one year through five years		1,424,877		1,441,107		1,424,337		1,471,552
After five years through ten years		3,212,049		3,430,423		3,286,937		3,574,191
More than 10 years		21,376,107		22,083,178		20,743,310		22,626,113
Redeemable preferred stocks		3,154,668		2,816,925		2,097,206		2,133,893
Mortgage backed and asset backed securities		2,980,626		3,000,985		3,171,620		3,246,904
Total amortized cost and fair value	$	32,248,318	$	32,872,792	$	30,823,397	$	33,152,892

Market Risk of Financial Instruments

We hold a diversified portfolio of investments that primarily includes cash, bonds and equity securities. Each of these investments is subject to market risks that can affect their return and their fair value. A majority of the investments are fixed maturity securities including debt issues of corporations, US Treasury securities, or securities issued by government agencies. The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and equity risk.  The Company's investment portfolio, including the creditworthiness and valuation of investment assets, as well as availability of new investments may be adversely affected as a result of market developments related to the COVID-19 pandemic and uncertainty regarding its ultimate severity and duration.

Interest Rate Risk

Interest rate risk arises from the price sensitivity of investments to changes in interest rates. Interest represents the greatest portion of an investment's return for most fixed maturity securities in stable interest rate environments. The changes in the fair value of such investments are inversely related to changes in market interest rates. As interest rates fall, the interest and dividend streams of existing fixed-rate investments become more valuable and fair values rise. As interest rates rise, the opposite effect occurs.  The  COVID-19 pandemic has resulted in volatility, historically low interest rates, and previously unknown credit risk.

We attempt to mitigate our exposure to adverse interest rate movements through laddering the maturities of the fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet our obligations and to address reinvestment risk considerations. Due to the composition of our book of insurance business, management believes it is unlikely that we would encounter large surrender activity due to an interest rate increase that would force the disposal of fixed maturities at a loss.

Credit Risk

We are exposed to credit risk through counterparties and within the investment portfolio. Credit risk relates to the uncertainty associated with an obligor's ability to make timely payments of principal and interest in accordance with the contractual terms of an instrument or contract. We manage our credit risk through established investment policies and guidelines which address the quality of creditors and counterparties, concentration limits, diversification practices and acceptable risk levels. These policies and guidelines are regularly reviewed and approved by senior management and USAC's Board of Directors. 

Liquidity and Capital Resources

The impact of COVID-19 on the Company is evolving, and its future effects are not yet quantifiable and the Company is closely monitoring the effects and risks of COVID-19 to assess its impact on the Company's business, sales, financial condition, results of operations, liquidity and capital position.

25

Premium income, deposits to policyholder account balances, investment income, and capital raising are the primary sources of funds while withdrawals of policyholder account balances, investment purchases, policy benefits in the form of claims, and operating expenses are the primary uses of funds. To ensure we will be able to pay future commitments, the funds received as premium payments and deposits are invested in primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will in the future meet our ongoing cash flow needs. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Our investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. Cash flow projections and cash flow tests under various market interest scenarios are also performed annually to assist in evaluating liquidity needs and adequacy. As a member of the Federal Home Loan Bank, USALSC has immediate access to additional cash liquidity.

Net cash used in operating activities was $14,880,589 for the three months ended March 31, 2020. The primary sources of cash from operating activities were premiums and deposits received from policyholders. The primary uses of cash for operating activities were for payments of commissions to agents and settlement of policy liabilities. Net cash used in investing activities was $384,545. The primary use of cash was the purchase of available for sale securities. Cash provided by financing activities was $15,813,866. The primary sources of cash were receipts on deposit-type contracts.

At March 31, 2020, we had cash and cash equivalents totaling $7,227,537. We believe that our existing cash and cash equivalents and premiums from our insurance operations will be sufficient to fund the anticipated operating expenses and capital expenditures for the foreseeable future. We have based this estimate upon assumptions that may prove to be wrong and we could use our capital resources sooner than we currently expect. The growth of USALSC and DCLIC, our insurance subsidiaries, is uncertain and will require additional capital if they continue to grow.

Impact of Inflation

Insurance premiums are established before the amount of losses, or the extent to which inflation may affect such losses and expenses, are known. We attempt, in establishing premiums, to anticipate the potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by us. Inflation also affects the rate of investment return on the investment portfolio with a corresponding effect on investment income.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   As a “smaller reporting company”, the Company does not provide disclosure pursuant to this item.

ITEM 4.    CONTROLS AND PROCEDURES

We have established disclosure controls and procedures to ensure, among other things, material information relating to our Company, including our consolidated subsidiaries, is made known to our officers who certify our financial reports and to the other members of our senior management and the Board of Directors.

As required by Exchange Act Rule 13a-15(b), management of the Company, including the Chief Executive Officer and the Vice President conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e). Based upon an evaluation at the end of the period, the Chief Executive Officer and the Vice President concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the exchange act.

There were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.

26

Part II – Other Information

ITEM 1. LEGAL PROCEEDINGS

We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of business, and we are not aware of any claims that could materially affect our financial position or results of operation.

ITEM 1A. RISK FACTORS

   As a “smaller reporting company”, the Company is not required to provide disclosure pursuant to this item.

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the quarter ended March 31, 2020, the Company issued 2,696 shares of common stock, for aggregate consideration of $18,872, pursuant to an offering to residents of the state of Kansas that was registered with the Kansas Securities Commissioner.

The offering of shares in the above described transaction was self-underwritten and sold through agents of the Company licensed to sell securities in Kansas. Proceeds from the sale of common stock were used to finance the growth of the Company’s life insurance subsidiary and to provide working capital for the Company. The offer and sale of common stock was exempt from registration under Section 3(a)11 of the Securities Act of 1933 for securities offered and sold on a wholly intrastate basis. The shares of common stock were sold only to bona fide residents of the state of Kansas.

During the quarter ended March 31, 2020, the Company issued 4,000 shares of common stock, for aggregate consideration of $28,000, pursuant to a private placement offering to residents of the state of North Dakota (the “North Dakota Offering”).  Proceeds from the sale of shares in the North Dakota were used to finance the growth of DCLIC and to provide working capital for the Company. The North Dakota Offering and sales of shares thereunder were not registered with the SEC in reliance on an exemption for registration under Rule 506(b) of Regulation D under this Securities Act of 1933 (“Reg D”).  Shares were sold only to “accredited investors”, as that term is defined in Rule 501 of Reg D, and were not sold by any means of general advertisement or solicitation. 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 None

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

3.1	Articles of Incorporation of US Alliance Corporation (filed as Exhibit 3.1 to the Company’s Registration Statement on Form 10 filed on May 2, 2016 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.1)
3.1.1	First Amendment to Articles of Incorporation of US Alliance Corporation, filed as Exhibit 3.1.1 to the Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference a Exhibit 3.1.1.
3.1.2	Second Amendment to Articles of Incorporation of US Alliance Corporation, filed as Exhibit 3.1.2 to the Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.1.2.

27

3.2	Bylaws of US Alliance Corporation (filed as Exhibit 3.2 to the Company’s Registration Statement on Form 10 filed on May 2, 2016 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.2).
3.2.1	Amendment No. 1. to the bylaws of US Alliance Corporation, filed as Exhibit 3.2.1 to the Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.2.1.
10.12*	Coinsurance Agreement, effective January 1, 2020, between US Alliance Life and Security Company and American Life and Security Corporation

31.1*	Certification of Chief Executive Officer of US Alliance Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer of US Alliance Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certifications of the Chief Executive Officer of US Alliance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certifications of the Principal Financial Officer of US Alliance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS** XBRL Instance

101.SCH** XBRL Taxonomy Extension Schema

101.CAL** XBRL Taxonomy Extension Calculation

101.DEF** XBRL Taxonomy Extension Definition

101.LAB** XBRL Taxonomy Extension Labels

101.PRE** XBRL Taxonomy Extention Presentation

**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

* Filed herewith

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

       US Alliance Corporation      

(Registrant)

Date 

By  /s/ Jack H. Brier                                                                      

      Jack H. Brier, President and Chairman

28

EX-10.12

Exhibit 10.12

FUNDS WITHHELD AND FUNDS PAID

COINSURANCE AGREEMENT

(MYGA and FIA BUSINESS)

between

US ALLIANCE LIFE AND SECURITY COMPANY

and

AMERICAN LIFE & SECURITY CORP.

effective as of January 1, 2020

Treaty Number 002

TABLE OF CONTENTS
(continued)

		Page
ARTICLE I	GENERAL PROVISIONS	1
Section 1.01	Defined Terms	1
Section 1.02	Other Definitional Provisions	6
ARTICLE II	COVERAGE	7
Section 2.01	Scope and Basis of Reinsurance	7
Section 2.02	Policy Changes	7
Section 2.03	Reinstatement of Surrendered Policies	7
Section 2.04	Misstatement of Fact	8
Section 2.05	Non-Guaranteed Elements	8
Section 2.06	Crediting Rates	8
Section 2.07	Programs of Internal Replacement	8
Section 2.08	Reserved	8
Section 2.09	Reserved	8
Section 2.10	Reserved	8
Section 2.11	Valuation of Liabilities	8
Section 2.12	Credit For Reinsurance	9
Section 2.13	Reserved	9
Section 2.14	Options Budget and Payoff for FIA	9
Section 2.15	FATCA	9
ARTICLE III	REINSURANCE PREMIUMS	10
Section 3.01	Reinsurance Premiums	10
Section 3.02	Initial Settlement Amount	10
Section 3.03	Funds Paid Conversion	10
ARTICLE IV	CEDING COMMISSION	10
Section 4.01	Ceding Commission	10
ARTICLE V	ADMINISTRATION FEE	10
Section 5.01	Policy Expenses	10
ARTICLE VI	REINSURED LIABILITIES	11
Section 6.01	Reinsured Liabilities	11
Section 6.02	Claims Settlement	11
Section 6.03	Recoveries	11
ARTICLE VII	REPORTING AND SETTLEMENTS	11
Section 7.01	Ceding Company Reporting	11
Section 7.02	Reinsurer Reporting	12
Section 7.03	Settlements & Adjustments	13

i

TABLE OF CONTENTS
(continued)

		Page
ARTICLE VIII	THE TRUST DEPOSIT, THE FUNDS WITHHELD ACCOUNT, AND INVESTMENT MANAGEMENT AGREEMENT	14
Section 8.01	Trust Deposit	14
Section 8.02	Funds Withheld Account	15
Section 8.03	Reserved	15
Section 8.04	Investment Management Agreement	15
ARTICLE IX	[RESERVED]	16
ARTICLE X	ADMINISTRATION	16
Section 10.01	Policy Administration	16
Section 10.02	Record-Keeping	17
ARTICLE XI	TERM AND TERMINATION	17
Section 11.01	Duration of Agreement	17
Section 11.02	Recapture	17
Section 11.03	Recapture Payment	18
Section 11.04	Survival	19
ARTICLE XII	ERRORS AND OMISSIONS	19
Section 12.01	Errors and Omissions	19
ARTICLE XIII	DISPUTE RESOLUTION	20
Section 13.01	Negotiation	20
Section 13.02	Arbitration; Waiver of Trial by Jury	20
ARTICLE XIV	INSOLVENCY	21
Section 14.01	Insolvency	21
ARTICLE XV	TAXES	22
Section 15.01	Taxes	22
Section 15.02	DAC Tax Election	22
Section 15.03	US Taxpayer	23
ARTICLE XVI	REPRESENTATIONS, WARRANTIES AND COVENANTS	23
Section 16.01	Representations and Warranties of the Ceding Company	23
Section 16.02	Covenants of the Ceding Company	25
Section 16.03	Representations and Warranties of the Reinsurer	26
Section 16.04	Covenants of the Reinsurer	27
ARTICLE XVII	MISCELLANEOUS	28
Section 17.01	Currency	28
Section 17.02	Interest	28

ii

TABLE OF CONTENTS
(continued)

		Page
Section 17.03	Right of Setoff and Recoupment	28
Section 17.04	No Third-Party Beneficiaries	28
Section 17.05	Amendment	29
Section 17.06	Notices	29
Section 17.07	Consent to Jurisdiction	30
Section 17.08	Service of Process	30
Section 17.09	Inspection of Records	30
Section 17.10	Confidentiality	31
Section 17.11	Successors	32
Section 17.12	Entire Agreement	32
Section 17.13	Severability	32
Section 17.14	Construction	32
Section 17.15	Non-Waiver	32
Section 17.16	Further Assurances	33
Section 17.17	Governing Law	33
Section 17.18	Counterparts	33

Schedules

I. Policy Forms and Riders

II. Policy Expenses

III. Initial Trust Deposit Assets and Funds Withheld Assets

IV. Permitted Ex-Gratia Payments

V. Determination of Crediting Rate and Quota Share

VI. §1.848-2(g)(8) Election

VII. Determination of Cede Commission

VIII. Allocation Percentage

IX. Reinsured Policies issued prior to the Effective Date

X. Leverage Measure

XI. Asset Reserves

XII. Hedging Returns

XIII. Trust Deposit Initial Deposit

XIV. Investment Manager

XV. Non-Guaranteed Elements

Exhibits

A. Form of Monthly Accounting Report

B. Trust Agreement

iii

FUNDS WITHHELD AND FUNDS PAID COINSURANCE AGREEMENT

(MYGA and FIA BUSINESS)

This FUNDS WITHHELD AND FUNDS PAID COINSURANCE AGREEMENT (this “Agreement”), effective as of January 1, 2020 (the “Effective Date”), is made by and between American Life & Security Corp., an insurance company organized under the laws of the State of Nebraska (the “Ceding Company”), and US Alliance Life and Security Company, a reinsurance company organized under the laws of the State of Kansas (the “Reinsurer”).

W I T N E S S E T H:

WHEREAS, subject to the terms, conditions and limitations contained herein, the Ceding Company desires to cede, on a Funds Withheld and Funds Paid Coinsurance basis, and the Reinsurer desires to accept, a Quota Share of certain liabilities with respect to certain MYGA and FIA business of the Ceding Company (the “Reinsurance Treaty”); and

WHEREAS, the Parties have agreed that upon a representation and warranty by the Reinsurer that it is a “Qualified Institutional Buyer” as such term is defined in 17 CFR § 230.144A (“SEC Rule 144A”), the Reinsurance Treaty will cease to both a Funds Withheld and Funds Paid agreement and will become solely a Funds Paid Coinsurance Agreement;

NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, the Ceding Company and the Reinsurer hereby agree as follows:

ARTICLE I
GENERAL PROVISIONS

Section 1.01     Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

“Accounts” shall mean collectively the Trust Deposit and the Funds Withheld Account, each one an “Account.”.

“Account Adjustment” shall mean a payment made pursuant to Section 7.03(b).

“Accounts Balance” shall mean the aggregate of book value of the Trust Deposit Balance and Funds Withheld Account Balance, as of any date of determination, as such book value is determined in accordance with Nebraska SAP.

“Accounts Required Reserves” shall mean Accounts Required Reserves-Funds Withheld plus Accounts Required Reserves-Trust, as of any date of determination.

“Accounts Required Reserves-Funds Withheld” shall mean an amount equal to the Quota Share of the Net Statutory Reserves times the Funds Withheld Allocation Percentage plus the Asset Reserves for assets included in the Funds Withheld Account, as of any date of determination.

“Accounts Required Reserves-Trust” shall mean an amount equal to the Quota Share of the Net Statutory Reserves times the Trust Allocation Percentage plus the Asset Reserves for assets included in the Trust Deposit, as of any date of determination.

“Action” shall mean (a) any civil, criminal or administrative action, suit, claim, litigation, arbitration or similar proceeding, in each case, before a Governmental Entity, or (b) any investigation or written inquiry by a Governmental Entity other than a tax audit or any examination by a taxing authority.

“Affiliate” shall mean, with respect to any Person, another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, such first Person, and the term “Affiliated” shall have a correlative meaning. For the purposes of this definition, “control”, when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly through the ownership of voting securities, and the terms “controlling” and “controlled” have the meanings correlative to the foregoing. For the avoidance of doubt, the Ceding Company and the Reinsurer shall not be deemed “Affiliates” for purposes of this Agreement.

“Agreement” shall have the meaning specified in the Preamble hereto.

“Allocation Percentage” shall mean the percentages set forth in Schedule VIII for the Trust Deposit and the Funds Withheld Account.

“Asset Reserves” shall have the meaning specified in Schedule XI.

“Authorized Representative” shall have the meaning specified in Section 14.01(a)(i).

“Business Day” shall mean any day other than a Saturday, Sunday or any other day on which banking institutions are authorized or required by Law to close in New York, New York.

“Ceding Commission” shall mean the percentage initially as set forth on Schedule VII, as may be amended by mutual agreement of the parties from time to time.

“Ceding Company” shall have the meaning specified in the Preamble hereto.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Covered Business” shall have the meaning specified in Section 2.01(b)(i).

“Crediting Rate” shall be the percentage determined based on the procedures set forth on Schedule V.

“Custodian” shall have the meaning specified in Section 8.02.

“Effective Date” shall have the meaning specified in the Preamble hereto.

“Excluded Liabilities” shall mean without duplication (a) all Extra-Contractual Obligations other than Reinsurer Extra-Contractual Obligations, (b) any liabilities resulting from any change to the terms of any Reinsured Policy after the Effective Date, unless such change is required by applicable Law or by the express terms of the Reinsured Policies, or has been approved in writing in advance by the Reinsurer, (c) any ex gratia payments made by the Ceding Company (i.e., payments the Ceding Company is not required to make under the terms of the Reinsured Policies) unless such payment has been approved in writing in advance by the Reinsurer, or is set forth in Schedule IV.

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“Extra-Contractual Obligations” shall mean any and all costs, expenses, damages, liabilities or obligations of any kind or nature which are not contractually covered by the terms and conditions of the Reinsured Policy, except those which are required, imposed or mandated by a Governmental Entity.

“Factual Information” shall have the meaning specified in Section 16.01(d).

“Fair Market Value” means with respect to any asset, and as of any date of determination, the price that would be received in a sale of such asset in accordance with GAAP accounting at the determination date (the “Price”), determined as: (i) for liquid assets, the Price for such asset as published by a nationally recognized pricing service where such prices are available and (ii) otherwise, the Price for such asset as determined by a qualified independent securities valuation firm, each pricing service or valuation firm to be selected by the Investment Manager with the consent of the Ceding Company, such consent not to be unreasonably withheld, conditioned or delayed. In the event that the Ceding Company and the Investment Manager cannot agree on a valuation firm, such valuation firm shall be Houlihan Lokey. The “fair market value” of any asset shall include any accrued but unpaid interest or dividend on such asset.

“Funds Paid Coinsurance” means Coinsurance as defined in Nebraska SAP 61R in which the reinsurance premium is paid to the Reinsurer rather than withheld in a funds withheld account or Modco deposit.

“Funds Paid Conversion Date” shall have the meaning specified in Section 3.03.

“Funds Withheld Account” shall have the meaning specified in Section 8.02(a).

“Funds Withheld Account Balance” shall mean the Statutory Carrying Value of assets in the Funds Withheld Account, as of any date of determination.

“GAAP” means generally accepted accounting principles in effect in the United States, consistently applied.

“Governmental Entity” shall mean any foreign, federal, state, local or other governmental, legislative, judicial, administrative or regulatory authority, agency, commission, board, body, court or entity or any instrumentality thereof.

“Initial Settlement Amount” shall have the meaning set forth in Section 3.02.

“Initial Settlement Date” shall mean April 10, 2020.

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“Investment Guidelines” shall be as set forth in the Investment Management Agreement, as may be amended from time to time.

“Investment Manager” shall have the meaning specified in Schedule XIV.

“Investment Management Agreement” shall have the meaning specified in Schedule XIV (as may be amended or supplemented from time to time).

“Investment Management Agreement FW” shall have the meaning specified in Schedule XIV (as may be amended or supplemented from time to time).

“Kansas SAP” shall mean the statutory accounting principles and practices prescribed or permitted for Kansas domiciled life insurance companies by the Kansas Department of Insurance, or, if different, of the state of domicile of the Reinsurer, consistently applied.

“Law” shall mean any law, statute, ordinance, written rule or regulation, order, injunction, judgment, decree, principle of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity.

“Leverage Measure” shall have the meaning set forth in Schedule X.

“Leverage Measure Limit” shall have the meaning set forth in Schedule X.

“Loss” or “Losses” shall mean claim payments (including returns and waivers of premium and other adjustments), Loss Adjustment Expenses, and reasonable legal fees and settlements, assessments, fines, penalties and filing fees, in each case, actually incurred by, and as determined by, the Ceding Company in good faith but in any event excluding Extra Contractual Obligations other than Reinsurer Extra Contractual Obligations.

“Loss Adjustment Expenses” shall mean loss adjustment expenses incurred in investigating, processing and settling losses that can be attributed to specific claims, including payments to outside vendors, such as lawyers and independent claim adjusters.

“Monthly Accounting Period” shall have the meaning specified in Section 7.01(a).

“Monthly Settlement” shall mean the making of all payments and adjustments specified in Section 7.03, including, without limitation, Account Adjustments.

“Nebraska SAP” shall mean the statutory accounting principles and practices prescribed or permitted for Nebraska domiciled life insurance companies by the Nebraska Department of Insurance, or, if different, of the state of domicile of the Ceding Company, consistently applied.

“Net Statutory Reserves” shall mean the statutory reserves of the Ceding Company in respect of the Reinsured Policies, which shall be calculated in good faith in accordance with Nebraska SAP and determined in a manner consistent with the Ceding Company’s historical practices; provided, however, that Net Statutory Reserves shall not include (a) any asset valuation reserves (as used in connection with Nebraska SAP) established by the Ceding Company, (b) any interest maintenance reserves (as used in connection with Nebraska SAP) established by the Ceding Company, (c) any additional actuarial reserves (as used in connection with Nebraska SAP), if any, established by the Ceding Company as a result of its annual cash flow testing or (d) any other reserve not directly attributable to specific Reinsured Policies.

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“Non-Guaranteed Elements” shall have the meaning specified in Schedule XV.

“Non-Public Personal Information” shall have the meaning specified in Section 17.10.

“Permits” shall mean any licenses, certificates of authority or other similar certificates, registrations, franchises, permits, approvals or other similar authorizations issued to a Person by a Governmental Entity.

“Permitted Assets” shall mean any asset which: (i) is a permitted asset under applicable Law, (ii) is an admitted asset of the Ceding Company under the applicable Laws of the State of Nebraska, (iii) is an admitted asset of the Reinsurer under the applicable Laws of the State of Kansas, and (iii) is permitted under the Investment Guidelines set forth in the Investment Management Agreement, and (iv) solely with respect to the Accounts, is a permissible asset to provide credit for reinsurance with respect to the Trust Deposit or Funds Withheld Account (as the case may be) under Nebraska SAP.

“Person” shall mean an individual, corporation, partnership, joint venture, limited liability company, association, trust, unincorporated organization, Governmental Entity or other entity.

“Policy Expenses” shall have the meaning specified in Section 5.01.

“Proprietary Information” shall have the meaning specified in Section 17.10(a).

“Quota Share” shall have the meaning specified in Schedule V.

“Recapture Effective Date” shall mean the date on which the liability of the Reinsurer with respect to all of the Reinsured Liabilities is terminated pursuant to Section 11.02 or the effective date of the rejection of this Agreement by any Receiver or of a recapture in full.

“Receiver” shall have the meaning specified in Section 11.03(a).

“Reinsurance Premiums” shall mean the Quota Share of the premiums, policy loan principal and interest payments, and other fees, amounts, payments, and collections received by the Ceding Company with respect to the Reinsured Policies.

“Reinsured Liabilities” shall mean the Quota Share of (a) Losses and liabilities of the Ceding Company with respect to the Reinsured Policies, (b) the Reinsurer Extra-Contractual Obligations divided by the applicable Quota Share, (c) liabilities with respect to premium taxes payable by the Ceding Company to the extent relating to premiums with respect to the Reinsured Policies and (d) trail commissions payable to producers with respect to the Reinsured Policies and other commissions payable with respect to premiums received by the Ceding Company after the Effective Date and paid to the Reinsurer; provided, that in no event shall “Reinsured Liabilities” include any Excluded Liabilities.

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“Reinsured Policies” shall mean insurance policies of the Ceding Company that are issued on or after the Effective Date and ceded in accordance with the provisions of this Agreement (including without limitation Schedule V) and including any riders that are listed on Schedule I and any amendments or endorsements attached thereto as of the Effective Date. For avoidance of doubt, Reinsured Policies includes riders and endorsements.

“Reinsurer” shall have the meaning specified in the Preamble hereto.

“Reinsurer Extra-Contractual Obligations” shall mean Extra-Contractual Obligations relating to the Reinsured Policies to the extent caused by, arising from or related to any act of, or failure to act by, the Reinsurer or any of its Affiliates following the Effective Date.

“Statutory Carrying Value” shall mean, with respect to any asset, as of the relevant date of determination, the carrying value amount permitted to be carried by the Ceding Company as an admitted asset consistent with Nebraska SAP in its statutory financial statements.

“Terminal Accounting Report” shall have the meaning specified in Section 11.03(a).

“Treasury Regulations” shall mean all proposed, temporary and final regulations promulgated under the Code, as such regulations may be amended from time to time.

“Trust Agreement” shall mean the agreement among the Ceding Company, the Reinsurer and the Trust Deposit Trustee which is attached hereto as Exhibit B.

“Trust Deposit” shall have the meaning specified in Section 8.01(a).

“Trust Deposit Balance” shall mean the Statutory Carrying Value of assets in the Trust Deposit, as of any date of determination.

“Trust Deposit Trustee” shall have the meaning specified in Section 8.01(a).

Section 1.02     Other Definitional Provisions.

(a)     For purposes of this Agreement, the words “hereof,” “herein,” “hereby” and other words of similar import refer to this Agreement as a whole, including all Schedules and Exhibits to this Agreement, unless otherwise indicated.

(b)     Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate.

(c)     The term “including” means “including but not limited to.”

(d)     The Schedules and Exhibits hereto are hereby incorporated by reference into the body of this Agreement.

(e)     All references herein to Articles, Sections, Subsections, Paragraphs, Exhibits and Schedules shall be deemed references to Articles and Sections and Subsections and Paragraphs of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require.

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(f)     All terms defined in this Agreement shall have the defined meaning when used in any Schedule, Exhibit, certificate, report or other documents attached hereto or made or delivered pursuant hereto unless otherwise defined therein.

(g)     Any reference to an agreement, statute, regulation or rule is to the same as amended from time to time, and at any time.

ARTICLE II
COVERAGE

Section 2.01 Scope and Basis of Reinsurance.

(a)     This Agreement shall be effective as of 12:00:01 a.m. Eastern Time on the Effective Date.

(b)      Cession:

(i)     Subject to the terms, conditions and limits of this Agreement (including the exclusion from coverage of Excluded Liabilities), the Ceding Company shall automatically cede, and the Reinsurer shall automatically reinsure, on a funds paid coinsurance basis the Reinsured Liabilities (the “Covered Business”).

(ii)     Reserved

(c)     Subject to the terms, conditions and limits of this Agreement (including the exclusion from coverage of Excluded Liabilities), the Reinsurer shall follow the fortunes of the Ceding Company, and to that end the Reinsurer’s liability for the Reinsured Policies shall be identical to that of the Ceding Company and shall be subject to the same risks, terms, conditions, interpretations, waivers, modifications, alterations and cancellations to which the Ceding Company is subject with respect to the Reinsured Policies, subject in each case to the Ceding Company’s duty to adhere to its obligations pursuant to Article X.

(d)     Notwithstanding anything to the contrary herein, the Reinsurer shall not be liable for any Excluded Liabilities.

Section 2.02 Policy Changes.

(a)     The Ceding Company shall not, without the prior written consent of the Reinsurer, terminate, amend, modify or waive any provision or provisions of the Reinsured Policies, except to the extent required by a Governmental Entity.

(b)     Any such terminations, amendments, modifications or waivers made without the prior written consent of the Reinsurer shall be disregarded for purposes of this Agreement, and the reinsurance with respect to the affected Reinsured Policy will continue as if such termination, amendment, modification or waiver had not been made.

Section 2.03     Reinstatement of Surrendered Policies. If a Reinsured Policy that has been surrendered (other than in connection with a surrender upon maturity) is reinstated according to its terms and the Ceding Company’s reinstatement policies, the Reinsurer will, upon notification, automatically reinstate the reinsurance with respect to such Reinsured Policy; provided, that, to the extent that the reinstatement of such Reinsured Policy requires payment of premiums in arrears or reimbursement of claims paid, the Ceding Company shall pay to the Reinsurer all Reinsurance Premiums in arrears and Reinsurer shall pay all reimbursements of Reinsured Liabilities paid on such Reinsured Policy.

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Section 2.04     Misstatement of Fact. In the event of a change in the amount payable under a Reinsured Policy due to a misstatement of fact by a policyholder, the Reinsurer’s liability with respect to such Reinsured Policy will change proportionately. Such Reinsured Policy will be rewritten from commencement on the basis of the adjusted amounts using premiums and such other terms based on the correct facts, and the proper adjustment for the difference in Reinsurance Premiums, without interest, will be made.

Section 2.05     Non-Guaranteed Elements. The Ceding Company will be responsible for determining the Non-Guaranteed Elements of the Reinsured Policies in good faith and consistent with its standard business practices; provided, that the Reinsurer shall be permitted to provide recommendations regarding the Non-Guaranteed Elements and, to the extent such recommendations comply with applicable Law, generally accepted actuarial standards of practice, the terms of the Reinsured Policies and the Ceding Company’s internal policies the Ceding Company shall not unreasonably take any actions that contravene such recommendations and shall promptly incorporate such recommendations. If the Ceding Company fails to adhere to such recommendations in any material respect, then the Ceding Company shall promptly notify the Reinsurer in writing of such failure. Crediting Rates shall be subject to Section 2.06 exclusively and not to this Section 2.05.

Section 2.06     Crediting Rates. The Ceding Company and the Reinsurer shall establish the Crediting Rate on any date of determination as set forth based on the procedures in Schedule V.

Section 2.07     Programs of Internal Replacement. The Ceding Company shall not solicit, or allow any of its Affiliates to solicit, directly or indirectly, policy holders of the Reinsured Policies in connection with any program of internal replacement without the prior written consent of the Reinsurer. The term “program of internal replacement” means any program sponsored or supported by the Ceding Company or any of its Affiliates that is offered to a class of policy owners and in which a Reinsured Policy or a portion of a Reinsured Policy is exchanged for another policy that is written by the Ceding Company or any Affiliate of the Ceding Company or any successor or assignee of any of them.

Section 2.08     RESERVED

Section 2.09     RESERVED

Section 2.10     RESERVED

Section 2.11    Valuation of Liabilities. The Ceding Company shall calculate the Net Statutory Reserves with respect to the Reinsured Policies in good faith in accordance with Nebraska SAP and determined in a manner consistent with the Ceding Company’s historical practices; provided, that, the Ceding Company shall provide the Reinsurer supporting information promptly upon request and in the event there is a disagreement with respect to the calculation, the Dispute Resolution procedures herein shall be applied.

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Section 2.12     Credit For Reinsurance. In the event the Ceding Company does not receive credit for reinsurance in its statutory financial statements for the Reinsured Liabilities, the parties shall amend this Agreement and take such commercially reasonable actions as are required to provide the Ceding Company with full credit for the reinsurance ceded hereunder.

Section 2.13     Reserved.

Section 2.14     Options Budget and Payoff for FIA.

(a) With respect to FIA Reinsured Policies, the Ceding Company shall purchase derivatives in respect of the Reinsured Policies (each, a “Hedge” and collectively, the “Hedges”), in the form of futures contracts and equity index options, to hedge index risk associated with the Reinsured Policies.

(b) The Reinsurer shall pay to the Ceding Company for each accounting period, in accordance with Section 7.3, the Quota Share of all amounts becoming due in connection with the purchase of derivatives by the Ceding Company (the “Option Budget”), as defined in Schedule XII.

(c)     The Ceding Company shall pay to the Reinsurer for each accounting period, in accordance with Section 7.3, the Quota Share of all amounts becoming due and payable to the Ceding Company during the applicable period in connection with the exercise by the Ceding Company or maturity of any Hedges, whether or not collected (the “Option Payoff”), as defined in Schedule XII.

(d)     The Option Budget payable by the Reinsurer to the Ceding Company pursuant to subsection (b) above shall be paid without regard to the actual costs paid by the Ceding Company for the Hedges purchased. The Option Payoff payable by the Ceding Company to the Reinsurer pursuant to subsection (c) above shall be paid without regard to the actual proceeds received by the Ceding Company with respect to the Hedges collected. The Ceding Company shall have no obligation to pay to the Reinsurer any portion of the actual proceeds received by the Ceding Company with respect to the Hedges, or any other amounts in respect of the Hedges, other than the Option Payoff amounts. For the avoidance of doubt, the Reinsurer has no liability for any hedge effectiveness and hedging is assumed to be 100% effective for purposes of Settlement.

(e)     The Ceding Company shall use reasonable care in its hedging activities with respect to the Reinsured Policies, and such activities shall (a) be conducted in good faith and (b) conform with Applicable Law.

(f)     With respect to a FIA Fixed Interest Account, the Reinsurer shall pay the Option Budget to the Ceding Company and the Ceding Company shall pay an Option Payoff to the Reinsurer equal to the actual fixed interest rate established by the Ceding Company at each Reinsured Policy anniversary or upon death, surrender, or partial surrender as would be due to the policyholder under the terms of such policy.

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ARTICLE III
REINSURANCE PREMIUMS

Section 3.01     Reinsurance Premiums. The payment of Reinsurance Premiums is a condition precedent to the liability of the Reinsurer under this Agreement. All Reinsurance Premiums shall be payable in accordance with this Section on the Initial Settlement Date and in accordance with Section 7.03.

Section 3.02     Initial Settlement Amount.

(a)     On the Initial Settlement Date, the Ceding Company shall (i) retain in the Funds Withheld Account and (ii) transfer to the Trust Deposit (in accordance with the Allocation Percentage) an amount equal to $ $13,542,324.63 (the “Initial Settlement Amount”) calculated based on the line items set forth in Schedule III-A, as agreed upon the parties in good faith on the Covered Business.

(b)     A list of the assets to be deposited in the Trust Deposit and the Funds Withheld Account in payment of the Initial Settlement Amount is set forth on Schedule III-B attached hereto.

(c)     The Reinsurer shall deposit into the Trust Deposit amounts set forth on Schedule XIII on the Initial Settlement Date.

Section 3.03     Funds Paid Conversion.

(a)     Upon a representation and warranty by the Reinsurer that it is a “Qualified Institutional Buyer” as defined in SEC Rule 144A, the coinsurance provided under this Reinsurance Treaty shall be entirely on a Funds Paid Coinsurance basis. Accordingly, the Ceding Company shall promptly thereafter transfer to the Trust Deposit the cash or assets held in the Funds Withheld Account (the completion of which shall be the “Funds Paid Conversion Date”). The assets shall be transferred at Fair Market Value. Any difference between the Fair Market Value and the Statutory Carrying Value of the assets transferred shall be accounted for in the Ceding Company’s IMR. The assets so transferred to the Trust Deposit shall be carried at a new Statutory Carrying Value equal to the Fair Market Value at the time of transfer to the Trust Deposit.

ARTICLE IV
CEDING COMMISSION

Section 4.01     Ceding Commission. The Reinsurer shall pay to the Ceding Company the Ceding Commission on all Reinsurance Premiums paid to the Reinsurer (including on the Initial Settlement Date). For avoidance of doubt, the Ceding Company may withhold the Ceding Commission amount from the Reinsurance Premiums owed to the Reinsurer, and the Reinsurer’s payment obligation shall thereupon be deemed satisfied.

ARTICLE V
ADMINISTRATION FEE

Section 5.01     Policy Expenses. The Reinsurer shall pay the ceding company an administrative expense fee (“Policy Expenses”) to cover the cost of providing all administrative and other services necessary or appropriate in connection with the administration and distribution (including the product development fee) of the Reinsured Policies and the Reinsured Liabilities, determined in accordance with Schedule II attached hereto.

(a)     Reserved.

(b)     With respect to Covered Business, the Reinsurer shall pay the Policy Expenses on a monthly basis.

(c)     Policy Expenses shall be payable by the Reinsurer to the Ceding Company in accordance with Section 7.03.

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ARTICLE VI
REINSURED LIABILITIES

Section 6.01     Reinsured Liabilities. Subject to Sections 6.02 and 6.03, the Reinsurer shall pay to the Ceding Company all Losses on Reinsured Liabilities.

Section 6.02     Claims Settlement.

(a)     Subject to Section 6.02(b) and 6.03, the Ceding Company shall be responsible for the settlement of claims with respect to the Reinsured Liabilities in accordance with Article X, applicable Law and the terms and conditions of the Reinsured Policies.

(b)     The Ceding Company shall notify the Reinsurer in writing if the Ceding Company determines that a claim for payment under a Reinsured Policy either requires investigation or should be contested or denied. The Reinsurer and the Ceding Company shall consult in good faith regarding the disposition of any such claim. The Reinsurer may, but shall not be required to, recommend to the Ceding Company how to handle such claim. In the event of any disagreement between the Ceding Company and the Reinsurer as to the validity or amount of such a claim, the Ceding Company shall have final authority over the disposition of such claim.

Section 6.03     Recoveries. Subject to Section 6.02(b), if the Ceding Company obtains any recoveries in respect of a claim with respect to the Reinsured Liabilities paid by it in accordance with the terms of any Reinsured Policy, the Ceding Company shall promptly pay to the Reinsurer such recoveries (“Recoveries”).

ARTICLE VII
REPORTING AND SETTLEMENTS

Section 7.01     Ceding Company Reporting.

(a)     Within ten (10) Business Days of the Initial Settlement Date and within five (5) Business Days following the end of each calendar month following the Initial Settlement Date, the Ceding Company shall deliver to the Reinsurer a monthly accounting report (a “Monthly Accounting Report”) substantially in the form set forth in Exhibit A for such calendar month (a “Monthly Accounting Period”). The parties shall from time to time amend Exhibit A as necessary to appropriately effectuate the terms and conditions of this Agreement and to ensure the accounting and settlements made hereunder are correctly computed. The net amount due as set forth in such Monthly Accounting Report shall be due within three (3) Business Days following the date of delivery of such Monthly Accounting Report.

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(b)     Reserved

(c)     Within ten (10) Business Days following the end of each Monthly Accounting Period or Recapture Effective Date, the Ceding Company shall deliver to the Reinsurer, as of the end of such Monthly Accounting Period or the Recapture Effective Date, as applicable, a report of the Reinsured Policies in the form as mutually agreed by the parties.

(d)     The Reinsurer shall deliver to the Ceding Company, as of the end of such Monthly Accounting Period or the Recapture Effective Date, as applicable, within six (6) Business Days following the end of each Monthly Accounting Period or the Recapture Effective Date, an investment accounting report of the assets held in the Trust Deposit (or Funds Withheld Account, if prior to the Funds Paid Conversion Date) which shall include the holdings, Statutory Carrying Value, and such other information agreed to by the parties in each case, on a CUSIP level.

(e)     The Ceding Company shall deliver to the Reinsurer: (i) within five (5) Business Days following the filing of the Ceding Company’s unaudited annual statement with the Nebraska Department of Insurance but no later than March 20 of each year, a copy of such unaudited annual statement; (ii) within five (5) Business Days of the filing of the Ceding Company’s audited annual statutory financial statements with the Nebraska Department of Insurance but no later than June 20 of each year, a copy of such annual statutory financial statements; and (iii) within five (5) Business Days following the filing of the Ceding Company’s unaudited quarterly statutory financial statements with the Nebraska Department of Insurance but no later than sixty (60) calendar days following the end of each calendar quarter, a copy of such unaudited quarterly statutory financial statements.

(f)     Upon request, the Ceding Company will, within a reasonable timeframe, promptly provide the Reinsurer with any additional information related to the Reinsured Policies reasonably available to the Ceding Company and not reasonably available to the Reinsurer which the Reinsurer requires in order to complete its financial statements or is otherwise required to comply with regulatory requirements. The Reinsurer will identify and communicate any such requests to the Ceding Company sufficiently in advance of any required deadlines such that the applicable information and timing for the provision thereof can be mutually agreed by the parties.

Section 7.02     Reinsurer Reporting.

(a)     The Reinsurer shall deliver to the Ceding Company: (i) within five (5) Business Days of the filing of the Reinsurer’s audited annual financial statements with the State of Kansas or such other state regulator with authority over the Reinsurer (the “Reinsurer Regulator”) but no later than June 20 of each year, a copy of such annual financial statements; (ii) within fifteen (15) Business Days following the end of each calendar quarter a calculation of its Leverage Measure, and (iii) within five (5) Business Days following the filing of the Reinsurer’s unaudited quarterly financial statements with the Reinsurer Regulator but no later than sixty (60) calendar days following the end of each calendar quarter, a copy of such unaudited quarterly financial statements.

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Section 7.03     Settlements & Adjustments.

(a)      Following the Initial Settlement Date, there shall be payments between the Ceding Company and the Accounts based on the following:

(i)     Additional Premiums and Other Recoveries. On a weekly basis, the Ceding Company shall deliver into the Accounts based on the Allocation Percentage the Reinsurance Premiums and Recoveries received in connection with the Covered Business.

(ii)     Payments due from Accounts. On any day the Ceding Company may withdraw funds from the Accounts to pay amounts due from the Reinsurer and as such the Accounts Balance will be decreased by an amount equal to any payments due from the Reinsurer to the Ceding Company hereunder. All such payments will be effectuated in cash or by the liquidation of assets (at the direction of the Investment Manager) in the applicable Account(s) into cash (in the event there is insufficient cash in the account) in an amount sufficient to pay all amounts owed by the Reinsurer to the Ceding Company and the transfer of such cash to the Ceding Company in settlement of the payments due from the Reinsurer to the Ceding Company.

(b)     As of the end of each Monthly Accounting Period, there shall be payments between the Reinsurer and the Accounts based on the following, fifteen (15) Business Days following the delivery of each Monthly Accounting Report:

(i)      Payments to the Trust Deposit.

(A)     In the event the Leverage Measure is less than the Leverage Limit, such amount necessary to cure such limit breach shall be paid by the Reinsurer promptly and in any event, within 15 Business Days and such payment deposited into the Trust Deposit. Any assets other than cash that are deposited into the Trust Deposit must satisfy clause (iv) of the definition of Permitted Asset and shall be valued according to Fair Market Value.

(ii)     Payments to the Reinsurer.

(A)     After the first anniversary of this Agreement, if the Leverage Measure is greater than the Leverage Limit, such overage may be requested by the Reinsurer to be withdrawn from the Trust Deposit; provided any payment made hereunder in assets other than cash shall be at the Fair Market Value of such asset.

(c)     As of the end of each Monthly Accounting Period prior to the Funds Paid Conversion Date, there shall be payments between the Trust Deposit and the Funds Withheld Account based on the following, fifteen (15) Business Days following the delivery of each Monthly Accounting Report:

(i)     Payments to the Funds Withheld Account. In the event the Accounts Required Reserves-Funds Withheld is greater than the Funds Withheld Account Balance, such positive difference shall be paid from the Trust Deposit to the Funds Withheld Account.

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(ii)     Payments to the Trust Deposit. In the event the Funds Withheld Account Balance is greater than the Accounts Required Reserves-Funds Withheld, such positive difference shall be paid from the Funds Withheld Account to the Trust Deposit.

(d)     Other.

(i)     Except as otherwise set forth herein, any amount due under this Agreement shall be paid by wire transfer of immediately available funds to the account or accounts designated by the recipient thereof.

ARTICLE VIII
THE TRUST DEPOSIT, THE FUNDS WITHHELD ACCOUNT, AND INVESTMENT MANAGEMENT AGREEMENT

Section 8.01     Trust Deposit.

(a)      Prior to the Initial Settlement Date, the Ceding Company and the Reinsurer shall establish a funds paid coinsurance account (the “Trust Deposit”) to hold the funds paid coinsurance deposit on the books and records of the Reinsurer with the Reinsurer as grantor thereof, and the Ceding Company as beneficiary. The Trust Deposit shall be established with Capitol Federal Savings Bank (as trustee of such trust account, the “Trust Deposit Trustee”) under the terms of the Trust Agreement.

(b)     The Trust Deposit and the assets maintained therein will be owned and maintained by the Reinsurer and will be subject to the terms of the Trust Agreement and used exclusively for the purposes set forth in this Agreement. The assets maintained in the Trust Deposit shall be invested by the Investment Manager and consist only of Permitted Assets, and the Permitted Assets shall be valued, for the purposes of this Agreement, according to their Statutory Carrying Value.

(c)     Notwithstanding any other provision hereof, assets held in the Trust Deposit may be withdrawn by the Ceding Company at any time and shall be utilized and applied by the Ceding Company or any of its successors in interest by operation of law, including any liquidator, rehabilitator, receiver or conservator of the Ceding Company, without diminution because of insolvency on the part of the Ceding Company or the Reinsurer, only in accordance with Section 7.03.

(d)     Determinations of statutory impairments of assets maintained in the Trust Deposit shall be made by the Ceding Company and shall be (i) based upon the statutory rules and guidelines and the impairment policy used by the Ceding Company and its auditors for purposes of calculating statutory impairments reflected in the Ceding Company’s statutory financial statements and (ii) subject to consultation between the Investment Manager, the Reinsurer and the Ceding Company. The Ceding Company shall promptly notify the Reinsurer in writing if the Ceding Company determines that any assets maintained in the Trust Deposit have become impaired for purposes of determining Statutory Carrying Value. Such notice shall describe any such assets, the reason for the impairment and the effect on Statutory Carrying Value of such assets.

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(e)     The Reinsurer shall bear the administrative costs and expenses related to the establishment and maintenance of the Trust Deposit, including the fees of the Trust Deposit Trustee to the extent relating to the Trust Deposit.

(f)     The performance of the assets maintained in the Trust Deposit, including of all investment income paid or accrued, investment gains or losses, defaults and/or statutory impairments, will inure to the sole benefit or cost of the Reinsurer.

Section 8.02     Funds Withheld Account.

(a)      Prior to the Initial Settlement Date, the Ceding Company shall establish a sub-account with a unique account number on its balance sheet (the “Funds Withheld Account”) with assets to be settled as set forth in Section 8.02(b).

(b)     The Funds Withheld Account and the assets maintained therein will be owned and maintained by the Ceding Company until settled in accordance with this section and will be used exclusively for the purposes set forth in this Agreement. The assets maintained in the Funds Withheld Account shall be invested by the Investment Manager pursuant to the Investment Management Agreement and consist only of Permitted Assets, and the Permitted Assets shall be valued, for the purposes of this Agreement, according to their Statutory Carrying Value.

(c)     Notwithstanding any other provision hereof, assets held in the Funds Withheld Account may be withdrawn by the Ceding Company at any time and shall be utilized and applied by the Ceding Company or any of its successors in interest by operation of law, including any liquidator, rehabilitator, receiver or conservator of the Ceding Company, without diminution because of insolvency on the part of the Ceding Company or the Reinsurer, only in accordance with Section 7.03.

(d)     Determinations of statutory impairments of assets maintained in the Funds Withheld Account shall be made by the Ceding Company and shall be (i) based upon the statutory rules and guidelines and the impairment policy used by the Ceding Company and its auditors for purposes of calculating statutory impairments reflected in the Ceding Company’s statutory financial statements and (ii) subject to consultation between the Investment Manager, the Reinsurer and the Ceding Company. The Ceding Company shall promptly notify the Reinsurer in writing if the Ceding Company determines that any assets maintained in the Funds Withheld Account have become impaired for purposes of determining Statutory Carrying Value. Such notice shall describe any such assets, the reason for the impairment and the effect on Statutory Carrying Value of such assets.

(e)     The Ceding Company shall bear the administrative costs and expenses related to the establishment and maintenance of the Funds Withheld Account, including the fees of the Custodian to the extent relating to the Funds Withheld Account.

(f)     The performance of the assets maintained in the Funds Withheld Account, including of all investment income paid or accrued, investment gains or losses, defaults and/or statutory impairments, will inure to the sole benefit or cost of the Reinsurer.

Section 8.03     Reserved.

Section 8.04     Investment Management Agreement.

(a)     Pursuant to the Investment Management Agreement, the Reinsurer has appointed the Investment Manager to provide investment management services with respect to the assets maintained in the Trust Deposit account. The Reinsurer shall not amend, modify or change the terms of the Investment Management Agreement, including the investment guidelines attached as an exhibit thereto, or remove or replace the Investment Manager without the prior written consent of the Ceding Company. If the Ceding Company and the Reinsurer agree to any amendments, modifications or changes to the investment management agreement, then the Reinsurer shall propose such changes in writing to the Investment Manager in accordance with the terms of the Investment Management Agreement. The Reinsurer shall not propose any additional limitations (including with respect to asset allocations) on the assets maintained in the Trust Deposit account without the prior written consent of the Ceding Company. In the event that the Investment Manager is removed or resigns, the Ceding Company and the Reinsurer shall mutually agree (in good faith) on a replacement investment manager. The replacement investment manager shall accept its appointment by entering into an investment management agreement in a form acceptable to the Ceding Company and the Reinsurer.

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(b)     Pursuant to the Investment Management Agreement FW, the Ceding Company has appointed the Investment Manager as investment manager to provide investment management services with respect to the assets maintained in the Funds Withheld Account. The Ceding Company shall not amend, modify or change the terms of the Investment Management Agreement, including the Investment Guidelines attached as an exhibit thereto, or remove or replace the Investment Manager without the prior written consent of the Reinsurer, such consent not to be unreasonably withheld. If the Ceding Company and the Reinsurer agree to any amendments, modifications or changes to the investment management agreement, then the Ceding Company shall propose such changes in writing to the Investment Manager in accordance with the terms of the Investment Management Agreement. The Ceding Company shall not propose any additional limitations (including with respect to asset allocations) on the assets maintained in the Funds Withheld Account without the prior written consent of the Reinsurer. In the event that the Investment Manager is removed or resigns, the Ceding Company and the Reinsurer shall mutually agree (in good faith) on a replacement investment manager. The replacement investment manager shall accept its appointment by entering into an investment management agreement in a form acceptable to the Ceding Company and the Reinsurer.

ARTICLE IX
[RESERVED]

ARTICLE X
ADMINISTRATION

Section 10.01     Policy Administration. The Ceding Company shall provide all required, necessary and appropriate claims, administrative and other services, including reporting under Article VII, with respect to the Reinsured Policies and the Accounts. The Ceding Company shall conduct its administration and claims practices with respect to the Reinsured Policies (a) with a level of skill, diligence and expertise that would reasonably be expected from experienced and qualified personnel performing such duties in similar circumstances, (b) in accordance with applicable Law and the terms of the Reinsured Policies, and (c) in a manner no less favorable to the Reinsurer and the Reinsured Policies than those used by the Ceding Company with respect to other policies of the Ceding Company not reinsured by the Reinsurer hereunder or other hedges of the Ceding Company. The Ceding Company shall not outsource any administrative functions or claims administration to a non-affiliate with respect to the Reinsured Policies or this Agreement without the prior written consent of the Reinsurer, such consent not to be unreasonably withheld. If the Reinsurer consents to any outsourcing of any administrative functions or claims administration with respect to the Reinsured Policies or this Agreement, the Ceding Company shall secure the Reinsurer’s right to audit and inspect the party performing such outsourced services.

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Section 10.02     Record-Keeping.

(a)     Each of the Ceding Company and Reinsurer shall maintain all records and correspondence for services performed by such party hereunder relating to the Reinsured Policies in accordance with industry standards of insurance record- keeping. In addition, such records shall be made available for examination, audit, and inspection by the other party, or the department of insurance of any jurisdiction within which either the Ceding Company or the Reinsurer operates. The Ceding Company and the Reinsurer further agree that in the event of the termination of this Agreement, any such records solely in the possession of the Reinsurer shall promptly be duplicated and forwarded to the Ceding Company unless otherwise instructed.

(b)     The Ceding Company shall establish and maintain an adequate system of internal controls and procedures for financial reporting relating to the Reinsured Policies and the Accounts, including associated documentation, and shall make such documentation available for examination and inspection by the Reinsurer. All reports provided by the Ceding Company pursuant to Article VII shall be prepared in accordance with such system and procedures and shall be consistent with the Ceding Company’s books and records.

ARTICLE XI
TERM AND TERMINATION

Section 11.01     Duration of Agreement.

(a)     This Agreement shall continue in force until such time as (i) the Ceding Company has no further liabilities or obligations with respect to the Reinsured Liabilities or (ii) the Agreement is terminated by mutual agreement of the parties.

(b)     Subject to any limitations in Schedule V, the Ceding Company is obligated to cede and the Reinsurer is obligated to accept new business under this Agreement until (i) the Agreement is terminated as to new business on 30 days prior written notice by either the Ceding Company or the Reinsurer or (ii) the Agreement is terminated as to new business on 30 days prior written notice by the Ceding Company following the Reinsurer failing to maintain its Leverage Measure at or above the Leverage Measure Limit.

Section 11.02     Recapture.

(a)     Neither party shall be permitted to cause a recapture of the Reinsured Policies except in accordance with this Section 11.02. For the avoidance of doubt, neither party shall be permitted to cause a partial recapture of the Reinsured Policies pursuant to this Section 11.02 other than as set out in 11.02(c) or 11.02(f).

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(b)     Recapture for Non-Payment. Either party may cause the Reinsured Policies to be recaptured in full and this Agreement to be terminated as to all Reinsured Policies if the other party fails to pay any amounts due under this Agreement within thirty (30) calendar days following written notice of non-payment from the non-defaulting party. The Ceding Company may cause the Reinsured Policies to be recaptured in full and this Agreement to be terminated as to all Reinsured Policies if the Reinsurer breaches in any material respect any representation, warranty or covenant under this Agreement and fails to cure such breach within thirty (30) days of receipt of written notice thereof.

(c)     Recapture of Renewals. In the event that this Agreement has been terminated with respect to new business under 11.01(c), the Ceding Company may recapture any Reinsured Policy under this Agreement that is either subject to a renewal under its terms for MYGAs or out of its surrender charge period for FIAs; provided the Ceding Company must provide notice to the Reinsurer no later than 10 Business Days prior to the maturity date of each such Reinsured Policy.

(d)     Recapture by Ceding Company for Other Material Breach. The Ceding Company may terminate this Agreement and recapture all of the Reinsured Policies in the event the Reinsurer materially breaches this Agreement and fails to substantially cure such material breach within thirty (30) calendar days following written notice thereof from the Ceding Company.

(e)     Recapture for Insolvency of Reinsurer. The Ceding Company may terminate this Agreement and recapture all of the Reinsured Policies in the event that the Reinsurer becomes insolvent (as set forth in Article XIV) by providing the Reinsurer or its Authorized Representative with written notice of recapture within thirty days of the date on which the Reinsurer’s insolvency is established by the authority responsible for such determination. The recapture will be effective as of the date on which the Reinsurer’s insolvency is established by the authority responsible for such determination. Any requirement for a notification period prior to the termination of this Agreement shall not apply under such circumstances.

(f)     Hedging Recapture Event. The Ceding Company may recapture any FIA Reinsured Policy under this Agreement that has a Guaranteed Minimum Cash Surrender Value that is greater than its Contract Value as such terms are defined in the Reinsured Policy form; and provided the Ceding Company complies with such required timing of notice set out in Schedule XII.

Section 11.03     Recapture Payment.

(a)     In the event the Reinsured Policies are recaptured in full (including if this Agreement is rejected by any liquidator, receiver, rehabilitator, trustee or similar Person acting on behalf of the Ceding Company (a “Receiver”)), a net accounting and settlement as to any balance due under this Agreement shall be undertaken by the Ceding Company in accordance with Article VII, which calculations shall be as of the Recapture Effective Date. Within ten (10) Business Days following the later of the Recapture Effective Date or becoming aware that a recapture event has occurred, the Ceding Company shall deliver to the Reinsurer a final Monthly Accounting Report starting as of the prior Monthly Accounting Report and ending on the Recapture Effective Date (the “Terminal Accounting Report”), and all amounts required to be paid in connection with the final settlement (including all Account Adjustments) set forth in such Terminal Accounting Report shall be paid in accordance with Section 7.03 as if the Recapture Effective Date were the end of the month. In addition to all amounts required to be paid in connection with the final settlement, the Reinsurer shall pay an amount equal to the Accounts Required Reserves to the Ceding Company, such payment to be effectuated by the Ceding Company retaining assets in the Accounts with an aggregate fair value equal to the Accounts Required Reserves. Following the making of all payments required to be made by the Reinsurer hereunder (including any Account Adjustments and the payment of the Accounts Required Reserves to the Ceding Company) any remaining assets in the Accounts shall be delivered to one or more accounts as directed by the Reinsurer.

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(b)     Either party’s right to terminate the reinsurance provided hereunder will not prejudice its right to collect amounts owed to it hereunder, including applicable interest as specified in Section 17.02, for the period during which such reinsurance was in force, through and including any notice period.

(c)     In the event of a renewal recapture under Section 11.02(c) or a hedging recapture under 11.02(f), the Reinsured Liability to such Reinsured Policy shall be extinguished upon the Reinsurer’s settlement of those items in Section 7.03 and the payment of the Quota Share of the Net Statutory Reserves with respect to the recaptured policy (such payment to be effectuated by the Ceding Company retaining assets in the Accounts with an aggregate book value equal to the Net Statutory Reserves), and in each case, solely related to such Reinsured Policy.

(d)     For the avoidance of doubt, in the event this Agreement terminates for new business pursuant to Section 11.01 Reinsurer shall remain liable for the Reinsured Policies ceded hereunder in accordance with the terms of this Agreement. Reinsurer shall have no further liabilities or obligations arising after the recapture date of any recaptured Reinsured Policies as provided for in Section 11.02.

Section 11.04     Survival. All provisions of this Agreement will survive any termination of this Agreement and recapture of the Reinsured Policies to the extent necessary to carry out the purpose of this Agreement.

ARTICLE XII
ERRORS AND OMISSIONS

Section 12.01     Errors and Omissions. Any unintentional or accidental failure to comply with the terms of this Agreement which is the result of an oversight or clerical error relating to the administration of reinsurance by either party will not constitute a breach of this Agreement; provided, that, upon discovery, the error shall be promptly corrected so that both parties are restored to the position they would have occupied had the oversight or clerical error not occurred. In the event a payment is corrected, the party receiving the payment shall be entitled to interest in accordance with Section 17.02. Should it not be possible to restore both parties to this position, the party responsible for the oversight or clerical error will be responsible for any resulting liabilities and expenses.

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ARTICLE XIII
DISPUTE RESOLUTION

Section 13.01     Negotiation.

(a)     Within fifteen (15) calendar days after the Reinsurer or the Ceding Company has given the other party written notification of a specific dispute arising out of or relating to this Agreement, each party will appoint a designated officer of its company to attempt to resolve such dispute. The officers will meet at a mutually agreeable time and location as soon as reasonably possible but no later than thirty (30) calendar days after such written notification and as often as reasonably necessary in order to gather and furnish the other with all appropriate and relevant information concerning the dispute. Any such meetings may be held by telephone or video conference. The officers will discuss the matter in dispute and will negotiate in good faith without the necessity of formal arbitration proceedings. During the negotiation process, all reasonable requests made by one officer to the other for information will be honored. The specific format for such discussions will be decided by the designated officers.

(b)     If the officers cannot resolve the dispute within thirty (30) calendar days of their first meeting, the dispute will be submitted to formal arbitration pursuant to Section 13.02, unless the parties agree in writing to extend the negotiation period for an additional thirty (30) calendar days.

Section 13.02     Arbitration; Waiver of Trial by Jury.

(a)     It is the intention of the Reinsurer and the Ceding Company that the customs and practices of the insurance and reinsurance industry will be given full effect in the operation and interpretation of this Agreement. If the Reinsurer and the Ceding Company cannot mutually resolve a dispute that arises out of or relates to this Agreement, including the validity of this Agreement, and the dispute cannot be resolved through the negotiation process, then the dispute will be finally settled by arbitration in accordance with the provisions of this Section 13.02.

(b)     To initiate arbitration, either the Ceding Company or the Reinsurer will notify the other party pursuant to Section 17.06 of its desire to arbitrate, stating the nature of the dispute and the remedy sought.

(c)     Any arbitration pursuant to this Section 13.02 will be conducted before a panel of three arbitrators. Each of the parties will appoint one arbitrator and the two so appointed will select the third arbitrator. If either party refuses or fails to appoint an arbitrator within thirty (30) calendar days after the other party has given written notice to such party of its arbitrator appointment, the party that has given notice may appoint the second arbitrator. If the two arbitrators do not agree on a third arbitrator within thirty (30) calendar days of the appointment of the second arbitrator, then the third arbitrator shall be selected by the ARIAS-U.S. Umpire Selection Procedure in effect as of the date of this agreement (available at www.ARIAS-US.org), subject to the arbitrator qualification requirements of this paragraph.

(d)     The arbitrators and umpire shall be active or retired, disinterested officers or directors of life insurance or reinsurance companies. Officers or directors of the parties to this Agreement, their Affiliates or subsidiaries are not eligible to serve on the arbitration panel.

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(e)     Each arbitration hearing under this Agreement will be held on the date set by the arbitrators at a location mutually agreed upon by the parties or ordered by the arbitration panel. In no event will the date of the organizational meeting be later than six (6) months after the appointment of the third arbitrator. As soon as possible, the arbitrators will establish arbitration procedures as warranted by the facts and issues of the particular case. Notwithstanding Section 17.17, t Title 9 (Arbitration) of the United States Code applies to this Section 13.02.

(f)     The arbitrators will base their decision on the terms and conditions of this Agreement and the customs and practices of the applicable insurance and reinsurance business rather than on strict interpretation of the law. The arbitration panel is released from judicial formalities and shall not be bound by strict rules of procedure and evidence. The arbitrators shall enter an award which shall do justice between the parties and the award shall be supported by a written opinion. The decision of the arbitrators, or a majority of them, shall be final and binding on both parties. Judgment may be entered upon the final decision of the arbitration panel. The parties agree that the venue for any matter relating to compelling arbitration or enforcing or vacating the judgment of an arbitration panel shall be the federal courts in the State of Nebraska, or the State courts of such State, and the parties hereby consent to such venue. Each party hereby waives, to the fullest extent permitted by Law, any objection it may now or hereafter have to the laying of such venue, or any claim that a proceeding has been brought in an inconvenient forum. For the avoidance of doubt, the parties retain the right to remove such matters from State court to the federal courts in the State of Nebraska. In addition, the Ceding Company and the Reinsurer hereby consent to service of process out of such courts at the addresses set forth in Section 17.06.

(g)     In the absence of a decision to the contrary by the arbitration panel, or a majority thereof, each party shall bear the expense of its own arbitration activities, including its appointed arbitrator and any outside attorney and witness fees, and shall jointly and equally bear with the other party the expense of the third arbitrator.

(h)     Waiver of Trial by Jury. THE REINSURER AND THE CEDING COMPANY HEREBY WAIVE ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT.

ARTICLE XIV
INSOLVENCY

Section 14.01     Insolvency.

(a)     A party to this Agreement will be deemed “insolvent” when it:

(i)     applies for or consents to the appointment of a receiver, rehabilitator, conservator, liquidator or statutory successor (the “Authorized Representative”) of its properties or assets;

(ii)     is adjudicated as bankrupt or insolvent;

(iii)      files or consents to the filing of a petition in bankruptcy, seeks reorganization or an arrangement with creditors or takes advantage of any bankruptcy, dissolution, liquidation, rehabilitation, conservation or similar Law;

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(iv)     fails to maintain its Leverage Measure at or above the Leverage Measure Limit, or

(v)     becomes the subject of an order to rehabilitate or an order to liquidate as defined by the insurance code of the jurisdiction of the party’s domicile.

(vi)     In the event of the insolvency of either party, the rights or remedies of this Agreement will remain in full force and effect.

(b)     Insolvency of the Ceding Company. In the event of the insolvency, liquidation or rehabilitation of the Ceding Company or the appointment of a liquidator, receiver or statutory successor of the Ceding Company, the reinsurance coverage provided hereunder shall be payable by the Reinsurer directly to the Ceding Company or to its liquidator, receiver or statutory successor except (1) when the contract or other written agreement specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer or (2) when the assuming insurer, with the consent of the direct insured, has assumed such policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under such policies and in substitution for the obligations of the ceding insurer to such payees, on the basis of the liability of the Ceding Company for the Reinsured Liabilities without diminution because of such insolvency, liquidation, rehabilitation or appointment or because such liquidator, receiver or statutory successor has failed to pay any claims or any portion thereof. In any such event, the reinsurance being provided hereunder shall be payable immediately upon demand, with reasonable provision for verification, on the basis of claims allowed against the Ceding Company by any court of competent jurisdiction or by any liquidator, receiver or statutory successor. In any such event, the liquidator, receiver or statutory successor of the Ceding Company shall give written notice to the Reinsurer of the pendency of each claim against the Ceding Company with respect to such Reinsured Liabilities within a reasonable time after each such claim is filed in the insolvency, liquidation or rehabilitation proceeding. During the pendency of any such claims, the Reinsurer may, at its own expense, investigate such claim and interpose in the proceeding in which such claim is to be adjudicated any defense or defenses that the Reinsurer may reasonably deem available to the Ceding Company or its liquidator, receiver or statutory successor. For the avoidance of doubt, the Reinsurer will be liable only for benefits reinsured as benefits become due under the terms of the Reinsured Policies and will not be or become liable for any amounts or reserves to be held by the Ceding Company as to the Reinsured Policies or for any damages or payments resulting from the termination or restructuring of the Reinsured Policies, in each case, that are not otherwise expressly covered by this Agreement.

ARTICLE XV
TAXES

Section 15.01     Taxes. No taxes, allowances, or other expenses will be paid by the Reinsurer to the Ceding Company for any Reinsured Policy, except as specifically referred to in this Agreement.

Section 15.02     DAC Tax Election.

(a)     The Ceding Company and the Reinsurer agree to elect, pursuant to U.S. Treasury Regulations Section 1.848-2(g)(8), to determine specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), (the "DAC Tax Election").

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(b)     This DAC Tax Election will be effective for the first taxable year in which this Agreement is effective and for all years for which this Agreement remains in effect, and each party agrees that is will take no action to revoke such DAC Tax Election.

(c)     The party with the net positive consideration for this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Code.

(d)     The parties agree to sign the DAC Tax Election in the format provided in Schedule VI upon the execution of this Agreement.

(e)     The parties agree to exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency. If requested, the Ceding Company will provide supporting information reasonably requested by the Reinsurer. (The term "net consideration" means "net consideration" as defined in Regulation Section 1.848-2(f)).

(f)     The Ceding Company and the Reinsurer will each attach a schedule to their respective federal income tax returns filed for the first taxable year for which this DAC Tax Election is effective, and each year thereafter. Such schedules will identity the Agreement as a reinsurance agreement for which the DAC Tax Election under Regulation Section 1.8482(g)(8) has been made.

(g)     The Ceding Company and the Reinsurer represent and warrant that each is respectively subject to U.S. taxation under with the provision of subchapter L of Chapter 1 or the provisions of subpart F of subchapter N of Chapter 1 of the Code.

Section 15.03     US Taxpayer. Both the Ceding Company and the Reinsurer are U.S. taxpayers that are corporations for United States federal income tax purposes and are “United States persons” within the meaning of Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended.

ARTICLE XVI
REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 16.01     Representations and Warranties of the Ceding Company. The Ceding Company hereby represents and warrants to the Reinsurer, as of the Effective Date, as follows:

(a)     Organization and Qualification. The Ceding Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Nebraska and has all requisite corporate power and authority to operate its business as now conducted, and is duly qualified as a foreign corporation to do business, and, to the extent legally applicable, is in good standing, in each jurisdiction where the character of its owned, operated or leased properties or the nature of its activities makes such qualification necessary, except for failures to be so qualified or be in good standing that, individually or in the aggregate, do not have, and would not reasonably be expected to have, a material adverse effect on the Ceding Company’s ability to perform its obligations under this Agreement.

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(b)     Authorization. The Ceding Company has all requisite corporate power to enter into, consummate the transactions contemplated by and carry out its obligations under, this Agreement. The execution and delivery by the Ceding Company of this Agreement, and the consummation by the Ceding Company of the transactions contemplated by, and the performance by the Ceding Company of its obligations under, this Agreement have been duly authorized by all requisite corporate action on the part of the Ceding Company. This Agreement has been duly executed and delivered by the Ceding Company, and (assuming due authorization, execution and delivery by the Reinsurer) this Agreement constitutes the legal, valid and binding obligation of the Ceding Company, enforceable against it in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium, or similar Laws relating to or affecting creditors’ rights generally.

(c)     No Conflict. The execution, delivery and performance by the Ceding Company of, and the consummation by the Ceding Company of the transactions contemplated by, this Agreement do not and will not (i) violate or conflict with the organizational documents of the Ceding Company, (ii) conflict with or violate any Law or Permit of any Governmental Entity applicable to the Ceding Company or by which it or its properties or assets is bound or subject, or (iii) result in any breach of, or constitute a default (or event which, with the giving of notice or lapse of time, or both, would become a default) under, or give to any Person any rights of termination, acceleration or cancellation of, any agreement, lease, note, bond, loan or credit agreement, mortgage, indenture or other instrument, obligation or contract of any kind to which the Ceding Company or any of its subsidiaries is a party or by which the Ceding Company or any of its subsidiaries or any of their respective properties or assets is bound or affected, except, in the case of clause (iii), any such conflicts, violations, breaches, loss of contractual benefits, defaults or rights that, individually or in the aggregate, do not have, and would not reasonably be expected to have, a material adverse effect on the Ceding Company’s ability to perform its obligations under this Agreement.

(d)     Factual Information Relating to the Reinsured Policies. To the knowledge of the Ceding Company, the information relating to the business reinsured under this Agreement and the Reinsured Policies that was supplied by or on behalf of the Ceding Company to the Reinsurer or any of the Reinsurer’s representatives in connection with this Agreement (such information, the “Factual Information”), as of the date supplied (or if later corrected or supplemented prior to the date hereof, as of the date corrected or supplemented), was complete and accurate in all material respects taken as a whole, as of the date of such information, provided that the Ceding Company makes no representation or warranty with respect to any projection, model, methodology, forecasting, analysis, assumption or estimate other than that the projections, models, methodologies, forecasts, analyses, assumptions or estimates on the basis of which such projection, model, methodology, forecasting, analysis, assumption or estimate were prepared (i) are reasonable and (ii) were prepared in good faith and in accordance with sound actuarial principles. The Ceding Company makes no representation or warranty as to the sufficiency or adequacy of any reserves or the future profitability of the Reinsured Policies. Any actuarial data included in the Factual Information was compiled in accordance with generally accepted actuarial principles in all material respects given the intended purpose at the time compiled. The Factual Information was compiled in a commercially reasonable manner given its intended purpose.

(e)     Solvency. The Ceding Company is and will be Solvent on a statutory basis immediately after giving effect to this Agreement. For the purposes of this Section 16.01(e), “Solvent” means that: (i) the aggregate assets of the Ceding Company are greater than the aggregate liabilities of the Ceding Company, in each case determined in accordance with Nebraska SAP; (ii) the Ceding Company does not intend to, and does not believe that it will, incur debts or other liabilities beyond its ability to pay such debts and other liabilities as they come due; and (iii) the Ceding Company is not engaged in a business or transaction, and does not contemplate engaging in a business or transaction, for which the Ceding Company’s assets would constitute unreasonably insufficient capital.

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(f)     Governmental Licenses. The Ceding Company has all Permits necessary to conduct its business as currently conducted and execute and deliver, and perform its obligations under, this Agreement, except in such cases where the failure to have a Permit has not had and would not reasonably be expected to have a material adverse effect on the Ceding Company’s ability to perform its obligations under this Agreement. All Permits that are material to the conduct of the Ceding Company’s business are valid and in full force and effect. The Ceding Company is not subject to any pending Action or, to the knowledge of the Ceding Company, any threatened Action that seeks the revocation, suspension, termination, modification or impairment of any Permit that, if successful, would reasonably be expected to have, or with the passage of time become, a material adverse effect on the Ceding Company’s ability to perform its obligations under this Agreement.

(g)     Accounts. Each Account has been maintained in accordance with applicable Law. No plan of operations with respect to the Accounts was required to be filed and approved by any Governmental Entity.

Section 16.02     Covenants of the Ceding Company.

(a)     Investigations. To the extent permitted by applicable Law, the Ceding Company shall promptly notify the Reinsurer, in writing, of any and all investigations of the Ceding Company conducted by any Governmental Entity commencing after the date hereof, other than routine State insurance department examinations that do not relate to the business reinsured pursuant to this Agreement or would not otherwise reasonably be expected to adversely affect the performance by the Ceding Company of its obligations under this Agreement.

(b)     Statutory Accounting Principles. The Ceding Company shall prepare its financial statements as required by, and in accordance with, Nebraska SAP in all material respects.

(c)     Existence; Conduct of Business. The Ceding Company shall do or cause to be done all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, Permits and privileges material to the conduct of its business.

(d)     Compliance with Law. The Ceding Company shall comply with all Laws applicable to, and all Permits issued by any Governmental Entity to, the Ceding Company or by which it or its properties or assets is bound or subject, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Ceding Company’s ability to perform its obligations, or on the Reinsurer’s rights or obligations, under this Agreement.

(e)     Governmental Notices. The Ceding Company shall provide the Reinsurer, within five (5) Business Days after receipt thereof, copies of any material written notice or report from any Governmental Entity with respect to the business reinsured under this Agreement and a written summary of any material oral communication with any Governmental Entity with respect to the business reinsured under this Agreement.

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(f)     Restrictions on Liens. The Reinsurer shall not create, incur, assume or suffer to exist any material liens on the assets in the Trust Deposit or on any interest therein or the proceeds thereof. The Ceding Company shall not create, incur, assume or suffer to exist any material liens on the assets in the Funds Withheld Account or on any interest therein or the proceeds thereof.

(g)     Reliance. The Ceding Company hereby represents, warrants and covenants that it has not relied, and shall not rely, on any representation, warranty or statement or duty of the Reinsurer other than the representations and warranties contained in Section 16.03 and the covenants contained in Section 16.04. The Reinsurer makes no representations or warranties in connection herewith other than those contained in Section 16.03 and makes no covenants other than those contained in Section 16.04.

Section 16.03     Representations and Warranties of the Reinsurer. The Reinsurer hereby represents and warrants to the Ceding Company, as of the Effective Date, as follows:

(a)     Organization and Qualification. The Reinsurer is a corporation duly incorporated, validly existing and in good standing under the Laws of Kansas and has all requisite corporate power and authority to operate its business as now conducted, and is duly qualified as a corporation to do business, and, to the extent legally applicable, is in good standing, in each jurisdiction where the character of its owned, operated or leased properties or the nature of its activities makes such qualification necessary, except for failures to be so qualified or be in good standing that, individually or in the aggregate, do not have, and would not reasonably be expected to have, a material adverse effect on the Reinsurer’s ability to perform its obligations under this Agreement.

(b)     Authorization. The Reinsurer has all requisite corporate power to enter into, consummate the transactions contemplated by and carry out its obligations under, this Agreement. The execution and delivery by the Reinsurer of this Agreement, and the consummation by the Reinsurer of the transactions contemplated by, and the performance by the Reinsurer of its obligations under, this Agreement have been duly authorized by all requisite corporate action on the part of the Reinsurer. This Agreement has been duly executed and delivered by the Reinsurer, and (assuming due authorization, execution and delivery by the Ceding Company) this Agreement constitutes the legal, valid and binding obligation of the Reinsurer, enforceable against it in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium, or similar Laws relating to or affecting creditors’ rights generally.

(c)     No Conflict. The execution, delivery and performance by the Reinsurer of, and the consummation by the Reinsurer of the transactions contemplated by, this Agreement do not and will not (i) violate or conflict with the organizational documents of the Reinsurer, (ii) conflict with or violate any Law or Permit of any Governmental Entity applicable to the Reinsurer or by which it or its properties or assets is bound or subject, or (iii) result in any breach of, or constitute a default (or event which, with the giving of notice or lapse of time, or both, would become a default) under, or give to any Person any rights of termination, acceleration or cancellation of, any agreement, lease, note, bond, loan or credit agreement, mortgage, indenture or other instrument, obligation or contract of any kind to which the Reinsurer or any of its subsidiaries is a party or by which the Reinsurer or any of its subsidiaries or any of their respective properties or assets is bound or affected, except, in the case of clause (iii), any such conflicts, violations, breaches, loss of contractual benefits, defaults or rights that, individually or in the aggregate, do not have, and would not reasonably be expected to have, a material adverse effect on the Reinsurer’s ability to perform its obligations under this Agreement.

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(d)     Governmental Licenses. The Reinsurer has all Permits necessary to conduct its business as currently conducted and execute and deliver, and perform its obligations under, this Agreement, except in such cases where the failure to have a Permit has not had and would not reasonably be expected to have a material adverse effect on the Reinsurer’s ability to perform its obligations under this Agreement. All Permits that are material to the conduct of the Reinsurer’s business are valid and in full force and effect. The Reinsurer is not subject to any pending Action or, to the knowledge of the Reinsurer, any threatened Action that seeks the revocation, suspension, termination, modification or impairment of any Permit that, if successful, would reasonably be expected to have, or with the passage of time become, a material adverse effect on the Reinsurer’s ability to perform its obligations under this Agreement. The Reinsurer is duly licensed as an authorized insurer in the Ceding Company’s state of domicile.

(e)     Solvency. The Reinsurer is and will be Solvent on a statutory basis immediately after giving effect to this Agreement. For the purposes of this Section 16.03(e), “Solvent” means that: (i) the aggregate assets of the Reinsurer are greater than the aggregate liabilities of the Reinsurer, in each case determined in accordance with statutory accounting principles and practices prescribed or permitted for life insurance companies in its state of domicile by the insurance regulator in that state, consistently applied by the Reinsurer; (ii) the Reinsurer does not intend to, and does not believe that it will, incur debts or other liabilities beyond its ability to pay such debts and other liabilities as they come due; and (iii) the Reinsurer is not engaged in a business or transaction, and does not contemplate engaging in a business or transaction, for which the Reinsurer’s assets would constitute unreasonably insufficient capital.

Section 16.04     Covenants of the Reinsurer.

(a)     Investigations. To the extent permitted by applicable Law, the Reinsurer shall promptly notify the Ceding Company, in writing, of any and all investigations of the Reinsurer conducted by any Governmental Entity commencing after the date hereof, other than routine State insurance department examinations that do not relate to the business reinsured pursuant to this Agreement or would not otherwise reasonably be expected to adversely affect the performance by the Reinsurer of its obligations under this Agreement.

(b)     Statutory Accounting Principles. The Reinsurer shall prepare its financial statements as required by, and in accordance with Kansas SAP.

(c)     Existence; Conduct of Business. The Reinsurer shall do or cause to be done all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, Permits and privileges material to the conduct of its business.

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(d)     Compliance with Law. The Reinsurer shall comply with all Laws applicable to, and all Permits issued by any Governmental Entity to, the Reinsurer or by which it or its properties or assets is bound or subject, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Reinsurer’s ability to perform its obligations, or on the Ceding Company’s rights or obligations, under this Agreement.

(e)     Governmental Notices. The Reinsurer shall provide the Ceding Company, within five (5) Business Days after receipt thereof, copies of any written notice or report from any Governmental Entity with respect to the business reinsured under this Agreement and a written summary of any material oral communication with any Governmental Entity with respect to the business reinsured under this Agreement.

(f)     Reliance. The Reinsurer hereby represents, warrants and covenants that it has not relied, and shall not rely, on any representation, warranty or statement or duty of the Ceding Company other than the representations and warranties contained in Section 16.01 and the covenants contained in Section 16.02. The Ceding Company makes no representations or warranties in connection herewith other than those contained in Section 16.01 and makes no covenants other than those contained in Section 16.02.

ARTICLE XVII
MISCELLANEOUS

Section 17.01     Currency. All payments due under this Agreement shall be made in U.S. Dollars.

Section 17.02     Interest. All amounts due and payable by the Ceding Company or the Reinsurer under this Agreement that remain unpaid for more than fifteen (15) calendar days from the date due hereunder will incur interest from the date due hereunder. Except as otherwise set forth in this Agreement, such interest shall accrue at a rate equal to twelve percent (12%) per annum, calculated on a 30/360 basis.

Section 17.03     Right of Setoff and Recoupment.

(a)     Each of the Ceding Company and the Reinsurer shall have, and may exercise at any time and from time to time, the right to setoff or recoup any balance or balances, whether on account of Reinsurance Premiums, allowances, credits, Reinsured Liabilities or otherwise, due from one party to the other under this Agreement and may setoff or recoup such balance or balances against any balance or balances due to the former from the latter under this Agreement.

(b)     The parties’ setoff rights may be enforced notwithstanding any other provision of this Agreement including the provisions of Article XIV.

Section 17.04     No Third-Party Beneficiaries. This Agreement is an indemnity reinsurance agreement solely between the Ceding Company and the Reinsurer. The acceptance of risks under this Agreement by the Reinsurer will create no right or legal relation between the Reinsurer and the insured, owner, beneficiary, or assignee of any insurance policy of the Ceding Company. In addition, nothing expressed or implied in this Agreement is intended to or shall confer remedies, obligations or liabilities upon any Person other than the parties hereto and their respective administrators, successors, legal representatives and permitted assigns or relieve or discharge the obligation or liability of any third party to any party to this Agreement.

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Section 17.05     Amendment. This Agreement may not be changed or modified or in any way amended except by a written instrument executed by duly-authorized officers of both parties to this Agreement, and any change or modification to this Agreement will be null and void unless made by amendment to this Agreement and executed by duly-authorized officers of both parties to this Agreement.

Section 17.06     Notices.

(a)     All demands, notices, reports and other communications provided for herein shall be delivered by the following means: (i) hand-delivery; (ii) overnight courier service (e.g., FedEx, Airborne Express, or DHL); (iii) registered or certified U.S. mail, postage prepaid and return receipt requested; or (iv) facsimile transmission or e-mail; provided, that the fax or e-mail is confirmed by delivery using one of the three (3) methods identified in clauses (i) through (iii). All such demands, notices, reports and other communications shall be delivered to the parties as follows:

if to the Ceding Company:

American Life & Security Corp.

2900 S. 70th Street

Suite 400

Lincoln, NE  68506

Attn: Michael Salem and Mike Minnich

Tel:  (917) 678-8553 and (917) 257-6314

Email: ams@american-life.com and mminnich@american-life.com

if to the Reinsurer:

US Alliance Life and Security Company

4123 SW Gage Center Dr., Suite 240

PO Box 4026

Topeka, KS 66604

Attn: Jeff Brown

Email: jeff.brown@usalliancelife.com

Tel: 785-228-0200

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With a copy to the Investment Manager:

1505 Capital LLC

100 Wall Street, 28th Floor

New York, NY 10005

Attn: Richard Vecchiolla

Tel: (917) 993-0895

Email: rich@1505cap.com

(b)     Either party hereto may change the names or addresses where notice is to be given by providing notice to the other party of such change in accordance with this Section 17.06.

(c)     If either party hereto becomes aware of any change in applicable Law restricting the transmission of notices or other information in accordance with the foregoing, such party shall notify the other party hereto of such change in Law and such resulting restriction.

Section 17.07     Consent to Jurisdiction. Subject to the terms and conditions of Article XIII, each party hereto hereby irrevocably and unconditionally submits to the non-exclusive jurisdiction of any United States court sitting in Nebraska and of any Nebraska state court for purposes of all legal proceedings arising out of or relating to this Agreement or for recognition and enforcement of any judgment in respect thereof. In any action, suit or other proceeding, each party hereby irrevocably waives, to the fullest extent permitted by applicable Law, any objection that it may now or hereafter have to the laying of the venue of any such proceedings brought in such court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. For the avoidance of doubt, the parties retain the right to remove such proceedings from Nebraska state court to the federal courts in the State of Nebraska. Each party hereto also agrees that any final and nonappealable judgment against a party in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Each party hereto agrees that any process or other paper to be served in connection with any action or proceeding under this Agreement shall, if delivered, sent or mailed in accordance with Section 17.06, constitute good, proper and sufficient service thereof. This Section 17.07 is not intended to conflict with or override Article XIII.

Section 17.08     Service of Process. The Reinsurer hereby designates the US Alliance Corporation as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Ceding Company. A copy of any such process shall be delivered to the Reinsurer in accordance with Section 17.06. This Section is not intended to conflict with or override Article XIII.

Section 17.09     Inspection of Records.

(a)     Upon giving at least five (5) Business Days’ prior written notice, the Reinsurer, or its duly authorized representatives, will have the right to audit, examine and copy, electronically or during regular business hours, at the home office of the Ceding Company, any and all books, records, statements, correspondence, reports, and other documents that relate to the Reinsured Policies, the assets maintained in the Funds Withheld Account, or this Agreement, subject to the confidentiality provisions contained in this Agreement and preservation of attorney-client privilege . In the event the Reinsurer exercises its inspection rights, the Ceding Company must provide a reasonable work space for such audit, examination or copying, cooperate fully and faithfully, and produce any and all materials reasonably requested to be produced, subject to confidentiality provisions contained in this Agreement. The expenses related to any two (2) such inspections in any calendar year shall be borne by the Ceding Company; provided, that if any breach of this Agreement by the Ceding Company has occurred, the expenses relating to all such inspections shall be borne by the Ceding Company.

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(b)     The Reinsurer’s right of access as specified above will survive until all of the Reinsurer’s obligations under this Agreement have terminated or been fully discharged.

Section 17.10     Confidentiality.

(a)     The parties will keep confidential and not disclose or make competitive use of any shared Proprietary Information, as defined below, unless:

(i)     The information becomes publicly available or is obtained other than through unauthorized disclosure by the party seeking to disclose or use such information;

(ii)     The information is independently developed by the recipient; or

(iii)     The disclosure is required by Law; provided, that, if applicable, the party required to make such disclosure will allow the other party to seek an appropriate protective order.

“Proprietary Information” includes, but is not limited to, underwriting manuals and guidelines, applications, policy forms, agent lists and premium rates and allowances of the Reinsurer and the Ceding Company, but shall not include the existence of this Agreement and the identity of the parties. Additionally, Proprietary Information may be shared by either party on a need-to-know basis with its officers, directors, employees, Affiliates, third-party service providers, auditors, consultants or retrocessionaires, or in connection with the dispute process specified in this Agreement.

(b)     Except as embedded in records during an audit as set forth in 17.09, the Ceding Company shall not provide to the Reinsurer, and the Reinsurer shall have no right to access, any Non-Public Personal Information except to the extent (i) necessary for purposes of administration of this Agreement and (ii) requested in writing by a duly authorized representative of the Reinsurer. The Reinsurer and its representatives and service providers will protect the confidentiality and security of Non-Public Personal Information (as defined below) provided to it hereunder by:

(i)     holding all Non-Public Personal Information in strict confidence;

(ii)     maintaining appropriate measures that are designed to protect the security, integrity and confidentiality of Non-Public Personal Information; and

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(iii)     disclosing and using Non-Public Personal Information received under this Agreement solely for purposes of carrying out the Reinsurer’s obligations under this Agreement, for purposes of retrocession (provided that the retrocessionaire has agreed to maintain the confidentiality of such Non-Public Personal Information to the same extent as the Reinsurer hereunder), or as may be required or permitted by Law, in each case solely to the extent permitted by Law.

“Non-Public Personal Information” is personally identifiable medical, financial, and other personal information about proposed, current and former applicants, policy owners, contract holders, insureds, annuitants, claimants, and beneficiaries of Reinsured Policies or contracts issued by the Ceding Company, and their representatives, that is not publicly available. Non-Public Personal Information does not include de-identified personal data, i.e., information that does not identify, or could not reasonably be associated with, an individual.

Section 17.11     Successors. This Agreement will be binding upon the parties hereto and their respective successors and assigns including any Authorized Representative of either party. Neither party may effect any novation or assignment of this Agreement without the prior written consent of the other party and the Nebraska Department of Insurance.

Section 17.12     Entire Agreement. This Agreement and the Schedules and Exhibits hereto constitute the entire agreement between the parties with respect to the business reinsured hereunder and supersede any and all prior representations, warranties, prior agreements or understandings between the parties pertaining to the subject matter of this Agreement. There are no understandings between the parties other than as expressed in this Agreement and the Schedules and Exhibits hereto. In the event of any express conflict between this Agreement and the Schedules and Exhibits hereto, the Schedules and Exhibits hereto will control.

Section 17.13     Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or entity or any circumstance, is found by a court or other Governmental Entity of competent jurisdiction to be invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

Section 17.14     Construction. This Agreement will be construed and administered without regard to authorship and without any presumption or rule of construction in favor of either party. This Agreement is between sophisticated parties, each of which has reviewed this Agreement and is fully knowledgeable about its terms and conditions.

Section 17.15     Non-Waiver. Neither the failure nor any delay on the part of the Ceding Company or the Reinsurer to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof. No single or partial exercise of any right, remedy, power or privilege shall preclude the further exercise of that right, remedy, power or privilege or the exercise of any other right, remedy, power or privilege. No waiver of any right, remedy, power or privilege with respect to any occurrence shall be construed as a waiver of that right, remedy, power or privilege with respect to any other occurrence. No prior transaction or dealing between the parties will establish any custom, usage or precedent waiving or modifying any provision of this Agreement. No waiver shall be effective unless it is in writing and signed by the party granting the waiver.

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Section 17.16     Further Assurances. From time to time, as and when requested by a party hereto, the other party hereto shall execute and deliver all such documents and instruments and shall take all actions as may be reasonably necessary to consummate the transactions contemplated by this Agreement.

Section 17.17     Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of Nebraska without giving effect to any principles of conflicts of law thereof that are not mandatorily applicable by Law and would permit or require the application of the Laws of another jurisdiction.

Section 17.18     Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party hereto and delivered to the other party. Each party hereto may deliver its signed counterpart of this Agreement to the other party by means of electronic mail or any other electronic medium utilizing image scan technology, and such delivery will have the same legal effect as hand delivery of an originally executed counterpart. When this Agreement has been fully executed by the Ceding Company and the Reinsurer, it will become effective as of the Effective Date.

[Remainder of Page Intentionally Blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed effective as of the Effective Date.

AMERICAN LIFE & SECURITY CORP.

By:                                                                     

Name:

Title:

US ALLIANCE LIFE AND SECURITY COMPANY

By:                                                                     

Name:   

Title

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EX-31.1

Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER'S CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jack H. Brier, certify that:

1. I have reviewed this quarterly report on Form 10-Q of US Alliance Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Jack H. Brier

Jack H. Brier

President and Chief Executive Officer

Date: May ____, 2020

EX-31.2

Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER’S CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeff Brown, certify that:

1. I have reviewed this quarterly report on Form 10-Q of US Alliance Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Jeff Brown

Jeff Brown

Vice-President and Principal Financial Officer

Date: May ___, 2020

EX-32.1

Exhibit 32.1

PRINCIPAL EXECUTIVE OFFICER’S CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of US Alliance Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack H. Brier, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jack H. Brier

Jack H. Brier

President and Chief Executive Officer

Date: May _______, 2020

EX-32.2

Exhibit 32.2

PRINCIPAL FINANCIAL OFFICER’S CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of US Alliance Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeff Brown Vice-President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jeff Brown

Jeff Brown

Vice-President and Principal Financial Officer

Date: May _______, 2020

XML

Note 3 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	March 31, 2020
	Total		Level 1		Level 2		Level 3
	(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	652,219	$	652,219	$	-	$	-
Corporate bonds		19,657,794		-		19,466,194		191,600
Municipal bonds		6,744,869		-		6,744,869		-
Redeemable preferred stock		2,816,925		-		2,816,925		-
Mortgage backed and asset backed securities		3,000,985		-		3,000,985		-
Total fixed maturities		32,872,792		652,219		32,028,973		191,600
Equities:
Common stock		5,799,414		5,389,644		409,770		-
Preferred stock		1,888,021		-		1,888,021		-
Total equities		7,687,435		5,389,644		2,297,791		-
Total	$	40,560,227	$	6,041,863	$	34,326,764	$	191,600

	December 31, 2019
	Total		Level 1		Level 2		Level 3
Available for sale:
Fixed maturities:
US Treasury securities	$	632,639	$	632,639	$	-	$	-
Corporate bonds		20,084,397		-		19,892,797		191,600
Municipal bonds		7,055,059		-		7,055,059		-
Redeemable preferred stock		2,133,893		-		2,133,893		-
Mortgage backed and asset backed securities		3,246,904		-		3,246,904		-
Total fixed maturities		33,152,892		632,639		32,328,653		191,600
Equities:
Common stock		9,214,694		9,169,694		45,000		-
Preferred stock		926,809		-		926,809		-
Total equities		10,141,503		9,169,694		971,809		-
Total	$	43,294,395	$	9,802,333	$	33,300,462	$	191,600

Fair Value, by Balance Sheet Grouping [Table Text Block]

	March 31, 2020
	(unaudited)
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	7,227,537	$	7,227,537	$	7,227,537	$	-	$	-
Investment income due and accrued		354,528		354,528		-		354,528		-
Policy loans		141,650		141,650		-		-		141,650
Total Financial Assets (excluding available for sale investments)	$	7,723,715	$	7,723,715	$	7,227,537	$	354,528	$	141,650
Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		35,409,722		37,721,270		-		-		37,721,270
Total Financial Liabilities	$	36,409,722	$	38,721,270	$	-	$	-	$	38,721,270

	December 31, 2019
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	6,678,805	$	6,678,805	$	6,678,805	$	-	$	-
Investment income due and accrued		321,362		321,362		-		321,362		-
Policy loans		118,930		118,930		-		-		118,930
Total Financial Assets (excluding available for sale investments)	$	7,119,097	$	7,119,097	$	6,678,805	$	321,362	$	118,930
Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		19,396,614		19,186,265		-		-		19,186,265
Total Financial Liabilities	$	20,396,614	$	20,186,265	$	-	$	-	$	20,186,265

XML

Note 5 - Income Tax Provision

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

5

.     Income Tax Provision

No

income tax expense or (benefit) has been reflected for the quarters ended

March 31, 2020

and

2019

due to the lack of taxable net income generated by the Company and a change in the valuation allowance pertaining to the deferred tax asset. The difference between the reported amount of income tax expense and the amount expected based upon statutory rates is primarily due to the increase in the valuation allowance on deferred taxes.

The net operating loss carryforwards for the Company are

$13,088,121

 and

$12,577,367

as of

March 31, 2020

and

December 31, 2019,

respectively. The components of the deferred tax assets and liabilities due to book and tax differences are the following: fixed asset depreciation, net operating loss carryforward, net unrealized gains (losses) on investment securities, policyowner benefit reserves and deferred acquisition costs. The deferred tax asset net of valuation allowance is

$431,158

as of

March 31, 2020

and

December 31, 2019,

respectively.

XML

Note 2 - Investments - Amortized Cost and Fair Value of Debt Securities By Contractual Maturity (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Debt securities, amortized cost	$ 40,929,011	$ 40,806,347
Debt securities, fair value	40,560,227	43,294,395
Fixed Maturities [Member]
One year or less, amortized cost	99,991	99,987
One year or less, fair value	100,174	100,239
After one year through five years, amortized cost	1,424,877	1,424,337
After one year through five years, fair value	1,441,107	1,471,552
After five years through ten years, amortized cost	3,212,049	3,286,937
After five years through ten years, fair value	3,430,423	3,574,191
More than 10 years, amortized cost	21,376,107	20,743,310
More than 10 years, fair value	22,083,178	22,626,113
Debt securities, amortized cost	32,248,318	30,823,397
Debt securities, fair value	32,872,792	33,152,892
Fixed Maturities [Member] | Redeemable Preferred Stock [Member]
Debt securities, amortized cost	3,154,668	2,097,206
Debt securities, fair value	2,816,925	2,133,893
Debt securities, amortized cost	3,154,668	2,097,206
Debt securities, fair value	2,816,925	2,133,893
Fixed Maturities [Member] | Collateralized Mortgage Backed Securities [Member]
Debt securities, amortized cost	2,980,626	3,171,620
Debt securities, fair value	3,000,985	3,246,904
Debt securities, amortized cost	2,980,626	3,171,620
Debt securities, fair value	$ 3,000,985	$ 3,246,904

XML

Note 2 - Investments

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Investment Holdings [Text Block]

Note

2

.     Investments

The amortized cost and fair value of available for sale and held to maturity investments as of

March 31, 2020

and

December

31,

2019

is as follows:

	March 31, 2020
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	607,488	$	44,731	$	-		$	652,219
Corporate bonds		19,275,711		1,181,877		(799,794	)		19,657,794
Municipal bonds		6,229,825		517,035		(1,991	)		6,744,869
Redeemable preferred stock		3,154,668		-		(337,743	)		2,816,925
Mortgage backed and asset backed securities		2,980,626		50,942		(30,583	)		3,000,985
Total fixed maturities		32,248,318		1,794,585		(1,170,111	)		32,872,792
Equities:
Common stock		6,737,247		64,271		(1,002,104	)		5,799,414
Preferred stock		1,943,446		13,880		(69,305	)		1,888,021
Total equities		8,680,693		78,151		(1,071,409	)		7,687,435
Total available for sale	$	40,929,011	$	1,872,736	$	(2,241,520	)	$	40,560,227

	December 31, 2019
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Available for sale:
Fixed maturities:
US Treasury securities	$	608,477	$	24,162	$	-		$	632,639
Corporate bonds		18,407,211		1,697,265		(20,079	)		20,084,397
Municipal bonds		6,538,883		518,059		(1,883	)		7,055,059
Redeemable preferred stock		2,097,206		36,687		-			2,133,893
Mortgage backed and asset backed securities		3,171,620		77,593		(2,309	)		3,246,904
Total fixed maturities		30,823,397		2,353,766		(24,271	)		33,152,892
Equities:
Common stock		9,064,262		239,490		(89,058	)		9,214,694
Preferred stock		918,688		8,121		-			926,809
Total equities		9,982,950		247,611		(89,058	)		10,141,503
Total available for sale	$	40,806,347	$	2,601,377	$	(113,329	)	$	43,294,395

The amortized cost and fair value of debt securities as of

March 31, 2020

and

December 31, 2019,

by contractual maturity, are shown in the following table. Equity securities do

not

have stated maturity dates and therefore are

not

included in the following maturity summary. Actual maturities

may

differ from contractual maturities because borrowers

may

have the right to call or prepay obligations with or without call or prepayment penalties.

	As of March 31, 2020				As of December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(unaudited)
Amounts maturing in:
One year or less	$	99,991	$	100,174	$	99,987	$	100,239
After one year through five years		1,424,877		1,441,107		1,424,337		1,471,552
After five years through ten years		3,212,049		3,430,423		3,286,937		3,574,191
More than 10 years		21,376,107		22,083,178		20,743,310		22,626,113
Redeemable preferred stocks		3,154,668		2,816,925		2,097,206		2,133,893
Mortgage backed and asset backed securities		2,980,626		3,000,985		3,171,620		3,246,904
Total amortized cost and fair value	$	32,248,318	$	32,872,792	$	30,823,397	$	33,152,892

Proceeds from the sale of securities, maturities, and asset paydowns for the

first

three

months of

2020

and

2019

were

$3,489,276

and

$52,582

respectively. Realized gains and losses related to the sale of securities are summarized below:

	Three Months Ended March 31,
	(unaudited)
	2020			2019
Gross gains	$	44,295		$	-
Gross losses		(263,248	)		-
Net security gains (losses)	$	(218,953	)	$	-

Gross unrealized losses by duration are summarized as follows:

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
March 31, 2020	(unaudited)
Available for sale:
Fixed maturities:
Corporate bonds	$	4,647,625	$	(799,794	)	$	-	$	-		$	4,647,625	$	(799,794	)
Municipal bonds		147,391		(1,991	)		-		-			147,391		(1,991	)
Redeemable preferred stock		2,816,926		(337,743	)		-		-			2,816,926		(337,743	)
Mortgage backed and asset backed securities		1,029,824		(30,583	)		-		-			1,029,824		(30,583	)
Total fixed maturities		8,641,766		(1,170,111	)		-		-			8,641,766		(1,170,111	)
Equities:
Common stock		4,816,906		(905,942	)		604,695		(96,162	)		5,421,601		(1,002,104	)
Preferred stock		1,402,290		(69,305	)		-		-			1,402,290		(69,305	)
Total equities		6,219,196		(975,247	)		604,695		(96,162	)		6,823,891		(1,071,409	)
Total available for sale	$	14,860,962	$	(2,145,358	)	$	604,695	$	(96,162	)	$	15,465,657	$	(2,241,520	)

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
December 31, 2019
Available for sale:
Fixed maturities:
Corporate bonds	$	967,848	$	(20,079	)	$	-	$	-		$	967,848	$	(20,079	)
Municipal bonds		46,646		(1,883	)		-		-			46,646		(1,883	)
Mortgage backed and asset backed securities		-		-			296,576		(2,309	)		296,576		(2,309	)
Total fixed maturities		1,014,494		(21,962	)		296,576		(2,309	)		1,311,070		(24,271	)
Equities:
Common stock		68,789		(6,920	)		3,174,847		(82,138	)		3,243,636		(89,058	)
Total equities		68,789		(6,920	)		3,174,847		(82,138	)		3,243,636		(89,058	)
Total available for sale	$	1,083,283	$	(28,882	)	$	3,471,423	$	(84,447	)	$	4,554,706	$	(113,329	)

Unrealized losses occur from market price declines that

may

be due to a number of factors, including economic downturns, changes in interest rates, competitive forces within an industry, issuer specific events, operational difficulties, lawsuits, and market pricing anomalies caused by factors such as temporary lack of liquidity.

The total number of securities in the investment portfolio in an unrealized loss position as of

March 

31,

2020

was

71,

which represented an unrealized loss of

$2,241,520

of the aggregate carrying value of those securities. The

71

 securities breakdown as follows:

27

bonds,

15

mortgage and asset backed securities,

18

preferred stocks,

1

preferred stock index fund,

1

senior loan fund, and

9

 common stocks. The Company determined that

no

securities were considered to be other-than-temporarily impaired as of

March 31, 2020 

and

December 31, 2019.

XML

Consolidated Statements of Changes in Shareholders' Equity - USD ($)	Cumulative Effect, Period of Adoption, Adjustment [Member] Common Stock [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member] Additional Paid-in Capital [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member] AOCI Attributable to Parent [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member] Retained Earnings [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2018						7,650,551
Balance at Dec. 31, 2018			$ 1,098,760	$ (1,098,760)		$ 765,056	$ 22,989,443	$ (2,184,429)	$ (8,937,404)	$ 12,632,666
Common stock issued, $7 per share (in shares)						42,857
Common stock issued, $7 per share						$ 4,286	295,713			299,999
Costs associated with common stock issued							(143,109)			(143,109)
Other comprehensive income								1,245,778		1,245,778
Net income (loss)									375,868	375,868
Balance (in shares) at Mar. 31, 2019						7,693,408
Balance at Mar. 31, 2019						$ 769,342	23,142,047	160,109	(9,660,296)	14,411,202
Balance (in shares) at Dec. 31, 2019						7,734,004
Balance at Dec. 31, 2019						$ 773,401	23,210,257	2,329,495	(9,436,956)	16,876,197
Common stock issued, $7 per share (in shares)						6,696
Common stock issued, $7 per share						$ 670	46,202			46,872
Costs associated with common stock issued							(51,565)			(51,565)
Other comprehensive income								(1,705,031)		(1,705,031)
Net income (loss)									(2,703,371)	(2,703,371)
Balance (in shares) at Mar. 31, 2020						7,740,700
Balance at Mar. 31, 2020						$ 774,071	$ 23,204,894	$ 624,464	$ (12,140,327)	$ 12,463,102

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 05, 2020
Document Information [Line Items]
Entity Registrant Name	US Alliance Corp
Entity Central Index Key	0001463913
Trading Symbol	usac
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		7,740,743
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(g) Security	Common Stock, $0.10 par value per share

XML

Note 3 - Fair Value Measurements - Estimated Fair Values of the Company's Financial Assets and Liabilities (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Reported Value Measurement [Member]
Cash and cash equivalents	$ 7,227,537	$ 6,678,805
Investment income due and accrued	354,528	321,362
Policy loans	141,650	118,930
Total Financial Assets (excluding available for sale investments)	7,723,715	7,119,097
Federal Home Loan Bank advance	1,000,000	1,000,000
Policyholder deposits in deposit-type contracts	35,409,722	19,396,614
Total Financial Liabilities	36,409,722	20,396,614
Federal Home Loan Bank advance	1,000,000	1,000,000
Estimate of Fair Value Measurement [Member]
Cash and cash equivalents	7,227,537	6,678,805
Investment income due and accrued	354,528	321,362
Policy loans	141,650	118,930
Total Financial Assets (excluding available for sale investments)	7,723,715	7,119,097
Federal Home Loan Bank advance	1,000,000	1,000,000
Policyholder deposits in deposit-type contracts	37,721,270	19,186,265
Total Financial Liabilities	38,721,270	20,186,265
Federal Home Loan Bank advance	1,000,000	1,000,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	7,227,537	6,678,805
Investment income due and accrued
Policy loans
Total Financial Assets (excluding available for sale investments)	7,227,537	6,678,805
Federal Home Loan Bank advance
Policyholder deposits in deposit-type contracts
Total Financial Liabilities
Federal Home Loan Bank advance
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and cash equivalents
Investment income due and accrued	354,528	321,362
Policy loans
Total Financial Assets (excluding available for sale investments)	354,528	321,362
Federal Home Loan Bank advance
Policyholder deposits in deposit-type contracts
Total Financial Liabilities
Federal Home Loan Bank advance
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and cash equivalents
Investment income due and accrued
Policy loans	141,650	118,930
Total Financial Assets (excluding available for sale investments)	141,650	118,930
Federal Home Loan Bank advance	1,000,000	1,000,000
Policyholder deposits in deposit-type contracts	37,721,270	19,186,265
Total Financial Liabilities	38,721,270	20,186,265
Federal Home Loan Bank advance	$ 1,000,000	$ 1,000,000

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income:
Premium income	$ 2,715,761	$ 2,392,976
Net investment income	514,708	397,646
Net investment gains (losses)	(1,370,761)	727,203
Other income	13,656	12,799
Total income	1,873,364	3,530,624
Expenses:
Death claims	481,712	395,667
Policyholder benefits	1,249,083	1,136,828
Increase in policyholder reserves	923,248	680,560
Commissions, net of deferrals	206,956	219,535
Amortization of deferred acquisition costs	575,210	62,902
Amortization of value of business acquired	5,076	5,076
Salaries & benefits	263,205	251,832
Other operating expenses	872,245	402,356
Total expense	4,576,735	3,154,756
Net income (loss)	$ (2,703,371)	$ 375,868
Net income (loss) per common share, basic and diluted (in dollars per share)	$ (0.35)	$ 0.05
Unrealized net holding gains (losses) arising during the period	$ (1,674,158)	$ 1,245,778
Reclassification adjustment for gains included in net loss	(30,873)
Other comprehensive income (loss)	(1,705,031)	1,245,778
Comprehensive income (loss)	$ (4,408,402)	$ 1,621,646

XML

Note 1 - Description of Business and Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Business Description and Accounting Policies [Text Block]

Note

1.

     Description of Business and Significant Accounting Policies

Description of business

: US Alliance Corporation ("USAC") was formed as a Kansas corporation on

April 24, 2009

to raise capital to form a new Kansas-based life insurance company. Our offices are located at

4123

SW Gage Center Drive, Suite

240,

Topeka, Kansas

66604.

Our telephone number is

785

-

228

-

0200

and our website address is

www.usalliancecorporation.com

.

USAC has

five

wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was formed

June 9, 2011,

to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was formed

April 23, 2012,

to serve as a marketing resource. US Alliance Investment Corporation ("USAIC") was formed

April 23, 2012

to serve as investment manager for USAC. Dakota Capital Life Insurance Company (“DCLIC”) was acquired on

August 1, 2017

when USAC merged with Northern Plains Capital Corporation (“NPCC”). US Alliance Life and Security Company - Montana ("USALSC-Montana") was acquired

December 14, 2018.

Both DCLIC and USALSC-Montana are wholly-owned subsidiaries of USALSC.

The Company terminated its initial public offering on

February 24, 2013.

During the balance of

2013,

the Company achieved approval of an array of life insurance and annuity products, began development of various distribution channels and commenced insurance operations and product sales. The Company sold its

first

insurance product on

May 1, 2013.

The Company continued to expand its product offerings and distribution channels throughout

2014

and

2015.

On

February 24, 2015,

the Company commenced a warrant exercise offering set to expire on

February 24, 2016.

On

February 24, 2016,

the Company extended the offering until

February 24, 2017

and made additional shares available for purchase. All outstanding warrants expired on

April 1, 2016.

The Company has extended this offering to

February 24, 2021.

During the

4th

quarter of

2017,

the Company began a private placement offering to accredited investors in the state of North Dakota.

USALSC and DCLIC seek opportunities to develop and market additional products.

Our business model also anticipates the acquisition by USAC and/or USALSC of other insurance and insurance related companies, including

third

-party administrators, marketing organizations, and rights to other blocks of insurance business through reinsurance or other transactions.

Basis of presentation

:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form

10

-Q and Article

10

of Regulation S-

X.

Accordingly, they do

not

include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.

The results of operation for the

three

months ended

March 31, 2020

are

not

necessarily indicative of the results to be expected for the year ended

December 31, 2020

or for any other interim period or for any other future year. In particular, the impact of COVID-

19

on the Company is evolving and its future effects on the Company's business, financial condition, results of operations, liquidity, and capital position are uncertain.  Certain financial information which is normally included in notes to financial statements prepared in accordance with US GAAP, but which are

not

required for interim reporting purposes, has been condensed or omitted. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s report on Form

10

-K and amendments thereto for the year ended

December 31, 2019.

Principles of consolidation

: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated from the consolidated financial statements.

Area of Operation:

USALSC is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska and Oklahoma. DCLIC is authorized to operate in the states of North Dakota and South Dakota. USALSC-Montana is authorized to operate in the state of Montana.

Reclassifications

: Certain reclassifications of a minor nature have been made to prior-year balances to conform to current-year presentation with

no

net impact to net loss/income or equity.

Common stock and earnings (loss) per share:

The par value for common stock is

$0.10

per share with

20,000,000

shares authorized. As of

March 31, 2020,

and

December 31, 2019,

the Company had

7,740,700

and

7,734,004

common shares issued and outstanding, respectively.

Earnings (loss) per share attributable to the Company’s common stockholders were computed based on the net loss and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the quarters ended

March 31, 2020

and

2019

were

7,736,236

and

7,664,837

shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net loss per common share is the same for the quarters ended

March 31, 2020

and

2019.

New accounting standards

Revenue from Contracts with Customers

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued updated guidance to clarify the principles for recognizing revenue. While insurance contracts are

not

within the scope of this updated guidance, the Company's fee income related to providing services will be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services.

The following steps are applied in the updated guidance: (

1

) identify the contract(s) with a customer; (

2

) identify the performance obligations in the contract; (

3

) determine the transaction price; (

4

) allocate the transaction price to the performance obligations in the contract and (

5

) recognize revenue when, or as, the entity satisfies a performance obligation.

In

July 

2015,

the FASB deferred the effective date of the updated guidance on revenue recognitionby

one

year to the quarter ending

March 

31,

2018.

  As an emerging growth company, the Company chose to defer implementation of this accounting standard until the year ending

December 31, 2019.

The adoption of this guidance did

not

have a material effect on the Company’s result of operations, financial position or liquidity.

Recognition and Measurement of Financial Assets and Financial Liabilities

In

January 2016,

the FASB issued updated guidance regarding financial instruments. This guidance intends to enhance reporting for financial instruments and addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The significant amendments in this update generally require equity investments to be measured at fair value with changes in fair value recognized in net income, require the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. This guidance also intends to enhance the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments.

This guidance was effective for the Company for the year ended

December 31, 2019

and required a cumulative effect adjustment to opening retained earnings to be recorded for equity investments with readily determinable fair values. As of the adoption date, the Company held publicly traded equity investments with a fair value of $

10,987,539

million in a net unrealized gain position of $

1,098,760

million. The Company has recorded a cumulative-effect adjustment of

$1,098,760

to decrease Accumulated Other Comprehensive Income (AOCI) with a corresponding increase to accumulated deficit for unrealized gains as of the beginning of fiscal year

2019.

As a result of the implementation of ASU

2016

-

01,

unrealized gains and losses in equity investments with readily determinable fair values are recorded on the Consolidated Statements of Comprehensive Income (Loss) within net investment gains (losses). The Company recorded a gain in net investment gains (losses) of

$1.1

million for year ended

December 31, 2019

as a result of adopting this standard. The implementation of this guidance is expected to increase volatility in our net income as the volatility previously recorded in Statements of Comprehensive Income (Loss) (OCI) related to changes in the fair market value of available-for-sale equity investments will now be reflected in net income (loss) effective with the adoption date.

Leases

In

February 

2016,

the FASB issued updated guidance to require lessees to recognize a right-to-use asset and a lease liability for leases with terms of more than

12

months.  The updated guidance retains the

two

classifications of a lease as either an operating or finance lease (previously referred to as a capital lease).  Both lease classifications require the lessee to record the right-to-use asset and the lease liability based upon the present value of cash flows.  Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-to-use asset.  Operating leases will recognize lease expense (with

no

separate recognition of interest expense) on a straight-line basis over the term of the lease.   The accounting by lessors is

not

significantly changed by the updated guidance.  The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements.

The updated guidance is effective for reporting periods beginning after

December 

15,

2018,

and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied.  Early adoption is permitted.  As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after

December 15, 2020.

The adoption of this guidance is

not

expected to have a material effect on the Company’s results of operations, financial position or liquidity.

Measurement of Credit Losses on Financial Instruments

In

June 

2016,

the FASB issued updated guidance for the accounting for credit losses for financial instruments.  The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

 The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value.  In addition, the length of time a security has been in an unrealized loss position will

no

longer impact the determination of whether a credit loss exists.

The updated guidance is effective for reporting periods beginning after

December 

15,

2019.

  Early adoption is permitted for reporting periods beginning after

December 

15,

2018.

  As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after

December 15, 2022.

The Company will

not

be able to determine the impact that the updated guidance will have on its results of operations, financial position or liquidity until the updated guidance is adopted.

Classification of Certain C

ash

R

eceipts and

Cash P

ayment

In

August 2016,

the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows under

eight

different scenarios including, but

not

limited to: (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies including bank-owned life insurance policies; (iii) distributions received from equity method investees; and (iv) separately identifiable cash flows and application of the predominance principle. This guidance is effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after

December 15, 2018.

The implementation of this standard did

not

have a material impact on the Company’s statement of cash flows.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On

December 22, 2017,

the U.S. federal government enacted a tax bill,

H.R.1,

An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year

2018

(Tax Cuts and Jobs Act). In

February 2018,

FASB issued guidance to address certain issues related to the Tax Cuts and Jobs Act. This new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. This guidance is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance did

not

have a material effect on the Company’s results of operations, financial position or liquidity.

Targeted Improvements to the Accounting for Long-Duration Contracts

In

August 2018,

the FASB issued ASU

2018

-

12

“Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU

2018

-

12

requires periodic reassessment of actuarial and discount rate assumptions used in the valuation of policyholder liabilities and deferred acquisition costs arising from the issuance of long-duration insurance and reinsurance contracts, with the effects of the changes in cash flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Under current accounting guidance, the actuarial and discount rate assumptions are set at the contract inception date and

not

subsequently changed, except in limited circumstances. ASU

2018

-

12

also requires new disclosures and is effective for fiscal years beginning after

December 15, 2023,

with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did

not

relate to accounting policies and procedures pertinent or material to the Company at this time.

XML

Note 3 - Fair Value Measurements - Assets Measured at Fair Value on a Recurring Basis (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Investments in available-for-sale securities, at fair value	$ 40,560,227	$ 43,294,395
Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	40,560,227	43,294,395
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value	6,041,863	9,802,333
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	34,326,764	33,300,462
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value	191,600	191,600
Fixed Maturities [Member]
Investments in available-for-sale securities, at fair value	32,872,792	33,152,892
Fixed Maturities [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	32,872,792	33,152,892
Fixed Maturities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value	652,219	632,639
Fixed Maturities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	32,028,973	32,328,653
Fixed Maturities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value	191,600	191,600
Fixed Maturities [Member] | US Treasury Securities [Member]
Investments in available-for-sale securities, at fair value	652,219	632,639
Fixed Maturities [Member] | US Treasury Securities [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	652,219	632,639
Fixed Maturities [Member] | US Treasury Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value	652,219	632,639
Fixed Maturities [Member] | US Treasury Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value
Fixed Maturities [Member] | US Treasury Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value
Fixed Maturities [Member] | Corporate Debt Securities [Member]
Investments in available-for-sale securities, at fair value	19,657,794	20,084,397
Fixed Maturities [Member] | Corporate Debt Securities [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	19,657,794	20,084,397
Fixed Maturities [Member] | Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value
Fixed Maturities [Member] | Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	19,466,194	19,892,797
Fixed Maturities [Member] | Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value	191,600	191,600
Fixed Maturities [Member] | US States and Political Subdivisions Debt Securities [Member]
Investments in available-for-sale securities, at fair value	6,744,869	7,055,059
Fixed Maturities [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	6,744,869	7,055,059
Fixed Maturities [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value
Fixed Maturities [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	6,744,869	7,055,059
Fixed Maturities [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value
Fixed Maturities [Member] | Redeemable Preferred Stock [Member]
Investments in available-for-sale securities, at fair value	2,816,925	2,133,893
Fixed Maturities [Member] | Redeemable Preferred Stock [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	2,816,925	2,133,893
Fixed Maturities [Member] | Redeemable Preferred Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value
Fixed Maturities [Member] | Redeemable Preferred Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	2,816,925	2,133,893
Fixed Maturities [Member] | Redeemable Preferred Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value
Fixed Maturities [Member] | Collateralized Mortgage Backed Securities [Member]
Investments in available-for-sale securities, at fair value	3,000,985	3,246,904
Fixed Maturities [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	3,000,985	3,246,904
Fixed Maturities [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value
Fixed Maturities [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	3,000,985	3,246,904
Fixed Maturities [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value
Equity Securities [Member]
Investments in available-for-sale securities, at fair value	7,687,435	10,141,503
Equity Securities [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	7,687,435	10,141,503
Equity Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value	5,389,644	9,169,694
Equity Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	2,297,791	971,809
Equity Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value
Equity Securities [Member] | Common Stock [Member]
Investments in available-for-sale securities, at fair value	5,799,414	9,214,694
Equity Securities [Member] | Common Stock [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	5,799,414	9,214,694
Equity Securities [Member] | Common Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value	5,389,644	9,169,694
Equity Securities [Member] | Common Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	409,770	45,000
Equity Securities [Member] | Common Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value
Equity Securities [Member] | Preferred Stock [Member]
Investments in available-for-sale securities, at fair value	1,888,021	926,809
Equity Securities [Member] | Preferred Stock [Member] | Fair Value, Recurring [Member]
Investments in available-for-sale securities, at fair value	1,888,021	926,809
Equity Securities [Member] | Preferred Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Investments in available-for-sale securities, at fair value
Equity Securities [Member] | Preferred Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Investments in available-for-sale securities, at fair value	1,888,021	926,809
Equity Securities [Member] | Preferred Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Investments in available-for-sale securities, at fair value

XML

Note 2 - Investments - Amortized Cost and Fair Value of Available-for-sale and Held-to-maturity Investments (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Debt securities, amortized cost	$ 40,929,011	$ 40,806,347
Gross Unrealized Gains	1,872,736	2,601,377
Gross Unrealized Losses	(2,241,520)	(113,329)
Investments in available-for-sale securities, at fair value	40,560,227	43,294,395
Fixed Maturities [Member]
Debt securities, amortized cost	32,248,318	30,823,397
Gross Unrealized Gains	1,794,585	2,353,766
Gross Unrealized Losses	(1,170,111)	(24,271)
Investments in available-for-sale securities, at fair value	32,872,792	33,152,892
Equity Securities [Member]
Debt securities, amortized cost	8,680,693	9,982,950
Gross Unrealized Gains	78,151	247,611
Gross Unrealized Losses	(1,071,409)	(89,058)
Investments in available-for-sale securities, at fair value	7,687,435	10,141,503
US Treasury Securities [Member] | Fixed Maturities [Member]
Debt securities, amortized cost	607,488	608,477
Gross Unrealized Gains	44,731	24,162
Gross Unrealized Losses
Investments in available-for-sale securities, at fair value	652,219	632,639
Corporate Debt Securities [Member] | Fixed Maturities [Member]
Debt securities, amortized cost	19,275,711	18,407,211
Gross Unrealized Gains	1,181,877	1,697,265
Gross Unrealized Losses	(799,794)	(20,079)
Investments in available-for-sale securities, at fair value	19,657,794	20,084,397
US States and Political Subdivisions Debt Securities [Member] | Fixed Maturities [Member]
Debt securities, amortized cost	6,229,825	6,538,883
Gross Unrealized Gains	517,035	518,059
Gross Unrealized Losses	(1,991)	(1,883)
Investments in available-for-sale securities, at fair value	6,744,869	7,055,059
Redeemable Preferred Stock [Member] | Fixed Maturities [Member]
Debt securities, amortized cost	3,154,668	2,097,206
Gross Unrealized Gains		36,687
Gross Unrealized Losses	(337,743)
Investments in available-for-sale securities, at fair value	2,816,925	2,133,893
Collateralized Mortgage Backed Securities [Member] | Fixed Maturities [Member]
Debt securities, amortized cost	2,980,626	3,171,620
Gross Unrealized Gains	50,942	77,593
Gross Unrealized Losses	(30,583)	(2,309)
Investments in available-for-sale securities, at fair value	3,000,985	3,246,904
Common Stock [Member] | Equity Securities [Member]
Debt securities, amortized cost	6,737,247	9,064,262
Gross Unrealized Gains	64,271	239,490
Gross Unrealized Losses	(1,002,104)	(89,058)
Investments in available-for-sale securities, at fair value	5,799,414	9,214,694
Preferred Stock [Member] | Equity Securities [Member]
Debt securities, amortized cost	1,943,446	918,688
Gross Unrealized Gains	13,880	8,121
Gross Unrealized Losses	(69,305)
Investments in available-for-sale securities, at fair value	$ 1,888,021	$ 926,809

XML

Note 2 - Investments (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Available-for-sale Securities [Table Text Block]

	March 31, 2020
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	607,488	$	44,731	$	-		$	652,219
Corporate bonds		19,275,711		1,181,877		(799,794	)		19,657,794
Municipal bonds		6,229,825		517,035		(1,991	)		6,744,869
Redeemable preferred stock		3,154,668		-		(337,743	)		2,816,925
Mortgage backed and asset backed securities		2,980,626		50,942		(30,583	)		3,000,985
Total fixed maturities		32,248,318		1,794,585		(1,170,111	)		32,872,792
Equities:
Common stock		6,737,247		64,271		(1,002,104	)		5,799,414
Preferred stock		1,943,446		13,880		(69,305	)		1,888,021
Total equities		8,680,693		78,151		(1,071,409	)		7,687,435
Total available for sale	$	40,929,011	$	1,872,736	$	(2,241,520	)	$	40,560,227

	December 31, 2019
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Available for sale:
Fixed maturities:
US Treasury securities	$	608,477	$	24,162	$	-		$	632,639
Corporate bonds		18,407,211		1,697,265		(20,079	)		20,084,397
Municipal bonds		6,538,883		518,059		(1,883	)		7,055,059
Redeemable preferred stock		2,097,206		36,687		-			2,133,893
Mortgage backed and asset backed securities		3,171,620		77,593		(2,309	)		3,246,904
Total fixed maturities		30,823,397		2,353,766		(24,271	)		33,152,892
Equities:
Common stock		9,064,262		239,490		(89,058	)		9,214,694
Preferred stock		918,688		8,121		-			926,809
Total equities		9,982,950		247,611		(89,058	)		10,141,503
Total available for sale	$	40,806,347	$	2,601,377	$	(113,329	)	$	43,294,395

Investments Classified by Contractual Maturity Date [Table Text Block]

	As of March 31, 2020				As of December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(unaudited)
Amounts maturing in:
One year or less	$	99,991	$	100,174	$	99,987	$	100,239
After one year through five years		1,424,877		1,441,107		1,424,337		1,471,552
After five years through ten years		3,212,049		3,430,423		3,286,937		3,574,191
More than 10 years		21,376,107		22,083,178		20,743,310		22,626,113
Redeemable preferred stocks		3,154,668		2,816,925		2,097,206		2,133,893
Mortgage backed and asset backed securities		2,980,626		3,000,985		3,171,620		3,246,904
Total amortized cost and fair value	$	32,248,318	$	32,872,792	$	30,823,397	$	33,152,892

Realized Gain (Loss) on Investments [Table Text Block]

	Three Months Ended March 31,
	(unaudited)
	2020			2019
Gross gains	$	44,295		$	-
Gross losses		(263,248	)		-
Net security gains (losses)	$	(218,953	)	$	-

Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Table Text Block]

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
March 31, 2020	(unaudited)
Available for sale:
Fixed maturities:
Corporate bonds	$	4,647,625	$	(799,794	)	$	-	$	-		$	4,647,625	$	(799,794	)
Municipal bonds		147,391		(1,991	)		-		-			147,391		(1,991	)
Redeemable preferred stock		2,816,926		(337,743	)		-		-			2,816,926		(337,743	)
Mortgage backed and asset backed securities		1,029,824		(30,583	)		-		-			1,029,824		(30,583	)
Total fixed maturities		8,641,766		(1,170,111	)		-		-			8,641,766		(1,170,111	)
Equities:
Common stock		4,816,906		(905,942	)		604,695		(96,162	)		5,421,601		(1,002,104	)
Preferred stock		1,402,290		(69,305	)		-		-			1,402,290		(69,305	)
Total equities		6,219,196		(975,247	)		604,695		(96,162	)		6,823,891		(1,071,409	)
Total available for sale	$	14,860,962	$	(2,145,358	)	$	604,695	$	(96,162	)	$	15,465,657	$	(2,241,520	)

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
December 31, 2019
Available for sale:
Fixed maturities:
Corporate bonds	$	967,848	$	(20,079	)	$	-	$	-		$	967,848	$	(20,079	)
Municipal bonds		46,646		(1,883	)		-		-			46,646		(1,883	)
Mortgage backed and asset backed securities		-		-			296,576		(2,309	)		296,576		(2,309	)
Total fixed maturities		1,014,494		(21,962	)		296,576		(2,309	)		1,311,070		(24,271	)
Equities:
Common stock		68,789		(6,920	)		3,174,847		(82,138	)		3,243,636		(89,058	)
Total equities		68,789		(6,920	)		3,174,847		(82,138	)		3,243,636		(89,058	)
Total available for sale	$	1,083,283	$	(28,882	)	$	3,471,423	$	(84,447	)	$	4,554,706	$	(113,329	)

XML

Note 3 - Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

3

.

     

Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. The Company uses 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 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement rate.

● Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

● Level 3 inputs are unobservable for the asset or liability and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Investments, available for sale

: Fair values of available for sale fixed maturity securities are provided by a

third

party pricing service. The pricing service uses a variety of sources to determine fair value of securities. The Company’s fixed maturity securities are highly liquid, which allows for a high percentage of the portfolio to be priced through pricing sources. Fair values for equity securities are also provided by a

third

party pricing service and are derived from active trading on national market exchanges.

The following table presents the amounts of assets measured at fair value on a recurring basis as of

March 31, 2020

and

December 31, 2019:

	March 31, 2020
	Total		Level 1		Level 2		Level 3
	(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	652,219	$	652,219	$	-	$	-
Corporate bonds		19,657,794		-		19,466,194		191,600
Municipal bonds		6,744,869		-		6,744,869		-
Redeemable preferred stock		2,816,925		-		2,816,925		-
Mortgage backed and asset backed securities		3,000,985		-		3,000,985		-
Total fixed maturities		32,872,792		652,219		32,028,973		191,600
Equities:
Common stock		5,799,414		5,389,644		409,770		-
Preferred stock		1,888,021		-		1,888,021		-
Total equities		7,687,435		5,389,644		2,297,791		-
Total	$	40,560,227	$	6,041,863	$	34,326,764	$	191,600

	December 31, 2019
	Total		Level 1		Level 2		Level 3
Available for sale:
Fixed maturities:
US Treasury securities	$	632,639	$	632,639	$	-	$	-
Corporate bonds		20,084,397		-		19,892,797		191,600
Municipal bonds		7,055,059		-		7,055,059		-
Redeemable preferred stock		2,133,893		-		2,133,893		-
Mortgage backed and asset backed securities		3,246,904		-		3,246,904		-
Total fixed maturities		33,152,892		632,639		32,328,653		191,600
Equities:
Common stock		9,214,694		9,169,694		45,000		-
Preferred stock		926,809		-		926,809		-
Total equities		10,141,503		9,169,694		971,809		-
Total	$	43,294,395	$	9,802,333	$	33,300,462	$	191,600

The Company discloses 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 or non-recurring basis are discussed above. The estimated fair value approximates carrying value for accrued interest. The methodologies for other financial assets and financial liabilities are discussed below:

Cash and cash equivalents

: The carrying amounts approximate fair value because of the short maturity of these instruments.

Investment income due and accrued:

 The carrying amounts approximate fair value because of the short maturity of these instruments.

Policy loans

:Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value.

Federal Home Loan Bank Advances:

FHLB advances are stated at the outstanding principal balances and the carrying value approximates fair value.

Policyholder deposits in deposit-type contracts

: The fair value for policyholder deposits in 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 the nonperformance risk of the liabilities.

The estimated fair values of the Company’s financial assets and liabilities at

March 31, 2020

and

December 31, 2019

are as follows:

	March 31, 2020
	(unaudited)
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	7,227,537	$	7,227,537	$	7,227,537	$	-	$	-
Investment income due and accrued		354,528		354,528		-		354,528		-
Policy loans		141,650		141,650		-		-		141,650
Total Financial Assets (excluding available for sale investments)	$	7,723,715	$	7,723,715	$	7,227,537	$	354,528	$	141,650
Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		35,409,722		37,721,270		-		-		37,721,270
Total Financial Liabilities	$	36,409,722	$	38,721,270	$	-	$	-	$	38,721,270

	December 31, 2019
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	6,678,805	$	6,678,805	$	6,678,805	$	-	$	-
Investment income due and accrued		321,362		321,362		-		321,362		-
Policy loans		118,930		118,930		-		-		118,930
Total Financial Assets (excluding available for sale investments)	$	7,119,097	$	7,119,097	$	6,678,805	$	321,362	$	118,930
Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		19,396,614		19,186,265		-		-		19,186,265
Total Financial Liabilities	$	20,396,614	$	20,186,265	$	-	$	-	$	20,186,265

XML

Note 5 - Income Tax Provision (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Income Tax Expense (Benefit), Total	$ 0	$ 0
Operating Loss Carryforwards, Total	13,088,121		$ 12,577,367
Deferred Income Tax Assets, Net, Total	$ 431,158		$ 431,158

XML

Note 2 - Investments - Realized Gains and Losses Related to the Sale of Securities (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Gross gains	$ 44,295
Gross losses	(263,248)
Net security gains (losses)	$ (218,953)

XML

Consolidated Statements of Changes in Shareholders' Equity (Parentheticals) - $ / shares	Mar. 31, 2020	Mar. 31, 2019
Common Stock [Member]
Common stock, price per share (in dollars per share)	$ 7	$ 7

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Assets
Available for sale securities	$ 40,560,227	$ 43,294,395
Policy loans	141,650	118,930
Total investments	40,701,877	43,413,325
Cash and cash equivalents	7,227,537	6,678,805
Investment income due and accrued	354,528	321,362
Reinsurance related assets	13,782,795	188,382
Deferred acquisition costs, net	3,873,837	2,652,674
Value of business acquired, net	554,918	559,994
Property, equipment and software, net	41,282	43,841
Goodwill	277,542	277,542
Deferred tax asset, net of valuation allowance	431,158	431,158
Other assets	416,404	372,166
Total assets	67,661,878	54,939,249
Liabilities:
Deposit-type contracts	35,409,722	19,396,614
Policyholder benefit reserves	18,316,000	17,326,524
Dividend accumulation	121,016	123,038
Advance premiums	90,562	78,709
Total policy liabilities	53,937,300	36,924,885
Accounts payable and accrued expenses	163,397	122,981
Federal Home Loan Bank advance	(1,000,000)	(1,000,000)
Other liabilities	98,079	15,186
Total liabilities	55,198,776	38,063,052
Shareholders' Equity:
Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,740,700 and 7,734,004 shares as of March 31, 2020 and December 31, 2019, respectively	774,071	773,401
Additional paid-in capital	23,204,894	23,210,257
Accumulated deficit	(12,140,327)	(9,436,956)
Accumulated other comprehensive income	624,464	2,329,495
Total shareholders' equity	12,463,102	16,876,197
Total liabilities and shareholders' equity	67,661,878	54,939,249
Fixed Maturities [Member]
Assets
Available for sale securities	32,872,792	33,152,892
Equities, Including Equity Securities and Other Equity Investments [Member]
Assets
Available for sale securities	$ 7,687,435	$ 10,141,503

XML

Note 1 - Description of Business and Significant Accounting Policies (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2020 USD ($) $ / shares shares	Mar. 31, 2019 USD ($) shares	Dec. 31, 2019 USD ($) $ / shares shares	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
Number of Wholly-Owned Operating Subsidiaries	5
Common Stock, Par or Stated Value Per Share (in dollars per share) | $ / shares	$ 0.10		$ 0.10
Common Stock, Shares Authorized (in shares) | shares	20,000,000		20,000,000
Common Stock, Shares, Issued, Total (in shares) | shares	7,740,700		7,734,004
Common Stock, Shares, Outstanding, Ending Balance (in shares) | shares	7,740,700		7,734,004
Weighted Average Number of Shares Outstanding, Basic and Diluted (in shares) | shares	7,736,236	7,664,837
Equity Securities, FV-NI			$ 10,987,539
Equity Securities, FV-NI, Unrealized Gain (Loss), Total	$ (1,151,808)	$ 727,203	1,098,760
Stockholders' Equity Attributable to Parent, Ending Balance	12,463,102	14,411,202	16,876,197		$ 12,632,666
Equity Securities, FV-NI, Gain (Loss), Total			1,100,000
AOCI Attributable to Parent [Member]
Stockholders' Equity Attributable to Parent, Ending Balance	624,464	160,109	2,329,495		(2,184,429)
Retained Earnings [Member]
Stockholders' Equity Attributable to Parent, Ending Balance	$ (12,140,327)	$ (9,660,296)	$ (9,436,956)		(8,937,404)
Cumulative Effect, Period of Adoption, Adjustment [Member]
Stockholders' Equity Attributable to Parent, Ending Balance
Cumulative Effect, Period of Adoption, Adjustment [Member] | AOCI Attributable to Parent [Member]
Stockholders' Equity Attributable to Parent, Ending Balance					1,098,760
Cumulative Effect, Period of Adoption, Adjustment [Member] | Retained Earnings [Member]
Stockholders' Equity Attributable to Parent, Ending Balance					$ (1,098,760)
Accounting Standards Update 2016-01 [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member] | AOCI Attributable to Parent [Member]
Stockholders' Equity Attributable to Parent, Ending Balance				$ 1,098,760
Accounting Standards Update 2016-01 [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member] | Retained Earnings [Member]
Stockholders' Equity Attributable to Parent, Ending Balance				$ (1,098,760)

XML

Note 6 - Subsequent Events

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Subsequent Events [Text Block]

Note

6

.

   

Subsequent Events

All of the effects of subsequent events that provide additional evidence about conditions that existed at the balance sheet date, including the estimates inherent in the process of preparing the consolidated financial statements, are recognized in the consolidated financial statements. The Company does

not

recognize subsequent events that provide evidence about conditions that did

not

exist at the balance sheet date but arose after, but before the consolidated financial statements are issued. In some cases, unrecognized subsequent events are disclosed to keep the consolidated financial statements from being misleading.

The Company has evaluated subsequent events through

May 11, 2020,

the date on which the consolidated financial statements were issued.  

New Reinsurance Agreement

On

April 15, 2020,

The Company entered into a reinsurance agreement with American Life and Security Corporation.  The agreement was effective

January 1, 2020. 

Under this agreement, USALSC will assume a quota share percentage of a block of certain annuity contracts issued by American Life and Security Corporation.  The Company recognized

$15.4

million of annuity deposits in the

first

quarter and had a receivable from reinsurer of

$13.5

as of

March 31, 2020

as a result of this agreement.   

Uncertainty Due to Covid-

19

Pandemic

As a result of  Covid-

19,

which was declared a pandemic on

March 11, 2020,

the United States, State and Local Governments, and other countries have taken measures that have suddenly limited economic output.  Due to the decline in economic activity, the Company is faced with a sudden uncertainty as of the date of this report on its operations when considering its revenue sources and potential future liquidity needs.  Management is actively monitoring the situation and the impact to its operations.   

XML

Note 2 - Investments (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2020 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)
Proceeds from Sale, Maturity and Collection of Investments, Total	$ 3,489,276	$ 52,582
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total	71
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax, Total	$ 2,241,520
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total	$ 0		$ 0
Fixed Income Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total	27
Collateralized Mortgage Backed Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total	15
Preferred Stock [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total	18
Preferred Stock Index Fund [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total	1
Senior Loan Fund [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total	1
Common Stock [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Total	9

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of presentation

:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form

10

-Q and Article

10

of Regulation S-

X.

Accordingly, they do

not

include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.

The results of operation for the

three

months ended

March 31, 2020

are

not

necessarily indicative of the results to be expected for the year ended

December 31, 2020

or for any other interim period or for any other future year. In particular, the impact of COVID-

19

on the Company is evolving and its future effects on the Company's business, financial condition, results of operations, liquidity, and capital position are uncertain.  Certain financial information which is normally included in notes to financial statements prepared in accordance with US GAAP, but which are

not

required for interim reporting purposes, has been condensed or omitted. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s report on Form

10

-K and amendments thereto for the year ended

December 31, 2019.

Consolidation, Policy [Policy Text Block]

Principles of consolidation

: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated from the consolidated financial statements.

Area of Operation, Policy [Policy Text Block]

Area of Operation:

USALSC is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska and Oklahoma. DCLIC is authorized to operate in the states of North Dakota and South Dakota. USALSC-Montana is authorized to operate in the state of Montana.

Reclassification, Comparability Adjustment [Policy Text Block]

Reclassifications

: Certain reclassifications of a minor nature have been made to prior-year balances to conform to current-year presentation with

no

net impact to net loss/income or equity.

Earnings Per Share, Policy [Policy Text Block]

Common stock and earnings (loss) per share:

The par value for common stock is

$0.10

per share with

20,000,000

shares authorized. As of

March 31, 2020,

and

December 31, 2019,

the Company had

7,740,700

and

7,734,004

common shares issued and outstanding, respectively.

Earnings (loss) per share attributable to the Company’s common stockholders were computed based on the net loss and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the quarters ended

March 31, 2020

and

2019

were

7,736,236

and

7,664,837

shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net loss per common share is the same for the quarters ended

March 31, 2020

and

2019.

New Accounting Pronouncements, Policy [Policy Text Block]

New accounting standards

Revenue from Contracts with Customers

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued updated guidance to clarify the principles for recognizing revenue. While insurance contracts are

not

within the scope of this updated guidance, the Company's fee income related to providing services will be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services.

The following steps are applied in the updated guidance: (

1

) identify the contract(s) with a customer; (

2

) identify the performance obligations in the contract; (

3

) determine the transaction price; (

4

) allocate the transaction price to the performance obligations in the contract and (

5

) recognize revenue when, or as, the entity satisfies a performance obligation.

In

July 

2015,

the FASB deferred the effective date of the updated guidance on revenue recognitionby

one

year to the quarter ending

March 

31,

2018.

  As an emerging growth company, the Company chose to defer implementation of this accounting standard until the year ending

December 31, 2019.

The adoption of this guidance did

not

have a material effect on the Company’s result of operations, financial position or liquidity.

Recognition and Measurement of Financial Assets and Financial Liabilities

In

January 2016,

the FASB issued updated guidance regarding financial instruments. This guidance intends to enhance reporting for financial instruments and addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The significant amendments in this update generally require equity investments to be measured at fair value with changes in fair value recognized in net income, require the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. This guidance also intends to enhance the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments.

This guidance was effective for the Company for the year ended

December 31, 2019

and required a cumulative effect adjustment to opening retained earnings to be recorded for equity investments with readily determinable fair values. As of the adoption date, the Company held publicly traded equity investments with a fair value of $

10,987,539

million in a net unrealized gain position of $

1,098,760

million. The Company has recorded a cumulative-effect adjustment of

$1,098,760

to decrease Accumulated Other Comprehensive Income (AOCI) with a corresponding increase to accumulated deficit for unrealized gains as of the beginning of fiscal year

2019.

As a result of the implementation of ASU

2016

-

01,

unrealized gains and losses in equity investments with readily determinable fair values are recorded on the Consolidated Statements of Comprehensive Income (Loss) within net investment gains (losses). The Company recorded a gain in net investment gains (losses) of

$1.1

million for year ended

December 31, 2019

as a result of adopting this standard. The implementation of this guidance is expected to increase volatility in our net income as the volatility previously recorded in Statements of Comprehensive Income (Loss) (OCI) related to changes in the fair market value of available-for-sale equity investments will now be reflected in net income (loss) effective with the adoption date.

Leases

In

February 

2016,

the FASB issued updated guidance to require lessees to recognize a right-to-use asset and a lease liability for leases with terms of more than

12

months.  The updated guidance retains the

two

classifications of a lease as either an operating or finance lease (previously referred to as a capital lease).  Both lease classifications require the lessee to record the right-to-use asset and the lease liability based upon the present value of cash flows.  Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-to-use asset.  Operating leases will recognize lease expense (with

no

separate recognition of interest expense) on a straight-line basis over the term of the lease.   The accounting by lessors is

not

significantly changed by the updated guidance.  The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements.

The updated guidance is effective for reporting periods beginning after

December 

15,

2018,

and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied.  Early adoption is permitted.  As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after

December 15, 2020.

The adoption of this guidance is

not

expected to have a material effect on the Company’s results of operations, financial position or liquidity.

Measurement of Credit Losses on Financial Instruments

In

June 

2016,

the FASB issued updated guidance for the accounting for credit losses for financial instruments.  The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

 The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value.  In addition, the length of time a security has been in an unrealized loss position will

no

longer impact the determination of whether a credit loss exists.

The updated guidance is effective for reporting periods beginning after

December 

15,

2019.

  Early adoption is permitted for reporting periods beginning after

December 

15,

2018.

  As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after

December 15, 2022.

The Company will

not

be able to determine the impact that the updated guidance will have on its results of operations, financial position or liquidity until the updated guidance is adopted.

Classification of Certain C

ash

R

eceipts and

Cash P

ayment

In

August 2016,

the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows under

eight

different scenarios including, but

not

limited to: (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies including bank-owned life insurance policies; (iii) distributions received from equity method investees; and (iv) separately identifiable cash flows and application of the predominance principle. This guidance is effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after

December 15, 2018.

The implementation of this standard did

not

have a material impact on the Company’s statement of cash flows.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On

December 22, 2017,

the U.S. federal government enacted a tax bill,

H.R.1,

An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year

2018

(Tax Cuts and Jobs Act). In

February 2018,

FASB issued guidance to address certain issues related to the Tax Cuts and Jobs Act. This new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. This guidance is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance did

not

have a material effect on the Company’s results of operations, financial position or liquidity.

Targeted Improvements to the Accounting for Long-Duration Contracts

In

August 2018,

the FASB issued ASU

2018

-

12

“Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU

2018

-

12

requires periodic reassessment of actuarial and discount rate assumptions used in the valuation of policyholder liabilities and deferred acquisition costs arising from the issuance of long-duration insurance and reinsurance contracts, with the effects of the changes in cash flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Under current accounting guidance, the actuarial and discount rate assumptions are set at the contract inception date and

not

subsequently changed, except in limited circumstances. ASU

2018

-

12

also requires new disclosures and is effective for fiscal years beginning after

December 15, 2023,

with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did

not

relate to accounting policies and procedures pertinent or material to the Company at this time.

XML

Note 6 - Subsequent Events (Details Textual) - American Life and Security Corporation [Member] $ in Millions	Mar. 31, 2020 USD ($)
Reinsurance Payable	$ 15.4
Reinsurance Recoverables, Including Reinsurance Premium Paid, Ending Balance	$ 13.5

XML

Note 2 - Investments - Gross Unrealized Losses (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Available-for-sale securities, less than 12 months, fair value	$ 14,860,962	$ 1,083,283
Available-for-sale securities, less than 12 months, unrealized loss	(2,145,358)	(28,882)
Available-for-sale securities, greater than 12 months, fair value	604,695	3,471,423
Available-for-sale securities, greater than 12 months, unrealized loss	(96,162)	(84,447)
Available-for-sale securities, fair value	15,465,657	4,554,706
Available-for-sale securities, unrealized loss	(2,241,520)	(113,329)
Fixed Maturities [Member]
Available-for-sale securities, less than 12 months, fair value	8,641,766	1,014,494
Available-for-sale securities, less than 12 months, unrealized loss	(1,170,111)	(21,962)
Available-for-sale securities, greater than 12 months, fair value		296,576
Available-for-sale securities, greater than 12 months, unrealized loss		(2,309)
Available-for-sale securities, fair value	8,641,766	1,311,070
Available-for-sale securities, unrealized loss	(1,170,111)	(24,271)
Fixed Maturities [Member] | Corporate Debt Securities [Member]
Available-for-sale securities, less than 12 months, fair value	4,647,625	967,848
Available-for-sale securities, less than 12 months, unrealized loss	(799,794)	(20,079)
Available-for-sale securities, greater than 12 months, fair value
Available-for-sale securities, greater than 12 months, unrealized loss
Available-for-sale securities, fair value	4,647,625	967,848
Available-for-sale securities, unrealized loss	(799,794)	(20,079)
Fixed Maturities [Member] | US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities, less than 12 months, fair value	147,391	46,646
Available-for-sale securities, less than 12 months, unrealized loss	(1,991)	(1,883)
Available-for-sale securities, greater than 12 months, fair value
Available-for-sale securities, greater than 12 months, unrealized loss
Available-for-sale securities, fair value	147,391	46,646
Available-for-sale securities, unrealized loss	(1,991)	(1,883)
Fixed Maturities [Member] | Redeemable Preferred Stock [Member]
Available-for-sale securities, less than 12 months, fair value	2,816,926
Available-for-sale securities, less than 12 months, unrealized loss	(337,743)
Available-for-sale securities, greater than 12 months, fair value
Available-for-sale securities, greater than 12 months, unrealized loss
Available-for-sale securities, fair value	2,816,926
Available-for-sale securities, unrealized loss	(337,743)
Fixed Maturities [Member] | Collateralized Mortgage Backed Securities [Member]
Available-for-sale securities, less than 12 months, fair value	1,029,824
Available-for-sale securities, less than 12 months, unrealized loss	(30,583)
Available-for-sale securities, greater than 12 months, fair value		296,576
Available-for-sale securities, greater than 12 months, unrealized loss		(2,309)
Available-for-sale securities, fair value	1,029,824	296,576
Available-for-sale securities, unrealized loss	(30,583)	(2,309)
Equity Securities [Member]
Available-for-sale securities, less than 12 months, fair value	6,219,196	68,789
Available-for-sale securities, less than 12 months, unrealized loss	(975,247)	(6,920)
Available-for-sale securities, greater than 12 months, fair value	604,695	3,174,847
Available-for-sale securities, greater than 12 months, unrealized loss	(96,162)	(82,138)
Available-for-sale securities, fair value	6,823,891	3,243,636
Available-for-sale securities, unrealized loss	(1,071,409)	(89,058)
Equity Securities [Member] | Common Stock [Member]
Available-for-sale securities, less than 12 months, fair value	4,816,906	68,789
Available-for-sale securities, less than 12 months, unrealized loss	(905,942)	(6,920)
Available-for-sale securities, greater than 12 months, fair value	604,695	3,174,847
Available-for-sale securities, greater than 12 months, unrealized loss	(96,162)	(82,138)
Available-for-sale securities, fair value	5,421,601	3,243,636
Available-for-sale securities, unrealized loss	(1,002,104)	$ (89,058)
Equity Securities [Member] | Preferred Stock [Member]
Available-for-sale securities, less than 12 months, fair value	1,402,290
Available-for-sale securities, less than 12 months, unrealized loss	(69,305)
Available-for-sale securities, greater than 12 months, fair value
Available-for-sale securities, greater than 12 months, unrealized loss
Available-for-sale securities, fair value	1,402,290
Available-for-sale securities, unrealized loss	$ (69,305)

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Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash Flows from Operating Activities:
Net income (loss)	$ (2,703,371)	$ 375,868
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	2,559	2,559
Net realized (gains) losses on the sale of securities	218,953
Unrealized (gains) losses on equity securities	1,151,808	(727,203)
Amortization of investment securities, net	20,201	11,881
Deferred acquisition costs capitalized	(1,796,373)	(74,961)
Deferred acquisition costs amortized	575,210	62,902
Value of business acquired amortized	5,076	5,076
Interest credited on deposit type contracts	194,549	160,494
(Increase) decrease in operating assets:
Investment income due and accrued	(33,166)	(24,508)
Reinsurance related assets	(13,594,413)	60,531
Other assets	(44,238)	17,033
Increase (decrease) in operating liabilities:
Policyowner benefit reserves	989,476	631,551
Dividend Accumulation	(2,022)	(9,519)
Advance premiums	11,853	(6,587)
Other liabilities	82,893	(3,279)
Accounts payable and accrued expenses	40,416	12,463
Net cash provided by (used in) operating activities	(14,880,589)	494,301
Cash Flows from Investing Activities:
Purchase of fixed income investments	(876,333)	(615,289)
Purchase of equity investments	(2,974,768)	(173,630)
Proceeds from fixed income sales and repayments	523,611	52,582
Proceeds from equity sales and repayments	2,965,665
Interest on policy loans	(2,477)	(674)
Increase in policy loans	(20,243)	(222)
Net cash used in investing activities	(384,545)	(737,233)
Cash Flows from Financing Activities:
Receipts on deposit-type contracts	16,468,780	965,438
Withdrawals on deposit-type contracts	(650,221)	(471,668)
Proceeds from FHLB advance
Proceeds received from issuance of common stock, net of costs of issuance	(4,693)	156,890
Net cash provided by financing activities	15,813,866	650,660
Net increase in cash and cash equivalents	548,732	407,728
Cash and Cash Equivalents:
Beginning	6,678,805	2,077,646
Ending	$ 7,227,537	$ 2,485,374

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Available for sale securities, amortized cost	$ 40,929,011	$ 40,806,347
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	7,740,700	7,734,004
Common stock, shares outstanding (in shares)	7,740,700	7,734,004
Fixed Maturities [Member]
Available for sale securities, amortized cost	$ 32,248,318	$ 30,823,397
Equities, Including Equity Securities and Other Equity Investments [Member]
Available for sale securities, amortized cost	$ 8,680,693	$ 9,982,950