UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from _________________________ to _________________________________
Commission File Number:
US ALLIANCE CORPORATION
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| (Address of principal executive offices) | (Zip Code) |
(
(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. ☒
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
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 | |
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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.
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
as of November 2, 2022
FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
| Item |
Item Description |
Page |
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| Item 1 |
3 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| 8 | ||||
| Item 2 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
20 | ||
| Item 3 |
33 | |||
| Item 4 |
33 | |||
| Part II - Other Information |
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| Item |
Item Description |
Page |
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| Item 1 |
34 | |||
| Item 1A |
34 | |||
| Item 2 |
34 | |||
| Item 3 |
34 | |||
| Item 4 |
34 | |||
| Item 5 |
34 | |||
| Item 6 |
35 | |||
| 36 | ||||
| Consolidated Balance Sheets |
| September 30, 2022 | December 31, 2021 | |||||||
|
| (unaudited) | |||||||
| Assets | ||||||||
| Investments: | ||||||||
| Available for sale fixed maturity securities (amortized cost: $ and $ as of September 30, 2022 and December 31, 2021, respectively) | $ | $ | ||||||
| Equity securities, at fair value | ||||||||
| Mortgage loans on real estate | ||||||||
| Funds withheld under coinsurance agreement, at fair value | ||||||||
| Policy loans | ||||||||
| Real estate, net of depreciation | ||||||||
| Total investments | ||||||||
| Cash and cash equivalents | ||||||||
| Investment income due and accrued | ||||||||
| Reinsurance related assets | ||||||||
| Deferred acquisition costs, net | ||||||||
| Value of business acquired, net | ||||||||
| Property, equipment and software, net | ||||||||
| Goodwill | ||||||||
| Deferred tax asset, net of valuation allowance | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders' Equity | ||||||||
| Liabilities: | ||||||||
| Policy liabilities | ||||||||
| Deposit-type contracts | $ | $ | ||||||
| Policyholder benefit reserves | ||||||||
| Dividend accumulation | ||||||||
| Advance premiums | ||||||||
| Total policy liabilities | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Federal Home Loan Bank advance | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders' Equity: | ||||||||
| Common stock, par value. Authorized shares; issued and outstanding and shares as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
| See Notes to Consolidated Financial Statements (unaudited). |
| Consolidated Statements of Comprehensive Income (Loss) |
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
|
| (unaudited) | (unaudited) | ||||||||||||||
| Income: | ||||||||||||||||
| Premium income | $ | $ | $ | $ | ||||||||||||
| Net investment income | ||||||||||||||||
| Net investment losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Total income | ||||||||||||||||
| Expenses: | ||||||||||||||||
| Death claims | ||||||||||||||||
| Policyholder benefits | ||||||||||||||||
| Increase in policyholder reserves | ||||||||||||||||
| Commissions, net of deferrals | ||||||||||||||||
| Amortization of deferred acquisition costs | ||||||||||||||||
| Amortization of value of business acquired | ||||||||||||||||
| Salaries & benefits | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| Total expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Unrealized net holding losses arising during the period, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reclassification adjustment for (gains) losses included in net loss | ( | ) | ( | ) | ||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| See Notes to Consolidated Financial Statements (unaudited). |
| Consolidated Statements of Changes in Shareholders' Equity |
| Nine and Three Months Ended September 30, 2022 and 2021 (unaudited) |
| Accumulated | ||||||||||||||||||||||||
| Number of | Other | |||||||||||||||||||||||
| Shares of | Common | Additional | Comprehensive | Accumulated | ||||||||||||||||||||
| Common Stock | Stock | Paid-in Capital | Income / (Loss) | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock issued, per share | ||||||||||||||||||||||||
| Costs associated with common stock issued | - | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock issued, per share | ||||||||||||||||||||||||
| Costs associated with common stock issued | - | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| See Notes to Consolidated Financial Statements (unaudited). |
| Accumulated | ||||||||||||||||||||||||
| Number of | Other | |||||||||||||||||||||||
| Shares of | Common | Additional | Comprehensive | Accumulated | ||||||||||||||||||||
| Common Stock | Stock | Paid-in Capital | Income / (Loss) | Deficit | Total | |||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common stock issued, per share | - | |||||||||||||||||||||||
| Costs associated with common stock issued | - | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common stock issued, per share | - | |||||||||||||||||||||||
| Costs associated with common stock issued | - | |||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| See Notes to Consolidated Financial Statements (unaudited). |
| Consolidated Statements of Cash Flows |
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
|
| (unaudited) | |||||||
| Cash Flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Net (gains) losses realized on the sale of securities | ( | ) | ||||||
| Unrealized (gains) losses on equity securities | ( | ) | ||||||
| Change in fair value of funds withheld embedded derivative | ||||||||
| Amortization of investment securities, net | ||||||||
| Deferred acquisition costs capitalized | ( | ) | ( | ) | ||||
| Deferred acquisition costs amortized | ||||||||
| Value of business acquired amortized | ||||||||
| Interest credited on deposit type contracts | ||||||||
| (Increase) decrease in operating assets: | ||||||||
| Change in funds withheld | ( | ) | ( | ) | ||||
| Investment income due and accrued | ( | ) | ||||||
| Reinsurance related assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Increase (decrease) in operating liabilities: | ||||||||
| Policyowner benefit reserves | ||||||||
| Dividend Accumulation | ||||||||
| Advance premiums | ||||||||
| Other liabilities | ||||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from investing activities: | ||||||||
| Purchase of fixed income investments | ( | ) | ( | ) | ||||
| Purchase of equity investments | ( | ) | ( | ) | ||||
| Purchase of mortgage investments | ( | ) | ( | ) | ||||
| Proceeds from fixed income sales and repayments | ||||||||
| Proceeds from equity sales | ||||||||
| Proceeds from mortgage repayments | ||||||||
| Transfers from funds withheld | ||||||||
| (Increase) decrease in policy loans | ( | ) | ||||||
| Purchase of property, equipment and software | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from financing activities: | ||||||||
| Receipts on deposit-type contracts | ||||||||
| Withdrawals on deposit-type contracts | ( | ) | ( | ) | ||||
| Repayment of FHLB advance | ( | ) | ||||||
| Proceeds received from issuance of common stock, net of costs of issuance | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and Cash Equivalents: | ||||||||
| Beginning | ||||||||
| Ending | $ | $ | ||||||
| See Notes to Consolidated Financial Statements (unaudited). |
| US Alliance Corporation |
| Supplemental Cash Flow Information |
| Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| Supplemental Disclosure of Non-Cash Information |
||||||||
| Funds withheld assumed deposits on deposit-type contracts |
$ | $ | ||||||
| Funds withheld assumed withdrawals on deposit-type contracts |
( |
) | ( |
) | ||||
| Commissions and expense allowances deducted from funds withheld |
( |
) | ( |
) | ||||
See Notes to Consolidated Financial Statements (unaudited).
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 1303 SW First American Place, Suite 200, Topeka, Kansas 66604. Our telephone number is 785-228-0200 and our website address is www.usalliancecorporation.com.
USAC has wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was incorporated June 9, 2011, to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was incorporated April 23, 2012, to serve as a marketing resource. US Alliance Investment Corporation ("USAIC") was incorporated April 23, 2012 to serve as investment manager for USAC and its subsidiaries. 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. Unless the context otherwise indicates, references in this registration statement to "we", "us", "our", or the "Company" refer collectively to USAC and its subsidiaries.
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 associated with this offering expired on April 1, 2016. The Company further extended this offering to February 24, 2023. During the fourth quarter of 2017, the Company began a private placement offering to accredited investors in the state of North Dakota.
USALSC received a Certificate of Authority from the Kansas Insurance Department ("KID") effective January 2, 2012, and sold its first insurance product on May 1, 2013. DCLIC received a Certificate of Authority from the North Dakota Insurance Department ("NDID") effective January 24, 2012.
USALSC and DCLIC seek opportunities to develop and market additional products.
The Company’s 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 and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any other interim period or for any other future year. 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 USAC’s report on Form 10-K and amendments thereto for the year ended December 31, 2021.
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: US Alliance Life and Security Company is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska, Oklahoma, Wyoming, South Dakota, Montana, Utah, and Kentucky. 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.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Common stock and income (loss) per share: The par value for common stock is $
Loss per share attributable to USAC’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 nine months ended September 30, 2022 and 2021 were
New accounting standards:
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 adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity as the Company does not have any significant leases as a lessee.
Income Taxes - Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued updated guidance (Accounting Standards Update 2019-12) for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The updated guidance was effective for the quarters ending and after March 31, 2021. The adoption of this guidance did not 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.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
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 was effective for reporting periods beginning after December 15, 2019. Early adoption was 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.
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.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Note 2. Investments
Fixed Maturity
The amortized cost and fair value of available for sale investments as of September 30, 2022 and December 31, 2021 is as follows:
| September 30, 2022 | ||||||||||||||||
| Cost or | Gross | Gross | ||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
|
| (unaudited) | |||||||||||||||
| Available for sale: | ||||||||||||||||
| Fixed maturities: | ||||||||||||||||
| US Treasury securities | $ | $ | $ | $ | ||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Municipal bonds | ( | ) | ||||||||||||||
| Redeemable preferred stock | ( | ) | ||||||||||||||
| Mortgage backed and asset backed securities | ( | ) | ||||||||||||||
| Total available for sale | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2021 | ||||||||||||||||
| Cost or | Gross | Gross | ||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
| Available for sale: | ||||||||||||||||
| Fixed maturities: | ||||||||||||||||
| US Treasury securities | $ | $ | $ | $ | ||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Municipal bonds | ( | ) | ||||||||||||||
| Redeemable preferred stock | ( | ) | ||||||||||||||
| Mortgage backed and asset backed securities | ( | ) | ||||||||||||||
| Total available for sale | $ | $ | $ | ( | ) | $ | ||||||||||
The amortized cost and fair value of debt securities as of September 30, 2022 and December 31, 2021, by contractual maturity, are shown below. 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 September 30, 2022 | As of December 31, 2021 | |||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
|
| (unaudited) | |||||||||||||||
| Amounts maturing in: | ||||||||||||||||
| One year or less | $ | $ | $ | $ | ||||||||||||
| After one year through five years | ||||||||||||||||
| After five years through ten years | ||||||||||||||||
| More than 10 years | ||||||||||||||||
| Redeemable preferred stocks | ||||||||||||||||
| Mortgage backed and asset backed securities | ||||||||||||||||
| Total amortized cost and fair value | $ | $ | $ | $ | ||||||||||||
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Proceeds from the sale of securities, maturities, and asset paydowns in the nine months ended September 30, 2022 and 2021 were $
| Nine Months Ended September 30, | ||||||||
| (unaudited) | ||||||||
| 2022 | 2021 | |||||||
| Gross gains | $ | $ | ||||||
| Gross losses | ( | ) | ( | ) | ||||
| Realized gains (losses) | $ | ( | ) | $ | ||||
Proceeds from the sale of securities, maturities, and asset paydowns in the three months ended September 30, 2022 and 2021 were $
| Three Months Ended September 30, | ||||||||
| (unaudited) | ||||||||
| 2022 | 2021 | |||||||
| Gross gains | $ | $ | ||||||
| Gross losses | ( | ) | ||||||
| Realized gains (losses) | $ | ( | ) | $ | ||||
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 | |||||||||||||||||||
| September 30, 2022 | (unaudited) | |||||||||||||||||||||||
| Available for sale: | ||||||||||||||||||||||||
| Fixed maturities: | ||||||||||||||||||||||||
| Corporate bonds | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Municipal bonds | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Redeemable preferred stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Mortgage backed and asset backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total fixed maturities | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||
| Available for sale: | ||||||||||||||||||||||||
| Fixed maturities: | ||||||||||||||||||||||||
| Corporate bonds | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
| Municipal bonds | ( | ) | ( | ) | ||||||||||||||||||||
| Redeemable preferred stock | ( | ) | ( | ) | ||||||||||||||||||||
| Mortgage backed and asset backed securities | ( | ) | ( | ) | ||||||||||||||||||||
| Total fixed maturities | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
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 available for sale fixed maturity securities in the investment portfolio in an unrealized loss position as of September 30, 2022 was 218, which represented an unrealized loss of $
Mortgage Loans on Real Estate
The Company has invested in various mortgage loans through participation agreements with the original issuing entity. The Company’s mortgage loans by property type as of September 30, 2022 and December 31, 2021 are summarized as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Commercial mortgage loans by property type |
| |||||||
| Condominium | $ | $ | ||||||
| Multi-property | ||||||||
| Multi-family | ||||||||
| Retail | ||||||||
| Total commercial mortgages | $ | $ | ||||||
The Company utilizes loan-to-value of individual mortgage loans to evaluate the credit quality of its mortgage loan portfolio. The loan-to-value measures the loan's carrying value to its appraised value. The Company’s mortgage loans by loan-to-value ratio as of September 30, 2022 and December 31, 2021 are summarized as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Loan to value ratio | ||||||||
| Over 60 to 70% | $ | $ | ||||||
| Over 40 to 50% | ||||||||
| Over 30 to 40% | ||||||||
| Over 10 to 20% | ||||||||
| Total | $ | $ | ||||||
The Company’s mortgage loans by maturity date as of September 30, 2022 and December 31, 2021 are summarized as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Maturity Date |
| |||||||
| One year or less | $ | $ | ||||||
| After one year through five years | ||||||||
| Total | $ | $ | ||||||
The Company had
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Investment Income, Net of Expenses
The components of net investment income for the nine months ended September 30, 2022 and 2021 are as follows:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Fixed maturities | $ | $ | ||||||
| Mortgages | ||||||||
| Equity securities | ||||||||
| Funds withheld | ||||||||
| Cash and cash equivalents | ||||||||
| Less investment expenses | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The components of net investment income for the three months ended September 30, 2022 and 2021 are as follows:
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Fixed maturities | $ | $ | ||||||
| Mortgages | $ | |||||||
| Equity securities | ||||||||
| Funds withheld | ||||||||
| Cash and cash equivalents | ||||||||
| Less investment expenses | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Net Investment Gains (Losses)
Accounting standards require that the unrealized gains and losses on equity securities be reported as income on the consolidated statements of comprehensive loss. For the nine months ended September 30, 2022, net investment losses is comprised of $
Note 3. Derivative Instruments
Types of Derivatives used by the Company
The Company’s derivatives consists solely of embedded derivatives on funds withheld on coinsurance assets.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Summary of Derivative Positions
The fair value of the Company’s derivative financial instruments on the consolidated balance sheets is as follows:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||
| Derivative | Derivative | Balance | |||||||||||||||
| Asset | Liability | Asset | Liability | Reported In | |||||||||||||
|
| (unaudited) | ||||||||||||||||
| Derivatives: | |||||||||||||||||
| Embedded derivatives: | |||||||||||||||||
| Funds withheld embedded derivative | $ | $ | $ | $ | Funds withheld | ||||||||||||
The following table shows the change in the fair value of the derivative financial instruments in the consolidated statements of comprehensive income:
| Nine Months Ending | Nine Months Ending | Balance | |||||||
| September 30, 2022 | September 30, 2021 | Reported In | |||||||
|
| (unaudited) | (unaudited) | |||||||
| Derivatives: | |||||||||
| Embedded derivatives: | |||||||||
| Change in funds withheld embedded derivative | $ | ( | ) | $ | ( | ) | Net investment losses | ||
Note 4. 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.
Equity securities: Fair values for equity securities are also provided by a third party pricing service and are derived from active trading on national market exchanges.
Embedded derivative: The fair value of embedded derivatives associated with funds withheld reinsurance treaty is determined upon a total return swap technique with reference to the fair value of the investments held by the ceding company that support the Company’s funds withheld asset with an adjustment for a credit valuation adjustment. The fair value of the underlying assets is generally based upon market observable inputs with industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered level 3 in the fair value hierarchy. The Company’s utilization of a credit-valuation adjustment did have a material effect on the change in fair value of the embedded derivative for the three and nine months ended September 30, 2022 and 2021.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
The table below presents the amounts of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:
| September 30, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| (unaudited) | ||||||||||||||||
| Fixed maturities: | ||||||||||||||||
| US Treasury securities | $ | $ | $ | $ | ||||||||||||
| Corporate bonds | ||||||||||||||||
| Municipal bonds | ||||||||||||||||
| Redeemable preferred stock | ||||||||||||||||
| Mortgage backed and asset backed securities | ||||||||||||||||
| Total fixed maturities | ||||||||||||||||
| Equities: | ||||||||||||||||
| Common stock | ||||||||||||||||
| Preferred stock | ||||||||||||||||
| Total equities | ||||||||||||||||
| Funds withheld embedded derivative | ( | ) | ( | ) | ||||||||||||
| Total | $ | $ | $ | $ | ( | ) | ||||||||||
| December 31, 2021 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Fixed maturities: | ||||||||||||||||
| US Treasury securities | $ | $ | $ | $ | ||||||||||||
| Corporate bonds | ||||||||||||||||
| Municipal bonds | ||||||||||||||||
| Redeemable preferred stock | ||||||||||||||||
| Mortgage backed and asset backed securities | ||||||||||||||||
| Total fixed maturities | ||||||||||||||||
| Equities: | ||||||||||||||||
| Common stock | ||||||||||||||||
| Preferred stock | ||||||||||||||||
| Total equities | ||||||||||||||||
| Funds withheld embedded derivative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:
| For the Nine Months Ended September 30, 2022 | Corporate | Funds | ||||||
| Bonds | Withheld | |||||||
| Fair value, beginning of period | $ | $ | ||||||
| Investment related losses | ( | ) | ||||||
| Fair value, end of period | $ | $ | ( | ) | ||||
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
| For the Three Months Ended September 30, 2022 | Corporate | Funds | ||||||
| Bonds | Withheld | |||||||
| Fair value, beginning of period | $ | $ | ( | ) | ||||
| Investment related gains (losses), net | ( | ) | ||||||
| Fair value, end of period | $ | $ | ( | ) | ||||
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 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.
Mortgage loans on real estate: Mortgage loans are carried at their unpaid principal value as that is considered the fair market values for these loans.
Funds withheld: The carrying value of funds withheld at interest approximates fair value as funds are specifically identified in the agreement. The fair value of the specified funds is based on the fair value of the underlying assets that are held by the ceding company. The ceding company uses a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs to value the securities held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.
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 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.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
The estimated fair values of the Company’s financial assets and liabilities at September 30, 2022 and December 31, 2021 are as follows:
| September 30, 2022 | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Financial Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Mortgage loans on real estate | ||||||||||||||||||||
| Investment income due and accrued | ||||||||||||||||||||
| Funds withheld | ||||||||||||||||||||
| Policy loans | ||||||||||||||||||||
| Total Financial Assets (excluding available for sale investments) | $ | $ | $ | $ | $ | |||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Federal Home Loan Bank advance | $ | $ | $ | $ | $ | |||||||||||||||
| Policyholder deposits in deposit-type contracts | ||||||||||||||||||||
| Total Financial Liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Financial Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Mortgage loans on real estate | ||||||||||||||||||||
| Investment income due and accrued | ||||||||||||||||||||
| Funds withheld | ||||||||||||||||||||
| Policy loans | ||||||||||||||||||||
| Total Financial Assets (excluding available for sale investments) | $ | $ | $ | $ | $ | |||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Federal Home Loan Bank advance | $ | $ | $ | $ | $ | |||||||||||||||
| Policyholder deposits in deposit-type contracts | ||||||||||||||||||||
| Total Financial Liabilities | $ | $ | $ | $ | $ | |||||||||||||||
Note 5. Income Tax Provision
The net operating loss carryforwards for the Company are $
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
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 November 14, 2022, the date on which the consolidated financial statements were issued. The Company assumed custody of the assets in the funds withheld account on October 1, 2022 and recorded the funds withheld assets at fair value on the date of transfer, which will eliminate the embedded derivative component associated with the 2020 ALSC Agreement in future reporting periods.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our 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 those relating to the COVID-19 pandemic, and 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
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. Unless the context indicates otherwise, references herein to the "Company" refer to USAC and its consolidated subsidiaries.
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 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 three 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, 2017, USALSC entered into an agreement (the "2017 ALSC Agreement") with American Life & Security Company ("ALSC") to assume 100% of a certain block of life insurance policies from ALSC. On April 15, 2020, with an effective date of January 1, 2020, USALSC entered into an agreement (the "2020 ALSC Agreement") with ALSC to assume a quota share percentage of a block of annuity policies. As of December 31, 2020, USALSC had assumed $50.1 million in annuity deposits under the 2020 ALSC Agreement. Effective December 31, 2020, DCLIC entered into an agreement (the ("2020 ALSC Assumption Agreement") with ALSC, which provided for ALSC to recapture all reserves previously ceded to USALSC with respect to a portion of the 2017 ALSC Agreement. USALSC and ALSC agreed that the commuted business shall be discharged by USALSC’s transfer of invested assets and cash in the amount of $9,181,100. As part of the transaction the Company released $10,972,785 in reserve liabilities and $1,146,156 of deferred acquisition costs, resulting in a commutation gain of $543,794, which was recorded in other income for the year ended December 31, 2020.
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.
Valuation of Investments
The Company's principal investments are in fixed maturity, mortgages, and equity securities. Fixed maturity 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. Our fixed income investment manager utilizes external independent third-party pricing services to determine the fair values of investment securities available for sale. Equity securities are carried at fair value in the consolidated balance sheets with unrealized gains or losses recorded in net income (loss).
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 ("NEAM") and 1505 Capital, our investment managers, provide 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. Our membership in the Federal Home Loan Bank ("FHLB") provides additional liquidity which further reduces the likelihood that we would be required to sell a security prior to recovery. 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 loss 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.
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.
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 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.
Embedded Derivatives
The Company has entered into coinsurance funds withheld arrangement with ALSC which contains an embedded derivative. Under ASC 815, the Company assesses whether the embedded derivative is clearly and closely related to the host contract. The Company bifurcates embedded derivatives from the host instrument for measurement purposes when the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument. Embedded derivatives, which are reported with the host instrument on the consolidated balance sheets in funds withheld under coinsurance agreement, are reported at fair value with changes in fair value recognized in the consolidated statements of comprehensive loss in net investment losses.
Funds Withheld under Coinsurance Agreement
Funds withheld under coinsurance agreement represent amounts contractually withheld by a ceding company in accordance with the 2020 ALSC Agreement. For agreements written on a coinsurance funds withheld basis, assets that support the net statutory reserves or as defined by the treaty, are withheld and legally owned by the ceding company. Interest is recorded in net investment income, net of related expenses, in the consolidated statements of comprehensive loss. Funds withheld under coinsurance agreement are presented net of the embedded derivative, discussed above. Under the terms of the 2020 ALSC Agreement, the Company may assume custody of the assets in the funds withheld account once the Company attains its "Qualified Institutional Buyer" designation (as that term is defined in Rule 144A under the Securities Act of 1933, as amended). The Company assumed custody of the assets in the funds withheld account on October 1, 2022 and recorded the funds withheld assets at fair value on the date of transfer, which will eliminate the embedded derivative component associated with the 2020 ALSC Agreement in future reporting periods.
Mortgage Loans on Real Estate
Mortgage loans on real estate are carried at unpaid principal balances, net of any unamortized premium or discount and valuation allowances. Interest income is accrued on the principal amount of the mortgage loans based on its contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. The Company accrues interest on loans until probable that the Company will not receive interest or the loan is 90 days past due. Interest income, amortization of premiums, accretion of discounts and prepayment fees are reported in investment income, net of related expenses in the consolidated statements of comprehensive income (loss).
A mortgage loan is considered to be impaired when, based on the current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the mortgage agreement.
Valuation allowances on mortgage loans are established based upon inherent losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The Company establishes valuation allowances for estimated impairments on an individual loan basis as of the balance sheet date. Such valuation allowances are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan’s original effective interest rate, the value of the loan’s collateral if the loan is in the process of foreclosure or is otherwise collateral-dependent, or the loan’s market value if the loan is being sold. These evaluations are revised as conditions change and new information becomes available. In addition to historical experience, management considers qualitative factors that include the impact of changing macro-economic conditions, which may not be currently reflected in the loan portfolio performance, and the quality of the loan portfolio.
Any interest accrued or received on the net carrying amount of the impaired loan will be included in investment income or applied to the principal of the loan, depending on the assessment of the collectability of the loan. Mortgage loans deemed to be uncollectible or that have been foreclosed are charged off against the valuation allowances and subsequent recoveries, if any, are credited to the valuation allowances. Changes in valuation allowances are reported in net investment gains (losses) on the consolidated statements of comprehensive income (loss).
The Company evaluates whether a mortgage loan modification represents a troubled debt restructuring. In a troubled debt restructuring, the Company grants concessions related to the borrower’s financial difficulties. Generally, the types of concessions include: reduction of the contractual interest rate, extension of the maturity date at an interest rate lower than current market interest rates and/or a reduction of accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. Through the continuous monitoring process, the Company may have recorded a specific valuation allowance prior to when the mortgage loan is modified in a troubled debt restructuring. Accordingly, the carrying value (after specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.
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. NPCC shareholders received .5841 shares of US Alliance Corporation stock for each share of NPCC stock owned. USAC issued 1,644,458 shares of common stock to holders of NPCC 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.
Effective December 31, 2020, DCLIC acquired a block of life insurance policies according to the terms of the 2020 ALSC Assumption Agreement. The Company acquired fixed maturity securities and cash of $9,181,100, assumed liabilities of $10,972,785 and recorded VOBA of $2,163,542.
New Accounting Standards
A detailed discussion of new accounting standards is provided in the Notes to Consolidated Financial Statements beginning on p. 9 of this quarterly report.
Discussion of Consolidated Results of Operations
Total Income. Insurance revenues are primarily generated from premium revenues and investment income. Total income for the nine months ended September 30, 2022 and 2021 is summarized in the table below.
| Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
|
|
(unaudited) |
|||||||
| Income: | ||||||||
| Premium income |
$ | 10,023,670 | $ | 9,212,137 | ||||
| Net investment income |
4,429,292 | 4,143,127 | ||||||
| Net investment losses |
(2,809,802 | ) | (202,742 | ) | ||||
| Other income |
252,899 | 237,901 | ||||||
| Total income |
$ | 11,896,059 | $ | 13,390,423 | ||||
Our 2022 first nine months total income decreased to $11,896,059, a decrease of $1,494,364 or 11% from the 2021 first nine months total income of $13,390,423. 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 continues to result in increased volatility in total income and is the driver of the reduced first nine months total income.
Total income for the three months ended September 30, 2022 and 2021 is summarized in the table below.
| Three Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
|
|
(unaudited) |
|||||||
| Income: | ||||||||
| Premium income |
$ | 3,297,461 | $ | 2,860,039 | ||||
| Net investment income |
1,858,605 | 1,511,555 | ||||||
| Net investment losses |
(655,495 | ) | (276,532 | ) | ||||
| Other income |
92,713 | 80,497 | ||||||
| Total income |
$ | 4,593,284 | $ | 4,175,559 | ||||
Our 2022 third quarter total income increased to $4,593,984 from $4,175,559, an increase of $417,725 or 10%. The increase is driven by premium income and net investment income.
Premium income: Premium income for the first nine months of 2022 was $10,023,670 compared to $9,212,137 in the first nine months of 2021, an increase of $811,533 or 9%. The increase was driven by an increase in direct single and recurring premiums. Although it is a reduction in revenue, ceded premium increases reflect the growth of our group policy premiums as we focus on small companies to assist them with their employee benefits.
Direct, assumed and ceded premiums for the nine months ended September 30, 2022 and 2021 are summarized in the following table.
| Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| (unaudited) |
||||||||
| Direct |
$ | 7,486,313 | $ | 6,797,910 | ||||
| Assumed |
3,454,242 | 3,237,210 | ||||||
| Ceded |
(916,885 | ) | (822,983 | ) | ||||
| Total |
$ | 10,023,670 | $ | 9,212,137 | ||||
The Company continuously searches for new product and distribution opportunities to continue to increase premium production on both a direct and assumed basis.
Premium income for the third quarter of 2022 was $3,297,461 compared to $2,860,039 in the third quarter of 2021, an increase of $437,422 or 15%. The increase was driven by an increase in direct single and recurring premiums. Though it is a reduction in revenue, ceded premium increases reflect the growth of our group policy premiums as we focus on small companies to assist them with their employee benefits.
Direct, assumed and ceded premiums for the three months ended September 30, 2022 and 2021 are summarized in the following table.
| Three Months ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| (unaudited) |
||||||||
| Direct |
$ | 2,691,220 | $ | 2,299,893 | ||||
| Assumed |
931,314 | 864,855 | ||||||
| Ceded |
(325,073 | ) | (304,709 | ) | ||||
| Total |
$ | 3,297,461 | $ | 2,860,039 | ||||
Investment income, net of expenses: The components of net investment income for the nine months ended September 30, 2022 and 2021 are as follows:
| Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| (unaudited) |
||||||||
| Fixed maturities |
$ | 856,256 | $ | 834,464 | ||||
| Mortgages |
207,865 | 281,718 | ||||||
| Equity securities |
488,436 | 453,809 | ||||||
| Funds withheld |
2,932,068 | 2,675,956 | ||||||
| Cash and cash equivalents |
26,797 | 1,285 | ||||||
| 4,511,422 | 4,247,232 | |||||||
| Less investment expenses |
(82,130 | ) | (104,105 | ) | ||||
| $ | 4,429,292 | $ | 4,143,127 | |||||
Net investment income for the first nine months of 2022 was $4,429,292, compared to $4,143,127 in 2021, an increase of $286,165 or 7%. This increase in investment income is primarily a result of funds withheld income..
The components of net investment income for the three months ended September 30, 2022 and 2021 are as follows:
| Three Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| (unaudited) |
||||||||
| Fixed maturities |
$ | 296,994 | $ | 280,823 | ||||
| Mortgages |
91,515 | $ | 92,459 | |||||
| Equity securities |
175,938 | 151,168 | ||||||
| Funds withheld |
1,310,559 | 1,026,680 | ||||||
| Cash and cash equivalents |
21,326 | 417 | ||||||
| 1,896,332 | 1,551,547 | |||||||
| Less investment expenses |
(37,727 | ) | (39,992 | ) | ||||
| $ | 1,858,605 | $ | 1,511,555 | |||||
Net investment income for the third quarter of 2022 was $1,858,605, compared to $1,511,555 in 2021, an increase of $347,050 or 23%.
Net investments losses: Net investment losses for the nine months ended September 30, 2022 were $2,809,802, compared to $202,742 for the same period in 2021, an increase of $2,607,060. The increase in net investment losses is attributable to unrealized losses on our equity portfolio and funds withheld account. Net investment losses for the nine months ended September 30, 2022 were comprised of $2,794,514 of unrealized losses in our equity portfolio and funds withheld asset and realized losses of $15,288. Net investment losses for the nine months ended September 30, 2021 were comprised of $420,755 of unrealized losses in our equity portfolio and funds withheld asset and realized gains of $218,013. Realized gains and losses related to the sale of securities for the nine months ended September 30, 2022 and 2021 are summarized as follows:
| Nine Months Ended September 30, |
||||||||
| (unaudited) |
||||||||
| 2022 |
2021 |
|||||||
| Gross gains |
$ | 3,617 | $ | 218,411 | ||||
| Gross losses |
(18,905 | ) | (398 | ) | ||||
| Realized gains (losses) |
$ | (15,288 | ) | $ | 218,013 | |||
Net investment losses for the three months ended September 30, 2022 were $655,495, compared to losses of $276,532 for the same period in 2021, an increase of $378,963. The increase in net investment losses is attributable to unrealized losses on our equity portfolio and funds withheld account. Net investment losses for the three months ended September 30, 2022 were comprised of $639,584 of unrealized losses in our equity portfolio and funds withheld asset and realized losses of $15,911. Net investment gains for the three months ended September 30, 2021 were comprised of $278,932 of unrealized losses in our equity portfolio and funds withheld asset and realized gains of $2,400. Realized gains and losses related to the sale of securities for the three months ended September 30, 2022 and 2021 are summarized as follows:
| Three Months Ended September 30, |
||||||||
| (unaudited) |
||||||||
| 2022 |
2021 |
|||||||
| Gross gains |
$ | 453 | $ | 2,400 | ||||
| Gross losses |
(16,364 | ) | - | |||||
| Realized gains (losses) |
$ | (15,911 | ) | $ | 2,400 | |||
Other income: Other income for the nine months ended September 30, 2022 was $252,899 compared to $237,901 in the same period in 2021, an increase of $14,998. Other income for the three months ended September 30, 2022 was $92,713 compared to $80,487 in the same period in 2021, an increase of $12,216.
Expenses. Expenses for the nine months ended September 30, 2022 and 2021 are summarized in the table below.
| Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| Expenses: |
(unaudited) |
|||||||
| Death claims |
$ | 2,216,965 | $ | 1,702,615 | ||||
| Policyholder benefits |
5,149,048 | 4,783,193 | ||||||
| Increase in policyholder reserves |
3,393,766 | 3,310,238 | ||||||
| Commissions, net of deferrals |
560,549 | 542,536 | ||||||
| Amortization of deferred acquisition costs |
900,532 | 916,698 | ||||||
| Amortization of value of business acquired |
69,315 | 69,315 | ||||||
| Salaries & benefits |
1,046,368 | 890,615 | ||||||
| Other operating expenses |
1,533,622 | 1,363,578 | ||||||
| Total expense |
$ | 14,870,165 | $ | 13,578,788 | ||||
Expenses for the three months ended September 30, 2022 and 2021 are summarized in the table below.
| Three Months Ended September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Expenses: |
(unaudited) |
|||||||
| Death claims |
$ | 691,790 | $ | 600,819 | ||||
| Policyholder benefits |
1,535,664 | 1,344,823 | ||||||
| Increase in policyholder reserves |
1,250,136 | 967,579 | ||||||
| Commissions, net of deferrals |
168,334 | 169,075 | ||||||
| Amortization of deferred acquisition costs |
318,628 | 361,833 | ||||||
| Amortization of value of business acquired |
23,105 | 23,105 | ||||||
| Salaries & benefits |
362,048 | 352,421 | ||||||
| Other operating expenses |
495,009 | 422,753 | ||||||
| Total expense |
$ | 4,844,714 | $ | 4,242,408 | ||||
Death claims: Death benefits were $2,216,715 in the nine months ended September 30, 2022 compared to $1,702,615 in the same period in 2021, an increase of $514,350 or 30%. This increase is attributable to our growing block of in-force pre-need life insurance policies and to increased group life claims. We expect these claims to grow as we continue to increase the size of our in-force business. The COVID-19 pandemic has increased mortality rates for the entire United States population.
Death benefits were $691,540 in the three months ended September 30, 2022 compared to $600,819 in the same period in 2021, an increase of $90,721 or 15%. This increase is attributable to our growing block of in-force pre-need life insurance policies and to increased group life claims. We expect these claims to grow as we continue to increase the size of our in-force business. The COVID-19 pandemic has increased mortality rates for the entire United States population.
Policyholder benefits: Policyholder benefits were $5,149,298 in the nine months ended September 30, 2022 compared to $4,783,193 in the same period in 2021, an increase of $366,855 or 8%. The primary driver of this increase is increased surrender benefit payments.
Policyholder benefits were $1,535,914 in the three months ended September 30, 2022 compared to $1,344,823 in the same period in 2021, an increase of $191,091 or 14%. The primary driver of this increase is increased surrender benefit payments.
Increase in policyholder reserves: The increase in policyholder reserves was $3,393,766 in the nine months ended September 30, 2022, compared to $3,310,238 in the same period in 2021, an increase of $83,528 or 3%. The growth in reserves was offset by increased pre-need claims which reduce reserves.
The increase in policyholder reserves increased to $1,250,136 in the three months ended September 30, 2022, compared to $967,579 in the same period in 2021, an increase of $282,557 or 29%. The growth in reserves was partially offset by increased pre-need claims which reduce reserves.
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 $560,549 in the nine months ended September 30, 2022, compared to $542,536 in the same period in 2021, an increase of $18,013 or 3%. This increase is due to an increase in premiums.
Commissions, net of deferrals, were $168,334 in the three months ended September 30, 2022, compared to $169,075 in the same period in 2021, a decrease of $741. This decrease is due to a change in the mix of business sold.
Amortization of deferred acquisition costs: The amortization of deferred acquisition costs ("DAC") was $900,532 in the nine months ended September 30, 2022, compared to $916,698 in the same period 2021, a decrease of $16,166 or 2%. The decrease is driven by the normal amortization pattern of our deferred acquisition cost asset.
The amortization of DAC was $318,628 in the three months ended September 30, 2022, compared to $361,833 in the same period in 2021, a decrease of $43,205 or 12%. The decrease is driven by the normal amortization pattern of our deferred acquisition cost asset.
Amortization of value of business acquired: The amortization of VOBA was $69,315 in the nine months ended September 30, 2022 and 2021. In 2021, we began to amortize VOBA associated with DCLIC’s acquisition of policies from ALSC. VOBA is being amortized straight-line over 30 years.
The amortization of VOBA was $23,105 in the three months ended September 30, 2022 and 2021.
Salaries and benefits: Salaries and benefits were $1,046,368 for the nine months ended September 30, 2022, compared to $890,615 in the same period in 2021, an increase of $155,753 or 17%. The increase was driven by increased employee compensation costs and additional team members.
Salaries and benefits were $362,048 for the three months ended September 30, 2022, compared to $352,421 in the same period in 2021, an increase of $9,627 or 3%. The increase was driven by increased employee compensation costs and additional team members.
Other operating expenses: Other operating expenses were $1,533,622 in the nine months ended September 30, 2022, compared to $1,363,578 in the same period in 2021, an increase of $170,044 or 12%. The increase was driven by increased marketing, regulatory filing, and information technology expenses.
Other operating expenses were $495,009 in the three months ended September 30, 2022, compared to $422,753 in the same period in 2021, an increase of $72,256 or 17%. The increase was driven by increased marketing and regulatory filing expenses.
Net loss: Our net loss was $2,974,106 in the nine months ended September 30, 2022 compared to a net loss of $188,365 in the same period in 2021, an increase of $2,785,471 or 1479%. Our net loss per share in the nine months ended September 30, 2022 was $0.38 compared to a net loss per share of $0.02 in the same period in 2021, basic and diluted. Of the Company's $0.38 loss per share in the first nine months of 2022, $0.36 was attributable to unrealized losses on our equity portfolio and funds withheld asset. Our net loss was $251,430 in the three months ended September 30, 2022 compared to $66,849 in the same period 2021, an increase of $184,581. Our net loss per share in the three months ended September 30, 2022 was $0.03 compared to $0.01 in same period in 2021, basic and diluted.
Discussion of Consolidated Balance Sheet
Assets. Assets have decreased to $116,883,488 as of September 30, 2022, a decrease of $4,604,346 or 4% from December 31, 2021. This is primarily the result of a decrease of $8,311,415 in the market value of our fixed maturity securities.
Available for sale fixed maturity securities: As of September 30, 2022, we had available for sale fixed maturity assets of $32,501,793, a decrease of $5,440,864 or 14% from the December 31, 2021 balance of $37,942,657. The decrease is driven by a decrease of $8,311,415 in the market value of these securities. Assuming we hold our fixed maturity securities to maturity, as we intend to do, any changes in market value is temporary. Compliance with GAAP accounting rules requires that these temporary changes be reflected in our asset values and shareholders equity.
Equity securities, at fair value: As of September 30, 2022, we had available for sale equity assets of $7,666,651, a decrease of $1,490,542 or 16% from the December 31, 2021 balance of $9,157,193. This decrease is the result of a decline of $1,704,079 in the fair value of these securities. Changes in the fair value of our equity securities are reflected in our asset values and in net income.
Mortgage loans on real estate: As of September 30, 2022, we had mortgage loans on real estate of $4,107,300 an increase of $454,158 or 12% from the December 31, 2021 balance of $3,653,142. The increase is the result of the acquisition of new mortgage loan participations.
Funds withheld under coinsurance agreement, at fair value: As of September 30, 2022, we had funds withheld assets of $49,090,320, an increase of $71,346 or 1% from the December 31, 2021 balance of $49,018,974. The growth represents investment returns in the funds withheld account.
Policy loans: As of September 30, 2022, our policy loans were $34,702, a decrease of $138,639 or 80% from the December 31, 2021 balance of $173,341. The decrease is a result of automatic premium loans being repaid.
Real estate, net of depreciation: As of September 30, 2022, we had real estate assets of $1,381,071 related to the purchase of our home office building, a decrease of $22,066 from the December 31, 2021 balance of $1,403,137. The decrease is the result of depreciation.
Cash and cash equivalents: As of September 30, 2022, we had cash and cash equivalent assets of $9,388,262, an increase of $1,432,914 or 18% from the December 31, 2021 balance of $7,955,348. This increase was the result of cash being prepared for deployment into invested assets.
Investment income due and accrued: As of September 30, 2022, our investment income due and accrued was $614,021 compared to $698,504 as of December 31, 2021, a decrease of $84,483 or 12%. This decrease is attributable to investment activity.
Reinsurance related assets: As of September 30, 2022, we had reinsurance related assets of $278,969 compared to $3,438 as of December 31, 2021. This increase is the result of amounts due to and from ALSC under our 2020 ALSC agreement.
Deferred acquisition costs, net: As of September 30, 2022, our deferred acquisition costs were $5,812,727 compared to $6,354,875 as of December 31, 2021, a decrease of $542,148 or 9%. The decrease is the amortization of DAC related to our 2020 ALSC agreement.
Value of business acquired, net: As of September 30, 2022 our VOBA asset was $2,541,498 compared to $2,610,813 as of December 31, 2021, a decrease of $69,315 or 3%. The decrease is the result of amortization of VOBA.
Property, equipment and software, net: As of September 30, 2022 our property, equipment and software assets were $136,982, an increase of $44,197 from the December 31, 2021 balance of $92,785. This is the result of new purchases offset by amortization of these assets.
Goodwill: As of September 30, 2022 and December 31, 2021, our goodwill was $277,542. Goodwill was established as a result of our merger with NPCC. We have determined that there has been no impairment to our goodwill balance.
Deferred tax asset, net of valuation allowance: The Company had a net deferred tax asset of $1,560,767 as of September 30, 2022 and December 31, 2021. No change in the net deferred tax asset was recorded in the first nine months of 2022.
Other assets: As of September 30, 2022, our other assets were $1,490,883, an increase of $908,565 or 156% from the December 31, 2021 balance of $582,318. This increase was driven by an increase in securities receivable and federal income tax receivable.
Liabilities. Our total liabilities were $110,580,280 as of September 30, 2022, an increase of $6,677,202 or 6% from our December 31, 2021 liabilities of $103,903,078. This increase is driven by growth in our policy liabilities.
Policy liabilities: Our total policy liabilities as of September 30, 2022 were $108,085,010 compared to $101,026,942 as of December 31, 2021, an increase of $7,058,068 or 7%. This increase is the result of the growth of our in-force business.
Accounts payable and accrued expenses: As of September 30, 2022, our accounts payable and accrued expenses were $207,173 compared to $689,065 as of December 31, 2021, a decrease of $481,892 or 70%. The decrease is driven by the payment of federal income taxes payable.
Federal Home Loan Bank advance: As of September 30, 2022 the Company has outstanding advances of $1,000,000 with the Federal Home Loan Bank of Topeka compared to outstanding advances of $2,000,000 as of December 31, 2021. This decrease is the result of the Company's repayment of two $500,000 advances during the second quarter of 2022.
Other liabilities: As of September 30, 2022, our other liabilities were $1,288,097, an increase of $1,101,026 from the December 31, 2021 balance of $187,071. The increase is the result of securities payable.
Shareholders’ Equity. Our shareholders’ equity was $6,303,208 as of September 30, 2022, a decrease of $11,278,548 from our December 31, 2021 shareholders’ equity of $17,581,756. The reduction in shareholders’ equity was driven by a decrease in other comprehensive loss and by our net loss. Other comprehensive loss consists of the unrealized gains and losses on our fixed maturity portfolio. For the nine months ended September 30, 2022, the unrealized losses in our fixed maturity portfolio totaled $8,311,415. The decrease in other comprehensive loss is the result of higher interest rates which decreases the market value of our fixed maturity securities.
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, mortgages 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 September 30, 2022 and December 31, 2021.
| September 30, 2022 |
December 31, 2021 |
|||||||||||||||
| Fair |
Percent |
Fair |
Percent |
|||||||||||||
| Value |
of Total |
Value |
of Total |
|||||||||||||
|
|
(unaudited) |
|||||||||||||||
| Fixed maturities: | ||||||||||||||||
| US Treasury securities |
$ | 326,174 | 0.3 | % | $ | 447,765 | 0.4 | % | ||||||||
| Corporate bonds |
15,904,347 | 15.3 | % | 21,321,279 | 19.6 | % | ||||||||||
| Municipal bonds |
5,494,870 | 5.3 | % | 6,963,358 | 6.4 | % | ||||||||||
| Redeemable preferred stocks |
3,637,416 | 3.5 | % | 3,621,526 | 3.3 | % | ||||||||||
| Mortgage backed and asset backed securities |
7,138,986 | 6.9 | % | 5,588,729 | 5.1 | % | ||||||||||
| Total fixed maturities |
32,501,793 | 31.3 | % | 37,942,657 | 34.8 | % | ||||||||||
| Mortgage loans |
4,107,300 | 3.9 | % | 3,653,142 | 3.3 | % | ||||||||||
| Equities: |
||||||||||||||||
| Common stock |
6,257,140 | 6.0 | % | 7,319,584 | 6.7 | % | ||||||||||
| Preferred stock |
1,409,511 | 1.4 | % | 1,837,609 | 1.7 | % | ||||||||||
| Total equities |
7,666,651 | 7.4 | % | 9,157,193 | 8.4 | % | ||||||||||
| Funds withheld |
49,090,320 | 47.1 | % | 49,018,974 | 44.9 | % | ||||||||||
| Real estate, net of depreciation |
1,381,071 | 1.3 | % | 1,403,137 | 1.3 | % | ||||||||||
| Cash and cash equivalents |
9,388,262 | 9.0 | % | 7,955,348 | 7.3 | % | ||||||||||
| Total |
$ | 104,135,397 | 100.0 | % | $ | 109,130,451 | 100.0 | % | ||||||||
The total value of our investments and cash and cash equivalents decreased to $104,135,397 as of September 30, 2022 from $109,130,451 at December 31, 2021, a decrease of $4,995,054. Decreases in investments are primarily attributable to a reduction in the market value of our fixed maturity securities.
The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of September 30, 2022 and December 31, 2021.
| September 30, 2022 |
December 31, 2021 |
|||||||||||||||
| Fair |
Percent |
Fair |
Percent |
|||||||||||||
| Value |
of Total |
Value |
of Total |
|||||||||||||
| (unaudited) |
||||||||||||||||
| AAA and U.S. Government |
$ | 974,372 | 3.0 | % | $ | 914,862 | 2.4 | % | ||||||||
| AA |
9,851,345 | 30.3 | % | 9,999,588 | 26.4 | % | ||||||||||
| A |
7,162,028 | 22.0 | % | 8,140,616 | 21.5 | % | ||||||||||
| BBB |
11,869,408 | 36.5 | % | 15,719,874 | 41.3 | % | ||||||||||
| BB |
2,459,333 | 7.6 | % | 2,986,117 | 7.9 | % | ||||||||||
| B |
3,707 | 0.0 | % | - | 0.0 | % | ||||||||||
| Not Rated - Private Placement |
181,600 | 0.6 | % | 181,600 | 0.5 | % | ||||||||||
| Total |
$ | 32,501,793 | 100.0 | % | $ | 37,942,657 | 100.0 | % | ||||||||
The amortized cost and fair value of debt securities as of September 30, 2022 and December 31, 2021, 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 September 30, 2022 |
As of December 31, 2021 |
|||||||||||||||
| Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
|||||||||||||
|
|
(unaudited) |
|||||||||||||||
| Amounts maturing in: | ||||||||||||||||
| One year or less |
$ | 509,710 | $ | 510,596 | $ | - | $ | - | ||||||||
| After one year through five years |
1,661,229 | 1,576,823 | 1,987,421 | 2,087,132 | ||||||||||||
| After five years through ten years |
2,496,373 | 2,309,064 | 2,540,089 | 2,865,020 | ||||||||||||
| More than 10 years |
21,362,377 | 17,328,908 | 21,479,533 | 23,780,250 | ||||||||||||
| Redeemable preferred stocks |
4,154,969 | 3,637,416 | 3,612,625 | 3,621,526 | ||||||||||||
| Mortgage backed and asset backed securities |
7,941,933 | 7,138,986 | 5,636,371 | 5,588,729 | ||||||||||||
| Total amortized cost and fair value |
$ | 38,126,591 | $ | 32,501,793 | $ | 35,256,039 | $ | 37,942,657 | ||||||||
Market Risk of Financial Instruments
We hold a diversified portfolio of investments that primarily includes cash, bonds, equity securities, mortgage loans, and funds withheld under the 2020 ALSC Agreement. Each of these investments is subject to market risks that can affect their return and their fair value. A significant percentage of the investments are fixed maturity securities including debt issuances 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.
We work 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, we believe it is unlikely that we would encounter large surrender activity due to an interest rate increase that would force the disposal of fixed maturities at a loss.
Additionally, USALSC is a member of the FHLB of Topeka, which provides access to liquidity and further reduces the likelihood of disposing 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 quantified. The Company continues to monitor 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. Death claims have increased by 30% from the prior year, but it is currently impossible quantify the amount of such increase that can be attributed to COVID-19 deaths and deaths not directly attributable to COVID-19.
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, if needed.
Net cash provided by operating activities was $3,339,989 for the nine months ended September 30, 2022. The primary sources of cash from operating activities were premiums received from policyholders as well as investment income. 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 $3,593,521. The primary use of cash was the purchase of fixed maturity, mortgage loan, and equity investments. Cash provided by financing activities was $1,686,446. The primary sources of cash were receipts on deposit-type contracts.
At September 30, 2022, we had cash and cash equivalents totaling $9,388,262. We believe that our existing cash and cash equivalents are 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 may require additional capital as 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.
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 nine and three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.
Part II – Other Information
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.
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 September 30, 2022, the Company did not issue any shares of common stock pursuant to an offering to residents of the state of Kansas that was registered with the Kansas Securities Commissioner.
During the quarter ended September 30, 2022, the Company did not issue any shares of common stock pursuant to a private placement offering to residents of the state of North Dakota (the “North Dakota Offering”).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
None.
| EXHIBITS |
| 3.1 |
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| 3.1.1 |
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| 3.1.2 |
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| 3.2 |
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| 3.2.1 |
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| 31.1* |
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| 31.2* |
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| 32.1* |
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| 32.2* |
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| 101.INS** |
Inline XBRL Instance |
| 101.SCH** |
Inline XBRL Taxonomy Extension Schema |
| 101.CAL** |
Inline XBRL Taxonomy Extension Calculation |
| 101.DEF** |
Inline XBRL Taxonomy Extension Definition |
| 101.LAB** |
Inline XBRL Taxonomy Extension Labels |
| 101.PRE** |
Inline XBRL Taxonomy Extention Presentation |
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
**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
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 |
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| Corporation |
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| (Registrant) |
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| Date |
November 14, 2022 |
|
| By |
/s/ Jack H. Brier |
|
| Jack H. Brier, President and Chairman |
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: November 14, 2022
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: November 14, 2022
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 September 30, 2022, 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: November 14, 2022
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 September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeff Brown Vice-President and Principal Financial 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/ Jeff Brown |
|
Jeff Brown |
|
Vice-President and Principal Financial Officer |
Date: November 14, 2022
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Available for sale securities, amortized cost | $ 38,126,591 | $ 35,256,039 |
| 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) | 7,746,922 | 7,745,404 |
| Common stock, shares outstanding (in shares) | 7,746,922 | 7,745,404 |
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Premium income | $ 3,297,461 | $ 2,860,039 | $ 10,023,670 | $ 9,212,137 |
| Net investment income | 1,858,605 | 1,511,555 | 4,429,292 | 4,143,127 |
| Net investment losses | (655,495) | (276,532) | (2,809,802) | (202,742) |
| Other income | 92,713 | 80,497 | 252,899 | 237,901 |
| Total income | 4,593,284 | 4,175,559 | 11,896,059 | 13,390,423 |
| Expenses: | ||||
| Death claims | 691,540 | 600,819 | 2,216,965 | 1,702,615 |
| Policyholder benefits | 1,535,914 | 1,344,823 | 5,149,048 | 4,783,193 |
| Increase in policyholder reserves | 1,250,136 | 967,579 | 3,393,766 | 3,310,238 |
| Commissions, net of deferrals | 168,334 | 169,075 | 560,549 | 542,536 |
| Amortization of deferred acquisition costs | 318,628 | 361,833 | 900,532 | 916,698 |
| Amortization of value of business acquired | 23,105 | 23,105 | 69,315 | 69,315 |
| Salaries & benefits | 362,048 | 352,421 | 1,046,368 | 890,615 |
| Other operating expenses | 495,009 | 422,753 | 1,533,622 | 1,363,578 |
| Total expense | 4,844,714 | 4,242,408 | 14,870,165 | 13,578,788 |
| Net loss | $ (251,430) | $ (66,849) | $ (2,974,106) | $ (188,365) |
| Net loss per common share, basic and diluted (in dollars per share) | $ (0.03) | $ (0.01) | $ (0.38) | $ (0.02) |
| Unrealized net holding losses arising during the period, net of tax | $ (1,950,515) | $ (201,627) | $ (8,326,556) | $ (987,801) |
| Reclassification adjustment for (gains) losses included in net loss | 15,910 | (2,403) | 15,141 | (115,452) |
| Other comprehensive loss | (1,934,605) | (204,030) | (8,311,415) | (1,103,253) |
| Comprehensive loss | $ (2,186,035) | $ (270,879) | $ (11,285,521) | $ (1,291,618) |
Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
AOCI Attributable to Parent [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2020 | 7,741,487 | ||||
| Balance at Dec. 31, 2020 | $ 774,150 | $ 23,063,273 | $ 3,564,875 | $ (8,997,507) | $ 18,404,791 |
| Common stock issued, $7 per share (in shares) | 3,917 | ||||
| Common stock issued, $7 per share | $ 391 | 27,028 | 0 | 0 | 27,419 |
| Costs associated with common stock issued | 0 | (125,709) | 0 | 0 | (125,709) |
| Other comprehensive loss | 0 | 0 | (1,103,253) | 0 | (1,103,253) |
| Net loss | $ 0 | 0 | 0 | (188,365) | (188,365) |
| Balance (in shares) at Sep. 30, 2021 | 7,745,404 | ||||
| Balance at Sep. 30, 2021 | $ 774,541 | 22,964,592 | 2,461,622 | (9,185,872) | 17,014,883 |
| Balance (in shares) at Jun. 30, 2021 | 7,745,404 | ||||
| Balance at Jun. 30, 2021 | $ 774,541 | 22,998,144 | 2,665,652 | (9,119,023) | 17,319,314 |
| Common stock issued, $7 per share | 0 | 0 | 0 | 0 | 0 |
| Costs associated with common stock issued | 0 | (33,552) | 0 | 0 | (33,552) |
| Other comprehensive loss | 0 | 0 | (204,030) | 0 | (204,030) |
| Net loss | $ 0 | 0 | 0 | (66,849) | (66,849) |
| Balance (in shares) at Sep. 30, 2021 | 7,745,404 | ||||
| Balance at Sep. 30, 2021 | $ 774,541 | 22,964,592 | 2,461,622 | (9,185,872) | 17,014,883 |
| Balance (in shares) at Dec. 31, 2021 | 7,745,404 | ||||
| Balance at Dec. 31, 2021 | $ 774,541 | 22,948,637 | 2,521,730 | (8,663,152) | 17,581,756 |
| Common stock issued, $7 per share (in shares) | 1,518 | ||||
| Common stock issued, $7 per share | $ 152 | 10,474 | 0 | 0 | 10,626 |
| Costs associated with common stock issued | 0 | (3,653) | 0 | 0 | (3,653) |
| Other comprehensive loss | 0 | 0 | (8,311,415) | 0 | (8,311,415) |
| Net loss | $ 0 | 0 | 0 | (2,974,106) | (2,974,106) |
| Balance (in shares) at Sep. 30, 2022 | 7,746,922 | ||||
| Balance at Sep. 30, 2022 | $ 774,693 | 22,955,458 | (5,789,685) | (11,637,258) | 6,303,208 |
| Balance (in shares) at Jun. 30, 2022 | 7,746,922 | ||||
| Balance at Jun. 30, 2022 | $ 774,693 | 22,955,458 | (3,855,080) | (11,385,828) | 8,489,243 |
| Common stock issued, $7 per share | 0 | 0 | 0 | 0 | 0 |
| Costs associated with common stock issued | 0 | 0 | 0 | 0 | 0 |
| Other comprehensive loss | 0 | 0 | (1,934,605) | 0 | (1,934,605) |
| Net loss | $ 0 | 0 | 0 | (251,430) | (251,430) |
| Balance (in shares) at Sep. 30, 2022 | 7,746,922 | ||||
| Balance at Sep. 30, 2022 | $ 774,693 | $ 22,955,458 | $ (5,789,685) | $ (11,637,258) | $ 6,303,208 |
Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares |
Sep. 30, 2022 |
Sep. 30, 2021 |
|---|---|---|
| Common stock, price per share (in dollars per share) | $ 7 | $ 7 |
Note 1 - Description of Business and Significant Accounting Policies |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| 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 1303 SW First American Place, Suite 200, Topeka, Kansas 66604. Our telephone number is 785-228-0200 and our website address is www.usalliancecorporation.com.
USAC has wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was incorporated June 9, 2011, to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was incorporated April 23, 2012, to serve as a marketing resource. US Alliance Investment Corporation ("USAIC") was incorporated April 23, 2012 to serve as investment manager for USAC and its subsidiaries. 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. Unless the context otherwise indicates, references in this registration statement to "we", "us", "our", or the "Company" refer collectively to USAC and its subsidiaries.
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 associated with this offering expired on April 1, 2016. The Company further extended this offering to February 24, 2023. During the fourth quarter of 2017, the Company began a private placement offering to accredited investors in the state of North Dakota.
USALSC received a Certificate of Authority from the Kansas Insurance Department ("KID") effective January 2, 2012, and sold its first insurance product on May 1, 2013. DCLIC received a Certificate of Authority from the North Dakota Insurance Department ("NDID") effective January 24, 2012.
USALSC and DCLIC seek opportunities to develop and market additional products.
The Company’s 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 and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any other interim period or for any other future year. 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 USAC’s report on Form 10-K and amendments thereto for the year ended December 31, 2021.
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: US Alliance Life and Security Company is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska, Oklahoma, Wyoming, South Dakota, Montana, Utah, and Kentucky. 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 income (loss) per share: The par value for common stock is $0.10 per share with 20,000,000 shares authorized. As of September 30, 2022, and December 31, 2021, USAC had 7,746,922 and 7,745,404 common shares issued and outstanding, respectively.
Loss per share attributable to USAC’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 nine months ended September 30, 2022 and 2021 were 7,746,187 and 7,742,894 shares, respectively. The weighted average number of shares outstanding during the three months ended September 30, 2022 and 2021 were 7,746,922 and 7,745,404 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. There was no difference between basic and diluted net loss per common share for the nine and three months ended September 30, 2022 and 2021.
New accounting standards:
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 adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity as the Company does not have any significant leases as a lessee.
Income Taxes - Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued updated guidance (Accounting Standards Update 2019-12) for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The updated guidance was effective for the quarters ending and after March 31, 2021. The adoption of this guidance did not 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 was effective for reporting periods beginning after December 15, 2019. Early adoption was 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.
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.
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Note 2 - Investments |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment Holdings [Text Block] |
Note 2. Investments
Fixed Maturity
The amortized cost and fair value of available for sale investments as of September 30, 2022 and December 31, 2021 is as follows:
The amortized cost and fair value of debt securities as of September 30, 2022 and December 31, 2021, by contractual maturity, are shown below. 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.
Proceeds from the sale of securities, maturities, and asset paydowns in the nine months ended September 30, 2022 and 2021 were $5,109,627 and $3,371,416, respectively. Realized gains and losses related to the sale of securities are summarized as follows:
Proceeds from the sale of securities, maturities, and asset paydowns in the three months ended September 30, 2022 and 2021 were $939,113 and $460,583, respectively. Realized gains and losses related to the sale of securities are summarized as follows:
Gross unrealized losses by duration are summarized as follows:
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 available for sale fixed maturity securities in the investment portfolio in an unrealized loss position as of September 30, 2022 was 218, which represented an unrealized loss of $5,660,794 of the aggregate carrying value of those securities. The 218 securities breakdown as follows: 136 bonds, 66 mortgage and asset backed securities, and 16 redeemable preferred stock. The total number of available for sale fixed maturity securities in the investment portfolio in an unrealized loss position as of December 31, 2021 was 76, which represented an unrealized loss of $283,345 of the aggregate carrying value of those securities. The 76 securities breakdown as follows: 29 bonds, 41 mortgage and asset backed securities, and 6 redeemable preferred stock. The Company determined that no securities were considered to be other-than-temporarily impaired as of September 30, 2022 and December 31, 2021.
Mortgage Loans on Real Estate
The Company has invested in various mortgage loans through participation agreements with the original issuing entity. The Company’s mortgage loans by property type as of September 30, 2022 and December 31, 2021 are summarized as follows:
The Company utilizes loan-to-value of individual mortgage loans to evaluate the credit quality of its mortgage loan portfolio. The loan-to-value measures the loan's carrying value to its appraised value. The Company’s mortgage loans by loan-to-value ratio as of September 30, 2022 and December 31, 2021 are summarized as follows:
The Company’s mortgage loans by maturity date as of September 30, 2022 and December 31, 2021 are summarized as follows:
The Company had no mortgage loans that were on non-accrued status as of September 30, 2022 and December 31, 2021. The were no mortgage loans delinquent on payments due the Company as of September 30, 2022 and December 31, 2021. In addition, the Company did establish a valuation allowance on any mortgage loans as of September 30, 2022 and December 31, 2021.
Investment Income, Net of Expenses
The components of net investment income for the nine months ended September 30, 2022 and 2021 are as follows:
The components of net investment income for the three months ended September 30, 2022 and 2021 are as follows:
Net Investment Gains (Losses)
Accounting standards require that the unrealized gains and losses on equity securities be reported as income on the consolidated statements of comprehensive loss. For the nine months ended September 30, 2022, net investment losses is comprised of $1,704,079 of unrealized losses on our equity portfolio, net realized losses of $15,288, and a loss on the change in the fair value of our embedded derivative on funds withheld of $1,090,435. For the nine months ended September 30, 2021, net investment losses is comprised of $63,119 of unrealized gains on our equity portfolio, net realized gains of $218,013 and a loss on the change in the fair value of our embedded derivative on funds withheld of $483,874. For the three months ended September 30, 2022, net investment losses is comprised of $240,450 of unrealized losses on our equity portfolio, net realized losses of $15,911, and a loss on the change in the fair value of our embedded derivative on funds withheld of $399,134. For the three months ended September 30, 2021, net investment losses is comprised of $40,178 of unrealized losses on our equity portfolio, net realized gains of $2,400 and a loss on the change in the fair value of our embedded derivative on funds withheld of $238,754.
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Note 3 - Derivative Instruments |
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
Note 3. Derivative Instruments
Types of Derivatives used by the Company
The Company’s derivatives consists solely of embedded derivatives on funds withheld on coinsurance assets.
Summary of Derivative Positions
The fair value of the Company’s derivative financial instruments on the consolidated balance sheets is as follows:
The following table shows the change in the fair value of the derivative financial instruments in the consolidated statements of comprehensive income:
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Note 4 - Fair Value Measurements |
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| Fair Value Disclosures [Text Block] |
Note 4. 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:
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.
Equity securities: Fair values for equity securities are also provided by a third party pricing service and are derived from active trading on national market exchanges.
Embedded derivative: The fair value of embedded derivatives associated with funds withheld reinsurance treaty is determined upon a total return swap technique with reference to the fair value of the investments held by the ceding company that support the Company’s funds withheld asset with an adjustment for a credit valuation adjustment. The fair value of the underlying assets is generally based upon market observable inputs with industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered level 3 in the fair value hierarchy. The Company’s utilization of a credit-valuation adjustment did have a material effect on the change in fair value of the embedded derivative for the three and nine months ended September 30, 2022 and 2021.
The table below presents the amounts of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:
The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:
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 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.
Mortgage loans on real estate: Mortgage loans are carried at their unpaid principal value as that is considered the fair market values for these loans.
Funds withheld: The carrying value of funds withheld at interest approximates fair value as funds are specifically identified in the agreement. The fair value of the specified funds is based on the fair value of the underlying assets that are held by the ceding company. The ceding company uses a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs to value the securities held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.
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 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 September 30, 2022 and December 31, 2021 are as follows:
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Note 5 - Income Tax Provision |
9 Months Ended |
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Sep. 30, 2022 | |
| 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 nine and three months ended September 30, 2022 and 2021 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 net operating loss carryforwards for the Company are $9,198,976 as of December 31, 2021 and estimated to be $9,750,000 as of September 30, 2022. 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 $1,560,767 as of both September 30, 2022 and December 31, 2021.
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Note 6 - Subsequent Events |
9 Months Ended |
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Sep. 30, 2022 | |
| 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 November 14, 2022, the date on which the consolidated financial statements were issued. The Company assumed custody of the assets in the funds withheld account on October 1, 2022 and recorded the funds withheld assets at fair value on the date of transfer, which will eliminate the embedded derivative component associated with the 2020 ALSC Agreement in future reporting periods.
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Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2022 | |
| 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 and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any other interim period or for any other future year. 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 USAC’s report on Form 10-K and amendments thereto for the year ended December 31, 2021.
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| 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.
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| Area of Operation, Policy [Policy Text Block] | Area of Operation: US Alliance Life and Security Company is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska, Oklahoma, Wyoming, South Dakota, Montana, Utah, and Kentucky. 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.
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| 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.
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| Earnings Per Share, Policy [Policy Text Block] | Common stock and income (loss) per share: The par value for common stock is $0.10 per share with 20,000,000 shares authorized. As of September 30, 2022, and December 31, 2021, USAC had 7,746,922 and 7,745,404 common shares issued and outstanding, respectively.
Loss per share attributable to USAC’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 nine months ended September 30, 2022 and 2021 were 7,746,187 and 7,742,894 shares, respectively. The weighted average number of shares outstanding during the three months ended September 30, 2022 and 2021 were 7,746,922 and 7,745,404 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. There was no difference between basic and diluted net loss per common share for the nine and three months ended September 30, 2022 and 2021.
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| New Accounting Pronouncements, Policy [Policy Text Block] | New accounting standards:
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 adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity as the Company does not have any significant leases as a lessee.
Income Taxes - Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued updated guidance (Accounting Standards Update 2019-12) for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The updated guidance was effective for the quarters ending and after March 31, 2021. The adoption of this guidance did not 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 was effective for reporting periods beginning after December 15, 2019. Early adoption was 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.
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.
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Note 2 - Investments (Tables) |
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| Schedule of Mortage Loans by Loan-to-Value Ratio [Table Text Block] |
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| Schedule of Mortgage Loans by Maturity Date [Table Text Block] |
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Note 3 - Derivative Instruments (Tables) |
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Note 4 - Fair Value Measurements (Tables) |
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] |
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| Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block] |
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| Fair Value, by Balance Sheet Grouping [Table Text Block] |
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Note 1 - Description of Business and Significant Accounting Policies (Details Textual) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
|
Sep. 30, 2022
$ / shares
shares
|
Sep. 30, 2021
shares
|
Sep. 30, 2022
$ / shares
shares
|
Sep. 30, 2021
shares
|
Dec. 31, 2021
$ / shares
shares
|
|
| Number of Wholly-Owned Operating Subsidiaries | 5 | 5 | |||
| Common Stock, Par or Stated Value Per Share (in dollars per share) | $ / shares | $ 0.10 | $ 0.10 | $ 0.10 | ||
| Common Stock, Shares Authorized (in shares) | 20,000,000 | 20,000,000 | 20,000,000 | ||
| Common Stock, Shares, Outstanding, Ending Balance (in shares) | 7,746,922 | 7,746,922 | 7,745,404 | ||
| Common Stock, Shares, Issued (in shares) | 7,746,922 | 7,746,922 | 7,745,404 | ||
| Weighted Average Number of Shares Outstanding, Basic, Total (in shares) | 7,746,922 | 7,745,404 | 7,746,187 | 7,742,894 | |
Note 2 - Investments - Realized Gains and Losses Related to the Sale of Securities (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Gross gains | $ 453 | $ 2,400 | $ 3,617 | $ 218,411 |
| Gross losses | (16,364) | 0 | (18,905) | (398) |
| Realized gains (losses) | $ (15,911) | $ 2,400 | $ (15,288) | $ 218,013 |
Note 2 - Investments - Mortgage Loans by Property Type (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Total commercial mortgages | $ 4,107,300 | $ 3,653,142 |
| Condominium [Member] | ||
| Total commercial mortgages | 1,622,657 | 1,960,547 |
| Multi-property [Member] | ||
| Total commercial mortgages | 1,149,502 | 1,157,950 |
| Multifamily [Member] | ||
| Total commercial mortgages | 335,141 | 534,645 |
| Retail [Member] | ||
| Total commercial mortgages | $ 1,000,000 | $ 0 |
Note 2 - Investments - Mortgage Loans by Loan-to-value Ratio (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Total commercial mortgages | $ 4,107,300 | $ 3,653,142 |
| Debt-to-Value Ratio, 60 to 70 Percent [Member] | ||
| Total commercial mortgages | 2,622,657 | 1,960,547 |
| Debt-to-Value Ratio, 40 to 50 Percent [Member] | ||
| Total commercial mortgages | 335,141 | 339,335 |
| Debt-to-Value Ratio, 30 to 40 Percent [Member] | ||
| Total commercial mortgages | 0 | 195,310 |
| Debt-to-Value Ration, 10 to 30 Percent [Member] | ||
| Total commercial mortgages | $ 1,149,502 | $ 1,157,950 |
Note 2 - Investments - Mortgage Loans by Maturity Date (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| One year or less | $ 1,622,657 | $ 2,155,857 |
| After one year through five years | 2,484,643 | 1,497,285 |
| Total commercial mortgages | $ 4,107,300 | $ 3,653,142 |
Note 2 - Investments - Components of Net Investment Income (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Investment income | $ 1,896,332 | $ 1,551,547 | $ 4,511,422 | $ 4,247,232 |
| Less investment expenses | (37,727) | (39,992) | (82,130) | (104,105) |
| Investment income, net | 1,858,605 | 1,511,555 | 4,429,292 | 4,143,127 |
| Fixed Maturities [Member] | ||||
| Investment income | 296,994 | 280,823 | 856,256 | 834,464 |
| Mortgages [Member] | ||||
| Investment income | 91,515 | 92,459 | 207,865 | 281,718 |
| Equity Securities [Member] | ||||
| Investment income | 175,938 | 151,168 | 488,436 | 453,809 |
| Funds Withheld on Coinsurance Assets [Member] | ||||
| Investment income | 1,310,559 | 1,026,680 | 2,932,068 | 2,675,956 |
| Cash and Cash Equivalents [Member] | ||||
| Investment income | $ 21,326 | $ 417 | $ 26,797 | $ 1,285 |
Note 3 - Derivative Instruments - Fair Value of Derivative Financial Instruments (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
| Funds withheld embedded derivative, asset | $ 0 | $ 0 | $ 544,768 | ||
| Funds withheld embedded derivative | 545,666 | 545,666 | 0 | ||
| Funds withheld embedded derivative, asset | 0 | 0 | $ 544,768 | ||
| Change in fair value of funds withheld embedded derivative | $ 399,134 | $ 238,754 | $ 1,090,435 | $ 483,874 | |
Note 4 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Sep. 30, 2021 |
|---|---|---|
| Derivative Credit Risk Valuation Adjustment, Derivative Liabilities | $ 0 | $ 0 |
Note 4 - Fair Value Measurements - Assets and Liabilities Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs (Details) - Fair Value, Recurring [Member] - Fair Value, Inputs, Level 3 [Member] - USD ($) |
3 Months Ended | 9 Months Ended |
|---|---|---|
Jun. 30, 2021 |
Sep. 30, 2022 |
|
| Corporate Debt Securities [Member] | ||
| Fair value, beginning of period | $ 181,600 | $ 181,600 |
| Investment related losses | 0 | 0 |
| Fair value, end of period | 181,600 | 181,600 |
| Funds Withheld on Coinsurance Assets [Member] | ||
| Fair value, beginning of period | (146,532) | 544,768 |
| Investment related losses | (399,134) | (1,090,434) |
| Fair value, end of period | $ (545,666) | $ (545,666) |
Note 5 - Income Tax Provision (Details Textual) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
| Income Tax Expense (Benefit), Total | $ 0 | $ 0 | |
| Deferred Income Tax Assets, Net | 1,560,767 | $ 1,560,767 | |
| Domestic Tax Authority [Member] | |||
| Operating Loss Carryforwards | $ 9,750,000 | $ 9,198,976 | |