Note 1 - Description of Business and Significant Accounting Policies

12 Months Ended

Dec. 31, 2025

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 four wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was formed June 9, 2011, to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was formed April 23, 2012, to serve as a marketing resource. US Alliance Investment Corporation ("USAIC") was formed April 23, 2012 to serve as investment manager for USAC. Dakota Capital Life Insurance Company (“DCLIC”), was acquired on August 1, 2017 when USAC merged with Northern Plains Capital Corporation (“NPCC”) and was merged into USALSC on December 31, 2023. US Alliance Life and Security Company - Montana (USALSC-Montana), was acquired December 14, 2018. USALSC-Montana is a wholly-owned subsidiary of USALSC. Unless the context indicates otherwise, references herein to the "Company" refer to USAC and its consolidated 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 expired on April 1, 2016. The Company further extended this offering to February 24, 2024. During the 4th quarter of 2017, the Company began a private placement offering to accredited investors in the state of North Dakota. Both offerings were terminated in the second quarter of 2024.

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.  In 2023, USALSC re-domesticated to North Dakota with approval of the North Dakota Insurance Department ("NDID").

USALSC seeks 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 consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America.

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, Kentucky, Utah, Alabama, Ohio, Mississippi, New Mexico, Texas, Arizona, Nevada, and Idaho. USALSC-Montana is authorized to operate in the state of Montana.

Investments: Investments in available-for-sale securities are carried in the consolidated financial statements at fair value. Net unrealized holding gains (losses), net of applicable income taxes, on fixed maturity securities are included in accumulated other comprehensive income. Bond premiums and discounts are amortized using the scientific-yield method over the term of the bonds. Net unrealized holding gains (losses) on equity securities are included as a component of net investment gains (losses).

Realized gains and losses on securities sold during the year are determined using the specific identification method and included in investment income as a component of net investment gains (losses). Investment income is recognized as earned.

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis.  If either of the criteria is met, the security's amortized cost basis is written down to fair value through income.  For debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.  In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a ratings agency, and adverse conditions specifically related to the security.   If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.  If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss limited by the amount that the fair value is less than the amortized cost basis.  Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss). 

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 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.

Any changes in the loan valuation allowances are reported in net investment losses. The Company establishes a valuation allowance to provide for the risk of credit losses inherent in our mortgage loan portfolios. The valuation allowance is maintained at a level believed adequate by management to absorb estimated expected credit losses. The valuation allowances for each of our mortgage loan portfolios are estimated by deriving probability of default and recovery rate assumptions based on the characteristics of the loans in each portfolio, historical economic data and loss information, and current and forecasted economic conditions. Key loan characteristics impacting the estimate for our commercial mortgage loan portfolio include the current state of the borrower’s credit quality, which considers factors such as loan-to-value (“LTV”) ratios, loan performance, underlying collateral type, delinquency status, time to maturity, and original credit scores. 

Our mortgage loans may be subject to loan modifications. Loan modifications may be granted to borrowers experiencing financial difficulty and could include principal forgiveness, interest rate reduction, an other-than-significant delay or a term extension. The Company considers the following factors in determining whether or not a borrower is experiencing financial difficulty: borrower is in default; borrower has declared bankruptcy; there is growing concern about the borrower's ability to continue as a going concern; borrower has insufficient cash flows to service debt; borrower's inability to obtain funds from other sources; and there is a breach of financial covenants by the borrower.  A loan modification typically does not result in a change in valuation allowance as it is already incorporated into the allowance methodology. However, if the Company grants a borrower experiencing financial difficulty principal forgiveness, the amount of principal forgiven would be written off, which would reduce the amortized cost of the loan and result in an adjustment to the valuation allowance.

Other invested assets:  Other invested assets include collateral loans and private credit investments. The collateral loans and private credit investments are carried at fair value.  The inputs used to measure these assets are classified as Level 3 within the fair value hierarchy.

Embedded derivatives: The Company has entered into coinsurance funds withheld arrangement 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. The counterparty to the coinsurance arrangement is also the investment manager and manages foreign currency risk within the coinsured portfolio using derivative instruments.  In accordance with the coinsurance agreement, the counterparty allocates a proportion of the derivative activity it manages to the Company, which is settled quarterly as part of the reinsurance settlement. 

Policy loans: Policy loans are stated at aggregate unpaid principal balances.

Investment real estate: Real estate is stated at cost, less allowances for depreciation and, as appropriate, provisions for possible losses.           

Cash and cash equivalents: For purposes of the statement of cash flows, the Company considers demand deposits and highly liquid investments with original maturities of three months or less when purchased to be cash and cash equivalents. The Company maintains its cash balances in one financial institution located in Topeka, Kansas. The FDIC insures aggregate balances, including interest-bearing and noninterest-bearing accounts, of $250,000 per depositor per insured institution. The Company’s financial institution is a member of a network that participates in the Insured Cash Sweep (ICS) program. By participating in ICS, the Company’s deposits in excess of the insured limit are apportioned and placed in demand deposit accounts at other financial institutions in amounts under the insured limit. As a result, the Company can access insurance coverage from multiple financial institutions while working directly with one. The Company had no amounts uninsured as of December 31, 2025. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Reinsurance: In the normal course of business, the Company seeks to limit aggregate and single exposure to losses on risks 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. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Company’s primary liability under the policies written. Estimated losses on reinsurance recoverable balances are calculated by quantitative analysis using a rating-based method to estimate expected credit losses for reinsurance recoverable. The analysis is based on industry historical loss experience and forecasted environmental factors management believes to be relevant, which primarily include probability of default, loss given default and exposure at default. There were no allowances as of December 31, 2025 and 2024.

Deferred acquisition costs: The Company capitalizes and amortizes over the life of the premiums produced incremental direct costs that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. An entity may defer incremental direct costs of contract acquisition that are incurred in transactions with independent third parties or employees as well as the portion of employee compensation and other costs directly related to underwriting, policy issuance and processing, medical inspection, and contract selling for successfully negotiated contracts. Additionally, an entity may capitalize as a deferred acquisition cost only those advertising costs meeting the capitalization criteria for direct-response advertising. Our insurance contracts are grouped by product type and contract issue year into cohorts consistent with the grouping used to estimate the related contract liabilities. DAC is amortized on a constant level basis over the life of the policy. For all products, in-force volume metrics are used as the constant level basis. The lapse and mortality assumptions used to amortize DAC are consistent with the assumptions used to estimate the liability for future policy benefits. The underlying assumptions used to determine DAC amortization are updated concurrently with any related assumption changes for the liability for future policy benefits and changes in estimates are recognized prospectively over the remaining expected term of the related contracts.an An experience adjustment is applied if actual terminations are greater than expected.

For certain products, policyholders can elect to modify product benefits, features, rights, or coverages by exchanging a contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal replacement transactions. Internal replacement transactions wherein the modification does not substantially change the policy are accounted for as continuations of the replaced contracts. The original policy continues to be reflected as an in force policy within its original cohort. The policy's expected life then impacts the amortization of remaining unamortized deferred acquisition costs within its cohort. The costs of replacing the policy are accounted for as policy maintenance costs and expensed as incurred. Internal replacement transactions that result in a policy that is substantially changed are accounted for as an extinguishment of the original policy and the issuance of a new policy. The original policy that was replaced is terminated from its original cohort and this termination is reflected in the amortization rate of remaining unamortized deferred acquisition costs for the cohort. The costs of acquiring the new policy are capitalized and amortized as part of a new cohort.  

Value of business acquired: Value of business acquired (VOBA) represents the estimated value assigned to purchased companies or insurance in- force of the assumed policy obligations at the date of acquisition of a block of policies. At least annually, a review is performed of the models and the assumptions used to develop expected future profits, based upon management’s current view of future events. VOBA is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. Management’s view primarily reflects our experience but can also reflect emerging trends within the industry. Short-term deviations in experience affect the amortization of VOBA in the period, but do not necessarily indicate that a change to the long-term assumptions of future experience is warranted. If it is determined that it is appropriate to change the assumptions related to future experience, then an unlocking adjustment is recognized for the block of business being evaluated. Certain assumptions, such as interest spreads and surrender rates, may be interrelated. As such, unlocking adjustments often reflect revisions to multiple assumptions. The VOBA balance is immediately impacted by any assumption changes, with the change reflected through the statements of comprehensive income as an unlocking adjustment in the amount of VOBA amortized.  These adjustments can be positive or negative with adjustments reducing amortization limited to amounts previously deferred plus interest accrued through the date of the adjustment.  VOBA is amortized on a straight-line method over 30 years.

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.

Property, equipment and software: Property, equipment and software are stated at cost less accumulated depreciation. Expenditures for additions and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to income currently. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income.

Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Computer equipment is depreciated over no longer than a 5-year period. Furniture and equipment are depreciated over no longer than a 10-year period. Major categories of depreciable assets and the respective book values as of December 31, 2025 and 2024 are represented below.

	Year Ended			Year Ended
	December 31,			December 31,
	2025			2024
Computer	$	70,000		$	59,404
Furniture and equipment		156,604			155,979
Accumulated depreciation		(107,536	)		(79,030	)
Balance at end of period	$	119,068		$	136,353

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.

Income taxes: The Company is subject to U.S. federal and state taxes. The provision for income taxes is based on income as reported in the consolidated financial statements. The income tax provision is calculated using the asset and liability method. Deferred income taxes are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted rates expected to apply to taxable income in the years in which the differences are expected to reverse. A valuation allowance is established for the amount of any deferred tax asset that exceeds the amount of the estimated future taxable income needed to utilize the future tax benefits.

All of the Company’s tax returns are subject to U.S. federal, state and local income tax examinations by tax authorities. The Company had no known uncertain tax benefits included in its provision for income taxes as of December 31, 2025 and 2024. The Company’s policy is to recognize interest and penalties (if applicable) as an element of the provision for income taxes in the consolidated statements of income.

The tax years which remain subject to examination by taxing authorities are the years ended December 31, 2021 through 2024.

Pre-paid expenses: The Company recognizes pre-paid expenses as the expenses are incurred. Pre-paid expenses consist of systems consulting hours, insurance, and pre-paid benefit expense. Systems consulting hours are charged as they are incurred on projects. Insurance expenses are charged straight line over the life of the contract. Benefit expenses are charged as they are incurred.

Deposit-type contracts: Deposit-type contracts consist of amounts on deposit associated with deferred annuity contracts and premium deposit funds. The deferred annuity contracts credit interest based upon a fixed interest rate set by the Company. The Company has the ability to change this rate annually subject to minimums established by law or administrative regulation.

Liabilities for deferred annuity deposit-type contracts are included without reduction for potential surrender charges. This liability is equal to the accumulated account deposits, plus interest credited, and less policyholder withdrawals. 

Policyholder benefits: Liabilities for future policy benefits represent the cost of claims that we estimate we will eventually pay to our policyholders which includes policy liabilities for claims not yet incurred and for claims that have been incurred or are estimated to have been incurred but not yet reported to us. The liability for future policy benefits is calculated based on the present value of the estimated future policy benefits less the present value of estimated future net premiums collected. Net premiums represent the portion of the gross premium required to provide for all benefits and expenses, excluding acquisition costs or any costs that are required to be charged to expense as incurred. In calculating the liability for future policy benefits, our long-duration contracts are grouped into cohorts by product type, contract issue year for direct business, and assumption year for assumed business.

Policy claims: Policy claims are based on reported claims plus estimated incurred but not reported claims developed from trends of historical data applied to current exposure. The Company’s current estimate of incurred but not reported claims as of December 31, 2025 and 2024 is $313,781 and $187,527 and is included as a part of policyholder benefit reserves.

Revenue recognition and related expenses: Revenues on traditional life insurance products consist of direct premiums reported as earned when due. Premium income includes reinsurance assumed and is reduced by premiums ceded.

Amounts received as payment for annuity contracts without life contingencies are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for contract-holder services, 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.

Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts.

Leases: The Company, as lessor, has entered into an operating lease agreement for office space. The Company recognizes lease income for operating leases on a straight-line basis over the lease term. At contract inception, the Company defers any initial direct costs and amortizes the costs over the life of the lease on the same basis as lease income.

Restricted stock awards:  Restricted stock award shares are measured at fair market value on the date of grant and stock-based compensation expense is recognized on a straight-line basis over the vesting period with a corresponding offset credited to additional paid-in-capital.

Common stock and earnings per share: The par value for common stock is $0.10 per share with 20,000,000 shares authorized. As of December 31, 2025 and 2024 the company had 7,788,922 and 7,748,922 common shares issued and outstanding, respectively.

Earnings per share attributable to the Company’s common stockholders were computed based on the net income and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the years ended December 31, 2025 and 2024 were 7,750,589 and 7,748,922 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net gain per common share is the same for the years ended December 31, 2025 and 2024.

Comprehensive Income: Comprehensive income is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses from marketable fixed maturity securities classified as available for sale, net of applicable taxes and changes in policyholder benefit reserves due to discount rates, net of applicable taxes.

Risk and uncertainties: Certain risks and uncertainties are inherent in the Company’s day-to-day operations and in the process of preparing its consolidated financial statements. The more significant of those risks and uncertainties, as well as the Company’s method for mitigating the risks, are presented below and throughout the notes to the consolidated financial statements.

Use of Estimates: The preparation of consolidated financial statements in conformity with US GAAP, generally accepted accounting principles in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Regulatory Factors: The insurance laws North Dakota, Montana, and our other authorized states give insurance regulators broad regulatory authority, including powers to (i) grant and revoke licenses to transact business; (ii) regulate and supervise trade practices and market conduct, (iii) establish guaranty associations; (iv) license agents; (v) approve policy forms; (vi) approve premium rates for some lines of business; (vii) establish reserve requirements; (viii) prescribe the form and content of required financial statements and reports; (ix) determine the reasonableness and adequacy of statutory capital and surplus; and (x) regulate the type and amount of permitted investments.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Reform Act") reshapes financial regulations in the United States by creating new regulators, regulating new markets and firms, and providing new enforcement powers to regulators. Virtually all major areas of the Reform Act continue to be subject to regulatory interpretation and implementation rules requiring rulemaking that may take several years to complete. The ultimate outcome of the regulatory rulemaking proceedings cannot be predicted with certainty. The regulations promulgated could have a material impact on consolidated financial results or financial condition.

Reinsurance:  In order to manage the risk of financial exposure to adverse underwriting results, the Company reinsures a portion of its individual and group life risks with other insurance companies. The Company retains $35,000 on its Whole Life products and $25,000 on its term life products. The Company also reinsures 100% of the risk on its individual accidental death benefit rider. The Company retains 25% of the risk for each covered life on its group life product to a maximum of $100,000 on any individual person. The Company retains 25% of the risk for each covered life on its group accidental death and dismemberment product to a maximum of $25,000 on any individual person. The Company also has catastrophic reinsurance coverage to protect against three or more group life deaths resulting from a single event. The Company also reinsures 90% of the risk on its group disability products. The Company reinsures 66% of the risk on its critical illness product. The Company cedes 90% of the net amount of risk on its SPWL product. Optimum Re Insurance Company (a subsidiary of Optimum Group), General Reinsurance Corporation (a subsidiary of Berkshire Hathaway), Reliance Standard Life Insurance Company (a subsidiary of Tokio Marine Holdings), Hartford Life and Accident Company, and Unified Life Insurance Company provide reinsurance for USALSC. The Company evaluates the financial condition of its reinsurers to minimize its exposure to losses from reinsurer insolvencies. Management believes that any liabilities arising from this contingency would not be material to the Company’s financial position.

Interest Rate Risk: Interest rate fluctuations could impair an insurance company's ability to pay policyholder benefits with operating and investment cash flows, cash on hand and other cash sources. Annuity products expose the risk that changes in interest rates will reduce any spread, or the difference between the amounts that the insurance company is required to pay under the contracts and the amounts the insurance subsidiary is able to earn on its investments intended to support its obligations under the contracts. Spread is a key component of revenues.

To the extent that interest rates credited are less than those generally available in the marketplace, policyholder lapses, policy loans and surrenders, and withdrawals of life insurance policies and annuity contracts may increase as contract holders seek to purchase products with perceived higher returns. This process may result in cash outflows requiring that an insurance subsidiary sell investments at a time when the prices of those investments are adversely affected by the increase in market interest rates, which may result in realized investment losses.

Increases in market interest rates may also negatively affect profitability in periods of increasing interest rates. The ability to replace invested assets with higher yielding assets needed to fund the higher crediting rates that may be necessary to keep interest sensitive products competitive. The Company therefore may have to accept a lower spread and thus lower profitability or face a decline in sales and greater loss of existing contracts.

Conversely, in a period of prolonged low interest rates it is difficult to invest assets and earn the rate of return necessary to support insurance products.

Policy lapses in excess of those actuarially anticipated would have a negative impact on our financial performance.

Profitability could be reduced if lapse and surrender rates exceed the assumptions upon which the insurance policies were priced. Policy sales costs are deferred and recognized over the life of a policy. Excess policy lapses, however, cause the immediate expensing or amortizing of deferred policy sales costs.

Investment Risk: Our invested assets are subject to customary risks of defaults and changes in market values. Factors that may affect the overall default rate on, and market value of, the invested assets include interest rate levels, financial market performance, and general economic conditions.

Assumptions Risk: In the life insurance business, assumptions as to expected mortality, lapse rates and other factors in developing the pricing and other terms of life insurance products are made. These assumptions are based on industry experience and are reviewed and revised regularly by an outside actuary to reflect actual experience on a current basis. However, variation of actual experience from that assumed in developing such terms may affect a product's profitability or sales volume and in turn adversely impact our revenues.

Reclassifications: Certain reclassifications of a minor nature, independent of long duration targeted improvements, have been made to prior-year balances to conform to current-year presentation with no net impact to net (loss) income or total shareholders' equity.

New accounting standards:

Improvements to Income Tax Disclosures

In December 2023, the FASB issued Accounting Standards Update 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"). ASU 2023-09 is intended to improve the effectiveness of income tax disclosures by requiring, among other things, the disclosure on an annual basis of: (i) specific categories in the rate reconciliation; and (ii) additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires disclosure (on an annual basis) of the following information about income taxes paid: (i) the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; and (ii) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). ASU 2023-09 is effective for annual periods beginning January 1, 2025, to be applied prospectively with an option for retrospective application (with early adoption permitted). The adoption of ASU 2023-09 will modify our disclosures but did not have an impact on our financial position or results of operations.

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07 ("Improvements to Reportable Segment Disclosures") which requires disclosures of significant expenses by segment and interim disclosure of items that were previously required on an annual basis. ASU 2023-07 is to be applied on a retrospective basis and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The adoption of this ASU modified our disclosures but did not have an impact on our financial position or results of operations. Refer to in Note 10 of the consolidated financial statements for the disclosure.

ASU 2024-03, Disaggregation of Income Statement Expenses: Income Statement - Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses and Related Amendment

The amendments in this update require the disclosure of disaggregation of certain income statement expense line items. Specifically, the guidance requires the disclosure of additional information related to certain expenses, including employee compensation, depreciation and amortization, and certain other expenses included in each income statement line item. The amendments also require the disclosure of both the total amount of selling expenses and a definition of selling expenses.

We will adopt this update effective for the annual period beginning January 1, 2027, and interim periods beginning January 1, 2028. The adoption of this update is permitted on a prospective basis or a retrospective basis. The adoption of this update will expand our disclosures but will not have an impact on our financial position or results of operations.

ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software: Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40)

The amendments in this update modernize the recognition framework for the capitalization of internal-use software and remove all references to software development project stages. The guidance requires software development costs to be capitalized when both of the following criteria are met: (i) management has authorized and committed to funding the project, and (ii) it is probable that the project will be completed and the software will be used to perform its intended function. Additionally, the update aligns disclosure requirements for capitalized software costs with those under ASC 360-10, “Property, Plant, and Equipment.”

The amendments in this update are effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual periods. Early adoption of this update is permitted as of the beginning of an annual reporting period. Adoption of this update is permitted on a prospective, retrospective, or a modified retrospective basis. We are currently evaluating the impact the adoption of this update will have on our financial position, results of operations, and disclosures.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12 "Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts". This update is aimed at improving the Codification related to long-duration contracts, which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. These updates were originally required to be applied retrospectively to the earliest period presented in the financial statements for periods beginning after December 15, 2020. The FASB subsequently delayed the effective date of ASU 2018-12 to periods beginning after December 15, 2024 for smaller reporting companies, with early adoption permitted. 

In December 2022, the FASB issued amendment ASU 2022-05 "Targeted Improvements for Long-Duration Contracts" collectively, “LDTI” that originally required an insurance entity to apply a retrospective transition method as of the beginning of the earliest period presented or the beginning of the prior fiscal year if early adoption was elected. This updated guidance reduces implementation costs and complexity associated with the adoption of targeted improvements in accounting for long-duration contracts that have been derecognized in accordance with ASU 2018-12 before the delayed effective date. Without the amendments in this ASU, an insurance entity would be required to reclassify a portion of gains or losses previously recognized in the sale or disposal of insurance contracts or legal entities because of the adoption of a new accounting standard.

We adopted this guidance effective January 1, 2025, using the modified retrospective approach with changes applied as of January 1, 2024, also referred to as the transition date. The following tables summarize the impacts of the adoption of LDTI on the liability for future policy benefits, deferred acquisition costs, and stockholders' equity as of the transition date as well as impacted historical condensed consolidated financial statement line items for historical comparison.

We adopted this guidance effective January 1, 2025, using the modified retrospective approach with changes applied as of January 1, 2024, also referred to as the transition date. The following tables summarize the impacts of the adoption of LDTI on the liability for future policy benefits, deferred acquisition costs, and stockholders' equity as of the transition date as well as impacted historical condensed consolidated financial statement line items for historical comparison.

Impact of the Adoption of LDTI as of the Transition Date:

Stockholders' Equity

The following table summarizes the changes in stockholders' equity due to the adoption of LDTI and the resulting adjusted balances at January 1, 2024:

	Number of									Accumulated Other
	Shares of		Common		Additional		Accumulated			Comprehensive			Total Shareholders'
	Common Stock		Stock		Paid-in Capital		Deficit			Loss			Equity
Balance at December 31, 2023	$	7,748,922	$	774,893	$	22,964,490	$	(10,491,934	)	$	(2,916,372	)	$	10,331,077
Impact of Adoption of ASU 2018-12, net of income taxes		-		-		-		(1,124	)		2,114,541			2,113,417
Balance at January 1, 2024	$	7,748,922	$	774,893	$	22,964,490	$	(10,493,058	)	$	(801,831	)	$	12,444,494

The increase in accumulated other comprehensive income in our recast of 2024 is driven primarily by the difference between the discount rate applied under the historical accounting method, which was based on an expected investment yield from our current investment strategy, and the single-A discount rate that is required as a part of the adoption of LDTI. The net favorable impact to net income and accumulated deficit is primarily due to slower amortization of deferred acquisition costs on single pay products.

The following table presents the transition impacts as of January 1, 2024, to the Company's accumulated other comprehensive income (loss) and accumulated deficit as a result of the adoption of LDTI by product type, using the modified retrospective transition method:

				Impact to
				Accumulated Other
	Impact to			Comprehensive
	Accumulated Deficit			Income (Loss)
Long-Duration - Fixed Annuity	$	-		$	-
Long-Duration - Universal Life		-			-
Long-Duration - Individual Life		(1,424	)		2,677,633
Long-Duration - Critical Illness		1			(999	)
Total Impact of Adoption of ASU 2018-12, before Income Taxes		(1,423	)		2,676,634
Less: income taxes		299			(562,093	)
Total Impact of Adoption of ASU 2018-12, net of Income Taxes	$	(1,124	)	$	2,114,541

Liability for Future Policy Benefits

The following tables summarize the changes in the liability for future policy benefits by product type due to the adoption of LDTI and the resulting adjusted balance as of January 1, 2024:

	Individual Life			Critical Illness			Total
Balance at December 31, 2023	$	1,702,286		$	11,632		$	1,713,918
Impact to retained earnings (accumulated deficit) from capping of net premium ratio at transition date		-			-			-
Impact of deferred profit liability		1			(1	)		-
Beginning balance at original discount rate		1,702,287			11,631			1,713,918
Impact of flooring		18,217			78			18,295
Effect of change in discount rate assumptions		(173,418	)		(822	)		(174,240	)
Balance at January 1, 2024	$	1,547,086		$	10,887		$	1,557,973
Present Value of Expected Future Policy Benefits
	Individual Life			Critical Illness			Total
Balance at December 31, 2023	$	35,351,428		$	12,501		$	35,363,929
Effect of change in discount rate assumptions		(2,878,888	)		(1,286	)		(2,880,174	)
Balance at January 1, 2024	$	32,472,540		$	11,215		$	32,483,755
Net liability for future policy benefits	$	30,925,454		$	328		$	30,925,782
Less: Reinsurance recoverable		69,160			(1,015	)		68,145
Net liability for future policy benefits, after reinsurance recoverable	$	30,856,294		$	1,343		$	30,857,637

Impact of the Adoption of LDTI on Historical Financial Statements:

The following tables present the effect of the adoption of LDTI on our historical consolidated financial statements:

	December 31, 2024
	Historical Accounting
Balance Sheet	Method			As Adjusted			Effect of Change
Assets
Reinsurance related assets	$	522,142		$	788,886		$	266,744
Deferred acquisition costs, net		3,908,636			4,402,995			494,359
Deferred tax asset, net of valuation allowance		3,747,111			2,862,157			(884,954	)
Total	$	8,177,889		$	8,054,038		$	(123,851	)
Liabilities
Policyholder benefit reserves	$	39,898,138		$	36,444,940		$	(3,453,198	)
Deposit-type contracts		77,940,378			77,940,378			(0	)
Total	$	117,838,516		$	114,385,318		$	(3,453,198	)
Shareholders' Equity
Accumulated deficit	$	(10,020,956	)	$	(9,952,686	)	$	68,270
Accumulated other comprehensive (loss) income		(3,090,176	)		170,902			3,261,078
Total	$	(13,111,132	)	$	(9,781,784	)	$	3,329,348

	Twelve Months Ended December 31, 2024
	Historical Accounting
	Method			As Adjusted			Effect of Change
Statement of Income
Premium income	$	15,338,053		$	15,338,053		$	-
Policy benefits		6,883,283			6,883,283			-
Increase in policyholder reserves		5,566,210			5,973,329			407,119
Amortization of deferred acquisition costs		1,440,520			945,922			(494,598	)
Deferred income tax benefit (expense)		(36,147	)		(54,232	)		(18,085	)
Net income (loss)		470,978			540,372			69,394
Net income per common share, basic and diluted	$	0.06		$	0.07		$	0.01
Statement of Comprehensive Income (Loss)
Net Income	$	470,978		$	540,372		$	69,394
Change in the effect of discount rate assumptions on the liability for future policy benefits, net of reinsurance, net of tax		-			1,146,537			1,146,537
Comprehensive income (loss)	$	297,174		$	1,513,105		$	1,215,931
Statement of Shareholders' Equity
Accumulated other comprehensive income (loss) balance at beginning of year	$	(2,916,372	)	$	(801,831	)	$	2,114,541
Other comprehensive income (loss)		(173,804	)		1,146,537			1,320,341
Shareholders' equity balance at beginning of year	$	10,630,418		$	12,444,494		$	1,814,076
Net income (loss)		470,978			540,372			69,394
Statement of Cash Flows
Cash flows from operating activities	$	9,175,556		$	9,175,556		$	-
Net income		470,978			540,372			69,394
Deferred acquisition costs amortized		1,440,520			946,160			(494,360	)
Deferred income taxes		141,796			1,287,382			1,145,586
Change in reinsurance related assets		813,151			1,084,905			271,754
Change in policy owner benefit reserves		5,664,953			5,211,077			(453,876	)