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Note 5 - Liability for Future Policyholder Benefits

3 Months Ended

Mar. 31, 2026

Note 5.

Liability for Future Policyholder Benefits

The liability for future policy benefits is determined as the present value of expected future policy benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company's insurance contracts. Future net premiums receivable are future gross premiums receivable under the contract multiplied by the NPR.

The calculation of the liability for future policy benefits involves numerous assumptions including assumptions related to discount rate, lapses, mortality, and morbidity. The discount rate assumptions were initially set based on the expected investment yield of the assets supporting the reserves at the transition date of LDTI which was January 1, 2024, for policies originally issued on or before the transition date. The discount rate assumptions for new cohorts established after the transition date, are initially set based on the policy issuance date or policy renewal date, and are based on an upper-medium grade fixed-income instrument, which is generally equivalent to a single-A interest rate matched to the duration of our insurance liabilities.

The initial, also referred to as the original, discount rate assumptions established for each cohort are used to determine interest accretion which is reported as a component of policy benefits on the statements of comprehensive income. After policy issuance or policy renewal, the discount rate assumptions are updated quarterly and used to update the liability at each reporting date to the current discount rate, with the corresponding change reflected as the change in the effect of discount rate assumptions on the liability for future policy benefits, net of reinsurance, on the statement of changes in other comprehensive income (loss). Policyholder lapse and mortality assumptions reflect the probability that an insureds’ coverage is discontinued due to lapsation or death of the insured. For our life insurance products, mortality assumptions also reflect the probability that a benefit payment occurs. Policyholder lapse and mortality assumptions are based on actual experience or industry standards, adjusted as appropriate. Claim incidence and claim resolution rate assumptions related to morbidity and mortality are based on actual experience or industry standards adjusted as appropriate to reflect our actual experience and future expectations.

Cash flow assumptions are reviewed and updated, as needed, at least annually. Assumptions may be updated more frequently if necessary based on trending experience and future expectations. On a quarterly basis, cohort level cash flow measures are updated based on the emergence of actual experience. The updated cash flows are used to determine the updated net premiums and the net premium ratio, which is the present value of benefits and related expenses divided by the present value of gross premiums. The updated net premium ratio is used to calculate the updated liability for future policy benefits as of the beginning of the year, at the original discount rate. The change in the liability for future policy benefits related to changes in the discount rate is reported in other comprehensive income. The impact of all other changes in the liability for future policy benefits are reflected as increases in policyholder benefit reserves in the consolidated statements of income.

For most products, a net premium methodology is applied to each cohort to estimate the liability for claims not yet incurred in which discounted gross benefits are compared to discounted gross premiums. In this methodology, actual experience to date is combined with projected future cash flows to determine a net premium ratio for each cohort. The future cash flows include the costs of future expected claims as well as future cash flows on claims that have already been incurred. The net premium ratio is then used to estimate the liability for future policy benefits. The liability for future policy benefits represents the present value of future claims and associated expenses less the present value of future net premiums, which is derived by multiplying the present value of future gross premium by the net premium ratio.

The following tables present the changes in the present value of expected future net premiums and the present value of expected future policy benefits by product type as of and for the periods ended March 31, 2026 and December 31, 2025. The present value of expected future net premiums and the present value of expected future policy benefits are presented gross of ceded reinsurance.

Present Value of Expected Future Net Premiums

	As of March 31, 2026
	Individual Life			Critical Illness			Total
Balance, beginning of year	$	(400,344	)	$	18,024		$	(382,320	)
Beginning balance at original discount rate		(268,690	)		19,818			(248,872	)
Effect of changes in cash flow assumptions		(539,368	)		-			(539,368	)
Effect of actual variances from expected experience		84,436			72			84,508
Adjusted beginning of year balance		(723,622	)		19,890			(703,732	)

New issues		2,560,371			-			2,560,371
Interest accrual		38,596			206			38,802
Net premiums collected		(2,649,457	)		(426	)		(2,649,883	)
Derecognition (lapses)		-			-			-
Ending balance at original discount rate		(774,112	)		19,670			(754,442	)
Effect of changes in discount rate assumptions		(184,846	)		(2,095	)		(186,941	)
Balance, end of year	$	(958,958	)	$	17,575		$	(941,383	)

Present Value of Expected Future Policy Benefits

	Individual
	Life			Critical Illness			Total
Balance, beginning of year	$	42,752,917		$	10,630		$	42,763,203
Beginning balance at original discount rate		46,369,816			12,582			46,382,398
Effect of changes in cash flow assumptions		133			-			133
Effect of actual variances from expected experience		79,609			63			79,672
Adjusted beginning of year balance		46,449,558			12,645			46,462,203

New issues		2,560,371			-			2,560,371
Death benefits		(1,355,447	)		-			(1,355,447	)
Surrender/maturity		(15,954	)		-			(15,954	)
Other benefits		-			(137	)		(137	)
Dividends		-			-			-
Return of premium		-			-			-
Expense included in Reserve		(17,714	)		(10	)		(17,724	)
Interest accrued		461,389			524			461,913
Ending balance at original discount rate		48,082,203			13,022			48,095,225
Effect of changes in discount rate assumptions		(4,272,099	)		(2,176	)		(4,274,275	)
Balance, end of year	$	43,810,104		$	10,846		$	43,820,950

Net liability for future policy benefits	$	44,769,062		$	(6,729	)	$	44,762,333
Flooring of liability at zero at cohort level		-			7,312			7,312
Net liability for future policy benefits, post-flooring		44,769,062			583			44,769,645
Less: Reinsurance recoverable		462,768			(10,616	)		452,152
Net liability for future policy benefits, after reinsurance recoverable	$	44,306,294		$	11,199		$	44,317,493

Present Value of Expected Future Net Premiums

	As of December 31, 2025
	Individual
	Life			Critical Illness			Total
Balance, beginning of year	$	399,564		$	10,179		$	409,743
Beginning balance at original discount rate		649,287			11,560			660,847
Effect of changes in cash flow assumptions		(1,239,943	)		-			(1,239,943	)
Effect of actual variances from expected experience		(10,249	)		8,992			(1,257	)
Adjusted beginning of year balance		(600,905	)		20,552			(580,353	)

New issues		9,148,351			156			9,148,507
Interest accrual		339,056			838			339,894
Net premiums collected		(9,155,192	)		(1,728	)		(9,156,920	)
Derecognition (lapses)		-			-			-
Ending balance at original discount rate		(268,690	)		19,818			(248,872	)
Effect of changes in discount rate assumptions		(131,654	)		(1,794	)		(133,448	)
Balance, end of year	$	(400,344	)	$	18,024		$	(382,320	)

Present Value of Expected Future Policy Benefits

	Individual
	Life			Critical Illness			Total
Balance, beginning of year	$	36,222,623		$	10,698		$	36,233,321
Beginning balance at original discount rate		40,651,821			12,947			40,664,768
Effect of changes in cash flow assumptions		21,011			-			21,011
Effect of actual variances from expected experience		(106,799	)		9,457			(97,342	)
Adjusted beginning of year balance		40,566,033			22,404			40,588,437

New issues		9,735,500			156			9,735,656
Death benefits		(5,672,746	)		(10,000	)		(5,682,746	)
Surrender/maturity		(127,270	)		-			(127,270	)
Other benefits		-			(527	)		(527	)
Dividends		(2	)		-			(2	)
Return of premium		-			-			-
Expense included in Reserve		(64,683	)		(37	)		(64,720	)
Interest accrued		1,932,984			586			1,933,570
Ending balance at original discount rate		46,369,816			12,582			46,382,398
Effect of changes in discount rate assumptions		(3,617,243	)		(1,952	)		(3,619,195	)

Balance, end of year	$	42,752,573		$	10,630		$	42,763,203

Net liability for future policy benefits, pre-flooring	$	43,152,917		$	(7,394	)	$	43,145,523
Flooring of liability at zero at cohort level		-			7,570			7,570
Net liability for future policy benefits, post-flooring		43,152,917			176			43,153,093
Less: Reinsurance recoverable		421,244			(9,962	)		411,282
Net liability for future policy benefits, after reinsurance recoverable	$	42,731,673		$	10,138		$	42,741,811

The following table provides a reconciliation of future policyholder benefits reported in the table above to total future policyholder benefits:

	March 31, 2026		December 31, 2025
Liability for future policyholder benefits	$	44,769,645	$	43,153,093
In course of settlements		139,976		764,862
Incurred but not reported		300,060		372,089
Other		225,484		269,409
Total liability for future policyholder benefits	$	45,435,165	$	44,559,453

The following table provides the amount of undiscounted expected gross premiums and expected future benefits and expenses for the products reported in the table above:

	March 31, 2026 (undiscounted)
	Traditional		Disability &
	Life		Critical Illness
Expected future gross premiums	$	15,647,893	$	409,578
Expected future benefits and expenses	$	91,520,587	$	27,039

	March 31, 2026 (discounted)
	Traditional		Disability &
	Life		Critical Illness
Expected future gross premiums	$	11,250,729	$	221,088
Expected future benefits and expenses	$	43,810,107	$	10,846

	December 31, 2025 (undiscounted)
	Traditional		Disability &
	Life		Critical Illness
Expected future gross premiums	$	15,692,183	$	412,176
Expected future benefits and expenses	$	80,814,045	$	27,063

	December 31, 2025 (discounted)
	Traditional		Disability &
	Life		Critical Illness
Expected future gross premiums	$	11,460,334	$	225,911
Expected future benefits and expenses	$	42,752,896	$	11,019

- Definition

The entire disclosure for the types of coverages and products sold, and the assets, obligations, recorded liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items.

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