Closed Block

6 Months Ended

Jun. 30, 2022

Note 5 – Closed Block

The Closed Block was formed at October 1, 2006 and contains all participating policies issued or assumed by Fidelity Life. The assets and future net cash flows of the Closed Block are available only for purposes of paying benefits, expenses and dividends of the Closed Block and are not available to the Company, except for an amount of additional funding that was established at the inception of the Closed Block. The additional funding was designed to protect the block against future experience, and if the funding is not required for that purpose, is subject to reversion to the Company in the future. Any reversion of Closed Block assets to the Company must be approved by the Illinois Department of Insurance (IDOI).

In October 2011, the IDOI approved a reversion of a portion of the initial funding that the Company had determined was not required to fund the Closed Block. The carrying value of the assets transferred from the Closed Block on October 31, 2011, the date of transfer, was $4,397.

The assets and liabilities within the Closed Block are included in the Company’s consolidated financial statements on the same basis as other accounts of the Company. The maximum future earnings and accumulated other comprehensive income to be recognized from Closed Block assets and liabilities represent the estimated future Closed Block profits that will accrue to the Company and is calculated as the excess of Closed Block assets over Closed Block liabilities. Included in Closed Block assets at June 30, 2022 and

December 31, 2021 is $10,617 and $10,463 of additional Closed Block funding, plus accrued interest, that is eligible for reversion to the Company if not needed to fund Closed Block experience, respectively.

The Closed Block was funded based on a model developed to forecast the future cash flows of the Closed Block, which is referred to as the actuarial calculation. The actuarial calculation projected the anticipated future cash flows of the Closed Block as established at the initial funding. We compare the actual results of the Closed Block to expected results from the actuarial calculation as part of the annual assessment of the current level of policyholder dividends. The assessment of policyholder dividends includes projections of future experience of the Closed Block. The review of Closed Block experience also includes consideration of whether a policy dividend obligation should be recorded to reflect favorable Closed Block experience that has not yet been reflected in the dividend scales. At June 30, 2022 and December 31, 2021, the Company recognized a policyholder dividend obligation of $9,472 and $12,669, respectively, resulting from the excess of actual cumulative earnings over the expected cumulative earnings and from accumulated net unrealized investment gains (losses) that have arisen subsequent to the establishment of the Closed Block.

Information regarding the Closed Block liabilities (assets) designated to the Closed Block is as follows:


	June 30,			December 31,
Closed Block Liabilities	2022			2021
Future policy benefits and claims	$	30,103		$	32,005
Policyholder account balances		6,850			6,957
Other policyholder liabilities		2,848			5,017
Policyholder dividend obligations		9,472			12,669
Other liabilities (assets)		439			(634	)
Total Closed Block liabilities		49,712			56,014
Assets Designated to the Closed Block
Investments:
Fixed maturities - available-for-sale (amortized cost $39,743 and $38,314, respectively)		37,813			43,162
Policyholder loans		1,203			1,210
Total investments		39,016			44,372
Cash, cash equivalents and restricted cash		—			1,630
Premiums due and uncollected		2,064			2,089
Accrued investment income		441			420
Reinsurance recoverables		12,805			15,567
Deferred income tax assets, net		3,862			3,139
Total assets designated to the Closed Block		58,188			67,217
Excess of Closed Block assets over liabilities		8,476			11,203
Amounts included in accumulated other comprehensive income:
Unrealized investment gains (losses), net of income tax		(1,525	)		3,830
Allocated to policyholder dividend obligations, net of income tax		-			(2,361	)
Total amounts included in accumulated other comprehensive income		(1,525	)		1,469
Maximum future earnings and accumulated other comprehensive income to be recognized from Closed Block assets and liabilities (includes excess assets of $10,617 and $10,463, respectively)	$	(10,001	)	$	(9,734	)


	June 30,			December 31,
Policyholder Dividend Obligations	2022			2021
Beginning balance	$	12,669		$	13,282
Impact from earnings allocable to policyholder dividend obligations		(208	)		396
Change in net unrealized investment (losses) gains allocated to policyholder dividend obligations		(2,989	)		(1,009	)
Ending balance	$	9,472		$	12,669

Information regarding the Closed Block revenues and expenses is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Revenues
Net insurance premiums	$	1,105		$	795		$	2,028		$	1,695
Net investment income		394			364			782			715
Realized gains		-			36			-			36
Total revenues		1,499			1,195			2,810			2,446
Benefits and expenses
Life and annuity benefits - including policyholder dividends of $209, $223, $604 and $623, respectively		1,113			771			2,516			2,695
Interest credited to policyholder account balances		42			44			84			86
Operating costs and expenses		(75	)		(198	)		(126	)		(439	)
Total expenses		1,080			617			2,474			2,342
Revenues, net of expenses before provision for income tax expense (benefit)		419			578			336			104
Income tax expense (benefit)		89			121			71			22
Revenues, net of expenses and provision for income tax expense (benefit)	$	330		$	457		$	265		$	82

The Company charges the Closed Block with federal income taxes and state and local premium taxes, policy maintenance costs and investment management expenses relating to the Closed Block as provided in the Closed Block Memorandum.

The following table presents the amortized cost and fair value of the Closed Block fixed maturities portfolio by contractual maturity at June 30, 2022. 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:



	Amortized Cost		Fair Value
Due in one year or less	$	2,250	$	2,238
Due after one year through five years		6,934		6,906
Due after five years through ten years		5,134		5,356
Due after ten years		23,373		21,293
Securities not due at a single maturity date — primarily mortgage and asset- backed		2,052		2,020
Total fixed maturities	$	39,743	$	37,813