10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2023
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-39812

Midwest Holding Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-0362426
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
2900 S. 70th Street, Suite 400, Lincoln, NE	68506
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (402) 817-5701

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

Title of each class:Trading Symbol(s):Name of Each Exchange on Which Registered

Voting Common Stock, $0.001 par valueMDWTThe NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405c of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

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

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

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

The aggregate market value of the shares of the registrant’s common stock held by non-affiliates as of July 31, 2023 was $99.7 million calculated by reference to the average of the bid and ask price of such voting common stock on July 31, 2023.

As of August 11, 2023, there were 3,744,645 shares of voting common stock, par value $0.001 per share, issued and outstanding.

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MIDWEST HOLDING INC.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item No.	Item Caption	Page
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Comprehensive Income (Loss)	4
	Consolidated Statements of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	64

PART II – OTHER INFORMATION

Item No.	Item Caption	Page
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	64
	Signatures	68

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Midwest Holding Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2023 and December 31, 2022

	June 30, 2023		December 31, 2022
(In thousands, except share information)	(Unaudited)
Assets
Fixed maturities, available for sale, at fair value (amortized cost: $1,609,005 in 2023, and $1,269,735 in 2022. Allowance for credit losses of $8,916 in 2023.) (See Note 3)	$	1,538,912	$	1,214,635
Mortgage loans on real estate, held for investment (Allowance for credit losses of $1,493 in 2023.)		352,908		227,047
Derivative instruments (See Note 4)		36,861		15,934
Equity securities, at fair value (cost: $5,592 in 2023 and $5,592 in 2022)		5,144		5,111
Other invested assets (Allowance for credit losses of $1,343 in 2023.)		107,902		112,431
Preferred stock		33,805		31,415
Deposits and notes receivable		11,012		8,359
Policy loans		55		25
Total investments		2,086,599		1,614,957
Cash and cash equivalents		194,275		191,414
Deferred acquisition costs, net		57,604		43,433
Premiums receivable		372		362
Accrued investment income		35,050		25,165
Reinsurance recoverables (See Note 8)		39,899		20,190
Property and equipment, net		1,811		1,897
Receivable for securities sold		441		10,518
Other assets		11,990		12,495
Total assets	$	2,428,041	$	1,920,431
Liabilities and Stockholders’ Equity
Liabilities:
Benefit reserves	$	12,646	$	12,945
Deposit-type contracts (See Note 6)		2,218,725		1,743,348
Other policy-holder funds		6,474		4,105
Notes payable (See Note 7)		25,000		25,000
Deferred gain on coinsurance transactions		43,214		38,063
Payable for securities purchased		44,656		8,872
Other liabilities		48,026		53,721
Total liabilities		2,398,741		1,886,054
Stockholders’ Equity:
Preferred stock, $0.001 par value; authorized 2,000,000 shares; no shares issued and outstanding as of June 30, 2023 or December 31, 2022		—		—
Voting common stock, $0.001 par value; authorized 20,000,000 shares; 3,744,645 shares issued and outstanding as of June 30, 2023, and 3,727,976 as of December 31, 2022, respectively; non-voting common stock, $0.001 par value, 2,000,000 shares authorized; no shares issued and outstanding June 30, 2023 and December 31, 2022, respectively		4		4
Additional paid-in capital		139,085		138,482
Treasury stock		(175)		(175)
Accumulated deficit		(67,746)		(63,019)
Accumulated other comprehensive loss		(57,433)		(51,386)
Total Midwest Holding Inc.'s stockholders' equity		13,735		23,906
Noncontrolling interests		15,565		10,471
Total stockholders' equity		29,300		34,377
Total liabilities and stockholders' equity	$	2,428,041	$	1,920,431

See Notes to Consolidated Financial Statements.

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Midwest Holding Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

June 30, 2023 and 2022

(Unaudited)

	Three months ended June 30,				Six months ended June 30,
(In thousands, except per share data)	2023		2022		2023		2022
Revenues
Investment income, net of expenses	$	24,248		10,541	$	43,441	$	16,783
Net realized gain (loss) on investments		2,087		(12,636)		18,373		(18,810)
Amortization of deferred gain on reinsurance transactions		1,498		1,043		3,071		2,012
Policy administration fees		480		514		1,119		862
Service fee revenue, net of expenses		631		416		1,285		1,514
Other revenue		122		—		228		100
Total revenue		29,066		(122)		67,517		2,461
Expenses
Interest credited		12,590		(5,496)		20,279		(12,170)
Benefits		1,206		994		2,163		994
Amortization of deferred acquisition costs		1,914		1,052		3,617		1,902
Salaries and benefits		5,817		4,298		11,320		8,615
Other operating expenses		5,002		(2,240)		18,915		(4,060)
Total expenses		26,529		(1,392)		56,294		(4,719)
Net income before income tax expense		2,537		1,270		11,223		7,180
Income tax (expense) benefit (See Note 9)		(2,969)		2,125		(5,876)		(2,597)
Net (loss) income after income tax expense		(432)		3,395		5,347		4,583
Less: Income (loss) attributable to noncontrolling interest		3,451		(5,871)		5,400		(4,869)
Net (loss) income attributable to Midwest Holding Inc.		(3,883)		9,266		(53)		9,452
Comprehensive loss:
Unrealized gains (losses) on investments arising during the three months ended June 2023 and 2022, net of offsets, net of tax (($0.9) million and $2.0 million, respectively); Unrealized gains (losses) on investments arising during the six months ended June 2023 and 2022, net of offsets, net of tax ($1.3 million and $4.7 million, respectively)		4,322		(19,666)		(6,230)		(29,369)
Less: Reclassification adjustment for net realized gains (losses) on investments, net of offsets during the three months ended June 2023 and 2022 (net of tax less than $(0.1) million and $(2.4) million respectively); Reclassification adjustment for net realized gains (losses) on investments, net of offsets during the six months ended June 2023 and 2022 (net of tax less than $(0.1) million and $(5.0) million respectively)		173		1,369		183		858
Other comprehensive income (loss)		4,495		(18,296)		(6,047)		(28,511)
Comprehensive income (loss):	$	612	$	(9,030)	$	(6,100)	$	(19,059)
Impairment
Total other-than-temporary impairment		-		534		-		534
Net other-than-temporary impairment loss recognized in net income	$	-		534	$	-		534
Income per common share
Basic	$	(1.04)	$	2.48	$	(0.01)	$	2.53
Diluted	$	(1.04)	$	2.47	$	(0.01)	$	2.52

See Notes to Consolidated Financial Statements.

4

Midwest Holding Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

June 30, 2023 and 2022

(Unaudited)

	Three months ended June 30, 2023 and 2022
					Additional
	Treasury		Common		Paid-In		Accumulated				Noncontrolling		Total
(In thousands)	Stock		Stock		Capital		Deficit		AOCI*		Interest		Equity
Balance at March 31, 2022	$	(175)	$	4	$	138,483	$	(69,973)	$	(7,581)	$	18,432	$	79,190
Net income		-		-		-		9,266		-		-		9,266
Employee stock options		-		-		355		-		-		-		355
Unrealized losses on investments, net of taxes		-		-		-		-		(18,296)		-		(18,296)
Noncontrolling interest		-		-		-		-		-		(6,019)		(6,019)
Balance, June 30, 2022	$	(175)	$	4	$	138,838	$	(60,707)	$	(25,877)	$	12,413	$	64,496
Balance at March 31, 2023	$	(175)	$	4	$	138,789	$	(63,863)	$	(61,928)	$	12,023	$	24,850
Net loss		-		-		-		(3,883)		-		-		(3,883)
Employee stock options		-		-		296		-		-		-		296
Unrealized gains on investments, net of taxes		-		-		-		-		4,495		-		4,495
Cumulative effect of change in accounting estimate		-		-		-		-		-		-		-
Noncontrolling interest		-		-		-		-		-		3,542		3,542
Balance, June 30, 2023	$	(175)	$	4	$	139,085	$	(67,746)	$	(57,433)	$	15,565	$	29,300

	Six months ended June 30, 2023 and 2022
					Additional
	Treasury		Common		Paid-In		Accumulated				Noncontrolling		Total
(In thousands)	Stock		Stock		Capital		Deficit		AOCI*		Interest		Equity
Balance at December 31, 2021	$	(175)	$	4	$	138,452	$	(70,159)	$	2,634	$	15,000	$	85,756
Net income		-		-		-		9,452		-		-		9,452
Employee stock options		-		-		386		-		-		-		386
Unrealized losses on investments, net of taxes		-		-		-		-		(28,511)		-		(28,511)
Noncontrolling interest		-		-		-		-		-		(2,587)		(2,587)
Balance, June 30, 2022	$	(175)	$	4	$	138,838	$	(60,707)	$	(25,877)	$	12,413	$	64,496
Balance at December 31, 2022	$	(175)	$	4	$	138,482	$	(63,019)	$	(51,386)	$	10,471	$	34,377
Net loss		-		-		-		(53)		-		-		(53)
Employee stock options		-		-		603		-		-		-		603
Unrealized losses on investments, net of taxes		-		-		-		-		(6,047)		-		(6,047)
Cumulative effect of change in accounting estimate		-		-		-		(4,674)		-		-		(4,674)
Noncontrolling interest		-		-		-		-		-		5,094		5,094
Balance, June 30, 2023	$	(175)	$	4	$	139,085	$	(67,746)	$	(57,433)	$	15,565	$	29,300

* Accumulated other comprehensive income (loss)

See Notes to Consolidated Financial Statements.

5

Midwest Holding Inc. and Subsidiaries

Consolidated Statements of Cash Flows

June 30, 2023 and 2022

(Unaudited)

	Six months ended June 30,
(In thousands)	2023		2022
Cash flows from operating activities:
(Loss) income attributable to Midwest Holding Inc.	$	(53)	$	9,452
Adjustments to arrive at cash provided by operating activities:
Net premium and discount on investments		(12,468)		(3,834)
Depreciation and amortization		189		143
Stock options		603		386
Amortization of deferred acquisition costs		4,779		1,902
Deferred acquisition costs capitalized		(19,356)		(10,635)
Net realized (loss) gain on investments		(18,310)		18,810
Allowance for Credit Losses		4,751		-
Deferred gain on coinsurance transactions		5,151		3,614
Changes in operating assets and liabilities:
Reinsurance recoverable		(15,284)		18,383
Interest and dividends due and accrued		(9,886)		(4,674)
Premiums receivable		(10)		(6)
Deposit-type liabilities		79,646		(27,795)
Policy liabilities		2,069		2,933
Receivable and payable for securities		45,861		16,955
Other assets and liabilities		(5,317)		9,893
Net cash provided by operating activities		62,365		35,527
Cash flows from investing activities:
Fixed maturities available for sale:
Purchases		(378,752)		(418,011)
Proceeds from sale or maturity		58,471		187,670
Mortgage loans on real estate, held for investment
Purchases		(200,367)		(55,431)
Proceeds from sale		73,112		46,853
Derivatives
Purchases		(140,521)		(11,421)
Proceeds from sale		132,672		3,232
Equity securities
Purchases		(33)		-
Proceeds from sale		-		11,009
Other invested assets
Purchases		(727)		(44,257)
Proceeds from sale		-		3,334
Purchase of restricted common stock		(1,665)		-
Preferred stock
Purchases		(2,389)		(3,474)
Proceeds from sale		-		-
Net change in policy loans		(30)		65
Net purchases of property and equipment		(100)		(1,573)
Net cash (used in) investing activities		(460,329)		(282,004)
Cash flows from financing activities:
Net transfer to noncontrolling interest		5,094		(2,587)
Receipts on deposit-type contracts		457,782		254,145
Withdrawals on deposit-type contracts		(62,051)		(18,130)
Net cash provided by financing activities		400,825		233,428
Net increase (decrease) in cash and cash equivalents		2,861		(13,049)
Cash and cash equivalents:
Beginning		191,414		142,013
Ending	$	194,275	$	128,964
Supplementary information
Cash paid for taxes	$	8,200	$	2,870

See Notes to Consolidated Financial Statements.

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MIDWEST HOLDING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Midwest Holding Inc. (“Midwest,” “the Company,” “we,” “our,” or “us”) was incorporated in Nebraska on October 31, 2003 for the primary purpose of operating a financial services company. The Company redomesticated from the State of Nebraska to the State of Delaware on August 27, 2020. The Company is in the life and annuity insurance business and operates through its wholly owned subsidiaries, American Life & Security Corp. (“American Life”), and 1505 Capital LLC (“1505 Capital”) as well as through its sponsored captive reinsurance company, Seneca Reinsurance Company, LLC (“Seneca Re”).

American Life is a Nebraska-domiciled life insurance company, that was licensed to sell, underwrite, and market life insurance and annuity products in 25 states and the District of Columbia as of June 30, 2023.

Effective March 12, 2020, Seneca Re, a Vermont limited liability company, was formed by Midwest to operate as a sponsored captive insurance company for the purpose of insuring and reinsuring various types of risks of its participants through one or more protected cells and to conduct any other business or activity that is permitted for sponsored captive insurance companies under Vermont insurance regulations. On March 30, 2020, Seneca Re received its Certificate of Authority to transact the business of a captive insurance company. On May 12, 2020, Midwest contributed $0.3 million to Seneca Re for a 100% ownership interest. On April 15, 2020, Midwest entered into an operating agreement with Seneca Re and as of June 30, 2023, Seneca Re has three incorporated cells, including Seneca Incorporated Cell, LLC 2020-01 (“SRC1”) and Seneca Incorporated Cell 2021-03 (“SRC3”), which are consolidated in our financial statements. Additionally, Seneca Incorporated Cell 2022-04 (“SRC4”) was established on September 30, 2022; however, management has determined that the entity does not qualify for consolidation into our financial statements.

Midwest initially owned a 100% interest in SRC1; however, on December 30, 2021 Midwest closed the sale of approximately 70% of SRC1 to a subsidiary of ORIX Corporation USA (“ORIX USA”) for $15.0 million. Under the terms of the agreement, Midwest now holds a 30% ownership interest in SRC1. ORIX Advisers, LLC, another subsidiary of ORIX USA, is the manager of the assets underlying SRC1’s reinsurance obligations going forward, replacing Midwest’s asset management arm, 1505 Capital.

On July 27, 2020, American Life entered into a reinsurance agreement (the “Reinsurance Agreement”) with a new protected cell formed by Seneca Re (Seneca Incorporated Cell, LLC 2020-02 (“SRC2”)). SRC2 was capitalized by Crestline Management, L.P. (“Crestline”), an affiliate of Crestline Assurance Holdings LLC, a significant shareholder of Midwest. The Reinsurance Agreement, which was effective as of April 24, 2020, was entered into pursuant to a Master Letter Agreement (the “Master Agreement”) dated and effective as of April 24, 2020, by and among American Life, Seneca Re and Crestline. The Reinsurance Agreement supports American Life’s new business production by providing reinsurance capacity for American Life to write certain kinds of fixed indexed and multi-year guaranteed annuity products. Concurrently with the Reinsurance Agreement:

● American Life and SRC2 each entered into investment management agreements with Crestline, pursuant to which Crestline manages the assets that support the reinsured business; and

● American Life and SRC2 entered into a trust agreement whereby SRC2 maintains for American Life’s benefit a trust account that supports the reinsured business.

Under the Master Agreement, Crestline agreed to provide reinsurance funding for a quota share percentage of 25% of the liabilities of American Life arising from its multi-year guaranteed annuities (“MYGA”) and a quota share percentage of 40% of the liabilities of American Life arising from its fixed indexed annuity (“FIA”) products. Effective December 8, 2020, American Life entered into a novation agreement with SRC2 and Crestline Re SPC, an exempted segregated portfolio company incorporated under the laws of the Cayman Islands, for and on behalf of Crestline SP1, a segregated portfolio company of Crestline Re SPC, under which the above described Reinsurance Agreement, as well as the trust and related asset management agreements, were novated and replaced with substantially similar agreements entered into by American Life and Crestline SP1. The Reinsurance Agreement was most recently amended effective in April 2023 to allow Crestline to provide reinsurance funding for a quota share percentage of 20% of the liabilities of American Life arising from its three-year multi-year guaranteed annuities (“MYGAs”), a quota share percentage of 10% of its five-year MYGAs, and a quota share percentage of 0% of the liabilities of American Life arising from its FIAs. The amended agreement limited the total amounts to be reinsured at $550 million.

In addition, pursuant to the Master Agreement, the parties thereto have agreed to enter into one or more separate agreements whereby, among other things and subject to certain conditions, American Life will agree to reinsure additional new business production to one or more reinsurers formed and/or capitalized by Crestline, Midwest or an appropriate affiliate will be compensated for providing

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administrative services to certain advisory clients of Crestline, and American Life will consider investing in certain assets originated or sourced by Crestline.

On June 26, 2021, the Nebraska Department of Insurance (“NDOI”) issued its non-disapproval of the Modified Coinsurance Agreement (“Modco AEG Agreement”) of American Life with American Republic Insurance Company (“AEG”), an Iowa domiciled reinsurance company. The agreement was executed on June 29, 2021. Under the Modco AEG Agreement, American Life initially ceded to AEG (and subsequently renewed), on a modified coinsurance basis, a 20% quota share of certain liabilities with respect to its MYGA-5 business and an initial 20% quota share of certain liabilities with respect to its FIA products. American Life has established a Modco Deposit Account to hold the assets for the Modco AEG Agreement. Effective February 28, 2023, AEG elected not to extend its commitment period for reinsuring liabilities under its Modco AEG Agreement; as a result, AEG’s current quota share with respect to MYGA and FIA policies is 0%. The Modco AEG Agreement remains in place, and AEG remains responsible for previously ceded liabilities.

As of November 10, 2021, Midwest purchased 100% of the common stock of an intermediary holding company which immediately purchased 100% of SRC3 Class A and B membership interests. Also dated as of November 10, 2021 but effective as of July 1, 2021, American Life and SRC3 entered into a Funds Withheld and Modified Coinsurance Agreement, whereby, SRC3 agreed to provide reinsurance funding for an ongoing quota share percentage of 45% of the liabilities of American Life arising from its MYGA products and a quota share percentage of 45% of the liabilities of American Life arising from its FIA products. The agreement with SRC3 has been amended, most recently in the fourth quarter of 2022, to provide one-time reinsurance funding for a quota share of $10.0 million of the liabilities of American Life arising from its 10-year FIA products.

As of September 30, 2022, American Life entered into a reinsurance agreement (the “Reinsurance Agreement”) with a new protected cell formed by Seneca Re (Seneca Incorporated Cell, LLC 2022-04 (“SRC4”)). SRC4 was capitalized by loans from Embrace Software, Inc. and Tillman Networks LLC. The Reinsurance Agreement was effective as of July 1, 2022, by and between American Life and SRC4. The Reinsurance Agreement supports American Life’s new business production by providing reinsurance capacity for American Life to write certain kinds of fixed indexed and multi-year guaranteed annuity products. Under the Reinsurance Agreement, SRC4 initially agreed to provide reinsurance funding for a quota share percentage of 45% of the liabilities of American Life arising from its MYGA-5 products and a quota share percentage of 10% of the liabilities of American Life arising from its MYGA-3 products. American Life has established a Modco Deposit Account, a Funds Withheld custody account, and a Trust Account pursuant to the Reinsurance Agreement. The initial settlement included net premium of $21.4 million and net reserves of $21.5 million for the Modco Deposit Account. Also on September 30, 2022, American Life entered into an Investment Management Agreement (“IMA”) with CoVenture Management, LLC (“CoVenture”) naming CoVenture as the manager of certain assets held by American Life on behalf of SRC4.

Management evaluates the Company as one reporting segment in the life insurance industry. The Company is primarily engaged in the underwriting and marketing of annuity products through American Life, and then reinsuring such products with third-party reinsurers, and since May 13, 2020, with Seneca Re protected cells. American Life’s legacy product offerings consisted of a multi-benefit life insurance policy that combined cash value life insurance with a tax deferred annuity and a single premium term life product. American Life presently offers six annuity products: two MYGAs, two FIAs, and two bonus plans associated with the FIA product. It is not presently offering any traditional life insurance products.

Basis of Presentation

These consolidated financial statements for the three and six months ended June 30, 2023 and 2022 have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is a summary of our significant accounting policies and estimates. 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. All intercompany accounts and transactions have been eliminated in consolidation and certain immaterial reclassifications have been made to the prior period results to conform to the current period’s presentation with no impact on results of operations or total stockholders’ equity.

Credit Loss Impairments for Fixed Maturities and Other Invested Assets

The Company adopted new current expected credit loss guidance on January 1, 2023 impacting the Company’s investment portfolio. For fixed maturities, the difference between amortized cost, net of credit loss allowance, (amortized cost, net) and fair value is reported as a component of accumulated other comprehensive income (“AOCI”) on the consolidated balance sheet and is not reflected in the operating results of any period until reclassified to net income upon consummation of a transaction with an unrelated third party or when a credit loss allowance is recorded.  The Company has a comprehensive portfolio monitoring process to evaluate all our fixed maturities on a quarterly basis that may require a credit loss allowance.  These reviews, in conjunction with the Company’s investment managers’

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reports and relevant factors such as (1) the financial condition and near-term prospects of the issuer; (2) the Company’s intent to sell a fixed maturity or whether it is more likely than not that the Company will be required to sell a fixed maturity before the anticipated recovery in value; (3) the market leadership of the issuer; (4) the debt ratings of the issuer; and (5) the cash flows and liquidity of the issuer or the underlying cash flows, as required for our investment models, are all considered in the impairment assessment.

If the Company has not made the decision to sell and it is not more likely than not that the Company will be required to sell before the anticipated recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the fixed maturity. The Company estimates the anticipated recovery value based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the fixed maturity’s current effective rate and are compared to the amortized cost basis of the fixed maturity. The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the fixed maturity. All reasonably available information relevant to the collectability of the fixed maturity are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the fixed maturity, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the insurer, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate the anticipated recovery value if the Company determines that the fixed maturity is dependent on the liquidation of collateral for ultimate settlement.

If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis, a credit loss allowance is recorded as a net investment loss for the shortfall in expected cash flows; however, the amortized cost basis, net of the credit loss allowance, may not be lower than the fair value of the fixed maturity. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed maturity does not have sufficient cash flows or other information to estimate a recovery value for the fixed maturity, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recognized as a net investment loss.

When a fixed maturity is sold or otherwise disposed or the fixed maturity is deemed uncollectible and written-off, the Company reverses amounts previously recognized in the credit loss allowance through net investment gains (losses). Recoveries after write-offs are recognized when received. The Company does not measure a credit loss allowance on accrued interest receivable as accrued interest receivable is written off to net investment income in a timely manner when there are concerns regarding collectability.

Fixed Maturities

All fixed maturities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value, net of allowances for expected credit losses, as of the financial statement date. Premiums and discounts on fixed maturity debt instruments are amortized using the scientific-yield method over the term of the instruments. Realized gains and losses on fixed maturities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in accumulated other comprehensive (loss) income.

Investment income consists of interest, dividends, gains and losses from investments, and real estate income, which are recognized on an accrual basis along with the amortization of premiums and discounts.

Certain available-for-sale investments are maintained as collateral under Funds Withheld (“FW”) and Modified Coinsurance (“Modco”) agreements but the assets and total returns or losses on the asset portfolios belong to the third-party reinsurers. American Life has treaties with several third-party reinsurers that have FW and Modco provisions. In a Modco agreement, the ceding entity retains the assets equal to the modified coinsurance reserves retained. In a FW agreement, assets that would normally be paid over to a reinsurer are withheld by the ceding company to permit statutory credit for unauthorized reinsurers to reduce the potential credit risk. The unrealized gains/losses on those investments are passed through to the third-party reinsurers as either a realized gain or loss on the Consolidated Statements of Comprehensive Loss.

Mortgage Loans on Real Estate

Mortgage loans on real estate, held for investment are carried at unpaid principal balances, net of allowance for expected credit losses. Interest income is recognized in net investment income at the contract interest rate when earned. A mortgage loan is considered to be impaired when 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 for impairments on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlements 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

9

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 and disposition of collateral. These evaluations are revised as conditions change and added information becomes available. As of June 30, 2023, the Company held one asset valued at $7.7 million with a total impairment of $1.4 million, and one asset with an impairment for the full value of $0.6 million. At December 31, 2022, the company had one asset valued at $7.7 million with a total impairment of $1.4 million.

Derivative Instruments

Derivatives are used to hedge the risks experienced in our ongoing operations, such as equity, interest rate and cash flow risks, or for other risk management purposes, which primarily involve managing liability risks associated with our indexed annuity products and reinsurance agreements. Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, or other underlying notional amounts. Derivative assets and liabilities are carried at fair value on the consolidated balance sheets.

To qualify for hedge accounting, at the inception of the hedging relationship, the Company must formally document our designation of the hedge as a cash flow or fair value hedge and our risk management objective and strategy for undertaking the hedging transaction. In this documentation, we would identify how the hedging instrument is expected to hedge the designated risks related to the hedged item, the method that would be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method which would be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness would be formally assessed at inception and periodically throughout the life of the designated hedging relationship.

During the last quarter of 2020, the Company began investing in futures to hedge the fluctuations in various aspects of our business. The formal documentation and hedge effectiveness was not completed at the date we entered into those futures contracts; therefore, they do not qualify for hedge accounting. The futures change in fair market values were recorded on our Consolidated Statements of Comprehensive Loss as realized gains or (losses).

Additionally, reinsurance agreements written on a FW or Modco basis contain embedded derivatives on our annuity products. Gains or (losses) associated with the performance of assets maintained in the modified coinsurance deposit and funds withheld accounts are reflected as realized (losses) or gains in the Consolidated Statements of Comprehensive Loss.

Equity Securities

Equity securities at June 30, 2023, consisted of exchange traded funds (“ETFs”). The ETFs are carried at fair value with the change in fair value recorded through realized gains and losses in the Consolidated Statements of Comprehensive Loss. As of June 30, 2023, and December 31, 2022 we held $5.1 million of ETFs.

Preferred Stock

The company holds investments in preferred stock of $33.8 million as of June 30, 2023 and $31.4 million as of December 31, 2022, of which $10.0 million was redeemable at both dates. Changes in the fair value of preferred stock are recorded through unrealized gains and losses in net investment income in the Consolidated Statements of Comprehensive Loss.

In 2020 American Life entered into a series of transactions with an unaffiliated entity, Ascona Group Holdings Ltd (“AGH”) acquiring preferred equity and warrants, and later created a special purpose vehicle, Ascona Asset Holding LLC (“AAH”), to hold the preferred equity and warrants, and later created Ascona Collinwood HoldCo LLC (“ACH”) to be the sole member of AAH. American Life and Crestline Re SP1 own 74% and 26%, respectively, of ACH. American Life is carrying the preferred equity and warrants at a market value in USD of $12.2 million as of June 30, 2023 and $10.5 million of December 31, 2022. For the three months ended June 30, 2023, $0.5 million of investment income related to ACH was recognized, and $0.1 million was attributed to the noncontrolling interest held by Crestline Re SP1. For the three months ended June 30, 2022, $0.2 million of investment income was recognized, and less than $0.1 million was attributed to Crestline Re SP1. For the six months ended June 30, 2023 $2.8 million of investment income related to ACH was recognized, and $0.7 million was attributed to the noncontrolling interest held by Crestline Re SP1. For the six months ended June 30, 2022, $1.8 million of investment income was recognized, and $0.5 million was attributed to Crestline Re SP1.

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Other Invested Assets

Other invested assets consists of approximately $107.9 million of various investments. Of this total, approximately $97.7 million are primarily collateral loans, and $10.2 million of private credit and equipment leases. The collateral loans, private credit and equipment leases are carried at fair market value, net of allowance for expected credit losses. Also, we had an initial investment of $19.0 million investment in a private fund between American Life and an unaffiliated entity, PF Collinwood Holdings, LLC (“PFC”), with American Life owning 100% of the entity effective January 2021. The fair value of the PFC investment as of June 30, 2023, was $11.2 million and as of December 31, 2022, $13.7 million, respectively, with any change in fair market value recorded in unrealized gains and losses in equity on the balance sheet.  On February 2, 2022, we established a special purpose vehicle, Python Asset Holding LLC, with American Life owning 100% of the entity with an initial investment of $7.4 million. As of June 30, 2023, our investment in Python was carried at the net asset value (“NAV”) plus approximately $0.7 million of investment income.

Deposits and notes receivable

Investment escrow

The Company held in escrow $1.6 million and $0.8 million as of June 30, 2023 and December 31, 2022, respectively. The cash held at year end was used to purchased mortgages in July and January 2023, respectively.

Federal Home Loan Bank stock

American Life initially purchased Federal Home Loan Bank of Topeka (“FHLB”) common stock on May 5, 2021. This investment was to solidify our membership with FHLB Topeka. The carrying value of FHLB stock approximates fair value since the Company can redeem the stock with FHLB at cost. As a member of the FHLB, the Company is required to purchase this stock, which is carried at cost and classified as restricted equity securities.

Membership allows access to various funding arrangements to provide a source of additional liquidity. As of June 30, 2023, the Company had pledged assets with a market value of $187.2 million to FHLB to allow a borrowing capacity of $170.3 million and $121.1 million pledged as of December 31, 2022. As of June 30, 2023 we had $66.0 million of outstanding funding arrangements, and $29.0 million outstanding as of December 31, 2022.

Notes Receivable

The Company held notes receivable carried at fair value of $6.4 million and $6.3 million as of June 30, 2023 and December 31, 2022, respectively, between American Life and a related party. The note receivable has an annual interest rate of 5% which is paid in kind (“PIK”) interest per annum that increases the outstanding note balance. This note was rated BBB+ by a nationally recognized statistical rating organization. This note matures on June 18, 2050. See Note 16 – Related Party – Chelsea for details regarding this note.

Policy Loans

Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value.

Cash and Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents.

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Deferred Acquisition Costs

Deferred acquisition costs (“DAC”) consist of incremental direct costs, net of amounts ceded to third-party reinsurers, 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. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions.

The following table represents a roll forward of DAC, net of reinsurance:

(In thousands)	June 30, 2023		December 31, 2022
Beginning balance	$	43,433	$	24,530
Additions		19,356		23,857
Amortization		(3,938)		(3,905)
Interest		(841)		(883)
Impact of unrealized investment losses		(406)		(166)
Ending balance	$	57,604	$	43,433

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. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which in management’s judgment require an immediate review. The Company performed a recoverability analysis during the second quarter of 2023 and determined that all DAC balances were recoverable as of June 30, 2023 and December 31, 2022.

Premiums Receivable

Premiums receivable consists of premiums earned on our legacy insurance business which have been earned but have not yet been collected. Amounts are receivable from our legacy business partners and were less than $0.4 million and $0.4 million at June 30, 2023 and December 31, 2022 respectively.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over three to seven years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $0.1 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense totaled $0.2 million and $0.1 million for the six months ended June 30, 2023 and 2022, respectively. The accumulated depreciation, net of disposals, totaled $1.6 million and $1.4 million as of June 30, 2023 and December 31, 2022, respectively.

Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. The Company determined that no such events occurred in the periods covered by the Consolidated Financial Statements that would indicate the carrying amounts may not be recoverable.

Reinsurance

We seek to reinsure a significant portion of our new annuity policies with a variety of reinsurers in exchange for upfront ceding commissions, expense reimbursements and administrative fees. Under these reinsurance agreements, we expect there will be a monthly or quarterly settlement of premiums, claims, surrenders, collateral, and other administration fees. We believe this will help preserve American Life’s capital while supporting its growth because American Life will have lower capital requirements when its business is reinsured due to lower overall financial exposure versus retaining the insurance policy business itself. See Note 8 below for further discussion of our reinsurance activities.

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There are two main categories of reinsurance transactions: 1) “indemnity,” where we cede a portion of our risk but retain the legal responsibility to our policyholders should our reinsurers not meet their financial obligations; and 2) “assumption,” where we transfer the risk and legal responsibilities to the reinsurers. The reinsurers are required to acquire the appropriate regulatory and policyholder approvals to convert indemnity policies to assumption policies.

Our reinsurers may be domestic or foreign capital markets investors or traditional reinsurance companies seeking to assume U.S. insurance business. We plan to mitigate the credit risk relating to reinsurers generally by requiring other financial commitments from the reinsurers to secure the reinsured risks (such as posting substantial collateral). It should be noted that under indemnity reinsurance agreements American Life remains exposed to the credit risk of its reinsurers. If one or more reinsurers become insolvent or are otherwise unable or unwilling to pay claims under the terms of the applicable reinsurance agreement, American Life retains legal responsibility to pay policyholder claims, which in such event would likely materially and adversely affect the capital and surplus of American Life.

Midwest formed Seneca Re in early 2020, followed by Seneca Incorporated Cell, LLC 2020-01 (“SRC1”) and Seneca Incorporated Cell, LLC 2021-03 (“SRC3”) which are consolidated in these financial statements. Midwest sold 70% ownership of SRC1 to an ORIX Corporation USA subsidiary on December 30, 2021, and retained 30% ownership. Midwest maintains control over SRC1 and we continue to consolidate SRC1, in these financial statements. Additionally, Seneca Re has established Seneca Incorporated Cell, LLC 2022-04; however, management has determined that Midwest does not control the entity and thus it is not consolidated into these financial statements. American Life entered into a novation agreement with Seneca Incorporated Cell, LLC 2020-02 (“SRC2”)  and Crestline Re SPC, for and on behalf of Crestline Re SP1, under which the above-described reinsurance, trust and related asset management agreements were novated and replaced with substantially similar agreements entered into by American Life and Crestline Re SP1.

Some reinsurers are not and may not be “accredited” or qualified as reinsurers under Nebraska law and regulations. In order to enter into reinsurance agreements with such reinsurers and to reduce potential credit risk, American Life holds a deposit or withholds funds from the reinsurer and/or requires the reinsurer to maintain a trust that holds assets backing up the reinsurer’s obligation to pay claims on the business it assumes. The reinsurer may also appoint an investment manager for such funds, which in some cases may be our investment adviser subsidiary, 1505 Capital, to manage these assets pursuant to guidelines adopted by us that are consistent with Nebraska investment statutes and reinsurance regulations.

American Life currently has treaties with several third-party reinsurers and one related party reinsurer. In a Modco agreement, the ceding entity retains the assets equal to the modified coinsurance reserves retained. In a FW agreement, assets that would normally be paid over to a reinsurer are withheld by the ceding company to permit statutory credit for unauthorized reinsurers, to reduce the potential credit risk. Under those provisions with third-party reinsurers, the assets backing the treaties are maintained by American Life as investments but the assets and total returns or losses on the investments are owned by the reinsurers. Under GAAP, this arrangement is considered an embedded derivative as discussed in Comprehensive Loss and Note 4 below.

Assets carried as investments on American Life’s financial statements for the third-party reinsurers contained cumulative unrealized gains and (losses) as of June 30, 2023 and December 31, 2022. The terms of the contracts with the third-party reinsurers provide that changes in the unrealized gains and (losses) on the portfolios accrue to the third-party reinsurers. To recognize changes in the third-party unrealized gains and (losses), American Life records the year-to-date change as an offsetting realized (loss) or gain in Net Realized (Loss) Gain on Investments on the Consolidated Statements of Comprehensive Loss and in amounts recoverable from third-party reinsurers on the Consolidated Balance Sheets. For further discussion see Note 4 below.

Benefit Reserves

The Company establishes 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 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.

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.

Deposit-type Contracts

Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies.

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Deposit-type contracts also include balances outstanding under funding agreements with the Federal Home Loan Bank of Topeka (“FHLB”). The funding agreements are carried at cost. Amounts received and repaid under FHLB funding agreements are classified as financing activities in the Company's Consolidated Statements of Cash Flows.

In 2021, the Company became a member of FHLB, which provides access to collateralized borrowings and other FHLB products. Any borrowing from FHLB requires the purchase of FHLB activity-based common stock in an amount equal to 4.5% of the borrowing. In 2022, the Board authorized a maximum amount equal to 5% of net aggregate admitted retained assets of American Life for FHLB advances and funding agreements combined. In 2023 and 2022, American Life received advances of $37.0 million and $29.0 million respectively, from FHLB under funding agreements and made no repayments on FHLB funding agreements. Outstanding advances under FHLB funding agreements are reported as part of deposit-type contracts in the Consolidated Balance Sheets and totaled $66.0 million as of June 30, 2023, and $29.0 million as of December 31, 2022. Interest on the funding agreements accrues at their effective interest rates.

As of June 30, 2023, scheduled maturity dates for outstanding FHLB funding agreements were as follows:

(Dollar amounts in thousands)	Interest
Maturity Date	Rate		Amount
March 1, 2024		5.10%	$	16,000
January 22, 2025		5.47%		13,000
January 22, 2025		5.17%		2,000
August 16, 2025		5.48%		8,000
September 1, 2027		5.40%		4,000
September 15, 2027		5.20%		8,000
October 1, 2027		5.41%		9,000
December 1, 2027		5.63%		6,000
			$	66,000

Note Payable

On November 22, 2022, the Company entered into a three-year senior secured revolving credit agreement (“Credit Agreement”) with Royal Bank of Canada and other lenders with a capacity of $30.0 million (the “Revolving Credit Facility”). The maturity date of the Credit Agreement is November 22, 2025. The obligations under the Credit Agreement are secured by a first priority lien on a variety of our assets. The balance of the revolving credit was $25.0 million at June 30, 2023, and December 31, 2022, with $5.0 million unutilized credit.

Deferred Gain on Coinsurance Transactions

American Life entered into several reinsurance contracts where it has earned or is earning ceding commissions. These ceding commissions are recorded as a deferred liability and amortized over the life of the business ceded. American Life receives commission and administrative expenses from reinsurance transactions that represent recovery of acquisition costs. These remittances first reduce the DAC associated with the reinsured blocks of business with the remainder being included in the deferred gain on coinsurance transactions that is also being amortized.

Revenue Recognition and Related Expenses

Amounts received as payment for annuities are recognized as deposits to policyholder account balances and are included in deposit-type liabilities. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, 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.

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

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

Service fee revenue is comprised of third-party administration (“TPA”) fees and investment management fees:

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● The TPA fees are related to accounting services performed based on service agreements with varying lengths. Revenue associated with TPA fees are only recognized when the services are performed, which is typically on a monthly or quarterly basis.

● Fees for investment management fees are based on the total assets managed for each client at a contracted rate. The length of term on the contracts varies by client. The Company accrues investment advisory fees and recognizes revenue based on the market value of the client’s assets at the end of the applicable period, at the client’s contracted rate.

Income Taxes

The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state, or local tax examinations by tax authorities for the years before 2019. The Company is not currently under examination for any open years for income taxes. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. 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 DAC. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense.

Comprehensive Loss

Comprehensive Loss is comprised of net income (loss) and other comprehensive loss. Other comprehensive loss includes unrealized gains and losses from fixed maturities classified as available for sale, unrealized gains and losses from other invested assets, and unrealized gains and losses from preferred stock, net of applicable taxes. American Life has treaties with several third-party reinsurers that have FW and Modco provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral but are owned by the third-party reinsurers, thus, the total return on the asset portfolio belongs to the third-party reinsurers. Under GAAP this is considered an embedded derivative as discussed above under “Reinsurance” and in Note 8 below.

Earnings Per Share

Basic (loss) income per share for the three months ended June 30, 2023 and 2022 was $(1.04) and $2.48 respectively, which includes a gain of $3.9 million and loss of $2.9 million from an embedded derivative, respectively. Basic (loss) income per share for the six months ended June 30, 2023 and 2022 was $(0.01) and $2.53 respectively, which includes a gain of $3.9 million and $2.9 million from an embedded derivative, respectively.

The Company has 20.0 million voting common shares authorized, two million non-voting common shares authorized, and two million preferred shares authorized. There were 3,744,645 voting common shares issued and outstanding as of June 30, 2023 and 3,727,976 as of December 31, 2022.

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	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
(In thousands, except per share amounts)
Numerator:
Net (loss) income attributable to Midwest Holding Inc.	$	(3,883)	$	9,266	$	(53)	$	9,452
Denominator:
Weighted average common shares outstanding		3,736,933		3,737,564		3,728,594		3,737,564
Effect of dilutive securities:
Stock options and deferred compensation agreements		126,868		12,000		126,868		12,000
Denominator for earnings (loss) per common share		3,863,801		3,749,564		3,855,462		3,749,564
(Loss) income per common share	$	(1.04)	$	2.48	$	(0.01)	$	2.53
(Loss) income per common share, diluted	$	(1.04)	$	2.47	$	(0.01)	$	2.52

Adoption of New Accounting Standards

In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 846): Deferral of the Sunset Date of Topic 848. In 2020, the Board issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to provide temporary relief during the transition period. The FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. At the time that Update 2020-04 was issued, the UK Financial Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021. As a result, the sunset provision was set for December 31, 2022—12 months after the expected cessation date of all currencies and tenors of LIBOR. In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in ASU 2022-06 defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Measurement of Credit Losses on Financial Instruments

In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in this update include items brought to the FASB’s attention by stakeholders to clarify the guidance in the amendments in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) which was issued in June 2016. These updated amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Under ASU 2016-13, the incurred loss impairment methodology in current GAAP is replaced with a methodology that reflects expected credit losses that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to maturity debt securities. It also applies to off-balance sheet credit exposures, not accounted for as insurance (loan commitments, standby letters of credit financial guarantees, and other instruments). In addition, ASU 2016-13 made changes to the accounting for available for sale debt fixed maturities. One such change is to require credit losses to be presented as an allowance rather than a write-down on available for sale debt fixed maturities management does not intend to sell or believes that it is not more likely than not they will be required to sell. The new standard became effective for reporting periods beginning after December 15, 2022, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning accumulated deficit.

The Company’s implementation activities are complete, and the impacts relate to the Company’s investment portfolio. The Company adopted the new guidance on January 1, 2023 and recognized a cumulative effect adjustment that decreased retained earnings by $4.7 million, in conjunction with the $16.5 million allowance for credit losses and $11.8 million to Reinsurance Recoverables. Additionally, the Company recognized an incremental change in the allowance for expected credit losses of $0.2 million in the current period, to bring the retained allowance to approximately $4.5 million. The Company will apply the provisions of the guidance to investments that have

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an other-than-temporary impairment on a prospective basis. Accordingly, the amortized cost basis will remain the same before and after adoption and the effective interest rate was not changed at the time of adoption.

Future Adoption of New Accounting Standards

Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as amended by ASU 2019-09, Financial Services —Insurance (Topic 944). The new guidance (i) prescribes the discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees on certain separate account and other account balance long-duration contracts to be accounted for at fair value, (iii) simplifies the amortization of DAC for virtually all long duration contracts, and (iv) introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The new standard becomes effective for reporting periods after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2024 for companies eligible as smaller reporting companies. Early application of the amendments in Update 2018-12 is permitted. We anticipate that the adoption of ASU 2018-12 will have a broad impact on our consolidated financial statements and related disclosures and will require us to make changes to certain of our processes, systems and controls. The Company is evaluating the impact this guidance will have on its results of operations and financial position. 

Note 2. Non-controlling Interest

Disposal

On December 30, 2021, Midwest closed the sale of approximately 70% of SRC1 to a subsidiary of ORIX Corporation USA for $15.0 million. Under the terms of the agreement, Midwest holds a 30% ownership interest in SRC1. ORIX Advisers, LLC, another subsidiary of ORIX USA, is the manager of the assets underlying SRC1’s reinsurance obligations, replacing Midwest’s asset management arm, 1505 Capital LLC. Midwest carries the original purchase amount of $15.0 million as noncontrolling interest in the equity section of the Consolidated Balance Sheets plus cumulative income of $3.7 million as of June 30, 2023, and a cumulative loss of $5.5 million as of December 31, 2022.

Purchase

In 2020 American Life entered into a series of transactions with an unaffiliated entity, Ascona Group Holdings Ltd (“AGH”). Through these transactions American Life acquired preferred equity in AGH in British Pound Sterling (“GBP”) of 3.6 million along with warrants bearing no initial assigned value. American Life subsequently created a special purpose vehicle, Ascona Asset Holding LLC (“AAH”), to hold the Preferred Equity and Warrants, and later created Ascona Collinwood HoldCo LLC (“ACH”) to be the sole member of AAH. American Life and Crestline Re SP1 own 74% and 26%, respectively, of ACH. American Life is carrying the preferred equity at a market USD value of $12.2 million as of June 30, 2023, and $10.5 million as of December 31, 2022. The change in market value for the three months ended June 30, 2023 and 2022, of $0.5 million and $0.2 million for the preferred stock and warrants was recorded in net investment income on the Consolidated Statements of Comprehensive Loss. Of the $0.5 million of investment income, $0.1 million was attributable to noncontrolling interest. The change in market value for the six months ended June 30, 2023 and 2022, of $2.8 million and $1.8 million for the preferred stock and warrants was recorded in net investment income on the Consolidated Statements of Comprehensive Loss. Of the $2.8 million of investment income, $0.7 million was attributable to noncontrolling interest.

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Note 3. Investments

The following table represents the amortized cost, allowance for credit losses, gross unrealized gains and losses, and estimated fair value of investments classified as available-for-sale as of June 30, 2023 and December 31, 2022:

			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Estimated
(In thousands)	Cost		Losses		Gains		Losses		Fair Value
June 30, 2023:
Fixed maturities:
Bonds:
U.S. government obligations	$	1,451	$	-	$	268	$	(68)	$	1,651
Mortgage-backed securities		458,248		(1,035)		1,478		(32,477)		426,214
Asset-backed securities		44,127		-		76		(3,985)		40,218
Collateralized loan obligations		358,240		(480)		1,591		(20,485)		338,866
States and political subdivisions-general obligations		128		-		-		(3)		125
States and political subdivisions-special revenue		-		-		-		-		-
Corporate		54,532		(1,297)		358		(4,670)		48,923
Term loans		692,279		(6,104)		1,687		(4,947)		682,915
Total fixed maturities	$	1,609,005	$	(8,916)	$	5,458	$	(66,635)	$	1,538,912
Mortgage loans on real estate, held for investment		354,401		(1,493)		-		-		352,908
Derivatives		34,639		-		9,870		(7,648)		36,861
Equity securities		5,592		-		-		(448)		5,144
Other invested assets		107,149		(1,343)		2,285		(189)		107,902
Preferred stock		38,026		-		1,357		(5,578)		33,805
Deposits and notes receivable		11,012		-		-		-		11,012
Policy loans		55		-		-		-		55
Total investments	$	2,159,879	$	(11,752)	$	18,970	$	(80,498)	$	2,086,599
December 31, 2022:
Fixed maturities:
Bonds:
U.S. government obligations	$	1,343	$	-	$	-	$	(81)	$	1,262
Mortgage-backed securities		316,105		-		469		(22,508)		294,066
Asset-backed securities		34,728		-		17		(3,989)		30,756
Collateralized loan obligations		308,871		-		726		(21,924)		287,673
States and political subdivisions-general obligations		104		-		-		(3)		101
States and political subdivisions-special revenue		228		-		-		(23)		205
Corporate		46,700		-		415		(5,515)		41,600
Term loans		561,656		-		1,923		(4,607)		558,972
Total fixed maturities	$	1,269,735	$	-	$	3,550	$	(58,650)	$	1,214,635
Mortgage loans on real estate, held for investment		227,047		-		-		-		227,047
Derivatives		30,239		-		2,694		(16,999)		15,934
Equity securities		5,592		-		-		(481)		5,111
Other invested assets		108,979		-		3,667		(215)		112,431
Preferred stock		35,644		-		1,757		(5,986)		31,415
Deposits and notes receivable		8,359		-		-		-		8,359
Policy loans		25		-		-		-		25
Total investments	$	1,685,620	$	-	$	11,668	$	(82,331)	$	1,614,957

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The following table presents information related to allowance for credit losses as of June 30, 2023:

(In Thousands)		Balance December 31, 2022	Additional Allowance Recognized Due to Adoption of Accounting Guidance		Credit Loss Expense for the Current Period		Balance June 30, 2023
Fixed maturities
Bonds:
Mortgage-backed securities	$	-	$	3,564	$	(2,529)	$	1,035
Corporate		-		-		1,297		1,297
Asset-backed securities		-		273		(273)		-
Collateralized loan obligations		-		588		(108)		480
Term loans		-		8,518		(2,414)		6,104
Mortgage loans on real estate, held for investment		-		2,024		(531)		1,493
Other invested asset		-		1,703		(360)		1,343
Total allowance	$	-	$	16,670	$	(4,918)	$	11,752

(In Thousands)		Balance March 31, 2023	Additional Allowance Recognized Due to Adoption of Accounting Guidance		Credit Loss Expense for the Current Period		Balance June 30, 2023
Fixed maturities
Bonds:
Mortgage-backed securities	$	3,592	$	-	$	(2,557)	$	1,035
Corporate		-		-		1,297		1,297
Asset-backed securities		245		-		(245)		-
Collateralized loan obligations		610		-		(130)		480
Term loans		5,867		-		237		6,104
Mortgage loans on real estate, held for investment		2,709		-		(1,216)		1,493
Other invested asset		1,173		-		170		1,343
Total allowance	$	14,196	$	-	$	(2,444)	$	11,752

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of June 30, 2023 and December 31, 2022.

	June 30, 2023				December 31, 2022
	Carrying				Carrying
(In thousands)	Value		Percent		Value		Percent
AAA and U.S. Government	$	200,014	13.0	%	$	124,183	10.2	%
AA		29,185	1.9			815	0.1
A		420,690	27.3			371,371	30.6
BBB		752,652	48.9			619,516	51.0
Total investment grade		1,402,541	91.1			1,115,885	91.9
BB and below		136,371	8.9			98,750	8.1
Total	$	1,538,912	100.0	%	$	1,214,635	100.0	%

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Reflecting the quality of fixed maturities maintained by us, as of June 30, 2023 and December 31, 2022, 91.1% and 91.9%, respectively, of all fixed maturity securities were investment grade. The BB and below also includes maturities that have no rating.

The following table summarizes, for all fixed maturity securities in an unrealized loss position as of June 30, 2023 and December 31, 2022 for which an allowance for credit losses has not been recorded and the estimated fair value, pre-tax gross unrealized loss, and number of fixed maturities by consecutive months they have been in an unrealized loss position.

	June 30, 2023						December 31, 2022
			Gross		Number				Gross		Number
	Estimated		Unrealized		of		Estimated		Unrealized		of
(In thousands)	Fair Value		Loss		Securities(1)		Fair Value		Loss		Securities(1)
Fixed maturities:
Less than 12 months:
U.S. government obligations	$	-	$	-		-	$	1,135	$	(70)		13
Mortgage-backed securities		233,146		(12,202)		93		233,624		(18,464)		89
Asset-backed securities		14,234		(1,386)		10		24,552		(3,278)		23
Collateralized loan obligations		76,097		(2,786)		52		203,549		(16,730)		252
States and political subdivisions-general obligations		125		(3)		2		101		(3)		1
States and political subdivisions-special revenue		-		-		-		47		(2)		3
Corporate		17,722		(1,010)		16		37,286		(5,426)		64
Term loans		682,545		(4,947)		4		558,337		(4,607)		36
Greater than 12 months:
U.S. government obligations		1,146		(68)		9		126		(11)		5
Asset-backed securities		22,814		(2,599)		23		5,321		(711)		7
Collateralized loan obligations		162,126		(17,699)		240		37,814		(5,194)		47
States and political subdivisions-special revenue		-		-		-		158		(21)		7
Mortgage-backed securities		87,683		(20,275)		57		17,985		(4,044)		14
Corporate		14,888		(3,660)		45		376		(89)		7
Total fixed maturities	$	1,312,526	$	(66,635)		551	$	1,120,411	$	(58,650)		568

(1)We may reflect a fixed maturity in more than one aging category based on various purchase dates.

Our securities positions resulted in a gross unrealized loss position as of June 30, 2023 that was greater than the gross unrealized loss position at December 31, 2022. The Company views the decrease in fair value for all of the fixed maturity securities with unrealized losses as of June 30, 2023, which are driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility, as temporary. As of June 30, 2023, the Company has not made the decision to sell these securities and the Company does not believe it will be required to sell the fixed maturity securities with unrealized losses before an anticipated recovery in value. Therefore, it was determined that the unrealized losses on the fixed maturity securities were not indicative of any credit loss impairments as of June 30, 2023.

The Company reviews and analyzes all investments on an ongoing basis for changes in market interest rates and credit deterioration. The review process includes analyzing the recoverability of the amortized cost basis of each investment that has a fair value that is

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materially lower than its amortized cost and requires a high degree of management judgment and involves uncertainty. The evaluation of securities for credit loss is a quantitative and qualitative process, which is subject to risks and uncertainties.

The process to identify securities that could potentially have credit loss involves monitoring market events and other items that could impact issuers. The evaluation includes but is not limited to such factors as:

•the determination of whether a mark-to-market loss on a fixed income security is due to a deterioration in the underlying credit quality of the security or to temporary market effects such as interest rates through a comprehensive understanding of both the specific security and the broader market context;

•the issuer’s payment history and adherence;

•the remaining payment terms and the financial condition and near-term prospects of the issuer;

•the lack of ability to refinance due to liquidity problems in the credit market;

•the fair value of any associated collateral;

•the availability of any credit protection;

•our intent to sell and  the likelihood of needing  to sell prior to recovery for debt securities;

•consideration of rating agency actions; and

•changes in estimated cash flows of mortgage and asset backed securities.

See the discussion in Note 8 Reinsurance regarding unrealized gains/(losses) on investments that are owned by our reinsurers and the corresponding offset carried as a (loss)/gain in the associated embedded derivatives.

The Company purchases and sells equipment leases in its investment portfolio. As of June 30, 2023, the Company owned several leases, all of which were performing. No impairment was required as of June 30, 2023.

The amortized cost and estimated fair value of fixed maturities as of June 30, 2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Estimated
(In thousands)	Cost		Fair Value
Due in one year or less	$	100,739	$	99,049
Due after one year through five years		859,855		840,065
Due after five years through ten years		440,299		403,551
Due after ten years through twenty years		175,126		170,768
Due after twenty years		32,986		25,479
	$	1,609,005	$	1,538,912

The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At June 30, 2023 and December 31, 2022, these required deposits had a total amortized cost of $2.8 million and $1.2 million, respectively, and fair values of $2.8 million and $1 million, respectively.

Mortgage loans consist of the following:

(In thousands)	June 30, 2023			December 31, 2022
1-4 Family	$	56,335	$	59,579
Hospitality		14,144		12,902
Land		77,961		62,119
Multifamily (5+)		58,711		34,072
Retail		45,681		22,119
Other		101,569		36,256
Allowance for credit loss		(1,493)		-
Total mortgage loans	$	352,908	$	227,047

Geographic Location:

As of June 30, 2023, the commercial mortgages loans were secured by properties geographically dispersed (with the largest concentrations in loans secured by properties in New York (19%), New Jersey (16%), New Zealand (9%), Florida (7%), and Texas

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(7%)). As of December 31, 2022, the commercial mortgages loans were secured by properties geographically dispersed (with the largest concentrations in New York (24%), Florida (15%), Delaware (10%), California (6%), and Arizona (5%)).

The loan-to-value ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A loan-to-value ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The following represents the loan-to-value ratio of the commercial mortgage loan portfolio, excluding those under development, net of valuation allowances. As of June 30, 2023, the Company held one asset valued at $7.7 million with an impairment of $1.4 million and one asset with an impairment for the full value of $0.6 million. At December 31, 2022, the company had one asset valued at $7.7 million with a total impairment of $1.4 million.

Commercial Mortgage Loans

(In thousands)	June 30, 2023		December 31, 2022
Loan-to-Value Ratio:
0%-59.99%	$	230,140	$	108,281
60%-69.99%		76,970		79,968
70%-79.99%		27,704		33,268
80% or greater		18,094		5,530
Total mortgage loans	$	352,908	$	227,047

The components of net investment income for three and six months ended June 30, 2023 and 2022 are as follows:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Fixed maturities	$	33,841	$	14,173	$	67,902	$	26,837
Mortgage loans		6,298		2,963		12,973		5,383
Other invested assets		2,142		2,501		5,464		3,896
Other interest income		10,248		8,035		18,277		13,579
Gross investment income		52,529		27,672		104,616		49,695
Less: investment expenses		(5,367)		(2,515)		(11,564)		(4,726)
Less: amounts ceded to reinsurers		(22,914)		(14,616)		(49,611)		(28,186)
Investment income, net of expenses	$	24,248	$	10,541	$	43,441	$	16,783

Proceeds for the three months ended June 30, 2023 and 2022 from sales of investments classified as available-for-sale were $8.1 million, and $94 million, respectively. Gross gains of $0.3 million and $0.1 million and gross losses of less than $0.1 million and $1.2 million were realized on sales and the realized losses on sales during the three months ended June 30, 2023 and 2022, respectively.

Proceeds for the six months ended June 30, 2023 and 2022 from sales of investments classified as available-for-sale were $58.5 million, and $187.6 million, respectively. Gross gains of $0.3 million and $1.5 million and gross losses of less than $0.1 million and $1.7 million were realized on sales and the realized losses on sales during the six months ended June 30, 2023 and 2022, respectively.

The proceeds included those assets associated with the third-party reinsurers. The gains and losses relate only to the assets retained by American Life. Unrealized gain/(loss) included as part of net investment income were gains of $23.9 million and $10.5 million for the three months ended June 30, 2023 and 2022. Unrealized gain/loss included as part of net investment income were gains of $43.1 million and $16.8 million for the six months ended June 30, 2023 and 2022.

Note 4. Derivative Instruments

The Company enters into derivative instruments to manage risk, primarily equity, interest rate, credit, foreign currency and market volatility. Some of these derivative instruments are to hedge fixed indexed annuity products that guarantee the return of principal to the policyholders and credit interest based on a percentage of the gain in a specified market index. To hedge against adverse changes in equity indices, the Company entered into contracts to buy equity indexed options.

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The following is a summary of the derivatives not designated as hedges and embedded derivatives in our FIA product as of June 30, 2023 and December 31, 2022:  

		June 30, 2023					December 31, 2022
(In thousands, except number of contracts)	Location in the
Derivatives Not Designated	Consolidated	Notional		Number of	Estimated		Notional		Number of	Estimated
as Hedging Instruments	Balance Sheets	Amount		Contracts	Fair Value		Amount		Contracts	Fair Value
Equity-indexed options	Derivatives	$	911,030	668	$	36,700	$	831,657	595	$	15,592
Equity-indexed embedded derivatives	Deposit-type contracts		866,847	7,095		142,800		782,997	6,131		111,618

At June 30, 2023, the value of the embedded derivative considers all amounts projected to be paid in excess of the minimum guarantee (the amounts payable without any indexation increases) over future periods. The host contract reflects the minimum guaranteed values.

Due to price changes in the capital markets, our securities positions resulted in increased unrealized losses at June 30, 2023, compared to December 31, 2022, reported in accumulated other comprehensive income on the balance sheet. The embedded derivative related to the asset portfolio belonging to the third-party reinsurers offset these unrealized losses. The unrealized losses as of June 30, 2023 were $14.4 million compared to unrealized losses of $10.5 million as of December 31, 2022.

The following table summarizes the impact of those embedded derivatives related to the funds withheld provision where the total return on the asset portfolio is passed through to the third-party reinsurers:

	June 30, 2023						December 31, 2022
(In thousands)	Book Value		Market Value		Total Return		Book Value		Market Value		Total Return
Portfolio	Assets		Assets		Swap Value		Assets		Assets		Swap Value
American Republic Insurance Company	$	170,992	$	163,894	$	7,098	$	150,413	$	143,952	$	6,461
Crestline Re SP1		447,113		446,708		405		354,806		356,374		(1,568)
Ironbound		164,611		159,116		5,495		159,644		154,477		5,167
Ascendent Re		64,479		62,626		1,853		56,064		54,790		1,274
SRC4		152,401		152,828		(427)		61,646		62,516		(870)
Total	$	999,596	$	985,172	$	14,424	$	782,573	$	772,109	$	10,464

Assets carried as investments on American Life’s financial statements for the third-party reinsurers contained cumulative unrealized losses of approximately $14.4 million as of June 30, 2023, and cumulative unrealized losses of $10.5 million as of December 31, 2022, respectively. The terms of the contracts with the third-party reinsurers provide that the changes in unrealized gains or losses on the portfolios accrue to the third-party reinsurers. Accordingly, the change in unrealized losses on the assets held by American Life were offset by gains in the embedded derivative of $3.9 million and a gain in the embedded derivative of $2.9 million for the six months ended June 30, 2023 and 2022, respectively.

We account for this unrealized (loss) pass-through by recording an equivalent realized gain on our Consolidated Statements of Comprehensive Loss and in amounts payable to our third-party reinsurers on the Consolidated Balance Sheets.

Note 5. Fair Values of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish 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: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

● Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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● Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

A description of the valuation methodologies used for assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Level 1 measurements

Cash and cash equivalents: Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents as Level 1 measurements in the table below.

Level 2 measurements

Fixed maturity securities: Fixed maturity securities are recorded at fair value on a recurring basis utilizing an independent third-party pricing source. The valuations are reviewed and validated quarterly through random testing by comparisons to separate pricing models or other third-party pricing services.

Derivatives: Derivatives are reported at fair market value utilizing a third-party pricing source such as the Standard & Poor’s (“S&P”) 500 index and the S&P Multi-Asset Risk Control (“MARC”) 5% index.

Equity securities: Equity securities at June 30, 2023 consist of exchange traded funds (“ETFs”). The ETFs are considered equity securities and recorded at fair value on a recurring basis utilizing a third-party pricing source with the change in fair value recorded through realized gains and losses on the Consolidated Statements of Comprehensive Loss. As of December 31, 2022 we had purchased $5.1 million of ETFs.

Preferred stock: The Company’s preferred stock investments classified as Level 2 were valued at $10.0 million as of June 30, 2023, and $9.5 million as of December 31, 2022. This investment is carried at fair market value with the change in fair market value is recorded in net investment income on the Consolidated Statements of Comprehensive Loss.

Deposits and notes receivable: The Company had escrow funds of as of June 30, 2023 and December 31, 2022, of $1.6 million and $0.8 million, respectively. These escrow funds were used to settle mortgage loans that did not close until April and January 2023. The money held in escrow at June 30, 2023 and December 31, 2022 was carried at cost. The Company held in notes receivable as of June 30, 2023 and December 31, 2022, a note of $6.4 million and $6.3 million, respectively, that includes paid-in-kind (“PIK”) interest. The note receivable is between American Life and Chelsea Holdings Midwest LLC with an interest rate of 5% per annum that was rated BBB+ by a nationally recognized statistical rating organization (“NRSRO”). This note is being carried at cost plus PIK interest.

Level 3 measurements

Term Loans – The assets classified as term loans are carried at unpaid principal net of amortization of discount or accretion, which ap-proximates fair value or carried at fair market value based on a valuation using market standard valuation methodologies. The inputs used to measure the fair value of these assets are classified as Level 3 within the fair value hierarchy.

Mortgage Loans – Mortgage loans are generally stated at principal amounts outstanding, net of deferred expenses and allowance for loan loss. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are generally deferred and amortized on an effective yield basis over the term of the loan. Impaired loans are generally carried on a non-accrual status. Loans are ordinarily placed on non-accrual status when, in management’s opinion, the collection of principal or interest is unlikely, or when the collection of principal or interest is 90 days or more past due. As of June 30, 2023, the Company held one asset valued at $7.7 million with a total impairment of $1.4 million, and one asset with an impairment for the full value of $0.6 million. At December 31, 2022, the company had one asset valued at $7.7 million with a total impairment of $1.4 million.

Other Invested Assets – Other invested assets include collateral loans, private credit investments, equipment leases, and a private fund investment. The collateral loans, private credit investments, and equipment leases are carried at amortized cost which approximates fair value. The private fund investment is carried at fair value based on market accepted valuation models. The inputs used to measure these assets are classified as Level 3 within the fair value hierarchy.

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Deposits and notes receivable: The carrying value of FHLB stock approximates fair value based on market accepted valuation models, since the Company can redeem such stock with FHLB at cost. As a member of the FHLB, the Company is required to purchase this stock, which is carried at cost and classified as restricted equity securities.

Preferred Stock – The Company’s preferred stock investment classified as Level 3 was valued at $23.9 million as of June 30, 2023 and $21.9 million as of December 31, 2022. This investment is carried at fair market value. The change in fair market value is recorded in net investment income on the Consolidated Statements of Comprehensive Loss.

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.

Deposit-type contracts: The fair value for direct and assumed liabilities under 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 nonperformance risk of the liabilities. The fair values for insurance contracts other than deposit-type contracts are not required to be disclosed.

Embedded derivative for equity-indexed contracts: The Company has embedded derivatives in its FIA policyholder obligations. These embedded derivatives are carried at the fair market value as of June 30, 2023 and December 31, 2022. The fair value of the embedded derivative component of our FIA obligation is estimated at each valuation date by projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and discounting the excess of projected contract value amounts at the applicable risk-free interest rates adjusted for our nonperformance risk related to those obligations. The projections of FIA policy contract values are based on best estimate assumptions for future policy growth and decrements including lapse, partial withdrawal and mortality rates. The best estimate assumptions for future policy growth include assumptions for expected index credits on the next policy anniversary date which are derived from fair values of the underlying equity call options purchased to fund such index credits and the present value of expected costs of annual call options purchased in the future by us to fund index credits beyond the next policy anniversary. The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as assumptions used to project policy contract values.

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The following table presents the Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022.

			Significant
	Quoted		Other		Significant
	In Active		Observable		Unobservable				Estimated
	Markets		Inputs		Inputs		Net Asset		Fair
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Value		Value
June 30, 2023
Financial assets
Fixed maturity securities:
Bonds
U.S. government obligations	$	-	$	1,651	$	-	$	-	$	1,651
Mortgage-backed securities		-		426,214		-		-		426,214
Asset-backed securities		-		40,218		-		-		40,218
Collateralized loan obligations		-		338,866		-		-		338,866
States and political subdivisions-general obligations		-		125		-		-		125
States and political subdivisions-special revenue		-		-		-		-		-
Corporate		-		48,923		-		-		48,923
Term loans		-		-		682,915		-		682,915
Total fixed maturity securities		-		855,997		682,915		-		1,538,912
Mortgage loans on real estate, held for investment		-		-		352,908		-		352,908
Derivatives		-		36,861		-		-		36,861
Equity securities		-		5,144		-		-		5,144
Other invested assets		-		-		95,138		12,764		107,902
Preferred stock		-		9,952		23,853		-		33,805
Deposits and notes receivable		-		8,041		2,971		-		11,012
Policy loans		-		-		55		-		55
Total investments	$	-	$	915,995	$	1,157,840	$	12,764	$	2,086,599
Financial liabilities
Embedded derivative for equity-indexed contracts	$	—	$	—	$	142,800	$	—		142,800
December 31, 2022
Financial assets
Fixed maturity securities:
Bonds
U.S. government obligations	$	—	$	1,262	$	—	$	—	$	1,262
Mortgage-backed securities		—		294,066		—		—		294,066
Asset-backed securities		—		30,756		—		—		30,756
Collateralized loan obligations		—		287,673		—		—		287,673
States and political subdivisions-general obligations		—		101		—		—		101
States and political subdivisions-special revenue		—		205		—		—		205
Corporate		—		41,600		—		—		41,600
Term loans		—		—		558,972		—		558,972
Total fixed maturity securities		—		655,663		558,972		—		1,214,635
Mortgage loans on real estate, held for investment		—		—		227,047		—		227,047
Derivatives		—		15,934		—		—		15,934
Equity securities		—		5,111		—		—		5,111
Other invested assets		—		—		99,997		12,434		112,431
Preferred stock		—		9,544		21,871		—		31,415
Investment escrow		—		784		—		—		784
Federal Home Loan Bank stock		—		—		1,306		—		1,306
Notes receivable		—		6,269		—		—		6,269
Deposits and notes receivable		—		7,053		1,306		—		8,359
Policy loans		—		—		25		—		25
Total investments	$	—	$	693,305	$	909,218	$	12,434	$	1,614,957
Financial liabilities
Embedded derivative for equity-indexed contracts	$	—	$	—	$	111,618	$	—		111,618

There were no transfers of financial instruments between any levels during the six months ended June 30, 2023 or the year ended December 31, 2022.

Accounting standards require disclosure of 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 basis are discussed

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above. As of June 30, 2023 or December 31, 2022, there were no financial assets or financial liabilities measured at fair value on a non-recurring basis.

The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy, for financial assets and financial liabilities as of June 30, 2023 and December 31, 2022, respectively:

	June 30, 2023
			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical Assets		Observable		Unobservable
	Carrying		and Liabilities		Inputs		Inputs		Fair
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Policy loans	$	55	$	—	$	—	$	55	$	55
Cash		194,275		194,275		—		—		194,275
Liabilities:
Policyholder deposits (deposit-type contracts)		2,218,725		—		—		2,218,725		2,218,725

	December 31, 2022
			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical Assets		Observable		Unobservable
	Carrying		and Liabilities		Inputs		Inputs		Fair
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Policy loans	$	25	$	—	$	—	$	25	$	25
Cash		191,414		191,414		—		—		191,414
Liabilities:
Policyholder deposits (deposit-type contracts)		1,743,348		—		—		1,743,348		1,743,348

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The following table presents a reconciliation of the beginning balance for all assets and liabilities measured at fair value on a recurring basis using level three inputs during the six months ended June 30, 2023:

	June 30, 2023
			Total realized and unrealized gains (losses)
	Beginning Balance			Included in Income	Included in OCI		Net Purchases, Issuances, Sales, and Settlements		Ending Balance
(In thousands)
Assets
Term loans	$	558,972	$	-	$	(4,947)	$	129,377	$	683,402
Mortgage loans on real estate,
held for investment		227,047		-		-		125,861		352,908
Deposits and notes receivable		1,306		-		-		1,665		2,971
Other invested assets		99,997		-		2,096		(6,955)		95,138
Preferred stock		21,871		(4,220)		-		6,202		23,853
Policy loans		25		-		-		30		55
Total level 3 assets	$	909,218	$	(4,220)	$	(2,851)	$	256,180	$	1,158,327
Liabilities
Embedded derivative for equity-indexed contracts		(111,618)		30,115		-		(61,297)		(142,800)
Total level 3 liabilities	$	(111,618)	$	30,115	$	-	$	(61,297)	$	(142,800)

The following tables present a reconciliation of the beginning balance for all investments measured at fair value on a recurring basis using level three inputs during the year ended December 31, 2022:

	December 31, 2022
			Total realized and unrealized gains (losses)
(In thousands)	Beginning Balance			Included in Income	Included in OCI		Net Purchases, Issuances, Sales, and Settlements		Ending Balance
Assets
Term loans	$	267,468	$	-	$	(2,683)	$	294,187	$	558,972
Mortgage loans on real estate,
held for investment		183,203		-		-		43,844		227,047
Deposits and notes receivable		500		-		-		806		1,306
Other invested assets		35,293		-		3,452		61,252		99,997
Preferred stock		18,686		-		(4,229)		7,414		21,871
Policy loans		87		-		-		(62)		25
Total level 3 assets	$	505,237	$	-	$	(3,460)	$	407,441	$	909,218
Liabilities
Embedded derivative for equity-indexed contracts		(123,692)		(10,193)		-		22,267		(111,618)
Total level 3 liabilities	$	(123,692)	$	(10,193)	$	-	$	22,267	$	(111,618)

Significant Unobservable Inputs—Significant unobservable inputs occur when we could not obtain or corroborate the quantitative detail of the inputs. This applies to fixed maturity securities, preferred stock, mortgage loans and certain derivatives, as well as embedded derivatives in liabilities. Additional significant unobservable inputs are described below.

Interest sensitive contract liabilities – embedded derivative – Significant unobservable inputs we use in the fixed indexed annuities embedded derivative of the interest sensitive contract liabilities valuation include:

● Nonperformance risk – For contracts we issue, we use the credit spread, relative to the US Department of the Treasury (Treasury) curve based on our public credit rating as of the valuation date. This represents our credit risk for use in the estimate of the fair value of embedded derivatives.

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● Option budget – We assume future hedge costs in the derivative’s fair value estimate. The level of option budgets determines the future costs of the options and impacts future policyholder account value growth.

● Policyholder behavior – We regularly review the lapse and withdrawal assumptions (surrender rate). These are based on our initial pricing assumptions updated for actual experience. Actual experience may be limited for recently issued products.

Preferred equity and warrants – Significant unobservable inputs we use include surrender rate, discount rates, EBITDA Multiples, current performance data, proprietary pricing models, real-time quotes from contributing dealers, and other market data.

● EBITDA Multiple -The warrants valued using a market approach guideline public company method ("GCPM") using a multiplier of EBITDA.

● Discount Rates - For the preferred equity, discounted cash flow models are used to assist with the calculation the fair value.

Other Invested Assets – Valuations are performed through a combination of EBITDA analysis, comparable transaction analysis, and discounted cash flow analysis. Unobservable inputs for these approaches include recent actual or pending transactions, yields of similar debt instruments, and subject company leverage and financial.

● EBITDA Multiple -The other invested assets valued using a market approach guideline public company method ("GCPM") using a multiplier of EBITDA.

● Discount Rates - For the other invested assets, discounted cash flow models are used to assist with the calculation the fair value.

Term Loans – Significant unobservable inputs include yield analysis. Significant unobservable inputs we use include discount rates.

Mortgage Loans – Fair value of mortgage loan assets are valued at principal funded, plus any property related direct expenses that contractually can be added.

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The following summarizes the unobservable inputs for available for sale and trading securities and the embedded derivatives of fixed indexed annuities and preferred stock (with associated detachable warrants):

	June 30, 2023
(In millions, except for percentages and multiples)	Fair value	Valuation technique	Unobservable inputs	Minimum	Maximum	Weighted average*	Impact of an increase in the input on fair value
Term loans	$682.9	Yield Analysis	Discount rates	4.6%	17.3%	12.4%	Decrease
Mortgage loans on real estate	$352.9	Yield Analysis	Principal funded	NA	NA	NA	Decrease
Interest sensitive contract liabilities - fixed indexed annuities embedded derivatives	$142.8	Option Budget Method	Nonperformance risk	0.6%	1.5%	1.1%	Decrease
			Option budget	1.1%	5.9%	2.9%	Increase
			Surrender rate	0.5%	15% (base) 30% (add'l shock)	12.5%	Decrease
Other invested assets	$95.1	Market Approach	EBITDA Multiples	2.6x	3.1x	2.8x	NA
			Discount rates	8.0%	25.5%	14.5%	NA
Preferred stock	$9.7	Yield Analysis	Discount rates	24.0%	28.0%	26.0%	Increase
Detachable warrants	$2.4	Market Approach GPCM	EBITDA Multiples	10.0x	11.5x	100.0%	Decrease
Preferred stock	$11.8	Market Approach	EBITDA Multiples	2.55x	3.05x	2.8x	Decrease
* Weighted by account value

	December 31, 2022
(In millions, except for percentages and multiples)	Fair value	Valuation technique	Unobservable inputs	Minimum	Maximum	Weighted average*	Impact of an increase in the input on fair value
Term loans	$559.0	Yield Analysis	Discount rates	4.6%	17.3%	12.4%	Decrease
Mortgage loans on real estate	$227.0	Yield Analysis	Principal funded	NA	NA	NA	Decrease
Interest sensitive contract liabilities - fixed indexed annuities embedded derivatives	$111.6	Option Budget Method	Nonperformance risk	0.6%	1.5%	1.1%	Decrease
			Option budget	1.1%	5.7%	2.7%	Increase
			Surrender rate	0.5%	15% (base) 30% (add'l shock)	10.5%	Decrease
Other invested assets	$100.0	Market Approach	EBITDA Multiples	2.6x	3.1x	2.8x	NA
			Discount rates	8.0%	25.5%	14.5%	NA
Preferred equity	$6.1	Yield Analysis	Discount rates	24.0%	28.0%	26.0%	Increase
Detachable warrants	$2.2	Market Approach GPCM	EBITDA Multiples	10.0x	11.5x	100.0%	Decrease
Preferred stock	$31.4	Market Approach	EBITDA Multiples	2.55x	3.05x	2.8x	Decrease
* Weighted by account value

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Note 6. Deposit-Type Contracts

The Company’s deposit-type contracts represent the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. Liabilities for these 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. The following table provides information about deposit-type contracts for the six months ended June 30, 2023 and the year ended December 31, 2022:

(In thousands)	June 30, 2023		December 31, 2022
Beginning balance	$	1,743,348	$	1,075,439
US Alliance		(634)		(2,176)
Unified Life Insurance Company		-		(10)
Ironbound Reinsurance Company Limited		3,134		5,959
Ascendant Re		145		(3,185)
Crestline SP1		2,490		(11,623)
American Republic Insurance Company		2,735		(4,080)
SRC4		2,791		613
Deposits received		494,532		745,083
Investment earnings (includes embedded derivative)		30,115		(10,193)
Withdrawals		(59,931)		(51,659)
Policy charges		-		(820)
Ending balance	$	2,218,725	$	1,743,348

In addition, membership in FHLB provides the Company with access to additional short-term liquidity based on the level of investment in FHLB stock and pledged collateral. At June 30, 2023 and December 31, 2022 funding agreements of $66.0 million and $29.0 million were outstanding.

Note 7. Debt

On November 22, 2022, the Company entered into a three-year senior secured revolving credit agreement (“Credit Agreement”) with Royal Bank of Canada and other lenders with a capacity of $30 million (the “Revolving Credit Facility”). The maturity date of the Credit Agreement is November 22, 2025. The obligations under the Credit Agreement are secured by a first priority lien on a variety of the Company’s assets. The balance of the revolving credit was $25.0 million at June 30, 2023, and December 31, 2022, with $5.0 million unutilized credit.

Under the terms of the Credit Agreement, the Company has the option of selecting an applicable variable interest rate of (a) an adjusted term standard overnight financing rate (“SOFR”), plus an applicable margin or (b) a base rate, plus an applicable margin. Depending on our debt to capitalization ratio, the applicable margin can range from 2.50% to 3.25% for the base rate and from 3.50% to 4.25% for an adjusted term SOFR loan. Interest paid for the three months ended June 30, 2023 and 2022 was $0.5 million and $0.0 million respectively. Interest paid for the six months ended June 30, 2023 and 2022 was $1.1 million and $0.0 million respectively.

The terms of the Credit Agreement require the Company to maintain, among other things, certain financial measures including:

● Consolidated debt to capitalization must not be greater than 35% on the last day of any fiscal quarter;

● Risk-based capital of American Life & Security Corp. must not be less than 300% on the last day of any fiscal quarter;

● Consolidated liquidity must not be less than $3.0 million at any time; and

● The strength rating of American Life & Security Corp. from A.M. Best must not fall below “B++”.

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Note 8. Reinsurance

A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of June 30, 2023 and December 31, 2022 is as follows:

(In thousands)	June 30, 2023		December 31, 2022
Assets:
Reinsurance recoverables	$	39,899	$	20,190
Liabilities:
Deposit-type contracts
Direct	$	2,218,725	$	1,743,348
Reinsurance ceded		(1,123,475)		(912,982)
Retained deposit-type contracts	$	1,095,250	$	830,366

The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by third-party reinsurers as of June 30, 2023:

							Recoverable/				Total Amount
			Recoverable		Recoverable		(Payable) on Benefit		Ceded		Recoverable/
(In thousands)	AM Best		on Paid		on Unpaid		Reserves/Deposit-		Due		(Payable) to/from
Reinsurer	Rating		Losses		Losses		type Contracts		Premiums		Reinsurer
Ironbound Reinsurance Company Limited		NR	$	-	$	-	$	5,338	$	-	$	5,338
Optimum Re Insurance Company		A		-		-		690		-		690
Sagicor Life Insurance Company		A-		-		238		10,626		(326)		10,538
Ascendant Re		NR		-		-		(3,906)		-		(3,906)
Crestline SP1		NR		-		-		(14,352)		-		(14,352)
American Republic Insurance Company		A		-		-		3,364		-		3,364
SRC4		NR		-		-		(12,749)		-		(12,749)
Unified Life Insurance Company		NR		-		25		991		(14)		1,002
US Alliance Life and Security Company		NR		-		-		49,997		(23)		49,974
			$	-	$	263	$	39,999	$	(363)	$	39,899

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The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by third-party reinsurers as of December 31, 2022:

							Recoverable on				Total Amount
			Recoverable		Recoverable		Benefit		Ceded		Recoverable
(In thousands)	AM Best		on Paid		on Unpaid		Reserves/Deposit-		Due		from
Reinsurer	Rating		Losses		Losses		type Contracts		Premiums		Reinsurer
Ironbound Reinsurance Company Limited		NR	$	-	$	-	$	(344)	$	-	$	(344)
Optimum Re Insurance Company		A		-		-		601		-		601
Sagicor Life Insurance Company		A-		-		154		10,744		(303)		10,595
Ascendant Re		NR		-		-		(2,130)		-		(2,130)
Crestline SP1		NR		-		-		(3,357)		-		(3,357)
American Republic Insurance Company		A		-		-		5,879		-		5,879
SRC4		NR		-		-		(44,442)		-		(44,442)
Unified Life Insurance Company		NR		-		41		986		(17)		1,010
US Alliance Life and Security Company		NR		-		-		52,400		(22)		52,378
			$	-	$	195	$	20,337	$	(342)	$	20,190

Our securities positions resulted in changes in the unrealized loss position as of June 30, 2023, compared to December 31, 2022, that is reported in accumulated other comprehensive (loss) income on the Consolidated Balance Sheets. As discussed in Note 1, American Life has treaties with several third-party reinsurers that have FW and Modco provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral but the assets and total gains or (losses) on the asset portfolios belong to the third-party reinsurers. Under GAAP this arrangement is considered an embedded derivative as discussed in Note 4.

On June 26, 2021, the NDOI issued its non-disapproval of the Modified Coinsurance Agreement (“Modco AEG Agreement”) with American Republic Insurance Company (“AEG”), an Iowa domiciled reinsurance company. The agreement was executed on June 29, 2021. Under the Modco AEG Agreement, American Life initially ceded to AEG (and subsequently renewed), on a modified coinsurance basis, a 20% quota share of certain liabilities with respect to its MYGA-5 business and an initial 20% quota share of certain liabilities with respect to its FIA business. Effective February 28, 2023, AEG elected not to extend its commitment period for reinsuring liabilities under its Modco AEG Agreement; as a result, AEG’s current quota share with respect to MYGA and FIA policies is 0%. The Modco AEG Agreement remains in place, and AEG remains responsible for previously ceded liabilities.

On November 10, 2021, the NDOI issued its non-disapproval of the Funds Withheld and Modified Coinsurance Agreement with SRC3, whereby SRC3 agreed to provide reinsurance funding for a quota share percentage of 45% of the liabilities of American Life arising from its MYGA products and a quota share percentage of 45% of the liabilities of American Life arising from its FIA products. In the fourth quarter of 2022, the agreement with SRC3 was again amended to provide one-time reinsurance funding for $10.0 million of the liabilities of American Life arising from its 10-year FIA products.

On September 21, 2022, the NDOI issued its approval of the conversion of American Life’s agreement with US Alliance to convert its block of business from a Funds Withheld agreement to a Funds Paid Coinsurance agreement. The conversion was effective as of October 1, 2022, and was triggered by US Alliance becoming a Qualified Institutional Buyer as specified in the original agreement. Upon conversion, American Life began transferring assets held on behalf of US Alliance to the reinsurer, with a corresponding entry made to Amounts Recoverable. The approximate value of assets transferred was $37.9 million.

On September 30, 2022, American Life entered into a reinsurance agreement (the “Reinsurance Agreement”) with a new protected cell formed by Seneca Re (Seneca Incorporated Cell, LLC 2022-04 (“SRC4”)). SRC4 was capitalized by loans from Embrace Software, Inc. and Tillman Networks LLC. The Reinsurance Agreement was effective as of July 1, 2022, by and between American Life and SRC4. The Reinsurance Agreement supports American Life’s new business production by providing reinsurance capacity for American Life to write certain kinds of fixed indexed and multi-year guaranteed annuity products. Under the Reinsurance Agreement, SRC4 initially agreed to provide reinsurance funding for a quota share percentage of 45% of the liabilities of American Life arising from its MYGA-5 products and a quota share percentage of 10% of the liabilities of American Life arising from its MYGA-3 products. American Life has established a Modco Deposit Account, a Funds Withheld custody account, and a Trust Account pursuant to the Reinsurance Agreement. The initial settlement included net premium of $21.4 million and net reserves of $21.5 million for the modified coinsurance account. Also on September 30, 2022, American Life entered into an Investment Management Agreement (“IMA”) with CoVenture Management, LLC (“CoVenture”) naming CoVenture as the manager of certain assets held by American Life on behalf of SRC4.

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The tables below shows the ceding commissions from the reinsurers, excluding SRC1 and SRC3, and what was earned on a GAAP basis for the three and six months ended June 30, 2023 and 2022:

	Three months ended June 30,
(In thousands)	2023								2022
Reinsurer	Gross Ceding Commission		Expense Allowance(1)		Interest on Ceding Commission		Earned Ceding Commission		Gross Ceding Commission		Expense Allowance		Interest on Ceding Commission		Earned Ceding Commission
Unified Life Insurance Company	$	—	$	—	$	—	$	9	$	-	$	-	$	-	$	6
Ironbound Reinsurance Company Limited		—		—		43		125		-		-		49		144
Ascendant Re		181		175		23		100		-		-		23		77
US Alliance Life and Security Company		—		—		11		73		-		-		14		76
Crestline Re SP 1		771		716		193		758		1,491		2,401		88		559
American Republic Insurance Company		1		48		84		257		1,026		1,774		30		197
SRC4		2,514		2,401		86		176		-		-		-		-
	$	3,467	$	3,340	$	440	$	1,498	$	2,517	$	4,175	$	204	$	1,059

	Six months ended June 30,
(In thousands)	2023								2022
Reinsurer	Gross Ceding Commission		Expense Allowance(1)		Interest on Ceding Commission		Earned Ceding Commission		Gross Ceding Commission		Expense Allowance		Interest on Ceding Commission		Earned Ceding Commission
Unified Life Insurance Company	$	—	$	—	$	—	$	11	$	—	$	—	$	—	$	14
Ironbound Reinsurance Company Limited		—		—		93		253		—		—		98		258
Ascendant Re		181		175		46		185		—		—		47		163
US Alliance Life and Security Company		—		—		25		156		—		—		28		163
Crestline SP1		1,805		1,631		272		1,640		2,525		4,231		168		1,065
American Republic Insurance Company		560		753		106		562		1,827		3,227		52		349
SRC4		3,881		3,614		86		264		—		—		—		—
	$	6,427	$	6,173	$	628	$	3,071	$	4,352	$	7,458	$	393	$	2,012

(1) Includes: acquisition and administrative expenses, commission expense allowance and product development fees.

The table below shows the ceding commissions deferred on each reinsurance transaction on a GAAP basis:

(In thousands)	June 30, 2023		December 31, 2022
Reinsurer	Deferred Gain on Reinsurance Transactions		Deferred Gain on Reinsurance Transactions
US Alliance Life and Security Company(1)	$	-	$	152
Unified Life Insurance Company(1)		352		217
Ironbound Reinsurance Company Limited(2)		4,811		4,876
Ascendant Re		3,104		2,947
US Alliance Life and Security Company(2)		2,025		2,069
American Republic Insurance Company(2)		7,684		7,502
Crestline SP1(2)		19,346		18,475
SRC4(2)		5,892		1,825
	$	43,214	$	38,063

1) These reinsurance transactions on our legacy life insurance business received gross ceding commissions on the effective dates of the transaction. The difference between the statutory net adjusted reserves and the GAAP adjusted reserves plus the elimination of DAC and value of business acquired related to these businesses reduces the gross ceding commission with the remaining deferred and amortized over the lifetime of the blocks of business.

2) These reinsurance transactions include the ceding commissions and expense allowances which are accounted for as described in (1).

The use of reinsurance does not relieve American Life of its primary liability to pay the full amount of the insurance benefit in the event of the failure of a reinsurer to honor its contractual obligation for all blocks of business except what is included in the Unified transaction. The reinsurance agreement with Unified discharges American Life’s responsibilities once all the policies have changed from indemnity to assumptive reinsurance. No reinsurer of business ceded by American Life has failed to pay policy claims (individually or in the aggregate) with respect to our ceded business.

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American Life monitors several factors that it considers relevant to satisfy itself as to the ongoing ability of a reinsurer to meet all obligations of the reinsurance agreements. These factors include the credit rating of the reinsurer, the financial strength of the reinsurer, significant changes or events of the reinsurer, and any other relevant factors. If American Life believes that any reinsurer would not be able to satisfy its obligations with American Life, separate contingency reserves may be established. As of June 30, 2023 or December 31, 2022, no contingency reserves were established.

American Life expects to reinsure a significant portion of its new insurance policies with a variety of reinsurers in exchange for upfront ceding commissions, expense reimbursements and administrative fees. American Life may retain some business with the intent to reinsure some or all at a future date.

Retained and Reinsured Balance Sheets

The tables below shows the retained and reinsurance consolidated balance sheets:

	June 30, 2023						December 31, 2022
(In thousands)	Retained		Reinsured		Consolidated		Retained		Reinsured		Consolidated
Assets
Total investments	$	1,104,198	$	982,401	$	2,086,599	$	812,177	$	802,780	$	1,614,957
Cash and cash equivalents		125,156		69,119		194,275		127,291		64,123		191,414
Deferred acquisition costs, net		57,604		-		57,604		43,433		-		43,433
Premiums receivable		-		372		372		-		-		-
Accrued investment income		14,648		20,402		35,050		11,307		13,858		25,165
Reinsurance recoverables		(62,609)		102,508		39,899		(6,853)		27,405		20,552
Property and equipment, net		1,811		-		1,811		1,897		-		1,897
Receivable for securities sold		441		-		441		2,033		8,485		10,518
Other assets		9,255		2,735		11,990		12,259		236		12,495
Total assets	$	1,250,504	$	1,177,537	$	2,428,041	$	1,003,544	$	916,887	$	1,920,431
Liabilities and Stockholders’ Equity
Liabilities:
Benefit reserves	$	944	$	11,702	$	12,646	$	1,332	$	11,613	$	12,945
Deposit-type contracts		1,103,844		1,114,881		2,218,725		841,980		901,368		1,743,348
Other policy-holder funds		6,069		405		6,474		4,105		-		4,105
Notes payable		25,000		-		25,000		25,000		-		25,000
Deferred gain on coinsurance transactions		231		42,983		43,214		38,063		-		38,063
Payable for securities sold		44,656		-		44,656		8,872		-		8,872
Other liabilities		40,460		7,566		48,026		49,815		3,906		53,721
Total liabilities	$	1,221,204	$	1,177,537	$	2,398,741	$	969,167	$	916,887	$	1,886,054
Stockholders’ Equity:
Preferred stock	$	-	$	-	$	-	$	-	$	-	$	-
Voting common stock		4		-		4		4		-		4
Additional paid-in capital		139,085		-		139,085		138,482		-		138,482
Treasury stock		(175)		-		(175)		(175)		-		(175)
Accumulated deficit		(67,746)		-		(67,746)		(63,019)		-		(63,019)
Accumulated other comprehensive loss		(57,433)		-		(57,433)		(51,386)		-		(51,386)
Total Midwest Holding Inc.'s stockholders' equity	$	13,735	$	-	$	13,735	$	23,906	$	-	$	23,906
Noncontrolling interest		15,565		-		15,565		10,471		-		10,471
Total stockholders' equity		29,300		-		29,300		34,377		-		34,377
Total liabilities and stockholders' equity	$	1,250,504	$	1,177,537	$	2,428,041	$	1,003,544	$	916,887	$	1,920,431

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Note 9. Income Tax Matters

Significant components of the Company’s deferred tax assets and liabilities as of June 30, 2023 and December 31, 2022 are as follows:

(In thousands)	June 30, 2023		December 31, 2022
Deferred tax assets:
Loss carryforwards	$	4,519	$	2,672
Capitalized costs		55		79
Stock option granted		1,193		1,066
Policy acquisition costs		8,205		6,489
General business credits		6		6
Derivative option allowance		310		-
Sec 163(j) limitation		171		171
Benefit reserves		10,478		12,010
Impairments		535		403
Unrealized losses on investments		15,267		13,624
Other		1,928		1,928
Total deferred tax assets		42,667		38,448
Less valuation allowance		(40,729)		(35,305)
Total deferred tax assets, net of valuation allowance		1,938		3,143
Deferred tax liabilities:
Intangible assets		147		147
Derivative option allowance		-		2,150
Bond Discount		1,912		936
Property and equipment		(121)		(90)
Total deferred tax liabilities		1,938		3,143
Net deferred tax assets	$	-	$	-

At June 30, 2023 and December 31, 2022, the Company recorded a valuation allowance of $40.7 million and $35.3 million, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry forwards are expected to be available to reduce taxable income.

There was income tax expense of $3 million and $2.1 million for the three months ended June 30, 2023 and 2022. and $5.9 million and $2.6 million of tax expense for the six months ended June 30, 2023 and 2022. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to pretax income, as a result of the following:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Computed expected income tax benefit (expense)	$	428	$	(409)	$	(2,357)	$	(1,508)
Reduction (increase) in income taxes resulting from:
Interest maintenance reserve and reinsurance		(18)		61		51		(18)
Nondeductible expenses		(3)		(3)		(6)		(5)
Change in valuation allowance		(3,593)		2,480		(3,781)		(1,052)
Deferred tax adjustment		-		(4)		-		(14)
AETR adjustment		76		-		76		-
Prior year true-up		141		-		141		-
Subtotal of (increases) decreases		(3,397)		2,534		(3,519)		(1,089)
Tax (benefit) expense	$	(2,969)	$	2,125	$	(5,876)	$	(2,597)

Section 382 of the Internal Revenue Code limits the utilization of U.S. net operating loss (“NOL”) carryforwards following a change of control, which occurred on June 28, 2018. As of June 30, 2023, the deferred tax assets included the expected tax benefit attributable to federal NOLs of $7.9 million. The federal NOLs generated by Midwest Holding and American Life prior to June 28, 2018 which are subject to the Section 382 limitation can be carried forward. If not utilized, the NOLs of $1.0 million prior to 2017 will expire through the year of 2032.

The NOLs generated by SRC1 prior to December 30, 2021 of less than $0.1 million are subject to Section 382 limitations due to the change in control. However, under the Tax Cuts and Jobs Act of 2017, they will not expire and can be carried forward indefinitely.  The NOLs not subject to Section 382 which were generated from June 28, 2018 to December 31, 2022 do not expire and will carry forward indefinitely, however their utilization in any carry forward year is limited to 80% of taxable income in that year. The Company believes that it is more likely than not that the benefit from federal NOL carryforwards will not be realized; thus, we have recorded a full valuation allowance of $1.7 million on the deferred tax assets related to these federal NOL carryforwards.

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Note 10. Leases

Our operating lease activities consist of leases for office space and equipment and do not include variable lease payments. The right of use assets and lease liabilities generated by our lease agreements are included in on the Consolidated Balance Sheets in the Other Assets and Other Liabilities categories, respectively.

Supplemental balance sheet information for our leases as of June 30, 2023 and December 31, 2022 is as follows:

(In thousands)	Classification	June 30, 2023		December 31, 2022
Assets
Operating	Operating lease right-of-use assets	$	2,083	$	2,119
Liabilities
Operating lease	Operating lease liabilities	$	2,106	$	2,135

Our operating lease expense for the three and six months ended June 30, 2023 and 2022 is as follows:

		Three months ended June 30,				Six months ended June 30,
(In thousands)	Classification	2023		2022		2023		2022
Operating	General and administrative expense	$	3	$	3	$	7	$	7

Minimum contractual obligations for our leases as of June 30, 2023 are as follows:

(In thousands)	Operating Leases
2023	$	224
2024		378
2025		342
2026		345
2027		353
2028		362
2029 and after		1,041
Total remaining lease payments	$	3,045

The cash flows related to the operating lease were less than $0.1 million for both the six months ended June 30, 2023 and 2022.

The weighted average remaining lease terms of our operating leases were approximately eight-and-one-half years and ten years, respectively, as of June 30, 2023 and December 31, 2022. The weighted average discount rate used to determine the lease liabilities for operating leases was 8% as of June 30, 2023 and December 31, 2022, respectively. The discount rate used for operating leases was based on our incremental borrowing rate.

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Note 11. Equity

Preferred stock

As of June 30, 2023 and December 31, 2022, the Company had two million shares of preferred stock authorized with none issued or outstanding.

Common Stock

Our voting common stock is traded on The Nasdaq Capital Market under the symbol “MDWT.” Midwest has authorized 20 million shares of voting common stock and two million shares of non-voting common stock. As of June 30, 2023 and December 31, 2022, Midwest had 3,744,645 and 3,727,976 shares of voting common stock issued and outstanding, respectively. As of those dates, there were no shares of Midwest’s non-voting common stock issued or outstanding.

Midwest holds approximately 4,500 shares of voting common stock in its treasury due to a reverse stock split.

Additional paid-in capital

Additional paid-in capital is primarily comprised of the cumulative cash that exceeds the par value received by the Company in conjunction with past issuances of its shares. It also is increased by the amortization expense of the consideration calculated at inception of the stock option grants as discussed in Note 12 – Long-Term Incentive Plans below.

Accumulated Other Comprehensive Income (AOCI)

AOCI represents the cumulative other comprehensive income (loss) items that are reported separate from net loss and detailed on the Consolidated Statements of Comprehensive Loss. AOCI includes the unrealized gains and losses on certain investments and DAC, net of offsets and taxes as follows:

(In thousands)	Unrealized investment gains (losses) on fixed maturities, net of offsets
Balance at December 31, 2021	$	2,634
Other comprehensive (loss) before reclassifications, net of tax		(54,975)
Less: Reclassification adjustments for losses realized in net income		955
Balance, December 31, 2022		(51,386)
Other comprehensive (loss) before reclassifications, net of tax		(6,230)
Less: Reclassification adjustments for losses realized in net income, net of tax		183
Balance, June 30, 2023	$	(57,433)

Note 12. Long-Term Incentive Plans

In 2019, the Board approved the Midwest Holding Inc. (“MHI”) Long-Term Incentive Plan (the “2019 Plan”) that reserves up to 102,000 shares of MHI voting common stock for award issuances. It provides for the grant of options, restricted stock awards, restricted stock units, stock appreciation rights, performance units, performance bonuses, stock awards, and other incentive awards to eligible employees, consultants and eligible directors, subject to the conditions set forth in the 2019 Plan. In 2019, the shareholders of MHI approved the 2019 Plan. All awards are required to be established, approved, and/or granted by the Compensation Committee of the Board.

In 2020, the Board adopted a new equity incentive plan titled the 2020 Long-Term Incentive Plan (the “2020 Plan”) that reserves up to 350,000 shares of MHI voting common stock for award issuances. The terms of the 2020 Plan are essentially the same as the 2019 Plan. In 2021, the shareholders of MHI approved the 2020 Plan. During 2022, the Board approved the addition of 150,000 shares of voting common stock to be added to the 2020 Plan for future awards and these shares were approved by the shareholders of MHI.

Stock Options

In accordance with the stockholder-approved equity incentive plans above, the Company grants stock options to employees and directors for the purchase of common stock at exercise prices established at the date of the grants. Fair value and compensation at

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grant date are calculated using the Black Scholes Model. Compensation expense for option shares is expensed on a straight-line basis over the requisite service periods, accounting for forfeitures as they occur. Stock options become exercisable under various vesting schedules (typically two to four years) and generally expire in ten years after the date of grant. The exercise price of the option is equal to the average daily market price of MHI’s common stock on the date of grant resulting in a grant date intrinsic value of $0.00.

Changes in outstanding options were as follows:

		Weighted Average Exercise Price Per Share		Range of Option Exercise Prices per Share	Total Outstanding	Outstanding, Non-vested	Vested and Exercisable
December 31, 2022	$	32.19	$	11.20 - 55.02	319,121	271,517	47,604
Granted		17.12		17.20	5,750	5,750	-
Prior year adjustment		39.38		16.37 - 55.02	-	(7,390)	7,390
Vested		-		-	-	-	-
Exercised		-		-	-	-	-
Forfeited		36.73		25.00 - 55.02	(4,150)	(4,150)	-
Expired		-		-	-	-	-
June 30, 2023	$	31.85	$	11.20 - 55.02	320,721	265,727	54,994

Option information segregated by ranges of exercise prices were as follows:

	June 30, 2023
	Total Outstanding Options				Vested and Exercisable
Range of Option Exercise Prices per Share	Options		Weighted Average Exercise Price per Share	Weighted Average Remaining Term	Options		Weighted Average Exercise Price per Share	Weighted Average Remaining Term
> $50.00	49,353	$	55.02	7.71	7,390	$	55.02	7.59
$40.00 - $49.99	127,751		41.25	7.69	36,042		41.25	7.59
$30.00 - $39.99	-		-	-	-		-	-
$20.00 - $29.99	25,967		23.16	7.64	5,877		25.00	7.28
$10.00 - $19.99	115,000		13.43	9.00	4,285		16.37	7.59
< $10.00	-	$	-	-	-	$	-	-

The weighted average exercise prices of vested and exercisable options as of June 30, 2023, were $39.38.

As of June 30, 2023, based on a closing stock price of $26.32 per share, the aggregate intrinsic (in-the-money) values of vested options and all options outstanding were $0.6 million and $1.6 million, respectively.

Restricted Stock and Restricted Stock Units

In 2020, the Company awarded 18,597 shares of restricted stock, with a grant date fair value of $41.25 per share and subject to time-based vesting requirements of one-fourth increments sixty days after each of the first four anniversary dates of the grant date. The restricted stock compensation expense is calculated using the stock prices at grant date and amortizing on a straight-line basis over the requisite service periods. The recipient of the award resigned on March 31, 2022, and received a total of 5,812 vested shares in connection with his termination of employment, while the remaining 12,785 shares of restricted stock were forfeited.  

5,089 restricted stock units (“RSUs”) were granted to our non-employee directors in June 2021 with a grant date fair value of $24.34 per share and vested on June 14, 2022, the date of the Company’s 2022 annual meeting of stockholders.  The compensation expense relating to these awards was calculated using the grant date fair value and is amortizing on a straight-line basis over the requisite service periods.  

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On June 14, 2022, the Company granted 18,718 RSUs to our non-employee directors with a grant date fair value of $11.22 per share, although 2,674 of those RSUs were forfeited by former MHI director Douglas Bratton when he left the Board in September 2022. The remaining 16,044 RSUs vested on June 6, 2023 in conjunction with our annual stockholders meeting. The compensation expense relating to these awards was calculated using the grant date fair value and was amortized on a straight-line basis over the requisite service periods.

On June 6, 2023, the Company granted 6,984 RSUs to our non-employee directors with a grant date fair value of $25.70 per share. By their terms, the RSUs will vest on the earlier of June 6, 2024 or the date of our 2024 annual stockholders meeting, although they are also subject to accelerated vesting in connection with the transaction described in Note 18. The compensation expense relating to these awards was calculated using the grant date fair value and will be amortized on a straight-line basis over the requisite service period.

	Total Outstanding Units			Vested Units
	Units		Weighted Average Grand Date Fair Value	Units		Weighted Average Grant Date Fair Value
December 31, 2022	17,207	$	13.84	1,163	$	50.00
Granted	6,984		25.76	-		-
Vested	-		-	-		-
Forfeited	-		-	-		-
Released	(16,044)		11.22	-		-
June 30, 2023	8,147	$	22.08	1,163	$	50.00

The table below identifies the assumptions used in the Black Scholes Model to calculate the compensation expense for options granted during the six months ended June 30, 2023 and the year ended December 31, 2022:

	June 30,	December 31,
	2023	2022
Volatility	287.3%	4.16% - 4.26%
Weighted-average volatility	287.3%	3.7%
Expected term (in years)	6.54 yrs	2 - 7
Risk-free rate	3.57%	0.02% - 2.15%

For the three months ended June 30, 2023 and 2022, we amortized the compensation expense related to the 2019 and 2020 Plans, from the stock grants above, over vesting tranches which resulted in expense and an increase in additional paid in capital of $0.3 million and $0.4 million, respectively.

For the six months ended June 30, 2023 and 2022, we amortized the compensation expense related to the 2019 and 2020 Plans, from the stock grants above, over vesting tranches which resulted in expense and an increase in additional paid in capital of $0.6 million and $0.4 million, respectively.

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The tables below shows the remaining non-vested shares under the 2019 and 2020 Plans as of June 30, 2023 and December 31, 2022, respectively:

	June 30, 2023
	Awards Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
Stock unit awards at December 31, 2022	287,561	$	16.96	$	32.29
Options granted	5,750		16.56		17.12
Restricted stock units granted	6,984		16.56		-
Vested	(23,434)		15.76		55.02
Forfeited or expired	(5,400)		20.51		36.73
Ending Balance at June 30, 2023	271,461	$	16.92	$	31.85

	December 31, 2022
	Stock Options Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
stock unit awards at December 31, 2021	317,217	$	25.80	$	40.13
Options granted	117,367		9.57		14.92
Restricted stock units granted	18,718		—		—
Vested	(56,678)		21.12		36.53
Forfeited or expired	(109,063)		23.82		38.87
Ending Balance at December 31, 2022	287,561	$	16.96	$	32.29

Note 13. Statutory Net Income and Surplus

American Life and Seneca Re are required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Nebraska Department of Insurance and the Vermont Department of Insurance. Statutory practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis.

The following table represents the net gains or (losses) as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
American Life	$	(18,528)	$	8,298	$	(35,116)	$	17,891
SRC1	$	1,583	$	(981)	$	4,797	$	(2,253)
SRC3	$	629	$	(564)	$	917	$	(95)

The following table represents the Capital and Surplus as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

(In thousands)
		June 30, 2023		December 31, 2022
American Life	$	58,135	$	69,936
SRC1	$	16,979	$	9,615
SRC3	$	8,348	$	6,088

The following table represents the premiums sales as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

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	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
American Life	$	138,920	$	72,498	$	231,207	$	130,616
SRC1	$	-	$	-	$	-	$	-
SRC3	$	(52)	$	23,905	$	123	$	23,757

State insurance laws require American Life to maintain certain minimum capital and surplus amounts on a statutory basis. American Life is subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from its domiciliary insurance regulatory authorities. American Life is also subject to risk-based capital (“RBC”) requirements that may further affect its ability to pay dividends. American Life’s statutory capital and surplus as of June 30, 2023 and December 31, 2022, exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements as of those dates.

As of June 30, 2023 and December 31, 2022, American Life did not hold any participating policyholder contracts where dividends were required to be paid.

Note 14. Third-party Administration

The Company, through its investment advisory subsidiary 1505 Capital, offers investment and structuring services. Our reinsurance partners may choose to engage 1505 as the investment advisor for their portfolios. Services are also available to unaffiliated investors. As of June 30, 2023, and December 31, 2022, 1505 Capital had $531.6 million and $501.9 of third-party assets under management, respectively.

Note 15. Policy Administration Fees

The company generates revenue through policy administration for our third-party reinsurers, as well as fees received from early termination of policies. For the three months ended June 30, 2023 and 2022, we received $0.5 million and $0.5 million of fees and for the six months ended June 30, 2023 and 2022 we received $1.1 million and $0.9 million of fees.  

Note 16. Related Party

Crestline

On April 24, 2020, we entered into a Securities Purchase Agreement with Crestline Assurance Holdings LLC (“Crestline”) an institutional alternative investment management firm under which we issued 444,444 shares of our voting common stock to Crestline. We contributed $5.0 million of the net proceeds to American Life and used $3.3 million of the proceeds to capitalize Seneca Re and its first protected cell. We also entered into a Stockholders Agreement along with Xenith and Vespoint that grants Crestline certain rights. Also, Douglas Bratton, a principal of Crestline, was initially appointed as a director of both our Board and the American Life Board of Directors.

In addition, on April 24, 2020, American Life entered into a three-year master letter agreement and related reinsurance, trust and asset management agreement with Seneca Re and a Crestline affiliate regarding the flow of annuity reinsurance and related asset management, whereby Crestline agreed to provide reinsurance funding for a quota share percentage of 25% of the liabilities of American Life arising from its MYGA and a quota share percentage of 40% the liabilities of American Life arising from its FIA products. Through June 30, 2023, American Life had ceded $515.3 million face amount of annuities to Crestline Re SP1. American Life received total ceding commissions of $0.8 million and expense reimbursements of $0.7 million in connection with these transactions for the three months ended June 30, 2023 and commissions of $1.6 million and expense reimbursements of $1.6 million for June 30, 2022.  

The Reinsurance Agreement also contains the following agreements:

● American Life and Crestline Re SP1 each entered into investment management agreements with Crestline, pursuant to which Crestline manages the assets that support the reinsured business; and

● American Life and Crestline Re SP1 entered into a trust agreement whereby Crestline maintains for American Life’s benefit a trust account that supports the reinsured business.

On September 16, 2022, Midwest Holding and Crestline executed a Letter of Understanding relating to the Stockholders Agreement. The Company and Crestline agreed that Crestline’s representative would resign from the Boards of Directors of the Company and American Life. Notwithstanding the foregoing, the parties agreed that the resignation and Crestline’s decision to no longer appoint a director does not constitute a permanent waiver of Crestline’s rights under the Stockholders Agreement to appoint a Crestline Designated

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Director. The Company and Crestline agreed that the foregoing described agreement will remain in place until the earlier to occur of the date (i) the parties reach written agreement otherwise, (ii) that Crestline is no longer an affiliate of a life insurance entity it recently acquired and (iii) on which Crestline no longer has the right to elect or appoint a Designated Director (and Observer) to the Board.

As of June 30, 2023, and December 31, 2022, Crestline has approximately $477.2 million and $423.6 of the Company’s assets under management, respectively, and was a subadvisor on approximately $166.7 million and $134.3 million of additional investments as of June 30, 2023 and December 31, 2022, respectively.

Chelsea  

On June 29, 2020, Midwest’s subsidiary, American Life, purchased a 17% interest in Financial Guaranty UK Limited through an economic interest in Chelsea Holdings Midwest LLC. American Life has a note receivable from Chelsea Holdings Midwest LLC with an interest rate of 5% per annum that was rated BBB+ by a nationally recognized statistical rating organization (“NRSRO”) and Class B preferred shares in Chelsea Holdings Midwest LLC. This note is being carried at cost plus PIK of $6.4 million, and the preferred shares are carried at a fair market value of $2.3 million as of June 30, 2023 and $2.3 million as of December 31, 2022, based upon valuations received from an independent third-party.

Note 17. Commitments and Contingencies

Contingent Commitments: We have entered into commitments related to certain investments, where draws or additional funding can be requested under the terms of the agreements. These commitments are inclusive of third-party reinsurer commitments, and were approximately $191.3 million as of June 30, 2023. Of the approximately $191.3 million in unfunded commitments at June 30, 2023, approximately $55.8 million related to American Life. The remaining $135.5 million represented commitments that have been made by our reinsurance partners. The table shows when different dollar amounts of commitments will expire. The ability of borrowers to request additional funds under these lending agreements varies considerably from loan to loan.

(In thousands)	June 30, 2023		December 31, 2022
Due in one year or less	$	73,566	$	52,951
Due in two years		28,892		43,604
Due in three years		21,847		7,731
Due in four years		11,737		13,277
Due in five years and after		55,245		61,432
	$	191,287	$	178,995

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

Regulatory Matters: State regulatory bodies and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning the Company’s compliance with laws in relation to, but not limited to, insurance and securities matters. American Life was granted authorization to do business in Kentucky on June 23, 2023, and is currently licensed in 25 states and the District of Columbia as of June 30, 2023. American Life has pending applications in additional states as of June 30, 2023.

Note 18. Pending Merger

On April 30, 2023, Midwest Holding Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Midas Parent, LP, a Delaware limited partnership (“Parent”) and an affiliate of Antarctica Capital, LLC (“Antarctica”), and Midas Merger Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, subject to the satisfaction (or waiver) of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company and whereupon Merger Sub will cease to exist and the Company will be the surviving corporation in the Merger and will continue as a wholly-owned subsidiary of Parent (the “Merger”).

The board of directors of the Company (the “Company Board”) unanimously approved and declared it advisable to enter into the Merger Agreement and resolved to recommend that the Company’s stockholders approve the adoption of the Merger Agreement and the transactions contemplated thereby (the “Transactions”), including the Merger on the terms and subject to the conditions set forth in the Merger Agreement.

As a result of the Merger, at the effective time of the Merger (the “Effective Time”), each outstanding share of common stock of the Company, par value $0.001 per share (the “Company Common Stock”) (other than (i) Company Common Stock held by Parent or the Company or any of their respective wholly owned subsidiaries, and (ii) any shares of Company Common Stock held by stockholders

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who properly exercise appraisal rights under Delaware law), outstanding immediately prior to the Effective Time, will be converted into the right to receive $27.00 per share in cash, without interest.

Consummation of the Merger is subject to certain conditions, including, but not limited to, (i) the Company’s receipt of approval of the Company’s stockholders, (ii) the absence of any law or order prohibiting or making illegal the consummation of the Merger, (iii) the approval of the Merger by the Nebraska Department of Insurance and the Vermont Department of Financial Regulation (“DFR”) without the imposition of any Burdensome Condition (as defined in the Merger Agreement), and (iv) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement). On May 14, 2023, the DFR granted its approval of the Merger.

On July 26, 2023, the Company held a special meeting (the “Special Meeting”) of stockholders at which the Company’s stockholders voted to adopt the Merger Agreement and approve the Merger.  

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

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included in this Annual Report on Form 10-K and it includes many forward-looking statements which involve many risks and uncertainties including those referred to herein. Our actual results could differ materially from those indicated in such forward-looking statements as a result of certain factors, such as those set forth herein under “Special Cautionary Note Regarding Forward-Looking Statements,” “Summary of Risks Associated with our Business and Voting Common Stock” and “Risk Factors.” We are under no duty to update any of the forward-looking statements after the date of this annual report to conform these statements to actual results.

Overview of Company and Business Model

Midwest Holding Inc. (“Midwest,” “the Company,” “we,” “our,” or “us”) was incorporated on October 31, 2003 for the purpose of operating a financial services company. We are in the annuity insurance business and operate through our wholly owned subsidiaries, American Life & Security Corp. (“American Life”), 1505 Capital LLC (“1505 Capital”), and our sponsored captive reinsurance company, Seneca Reinsurance Company, LLC (“Seneca Re”).

We are a financial services company focused on helping people plan and secure their future by providing technology-enabled and services-oriented solutions to support individuals’ retirement through our annuity products. We distribute our annuities through independent distributors who are primarily independent marketing organizations (“IMOs”). Our operations are comprised of three distinct, inter-connected businesses – insurance, reinsurance, and asset management. We seek to reinsure a significant portion of our annuity policies with third-party reinsurers and our captive reinsurance subsidiary, Seneca Re. Our third-party reinsurers include traditional reinsurers and capital markets reinsurers, who are investors seeking exposure to reinsurance revenue and typically do not have their own reinsurance platforms or insurance-related operations. We also have the flexibility to selectively retain assets and liabilities associated with our policies for a period of time when we expect that doing so will provide an attractive return on our capital.

We believe that our operating capabilities and technology platform provide annuity distributors and reinsurers with flexible and cost-effective solutions. We seek to create value through our ability to provide the distributors and reinsurers with annuity product innovation, speed to market for new products, competitive rates and commissions, and streamlined customer and agent experiences. Our capital model allows us to support increasing annuity sales volumes with capital capacity provided by reinsurers although, in connection with plans for future growth, we continue to monitor any need for additional capital. By reinsuring a significant portion of the annuity policies issued, the level of capital needed for American Life is significantly less than retaining all of the business on its books. We believe this “capital light” approach has the potential to produce enhanced returns for our business compared to a traditional insurance company capital structure. This strategy helps reduce our insurance regulatory capital requirements because policies that are reinsured require substantially less capital and surplus than policies retained by us.

As of June 30, 2023, approximately 49% of the deposits received in 2023 for our annuity products were ceded to reinsurance vehicles capitalized by third party reinsurers or held in protected cells within Seneca Re for future reinsurance transactions.

We operate our core business through four subsidiaries under one reportable segment. American Life & Security Corp. (“American Life”) is a Nebraska-domiciled life insurance company, currently licensed to sell, underwrite, and market life insurance and annuity products in 25 states and the District of Columbia. American Life obtained a financial strength rating of B++ (“Good”) from A.M. Best Company (“A.M. Best”), a leading rating agency for insurance companies, in December 2018. That rating was affirmed in March 2023. A.M. Best recently revised its outlook for American Life from Stable to Under Review. All of our annuities are written by American Life.

American Life was granted authorization to do business in Kentucky on June 23, 2023, and has pending applications in additional states as of June 30, 2023.

Our other insurance subsidiary, Seneca Re, is a Vermont-domiciled sponsored captive reinsurance company established in early 2020 to reinsure various types of risks on behalf of American Life and third-party capital providers through special purpose reinsurance entities known as “protected cells.” Through Seneca Re, we assist capital market investors in establishing and licensing new protected cells.

Midwest Capital Corp was established as a holding company and is the immediate parent of Seneca Incorporated Cell, LLC 2021-03 (“SRC3”), both of which are consolidated into our financial statements.

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Our fourth subsidiary, 1505 Capital, is an SEC registered investment adviser providing financial, investment advisory, and management services. Our asset management services are available to third-party insurers and reinsurers. At June 30, 2023, 1505 Capital had approximately $531.6 million total third-party assets under management.

We seek to deliver long-term value by growing our annuity volumes and generating profitable fee-based revenue. We generate fees and other revenue based on the gross deposits received on the annuity policies we issue, reinsure, and administer. We provide an end-to-end solution to manage annuity products that includes a broad set of product development, distribution support, policy administration, and asset/liability management services. Our platform enables us to efficiently develop, sell and administer a wide range of annuity products.

Industry Trends and Market Conditions

Market

We participate in a large U.S. market that we expect to grow in part due to a number of demographic trends. As measured by annual premiums written, annuities are the largest product line in the life, annuity, and accident and health sector. Annuities play a key role in retirement planning by providing individuals with stable, tax-efficient sources of income. In 2022, annuity premiums accounted for $313 billion of annual premiums, or approximately 48% of the $652 billion of total annual life and annuity premiums according to the Insurance Information Institute. The most common annuities are fixed and variable and can be written on an individual or group basis. Our current products are MYGAs and FIAs written on an individual basis.

An increasing portion of the U.S. population is of retirement age and is expected to increase the retirement income needs of retirees. The number of people of retirement age has increased significantly since 2010, driven by the aging of the “Baby Boomer” generation. The U.S. population over 65 years old is forecasted to grow from 56 million in 2020 to an estimated 81 million by 2040, according to the U.S. Census Bureau, Population Estimates and Projections. This study also forecasted that U.S. population aged over 65 years old is expected to grow by 44% from 2020 to 2040, while the total U.S. population is expected to grow by only 12%.  Annuities in the U.S. are distributed through a number of channels, most of which are independent from the insurance companies that issue annuities. Independent distribution channels serve as the primary and a growing source of annuity distribution. In the fourth quarter of  2022, approximately 63% of U.S. individual annuity sales occurred through independent distributors, including independent agents, broker-dealers, and banks, according to the Life Insurance Marketing and Research Association (“LIMRA”) 2022 Q4 U.S. Individual Annuities Glimpse. Independent agents are the second largest distribution channel, behind banks, accounting for approximately 18% of U.S. individual annuity sales in the fourth quarter of 2022. IMOs provide independent agents with access to annuity products along with operational support services and functionality to support the distribution services of the agents. The infrastructure and support services provided by IMOs to independent agents are critical to the success of independent agents and their ability to serve their customers and generate additional sales.

We believe that capital markets investors have been actively seeking investing in and acquiring insurance and reinsurance companies in recent years. Fixed annuities provide upfront premiums and stable, long-term payment obligations and are thus attractive sources of liability-funded assets for a variety of traditional and alternative asset managers and investors. However, there are significant regulatory and operational hurdles for capital providers looking to enter the insurance market. These hurdles are exacerbated by the limited legacy administrative capabilities, product development processes and technology systems, of traditional insurers and reinsurers. We provide asset managers and investors the ability to seamlessly access funding from annuities through a variety of reinsurance entities that we can form quickly and operate efficiently with lower upfront and ongoing regulatory and operating costs.

State expansion efforts have taken more time than anticipated, as state insurance regulators would like to see a more fully developed historical financial footprint. We are working diligently to file in more states, responding and providing increased information to regulators and discussing how our business model ensures policyholders are protected, given the capital held and supported by the use of reinsurance.

Our most recently authorized states, Florida, Georgia, and Kentucky, granted certificates of authority as of December 22, 2022, February 24, and June 23, 2023, respectively, and we have commenced operations in these new jurisdictions.

We currently distribute annuity products through 27 third-party IMOs. We believe our product development, prompt policy processing, operating flexibility and speed to market make us a desirable partner for insurance distributors. We are seeking to grow by increasing volumes with our current IMOs and by establishing new IMO relationships.

Competition

We operate in highly competitive markets with a variety of participants, including insurance companies, financial institutions, asset managers, and reinsurance companies. These companies compete in various forms in the annuity market, for investment assets and for services. We seek to build strong relationships along with offering technology-enabled and services-oriented solutions for our partners.

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Our experience indicates that the market for annuities is dynamic. The combination of the treasury market experiencing the unprecedented rate increases and the volatility in the market resulting from the war in Ukraine and related economic uncertainties due to inflation has opened up investment opportunities that allow us, and our reinsurance partners, to support more competitive rates for annuities. Based on our experience with COVID, we expect this investment environment to be conducive to our business model. We have been reviewing policy pricing along with reinsurer appetite to ensure we continue to grow our business while managing risk. We have recently taken pricing action on both our FIA and MYGA products and continue to monitor our competitiveness in the market. We have also increased our focus on marketing, reestablishing, and expanding our relationships on the distribution side through various channels and are reallocating or adding resources relating to this initiative. As a result, we experienced encouraging sales as 2022 unfolded. However, we expect competition in our market to remain intense particularly from other well established entities providing annuity products.

Interest Rate Environment

The Federal Reserve repeatedly increased the federal funds rate throughout 2022, moving from 0.25% to 4.50%, and continued that trend increasing the rate to 5.00% in June 2023. We seek to address our interest rate risk through managing the duration of the liabilities and purchasing and holding quality, long-term assets mirroring that duration.

If interest rates were to rise, we believe the yield on our floating rate investments and the yield on new investment purchases would rise. We also believe our products would therefore be more attractive to consumers and our annuities sales would increase.

Discontinuation of LIBOR

The Financial Conduct Authority (“FCA”), the United Kingdom regulator of the London Interbank Offered Rate ("LIBOR"), previously indicated that it intends to stop compelling panel banks to submit quotes used to determine LIBOR after 2021. On November 30, 2020, the Intercontinental Exchange (“ICE”) Benchmark Administration (“IBA”), the administrator of LIBOR, announced a consultation regarding its intention to cease the publication of one week and two-month U.S. Dollar LIBOR settings at the end of December 2021, but to extend the publication of the remaining U.S. Dollar LIBOR settings (overnight and one, three, six, and 12-month U.S. Dollar LIBOR) until the end of June 2023. The IBA intends to share the results of the consultation with the FCA and publish a summary of the responses. U.S. bank regulators acknowledged the announcement and, subject to certain limited exceptions, advised banks to cease writing new U.S. Dollar LIBOR contracts by the end of 2021.

We are in the process of analyzing and identifying our securities, financial instruments, and contracts that utilize LIBOR (collectively “LIBOR Instruments”) to determine if we have any material exposure to the transition from LIBOR. To the extent we hold LIBOR Instruments, the terms of these instruments may have fallback provisions that provide for an alternative reference rate when LIBOR ceases to exist. For securities without adequate fallback provisions already in place, federal legislation has been enacted to provide a safe harbor for transition to the recommended alternative reference rate.

Notwithstanding the availability of statutory guidance on fallback procedures, in preparation for the phase out of LIBOR, we may need to renegotiate our LIBOR Instruments that utilize LIBOR. However, these efforts may not be successful in mitigating the legal and financial risk from changing the reference rate in our LIBOR Instruments. Furthermore, the discontinuation of LIBOR may adversely impact our ability to manage and hedge exposures to fluctuations in interest rates using derivative instruments.

As a result, the transition of our LIBOR Instruments to alternative reference rates, including the Secured Overnight Financing Rate (“SOFR”), may result in adverse changes to the net investment income, fair market value and return on those investments. We intend to continue evaluating and monitoring the risks associated with the LIBOR transition which include identifying and monitoring our exposure to LIBOR and ensuring operational processes are updated to accommodate alternative rates. Due to uncertainty surrounding the effect of adopting or transitioning to alternative rates such as SOFR, we are unable to predict the overall impact of this change at this time.

Critical Accounting Policies and Estimates

Our accounting and reporting policies are in accordance with GAAP. Preparation of our Consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is a summary of our significant accounting policies and estimates. 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. Our accounting policies, judgments, and estimates have not changed significantly over our disclosed accounting periods. For further discussion of our accounting policies and estimates see “Note 1 — Nature of Operations and Summary of Significant Accounting Policies” to our Consolidated financial statements.

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Valuation of Investments

All fixed maturities owned by the Company are considered available-for-sale and are included in the Consolidated financial statements at their fair value as of the financial statement date. Premiums and discounts on fixed maturity debt instruments are amortized using the scientific-yield method over the term of the bonds. Realized gains and losses on securities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in accumulated other comprehensive income.

Declines in the fair value of available-for-sale securities below their amortized cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining if these losses are expected to be other-than-temporary, the Company considers severity of impairment, duration of impairment, forecasted recovery period, issuer credit ratings, and the intent and ability of the Company to hold the investment until the recovery of the cost.

The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company 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 statement of comprehensive income as an impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security, and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the impairment is bifurcated. The Company recognizes the credit loss portion as realized losses and the noncredit loss portion in accumulated other comprehensive loss. The credit component of other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. As of June 30, 2023 and December 31, 2022, the Company held one asset valued at $7.7 million with a total impairment of $1.4 million and $1.4 million, respectively. Additionally, during the first quarter of 2023 the company recognized an impairment for the full value of an asset valued at $0.6 million.

Investment income consists of interest, dividends, gains and losses, and real estate income, which are recognized on an accrual basis along with the amortization of premiums and discounts.

Certain available-for-sale investments are maintained as collateral under funds withheld (“FW”) and modified coinsurance (“Modco”) agreements but the assets and total returns or losses on the asset portfolios belong to the third-party reinsurers. American Life has treaties with several third-party reinsurers that have FW and Modco provisions. In a Modco agreement, the ceding entity retains the assets equal to the modified coinsurance reserves retained. In a FW agreement, assets that would normally be paid over to a reinsurer are withheld by the ceding company to permit statutory credit for unauthorized reinsurers to reduce the potential credit risk. The unrealized gains/losses on those investments are passed through to the third-party reinsurers, through the fair value of our total return swap, as either a realized gain or loss on the Consolidated Statements of Comprehensive Loss.

Intangibles

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.

Our indefinite-lived intangible assets consist of American Life’s state licenses. We compared the carrying value to the current costs of obtaining licenses in those states. As of June 30, 2023, the sum of the fair value of those licenses exceeded the carrying value of the indefinite-lived intangible assets. These amounts are carried on our balance sheet in Other Assets.

Reinsurance

We expect to reinsure most of the risks associated with our issued annuities. Our reinsurers may be domestic, foreign or capital markets investors seeking to assume U.S. insurance business. In most reinsurance transactions, American Life will remain exposed to the credit risk of reinsurers, or the risk that one or more reinsurers may become insolvent or otherwise unable or unwilling to pay for policyholder claims. We seek to mitigate the credit risk relating to reinsurers by generally either requiring that the reinsurer post substantial collateral or make other financial commitments as a security for the reinsured risks. Under these reinsurance agreements, there typically is a monthly or quarterly settlement of premiums, claims, surrenders, collateral, and other administration fees.

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In a typical reinsurance transaction, we receive a ceding commission and reimbursement of certain expenses at the time liabilities are reinsured, plus ongoing fees for the administration of the business ceded. Our reinsurers are typically not “accredited” or qualified as reinsurers under Nebraska law. In order to receive credit for reinsurance for transactions with these reinsurers and to reduce potential credit risk, we usually hold collateral from the reinsurer on a FW basis or require the reinsurer to maintain a trust that holds assets backing up its obligation to pay claims on the business it assumes. In some cases, the reinsurer may appoint an investment manager to manage these assets pursuant to guidelines approved by us that are consistent with state investment statutes and regulations relating to reinsurance. When our investment advisor subsidiary, 1505 Capital, is appointed to manage these assets, we receive additional ongoing asset management fees.

Future Policy Benefits

We establish liabilities for amounts payable under our policies, including annuities. Generally, amounts are payable over an extended period of time. Under GAAP, our annuities are treated as deposit liabilities, where we use account value in lieu of future policy reserves. Our FIA reserves are calculated by an independent consulting actuary and our MYGA reserves equal the account value from our policy administration system. We currently do not offer traditional life insurance products.

Income Taxes

Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the applicable tax rates. The principal assets and liabilities giving rise to these differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such tax assets would be realized. We have no uncertain tax positions that we believe are more-likely-than not that the benefit will not be realized.

Recognition of Revenues

Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included deposit-type contract liabilities. Annuity premiums are shown as a financing activity in the Consolidated Statements of Cash Flows. Revenues from these contracts are comprised of fees earned for administrative and policyholder services, which are recognized over the period of the annuity contracts and included in other revenue. Through our reinsurance contracts, revenues are earned through ceding commissions, which are capitalized, and our independent consulting actuary determines the amounts to be recognized as income over the period of the annuity contracts. Deferred coinsurance ceding commissions are shown as an operating activity in the Consolidated Statements of Cash Flows. Revenues from asset management services are recognized as earned.

Derivative Instruments

Derivatives are used to hedge the risks experienced in our ongoing operations, such as equity, interest rate, and cash flow risks, or for other risk management purposes, which primarily involve managing liability risks associated with our FIA product and reinsurance agreements. Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, or other underlying notional amounts. Derivative assets and liabilities are carried at fair value on the Consolidated Balance Sheets.

To qualify for hedge accounting, at the inception of the hedging relationship, we formally document our designation of the hedge as a cash flow or fair value hedge and our risk management objective and strategy for undertaking the hedging transaction identifying  how the hedging instrument is expected to hedge the designated risks related to the hedged item, the method to retrospectively, and prospectively assess the hedging instrument’s effectiveness and the method to be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is also assessed periodically throughout the life of the designated hedging relationship.

In late 2019, we began investing in options to hedge our interest rate risks on our FIA product. Options typically do not qualify for hedge accounting; therefore, we chose not to use hedge accounting for the related options that we currently have. We value our derivatives at fair market value with the offset being recorded on our Consolidated Statements of Comprehensive Loss as a realized gain or (loss).

Additionally, reinsurance agreements written on a FW basis contain embedded derivatives on our FIA product. Gains or (losses) associated with the performance of assets maintained in the relevant deposit and funds withheld accounts are reflected as realized gains or (losses) in our Consolidated Statements of Comprehensive Loss.

Derivatives

The Company has entered into certain derivative instruments to hedge FIA products that guarantee the return of principal to our policyholders and credit interest based on a percentage of the gain in a specified market index. To hedge against adverse changes in equity indices, the Company entered into contracts to buy equity indexed options. The change in fair value of the derivatives for hedging

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the FIA index credits and the related embedded derivative liability fluctuate from period to period based on the change in the market interest rates. The indexed reserves are measured at fair value for the current period and future periods. We hedge with options that align with the terms of our FIA products which are between seven and ten years. We have analyzed our hedging strategy on our FIA products and, while the correlation of the hedges to the FIA products is not matched dollar for dollar, we believe the hedges are effective  as of June 30, 2023.

American Life also has agreements with several third-party reinsurers that have FW and Modco provisions under which the assets related to the reinsured business are maintained by American Life as collateral; however, ownership of the assets and the total return on the asset portfolios belong to the third-party reinsurers. Under GAAP, this arrangement is considered an embedded derivative as discussed in “Note 4 Derivative Instruments” to our Consolidated financial statements. Assets carried as investments on American Life’s financial statements for the third-party reinsurers contained cumulative unrealized losses as of June 30, 2023 and December 31, 2022, of approximately $14.4 million and $10.5 million, respectively. The terms of the contracts with the third-party reinsurers provide that the changes in unrealized gains and losses on the portfolios accrue to the third-party reinsurers. Accordingly, the change in unrealized losses on the assets held by American Life on behalf of the third-party reinsurers were offset by gains in the embedded derivative of $3.3 million and $1.1 million for the three months ended June 30, 2023 and 2022, respectively, and realized gains of $3.9 million and $2.9 million for the six months ended June 30, 2023 and 2022. We account for this unrealized loss pass-through by recording an equivalent realized gain on our Consolidated Statements of Comprehensive Loss and in amounts payable to our third-party reinsurers on the Consolidated Balance Sheets.

Net Income

In this section, unless otherwise noted the discussion below compares the six months ended June 30, 2023 to the six months ended June 30, 2022.

We had a comprehensive loss of $6.1 million including unrealized loss of $6.0 million, mainly from the fixed maturity portfolio, resulting in a net loss to Midwest of $0.1 million for the six months ended June 30, 2023. This compares to a comprehensive loss of $19.1 million including unrealized loss of $28.5 million, resulting in a net income of $9.5 million to Midwest in the prior year.

Revenues were up year over year, being impacted by realized gains of $18.4 million for the six months ended June 30, 2023 versus a loss of $18.8 million in the prior year. Investment income increased due to the growth in the retained portfolio and from higher interest rates. Policy administration fees were up year over year, from early surrender activity, and despite the increase in liabilities through annuity premiums ceded in the prior year. Amortization of deferred ceded premium grew as we added new reinsurers and the portfolio continues to age. Service fee revenue was up relatively consistent at $1.3 million in 2023 compared to $1.5 million from the prior year.

Expenses were up, driven by interest credited and the option allowance (see point 3 below). Salaries and benefits increased with additional personnel, repositioning, and retaining of personnel to support growth and given tight labor market. Increase in other expenses was driven by consulting, legal and accounting fees to support distribution, state expansion, capital initiatives, and technology initiatives.

The effective tax rate was 52.4% compared to 36.2% for the six months ended June 30, 2023 and 2022, respectively. Our primary insurance entities, American Life, SRC1, and SRC3, are taxed on a statutory basis. GAAP defers the recognition of income related to premiums received until they are earned across the life of the contract. Statutory principles though recognize premiums as income in the period they are received, creating the difference between the two statements of income.  See Note 9 to our financial statements for further information related to the income tax expense.

Our FIA products have three components influencing our Consolidated Statements of Comprehensive Loss:

1) The embedded derivative in our FIAs. We carry this derivative at fair value, with the change in fair value recorded in the interest credited line of our Consolidated Statements of Comprehensive Loss. Across our FIA products, interest credited was $14.9 million in 2023 compared with $7.8 million in 2022. Reflecting our risk management, the change in the value of the embedded derivative corresponds to the change in the value of option contracts we use to hedge this exposure.

2) The derivatives we purchase to hedge stock market risk we would otherwise face from our FIA. We carry these derivatives at fair value on our balance sheet, recording the change in fair value in our Consolidated Statements of Comprehensive Loss as either a realized gain or realized loss. As of June 30, 2023, the market value of the derivative assets was $36.7 million compared to $15.6 million as of December 31, 2022 the change is reflected in our net unrealized gain or loss.

3) The option budget reinsurers pay us to purchase derivative assets. We mark these assets to market each period. Separately, we record a payable to the reinsurers that is owed to a reinsurer when a policy is surrendered, an annuitant dies, or a policy

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lapses. We compare what the reinsurer paid for the original option budget to the market value at the end of the period. The change in the market value is added to or subtracted from the payable to the reinsurer to cover the reinsurer’s obligations to the policyholder. This change in market value resulted in negative $(5.6) million expense and was included in our other operating expense in 2023 compared to a negative $(5.5) million expense in the prior year.

American Life has treaties with several third-party reinsurers that have funds withheld and modified coinsurance provisions. Assets held on behalf of the third-party reinsurers had unrealized losses at June 30, 2023 and December 31, 2022, respectively. The terms of the contracts with the third-party reinsurers provide that unrealized gains or losses on the asset portfolio accrue to the reinsurers. We account for the change in these unrealized gains or losses by recording equivalent realized losses or gains on our Consolidated Statements of Comprehensive Loss. We recorded the increase in the unrealized losses on the asset portfolio as a realized gain of $3.9 million and $2.9 million for the six months ended June 30, 2023 and 2022.

Consolidated Results of Operations –Three Months Ended June 30, 2023

Revenues

The following summarizes the sources of our revenue:

	Three months ended June 30,
(In thousands)	2023		2022
Investment income, net of expenses	$	24,248	$	10,541
Net realized losses on investments		2,087		(12,636)
Amortization of deferred gain on reinsurance		1,498		1,043
Policy administration fees		480		514
Service fee revenue, net of expenses		631		416
Other revenue		122		-
	$	29,066	$	(122)

Premium revenue: Sales of our MYGA and FIA products generated a large volume of new business in 2023 and 2022; however, these products are defined as investment contracts under GAAP. Accordingly, the funds we received from our customers under these contracts were recorded on our balance sheet as a deposit-type liability – and not as premium revenue.

Investment income, net of expenses: The components of net investment income for the three months ended June 30, 2023 and 2022 were as follows:

	Three months ended June 30,
(In thousands)	2023		2022
Fixed maturities	$	33,841	$	14,173
Mortgage loans		6,298		2,963
Other invested assets		2,142		2,501
Other interest (expense) income		10,248		8,035
Gross investment income		52,529		27,672
Less: investment expenses		(5,367)		(2,515)
Less: amounts ceded to reinsurers		(22,914)		(14,616)
Retained investment income, net of expenses	$	24,248	$	10,541

Investment income, net of expenses consisted of investment income generated from our retained investment assets that are not ceded to reinsurers. The increase was due to the investment income earned on our bonds and mortgage loans purchased with the sales of our MYGA and FIA products that were not ceded to reinsurers during the period, as well as deployment of excess cash towards credit investments with attractive yields and risk-return profiles. As of June 30, 2023 and December 31, 2022, on a gross consolidated basis, our investment portfolio (excluding cash) was $2,086.6 million and $1,615.0 million, respectively, as a result of proceeds from our MYGA and FIA product sales, reflecting both retained premium proceeds as well as assets held on behalf of our reinsurers.

Net realized (losses) on investments: Net realized gain on investments were negative $2.1 million in 2023 compared with losses of $(12.6) million in 2022. The figures include a loss of $(3.3) million and a gain $1.1 million from a total return swap embedded derivative in 2023 and 2022, respectively. In 2023, there were net realized gain of $3.4 million related to derivatives we own to hedge the obligations to FIA policyholders; such gains were partially offset by an increase in the mark-to-market change in embedded derivative liability within interest credited expense and an increase in FIA-related mark-to-market option allowance expense flowing through other operating expenses. The change in fair value of FIA hedging derivatives is driven by the performance of the indices upon which our call options are based.

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American Life has treaties with several reinsurers that have funds withheld coinsurance provisions, under which the assets backing the treaties are maintained by American Life as collateral but the assets and total return on the asset portfolios belong to the reinsurers. Under GAAP this arrangement is considered an embedded derivative as discussed in Note 4 Derivative Instruments to our Consolidated financial statements and above.

Amortization of deferred gain on reinsurance:  The increase in 2023 to $1.5 million from $1.0 million in 2022 was due to higher deferred gain on reinsurance, driven in part by higher reinsured premiums during 2023.

Policy administration fees: Policy administration fees includes fees received for the servicing and initiation of policies ceded to our reinsurers. Also included are fees surrendered by policy holders for early termination of their contracts. The revenue of $0.5 million in the three months ended June 30, 2023 and $0.5 million in 2022 comes from policies written and ceded, as well as additional policy holder early termination.  

Service fee revenue, net of expenses: Service fee revenue, net of expenses, consists of fee revenue generated by 1505 Capital, for asset management services provided to third-party clients, some of whom are our reinsurers. The decrease in this revenue, to $0.6 million in the three months ended June 30, 2023 from $0.4 million in 2022, was due primarily to the level of asset management services provided by 1505 Capital to third-party clients.

Expenses

Our expenses for the periods indicated are summarized in the table below:

	Three months ended June 30,
(In thousands)	2023		2022
Interest credited	$	12,590	$	(5,496)
Benefits		1,206		994
Amortization of deferred acquisition costs		1,914		1,052
Salaries and benefits		5,817		4,298
Other operating expenses		5,002		(2,240)
	$	26,529	$	(1,392)

Interest credited: The increase was primarily due to the interest credited across all our products in the second quarter of 2023 Interest credited for our retained MYGA products was positive $4 million while interest credited related to our retained FIA policies was $14.9 million in 2023. MYGA and FIA interest credited were $12.6 million and negative $7.8 million in the three months ended June 30, 2023 and 2022, respectively. The FIA interest credited is related to the fair market value of the embedded derivative which is owed to policyholders. This was partially offset by the realized gain on our total return swap that is included in the net realized gain on investment above.

Benefits: This refers to death benefits on our policies, which were $1.2 million and less than $0.1 million in the three months ended June 30, 2023 and 2022 respectively.

Amortization of deferred acquisition costs: The increase was due to the acquisition costs relating to the sale of American Life’s MYGA and FIA products where we retained approximately 51% of the business in the first quarter of 2023 compared to the 60% retained in 2022. These figures include the Seneca Re protected cells, SRC1 and SRC3, and DAC amortization.

Salaries and benefits: The increase to $5.8 million compared with $4.3 million for the second quarter was due to continued costs incurred to attract and add personnel to service our business growth. We are hiring more in-house expertise to service our growth initiatives and reduce the reliance on third-party providers.

Other operating expenses: Other operating expenses were approximately $7.2 million higher due primarily to:

● Our FIA product has embedded derivatives included in the account value. Those derivatives are market driven. The reinsurers that reinsure the FIA products pay an option allowance to American Life to purchase derivatives. As of June 30, 2023, the mark-to-market adjustment on those allowances was in a positive position so American  Life incurred a negative $(5.6) million expense payable to the reinsurers for that mark-up. As the market fluctuates going forward, the mark up of the option allowance could go up or down.

● Increases of other expenses related to legal and consulting fees of $5.8 million related primarily to efforts to secure new additional capital sources and the expansion of our business into new jurisdictions.

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Taxes: Income tax expense increased by $5.6 million to $3 million in 2023 from a tax benefit of $2.6 million in 2022. This change was primarily driven by a change in the reinsurance modified coinsurance tax reserves.

Consolidated Results of Operations -Six Months Ended June 30, 2023

Revenues

The following summarizes the sources of our revenue:

	Six months ended June 30,
(In thousands)	2023		2022
Investment income, net of expenses	$	43,441	$	16,783
Net realized gains (losses) on investments		18,373		(18,810)
Amortization of deferred gain on reinsurance		3,071		2,012
Policy administration fees		1,119		862
Service fee revenue, net of expenses		1,285		1,514
Other revenue		228		100
	$	67,517	$	2,461

Premium revenue: Sales of our MYGA and FIA products generated a large volume of new business in 2023 and 2022; however, these products are defined as investment contracts under GAAP. Accordingly, the funds we received from our customers under these contracts were recorded on our balance sheet as a deposit-type liability – and not as premium revenue.

Investment income, net of expenses: The components of net investment income for the six months ended June 30, 2023 and 2022 were as follows:

	Six months ended June 30,
(In thousands)	2023		2022
Fixed maturities	$	67,902	$	26,837
Mortgage loans		12,973		5,383
Other invested assets		5,464		3,896
Other interest (expense) income		18,277		13,579
Gross investment income		104,616		49,695
Less: investment expenses		(11,564)		(4,726)
Less: amounts ceded to reinsurers		(49,611)		(28,186)
Retained investment income, net of expenses	$	43,441	$	16,783

Investment income, net of expenses consisted of investment income generated from our retained investment assets that are not ceded to reinsurers. The increase was due to the investment income earned on our bonds and mortgage loans purchased with the sales of our MYGA and FIA products that were not ceded to reinsurers during the period, as well as deployment of excess cash towards credit investments with attractive yields and risk-return profiles. As of June 30, 2023 and December 31, 2022, on a gross consolidated basis, our investment portfolio (excluding cash) was $2,086.6 million and $1,615.0 million, respectively, as a result of proceeds from our MYGA and FIA product sales, reflecting both retained premium proceeds as well as assets held on behalf of our reinsurers.

Net realized gains (losses) on investments: Net realized gain on investments were $18.4 million for the six months ended June 30, 2022 compared with losses of $18.8 million in 2022. The figures include a gain of $3.9 million and $2.9 million from a total return swap embedded derivative in 2023 and 2022, respectively. In 2023, there were net realized gain of $8.5 million related to derivatives we own to hedge the obligations to FIA policyholders; such gains were partially offset by an increase in the mark-to-market change in embedded derivative liability within interest credited expense and an increase in FIA-related mark-to-market option allowance expense flowing through other operating expenses. The change in fair value of FIA hedging derivatives is driven by the performance of the indices upon which our call options are based.

American Life has treaties with several reinsurers that have funds withheld coinsurance provisions, under which the assets backing the treaties are maintained by American Life as collateral but the assets and total return on the asset portfolios belong to the reinsurers. Under GAAP this arrangement is considered an embedded derivative as discussed in Note 4 Derivative Instruments to our Consolidated financial statements and above.

Amortization of deferred gain on reinsurance:  The increase in 2023 to $3.1 million from $2.0 million in 2022 was due to higher deferred gain on reinsurance, driven in part by higher reinsured premiums during 2023.

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Policy administration fees: Policy administration fees includes fees received for the servicing and initiation of policies ceded to our reinsurers. Also included are fees surrendered by policy holders for early termination of their contracts. The revenue of $1.1 million in the six months ended June 30, 2023 and $0.9 million in 2022 comes from policies written and ceded, as well as additional policy holder early termination.  

Service fee revenue, net of expenses: Service fee revenue, net of expenses, consists of fee revenue generated by 1505 Capital, for asset management services provided to third-party clients, some of whom are our reinsurers. The decrease in this revenue, to $1.3 million in the six months ended June 30, 2023 from $1.5 million in 2022, was due primarily to the level of asset management services provided by 1505 Capital to third-party clients.

Expenses

Our expenses for the periods indicated are summarized in the table below:

	Six months ended June 30,
(In thousands)	2023		2022
Interest credited	$	20,279	$	(12,170)
Benefits		2,163		994
Amortization of deferred acquisition costs		3,617		1,902
Salaries and benefits		11,320		8,615
Other operating expenses		18,915		(4,060)
	$	56,294	$	(4,719)

Interest credited: The increase was primarily due to the interest credited across all our products in the first two quarters of 2023. Interest credited for our retained MYGA products was positive $7.4 million while interest credited related to our retained FIA policies was $14.9 million for the six months ended June 30, 2023. MYGA and FIA interest credited were negative $2.0 million and negative $14.2 million in the six months ended June 30, 2022, respectively. The FIA interest credited is related to the fair market value of the embedded derivative which is owed to policyholders. This was partially offset by the realized gain on our total return swap that is included in the net realized gain on investment above.

Benefits: This refers to death benefits on our policies, which were $2.2 million and $1.0 million in the six months ended June 30, 2023 and 2022 respectively.

Amortization of deferred acquisition costs: The increase was due to the acquisition costs relating to the sale of American Life’s MYGA and FIA products where we retained approximately 51% of the business in the first two quarters of 2023 compared to the 61% retained in 2022. These figures include the Seneca Re protected cells, SRC1 and SRC3, and DAC amortization.

Salaries and benefits: The increase to $11.3 million for the six months ended June 30, 2023 compared with $8.6 million in 2022 was due to continued costs incurred to attract and add personnel to service our business growth. We are hiring more in-house expertise to service our growth initiatives and reduce the reliance on third-party providers.

Other operating expenses: Other operating expenses were approximately $23.0 million higher due primarily to:

● Our FIA product has embedded derivatives included in the account value. Those derivatives are market driven. The reinsurers that reinsure the FIA products pay an option allowance to American Life to purchase derivatives. As of June 30, 2023, the mark-to-market adjustment on those allowances was in a positive position so American  Life incurred a negative $ (7.6) million expense payable to the reinsurers for that mark-up. As the market fluctuates going forward, the mark up of the option allowance could go up or down.

● Increases of other expenses related to legal and consulting fees of $5.8 million related primarily to efforts to secure new additional capital sources and the expansion of our business into new jurisdictions.

Taxes: Income tax expense increased by $3.3 million to $5.9 million for the six months ended June 30, 2023 from $2.6 million in 2022. This change was primarily driven by a change in the reinsurance modified coinsurance tax reserves.

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Investments

Most investments on our Consolidated balance sheets are held on behalf of our reinsurers as collateral under our reinsurance agreements. As a result, our investment allocations are largely a function of our collective reinsurer investment allocations. While the reinsurers own the investment risk on these assets, we typically restrict their investment allocations via control over the selection of the asset manager as well as asset restrictions set forth in investment guidelines and control over the investment manager. In many of our reinsurance agreements, 1505 Capital acts as the asset manager for a fee.

Our investment guidelines typically include U.S. government bonds, corporate bonds, commercial mortgages, asset backed securities, municipal bonds, and collateral loans. The duration of our investments is 5 to 10 years in line with that of our liabilities. We do allow non-U.S. dollar denominated investments where the foreign exchange risk is hedged back to U.S. dollars.

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 June 30, 2023 and December 31, 2022. Increases in fixed maturity securities primarily resulted from the sale of our MYGA and FIA products during 2023.

	June 30, 2023				December 31, 2022
	Carrying		Percent		Carrying		Percent
(In thousands)	Value		of Total		Value		of Total
Fixed maturity securities:
Bonds:
U.S. government obligations	$	1,651	0.1	%	$	1,262	0.1	%
Mortgage-backed securities		426,214	18.7			294,066	16.3
Asset-backed securities		40,218	1.8			30,756	1.7
Collateralized loan obligations		338,866	14.9			287,673	15.9
States and political subdivisions-general obligations		125	—			101	—
States and political subdivisions-special revenue		—	—			205	—
Corporate		48,923	2.1			41,600	2.3
Term loans		682,915	29.8			558,972	30.9
Total fixed maturity securities		1,538,912	67.4			1,214,635	67.2
Mortgage loans on real estate, held for investment		352,908	15.5			227,047	12.6
Derivatives		36,861	1.6			15,934	0.9
Equity securities		5,144	0.2			5,111	0.3
Other invested assets		107,902	4.7			112,431	6.2
Investment escrow		1,647	—			784	—
Federal Home Loan Bank stock		2,971	0.3			1,306	0.2
Preferred stock		33,805	1.5			31,415	1.7
Notes receivable		6,394	0.3			6,269	0.3
Policy loans		55	—			25	—
Cash and cash equivalents		194,275	8.5			191,414	10.6
Total investments, including cash and cash equivalents	$	2,280,874	100.0	%	$	1,806,371	100.0	%

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of June 30, 2023 and December 31, 2022.

	June 30, 2023				December 31, 2022
	Carrying				Carrying
(In thousands)	Value		Percent		Value		Percent
AAA and U.S. Government	$	200,014	13.0	%	$	124,183	10.2	%
AA		29,185	1.9			815	0.1
A		420,690	27.3			371,371	30.6
BBB		752,652	48.9			619,516	51.0
Total investment grade		1,402,541	91.1			1,115,885	91.9
BB and below		136,371	8.9			98,750	8.1
Total	$	1,538,912	100.0	%	$	1,214,635	100.0	%

Reflecting the quality of securities maintained by us, 91.1% and 91.9% of all fixed maturity securities were investment grade as of June 30, 2023 and December 31, 2022, respectively.

We expect that our MYGA and FIA products sales will result in an increase in investable assets in future periods.

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Market Risks of Financial Instruments

The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and liquidity risk. With respect to investments that we hold on our balance sheet as collateral, our reinsurers bear the market risks related to these investments, while we bear the market risks on any net retained investments.

Interest Rate Risk

Interest rate risk arises from the price sensitivity of investments to changes in interest rates. Interest and dividend income represent 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. Our liabilities also have interest rate risk though GAAP does not require our liabilities to be marked to market. We mitigate interest rate risk by monitoring and matching the duration of assets compared to the duration of liabilities.

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 diversification of investments amongst many corporations and numerous industries. Additionally, our investment policy limits the size of holding in any particular issuer.

Liquidity Risk

We are exposed to liquidity risk when liabilities come due. In order to pay a policyholder, we may need to liquidate assets. If our assets are illiquid assets, we might be unable to convert an asset into cash without giving up capital and income due to a lack of buyers or an inefficient market. We seek to mitigate this risk by keeping a portion of our investment portfolio in liquid investments.

Statutory Accounting and Regulations

Our primary insurance subsidiary, American Life, is required to prepare statutory financial statements in accordance with SAP prescribed by the NDOI. SAP primarily differs from GAAP by charging policy acquisition costs to expense as incurred, establishing future benefit liabilities using actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. For further discussion regarding SAP as well as net income (loss) of American Life under SAP, see Note 13 to our consolidated financial statements. As of June 30, 2023, American Life maintained sufficient capital and surplus to comply with regulatory requirements.

State insurance laws and regulations govern the operations of all insurers and reinsurers such as our insurance and reinsurance company subsidiaries. These various laws and regulations require that insurance companies maintain minimum amounts of statutory surplus as regards policyholders and risk-based capital and determine the dividends that insurers can pay without prior approval from regulators. The statutory net income of American Life is one of the primary sources of additions to our statutory surplus as regards policyholders, in addition to capital contributions from us.

We have reported our insurance subsidiaries’ assets, liabilities and results of operations in accordance with GAAP, which varies from SAP. The following items are principal differences between SAP and GAAP. SAP:

● requires that we exclude certain assets, called non-admitted assets, from the balance sheet.

● requires us to expense policy acquisition costs when incurred, while GAAP allows us to defer and amortize policy acquisition costs over the estimated life of the policies.

● dictates how much of a deferred income tax asset that we can admit on a statutory balance sheet.

● requires that we record certain investments at cost or amortized cost, while we record other investments at fair value; however, GAAP requires that we record all investments at fair value.

● allows bonds to be carried at amortized cost or fair value based on the rating received from the Securities Valuation Office of the NAIC, while they are recorded at fair value for GAAP.

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● allows ceding commission income to be recognized when written if the cost of acquiring and renewing the associated business exceeds the ceding commissions, but under GAAP such income is deferred and recognized over the coverage period.

● requires that we record reserves in liabilities and expense for policies written, while we record all transactions related to the annuity products under GAAP as deposit-type contract liabilities.

● requires a provision for reinsurance liability be established for reinsurance recoverable on paid losses aged over 90 days and for unsecured amounts recoverable from unauthorized reinsurers. Under GAAP there is no charge for uncollateralized amounts ceded to a company not licensed in the insurance affiliate’s domiciliary state and a reserve for uncollectable reinsurance is charged through earnings rather than surplus or equity.

● treats all leases, except leveraged leases, as operating leases, while GAAP differentiates between operating and finance leases.

● requires an additional admissibility test outlined in Statements on Statutory Accounting Principles, No. 101 and the change in deferred income tax is reported directly in capital and surplus, rather than being reported as a component of income tax expense under GAAP. Our insurance subsidiaries must file with the insurance regulatory authorities an “Annual Statement” which reports, among other items, net income (loss) and surplus as regards policyholders, which is called stockholders’ equity under GAAP.

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The table below sets forth our SAP net income (loss) for the three and six months ended June 30, 2023 and 2022 for each of our insurance subsidiaries and then reconciled to GAAP.

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Consolidated GAAP net (loss) income	$	(3,883)	$	9,266	$	(53)	$	9,452
Exclude: Midwest non-insurance transaction entities (American Life & Seneca Re)		(3,694)		5,413		(4,188)		3,856
GAAP net (loss) gain of statutory insurance entities	$	(189)	$	3,853	$	4,135	$	5,596
GAAP net (loss) income by statutory insurance entity:
American Life	$	(3,968)	$	10,660	$	(1,871)	$	11,551
Seneca Re Incorporated Cell 01		4,506		(7,595)		6,415		(7,535)
Seneca Re Incorporated Cell 03		(726)		788		(409)		1,580
GAAP net (loss) income	$	(188)	$	3,853	$	4,135	$	5,596
Reconciliation of GAAP and SAP
GAAP net (loss) income of American Life		(3,968)		10,660		(1,871)		11,551
Increase (decrease) due to:
Deferred acquisition costs		3,468		(9,052)		2,380		(15,846)
Coinsurance transactions		-		88,083		-		157,744
Carrying value of reserves		(144,552)		(80,747)		(252,272)		(143,935)
Foreign exchange and derivatives		(14,334)		5,767		(28,606)		20,366
Gain (loss) on sale of investments, net of asset valuation reserve		(11,922)		(6,130)		(31,742)		(12,181)
Other		152,780		(282)		276,995		192
SAP net (loss) income of American Life	$	(18,528)	$	8,299	$	(35,116)	$	17,891
								.
GAAP net income (loss) of Seneca Re Incorporated Cell 01		4,506		(7,595)		6,415		(7,535)
Increase (decrease) due to:
Deferred acquisition costs		636		586		1,291		1,110
Coinsurance transactions		(213)		71		-		148
Carrying value of reserves		(10,298)		(1,857)		(10,654)		(5,551)
Gain on sale of investments, net of asset valuation reserve		565		7,974		1,899		9,789
Other loss		6,387		(160)		5,846		(214)
SAP net income (loss) of Seneca Re Incorporated Cell	$	1,583	$	(981)	$	4,797	$	(2,253)
GAAP net income of Seneca Re Incorporated Cell 03		(726)		788		(409)		1,580
Increase (decrease) due to:
Deferred acquisition costs		602		280		974		521
Coinsurance transactions		(81)		23,905		-		23,756
Carrying value of reserves		(1,209)		(26,694)		(1,296)		(27,689)
Gain on sale of investments, net of asset valuation reserve		2,043		1,199		1,648		1,785
Other		-		(42)		-		(48)
SAP net income (loss) of Seneca Re Incorporated Cell 03	$	629	$	(564)	$	917	$	(95)
SAP net (loss) gain of statutory insurance entities	$	(16,316)	$	6,754	$	(29,402)	$	15,543

Key Operating and Non-GAAP Measures

We discuss below non-GAAP financial measures that management uses in conjunction with GAAP financial measures as an integral part of managing our business and to, among other things:

• monitor and evaluate the performance of our business operations and financial performance;

• facilitate internal comparisons of the historical operating performance of our business operations;

• review and assess the operating performance of our management team;

• analyze and evaluate financial and strategic planning decisions regarding future operations; and

• plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

Management believes the use of these non-GAAP measures, together with the relevant GAAP measures provides information that may enhance understanding of our results by investors. Non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to, our operating performance measures as prescribed by GAAP.

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Operating Metric – Annuity Premiums

We monitor annuity premiums as a key operating metric in evaluating the performance of our business. Annuity premiums, also referred to as sales or direct written premiums, do not correspond to revenues under GAAP, but are relevant metrics to understand our business performance. Under SAP, our annuity premiums received are treated as premium revenue. Our premium metrics include all sums paid into an individual annuity in a given period. We typically transfer all or a substantial portion of the premium and policy obligations to reinsurers. Ceded premium represents the premium we transfer to reinsurers in a given period. Retained premium represents the portion of premium received during a given period that was not ceded to reinsurers and will either be reinsured in a subsequent period or retained by us. We typically retain premiums prior to transferring them to reinsurers to facilitate block and other reinsurance transactions involving portfolios of annuity premiums.

The following table sets forth premiums received under SAP. Under GAAP these products are defined as deposit-type contracts; therefore, the premium revenue is accounted under GAAP as deposit-type liabilities on our Consolidated balance sheets and is not recognized in our Consolidated Statements of Comprehensive Loss.

	Six months ended June 30,
(In thousands)	2023		2022
Annuity Premiums (SAP)
Annuity direct written premiums	$	457,782	$	254,145
Ceded premiums		(218,429)		(100,023)
Net premiums retained	$	239,353	$	154,122

The increase in annuity direct written premiums reflect strong sales as 2023 begins, even in a challenging sales environment, in which competitors were pricing rates on annuity products aggressively. We sell annuities through the IMO channel. We aim to grow annuity direct written premiums by further developing our relationships with existing IMOs and increasing the number of IMO partners that distribute our annuity products, as well as increasing the number of states in which we are licensed to sell our annuity products. We also aim to distribute to new channels, including the registered investment advisor (RIA) channel as well as the bank and broker-dealer channels. The increase in ceded premiums was attributable primarily to the increase in annuity direct written premiums.

Operating Metric – Fees Received for Reinsurance

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2022		2021		2023		2022
Fees received for reinsurance(1)
Fees received for reinsurance - total	$	4,760	$	3,197	$	8,222	$	5,626

⁽¹⁾ Consists of: 1) amortization of deferred gain on reinsurance, which is a line item from our GAAP Consolidated Statements of Comprehensive Loss; and 2) deferred coinsurance ceding commission, which is a line item from our GAAP Consolidated Statements of Cash Flows.

For the three months ended June 30, 2023, fees received for reinsurance increased by $1.6 million compared to the prior year period due to higher ceded premiums. For the three months ended June 30, 2023, the components of fees received for reinsurance included $1.5 million of amortization of deferred gain on reinsurance from our Consolidated Statements of Comprehensive Loss and $3.3 million of deferred coinsurance ceding commission from our Consolidated Statements of Cash Flows.

For the six months ended June 30, 2023, fees received for reinsurance increased by $2.6 million compared to the prior year period due to higher ceded premiums. For the six months ended June 30, 2023, the components of fees received for reinsurance included $3.1 million of amortization of deferred gain on reinsurance from our Consolidated Statements of Comprehensive Loss and $5.2 million of deferred coinsurance ceding commission from our Consolidated Statements of Cash Flows.

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Reconciliation – Management Expenses to GAAP Expenses

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Management Expenses
G&A	$	12,521	$	6,999	$	24,034	$	15,850
Management interest credited		3,977		2,895		7,640		5,937
Amortization of deferred acquisition costs		1,914		1,052		3,617		1,902
Expenses related to retained business		5,891		3,947		11,257		7,839
Management expenses - total	$	18,412	$	10,946	$	35,291	$	23,689
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
G&A
Salaries and benefits - GAAP	$	5,817	$	4,298	$	11,320	$	8,615
Other operating expenses - GAAP		5,002		(2,240)		18,915		(4,060)
Subtotal		10,819		2,058		30,235		4,555
Adjustments:
Less: Stock-based compensation		(289)		(354)		(603)		(386)
Less: Mark-to-market option allowance		1,991		5,295		(5,598)		11,681
G&A	$	12,521	$	6,999	$	24,034	$	15,850
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Management Interest Credited
Interest credited - GAAP	$	12,590	$	(5,496)	$	20,279	$	(12,170)
Adjustments:
Less: FIA interest credited - GAAP		(8,613)		6,401		(14,941)		14,165
Add: FIA options cost - amortized - GAAP		-		1,990		2,302		3,942
Management interest credited	$	3,977	$	2,895	$	7,640	$	5,937
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Reconciliation - Management Expenses to GAAP Expenses
Total expenses - GAAP	$	26,529	$	(1,392)	$	56,294	$	(4,719)
Adjustments:
Less: Benefits		(1,206)		(994)		(2,163)		(994)
Less: Stock-based compensation		(289)		(354)		(603)		(386)
Less: Mark-to-market option allowance		1,991		5,295		(5,598)		11,681
Less: FIA interest credited - GAAP		(8,613)		6,401		(14,941)		14,165
Add: FIA options cost - amortized - GAAP		-		1,990		2,302		3,942
Management expenses - total	$	18,412	$	10,946	$	35,291	$	23,689

Operating Metric – Management and G&A Expenses

In addition to total expenses, we utilize management expenses as an economic measure to evaluate our financial performance. Management expenses consist of total GAAP expenses adjusted to eliminate items that fluctuate from quarter to quarter in a manner unrelated to core operations, which we believe are useful in analyzing operating trends. The most significant adjustments to arrive at management expenses include the use of management interest credited (as discussed below), the exclusion of stock-based compensation and the exclusion of the mark-to-market option allowance expense (included in other operating expenses) payable to reinsurers to cover their obligations under FIA policies we have reinsured with them. We believe the combined presentation and evaluation of total expenses together with management expenses provides information that can enhance an investor’s understanding of our underlying operating results.

For the three months ended June 30, 2023, GAAP general and administrative expenses totaled $24.0 million compared to $15.9 million for the prior year. For the three months ended June 30, 2023, as disclosed above, included in these expenses is mainly salaries, benefits and other operating expenses, along with $0.3 million of non-cash stock-based compensation and $ (5.6) million of non-cash mark-to-market expense of our derivative option allowance, which we exclude in our management G&A.

For the six months ended June 30, 2023, GAAP general and administrative expenses totaled $24.0 million compared to $15.9 million for the prior year. For the six months ended June 30, 2023, as disclosed above, included in these expenses is mainly salaries, benefits

60

and other operating expenses, along with $0.6 million of non-cash stock-based compensation and $ (5.6) million of non-cash mark-to-market expense of our derivative option allowance, which we exclude in our management G&A.

Operating Metric – Management Interest Credited

We utilize management interest credited, a component of management expenses, as an economic measure to evaluate our financial performance. GAAP interest credited contains significant technical considerations related to fair value accounting with respect to the mark-to-market change in the FIA embedded derivative liability and change in actuarial valuation of the FIA reserve, both of which are sensitive to changes in the market as well as changes in actuarial assumptions. Due to these technical considerations that we believe are less meaningful to management and investors, we exclude the GAAP interest credited expense related to our FIA products and include the amortized cost of options we purchase to service our FIA policy obligations. The sum of GAAP interest credited related to our multi-year guaranteed annuity (“MYGA”) products and the amortized cost of options we purchase to service our FIA products constitutes management interest credited.

For the three months ended June 30, 2023, GAAP interest credited totaled $12.6 million compared to $(5.5) million for the prior year. For the three months ended June 30, 2023, as disclosed above, included in these expenses is GAAP interest credited related to our retained FIA policies of approximately $8.6 million.

For the six months ended June 30, 2023, GAAP interest credited totaled $20.3 million compared to $(12.2) million for the prior year. For the six months ended June 30, 2023, as disclosed above, included in these expenses is GAAP interest credited related to our retained FIA policies of approximately $14.9 million.

Liquidity and Capital Resources

Investments

Information regarding our investment portfolio, which is comprised primarily of investment grade, fixed maturity  securities, is presented in Part I, Note 3 and the Consolidated Financial Statements in this report.

Comparative Cash Flows

At June 30, 2023 and December 31, 2022, we had cash and cash equivalents totaling $194.3 and $191.4 million, respectively. Our short-term liquidity requirements, within a 12-month operating cycle, are for the timely payment of claims and benefits to policyholders, operating expenses, interest payments and federal income taxes. Cash flow generated from operations has been, and is expected to be, adequate to meet our operating cash needs in the next 12 months. Cash flow in excess of operational needs has been used to fund business growth. Long-term liquidity requirements, beyond one year, are principally for the payment of future insurance and annuity benefits.

We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital transaction expenditures for the foreseeable future. As our state expansion continues, we expect an increase in our sales of our MYGA and FIA products. However, our ability to continue to meet our future liquidity requirements will depend on, among other things, our ability to achieve anticipated levels of cash flows generated from operations and our ability to manage costs and working capital successfully, all of which are subject to general economic, financial, competitive and other factors beyond our control. In the event we require any additional capital, we may be required to raise additional funds, including through the sale of capital stock or debt in the public capital markets or in privately negotiated transactions, and there can be no assurance that we will be able to raise any such financing on terms acceptable to us or at all. If such funds are not available in the future, we may be required to delay or significantly modify our operations, each of which could have a material adverse impact on our results of operations or financial condition.

Cash flow is a vital component of our business model because we receive annuity premiums and invest them upon receipt for our reinsurers and us and for the benefit of our policyholders.

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The following table summarizes our cash flows from operational, investing and financing activities for the periods indicated. See the Consolidated Statements of Cash Flow in our Consolidated financial statements for more detailed information.

	Six months ended June 30,
	2023		2022
(In thousands)
Net cash (used in) provided by operating activities	$	(17,886)	$	35,527
Net cash (used in) investing activities		(380,078)		(282,004)
Net cash provided by financing activities		400,825		233,428
Net (decrease) increase in cash and cash equivalents		2,861		(13,049)
Cash and cash equivalents:
Beginning of period		191,414		142,013
End of period	$	194,275	$	128,964

Cash Provided by Operating Activities

Net cash provided by operating activities was $62.4 million for the six months ended June 30, 2023, which was comprised primarily of an increase in deposit type liabilities of $107.4 million and an increase in receivable and payable for securities of $28.9 million, offset by decreases in realized gains on investments of $37.1 million, reinsurance recoverables of $33.7 million, and net premium and discount of investments of $8.6 million.

Cash Used in Investing Activities

Net cash used for investing activities for the six months ended June 30, 2023 was $460.3 million. The primary source of cash used was from our purchase of investments from sales of the MYGA and FIA products of $722.2 million. Offsetting this use of cash was our sale of investments of $264.2 million.

Cash Provided by Financing Activities

Net cash provided by financing activities in the six months ended June 30, 2023 was $400.8 million. The primary source of cash was net receipts on the MYGA and FIA products of $457.8 million.

As of June 30, 2023, we held $201.2 million of cash, U.S. government and agency fixed maturity securities and public equity securities (excluding non-redeemable preferred stocks and foreign equity securities) which, under normal market conditions, could be rapidly liquidated. Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a downgrade of our Senior Notes rating to noninvestment grade status or a downgrade in our insurance subsidiaries' financial strength ratings. The rating agencies also consider the interdependence of our individually rated entities; therefore, a rating change in one entity could potentially affect the ratings of other related entities.

Capital Resources

We have determined the amount of capital which is needed to adequately fund and support business growth, primarily based on risk-based capital formulas including those developed by the NAIC. Historically, our insurance subsidiary has generated capital in excess of such needed levels. If necessary, we also have other potential sources of liquidity that could provide for additional funding to meet corporate obligations. Our regulated insurance subsidiary is subject to various regulatory restrictions which limit the amount of annual dividends or other distributions, including loans or cash advances, available to us without prior approval of the insurance regulatory authorities. The aggregate amount of dividends that may be paid in 2023 from our insurance subsidiary without prior regulatory approval is approximately $7.4 million. We anticipate that our sources of capital will continue to generate sufficient capital to meet the needs for business growth and debt interest payments.

Total capital was $2,280.9 million at June 30, 2023, including $25.0 million of short-term and long-term debt. Total debt represented 1.10% of total capital including net unrealized investment gains on fixed maturity securities (1.11% of total capital excluding net unrealized investment gains on fixed maturity securities) at June 30, 2023.

Stockholders’ equity was $29.3 million at June 30, 2023, including net unrealized investment gains on fixed maturity securities of negative $57.4 million after taxes and the related impact of DAC associated with annuity contracts with account values. The market value of our common stock and the market value per share were $47.0 million and $26.32, respectively, at June 30, 2023.

The Company did not pay dividends in the six months ended June 30, 2023.

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The NAIC has established minimum capital requirements in the form of RBC that factors the type of business written by an insurance company, the quality of its assets and various other aspects of its business to develop a minimum level of capital known as “authorized control level risk-based capital” and compares this level to adjusted statutory capital that includes capital and surplus as reported under SAP, plus certain investment reserves. Should the ratio of adjusted statutory capital to control level RBC fall below 200%, a series of remedial actions by the affected company would be required. As of December 31, 2022, and 2021, the RBC ratio of American Life was 558% and 764%, respectively.

On November 22, 2022, the Company entered into a three-year senior secured revolving credit agreement (“Credit Agreement”) with Royal Bank of Canada and other lenders with a capacity of $30 million (the “Revolving Credit Facility”). The maturity date of the Credit Agreement is November 22, 2025. The obligations under the Credit Agreement are secured by a first priority lien on a variety of our assets. The balance of the revolving credit was $25.0 million at June 30, 2023, with $5.0 million unutilized credit.

Under the terms of the Credit Agreement, the Company has the option of selecting an applicable variable interest rate of (a) an adjusted term standard overnight financing rate (“SOFR”), plus an applicable margin or (b) a base rate, plus an applicable margin. Depending on our debt to capitalization ratio, the applicable margin can range from 2.50% to 3.25% for the base rate and from 3.50% to 4.25% for an adjusted term SOFR loan.

At its November 2022 meeting, the Company’s Board of Directors approved the “FHLB Program Recommendations and Strategy Document” that allowed for FHLB funding to be used for spread lending business, beginning in the fourth quarter of 2022. The strategy initially utilizes FHLB advances of up to 5% of American Life’s balance sheet. As of June 30, 2023, we had $66.0 million of borrowings outstanding with the Federal Home Loan Bank (“FHLB”).

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” the Company is not required to 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.

As required by Rule 13a-15(b) under the Exchange Act, management (with the participation of our chief executive officer and principal financial officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a 15(e) and 15d 15(e) under the Exchange Act as of December 31, 2022. Based on this evaluation, our principal executive and financial officers concluded that, as of the end of the period covered in this report, our disclosure controls and procedures along with the related internal controls over financial reporting were effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management, (with the participation of our chief executive officer and principal financial officer), carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a 15(e) and 15d 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2022. Based on this evaluation, our principal executive and financial officers concluded that, as of the end of the period covered in this report, our disclosure controls and procedures along with the related internal controls over financial reporting were effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

There have not been any changes to our risk factors previously disclosed in our 2022 Annual Report on Form 10-K.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

64

EXHIBIT NUMBER

2.1	Agreement and Plan of Merger, dated as of April 30, 2023, by and among Midwest Holding Inc., Midas Parent, LP and Midas Merger Acquisition Sub, Inc. (incorporated herein by reference to Exhibit 2.1 of the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 1, 2023).
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2022.
31.2*	Certification of Executive Vice President of Accounting and Finance pursuant to Section 302 of the Sarbanes-Oxley Act of 2022.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2022.
32.2*	Certification of Executive Vice President of Accounting and Finance pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2022.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 11, 2023

MIDWEST HOLDING INC.
By:	/s/ Georgette Nicholas
Name:	Georgette Nicholas
Title:	Chief Executive Officer
By:	/s/ Daniel Maloney
Name:	Daniel Maloney
Title:	Executive Vice President of Accounting and Finance

65

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Georgette Nicholas, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Midwest Holding Inc. (the “Company”);

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 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 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.

Date: August 11, 2023	/s/ Georgette Nicholas
	Georgette Nicholas
	Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Daniel Maloney, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Midwest Holding Inc. (the “Company”);

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 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 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.

Date: August 11, 2023	/s/ Daniel Maloney
	Daniel Maloney
	Executive Vice President of Accounting and Finance

EX-32.1

Exhibit 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Midwest Holding Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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.

Date: August 11, 2023	/s/ Georgette Nicholas
	Georgette Nicholas
	Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Midwest Holding Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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.

Date: August 11, 2023	/s/ Daniel Maloney
	Daniel Maloney
	Executive Vice President of Accounting and Finance

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2023	Aug. 11, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2023
Entity File Number	001-39812
Entity Registrant Name	MIDWEST HOLDING INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	20-0362426
Entity Address, Address Line One	2900 S. 70th Street, Suite 400
Entity Address, City or Town	Lincoln
Entity Address, State or Province	NE
Entity Address, Postal Zip Code	68506
City Area Code	402
Local Phone Number	817-5701
Title of 12(b) Security	Voting Common Stock, $0.001 par value
Trading Symbol	MDWT
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		3,744,645
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q2
Entity Central Index Key	0000355379
Amendment Flag	false

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Assets
Fixed maturities, available for sale, at fair value (amortized cost: $1,609,005 in 2023, and $1,269,735 in 2022. Allowance for credit losses of $8,916 in 2023.) (See Note 3)	$ 1,538,912	$ 1,214,635
Mortgage loans on real estate, held for investment (Allowance for credit losses of $1,493 in 2023.)	352,908	227,047
Derivative instruments (See Note 4)	36,861	15,934
Equity securities, at fair value (cost: $5,592 in 2023 and $5,592 in 2022)	5,144	5,111
Other invested assets (Allowance for credit losses of $1,343 in 2023.)	107,902	112,431
Preferred stock	33,805	31,415
Deposits and notes receivable	11,012	8,359
Policy loans	55	25
Total investments	2,086,599	1,614,957
Cash and cash equivalents	194,275	191,414
Deferred acquisition costs, net	57,604	43,433
Premiums receivable	372	362
Accrued investment income	35,050	25,165
Reinsurance recoverables (See Note 8)	39,899	20,190
Property and equipment, net	1,811	1,897
Receivable for securities sold	441	10,518
Other assets	11,990	12,495
Total assets	2,428,041	1,920,431
Liabilities:
Benefit reserves	12,646	12,945
Deposit-type contracts (See Note 6)	2,218,725	1,743,348
Other policy-holder funds	6,474	4,105
Notes payable (See Note 7)	25,000	25,000
Deferred gain on coinsurance transactions	43,214	38,063
Payable for securities purchased	44,656	8,872
Other liabilities	48,026	53,721
Total liabilities	2,398,741	1,886,054
Stockholders' Equity:
Preferred stock, $0.001 par value; authorized 2,000,000 shares; no shares issued and outstanding as of June 30, 2023 or December 31, 2022
Voting common stock, $0.001 par value; authorized 20,000,000 shares; 3,744,645 shares issued and outstanding as of June 30, 2023, and 3,727,976 as of December 31, 2022, respectively; non-voting common stock, $0.001 par value, 2,000,000 shares authorized; no shares issued and outstanding June 30, 2023 and December 31, 2022, respectively	4	4
Additional paid-in capital	139,085	138,482
Treasury stock	(175)	(175)
Accumulated deficit	(67,746)	(63,019)
Accumulated other comprehensive loss	(57,433)	(51,386)
Total Midwest Holding Inc.'s stockholders' equity	13,735	23,906
Noncontrolling interests	15,565	10,471
Total stockholders' equity	29,300	34,377
Total liabilities and stockholders' equity	$ 2,428,041	$ 1,920,431

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Consolidated Balance Sheets
Amortized Cost	$ 1,609,005	$ 1,269,735
Fixed maturities, Allowance for credit losses	8,916
Mortgage loan on real estate, Allowance for credit losses	1,493
Equity securities, amortized cost	5,592	$ 5,592
Other invested assets, Allowance for credit losses	$ 1,343
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	3,744,645	3,727,976
Common stock, shares outstanding	3,744,645	3,727,976
Non Voting Common Stock, par value (in dollars per share)	$ 0.001	$ 0.001
Non Voting Common Stock, Shares Authorized	2,000,000	2,000,000
Non Voting Common Stock, Shares Issued	0	0
Non Voting Common Stock, Shares Outstanding	0	0

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Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Revenues
Investment income, net of expenses	$ 24,248	$ 10,541	$ 43,441	$ 16,783
Net realized gain (loss) on investments	2,087	(12,636)	18,373	(18,810)
Amortization of deferred gain on reinsurance transactions	1,498	1,043	3,071	2,012
Policy administration fees	480	514	1,119	862
Service fee revenue, net of expenses	631	416	1,285	1,514
Other revenue	122		228	100
Total revenue	29,066	(122)	67,517	2,461
Expenses
Interest credited	12,590	(5,496)	20,279	(12,170)
Benefits	1,206	994	2,163	994
Amortization of deferred acquisition costs	1,914	1,052	3,617	1,902
Salaries and benefits	5,817	4,298	11,320	8,615
Other operating expenses	5,002	(2,240)	18,915	(4,060)
Total expenses	26,529	(1,392)	56,294	(4,719)
Net income before income tax expense	2,537	1,270	11,223	7,180
Income tax (expense) benefit (See Note 9)	(2,969)	2,125	(5,876)	(2,597)
Net (loss) income after income tax expense	(432)	3,395	5,347	4,583
Less: Income (loss) attributable to noncontrolling interest	3,451	(5,871)	5,400	(4,869)
Net (loss) income attributable to Midwest Holding Inc.	(3,883)	9,266	(53)	9,452
Comprehensive loss:
Unrealized gains (losses) on investments arising during the three months ended June 2023 and 2022, net of offsets, net of tax (($0.9) million and $2.0 million, respectively); Unrealized gains (losses) on investments arising during the six months ended June 2023 and 2022, net of offsets, net of tax ($1.3 million and $4.7 million, respectively)	4,322	(19,666)	(6,230)	(29,369)
Less: Reclassification adjustment for net realized gains (losses) on investments, net of offsets during the three months ended June 2023 and 2022 (net of tax less than $(0.1) million and $(2.4) million respectively); Reclassification adjustment for net realized gains (losses) on investments, net of offsets during the six months ended June 2023 and 2022 (net of tax less than $(0.1) million and $(5.0) million respectively)	173	1,369	183	858
Other comprehensive income (loss)	4,495	(18,296)	(6,047)	(28,511)
Comprehensive income (loss):	$ 612	(9,030)	$ (6,100)	(19,059)
Total other-than-temporary impairment		534		534
Net other-than-temporary impairment loss recognized in net income		$ 534		$ 534
Income per common share
Basic (in dollars per share)	$ (1.04)	$ 2.48	$ (0.01)	$ 2.53
Diluted (in dollars per share)	$ (1.04)	$ 2.47	$ (0.01)	$ 2.52

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Consolidated Statements of Comprehensive Loss (Parenthetical) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Consolidated Statements of Comprehensive Loss
Unrealized losses on investments arising during period, net of tax	$ (0.9)	$ 2.0	$ 1.3	$ 4.7
Reclassification adjustment for net realized losses on investments, net of tax	$ (0.1)	$ (2.4)	$ (0.1)	$ (5.0)

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Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Treasury Stock	Common Stock	Additional Paid-In Capital	Accumulated Deficit Cumulative effect of change in accounting estimate	Accumulated Deficit	AOCI	Noncontrolling Interest	Cumulative effect of change in accounting estimate	Total
Balance at Dec. 31, 2021	$ (175)	$ 4	$ 138,452		$ (70,159)	$ 2,634	$ 15,000		$ 85,756
Net income					9,452				9,452
Employee stock options			386						386
Unrealized losses on investments, net of taxes						(28,511)			(28,511)
Noncontrolling interest							(2,587)		(2,587)
Balance at Jun. 30, 2022	(175)	4	138,838		(60,707)	(25,877)	12,413		64,496
Balance at Mar. 31, 2022	(175)	4	138,483		(69,973)	(7,581)	18,432		79,190
Net income					9,266				9,266
Employee stock options			355						355
Unrealized losses on investments, net of taxes						(18,296)			(18,296)
Noncontrolling interest							(6,019)		(6,019)
Balance at Jun. 30, 2022	(175)	4	138,838		(60,707)	(25,877)	12,413		64,496
Balance at Dec. 31, 2022	(175)	4	138,482	$ (4,674)	(63,019)	(51,386)	10,471	$ (4,674)	34,377
Net income					(53)				(53)
Employee stock options			603						603
Unrealized losses on investments, net of taxes						(6,047)			(6,047)
Noncontrolling interest							5,094		5,094
Balance at Jun. 30, 2023	(175)	4	139,085		(67,746)	(57,433)	15,565		29,300
Balance at Mar. 31, 2023	(175)	4	138,789		(63,863)	(61,928)	12,023		24,850
Net income					(3,883)				(3,883)
Employee stock options			296						296
Unrealized losses on investments, net of taxes						4,495			4,495
Noncontrolling interest							3,542		3,542
Balance at Jun. 30, 2023	$ (175)	$ 4	$ 139,085		$ (67,746)	$ (57,433)	$ 15,565		$ 29,300

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Cash flows from operating activities:
(Loss) income attributable to Midwest Holding Inc.	$ (53)	$ 9,452
Adjustments to arrive at cash provided by operating activities:
Net premium and discount on investments	(12,468)	(3,834)
Depreciation and amortization	189	143
Stock options	603	386
Amortization of deferred acquisition costs	4,779	1,902
Deferred acquisition costs capitalized	(19,356)	(10,635)
Net realized (loss) gain on investments	(18,310)	18,810
Allowance for Credit Losses	4,751
Deferred gain on coinsurance transactions	5,151	3,614
Changes in operating assets and liabilities:
Reinsurance recoverable	(15,284)	18,383
Interest and dividends due and accrued	(9,886)	(4,674)
Premiums receivable	(10)	(6)
Deposit-type liabilities	79,646	(27,795)
Policy liabilities	2,069	2,933
Receivable and payable for securities	45,861	16,955
Other assets and liabilities	(5,317)	9,893
Net cash provided by operating activities	62,365	35,527
Fixed maturities available for sale:
Purchases	(378,752)	(418,011)
Proceeds from sale or maturity	58,471	187,670
Mortgage loans on real estate, held for investment
Purchases	(200,367)	(55,431)
Proceeds from sale	73,112	46,853
Derivatives
Purchases	(140,521)	(11,421)
Proceeds from sale	132,672	3,232
Equity securities
Purchases	(33)
Proceeds from sale		11,009
Other invested assets
Purchases	(727)	(44,257)
Proceeds from sale		3,334
Purchase of restricted common stock	(1,665)
Preferred stock
Purchases	(2,389)	(3,474)
Net change in policy loans	(30)	65
Net purchases of property and equipment	(100)	(1,573)
Net cash (used in) investing activities	(460,329)	(282,004)
Cash flows from financing activities:
Net transfer to noncontrolling interest	5,094	(2,587)
Receipts on deposit-type contracts	457,782	254,145
Withdrawals on deposit-type contracts	(62,051)	(18,130)
Net cash provided by financing activities	400,825	233,428
Net increase (decrease) in cash and cash equivalents	2,861	(13,049)
Cash and cash equivalents:
Beginning	191,414	142,013
Ending	194,275	128,964
Supplementary information
Cash paid for taxes	$ 8,200	$ 2,870

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Nature of Operations and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2023

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Summary of Significant Accounting Policies

Note 1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Midwest Holding Inc. (“Midwest,” “the Company,” “we,” “our,” or “us”) was incorporated in Nebraska on October 31, 2003 for the primary purpose of operating a financial services company. The Company redomesticated from the State of Nebraska to the State of Delaware on August 27, 2020. The Company is in the life and annuity insurance business and operates through its wholly owned subsidiaries, American Life & Security Corp. (“American Life”), and 1505 Capital LLC (“1505 Capital”) as well as through its sponsored captive reinsurance company, Seneca Reinsurance Company, LLC (“Seneca Re”).

American Life is a Nebraska-domiciled life insurance company, that was licensed to sell, underwrite, and market life insurance and annuity products in 25 states and the District of Columbia as of June 30, 2023.

Effective March 12, 2020, Seneca Re, a Vermont limited liability company, was formed by Midwest to operate as a sponsored captive insurance company for the purpose of insuring and reinsuring various types of risks of its participants through one or more protected cells and to conduct any other business or activity that is permitted for sponsored captive insurance companies under Vermont insurance regulations. On March 30, 2020, Seneca Re received its Certificate of Authority to transact the business of a captive insurance company. On May 12, 2020, Midwest contributed $0.3 million to Seneca Re for a 100% ownership interest. On April 15, 2020, Midwest entered into an operating agreement with Seneca Re and as of June 30, 2023, Seneca Re has three incorporated cells, including Seneca Incorporated Cell, LLC 2020-01 (“SRC1”) and Seneca Incorporated Cell 2021-03 (“SRC3”), which are consolidated in our financial statements. Additionally, Seneca Incorporated Cell 2022-04 (“SRC4”) was established on September 30, 2022; however, management has determined that the entity does not qualify for consolidation into our financial statements.

Midwest initially owned a 100% interest in SRC1; however, on December 30, 2021 Midwest closed the sale of approximately 70% of SRC1 to a subsidiary of ORIX Corporation USA (“ORIX USA”) for $15.0 million. Under the terms of the agreement, Midwest now holds a 30% ownership interest in SRC1. ORIX Advisers, LLC, another subsidiary of ORIX USA, is the manager of the assets underlying SRC1’s reinsurance obligations going forward, replacing Midwest’s asset management arm, 1505 Capital.

On July 27, 2020, American Life entered into a reinsurance agreement (the “Reinsurance Agreement”) with a new protected cell formed by Seneca Re (Seneca Incorporated Cell, LLC 2020-02 (“SRC2”)). SRC2 was capitalized by Crestline Management, L.P. (“Crestline”), an affiliate of Crestline Assurance Holdings LLC, a significant shareholder of Midwest. The Reinsurance Agreement, which was effective as of April 24, 2020, was entered into pursuant to a Master Letter Agreement (the “Master Agreement”) dated and effective as of April 24, 2020, by and among American Life, Seneca Re and Crestline. The Reinsurance Agreement supports American Life’s new business production by providing reinsurance capacity for American Life to write certain kinds of fixed indexed and multi-year guaranteed annuity products. Concurrently with the Reinsurance Agreement:

● American Life and SRC2 each entered into investment management agreements with Crestline, pursuant to which Crestline manages the assets that support the reinsured business; and

● American Life and SRC2 entered into a trust agreement whereby SRC2 maintains for American Life’s benefit a trust account that supports the reinsured business.

Under the Master Agreement, Crestline agreed to provide reinsurance funding for a quota share percentage of 25% of the liabilities of American Life arising from its multi-year guaranteed annuities (“MYGA”) and a quota share percentage of 40% of the liabilities of American Life arising from its fixed indexed annuity (“FIA”) products. Effective December 8, 2020, American Life entered into a novation agreement with SRC2 and Crestline Re SPC, an exempted segregated portfolio company incorporated under the laws of the Cayman Islands, for and on behalf of Crestline SP1, a segregated portfolio company of Crestline Re SPC, under which the above described Reinsurance Agreement, as well as the trust and related asset management agreements, were novated and replaced with substantially similar agreements entered into by American Life and Crestline SP1. The Reinsurance Agreement was most recently amended effective in April 2023 to allow Crestline to provide reinsurance funding for a quota share percentage of 20% of the liabilities of American Life arising from its three-year multi-year guaranteed annuities (“MYGAs”), a quota share percentage of 10% of its five-year MYGAs, and a quota share percentage of 0% of the liabilities of American Life arising from its FIAs. The amended agreement limited the total amounts to be reinsured at $550 million.

In addition, pursuant to the Master Agreement, the parties thereto have agreed to enter into one or more separate agreements whereby, among other things and subject to certain conditions, American Life will agree to reinsure additional new business production to one or more reinsurers formed and/or capitalized by Crestline, Midwest or an appropriate affiliate will be compensated for providing

administrative services to certain advisory clients of Crestline, and American Life will consider investing in certain assets originated or sourced by Crestline.

On June 26, 2021, the Nebraska Department of Insurance (“NDOI”) issued its non-disapproval of the Modified Coinsurance Agreement (“Modco AEG Agreement”) of American Life with American Republic Insurance Company (“AEG”), an Iowa domiciled reinsurance company. The agreement was executed on June 29, 2021. Under the Modco AEG Agreement, American Life initially ceded to AEG (and subsequently renewed), on a modified coinsurance basis, a 20% quota share of certain liabilities with respect to its MYGA-5 business and an initial 20% quota share of certain liabilities with respect to its FIA products. American Life has established a Modco Deposit Account to hold the assets for the Modco AEG Agreement. Effective February 28, 2023, AEG elected not to extend its commitment period for reinsuring liabilities under its Modco AEG Agreement; as a result, AEG’s current quota share with respect to MYGA and FIA policies is 0%. The Modco AEG Agreement remains in place, and AEG remains responsible for previously ceded liabilities.

As of November 10, 2021, Midwest purchased 100% of the common stock of an intermediary holding company which immediately purchased 100% of SRC3 Class A and B membership interests. Also dated as of November 10, 2021 but effective as of July 1, 2021, American Life and SRC3 entered into a Funds Withheld and Modified Coinsurance Agreement, whereby, SRC3 agreed to provide reinsurance funding for an ongoing quota share percentage of 45% of the liabilities of American Life arising from its MYGA products and a quota share percentage of 45% of the liabilities of American Life arising from its FIA products. The agreement with SRC3 has been amended, most recently in the fourth quarter of 2022, to provide one-time reinsurance funding for a quota share of $10.0 million of the liabilities of American Life arising from its 10-year FIA products.

As of September 30, 2022, American Life entered into a reinsurance agreement (the “Reinsurance Agreement”) with a new protected cell formed by Seneca Re (Seneca Incorporated Cell, LLC 2022-04 (“SRC4”)). SRC4 was capitalized by loans from Embrace Software, Inc. and Tillman Networks LLC. The Reinsurance Agreement was effective as of July 1, 2022, by and between American Life and SRC4. The Reinsurance Agreement supports American Life’s new business production by providing reinsurance capacity for American Life to write certain kinds of fixed indexed and multi-year guaranteed annuity products. Under the Reinsurance Agreement, SRC4 initially agreed to provide reinsurance funding for a quota share percentage of 45% of the liabilities of American Life arising from its MYGA-5 products and a quota share percentage of 10% of the liabilities of American Life arising from its MYGA-3 products. American Life has established a Modco Deposit Account, a Funds Withheld custody account, and a Trust Account pursuant to the Reinsurance Agreement. The initial settlement included net premium of $21.4 million and net reserves of $21.5 million for the Modco Deposit Account. Also on September 30, 2022, American Life entered into an Investment Management Agreement (“IMA”) with CoVenture Management, LLC (“CoVenture”) naming CoVenture as the manager of certain assets held by American Life on behalf of SRC4.

Management evaluates the Company as one reporting segment in the life insurance industry. The Company is primarily engaged in the underwriting and marketing of annuity products through American Life, and then reinsuring such products with third-party reinsurers, and since May 13, 2020, with Seneca Re protected cells. American Life’s legacy product offerings consisted of a multi-benefit life insurance policy that combined cash value life insurance with a tax deferred annuity and a single premium term life product. American Life presently offers six annuity products: two MYGAs, two FIAs, and two bonus plans associated with the FIA product. It is not presently offering any traditional life insurance products.

Basis of Presentation

These consolidated financial statements for the three and six months ended June 30, 2023 and 2022 have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is a summary of our significant accounting policies and estimates. 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. All intercompany accounts and transactions have been eliminated in consolidation and certain immaterial reclassifications have been made to the prior period results to conform to the current period’s presentation with no impact on results of operations or total stockholders’ equity.

Credit Loss Impairments for Fixed Maturities and Other Invested Assets

The Company adopted new current expected credit loss guidance on January 1, 2023 impacting the Company’s investment portfolio. For fixed maturities, the difference between amortized cost, net of credit loss allowance, (amortized cost, net) and fair value is reported as a component of accumulated other comprehensive income (“AOCI”) on the consolidated balance sheet and is not reflected in the operating results of any period until reclassified to net income upon consummation of a transaction with an unrelated third party or when a credit loss allowance is recorded.  The Company has a comprehensive portfolio monitoring process to evaluate all our fixed maturities on a quarterly basis that may require a credit loss allowance.  These reviews, in conjunction with the Company’s investment managers’

reports and relevant factors such as (1) the financial condition and near-term prospects of the issuer; (2) the Company’s intent to sell a fixed maturity or whether it is more likely than not that the Company will be required to sell a fixed maturity before the anticipated recovery in value; (3) the market leadership of the issuer; (4) the debt ratings of the issuer; and (5) the cash flows and liquidity of the issuer or the underlying cash flows, as required for our investment models, are all considered in the impairment assessment.

If the Company has not made the decision to sell and it is not more likely than not that the Company will be required to sell before the anticipated recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the fixed maturity. The Company estimates the anticipated recovery value based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the fixed maturity’s current effective rate and are compared to the amortized cost basis of the fixed maturity. The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the fixed maturity. All reasonably available information relevant to the collectability of the fixed maturity are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the fixed maturity, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the insurer, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate the anticipated recovery value if the Company determines that the fixed maturity is dependent on the liquidation of collateral for ultimate settlement.

If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis, a credit loss allowance is recorded as a net investment loss for the shortfall in expected cash flows; however, the amortized cost basis, net of the credit loss allowance, may not be lower than the fair value of the fixed maturity. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed maturity does not have sufficient cash flows or other information to estimate a recovery value for the fixed maturity, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recognized as a net investment loss.

When a fixed maturity is sold or otherwise disposed or the fixed maturity is deemed uncollectible and written-off, the Company reverses amounts previously recognized in the credit loss allowance through net investment gains (losses). Recoveries after write-offs are recognized when received. The Company does not measure a credit loss allowance on accrued interest receivable as accrued interest receivable is written off to net investment income in a timely manner when there are concerns regarding collectability.

Fixed Maturities

All fixed maturities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value, net of allowances for expected credit losses, as of the financial statement date. Premiums and discounts on fixed maturity debt instruments are amortized using the scientific-yield method over the term of the instruments. Realized gains and losses on fixed maturities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in accumulated other comprehensive (loss) income.

Investment income consists of interest, dividends, gains and losses from investments, and real estate income, which are recognized on an accrual basis along with the amortization of premiums and discounts.

Certain available-for-sale investments are maintained as collateral under Funds Withheld (“FW”) and Modified Coinsurance (“Modco”) agreements but the assets and total returns or losses on the asset portfolios belong to the third-party reinsurers. American Life has treaties with several third-party reinsurers that have FW and Modco provisions. In a Modco agreement, the ceding entity retains the assets equal to the modified coinsurance reserves retained. In a FW agreement, assets that would normally be paid over to a reinsurer are withheld by the ceding company to permit statutory credit for unauthorized reinsurers to reduce the potential credit risk. The unrealized gains/losses on those investments are passed through to the third-party reinsurers as either a realized gain or loss on the Consolidated Statements of Comprehensive Loss.

Mortgage Loans on Real Estate

Mortgage loans on real estate, held for investment are carried at unpaid principal balances, net of allowance for expected credit losses. Interest income is recognized in net investment income at the contract interest rate when earned. A mortgage loan is considered to be impaired when 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 for impairments on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlements 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 and disposition of collateral. These evaluations are revised as conditions change and added information becomes available. As of June 30, 2023, the Company held one asset valued at $7.7 million with a total impairment of $1.4 million, and one asset with an impairment for the full value of $0.6 million. At December 31, 2022, the company had one asset valued at $7.7 million with a total impairment of $1.4 million.

Derivative Instruments

Derivatives are used to hedge the risks experienced in our ongoing operations, such as equity, interest rate and cash flow risks, or for other risk management purposes, which primarily involve managing liability risks associated with our indexed annuity products and reinsurance agreements. Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, or other underlying notional amounts. Derivative assets and liabilities are carried at fair value on the consolidated balance sheets.

To qualify for hedge accounting, at the inception of the hedging relationship, the Company must formally document our designation of the hedge as a cash flow or fair value hedge and our risk management objective and strategy for undertaking the hedging transaction. In this documentation, we would identify how the hedging instrument is expected to hedge the designated risks related to the hedged item, the method that would be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method which would be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness would be formally assessed at inception and periodically throughout the life of the designated hedging relationship.

During the last quarter of 2020, the Company began investing in futures to hedge the fluctuations in various aspects of our business. The formal documentation and hedge effectiveness was not completed at the date we entered into those futures contracts; therefore, they do not qualify for hedge accounting. The futures change in fair market values were recorded on our Consolidated Statements of Comprehensive Loss as realized gains or (losses).

Additionally, reinsurance agreements written on a FW or Modco basis contain embedded derivatives on our annuity products. Gains or (losses) associated with the performance of assets maintained in the modified coinsurance deposit and funds withheld accounts are reflected as realized (losses) or gains in the Consolidated Statements of Comprehensive Loss.

Equity Securities

Equity securities at June 30, 2023, consisted of exchange traded funds (“ETFs”). The ETFs are carried at fair value with the change in fair value recorded through realized gains and losses in the Consolidated Statements of Comprehensive Loss. As of June 30, 2023, and December 31, 2022 we held $5.1 million of ETFs.

Preferred Stock

The company holds investments in preferred stock of $33.8 million as of June 30, 2023 and $31.4 million as of December 31, 2022, of which $10.0 million was redeemable at both dates. Changes in the fair value of preferred stock are recorded through unrealized gains and losses in net investment income in the Consolidated Statements of Comprehensive Loss.

In 2020 American Life entered into a series of transactions with an unaffiliated entity, Ascona Group Holdings Ltd (“AGH”) acquiring preferred equity and warrants, and later created a special purpose vehicle, Ascona Asset Holding LLC (“AAH”), to hold the preferred equity and warrants, and later created Ascona Collinwood HoldCo LLC (“ACH”) to be the sole member of AAH. American Life and Crestline Re SP1 own 74% and 26%, respectively, of ACH. American Life is carrying the preferred equity and warrants at a market value in USD of $12.2 million as of June 30, 2023 and $10.5 million of December 31, 2022. For the three months ended June 30, 2023, $0.5 million of investment income related to ACH was recognized, and $0.1 million was attributed to the noncontrolling interest held by Crestline Re SP1. For the three months ended June 30, 2022, $0.2 million of investment income was recognized, and less than $0.1 million was attributed to Crestline Re SP1. For the six months ended June 30, 2023 $2.8 million of investment income related to ACH was recognized, and $0.7 million was attributed to the noncontrolling interest held by Crestline Re SP1. For the six months ended June 30, 2022, $1.8 million of investment income was recognized, and $0.5 million was attributed to Crestline Re SP1.

Other Invested Assets

Other invested assets consists of approximately $107.9 million of various investments. Of this total, approximately $97.7 million are primarily collateral loans, and $10.2 million of private credit and equipment leases. The collateral loans, private credit and equipment leases are carried at fair market value, net of allowance for expected credit losses. Also, we had an initial investment of $19.0 million investment in a private fund between American Life and an unaffiliated entity, PF Collinwood Holdings, LLC (“PFC”), with American Life owning 100% of the entity effective January 2021. The fair value of the PFC investment as of June 30, 2023, was $11.2 million and as of December 31, 2022, $13.7 million, respectively, with any change in fair market value recorded in unrealized gains and losses in equity on the balance sheet.  On February 2, 2022, we established a special purpose vehicle, Python Asset Holding LLC, with American Life owning 100% of the entity with an initial investment of $7.4 million. As of June 30, 2023, our investment in Python was carried at the net asset value (“NAV”) plus approximately $0.7 million of investment income.

Deposits and notes receivable

Investment escrow

The Company held in escrow $1.6 million and $0.8 million as of June 30, 2023 and December 31, 2022, respectively. The cash held at year end was used to purchased mortgages in July and January 2023, respectively.

Federal Home Loan Bank stock

American Life initially purchased Federal Home Loan Bank of Topeka (“FHLB”) common stock on May 5, 2021. This investment was to solidify our membership with FHLB Topeka. The carrying value of FHLB stock approximates fair value since the Company can redeem the stock with FHLB at cost. As a member of the FHLB, the Company is required to purchase this stock, which is carried at cost and classified as restricted equity securities.

Membership allows access to various funding arrangements to provide a source of additional liquidity. As of June 30, 2023, the Company had pledged assets with a market value of $187.2 million to FHLB to allow a borrowing capacity of $170.3 million and $121.1 million pledged as of December 31, 2022. As of June 30, 2023 we had $66.0 million of outstanding funding arrangements, and $29.0 million outstanding as of December 31, 2022.

Notes Receivable

The Company held notes receivable carried at fair value of $6.4 million and $6.3 million as of June 30, 2023 and December 31, 2022, respectively, between American Life and a related party. The note receivable has an annual interest rate of 5% which is paid in kind (“PIK”) interest per annum that increases the outstanding note balance. This note was rated BBB+ by a nationally recognized statistical rating organization. This note matures on June 18, 2050. See Note 16 – Related Party – Chelsea for details regarding this note.

Policy Loans

Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value.

Cash and Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Deferred Acquisition Costs

Deferred acquisition costs (“DAC”) consist of incremental direct costs, net of amounts ceded to third-party reinsurers, 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. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions.

The following table represents a roll forward of DAC, net of reinsurance:

(In thousands)	June 30, 2023		December 31, 2022
Beginning balance	$	43,433	$	24,530
Additions		19,356		23,857
Amortization		(3,938)		(3,905)
Interest		(841)		(883)
Impact of unrealized investment losses		(406)		(166)
Ending balance	$	57,604	$	43,433

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. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which in management’s judgment require an immediate review. The Company performed a recoverability analysis during the second quarter of 2023 and determined that all DAC balances were recoverable as of June 30, 2023 and December 31, 2022.

Premiums Receivable

Premiums receivable consists of premiums earned on our legacy insurance business which have been earned but have not yet been collected. Amounts are receivable from our legacy business partners and were less than $0.4 million and $0.4 million at June 30, 2023 and December 31, 2022 respectively.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over three to seven years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $0.1 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense totaled $0.2 million and $0.1 million for the six months ended June 30, 2023 and 2022, respectively. The accumulated depreciation, net of disposals, totaled $1.6 million and $1.4 million as of June 30, 2023 and December 31, 2022, respectively.

Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. The Company determined that no such events occurred in the periods covered by the Consolidated Financial Statements that would indicate the carrying amounts may not be recoverable.

Reinsurance

We seek to reinsure a significant portion of our new annuity policies with a variety of reinsurers in exchange for upfront ceding commissions, expense reimbursements and administrative fees. Under these reinsurance agreements, we expect there will be a monthly or quarterly settlement of premiums, claims, surrenders, collateral, and other administration fees. We believe this will help preserve American Life’s capital while supporting its growth because American Life will have lower capital requirements when its business is reinsured due to lower overall financial exposure versus retaining the insurance policy business itself. See Note 8 below for further discussion of our reinsurance activities.

There are two main categories of reinsurance transactions: 1) “indemnity,” where we cede a portion of our risk but retain the legal responsibility to our policyholders should our reinsurers not meet their financial obligations; and 2) “assumption,” where we transfer the risk and legal responsibilities to the reinsurers. The reinsurers are required to acquire the appropriate regulatory and policyholder approvals to convert indemnity policies to assumption policies.

Our reinsurers may be domestic or foreign capital markets investors or traditional reinsurance companies seeking to assume U.S. insurance business. We plan to mitigate the credit risk relating to reinsurers generally by requiring other financial commitments from the reinsurers to secure the reinsured risks (such as posting substantial collateral). It should be noted that under indemnity reinsurance agreements American Life remains exposed to the credit risk of its reinsurers. If one or more reinsurers become insolvent or are otherwise unable or unwilling to pay claims under the terms of the applicable reinsurance agreement, American Life retains legal responsibility to pay policyholder claims, which in such event would likely materially and adversely affect the capital and surplus of American Life.

Midwest formed Seneca Re in early 2020, followed by Seneca Incorporated Cell, LLC 2020-01 (“SRC1”) and Seneca Incorporated Cell, LLC 2021-03 (“SRC3”) which are consolidated in these financial statements. Midwest sold 70% ownership of SRC1 to an ORIX Corporation USA subsidiary on December 30, 2021, and retained 30% ownership. Midwest maintains control over SRC1 and we continue to consolidate SRC1, in these financial statements. Additionally, Seneca Re has established Seneca Incorporated Cell, LLC 2022-04; however, management has determined that Midwest does not control the entity and thus it is not consolidated into these financial statements. American Life entered into a novation agreement with Seneca Incorporated Cell, LLC 2020-02 (“SRC2”)  and Crestline Re SPC, for and on behalf of Crestline Re SP1, under which the above-described reinsurance, trust and related asset management agreements were novated and replaced with substantially similar agreements entered into by American Life and Crestline Re SP1.

Some reinsurers are not and may not be “accredited” or qualified as reinsurers under Nebraska law and regulations. In order to enter into reinsurance agreements with such reinsurers and to reduce potential credit risk, American Life holds a deposit or withholds funds from the reinsurer and/or requires the reinsurer to maintain a trust that holds assets backing up the reinsurer’s obligation to pay claims on the business it assumes. The reinsurer may also appoint an investment manager for such funds, which in some cases may be our investment adviser subsidiary, 1505 Capital, to manage these assets pursuant to guidelines adopted by us that are consistent with Nebraska investment statutes and reinsurance regulations.

American Life currently has treaties with several third-party reinsurers and one related party reinsurer. In a Modco agreement, the ceding entity retains the assets equal to the modified coinsurance reserves retained. In a FW agreement, assets that would normally be paid over to a reinsurer are withheld by the ceding company to permit statutory credit for unauthorized reinsurers, to reduce the potential credit risk. Under those provisions with third-party reinsurers, the assets backing the treaties are maintained by American Life as investments but the assets and total returns or losses on the investments are owned by the reinsurers. Under GAAP, this arrangement is considered an embedded derivative as discussed in Comprehensive Loss and Note 4 below.

Assets carried as investments on American Life’s financial statements for the third-party reinsurers contained cumulative unrealized gains and (losses) as of June 30, 2023 and December 31, 2022. The terms of the contracts with the third-party reinsurers provide that changes in the unrealized gains and (losses) on the portfolios accrue to the third-party reinsurers. To recognize changes in the third-party unrealized gains and (losses), American Life records the year-to-date change as an offsetting realized (loss) or gain in Net Realized (Loss) Gain on Investments on the Consolidated Statements of Comprehensive Loss and in amounts recoverable from third-party reinsurers on the Consolidated Balance Sheets. For further discussion see Note 4 below.

Benefit Reserves

The Company establishes 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 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.

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.

Deposit-type Contracts

Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies.

Deposit-type contracts also include balances outstanding under funding agreements with the Federal Home Loan Bank of Topeka (“FHLB”). The funding agreements are carried at cost. Amounts received and repaid under FHLB funding agreements are classified as financing activities in the Company's Consolidated Statements of Cash Flows.

In 2021, the Company became a member of FHLB, which provides access to collateralized borrowings and other FHLB products. Any borrowing from FHLB requires the purchase of FHLB activity-based common stock in an amount equal to 4.5% of the borrowing. In 2022, the Board authorized a maximum amount equal to 5% of net aggregate admitted retained assets of American Life for FHLB advances and funding agreements combined. In 2023 and 2022, American Life received advances of $37.0 million and $29.0 million respectively, from FHLB under funding agreements and made no repayments on FHLB funding agreements. Outstanding advances under FHLB funding agreements are reported as part of deposit-type contracts in the Consolidated Balance Sheets and totaled $66.0 million as of June 30, 2023, and $29.0 million as of December 31, 2022. Interest on the funding agreements accrues at their effective interest rates.

As of June 30, 2023, scheduled maturity dates for outstanding FHLB funding agreements were as follows:

(Dollar amounts in thousands)	Interest
Maturity Date	Rate		Amount
March 1, 2024		5.10%	$	16,000
January 22, 2025		5.47%		13,000
January 22, 2025		5.17%		2,000
August 16, 2025		5.48%		8,000
September 1, 2027		5.40%		4,000
September 15, 2027		5.20%		8,000
October 1, 2027		5.41%		9,000
December 1, 2027		5.63%		6,000
			$	66,000

Note Payable

On November 22, 2022, the Company entered into a three-year senior secured revolving credit agreement (“Credit Agreement”) with Royal Bank of Canada and other lenders with a capacity of $30.0 million (the “Revolving Credit Facility”). The maturity date of the Credit Agreement is November 22, 2025. The obligations under the Credit Agreement are secured by a first priority lien on a variety of our assets. The balance of the revolving credit was $25.0 million at June 30, 2023, and December 31, 2022, with $5.0 million unutilized credit.

Deferred Gain on Coinsurance Transactions

American Life entered into several reinsurance contracts where it has earned or is earning ceding commissions. These ceding commissions are recorded as a deferred liability and amortized over the life of the business ceded. American Life receives commission and administrative expenses from reinsurance transactions that represent recovery of acquisition costs. These remittances first reduce the DAC associated with the reinsured blocks of business with the remainder being included in the deferred gain on coinsurance transactions that is also being amortized.

Revenue Recognition and Related Expenses

Amounts received as payment for annuities are recognized as deposits to policyholder account balances and are included in deposit-type liabilities. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, 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.

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

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

Service fee revenue is comprised of third-party administration (“TPA”) fees and investment management fees:

● The TPA fees are related to accounting services performed based on service agreements with varying lengths. Revenue associated with TPA fees are only recognized when the services are performed, which is typically on a monthly or quarterly basis.

● Fees for investment management fees are based on the total assets managed for each client at a contracted rate. The length of term on the contracts varies by client. The Company accrues investment advisory fees and recognizes revenue based on the market value of the client’s assets at the end of the applicable period, at the client’s contracted rate.

Income Taxes

The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state, or local tax examinations by tax authorities for the years before 2019. The Company is not currently under examination for any open years for income taxes. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. 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 DAC. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense.

Comprehensive Loss

Comprehensive Loss is comprised of net income (loss) and other comprehensive loss. Other comprehensive loss includes unrealized gains and losses from fixed maturities classified as available for sale, unrealized gains and losses from other invested assets, and unrealized gains and losses from preferred stock, net of applicable taxes. American Life has treaties with several third-party reinsurers that have FW and Modco provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral but are owned by the third-party reinsurers, thus, the total return on the asset portfolio belongs to the third-party reinsurers. Under GAAP this is considered an embedded derivative as discussed above under “Reinsurance” and in Note 8 below.

Earnings Per Share

Basic (loss) income per share for the three months ended June 30, 2023 and 2022 was $(1.04) and $2.48 respectively, which includes a gain of $3.9 million and loss of $2.9 million from an embedded derivative, respectively. Basic (loss) income per share for the six months ended June 30, 2023 and 2022 was $(0.01) and $2.53 respectively, which includes a gain of $3.9 million and $2.9 million from an embedded derivative, respectively.

The Company has 20.0 million voting common shares authorized, two million non-voting common shares authorized, and two million preferred shares authorized. There were 3,744,645 voting common shares issued and outstanding as of June 30, 2023 and 3,727,976 as of December 31, 2022.

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
(In thousands, except per share amounts)
Numerator:
Net (loss) income attributable to Midwest Holding Inc.	$	(3,883)	$	9,266	$	(53)	$	9,452
Denominator:
Weighted average common shares outstanding		3,736,933		3,737,564		3,728,594		3,737,564
Effect of dilutive securities:
Stock options and deferred compensation agreements		126,868		12,000		126,868		12,000
Denominator for earnings (loss) per common share		3,863,801		3,749,564		3,855,462		3,749,564
(Loss) income per common share	$	(1.04)	$	2.48	$	(0.01)	$	2.53
(Loss) income per common share, diluted	$	(1.04)	$	2.47	$	(0.01)	$	2.52

Adoption of New Accounting Standards

In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 846): Deferral of the Sunset Date of Topic 848. In 2020, the Board issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to provide temporary relief during the transition period. The FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. At the time that Update 2020-04 was issued, the UK Financial Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021. As a result, the sunset provision was set for December 31, 2022—12 months after the expected cessation date of all currencies and tenors of LIBOR. In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in ASU 2022-06 defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Measurement of Credit Losses on Financial Instruments

In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in this update include items brought to the FASB’s attention by stakeholders to clarify the guidance in the amendments in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) which was issued in June 2016. These updated amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Under ASU 2016-13, the incurred loss impairment methodology in current GAAP is replaced with a methodology that reflects expected credit losses that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to maturity debt securities. It also applies to off-balance sheet credit exposures, not accounted for as insurance (loan commitments, standby letters of credit financial guarantees, and other instruments). In addition, ASU 2016-13 made changes to the accounting for available for sale debt fixed maturities. One such change is to require credit losses to be presented as an allowance rather than a write-down on available for sale debt fixed maturities management does not intend to sell or believes that it is not more likely than not they will be required to sell. The new standard became effective for reporting periods beginning after December 15, 2022, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning accumulated deficit.

The Company’s implementation activities are complete, and the impacts relate to the Company’s investment portfolio. The Company adopted the new guidance on January 1, 2023 and recognized a cumulative effect adjustment that decreased retained earnings by $4.7 million, in conjunction with the $16.5 million allowance for credit losses and $11.8 million to Reinsurance Recoverables. Additionally, the Company recognized an incremental change in the allowance for expected credit losses of $0.2 million in the current period, to bring the retained allowance to approximately $4.5 million. The Company will apply the provisions of the guidance to investments that have

an other-than-temporary impairment on a prospective basis. Accordingly, the amortized cost basis will remain the same before and after adoption and the effective interest rate was not changed at the time of adoption.

Future Adoption of New Accounting Standards

Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as amended by ASU 2019-09, Financial Services —Insurance (Topic 944). The new guidance (i) prescribes the discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees on certain separate account and other account balance long-duration contracts to be accounted for at fair value, (iii) simplifies the amortization of DAC for virtually all long duration contracts, and (iv) introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The new standard becomes effective for reporting periods after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2024 for companies eligible as smaller reporting companies. Early application of the amendments in Update 2018-12 is permitted. We anticipate that the adoption of ASU 2018-12 will have a broad impact on our consolidated financial statements and related disclosures and will require us to make changes to certain of our processes, systems and controls. The Company is evaluating the impact this guidance will have on its results of operations and financial position. 

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Non-controlling Interest

6 Months Ended

Jun. 30, 2023

Non-controlling Interest

Non-controlling Interest

Note 2. Non-controlling Interest

Disposal

On December 30, 2021, Midwest closed the sale of approximately 70% of SRC1 to a subsidiary of ORIX Corporation USA for $15.0 million. Under the terms of the agreement, Midwest holds a 30% ownership interest in SRC1. ORIX Advisers, LLC, another subsidiary of ORIX USA, is the manager of the assets underlying SRC1’s reinsurance obligations, replacing Midwest’s asset management arm, 1505 Capital LLC. Midwest carries the original purchase amount of $15.0 million as noncontrolling interest in the equity section of the Consolidated Balance Sheets plus cumulative income of $3.7 million as of June 30, 2023, and a cumulative loss of $5.5 million as of December 31, 2022.

Purchase

In 2020 American Life entered into a series of transactions with an unaffiliated entity, Ascona Group Holdings Ltd (“AGH”). Through these transactions American Life acquired preferred equity in AGH in British Pound Sterling (“GBP”) of 3.6 million along with warrants bearing no initial assigned value. American Life subsequently created a special purpose vehicle, Ascona Asset Holding LLC (“AAH”), to hold the Preferred Equity and Warrants, and later created Ascona Collinwood HoldCo LLC (“ACH”) to be the sole member of AAH. American Life and Crestline Re SP1 own 74% and 26%, respectively, of ACH. American Life is carrying the preferred equity at a market USD value of $12.2 million as of June 30, 2023, and $10.5 million as of December 31, 2022. The change in market value for the three months ended June 30, 2023 and 2022, of $0.5 million and $0.2 million for the preferred stock and warrants was recorded in net investment income on the Consolidated Statements of Comprehensive Loss. Of the $0.5 million of investment income, $0.1 million was attributable to noncontrolling interest. The change in market value for the six months ended June 30, 2023 and 2022, of $2.8 million and $1.8 million for the preferred stock and warrants was recorded in net investment income on the Consolidated Statements of Comprehensive Loss. Of the $2.8 million of investment income, $0.7 million was attributable to noncontrolling interest.

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Investments

6 Months Ended

Jun. 30, 2023

Investments.

Investments

Note 3. Investments

The following table represents the amortized cost, allowance for credit losses, gross unrealized gains and losses, and estimated fair value of investments classified as available-for-sale as of June 30, 2023 and December 31, 2022:

			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Estimated
(In thousands)	Cost		Losses		Gains		Losses		Fair Value
June 30, 2023:
Fixed maturities:
Bonds:
U.S. government obligations	$	1,451	$	-	$	268	$	(68)	$	1,651
Mortgage-backed securities		458,248		(1,035)		1,478		(32,477)		426,214
Asset-backed securities		44,127		-		76		(3,985)		40,218
Collateralized loan obligations		358,240		(480)		1,591		(20,485)		338,866
States and political subdivisions-general obligations		128		-		-		(3)		125
States and political subdivisions-special revenue		-		-		-		-		-
Corporate		54,532		(1,297)		358		(4,670)		48,923
Term loans		692,279		(6,104)		1,687		(4,947)		682,915
Total fixed maturities	$	1,609,005	$	(8,916)	$	5,458	$	(66,635)	$	1,538,912
Mortgage loans on real estate, held for investment		354,401		(1,493)		-		-		352,908
Derivatives		34,639		-		9,870		(7,648)		36,861
Equity securities		5,592		-		-		(448)		5,144
Other invested assets		107,149		(1,343)		2,285		(189)		107,902
Preferred stock		38,026		-		1,357		(5,578)		33,805
Deposits and notes receivable		11,012		-		-		-		11,012
Policy loans		55		-		-		-		55
Total investments	$	2,159,879	$	(11,752)	$	18,970	$	(80,498)	$	2,086,599
December 31, 2022:
Fixed maturities:
Bonds:
U.S. government obligations	$	1,343	$	-	$	-	$	(81)	$	1,262
Mortgage-backed securities		316,105		-		469		(22,508)		294,066
Asset-backed securities		34,728		-		17		(3,989)		30,756
Collateralized loan obligations		308,871		-		726		(21,924)		287,673
States and political subdivisions-general obligations		104		-		-		(3)		101
States and political subdivisions-special revenue		228		-		-		(23)		205
Corporate		46,700		-		415		(5,515)		41,600
Term loans		561,656		-		1,923		(4,607)		558,972
Total fixed maturities	$	1,269,735	$	-	$	3,550	$	(58,650)	$	1,214,635
Mortgage loans on real estate, held for investment		227,047		-		-		-		227,047
Derivatives		30,239		-		2,694		(16,999)		15,934
Equity securities		5,592		-		-		(481)		5,111
Other invested assets		108,979		-		3,667		(215)		112,431
Preferred stock		35,644		-		1,757		(5,986)		31,415
Deposits and notes receivable		8,359		-		-		-		8,359
Policy loans		25		-		-		-		25
Total investments	$	1,685,620	$	-	$	11,668	$	(82,331)	$	1,614,957

The following table presents information related to allowance for credit losses as of June 30, 2023:

(In Thousands)		Balance December 31, 2022	Additional Allowance Recognized Due to Adoption of Accounting Guidance		Credit Loss Expense for the Current Period		Balance June 30, 2023
Fixed maturities
Bonds:
Mortgage-backed securities	$	-	$	3,564	$	(2,529)	$	1,035
Corporate		-		-		1,297		1,297
Asset-backed securities		-		273		(273)		-
Collateralized loan obligations		-		588		(108)		480
Term loans		-		8,518		(2,414)		6,104
Mortgage loans on real estate, held for investment		-		2,024		(531)		1,493
Other invested asset		-		1,703		(360)		1,343
Total allowance	$	-	$	16,670	$	(4,918)	$	11,752

(In Thousands)		Balance March 31, 2023	Additional Allowance Recognized Due to Adoption of Accounting Guidance		Credit Loss Expense for the Current Period		Balance June 30, 2023
Fixed maturities
Bonds:
Mortgage-backed securities	$	3,592	$	-	$	(2,557)	$	1,035
Corporate		-		-		1,297		1,297
Asset-backed securities		245		-		(245)		-
Collateralized loan obligations		610		-		(130)		480
Term loans		5,867		-		237		6,104
Mortgage loans on real estate, held for investment		2,709		-		(1,216)		1,493
Other invested asset		1,173		-		170		1,343
Total allowance	$	14,196	$	-	$	(2,444)	$	11,752

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of June 30, 2023 and December 31, 2022.

	June 30, 2023				December 31, 2022
	Carrying				Carrying
(In thousands)	Value		Percent		Value		Percent
AAA and U.S. Government	$	200,014	13.0	%	$	124,183	10.2	%
AA		29,185	1.9			815	0.1
A		420,690	27.3			371,371	30.6
BBB		752,652	48.9			619,516	51.0
Total investment grade		1,402,541	91.1			1,115,885	91.9
BB and below		136,371	8.9			98,750	8.1
Total	$	1,538,912	100.0	%	$	1,214,635	100.0	%

Reflecting the quality of fixed maturities maintained by us, as of June 30, 2023 and December 31, 2022, 91.1% and 91.9%, respectively, of all fixed maturity securities were investment grade. The BB and below also includes maturities that have no rating.

The following table summarizes, for all fixed maturity securities in an unrealized loss position as of June 30, 2023 and December 31, 2022 for which an allowance for credit losses has not been recorded and the estimated fair value, pre-tax gross unrealized loss, and number of fixed maturities by consecutive months they have been in an unrealized loss position.

	June 30, 2023						December 31, 2022
			Gross		Number				Gross		Number
	Estimated		Unrealized		of		Estimated		Unrealized		of
(In thousands)	Fair Value		Loss		Securities(1)		Fair Value		Loss		Securities(1)
Fixed maturities:
Less than 12 months:
U.S. government obligations	$	-	$	-		-	$	1,135	$	(70)		13
Mortgage-backed securities		233,146		(12,202)		93		233,624		(18,464)		89
Asset-backed securities		14,234		(1,386)		10		24,552		(3,278)		23
Collateralized loan obligations		76,097		(2,786)		52		203,549		(16,730)		252
States and political subdivisions-general obligations		125		(3)		2		101		(3)		1
States and political subdivisions-special revenue		-		-		-		47		(2)		3
Corporate		17,722		(1,010)		16		37,286		(5,426)		64
Term loans		682,545		(4,947)		4		558,337		(4,607)		36
Greater than 12 months:
U.S. government obligations		1,146		(68)		9		126		(11)		5
Asset-backed securities		22,814		(2,599)		23		5,321		(711)		7
Collateralized loan obligations		162,126		(17,699)		240		37,814		(5,194)		47
States and political subdivisions-special revenue		-		-		-		158		(21)		7
Mortgage-backed securities		87,683		(20,275)		57		17,985		(4,044)		14
Corporate		14,888		(3,660)		45		376		(89)		7
Total fixed maturities	$	1,312,526	$	(66,635)		551	$	1,120,411	$	(58,650)		568

(1)We may reflect a fixed maturity in more than one aging category based on various purchase dates.

Our securities positions resulted in a gross unrealized loss position as of June 30, 2023 that was greater than the gross unrealized loss position at December 31, 2022. The Company views the decrease in fair value for all of the fixed maturity securities with unrealized losses as of June 30, 2023, which are driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility, as temporary. As of June 30, 2023, the Company has not made the decision to sell these securities and the Company does not believe it will be required to sell the fixed maturity securities with unrealized losses before an anticipated recovery in value. Therefore, it was determined that the unrealized losses on the fixed maturity securities were not indicative of any credit loss impairments as of June 30, 2023.

The Company reviews and analyzes all investments on an ongoing basis for changes in market interest rates and credit deterioration. The review process includes analyzing the recoverability of the amortized cost basis of each investment that has a fair value that is

materially lower than its amortized cost and requires a high degree of management judgment and involves uncertainty. The evaluation of securities for credit loss is a quantitative and qualitative process, which is subject to risks and uncertainties.

The process to identify securities that could potentially have credit loss involves monitoring market events and other items that could impact issuers. The evaluation includes but is not limited to such factors as:

•the determination of whether a mark-to-market loss on a fixed income security is due to a deterioration in the underlying credit quality of the security or to temporary market effects such as interest rates through a comprehensive understanding of both the specific security and the broader market context;

•the issuer’s payment history and adherence;

•the remaining payment terms and the financial condition and near-term prospects of the issuer;

•the lack of ability to refinance due to liquidity problems in the credit market;

•the fair value of any associated collateral;

•the availability of any credit protection;

•our intent to sell and  the likelihood of needing  to sell prior to recovery for debt securities;

•consideration of rating agency actions; and

•changes in estimated cash flows of mortgage and asset backed securities.

See the discussion in Note 8 Reinsurance regarding unrealized gains/(losses) on investments that are owned by our reinsurers and the corresponding offset carried as a (loss)/gain in the associated embedded derivatives.

The Company purchases and sells equipment leases in its investment portfolio. As of June 30, 2023, the Company owned several leases, all of which were performing. No impairment was required as of June 30, 2023.

The amortized cost and estimated fair value of fixed maturities as of June 30, 2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Estimated
(In thousands)	Cost		Fair Value
Due in one year or less	$	100,739	$	99,049
Due after one year through five years		859,855		840,065
Due after five years through ten years		440,299		403,551
Due after ten years through twenty years		175,126		170,768
Due after twenty years		32,986		25,479
	$	1,609,005	$	1,538,912

The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At June 30, 2023 and December 31, 2022, these required deposits had a total amortized cost of $2.8 million and $1.2 million, respectively, and fair values of $2.8 million and $1 million, respectively.

Mortgage loans consist of the following:

(In thousands)	June 30, 2023			December 31, 2022
1-4 Family	$	56,335	$	59,579
Hospitality		14,144		12,902
Land		77,961		62,119
Multifamily (5+)		58,711		34,072
Retail		45,681		22,119
Other		101,569		36,256
Allowance for credit loss		(1,493)		-
Total mortgage loans	$	352,908	$	227,047

Geographic Location:

As of June 30, 2023, the commercial mortgages loans were secured by properties geographically dispersed (with the largest concentrations in loans secured by properties in New York (19%), New Jersey (16%), New Zealand (9%), Florida (7%), and Texas

(7%)). As of December 31, 2022, the commercial mortgages loans were secured by properties geographically dispersed (with the largest concentrations in New York (24%), Florida (15%), Delaware (10%), California (6%), and Arizona (5%)).

The loan-to-value ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A loan-to-value ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The following represents the loan-to-value ratio of the commercial mortgage loan portfolio, excluding those under development, net of valuation allowances. As of June 30, 2023, the Company held one asset valued at $7.7 million with an impairment of $1.4 million and one asset with an impairment for the full value of $0.6 million. At December 31, 2022, the company had one asset valued at $7.7 million with a total impairment of $1.4 million.

Commercial Mortgage Loans

(In thousands)	June 30, 2023		December 31, 2022
Loan-to-Value Ratio:
0%-59.99%	$	230,140	$	108,281
60%-69.99%		76,970		79,968
70%-79.99%		27,704		33,268
80% or greater		18,094		5,530
Total mortgage loans	$	352,908	$	227,047

The components of net investment income for three and six months ended June 30, 2023 and 2022 are as follows:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Fixed maturities	$	33,841	$	14,173	$	67,902	$	26,837
Mortgage loans		6,298		2,963		12,973		5,383
Other invested assets		2,142		2,501		5,464		3,896
Other interest income		10,248		8,035		18,277		13,579
Gross investment income		52,529		27,672		104,616		49,695
Less: investment expenses		(5,367)		(2,515)		(11,564)		(4,726)
Less: amounts ceded to reinsurers		(22,914)		(14,616)		(49,611)		(28,186)
Investment income, net of expenses	$	24,248	$	10,541	$	43,441	$	16,783

Proceeds for the three months ended June 30, 2023 and 2022 from sales of investments classified as available-for-sale were $8.1 million, and $94 million, respectively. Gross gains of $0.3 million and $0.1 million and gross losses of less than $0.1 million and $1.2 million were realized on sales and the realized losses on sales during the three months ended June 30, 2023 and 2022, respectively.

Proceeds for the six months ended June 30, 2023 and 2022 from sales of investments classified as available-for-sale were $58.5 million, and $187.6 million, respectively. Gross gains of $0.3 million and $1.5 million and gross losses of less than $0.1 million and $1.7 million were realized on sales and the realized losses on sales during the six months ended June 30, 2023 and 2022, respectively.

The proceeds included those assets associated with the third-party reinsurers. The gains and losses relate only to the assets retained by American Life. Unrealized gain/(loss) included as part of net investment income were gains of $23.9 million and $10.5 million for the three months ended June 30, 2023 and 2022. Unrealized gain/loss included as part of net investment income were gains of $43.1 million and $16.8 million for the six months ended June 30, 2023 and 2022.

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Derivative Instruments

6 Months Ended

Jun. 30, 2023

Derivative Instruments

Derivative Instruments

Note 4. Derivative Instruments

The Company enters into derivative instruments to manage risk, primarily equity, interest rate, credit, foreign currency and market volatility. Some of these derivative instruments are to hedge fixed indexed annuity products that guarantee the return of principal to the policyholders and credit interest based on a percentage of the gain in a specified market index. To hedge against adverse changes in equity indices, the Company entered into contracts to buy equity indexed options.

The following is a summary of the derivatives not designated as hedges and embedded derivatives in our FIA product as of June 30, 2023 and December 31, 2022:  

		June 30, 2023					December 31, 2022
(In thousands, except number of contracts)	Location in the
Derivatives Not Designated	Consolidated	Notional		Number of	Estimated		Notional		Number of	Estimated
as Hedging Instruments	Balance Sheets	Amount		Contracts	Fair Value		Amount		Contracts	Fair Value
Equity-indexed options	Derivatives	$	911,030	668	$	36,700	$	831,657	595	$	15,592
Equity-indexed embedded derivatives	Deposit-type contracts		866,847	7,095		142,800		782,997	6,131		111,618

At June 30, 2023, the value of the embedded derivative considers all amounts projected to be paid in excess of the minimum guarantee (the amounts payable without any indexation increases) over future periods. The host contract reflects the minimum guaranteed values.

Due to price changes in the capital markets, our securities positions resulted in increased unrealized losses at June 30, 2023, compared to December 31, 2022, reported in accumulated other comprehensive income on the balance sheet. The embedded derivative related to the asset portfolio belonging to the third-party reinsurers offset these unrealized losses. The unrealized losses as of June 30, 2023 were $14.4 million compared to unrealized losses of $10.5 million as of December 31, 2022.

The following table summarizes the impact of those embedded derivatives related to the funds withheld provision where the total return on the asset portfolio is passed through to the third-party reinsurers:

	June 30, 2023						December 31, 2022
(In thousands)	Book Value		Market Value		Total Return		Book Value		Market Value		Total Return
Portfolio	Assets		Assets		Swap Value		Assets		Assets		Swap Value
American Republic Insurance Company	$	170,992	$	163,894	$	7,098	$	150,413	$	143,952	$	6,461
Crestline Re SP1		447,113		446,708		405		354,806		356,374		(1,568)
Ironbound		164,611		159,116		5,495		159,644		154,477		5,167
Ascendent Re		64,479		62,626		1,853		56,064		54,790		1,274
SRC4		152,401		152,828		(427)		61,646		62,516		(870)
Total	$	999,596	$	985,172	$	14,424	$	782,573	$	772,109	$	10,464

Assets carried as investments on American Life’s financial statements for the third-party reinsurers contained cumulative unrealized losses of approximately $14.4 million as of June 30, 2023, and cumulative unrealized losses of $10.5 million as of December 31, 2022, respectively. The terms of the contracts with the third-party reinsurers provide that the changes in unrealized gains or losses on the portfolios accrue to the third-party reinsurers. Accordingly, the change in unrealized losses on the assets held by American Life were offset by gains in the embedded derivative of $3.9 million and a gain in the embedded derivative of $2.9 million for the six months ended June 30, 2023 and 2022, respectively.

We account for this unrealized (loss) pass-through by recording an equivalent realized gain on our Consolidated Statements of Comprehensive Loss and in amounts payable to our third-party reinsurers on the Consolidated Balance Sheets.

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Fair Values of Financial Instruments

6 Months Ended

Jun. 30, 2023

Fair Values of Financial Instruments

Fair Values of Financial Instruments

Note 5. Fair Values of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish 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: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

● Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

A description of the valuation methodologies used for assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Level 1 measurements

Cash and cash equivalents: Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents as Level 1 measurements in the table below.

Level 2 measurements

Fixed maturity securities: Fixed maturity securities are recorded at fair value on a recurring basis utilizing an independent third-party pricing source. The valuations are reviewed and validated quarterly through random testing by comparisons to separate pricing models or other third-party pricing services.

Derivatives: Derivatives are reported at fair market value utilizing a third-party pricing source such as the Standard & Poor’s (“S&P”) 500 index and the S&P Multi-Asset Risk Control (“MARC”) 5% index.

Equity securities: Equity securities at June 30, 2023 consist of exchange traded funds (“ETFs”). The ETFs are considered equity securities and recorded at fair value on a recurring basis utilizing a third-party pricing source with the change in fair value recorded through realized gains and losses on the Consolidated Statements of Comprehensive Loss. As of December 31, 2022 we had purchased $5.1 million of ETFs.

Preferred stock: The Company’s preferred stock investments classified as Level 2 were valued at $10.0 million as of June 30, 2023, and $9.5 million as of December 31, 2022. This investment is carried at fair market value with the change in fair market value is recorded in net investment income on the Consolidated Statements of Comprehensive Loss.

Deposits and notes receivable: The Company had escrow funds of as of June 30, 2023 and December 31, 2022, of $1.6 million and $0.8 million, respectively. These escrow funds were used to settle mortgage loans that did not close until April and January 2023. The money held in escrow at June 30, 2023 and December 31, 2022 was carried at cost. The Company held in notes receivable as of June 30, 2023 and December 31, 2022, a note of $6.4 million and $6.3 million, respectively, that includes paid-in-kind (“PIK”) interest. The note receivable is between American Life and Chelsea Holdings Midwest LLC with an interest rate of 5% per annum that was rated BBB+ by a nationally recognized statistical rating organization (“NRSRO”). This note is being carried at cost plus PIK interest.

Level 3 measurements

Term Loans – The assets classified as term loans are carried at unpaid principal net of amortization of discount or accretion, which ap-proximates fair value or carried at fair market value based on a valuation using market standard valuation methodologies. The inputs used to measure the fair value of these assets are classified as Level 3 within the fair value hierarchy.

Mortgage Loans – Mortgage loans are generally stated at principal amounts outstanding, net of deferred expenses and allowance for loan loss. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are generally deferred and amortized on an effective yield basis over the term of the loan. Impaired loans are generally carried on a non-accrual status. Loans are ordinarily placed on non-accrual status when, in management’s opinion, the collection of principal or interest is unlikely, or when the collection of principal or interest is 90 days or more past due. As of June 30, 2023, the Company held one asset valued at $7.7 million with a total impairment of $1.4 million, and one asset with an impairment for the full value of $0.6 million. At December 31, 2022, the company had one asset valued at $7.7 million with a total impairment of $1.4 million.

Other Invested Assets – Other invested assets include collateral loans, private credit investments, equipment leases, and a private fund investment. The collateral loans, private credit investments, and equipment leases are carried at amortized cost which approximates fair value. The private fund investment is carried at fair value based on market accepted valuation models. The inputs used to measure these assets are classified as Level 3 within the fair value hierarchy.

Deposits and notes receivable: The carrying value of FHLB stock approximates fair value based on market accepted valuation models, since the Company can redeem such stock with FHLB at cost. As a member of the FHLB, the Company is required to purchase this stock, which is carried at cost and classified as restricted equity securities.

Preferred Stock – The Company’s preferred stock investment classified as Level 3 was valued at $23.9 million as of June 30, 2023 and $21.9 million as of December 31, 2022. This investment is carried at fair market value. The change in fair market value is recorded in net investment income on the Consolidated Statements of Comprehensive Loss.

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.

Deposit-type contracts: The fair value for direct and assumed liabilities under 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 nonperformance risk of the liabilities. The fair values for insurance contracts other than deposit-type contracts are not required to be disclosed.

Embedded derivative for equity-indexed contracts: The Company has embedded derivatives in its FIA policyholder obligations. These embedded derivatives are carried at the fair market value as of June 30, 2023 and December 31, 2022. The fair value of the embedded derivative component of our FIA obligation is estimated at each valuation date by projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and discounting the excess of projected contract value amounts at the applicable risk-free interest rates adjusted for our nonperformance risk related to those obligations. The projections of FIA policy contract values are based on best estimate assumptions for future policy growth and decrements including lapse, partial withdrawal and mortality rates. The best estimate assumptions for future policy growth include assumptions for expected index credits on the next policy anniversary date which are derived from fair values of the underlying equity call options purchased to fund such index credits and the present value of expected costs of annual call options purchased in the future by us to fund index credits beyond the next policy anniversary. The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as assumptions used to project policy contract values.

The following table presents the Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022.

			Significant
	Quoted		Other		Significant
	In Active		Observable		Unobservable				Estimated
	Markets		Inputs		Inputs		Net Asset		Fair
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Value		Value
June 30, 2023
Financial assets
Fixed maturity securities:
Bonds
U.S. government obligations	$	-	$	1,651	$	-	$	-	$	1,651
Mortgage-backed securities		-		426,214		-		-		426,214
Asset-backed securities		-		40,218		-		-		40,218
Collateralized loan obligations		-		338,866		-		-		338,866
States and political subdivisions-general obligations		-		125		-		-		125
States and political subdivisions-special revenue		-		-		-		-		-
Corporate		-		48,923		-		-		48,923
Term loans		-		-		682,915		-		682,915
Total fixed maturity securities		-		855,997		682,915		-		1,538,912
Mortgage loans on real estate, held for investment		-		-		352,908		-		352,908
Derivatives		-		36,861		-		-		36,861
Equity securities		-		5,144		-		-		5,144
Other invested assets		-		-		95,138		12,764		107,902
Preferred stock		-		9,952		23,853		-		33,805
Deposits and notes receivable		-		8,041		2,971		-		11,012
Policy loans		-		-		55		-		55
Total investments	$	-	$	915,995	$	1,157,840	$	12,764	$	2,086,599
Financial liabilities
Embedded derivative for equity-indexed contracts	$	—	$	—	$	142,800	$	—		142,800
December 31, 2022
Financial assets
Fixed maturity securities:
Bonds
U.S. government obligations	$	—	$	1,262	$	—	$	—	$	1,262
Mortgage-backed securities		—		294,066		—		—		294,066
Asset-backed securities		—		30,756		—		—		30,756
Collateralized loan obligations		—		287,673		—		—		287,673
States and political subdivisions-general obligations		—		101		—		—		101
States and political subdivisions-special revenue		—		205		—		—		205
Corporate		—		41,600		—		—		41,600
Term loans		—		—		558,972		—		558,972
Total fixed maturity securities		—		655,663		558,972		—		1,214,635
Mortgage loans on real estate, held for investment		—		—		227,047		—		227,047
Derivatives		—		15,934		—		—		15,934
Equity securities		—		5,111		—		—		5,111
Other invested assets		—		—		99,997		12,434		112,431
Preferred stock		—		9,544		21,871		—		31,415
Investment escrow		—		784		—		—		784
Federal Home Loan Bank stock		—		—		1,306		—		1,306
Notes receivable		—		6,269		—		—		6,269
Deposits and notes receivable		—		7,053		1,306		—		8,359
Policy loans		—		—		25		—		25
Total investments	$	—	$	693,305	$	909,218	$	12,434	$	1,614,957
Financial liabilities
Embedded derivative for equity-indexed contracts	$	—	$	—	$	111,618	$	—		111,618

There were no transfers of financial instruments between any levels during the six months ended June 30, 2023 or the year ended December 31, 2022.

Accounting standards require disclosure of 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 basis are discussed

above. As of June 30, 2023 or December 31, 2022, there were no financial assets or financial liabilities measured at fair value on a non-recurring basis.

The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy, for financial assets and financial liabilities as of June 30, 2023 and December 31, 2022, respectively:

	June 30, 2023
			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical Assets		Observable		Unobservable
	Carrying		and Liabilities		Inputs		Inputs		Fair
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Policy loans	$	55	$	—	$	—	$	55	$	55
Cash		194,275		194,275		—		—		194,275
Liabilities:
Policyholder deposits (deposit-type contracts)		2,218,725		—		—		2,218,725		2,218,725

	December 31, 2022
			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical Assets		Observable		Unobservable
	Carrying		and Liabilities		Inputs		Inputs		Fair
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Policy loans	$	25	$	—	$	—	$	25	$	25
Cash		191,414		191,414		—		—		191,414
Liabilities:
Policyholder deposits (deposit-type contracts)		1,743,348		—		—		1,743,348		1,743,348

The following table presents a reconciliation of the beginning balance for all assets and liabilities measured at fair value on a recurring basis using level three inputs during the six months ended June 30, 2023:

	June 30, 2023
			Total realized and unrealized gains (losses)
	Beginning Balance			Included in Income	Included in OCI		Net Purchases, Issuances, Sales, and Settlements		Ending Balance
(In thousands)
Assets
Term loans	$	558,972	$	-	$	(4,947)	$	129,377	$	683,402
Mortgage loans on real estate,
held for investment		227,047		-		-		125,861		352,908
Deposits and notes receivable		1,306		-		-		1,665		2,971
Other invested assets		99,997		-		2,096		(6,955)		95,138
Preferred stock		21,871		(4,220)		-		6,202		23,853
Policy loans		25		-		-		30		55
Total level 3 assets	$	909,218	$	(4,220)	$	(2,851)	$	256,180	$	1,158,327
Liabilities
Embedded derivative for equity-indexed contracts		(111,618)		30,115		-		(61,297)		(142,800)
Total level 3 liabilities	$	(111,618)	$	30,115	$	-	$	(61,297)	$	(142,800)

The following tables present a reconciliation of the beginning balance for all investments measured at fair value on a recurring basis using level three inputs during the year ended December 31, 2022:

	December 31, 2022
			Total realized and unrealized gains (losses)
(In thousands)	Beginning Balance			Included in Income	Included in OCI		Net Purchases, Issuances, Sales, and Settlements		Ending Balance
Assets
Term loans	$	267,468	$	-	$	(2,683)	$	294,187	$	558,972
Mortgage loans on real estate,
held for investment		183,203		-		-		43,844		227,047
Deposits and notes receivable		500		-		-		806		1,306
Other invested assets		35,293		-		3,452		61,252		99,997
Preferred stock		18,686		-		(4,229)		7,414		21,871
Policy loans		87		-		-		(62)		25
Total level 3 assets	$	505,237	$	-	$	(3,460)	$	407,441	$	909,218
Liabilities
Embedded derivative for equity-indexed contracts		(123,692)		(10,193)		-		22,267		(111,618)
Total level 3 liabilities	$	(123,692)	$	(10,193)	$	-	$	22,267	$	(111,618)

Significant Unobservable Inputs—Significant unobservable inputs occur when we could not obtain or corroborate the quantitative detail of the inputs. This applies to fixed maturity securities, preferred stock, mortgage loans and certain derivatives, as well as embedded derivatives in liabilities. Additional significant unobservable inputs are described below.

Interest sensitive contract liabilities – embedded derivative – Significant unobservable inputs we use in the fixed indexed annuities embedded derivative of the interest sensitive contract liabilities valuation include:

● Nonperformance risk – For contracts we issue, we use the credit spread, relative to the US Department of the Treasury (Treasury) curve based on our public credit rating as of the valuation date. This represents our credit risk for use in the estimate of the fair value of embedded derivatives.

● Option budget – We assume future hedge costs in the derivative’s fair value estimate. The level of option budgets determines the future costs of the options and impacts future policyholder account value growth.

● Policyholder behavior – We regularly review the lapse and withdrawal assumptions (surrender rate). These are based on our initial pricing assumptions updated for actual experience. Actual experience may be limited for recently issued products.

Preferred equity and warrants – Significant unobservable inputs we use include surrender rate, discount rates, EBITDA Multiples, current performance data, proprietary pricing models, real-time quotes from contributing dealers, and other market data.

● EBITDA Multiple -The warrants valued using a market approach guideline public company method ("GCPM") using a multiplier of EBITDA.

● Discount Rates - For the preferred equity, discounted cash flow models are used to assist with the calculation the fair value.

Other Invested Assets – Valuations are performed through a combination of EBITDA analysis, comparable transaction analysis, and discounted cash flow analysis. Unobservable inputs for these approaches include recent actual or pending transactions, yields of similar debt instruments, and subject company leverage and financial.

● EBITDA Multiple -The other invested assets valued using a market approach guideline public company method ("GCPM") using a multiplier of EBITDA.

● Discount Rates - For the other invested assets, discounted cash flow models are used to assist with the calculation the fair value.

Term Loans – Significant unobservable inputs include yield analysis. Significant unobservable inputs we use include discount rates.

Mortgage Loans – Fair value of mortgage loan assets are valued at principal funded, plus any property related direct expenses that contractually can be added.

The following summarizes the unobservable inputs for available for sale and trading securities and the embedded derivatives of fixed indexed annuities and preferred stock (with associated detachable warrants):

	June 30, 2023
(In millions, except for percentages and multiples)	Fair value	Valuation technique	Unobservable inputs	Minimum	Maximum	Weighted average*	Impact of an increase in the input on fair value
Term loans	$682.9	Yield Analysis	Discount rates	4.6%	17.3%	12.4%	Decrease
Mortgage loans on real estate	$352.9	Yield Analysis	Principal funded	NA	NA	NA	Decrease
Interest sensitive contract liabilities - fixed indexed annuities embedded derivatives	$142.8	Option Budget Method	Nonperformance risk	0.6%	1.5%	1.1%	Decrease
			Option budget	1.1%	5.9%	2.9%	Increase
			Surrender rate	0.5%	15% (base) 30% (add'l shock)	12.5%	Decrease
Other invested assets	$95.1	Market Approach	EBITDA Multiples	2.6x	3.1x	2.8x	NA
			Discount rates	8.0%	25.5%	14.5%	NA
Preferred stock	$9.7	Yield Analysis	Discount rates	24.0%	28.0%	26.0%	Increase
Detachable warrants	$2.4	Market Approach GPCM	EBITDA Multiples	10.0x	11.5x	100.0%	Decrease
Preferred stock	$11.8	Market Approach	EBITDA Multiples	2.55x	3.05x	2.8x	Decrease
* Weighted by account value

	December 31, 2022
(In millions, except for percentages and multiples)	Fair value	Valuation technique	Unobservable inputs	Minimum	Maximum	Weighted average*	Impact of an increase in the input on fair value
Term loans	$559.0	Yield Analysis	Discount rates	4.6%	17.3%	12.4%	Decrease
Mortgage loans on real estate	$227.0	Yield Analysis	Principal funded	NA	NA	NA	Decrease
Interest sensitive contract liabilities - fixed indexed annuities embedded derivatives	$111.6	Option Budget Method	Nonperformance risk	0.6%	1.5%	1.1%	Decrease
			Option budget	1.1%	5.7%	2.7%	Increase
			Surrender rate	0.5%	15% (base) 30% (add'l shock)	10.5%	Decrease
Other invested assets	$100.0	Market Approach	EBITDA Multiples	2.6x	3.1x	2.8x	NA
			Discount rates	8.0%	25.5%	14.5%	NA
Preferred equity	$6.1	Yield Analysis	Discount rates	24.0%	28.0%	26.0%	Increase
Detachable warrants	$2.2	Market Approach GPCM	EBITDA Multiples	10.0x	11.5x	100.0%	Decrease
Preferred stock	$31.4	Market Approach	EBITDA Multiples	2.55x	3.05x	2.8x	Decrease
* Weighted by account value

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Deposit-Type Contracts

6 Months Ended

Jun. 30, 2023

Deposit-Type Contracts

Deposit-Type Contracts

Note 6. Deposit-Type Contracts

The Company’s deposit-type contracts represent the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. Liabilities for these 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. The following table provides information about deposit-type contracts for the six months ended June 30, 2023 and the year ended December 31, 2022:

(In thousands)	June 30, 2023		December 31, 2022
Beginning balance	$	1,743,348	$	1,075,439
US Alliance		(634)		(2,176)
Unified Life Insurance Company		-		(10)
Ironbound Reinsurance Company Limited		3,134		5,959
Ascendant Re		145		(3,185)
Crestline SP1		2,490		(11,623)
American Republic Insurance Company		2,735		(4,080)
SRC4		2,791		613
Deposits received		494,532		745,083
Investment earnings (includes embedded derivative)		30,115		(10,193)
Withdrawals		(59,931)		(51,659)
Policy charges		-		(820)
Ending balance	$	2,218,725	$	1,743,348

In addition, membership in FHLB provides the Company with access to additional short-term liquidity based on the level of investment in FHLB stock and pledged collateral. At June 30, 2023 and December 31, 2022 funding agreements of $66.0 million and $29.0 million were outstanding.

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Debt

6 Months Ended

Jun. 30, 2023

Debt

Debt

Note 7. Debt

On November 22, 2022, the Company entered into a three-year senior secured revolving credit agreement (“Credit Agreement”) with Royal Bank of Canada and other lenders with a capacity of $30 million (the “Revolving Credit Facility”). The maturity date of the Credit Agreement is November 22, 2025. The obligations under the Credit Agreement are secured by a first priority lien on a variety of the Company’s assets. The balance of the revolving credit was $25.0 million at June 30, 2023, and December 31, 2022, with $5.0 million unutilized credit.

Under the terms of the Credit Agreement, the Company has the option of selecting an applicable variable interest rate of (a) an adjusted term standard overnight financing rate (“SOFR”), plus an applicable margin or (b) a base rate, plus an applicable margin. Depending on our debt to capitalization ratio, the applicable margin can range from 2.50% to 3.25% for the base rate and from 3.50% to 4.25% for an adjusted term SOFR loan. Interest paid for the three months ended June 30, 2023 and 2022 was $0.5 million and $0.0 million respectively. Interest paid for the six months ended June 30, 2023 and 2022 was $1.1 million and $0.0 million respectively.

The terms of the Credit Agreement require the Company to maintain, among other things, certain financial measures including:

● Consolidated debt to capitalization must not be greater than 35% on the last day of any fiscal quarter;

● Risk-based capital of American Life & Security Corp. must not be less than 300% on the last day of any fiscal quarter;

● Consolidated liquidity must not be less than $3.0 million at any time; and

● The strength rating of American Life & Security Corp. from A.M. Best must not fall below “B++”.

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Reinsurance

6 Months Ended

Jun. 30, 2023

Reinsurance

Reinsurance

Note 8. Reinsurance

A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of June 30, 2023 and December 31, 2022 is as follows:

(In thousands)	June 30, 2023		December 31, 2022
Assets:
Reinsurance recoverables	$	39,899	$	20,190
Liabilities:
Deposit-type contracts
Direct	$	2,218,725	$	1,743,348
Reinsurance ceded		(1,123,475)		(912,982)
Retained deposit-type contracts	$	1,095,250	$	830,366

The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by third-party reinsurers as of June 30, 2023:

							Recoverable/				Total Amount
			Recoverable		Recoverable		(Payable) on Benefit		Ceded		Recoverable/
(In thousands)	AM Best		on Paid		on Unpaid		Reserves/Deposit-		Due		(Payable) to/from
Reinsurer	Rating		Losses		Losses		type Contracts		Premiums		Reinsurer
Ironbound Reinsurance Company Limited		NR	$	-	$	-	$	5,338	$	-	$	5,338
Optimum Re Insurance Company		A		-		-		690		-		690
Sagicor Life Insurance Company		A-		-		238		10,626		(326)		10,538
Ascendant Re		NR		-		-		(3,906)		-		(3,906)
Crestline SP1		NR		-		-		(14,352)		-		(14,352)
American Republic Insurance Company		A		-		-		3,364		-		3,364
SRC4		NR		-		-		(12,749)		-		(12,749)
Unified Life Insurance Company		NR		-		25		991		(14)		1,002
US Alliance Life and Security Company		NR		-		-		49,997		(23)		49,974
			$	-	$	263	$	39,999	$	(363)	$	39,899

The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by third-party reinsurers as of December 31, 2022:

							Recoverable on				Total Amount
			Recoverable		Recoverable		Benefit		Ceded		Recoverable
(In thousands)	AM Best		on Paid		on Unpaid		Reserves/Deposit-		Due		from
Reinsurer	Rating		Losses		Losses		type Contracts		Premiums		Reinsurer
Ironbound Reinsurance Company Limited		NR	$	-	$	-	$	(344)	$	-	$	(344)
Optimum Re Insurance Company		A		-		-		601		-		601
Sagicor Life Insurance Company		A-		-		154		10,744		(303)		10,595
Ascendant Re		NR		-		-		(2,130)		-		(2,130)
Crestline SP1		NR		-		-		(3,357)		-		(3,357)
American Republic Insurance Company		A		-		-		5,879		-		5,879
SRC4		NR		-		-		(44,442)		-		(44,442)
Unified Life Insurance Company		NR		-		41		986		(17)		1,010
US Alliance Life and Security Company		NR		-		-		52,400		(22)		52,378
			$	-	$	195	$	20,337	$	(342)	$	20,190

Our securities positions resulted in changes in the unrealized loss position as of June 30, 2023, compared to December 31, 2022, that is reported in accumulated other comprehensive (loss) income on the Consolidated Balance Sheets. As discussed in Note 1, American Life has treaties with several third-party reinsurers that have FW and Modco provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral but the assets and total gains or (losses) on the asset portfolios belong to the third-party reinsurers. Under GAAP this arrangement is considered an embedded derivative as discussed in Note 4.

On June 26, 2021, the NDOI issued its non-disapproval of the Modified Coinsurance Agreement (“Modco AEG Agreement”) with American Republic Insurance Company (“AEG”), an Iowa domiciled reinsurance company. The agreement was executed on June 29, 2021. Under the Modco AEG Agreement, American Life initially ceded to AEG (and subsequently renewed), on a modified coinsurance basis, a 20% quota share of certain liabilities with respect to its MYGA-5 business and an initial 20% quota share of certain liabilities with respect to its FIA business. Effective February 28, 2023, AEG elected not to extend its commitment period for reinsuring liabilities under its Modco AEG Agreement; as a result, AEG’s current quota share with respect to MYGA and FIA policies is 0%. The Modco AEG Agreement remains in place, and AEG remains responsible for previously ceded liabilities.

On November 10, 2021, the NDOI issued its non-disapproval of the Funds Withheld and Modified Coinsurance Agreement with SRC3, whereby SRC3 agreed to provide reinsurance funding for a quota share percentage of 45% of the liabilities of American Life arising from its MYGA products and a quota share percentage of 45% of the liabilities of American Life arising from its FIA products. In the fourth quarter of 2022, the agreement with SRC3 was again amended to provide one-time reinsurance funding for $10.0 million of the liabilities of American Life arising from its 10-year FIA products.

On September 21, 2022, the NDOI issued its approval of the conversion of American Life’s agreement with US Alliance to convert its block of business from a Funds Withheld agreement to a Funds Paid Coinsurance agreement. The conversion was effective as of October 1, 2022, and was triggered by US Alliance becoming a Qualified Institutional Buyer as specified in the original agreement. Upon conversion, American Life began transferring assets held on behalf of US Alliance to the reinsurer, with a corresponding entry made to Amounts Recoverable. The approximate value of assets transferred was $37.9 million.

On September 30, 2022, American Life entered into a reinsurance agreement (the “Reinsurance Agreement”) with a new protected cell formed by Seneca Re (Seneca Incorporated Cell, LLC 2022-04 (“SRC4”)). SRC4 was capitalized by loans from Embrace Software, Inc. and Tillman Networks LLC. The Reinsurance Agreement was effective as of July 1, 2022, by and between American Life and SRC4. The Reinsurance Agreement supports American Life’s new business production by providing reinsurance capacity for American Life to write certain kinds of fixed indexed and multi-year guaranteed annuity products. Under the Reinsurance Agreement, SRC4 initially agreed to provide reinsurance funding for a quota share percentage of 45% of the liabilities of American Life arising from its MYGA-5 products and a quota share percentage of 10% of the liabilities of American Life arising from its MYGA-3 products. American Life has established a Modco Deposit Account, a Funds Withheld custody account, and a Trust Account pursuant to the Reinsurance Agreement. The initial settlement included net premium of $21.4 million and net reserves of $21.5 million for the modified coinsurance account. Also on September 30, 2022, American Life entered into an Investment Management Agreement (“IMA”) with CoVenture Management, LLC (“CoVenture”) naming CoVenture as the manager of certain assets held by American Life on behalf of SRC4.

The tables below shows the ceding commissions from the reinsurers, excluding SRC1 and SRC3, and what was earned on a GAAP basis for the three and six months ended June 30, 2023 and 2022:

	Three months ended June 30,
(In thousands)	2023								2022
Reinsurer	Gross Ceding Commission		Expense Allowance(1)		Interest on Ceding Commission		Earned Ceding Commission		Gross Ceding Commission		Expense Allowance		Interest on Ceding Commission		Earned Ceding Commission
Unified Life Insurance Company	$	—	$	—	$	—	$	9	$	-	$	-	$	-	$	6
Ironbound Reinsurance Company Limited		—		—		43		125		-		-		49		144
Ascendant Re		181		175		23		100		-		-		23		77
US Alliance Life and Security Company		—		—		11		73		-		-		14		76
Crestline Re SP 1		771		716		193		758		1,491		2,401		88		559
American Republic Insurance Company		1		48		84		257		1,026		1,774		30		197
SRC4		2,514		2,401		86		176		-		-		-		-
	$	3,467	$	3,340	$	440	$	1,498	$	2,517	$	4,175	$	204	$	1,059

	Six months ended June 30,
(In thousands)	2023								2022
Reinsurer	Gross Ceding Commission		Expense Allowance(1)		Interest on Ceding Commission		Earned Ceding Commission		Gross Ceding Commission		Expense Allowance		Interest on Ceding Commission		Earned Ceding Commission
Unified Life Insurance Company	$	—	$	—	$	—	$	11	$	—	$	—	$	—	$	14
Ironbound Reinsurance Company Limited		—		—		93		253		—		—		98		258
Ascendant Re		181		175		46		185		—		—		47		163
US Alliance Life and Security Company		—		—		25		156		—		—		28		163
Crestline SP1		1,805		1,631		272		1,640		2,525		4,231		168		1,065
American Republic Insurance Company		560		753		106		562		1,827		3,227		52		349
SRC4		3,881		3,614		86		264		—		—		—		—
	$	6,427	$	6,173	$	628	$	3,071	$	4,352	$	7,458	$	393	$	2,012

(1) Includes: acquisition and administrative expenses, commission expense allowance and product development fees.

The table below shows the ceding commissions deferred on each reinsurance transaction on a GAAP basis:

(In thousands)	June 30, 2023		December 31, 2022
Reinsurer	Deferred Gain on Reinsurance Transactions		Deferred Gain on Reinsurance Transactions
US Alliance Life and Security Company(1)	$	-	$	152
Unified Life Insurance Company(1)		352		217
Ironbound Reinsurance Company Limited(2)		4,811		4,876
Ascendant Re		3,104		2,947
US Alliance Life and Security Company(2)		2,025		2,069
American Republic Insurance Company(2)		7,684		7,502
Crestline SP1(2)		19,346		18,475
SRC4(2)		5,892		1,825
	$	43,214	$	38,063

1) These reinsurance transactions on our legacy life insurance business received gross ceding commissions on the effective dates of the transaction. The difference between the statutory net adjusted reserves and the GAAP adjusted reserves plus the elimination of DAC and value of business acquired related to these businesses reduces the gross ceding commission with the remaining deferred and amortized over the lifetime of the blocks of business.

2) These reinsurance transactions include the ceding commissions and expense allowances which are accounted for as described in (1).

The use of reinsurance does not relieve American Life of its primary liability to pay the full amount of the insurance benefit in the event of the failure of a reinsurer to honor its contractual obligation for all blocks of business except what is included in the Unified transaction. The reinsurance agreement with Unified discharges American Life’s responsibilities once all the policies have changed from indemnity to assumptive reinsurance. No reinsurer of business ceded by American Life has failed to pay policy claims (individually or in the aggregate) with respect to our ceded business.

American Life monitors several factors that it considers relevant to satisfy itself as to the ongoing ability of a reinsurer to meet all obligations of the reinsurance agreements. These factors include the credit rating of the reinsurer, the financial strength of the reinsurer, significant changes or events of the reinsurer, and any other relevant factors. If American Life believes that any reinsurer would not be able to satisfy its obligations with American Life, separate contingency reserves may be established. As of June 30, 2023 or December 31, 2022, no contingency reserves were established.

American Life expects to reinsure a significant portion of its new insurance policies with a variety of reinsurers in exchange for upfront ceding commissions, expense reimbursements and administrative fees. American Life may retain some business with the intent to reinsure some or all at a future date.

Retained and Reinsured Balance Sheets

The tables below shows the retained and reinsurance consolidated balance sheets:

	June 30, 2023						December 31, 2022
(In thousands)	Retained		Reinsured		Consolidated		Retained		Reinsured		Consolidated
Assets
Total investments	$	1,104,198	$	982,401	$	2,086,599	$	812,177	$	802,780	$	1,614,957
Cash and cash equivalents		125,156		69,119		194,275		127,291		64,123		191,414
Deferred acquisition costs, net		57,604		-		57,604		43,433		-		43,433
Premiums receivable		-		372		372		-		-		-
Accrued investment income		14,648		20,402		35,050		11,307		13,858		25,165
Reinsurance recoverables		(62,609)		102,508		39,899		(6,853)		27,405		20,552
Property and equipment, net		1,811		-		1,811		1,897		-		1,897
Receivable for securities sold		441		-		441		2,033		8,485		10,518
Other assets		9,255		2,735		11,990		12,259		236		12,495
Total assets	$	1,250,504	$	1,177,537	$	2,428,041	$	1,003,544	$	916,887	$	1,920,431
Liabilities and Stockholders’ Equity
Liabilities:
Benefit reserves	$	944	$	11,702	$	12,646	$	1,332	$	11,613	$	12,945
Deposit-type contracts		1,103,844		1,114,881		2,218,725		841,980		901,368		1,743,348
Other policy-holder funds		6,069		405		6,474		4,105		-		4,105
Notes payable		25,000		-		25,000		25,000		-		25,000
Deferred gain on coinsurance transactions		231		42,983		43,214		38,063		-		38,063
Payable for securities sold		44,656		-		44,656		8,872		-		8,872
Other liabilities		40,460		7,566		48,026		49,815		3,906		53,721
Total liabilities	$	1,221,204	$	1,177,537	$	2,398,741	$	969,167	$	916,887	$	1,886,054
Stockholders’ Equity:
Preferred stock	$	-	$	-	$	-	$	-	$	-	$	-
Voting common stock		4		-		4		4		-		4
Additional paid-in capital		139,085		-		139,085		138,482		-		138,482
Treasury stock		(175)		-		(175)		(175)		-		(175)
Accumulated deficit		(67,746)		-		(67,746)		(63,019)		-		(63,019)
Accumulated other comprehensive loss		(57,433)		-		(57,433)		(51,386)		-		(51,386)
Total Midwest Holding Inc.'s stockholders' equity	$	13,735	$	-	$	13,735	$	23,906	$	-	$	23,906
Noncontrolling interest		15,565		-		15,565		10,471		-		10,471
Total stockholders' equity		29,300		-		29,300		34,377		-		34,377
Total liabilities and stockholders' equity	$	1,250,504	$	1,177,537	$	2,428,041	$	1,003,544	$	916,887	$	1,920,431

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Income Tax Matters

6 Months Ended

Jun. 30, 2023

Income Tax Matters

Income Tax Matters

Note 9. Income Tax Matters

Significant components of the Company’s deferred tax assets and liabilities as of June 30, 2023 and December 31, 2022 are as follows:

(In thousands)	June 30, 2023		December 31, 2022
Deferred tax assets:
Loss carryforwards	$	4,519	$	2,672
Capitalized costs		55		79
Stock option granted		1,193		1,066
Policy acquisition costs		8,205		6,489
General business credits		6		6
Derivative option allowance		310		-
Sec 163(j) limitation		171		171
Benefit reserves		10,478		12,010
Impairments		535		403
Unrealized losses on investments		15,267		13,624
Other		1,928		1,928
Total deferred tax assets		42,667		38,448
Less valuation allowance		(40,729)		(35,305)
Total deferred tax assets, net of valuation allowance		1,938		3,143
Deferred tax liabilities:
Intangible assets		147		147
Derivative option allowance		-		2,150
Bond Discount		1,912		936
Property and equipment		(121)		(90)
Total deferred tax liabilities		1,938		3,143
Net deferred tax assets	$	-	$	-

At June 30, 2023 and December 31, 2022, the Company recorded a valuation allowance of $40.7 million and $35.3 million, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry forwards are expected to be available to reduce taxable income.

There was income tax expense of $3 million and $2.1 million for the three months ended June 30, 2023 and 2022. and $5.9 million and $2.6 million of tax expense for the six months ended June 30, 2023 and 2022. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to pretax income, as a result of the following:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Computed expected income tax benefit (expense)	$	428	$	(409)	$	(2,357)	$	(1,508)
Reduction (increase) in income taxes resulting from:
Interest maintenance reserve and reinsurance		(18)		61		51		(18)
Nondeductible expenses		(3)		(3)		(6)		(5)
Change in valuation allowance		(3,593)		2,480		(3,781)		(1,052)
Deferred tax adjustment		-		(4)		-		(14)
AETR adjustment		76		-		76		-
Prior year true-up		141		-		141		-
Subtotal of (increases) decreases		(3,397)		2,534		(3,519)		(1,089)
Tax (benefit) expense	$	(2,969)	$	2,125	$	(5,876)	$	(2,597)

Section 382 of the Internal Revenue Code limits the utilization of U.S. net operating loss (“NOL”) carryforwards following a change of control, which occurred on June 28, 2018. As of June 30, 2023, the deferred tax assets included the expected tax benefit attributable to federal NOLs of $7.9 million. The federal NOLs generated by Midwest Holding and American Life prior to June 28, 2018 which are subject to the Section 382 limitation can be carried forward. If not utilized, the NOLs of $1.0 million prior to 2017 will expire through the year of 2032.

The NOLs generated by SRC1 prior to December 30, 2021 of less than $0.1 million are subject to Section 382 limitations due to the change in control. However, under the Tax Cuts and Jobs Act of 2017, they will not expire and can be carried forward indefinitely.  The NOLs not subject to Section 382 which were generated from June 28, 2018 to December 31, 2022 do not expire and will carry forward indefinitely, however their utilization in any carry forward year is limited to 80% of taxable income in that year. The Company believes that it is more likely than not that the benefit from federal NOL carryforwards will not be realized; thus, we have recorded a full valuation allowance of $1.7 million on the deferred tax assets related to these federal NOL carryforwards.

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Leases

6 Months Ended

Jun. 30, 2023

Leases

Leases

Note 10. Leases

Our operating lease activities consist of leases for office space and equipment and do not include variable lease payments. The right of use assets and lease liabilities generated by our lease agreements are included in on the Consolidated Balance Sheets in the Other Assets and Other Liabilities categories, respectively.

Supplemental balance sheet information for our leases as of June 30, 2023 and December 31, 2022 is as follows:

(In thousands)	Classification	June 30, 2023		December 31, 2022
Assets
Operating	Operating lease right-of-use assets	$	2,083	$	2,119
Liabilities
Operating lease	Operating lease liabilities	$	2,106	$	2,135

Our operating lease expense for the three and six months ended June 30, 2023 and 2022 is as follows:

		Three months ended June 30,				Six months ended June 30,
(In thousands)	Classification	2023		2022		2023		2022
Operating	General and administrative expense	$	3	$	3	$	7	$	7

Minimum contractual obligations for our leases as of June 30, 2023 are as follows:

(In thousands)	Operating Leases
2023	$	224
2024		378
2025		342
2026		345
2027		353
2028		362
2029 and after		1,041
Total remaining lease payments	$	3,045

The cash flows related to the operating lease were less than $0.1 million for both the six months ended June 30, 2023 and 2022.

The weighted average remaining lease terms of our operating leases were approximately eight-and-one-half years and ten years, respectively, as of June 30, 2023 and December 31, 2022. The weighted average discount rate used to determine the lease liabilities for operating leases was 8% as of June 30, 2023 and December 31, 2022, respectively. The discount rate used for operating leases was based on our incremental borrowing rate.

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Equity

6 Months Ended

Jun. 30, 2023

Equity

Equity

Note 11. Equity

Preferred stock

As of June 30, 2023 and December 31, 2022, the Company had two million shares of preferred stock authorized with none issued or outstanding.

Common Stock

Our voting common stock is traded on The Nasdaq Capital Market under the symbol “MDWT.” Midwest has authorized 20 million shares of voting common stock and two million shares of non-voting common stock. As of June 30, 2023 and December 31, 2022, Midwest had 3,744,645 and 3,727,976 shares of voting common stock issued and outstanding, respectively. As of those dates, there were no shares of Midwest’s non-voting common stock issued or outstanding.

Midwest holds approximately 4,500 shares of voting common stock in its treasury due to a reverse stock split.

Additional paid-in capital

Additional paid-in capital is primarily comprised of the cumulative cash that exceeds the par value received by the Company in conjunction with past issuances of its shares. It also is increased by the amortization expense of the consideration calculated at inception of the stock option grants as discussed in Note 12 – Long-Term Incentive Plans below.

Accumulated Other Comprehensive Income (AOCI)

AOCI represents the cumulative other comprehensive income (loss) items that are reported separate from net loss and detailed on the Consolidated Statements of Comprehensive Loss. AOCI includes the unrealized gains and losses on certain investments and DAC, net of offsets and taxes as follows:

(In thousands)	Unrealized investment gains (losses) on fixed maturities, net of offsets
Balance at December 31, 2021	$	2,634
Other comprehensive (loss) before reclassifications, net of tax		(54,975)
Less: Reclassification adjustments for losses realized in net income		955
Balance, December 31, 2022		(51,386)
Other comprehensive (loss) before reclassifications, net of tax		(6,230)
Less: Reclassification adjustments for losses realized in net income, net of tax		183
Balance, June 30, 2023	$	(57,433)

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Long-Term Incentive Plans

6 Months Ended

Jun. 30, 2023

Long-Term Incentive Plans

Long-Term Incentive Plans

Note 12. Long-Term Incentive Plans

In 2019, the Board approved the Midwest Holding Inc. (“MHI”) Long-Term Incentive Plan (the “2019 Plan”) that reserves up to 102,000 shares of MHI voting common stock for award issuances. It provides for the grant of options, restricted stock awards, restricted stock units, stock appreciation rights, performance units, performance bonuses, stock awards, and other incentive awards to eligible employees, consultants and eligible directors, subject to the conditions set forth in the 2019 Plan. In 2019, the shareholders of MHI approved the 2019 Plan. All awards are required to be established, approved, and/or granted by the Compensation Committee of the Board.

In 2020, the Board adopted a new equity incentive plan titled the 2020 Long-Term Incentive Plan (the “2020 Plan”) that reserves up to 350,000 shares of MHI voting common stock for award issuances. The terms of the 2020 Plan are essentially the same as the 2019 Plan. In 2021, the shareholders of MHI approved the 2020 Plan. During 2022, the Board approved the addition of 150,000 shares of voting common stock to be added to the 2020 Plan for future awards and these shares were approved by the shareholders of MHI.

Stock Options

In accordance with the stockholder-approved equity incentive plans above, the Company grants stock options to employees and directors for the purchase of common stock at exercise prices established at the date of the grants. Fair value and compensation at

grant date are calculated using the Black Scholes Model. Compensation expense for option shares is expensed on a straight-line basis over the requisite service periods, accounting for forfeitures as they occur. Stock options become exercisable under various vesting schedules (typically two to four years) and generally expire in ten years after the date of grant. The exercise price of the option is equal to the average daily market price of MHI’s common stock on the date of grant resulting in a grant date intrinsic value of $0.00.

Changes in outstanding options were as follows:

		Weighted Average Exercise Price Per Share		Range of Option Exercise Prices per Share	Total Outstanding	Outstanding, Non-vested	Vested and Exercisable
December 31, 2022	$	32.19	$	11.20 - 55.02	319,121	271,517	47,604
Granted		17.12		17.20	5,750	5,750	-
Prior year adjustment		39.38		16.37 - 55.02	-	(7,390)	7,390
Vested		-		-	-	-	-
Exercised		-		-	-	-	-
Forfeited		36.73		25.00 - 55.02	(4,150)	(4,150)	-
Expired		-		-	-	-	-
June 30, 2023	$	31.85	$	11.20 - 55.02	320,721	265,727	54,994

Option information segregated by ranges of exercise prices were as follows:

	June 30, 2023
	Total Outstanding Options				Vested and Exercisable
Range of Option Exercise Prices per Share	Options		Weighted Average Exercise Price per Share	Weighted Average Remaining Term	Options		Weighted Average Exercise Price per Share	Weighted Average Remaining Term
> $50.00	49,353	$	55.02	7.71	7,390	$	55.02	7.59
$40.00 - $49.99	127,751		41.25	7.69	36,042		41.25	7.59
$30.00 - $39.99	-		-	-	-		-	-
$20.00 - $29.99	25,967		23.16	7.64	5,877		25.00	7.28
$10.00 - $19.99	115,000		13.43	9.00	4,285		16.37	7.59
< $10.00	-	$	-	-	-	$	-	-

The weighted average exercise prices of vested and exercisable options as of June 30, 2023, were $39.38.

As of June 30, 2023, based on a closing stock price of $26.32 per share, the aggregate intrinsic (in-the-money) values of vested options and all options outstanding were $0.6 million and $1.6 million, respectively.

Restricted Stock and Restricted Stock Units

In 2020, the Company awarded 18,597 shares of restricted stock, with a grant date fair value of $41.25 per share and subject to time-based vesting requirements of one-fourth increments sixty days after each of the first four anniversary dates of the grant date. The restricted stock compensation expense is calculated using the stock prices at grant date and amortizing on a straight-line basis over the requisite service periods. The recipient of the award resigned on March 31, 2022, and received a total of 5,812 vested shares in connection with his termination of employment, while the remaining 12,785 shares of restricted stock were forfeited.  

5,089 restricted stock units (“RSUs”) were granted to our non-employee directors in June 2021 with a grant date fair value of $24.34 per share and vested on June 14, 2022, the date of the Company’s 2022 annual meeting of stockholders.  The compensation expense relating to these awards was calculated using the grant date fair value and is amortizing on a straight-line basis over the requisite service periods.  

On June 14, 2022, the Company granted 18,718 RSUs to our non-employee directors with a grant date fair value of $11.22 per share, although 2,674 of those RSUs were forfeited by former MHI director Douglas Bratton when he left the Board in September 2022. The remaining 16,044 RSUs vested on June 6, 2023 in conjunction with our annual stockholders meeting. The compensation expense relating to these awards was calculated using the grant date fair value and was amortized on a straight-line basis over the requisite service periods.

On June 6, 2023, the Company granted 6,984 RSUs to our non-employee directors with a grant date fair value of $25.70 per share. By their terms, the RSUs will vest on the earlier of June 6, 2024 or the date of our 2024 annual stockholders meeting, although they are also subject to accelerated vesting in connection with the transaction described in Note 18. The compensation expense relating to these awards was calculated using the grant date fair value and will be amortized on a straight-line basis over the requisite service period.

	Total Outstanding Units			Vested Units
	Units		Weighted Average Grand Date Fair Value	Units		Weighted Average Grant Date Fair Value
December 31, 2022	17,207	$	13.84	1,163	$	50.00
Granted	6,984		25.76	-		-
Vested	-		-	-		-
Forfeited	-		-	-		-
Released	(16,044)		11.22	-		-
June 30, 2023	8,147	$	22.08	1,163	$	50.00

The table below identifies the assumptions used in the Black Scholes Model to calculate the compensation expense for options granted during the six months ended June 30, 2023 and the year ended December 31, 2022:

	June 30,	December 31,
	2023	2022
Volatility	287.3%	4.16% - 4.26%
Weighted-average volatility	287.3%	3.7%
Expected term (in years)	6.54 yrs	2 - 7
Risk-free rate	3.57%	0.02% - 2.15%

For the three months ended June 30, 2023 and 2022, we amortized the compensation expense related to the 2019 and 2020 Plans, from the stock grants above, over vesting tranches which resulted in expense and an increase in additional paid in capital of $0.3 million and $0.4 million, respectively.

For the six months ended June 30, 2023 and 2022, we amortized the compensation expense related to the 2019 and 2020 Plans, from the stock grants above, over vesting tranches which resulted in expense and an increase in additional paid in capital of $0.6 million and $0.4 million, respectively.

The tables below shows the remaining non-vested shares under the 2019 and 2020 Plans as of June 30, 2023 and December 31, 2022, respectively:

	June 30, 2023
	Awards Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
Stock unit awards at December 31, 2022	287,561	$	16.96	$	32.29
Options granted	5,750		16.56		17.12
Restricted stock units granted	6,984		16.56		-
Vested	(23,434)		15.76		55.02
Forfeited or expired	(5,400)		20.51		36.73
Ending Balance at June 30, 2023	271,461	$	16.92	$	31.85

	December 31, 2022
	Stock Options Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
stock unit awards at December 31, 2021	317,217	$	25.80	$	40.13
Options granted	117,367		9.57		14.92
Restricted stock units granted	18,718		—		—
Vested	(56,678)		21.12		36.53
Forfeited or expired	(109,063)		23.82		38.87
Ending Balance at December 31, 2022	287,561	$	16.96	$	32.29

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Statutory Net Income and Surplus

6 Months Ended

Jun. 30, 2023

Statutory Net Income and Surplus

Statutory Net Income and Surplus

Note 13. Statutory Net Income and Surplus

American Life and Seneca Re are required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Nebraska Department of Insurance and the Vermont Department of Insurance. Statutory practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis.

The following table represents the net gains or (losses) as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
American Life	$	(18,528)	$	8,298	$	(35,116)	$	17,891
SRC1	$	1,583	$	(981)	$	4,797	$	(2,253)
SRC3	$	629	$	(564)	$	917	$	(95)

The following table represents the Capital and Surplus as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

(In thousands)
		June 30, 2023		December 31, 2022
American Life	$	58,135	$	69,936
SRC1	$	16,979	$	9,615
SRC3	$	8,348	$	6,088

The following table represents the premiums sales as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
American Life	$	138,920	$	72,498	$	231,207	$	130,616
SRC1	$	-	$	-	$	-	$	-
SRC3	$	(52)	$	23,905	$	123	$	23,757

State insurance laws require American Life to maintain certain minimum capital and surplus amounts on a statutory basis. American Life is subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from its domiciliary insurance regulatory authorities. American Life is also subject to risk-based capital (“RBC”) requirements that may further affect its ability to pay dividends. American Life’s statutory capital and surplus as of June 30, 2023 and December 31, 2022, exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements as of those dates.

As of June 30, 2023 and December 31, 2022, American Life did not hold any participating policyholder contracts where dividends were required to be paid.

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Third-party Administration

6 Months Ended

Jun. 30, 2023

Third-party Administration

Third-party Administration

Note 14. Third-party Administration

The Company, through its investment advisory subsidiary 1505 Capital, offers investment and structuring services. Our reinsurance partners may choose to engage 1505 as the investment advisor for their portfolios. Services are also available to unaffiliated investors. As of June 30, 2023, and December 31, 2022, 1505 Capital had $531.6 million and $501.9 of third-party assets under management, respectively.

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Policy Administration Fees

6 Months Ended

Jun. 30, 2023

Policy Administration Fees

Policy Administration Fees

Note 15. Policy Administration Fees

The company generates revenue through policy administration for our third-party reinsurers, as well as fees received from early termination of policies. For the three months ended June 30, 2023 and 2022, we received $0.5 million and $0.5 million of fees and for the six months ended June 30, 2023 and 2022 we received $1.1 million and $0.9 million of fees.  

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Related Party

6 Months Ended

Jun. 30, 2023

Third-party Administration

Related Party

Note 16. Related Party

Crestline

On April 24, 2020, we entered into a Securities Purchase Agreement with Crestline Assurance Holdings LLC (“Crestline”) an institutional alternative investment management firm under which we issued 444,444 shares of our voting common stock to Crestline. We contributed $5.0 million of the net proceeds to American Life and used $3.3 million of the proceeds to capitalize Seneca Re and its first protected cell. We also entered into a Stockholders Agreement along with Xenith and Vespoint that grants Crestline certain rights. Also, Douglas Bratton, a principal of Crestline, was initially appointed as a director of both our Board and the American Life Board of Directors.

In addition, on April 24, 2020, American Life entered into a three-year master letter agreement and related reinsurance, trust and asset management agreement with Seneca Re and a Crestline affiliate regarding the flow of annuity reinsurance and related asset management, whereby Crestline agreed to provide reinsurance funding for a quota share percentage of 25% of the liabilities of American Life arising from its MYGA and a quota share percentage of 40% the liabilities of American Life arising from its FIA products. Through June 30, 2023, American Life had ceded $515.3 million face amount of annuities to Crestline Re SP1. American Life received total ceding commissions of $0.8 million and expense reimbursements of $0.7 million in connection with these transactions for the three months ended June 30, 2023 and commissions of $1.6 million and expense reimbursements of $1.6 million for June 30, 2022.  

The Reinsurance Agreement also contains the following agreements:

● American Life and Crestline Re SP1 each entered into investment management agreements with Crestline, pursuant to which Crestline manages the assets that support the reinsured business; and

● American Life and Crestline Re SP1 entered into a trust agreement whereby Crestline maintains for American Life’s benefit a trust account that supports the reinsured business.

On September 16, 2022, Midwest Holding and Crestline executed a Letter of Understanding relating to the Stockholders Agreement. The Company and Crestline agreed that Crestline’s representative would resign from the Boards of Directors of the Company and American Life. Notwithstanding the foregoing, the parties agreed that the resignation and Crestline’s decision to no longer appoint a director does not constitute a permanent waiver of Crestline’s rights under the Stockholders Agreement to appoint a Crestline Designated

Director. The Company and Crestline agreed that the foregoing described agreement will remain in place until the earlier to occur of the date (i) the parties reach written agreement otherwise, (ii) that Crestline is no longer an affiliate of a life insurance entity it recently acquired and (iii) on which Crestline no longer has the right to elect or appoint a Designated Director (and Observer) to the Board.

As of June 30, 2023, and December 31, 2022, Crestline has approximately $477.2 million and $423.6 of the Company’s assets under management, respectively, and was a subadvisor on approximately $166.7 million and $134.3 million of additional investments as of June 30, 2023 and December 31, 2022, respectively.

Chelsea  

On June 29, 2020, Midwest’s subsidiary, American Life, purchased a 17% interest in Financial Guaranty UK Limited through an economic interest in Chelsea Holdings Midwest LLC. American Life has a note receivable from Chelsea Holdings Midwest LLC with an interest rate of 5% per annum that was rated BBB+ by a nationally recognized statistical rating organization (“NRSRO”) and Class B preferred shares in Chelsea Holdings Midwest LLC. This note is being carried at cost plus PIK of $6.4 million, and the preferred shares are carried at a fair market value of $2.3 million as of June 30, 2023 and $2.3 million as of December 31, 2022, based upon valuations received from an independent third-party.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies.

Commitments and Contingencies

Note 17. Commitments and Contingencies

Contingent Commitments: We have entered into commitments related to certain investments, where draws or additional funding can be requested under the terms of the agreements. These commitments are inclusive of third-party reinsurer commitments, and were approximately $191.3 million as of June 30, 2023. Of the approximately $191.3 million in unfunded commitments at June 30, 2023, approximately $55.8 million related to American Life. The remaining $135.5 million represented commitments that have been made by our reinsurance partners. The table shows when different dollar amounts of commitments will expire. The ability of borrowers to request additional funds under these lending agreements varies considerably from loan to loan.

(In thousands)	June 30, 2023		December 31, 2022
Due in one year or less	$	73,566	$	52,951
Due in two years		28,892		43,604
Due in three years		21,847		7,731
Due in four years		11,737		13,277
Due in five years and after		55,245		61,432
	$	191,287	$	178,995

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

Regulatory Matters: State regulatory bodies and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning the Company’s compliance with laws in relation to, but not limited to, insurance and securities matters. American Life was granted authorization to do business in Kentucky on June 23, 2023, and is currently licensed in 25 states and the District of Columbia as of June 30, 2023. American Life has pending applications in additional states as of June 30, 2023.

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Pending Merger

6 Months Ended

Jun. 30, 2023

Pending Merger

Pending Merger

Note 18. Pending Merger

On April 30, 2023, Midwest Holding Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Midas Parent, LP, a Delaware limited partnership (“Parent”) and an affiliate of Antarctica Capital, LLC (“Antarctica”), and Midas Merger Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, subject to the satisfaction (or waiver) of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company and whereupon Merger Sub will cease to exist and the Company will be the surviving corporation in the Merger and will continue as a wholly-owned subsidiary of Parent (the “Merger”).

The board of directors of the Company (the “Company Board”) unanimously approved and declared it advisable to enter into the Merger Agreement and resolved to recommend that the Company’s stockholders approve the adoption of the Merger Agreement and the transactions contemplated thereby (the “Transactions”), including the Merger on the terms and subject to the conditions set forth in the Merger Agreement.

As a result of the Merger, at the effective time of the Merger (the “Effective Time”), each outstanding share of common stock of the Company, par value $0.001 per share (the “Company Common Stock”) (other than (i) Company Common Stock held by Parent or the Company or any of their respective wholly owned subsidiaries, and (ii) any shares of Company Common Stock held by stockholders

who properly exercise appraisal rights under Delaware law), outstanding immediately prior to the Effective Time, will be converted into the right to receive $27.00 per share in cash, without interest.

Consummation of the Merger is subject to certain conditions, including, but not limited to, (i) the Company’s receipt of approval of the Company’s stockholders, (ii) the absence of any law or order prohibiting or making illegal the consummation of the Merger, (iii) the approval of the Merger by the Nebraska Department of Insurance and the Vermont Department of Financial Regulation (“DFR”) without the imposition of any Burdensome Condition (as defined in the Merger Agreement), and (iv) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement). On May 14, 2023, the DFR granted its approval of the Merger.

On July 26, 2023, the Company held a special meeting (the “Special Meeting”) of stockholders at which the Company’s stockholders voted to adopt the Merger Agreement and approve the Merger.  

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Nature of Operations and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2023

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Nature of Operations

Midwest Holding Inc. (“Midwest,” “the Company,” “we,” “our,” or “us”) was incorporated in Nebraska on October 31, 2003 for the primary purpose of operating a financial services company. The Company redomesticated from the State of Nebraska to the State of Delaware on August 27, 2020. The Company is in the life and annuity insurance business and operates through its wholly owned subsidiaries, American Life & Security Corp. (“American Life”), and 1505 Capital LLC (“1505 Capital”) as well as through its sponsored captive reinsurance company, Seneca Reinsurance Company, LLC (“Seneca Re”).

American Life is a Nebraska-domiciled life insurance company, that was licensed to sell, underwrite, and market life insurance and annuity products in 25 states and the District of Columbia as of June 30, 2023.

Effective March 12, 2020, Seneca Re, a Vermont limited liability company, was formed by Midwest to operate as a sponsored captive insurance company for the purpose of insuring and reinsuring various types of risks of its participants through one or more protected cells and to conduct any other business or activity that is permitted for sponsored captive insurance companies under Vermont insurance regulations. On March 30, 2020, Seneca Re received its Certificate of Authority to transact the business of a captive insurance company. On May 12, 2020, Midwest contributed $0.3 million to Seneca Re for a 100% ownership interest. On April 15, 2020, Midwest entered into an operating agreement with Seneca Re and as of June 30, 2023, Seneca Re has three incorporated cells, including Seneca Incorporated Cell, LLC 2020-01 (“SRC1”) and Seneca Incorporated Cell 2021-03 (“SRC3”), which are consolidated in our financial statements. Additionally, Seneca Incorporated Cell 2022-04 (“SRC4”) was established on September 30, 2022; however, management has determined that the entity does not qualify for consolidation into our financial statements.

Midwest initially owned a 100% interest in SRC1; however, on December 30, 2021 Midwest closed the sale of approximately 70% of SRC1 to a subsidiary of ORIX Corporation USA (“ORIX USA”) for $15.0 million. Under the terms of the agreement, Midwest now holds a 30% ownership interest in SRC1. ORIX Advisers, LLC, another subsidiary of ORIX USA, is the manager of the assets underlying SRC1’s reinsurance obligations going forward, replacing Midwest’s asset management arm, 1505 Capital.

On July 27, 2020, American Life entered into a reinsurance agreement (the “Reinsurance Agreement”) with a new protected cell formed by Seneca Re (Seneca Incorporated Cell, LLC 2020-02 (“SRC2”)). SRC2 was capitalized by Crestline Management, L.P. (“Crestline”), an affiliate of Crestline Assurance Holdings LLC, a significant shareholder of Midwest. The Reinsurance Agreement, which was effective as of April 24, 2020, was entered into pursuant to a Master Letter Agreement (the “Master Agreement”) dated and effective as of April 24, 2020, by and among American Life, Seneca Re and Crestline. The Reinsurance Agreement supports American Life’s new business production by providing reinsurance capacity for American Life to write certain kinds of fixed indexed and multi-year guaranteed annuity products. Concurrently with the Reinsurance Agreement:

● American Life and SRC2 each entered into investment management agreements with Crestline, pursuant to which Crestline manages the assets that support the reinsured business; and

● American Life and SRC2 entered into a trust agreement whereby SRC2 maintains for American Life’s benefit a trust account that supports the reinsured business.

Under the Master Agreement, Crestline agreed to provide reinsurance funding for a quota share percentage of 25% of the liabilities of American Life arising from its multi-year guaranteed annuities (“MYGA”) and a quota share percentage of 40% of the liabilities of American Life arising from its fixed indexed annuity (“FIA”) products. Effective December 8, 2020, American Life entered into a novation agreement with SRC2 and Crestline Re SPC, an exempted segregated portfolio company incorporated under the laws of the Cayman Islands, for and on behalf of Crestline SP1, a segregated portfolio company of Crestline Re SPC, under which the above described Reinsurance Agreement, as well as the trust and related asset management agreements, were novated and replaced with substantially similar agreements entered into by American Life and Crestline SP1. The Reinsurance Agreement was most recently amended effective in April 2023 to allow Crestline to provide reinsurance funding for a quota share percentage of 20% of the liabilities of American Life arising from its three-year multi-year guaranteed annuities (“MYGAs”), a quota share percentage of 10% of its five-year MYGAs, and a quota share percentage of 0% of the liabilities of American Life arising from its FIAs. The amended agreement limited the total amounts to be reinsured at $550 million.

In addition, pursuant to the Master Agreement, the parties thereto have agreed to enter into one or more separate agreements whereby, among other things and subject to certain conditions, American Life will agree to reinsure additional new business production to one or more reinsurers formed and/or capitalized by Crestline, Midwest or an appropriate affiliate will be compensated for providing

administrative services to certain advisory clients of Crestline, and American Life will consider investing in certain assets originated or sourced by Crestline.

On June 26, 2021, the Nebraska Department of Insurance (“NDOI”) issued its non-disapproval of the Modified Coinsurance Agreement (“Modco AEG Agreement”) of American Life with American Republic Insurance Company (“AEG”), an Iowa domiciled reinsurance company. The agreement was executed on June 29, 2021. Under the Modco AEG Agreement, American Life initially ceded to AEG (and subsequently renewed), on a modified coinsurance basis, a 20% quota share of certain liabilities with respect to its MYGA-5 business and an initial 20% quota share of certain liabilities with respect to its FIA products. American Life has established a Modco Deposit Account to hold the assets for the Modco AEG Agreement. Effective February 28, 2023, AEG elected not to extend its commitment period for reinsuring liabilities under its Modco AEG Agreement; as a result, AEG’s current quota share with respect to MYGA and FIA policies is 0%. The Modco AEG Agreement remains in place, and AEG remains responsible for previously ceded liabilities.

As of November 10, 2021, Midwest purchased 100% of the common stock of an intermediary holding company which immediately purchased 100% of SRC3 Class A and B membership interests. Also dated as of November 10, 2021 but effective as of July 1, 2021, American Life and SRC3 entered into a Funds Withheld and Modified Coinsurance Agreement, whereby, SRC3 agreed to provide reinsurance funding for an ongoing quota share percentage of 45% of the liabilities of American Life arising from its MYGA products and a quota share percentage of 45% of the liabilities of American Life arising from its FIA products. The agreement with SRC3 has been amended, most recently in the fourth quarter of 2022, to provide one-time reinsurance funding for a quota share of $10.0 million of the liabilities of American Life arising from its 10-year FIA products.

As of September 30, 2022, American Life entered into a reinsurance agreement (the “Reinsurance Agreement”) with a new protected cell formed by Seneca Re (Seneca Incorporated Cell, LLC 2022-04 (“SRC4”)). SRC4 was capitalized by loans from Embrace Software, Inc. and Tillman Networks LLC. The Reinsurance Agreement was effective as of July 1, 2022, by and between American Life and SRC4. The Reinsurance Agreement supports American Life’s new business production by providing reinsurance capacity for American Life to write certain kinds of fixed indexed and multi-year guaranteed annuity products. Under the Reinsurance Agreement, SRC4 initially agreed to provide reinsurance funding for a quota share percentage of 45% of the liabilities of American Life arising from its MYGA-5 products and a quota share percentage of 10% of the liabilities of American Life arising from its MYGA-3 products. American Life has established a Modco Deposit Account, a Funds Withheld custody account, and a Trust Account pursuant to the Reinsurance Agreement. The initial settlement included net premium of $21.4 million and net reserves of $21.5 million for the Modco Deposit Account. Also on September 30, 2022, American Life entered into an Investment Management Agreement (“IMA”) with CoVenture Management, LLC (“CoVenture”) naming CoVenture as the manager of certain assets held by American Life on behalf of SRC4.

Management evaluates the Company as one reporting segment in the life insurance industry. The Company is primarily engaged in the underwriting and marketing of annuity products through American Life, and then reinsuring such products with third-party reinsurers, and since May 13, 2020, with Seneca Re protected cells. American Life’s legacy product offerings consisted of a multi-benefit life insurance policy that combined cash value life insurance with a tax deferred annuity and a single premium term life product. American Life presently offers six annuity products: two MYGAs, two FIAs, and two bonus plans associated with the FIA product. It is not presently offering any traditional life insurance products.

Basis of Presentation

Basis of Presentation

These consolidated financial statements for the three and six months ended June 30, 2023 and 2022 have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is a summary of our significant accounting policies and estimates. 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. All intercompany accounts and transactions have been eliminated in consolidation and certain immaterial reclassifications have been made to the prior period results to conform to the current period’s presentation with no impact on results of operations or total stockholders’ equity.

Credit Loss Impairments for Fixed Maturities and Other Invested Assets

Credit Loss Impairments for Fixed Maturities and Other Invested Assets

The Company adopted new current expected credit loss guidance on January 1, 2023 impacting the Company’s investment portfolio. For fixed maturities, the difference between amortized cost, net of credit loss allowance, (amortized cost, net) and fair value is reported as a component of accumulated other comprehensive income (“AOCI”) on the consolidated balance sheet and is not reflected in the operating results of any period until reclassified to net income upon consummation of a transaction with an unrelated third party or when a credit loss allowance is recorded.  The Company has a comprehensive portfolio monitoring process to evaluate all our fixed maturities on a quarterly basis that may require a credit loss allowance.  These reviews, in conjunction with the Company’s investment managers’

reports and relevant factors such as (1) the financial condition and near-term prospects of the issuer; (2) the Company’s intent to sell a fixed maturity or whether it is more likely than not that the Company will be required to sell a fixed maturity before the anticipated recovery in value; (3) the market leadership of the issuer; (4) the debt ratings of the issuer; and (5) the cash flows and liquidity of the issuer or the underlying cash flows, as required for our investment models, are all considered in the impairment assessment.

If the Company has not made the decision to sell and it is not more likely than not that the Company will be required to sell before the anticipated recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the fixed maturity. The Company estimates the anticipated recovery value based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the fixed maturity’s current effective rate and are compared to the amortized cost basis of the fixed maturity. The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the fixed maturity. All reasonably available information relevant to the collectability of the fixed maturity are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the fixed maturity, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the insurer, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate the anticipated recovery value if the Company determines that the fixed maturity is dependent on the liquidation of collateral for ultimate settlement.

If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis, a credit loss allowance is recorded as a net investment loss for the shortfall in expected cash flows; however, the amortized cost basis, net of the credit loss allowance, may not be lower than the fair value of the fixed maturity. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed maturity does not have sufficient cash flows or other information to estimate a recovery value for the fixed maturity, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recognized as a net investment loss.

When a fixed maturity is sold or otherwise disposed or the fixed maturity is deemed uncollectible and written-off, the Company reverses amounts previously recognized in the credit loss allowance through net investment gains (losses). Recoveries after write-offs are recognized when received. The Company does not measure a credit loss allowance on accrued interest receivable as accrued interest receivable is written off to net investment income in a timely manner when there are concerns regarding collectability.

Fixed Maturities

Fixed Maturities

All fixed maturities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value, net of allowances for expected credit losses, as of the financial statement date. Premiums and discounts on fixed maturity debt instruments are amortized using the scientific-yield method over the term of the instruments. Realized gains and losses on fixed maturities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in accumulated other comprehensive (loss) income.

Investment income consists of interest, dividends, gains and losses from investments, and real estate income, which are recognized on an accrual basis along with the amortization of premiums and discounts.

Certain available-for-sale investments are maintained as collateral under Funds Withheld (“FW”) and Modified Coinsurance (“Modco”) agreements but the assets and total returns or losses on the asset portfolios belong to the third-party reinsurers. American Life has treaties with several third-party reinsurers that have FW and Modco provisions. In a Modco agreement, the ceding entity retains the assets equal to the modified coinsurance reserves retained. In a FW agreement, assets that would normally be paid over to a reinsurer are withheld by the ceding company to permit statutory credit for unauthorized reinsurers to reduce the potential credit risk. The unrealized gains/losses on those investments are passed through to the third-party reinsurers as either a realized gain or loss on the Consolidated Statements of Comprehensive Loss.

Mortgage Loans on Real Estate

Mortgage Loans on Real Estate

Mortgage loans on real estate, held for investment are carried at unpaid principal balances, net of allowance for expected credit losses. Interest income is recognized in net investment income at the contract interest rate when earned. A mortgage loan is considered to be impaired when 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 for impairments on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlements 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 and disposition of collateral. These evaluations are revised as conditions change and added information becomes available. As of June 30, 2023, the Company held one asset valued at $7.7 million with a total impairment of $1.4 million, and one asset with an impairment for the full value of $0.6 million. At December 31, 2022, the company had one asset valued at $7.7 million with a total impairment of $1.4 million.

Derivative Instruments

Derivative Instruments

Derivatives are used to hedge the risks experienced in our ongoing operations, such as equity, interest rate and cash flow risks, or for other risk management purposes, which primarily involve managing liability risks associated with our indexed annuity products and reinsurance agreements. Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, or other underlying notional amounts. Derivative assets and liabilities are carried at fair value on the consolidated balance sheets.

To qualify for hedge accounting, at the inception of the hedging relationship, the Company must formally document our designation of the hedge as a cash flow or fair value hedge and our risk management objective and strategy for undertaking the hedging transaction. In this documentation, we would identify how the hedging instrument is expected to hedge the designated risks related to the hedged item, the method that would be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method which would be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness would be formally assessed at inception and periodically throughout the life of the designated hedging relationship.

During the last quarter of 2020, the Company began investing in futures to hedge the fluctuations in various aspects of our business. The formal documentation and hedge effectiveness was not completed at the date we entered into those futures contracts; therefore, they do not qualify for hedge accounting. The futures change in fair market values were recorded on our Consolidated Statements of Comprehensive Loss as realized gains or (losses).

Additionally, reinsurance agreements written on a FW or Modco basis contain embedded derivatives on our annuity products. Gains or (losses) associated with the performance of assets maintained in the modified coinsurance deposit and funds withheld accounts are reflected as realized (losses) or gains in the Consolidated Statements of Comprehensive Loss.

Equity Securities

Equity Securities

Equity securities at June 30, 2023, consisted of exchange traded funds (“ETFs”). The ETFs are carried at fair value with the change in fair value recorded through realized gains and losses in the Consolidated Statements of Comprehensive Loss. As of June 30, 2023, and December 31, 2022 we held $5.1 million of ETFs.

Preferred Stock

Preferred Stock

The company holds investments in preferred stock of $33.8 million as of June 30, 2023 and $31.4 million as of December 31, 2022, of which $10.0 million was redeemable at both dates. Changes in the fair value of preferred stock are recorded through unrealized gains and losses in net investment income in the Consolidated Statements of Comprehensive Loss.

In 2020 American Life entered into a series of transactions with an unaffiliated entity, Ascona Group Holdings Ltd (“AGH”) acquiring preferred equity and warrants, and later created a special purpose vehicle, Ascona Asset Holding LLC (“AAH”), to hold the preferred equity and warrants, and later created Ascona Collinwood HoldCo LLC (“ACH”) to be the sole member of AAH. American Life and Crestline Re SP1 own 74% and 26%, respectively, of ACH. American Life is carrying the preferred equity and warrants at a market value in USD of $12.2 million as of June 30, 2023 and $10.5 million of December 31, 2022. For the three months ended June 30, 2023, $0.5 million of investment income related to ACH was recognized, and $0.1 million was attributed to the noncontrolling interest held by Crestline Re SP1. For the three months ended June 30, 2022, $0.2 million of investment income was recognized, and less than $0.1 million was attributed to Crestline Re SP1. For the six months ended June 30, 2023 $2.8 million of investment income related to ACH was recognized, and $0.7 million was attributed to the noncontrolling interest held by Crestline Re SP1. For the six months ended June 30, 2022, $1.8 million of investment income was recognized, and $0.5 million was attributed to Crestline Re SP1.

Other Invested Assets

Other Invested Assets

Other invested assets consists of approximately $107.9 million of various investments. Of this total, approximately $97.7 million are primarily collateral loans, and $10.2 million of private credit and equipment leases. The collateral loans, private credit and equipment leases are carried at fair market value, net of allowance for expected credit losses. Also, we had an initial investment of $19.0 million investment in a private fund between American Life and an unaffiliated entity, PF Collinwood Holdings, LLC (“PFC”), with American Life owning 100% of the entity effective January 2021. The fair value of the PFC investment as of June 30, 2023, was $11.2 million and as of December 31, 2022, $13.7 million, respectively, with any change in fair market value recorded in unrealized gains and losses in equity on the balance sheet.  On February 2, 2022, we established a special purpose vehicle, Python Asset Holding LLC, with American Life owning 100% of the entity with an initial investment of $7.4 million. As of June 30, 2023, our investment in Python was carried at the net asset value (“NAV”) plus approximately $0.7 million of investment income.

Deposits and notes receivable

Deposits and notes receivable

Investment escrow

The Company held in escrow $1.6 million and $0.8 million as of June 30, 2023 and December 31, 2022, respectively. The cash held at year end was used to purchased mortgages in July and January 2023, respectively.

Federal Home Loan Bank stock

American Life initially purchased Federal Home Loan Bank of Topeka (“FHLB”) common stock on May 5, 2021. This investment was to solidify our membership with FHLB Topeka. The carrying value of FHLB stock approximates fair value since the Company can redeem the stock with FHLB at cost. As a member of the FHLB, the Company is required to purchase this stock, which is carried at cost and classified as restricted equity securities.

Membership allows access to various funding arrangements to provide a source of additional liquidity. As of June 30, 2023, the Company had pledged assets with a market value of $187.2 million to FHLB to allow a borrowing capacity of $170.3 million and $121.1 million pledged as of December 31, 2022. As of June 30, 2023 we had $66.0 million of outstanding funding arrangements, and $29.0 million outstanding as of December 31, 2022.

Notes Receivable

The Company held notes receivable carried at fair value of $6.4 million and $6.3 million as of June 30, 2023 and December 31, 2022, respectively, between American Life and a related party. The note receivable has an annual interest rate of 5% which is paid in kind (“PIK”) interest per annum that increases the outstanding note balance. This note was rated BBB+ by a nationally recognized statistical rating organization. This note matures on June 18, 2050. See Note 16 – Related Party – Chelsea for details regarding this note.

Policy Loans

Policy Loans

Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Deferred Acquisition Costs

Deferred Acquisition Costs

Deferred acquisition costs (“DAC”) consist of incremental direct costs, net of amounts ceded to third-party reinsurers, 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. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions.

The following table represents a roll forward of DAC, net of reinsurance:

(In thousands)	June 30, 2023		December 31, 2022
Beginning balance	$	43,433	$	24,530
Additions		19,356		23,857
Amortization		(3,938)		(3,905)
Interest		(841)		(883)
Impact of unrealized investment losses		(406)		(166)
Ending balance	$	57,604	$	43,433

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. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which in management’s judgment require an immediate review. The Company performed a recoverability analysis during the second quarter of 2023 and determined that all DAC balances were recoverable as of June 30, 2023 and December 31, 2022.

Premiums Receivable

Premiums Receivable

Premiums receivable consists of premiums earned on our legacy insurance business which have been earned but have not yet been collected. Amounts are receivable from our legacy business partners and were less than $0.4 million and $0.4 million at June 30, 2023 and December 31, 2022 respectively.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over three to seven years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $0.1 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense totaled $0.2 million and $0.1 million for the six months ended June 30, 2023 and 2022, respectively. The accumulated depreciation, net of disposals, totaled $1.6 million and $1.4 million as of June 30, 2023 and December 31, 2022, respectively.

Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. The Company determined that no such events occurred in the periods covered by the Consolidated Financial Statements that would indicate the carrying amounts may not be recoverable.

Reinsurance

Reinsurance

We seek to reinsure a significant portion of our new annuity policies with a variety of reinsurers in exchange for upfront ceding commissions, expense reimbursements and administrative fees. Under these reinsurance agreements, we expect there will be a monthly or quarterly settlement of premiums, claims, surrenders, collateral, and other administration fees. We believe this will help preserve American Life’s capital while supporting its growth because American Life will have lower capital requirements when its business is reinsured due to lower overall financial exposure versus retaining the insurance policy business itself. See Note 8 below for further discussion of our reinsurance activities.

There are two main categories of reinsurance transactions: 1) “indemnity,” where we cede a portion of our risk but retain the legal responsibility to our policyholders should our reinsurers not meet their financial obligations; and 2) “assumption,” where we transfer the risk and legal responsibilities to the reinsurers. The reinsurers are required to acquire the appropriate regulatory and policyholder approvals to convert indemnity policies to assumption policies.

Our reinsurers may be domestic or foreign capital markets investors or traditional reinsurance companies seeking to assume U.S. insurance business. We plan to mitigate the credit risk relating to reinsurers generally by requiring other financial commitments from the reinsurers to secure the reinsured risks (such as posting substantial collateral). It should be noted that under indemnity reinsurance agreements American Life remains exposed to the credit risk of its reinsurers. If one or more reinsurers become insolvent or are otherwise unable or unwilling to pay claims under the terms of the applicable reinsurance agreement, American Life retains legal responsibility to pay policyholder claims, which in such event would likely materially and adversely affect the capital and surplus of American Life.

Midwest formed Seneca Re in early 2020, followed by Seneca Incorporated Cell, LLC 2020-01 (“SRC1”) and Seneca Incorporated Cell, LLC 2021-03 (“SRC3”) which are consolidated in these financial statements. Midwest sold 70% ownership of SRC1 to an ORIX Corporation USA subsidiary on December 30, 2021, and retained 30% ownership. Midwest maintains control over SRC1 and we continue to consolidate SRC1, in these financial statements. Additionally, Seneca Re has established Seneca Incorporated Cell, LLC 2022-04; however, management has determined that Midwest does not control the entity and thus it is not consolidated into these financial statements. American Life entered into a novation agreement with Seneca Incorporated Cell, LLC 2020-02 (“SRC2”)  and Crestline Re SPC, for and on behalf of Crestline Re SP1, under which the above-described reinsurance, trust and related asset management agreements were novated and replaced with substantially similar agreements entered into by American Life and Crestline Re SP1.

Some reinsurers are not and may not be “accredited” or qualified as reinsurers under Nebraska law and regulations. In order to enter into reinsurance agreements with such reinsurers and to reduce potential credit risk, American Life holds a deposit or withholds funds from the reinsurer and/or requires the reinsurer to maintain a trust that holds assets backing up the reinsurer’s obligation to pay claims on the business it assumes. The reinsurer may also appoint an investment manager for such funds, which in some cases may be our investment adviser subsidiary, 1505 Capital, to manage these assets pursuant to guidelines adopted by us that are consistent with Nebraska investment statutes and reinsurance regulations.

American Life currently has treaties with several third-party reinsurers and one related party reinsurer. In a Modco agreement, the ceding entity retains the assets equal to the modified coinsurance reserves retained. In a FW agreement, assets that would normally be paid over to a reinsurer are withheld by the ceding company to permit statutory credit for unauthorized reinsurers, to reduce the potential credit risk. Under those provisions with third-party reinsurers, the assets backing the treaties are maintained by American Life as investments but the assets and total returns or losses on the investments are owned by the reinsurers. Under GAAP, this arrangement is considered an embedded derivative as discussed in Comprehensive Loss and Note 4 below.

Assets carried as investments on American Life’s financial statements for the third-party reinsurers contained cumulative unrealized gains and (losses) as of June 30, 2023 and December 31, 2022. The terms of the contracts with the third-party reinsurers provide that changes in the unrealized gains and (losses) on the portfolios accrue to the third-party reinsurers. To recognize changes in the third-party unrealized gains and (losses), American Life records the year-to-date change as an offsetting realized (loss) or gain in Net Realized (Loss) Gain on Investments on the Consolidated Statements of Comprehensive Loss and in amounts recoverable from third-party reinsurers on the Consolidated Balance Sheets. For further discussion see Note 4 below.

Benefit Reserves

Benefit Reserves

The Company establishes 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 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.

Policy Claims

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.

Deposit-type Contracts

Deposit-type Contracts

Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies.

Deposit-type contracts also include balances outstanding under funding agreements with the Federal Home Loan Bank of Topeka (“FHLB”). The funding agreements are carried at cost. Amounts received and repaid under FHLB funding agreements are classified as financing activities in the Company's Consolidated Statements of Cash Flows.

In 2021, the Company became a member of FHLB, which provides access to collateralized borrowings and other FHLB products. Any borrowing from FHLB requires the purchase of FHLB activity-based common stock in an amount equal to 4.5% of the borrowing. In 2022, the Board authorized a maximum amount equal to 5% of net aggregate admitted retained assets of American Life for FHLB advances and funding agreements combined. In 2023 and 2022, American Life received advances of $37.0 million and $29.0 million respectively, from FHLB under funding agreements and made no repayments on FHLB funding agreements. Outstanding advances under FHLB funding agreements are reported as part of deposit-type contracts in the Consolidated Balance Sheets and totaled $66.0 million as of June 30, 2023, and $29.0 million as of December 31, 2022. Interest on the funding agreements accrues at their effective interest rates.

As of June 30, 2023, scheduled maturity dates for outstanding FHLB funding agreements were as follows:

(Dollar amounts in thousands)	Interest
Maturity Date	Rate		Amount
March 1, 2024		5.10%	$	16,000
January 22, 2025		5.47%		13,000
January 22, 2025		5.17%		2,000
August 16, 2025		5.48%		8,000
September 1, 2027		5.40%		4,000
September 15, 2027		5.20%		8,000
October 1, 2027		5.41%		9,000
December 1, 2027		5.63%		6,000
			$	66,000

Note Payable

Note Payable

On November 22, 2022, the Company entered into a three-year senior secured revolving credit agreement (“Credit Agreement”) with Royal Bank of Canada and other lenders with a capacity of $30.0 million (the “Revolving Credit Facility”). The maturity date of the Credit Agreement is November 22, 2025. The obligations under the Credit Agreement are secured by a first priority lien on a variety of our assets. The balance of the revolving credit was $25.0 million at June 30, 2023, and December 31, 2022, with $5.0 million unutilized credit.

Deferred Gain on Coinsurance Transactions

Deferred Gain on Coinsurance Transactions

American Life entered into several reinsurance contracts where it has earned or is earning ceding commissions. These ceding commissions are recorded as a deferred liability and amortized over the life of the business ceded. American Life receives commission and administrative expenses from reinsurance transactions that represent recovery of acquisition costs. These remittances first reduce the DAC associated with the reinsured blocks of business with the remainder being included in the deferred gain on coinsurance transactions that is also being amortized.

Revenue Recognition and Related Expenses

Revenue Recognition and Related Expenses

Amounts received as payment for annuities are recognized as deposits to policyholder account balances and are included in deposit-type liabilities. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, 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.

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

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

Service fee revenue is comprised of third-party administration (“TPA”) fees and investment management fees:

● The TPA fees are related to accounting services performed based on service agreements with varying lengths. Revenue associated with TPA fees are only recognized when the services are performed, which is typically on a monthly or quarterly basis.

● Fees for investment management fees are based on the total assets managed for each client at a contracted rate. The length of term on the contracts varies by client. The Company accrues investment advisory fees and recognizes revenue based on the market value of the client’s assets at the end of the applicable period, at the client’s contracted rate.

Income Taxes

Income Taxes

The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state, or local tax examinations by tax authorities for the years before 2019. The Company is not currently under examination for any open years for income taxes. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. 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 DAC. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense.

Comprehensive Loss

Comprehensive Loss

Comprehensive Loss is comprised of net income (loss) and other comprehensive loss. Other comprehensive loss includes unrealized gains and losses from fixed maturities classified as available for sale, unrealized gains and losses from other invested assets, and unrealized gains and losses from preferred stock, net of applicable taxes. American Life has treaties with several third-party reinsurers that have FW and Modco provisions. Under those provisions, the assets backing the treaties are maintained by American Life as collateral but are owned by the third-party reinsurers, thus, the total return on the asset portfolio belongs to the third-party reinsurers. Under GAAP this is considered an embedded derivative as discussed above under “Reinsurance” and in Note 8 below.

Earnings Per Share

Earnings Per Share

Basic (loss) income per share for the three months ended June 30, 2023 and 2022 was $(1.04) and $2.48 respectively, which includes a gain of $3.9 million and loss of $2.9 million from an embedded derivative, respectively. Basic (loss) income per share for the six months ended June 30, 2023 and 2022 was $(0.01) and $2.53 respectively, which includes a gain of $3.9 million and $2.9 million from an embedded derivative, respectively.

The Company has 20.0 million voting common shares authorized, two million non-voting common shares authorized, and two million preferred shares authorized. There were 3,744,645 voting common shares issued and outstanding as of June 30, 2023 and 3,727,976 as of December 31, 2022.

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
(In thousands, except per share amounts)
Numerator:
Net (loss) income attributable to Midwest Holding Inc.	$	(3,883)	$	9,266	$	(53)	$	9,452
Denominator:
Weighted average common shares outstanding		3,736,933		3,737,564		3,728,594		3,737,564
Effect of dilutive securities:
Stock options and deferred compensation agreements		126,868		12,000		126,868		12,000
Denominator for earnings (loss) per common share		3,863,801		3,749,564		3,855,462		3,749,564
(Loss) income per common share	$	(1.04)	$	2.48	$	(0.01)	$	2.53
(Loss) income per common share, diluted	$	(1.04)	$	2.47	$	(0.01)	$	2.52

Adoption of New Accounting Standards

Adoption of New Accounting Standards

In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 846): Deferral of the Sunset Date of Topic 848. In 2020, the Board issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to provide temporary relief during the transition period. The FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. At the time that Update 2020-04 was issued, the UK Financial Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021. As a result, the sunset provision was set for December 31, 2022—12 months after the expected cessation date of all currencies and tenors of LIBOR. In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in ASU 2022-06 defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Measurement of Credit Losses on Financial Instruments

In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in this update include items brought to the FASB’s attention by stakeholders to clarify the guidance in the amendments in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) which was issued in June 2016. These updated amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Under ASU 2016-13, the incurred loss impairment methodology in current GAAP is replaced with a methodology that reflects expected credit losses that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to maturity debt securities. It also applies to off-balance sheet credit exposures, not accounted for as insurance (loan commitments, standby letters of credit financial guarantees, and other instruments). In addition, ASU 2016-13 made changes to the accounting for available for sale debt fixed maturities. One such change is to require credit losses to be presented as an allowance rather than a write-down on available for sale debt fixed maturities management does not intend to sell or believes that it is not more likely than not they will be required to sell. The new standard became effective for reporting periods beginning after December 15, 2022, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning accumulated deficit.

The Company’s implementation activities are complete, and the impacts relate to the Company’s investment portfolio. The Company adopted the new guidance on January 1, 2023 and recognized a cumulative effect adjustment that decreased retained earnings by $4.7 million, in conjunction with the $16.5 million allowance for credit losses and $11.8 million to Reinsurance Recoverables. Additionally, the Company recognized an incremental change in the allowance for expected credit losses of $0.2 million in the current period, to bring the retained allowance to approximately $4.5 million. The Company will apply the provisions of the guidance to investments that have

an other-than-temporary impairment on a prospective basis. Accordingly, the amortized cost basis will remain the same before and after adoption and the effective interest rate was not changed at the time of adoption.

Future Adoption of New Accounting Standards

Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as amended by ASU 2019-09, Financial Services —Insurance (Topic 944). The new guidance (i) prescribes the discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees on certain separate account and other account balance long-duration contracts to be accounted for at fair value, (iii) simplifies the amortization of DAC for virtually all long duration contracts, and (iv) introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The new standard becomes effective for reporting periods after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2024 for companies eligible as smaller reporting companies. Early application of the amendments in Update 2018-12 is permitted. We anticipate that the adoption of ASU 2018-12 will have a broad impact on our consolidated financial statements and related disclosures and will require us to make changes to certain of our processes, systems and controls. The Company is evaluating the impact this guidance will have on its results of operations and financial position. 

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Nature of Operations and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2023

Nature of Operations and Summary of Significant Accounting Policies

Schedule of deferred acquisition costs

(In thousands)	June 30, 2023		December 31, 2022
Beginning balance	$	43,433	$	24,530
Additions		19,356		23,857
Amortization		(3,938)		(3,905)
Interest		(841)		(883)
Impact of unrealized investment losses		(406)		(166)
Ending balance	$	57,604	$	43,433

Summary of scheduled maturity dates for outstanding FHLB funding agreements

(Dollar amounts in thousands)	Interest
Maturity Date	Rate		Amount
March 1, 2024		5.10%	$	16,000
January 22, 2025		5.47%		13,000
January 22, 2025		5.17%		2,000
August 16, 2025		5.48%		8,000
September 1, 2027		5.40%		4,000
September 15, 2027		5.20%		8,000
October 1, 2027		5.41%		9,000
December 1, 2027		5.63%		6,000
			$	66,000

Schedule of earnings (loss) per share

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
(In thousands, except per share amounts)
Numerator:
Net (loss) income attributable to Midwest Holding Inc.	$	(3,883)	$	9,266	$	(53)	$	9,452
Denominator:
Weighted average common shares outstanding		3,736,933		3,737,564		3,728,594		3,737,564
Effect of dilutive securities:
Stock options and deferred compensation agreements		126,868		12,000		126,868		12,000
Denominator for earnings (loss) per common share		3,863,801		3,749,564		3,855,462		3,749,564
(Loss) income per common share	$	(1.04)	$	2.48	$	(0.01)	$	2.53
(Loss) income per common share, diluted	$	(1.04)	$	2.47	$	(0.01)	$	2.52

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Investments (Tables)

6 Months Ended

Jun. 30, 2023

Investments

Schedule of Available for Sale Investments

			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Estimated
(In thousands)	Cost		Losses		Gains		Losses		Fair Value
June 30, 2023:
Fixed maturities:
Bonds:
U.S. government obligations	$	1,451	$	-	$	268	$	(68)	$	1,651
Mortgage-backed securities		458,248		(1,035)		1,478		(32,477)		426,214
Asset-backed securities		44,127		-		76		(3,985)		40,218
Collateralized loan obligations		358,240		(480)		1,591		(20,485)		338,866
States and political subdivisions-general obligations		128		-		-		(3)		125
States and political subdivisions-special revenue		-		-		-		-		-
Corporate		54,532		(1,297)		358		(4,670)		48,923
Term loans		692,279		(6,104)		1,687		(4,947)		682,915
Total fixed maturities	$	1,609,005	$	(8,916)	$	5,458	$	(66,635)	$	1,538,912
Mortgage loans on real estate, held for investment		354,401		(1,493)		-		-		352,908
Derivatives		34,639		-		9,870		(7,648)		36,861
Equity securities		5,592		-		-		(448)		5,144
Other invested assets		107,149		(1,343)		2,285		(189)		107,902
Preferred stock		38,026		-		1,357		(5,578)		33,805
Deposits and notes receivable		11,012		-		-		-		11,012
Policy loans		55		-		-		-		55
Total investments	$	2,159,879	$	(11,752)	$	18,970	$	(80,498)	$	2,086,599
December 31, 2022:
Fixed maturities:
Bonds:
U.S. government obligations	$	1,343	$	-	$	-	$	(81)	$	1,262
Mortgage-backed securities		316,105		-		469		(22,508)		294,066
Asset-backed securities		34,728		-		17		(3,989)		30,756
Collateralized loan obligations		308,871		-		726		(21,924)		287,673
States and political subdivisions-general obligations		104		-		-		(3)		101
States and political subdivisions-special revenue		228		-		-		(23)		205
Corporate		46,700		-		415		(5,515)		41,600
Term loans		561,656		-		1,923		(4,607)		558,972
Total fixed maturities	$	1,269,735	$	-	$	3,550	$	(58,650)	$	1,214,635
Mortgage loans on real estate, held for investment		227,047		-		-		-		227,047
Derivatives		30,239		-		2,694		(16,999)		15,934
Equity securities		5,592		-		-		(481)		5,111
Other invested assets		108,979		-		3,667		(215)		112,431
Preferred stock		35,644		-		1,757		(5,986)		31,415
Deposits and notes receivable		8,359		-		-		-		8,359
Policy loans		25		-		-		-		25
Total investments	$	1,685,620	$	-	$	11,668	$	(82,331)	$	1,614,957

Schedule of allowance for credit losses on investments

(In Thousands)		Balance December 31, 2022	Additional Allowance Recognized Due to Adoption of Accounting Guidance		Credit Loss Expense for the Current Period		Balance June 30, 2023
Fixed maturities
Bonds:
Mortgage-backed securities	$	-	$	3,564	$	(2,529)	$	1,035
Corporate		-		-		1,297		1,297
Asset-backed securities		-		273		(273)		-
Collateralized loan obligations		-		588		(108)		480
Term loans		-		8,518		(2,414)		6,104
Mortgage loans on real estate, held for investment		-		2,024		(531)		1,493
Other invested asset		-		1,703		(360)		1,343
Total allowance	$	-	$	16,670	$	(4,918)	$	11,752

(In Thousands)		Balance March 31, 2023	Additional Allowance Recognized Due to Adoption of Accounting Guidance		Credit Loss Expense for the Current Period		Balance June 30, 2023
Fixed maturities
Bonds:
Mortgage-backed securities	$	3,592	$	-	$	(2,557)	$	1,035
Corporate		-		-		1,297		1,297
Asset-backed securities		245		-		(245)		-
Collateralized loan obligations		610		-		(130)		480
Term loans		5,867		-		237		6,104
Mortgage loans on real estate, held for investment		2,709		-		(1,216)		1,493
Other invested asset		1,173		-		170		1,343
Total allowance	$	14,196	$	-	$	(2,444)	$	11,752

Schedule of credit ratings of fixed maturity securities

	June 30, 2023				December 31, 2022
	Carrying				Carrying
(In thousands)	Value		Percent		Value		Percent
AAA and U.S. Government	$	200,014	13.0	%	$	124,183	10.2	%
AA		29,185	1.9			815	0.1
A		420,690	27.3			371,371	30.6
BBB		752,652	48.9			619,516	51.0
Total investment grade		1,402,541	91.1			1,115,885	91.9
BB and below		136,371	8.9			98,750	8.1
Total	$	1,538,912	100.0	%	$	1,214,635	100.0	%

Schedule of Unrealized Loss of Securities

	June 30, 2023						December 31, 2022
			Gross		Number				Gross		Number
	Estimated		Unrealized		of		Estimated		Unrealized		of
(In thousands)	Fair Value		Loss		Securities(1)		Fair Value		Loss		Securities(1)
Fixed maturities:
Less than 12 months:
U.S. government obligations	$	-	$	-		-	$	1,135	$	(70)		13
Mortgage-backed securities		233,146		(12,202)		93		233,624		(18,464)		89
Asset-backed securities		14,234		(1,386)		10		24,552		(3,278)		23
Collateralized loan obligations		76,097		(2,786)		52		203,549		(16,730)		252
States and political subdivisions-general obligations		125		(3)		2		101		(3)		1
States and political subdivisions-special revenue		-		-		-		47		(2)		3
Corporate		17,722		(1,010)		16		37,286		(5,426)		64
Term loans		682,545		(4,947)		4		558,337		(4,607)		36
Greater than 12 months:
U.S. government obligations		1,146		(68)		9		126		(11)		5
Asset-backed securities		22,814		(2,599)		23		5,321		(711)		7
Collateralized loan obligations		162,126		(17,699)		240		37,814		(5,194)		47
States and political subdivisions-special revenue		-		-		-		158		(21)		7
Mortgage-backed securities		87,683		(20,275)		57		17,985		(4,044)		14
Corporate		14,888		(3,660)		45		376		(89)		7
Total fixed maturities	$	1,312,526	$	(66,635)		551	$	1,120,411	$	(58,650)		568

(1)We may reflect a fixed maturity in more than one aging category based on various purchase dates.

Schedule of Fixed Maturities

	Amortized		Estimated
(In thousands)	Cost		Fair Value
Due in one year or less	$	100,739	$	99,049
Due after one year through five years		859,855		840,065
Due after five years through ten years		440,299		403,551
Due after ten years through twenty years		175,126		170,768
Due after twenty years		32,986		25,479
	$	1,609,005	$	1,538,912

Schedule of investment in mortgage loans

(In thousands)	June 30, 2023		December 31, 2022
Loan-to-Value Ratio:
0%-59.99%	$	230,140	$	108,281
60%-69.99%		76,970		79,968
70%-79.99%		27,704		33,268
80% or greater		18,094		5,530
Total mortgage loans	$	352,908	$	227,047

Components of net investment income

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Fixed maturities	$	33,841	$	14,173	$	67,902	$	26,837
Mortgage loans		6,298		2,963		12,973		5,383
Other invested assets		2,142		2,501		5,464		3,896
Other interest income		10,248		8,035		18,277		13,579
Gross investment income		52,529		27,672		104,616		49,695
Less: investment expenses		(5,367)		(2,515)		(11,564)		(4,726)
Less: amounts ceded to reinsurers		(22,914)		(14,616)		(49,611)		(28,186)
Investment income, net of expenses	$	24,248	$	10,541	$	43,441	$	16,783

Mortgage-back securities

Investments

Schedule of Mortgage Loan Activity

(In thousands)	June 30, 2023			December 31, 2022
1-4 Family	$	56,335	$	59,579
Hospitality		14,144		12,902
Land		77,961		62,119
Multifamily (5+)		58,711		34,072
Retail		45,681		22,119
Other		101,569		36,256
Allowance for credit loss		(1,493)		-
Total mortgage loans	$	352,908	$	227,047

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Derivative Instruments (Tables)

6 Months Ended

Jun. 30, 2023

Derivative Instruments

Summary of the derivatives not designated as hedges

The following is a summary of the derivatives not designated as hedges and embedded derivatives in our FIA product as of June 30, 2023 and December 31, 2022:  

		June 30, 2023					December 31, 2022
(In thousands, except number of contracts)	Location in the
Derivatives Not Designated	Consolidated	Notional		Number of	Estimated		Notional		Number of	Estimated
as Hedging Instruments	Balance Sheets	Amount		Contracts	Fair Value		Amount		Contracts	Fair Value
Equity-indexed options	Derivatives	$	911,030	668	$	36,700	$	831,657	595	$	15,592
Equity-indexed embedded derivatives	Deposit-type contracts		866,847	7,095		142,800		782,997	6,131		111,618

Summary of embedded derivatives related to the funds withheld provision

	June 30, 2023						December 31, 2022
(In thousands)	Book Value		Market Value		Total Return		Book Value		Market Value		Total Return
Portfolio	Assets		Assets		Swap Value		Assets		Assets		Swap Value
American Republic Insurance Company	$	170,992	$	163,894	$	7,098	$	150,413	$	143,952	$	6,461
Crestline Re SP1		447,113		446,708		405		354,806		356,374		(1,568)
Ironbound		164,611		159,116		5,495		159,644		154,477		5,167
Ascendent Re		64,479		62,626		1,853		56,064		54,790		1,274
SRC4		152,401		152,828		(427)		61,646		62,516		(870)
Total	$	999,596	$	985,172	$	14,424	$	782,573	$	772,109	$	10,464

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Fair Values of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2023

Fair Values of Financial Instruments

Schedule of Financial Instruments at Fair Value Measured on a Recurring Basis

The following table presents the Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022.

			Significant
	Quoted		Other		Significant
	In Active		Observable		Unobservable				Estimated
	Markets		Inputs		Inputs		Net Asset		Fair
(In thousands)	(Level 1)		(Level 2)		(Level 3)		Value		Value
June 30, 2023
Financial assets
Fixed maturity securities:
Bonds
U.S. government obligations	$	-	$	1,651	$	-	$	-	$	1,651
Mortgage-backed securities		-		426,214		-		-		426,214
Asset-backed securities		-		40,218		-		-		40,218
Collateralized loan obligations		-		338,866		-		-		338,866
States and political subdivisions-general obligations		-		125		-		-		125
States and political subdivisions-special revenue		-		-		-		-		-
Corporate		-		48,923		-		-		48,923
Term loans		-		-		682,915		-		682,915
Total fixed maturity securities		-		855,997		682,915		-		1,538,912
Mortgage loans on real estate, held for investment		-		-		352,908		-		352,908
Derivatives		-		36,861		-		-		36,861
Equity securities		-		5,144		-		-		5,144
Other invested assets		-		-		95,138		12,764		107,902
Preferred stock		-		9,952		23,853		-		33,805
Deposits and notes receivable		-		8,041		2,971		-		11,012
Policy loans		-		-		55		-		55
Total investments	$	-	$	915,995	$	1,157,840	$	12,764	$	2,086,599
Financial liabilities
Embedded derivative for equity-indexed contracts	$	—	$	—	$	142,800	$	—		142,800
December 31, 2022
Financial assets
Fixed maturity securities:
Bonds
U.S. government obligations	$	—	$	1,262	$	—	$	—	$	1,262
Mortgage-backed securities		—		294,066		—		—		294,066
Asset-backed securities		—		30,756		—		—		30,756
Collateralized loan obligations		—		287,673		—		—		287,673
States and political subdivisions-general obligations		—		101		—		—		101
States and political subdivisions-special revenue		—		205		—		—		205
Corporate		—		41,600		—		—		41,600
Term loans		—		—		558,972		—		558,972
Total fixed maturity securities		—		655,663		558,972		—		1,214,635
Mortgage loans on real estate, held for investment		—		—		227,047		—		227,047
Derivatives		—		15,934		—		—		15,934
Equity securities		—		5,111		—		—		5,111
Other invested assets		—		—		99,997		12,434		112,431
Preferred stock		—		9,544		21,871		—		31,415
Investment escrow		—		784		—		—		784
Federal Home Loan Bank stock		—		—		1,306		—		1,306
Notes receivable		—		6,269		—		—		6,269
Deposits and notes receivable		—		7,053		1,306		—		8,359
Policy loans		—		—		25		—		25
Total investments	$	—	$	693,305	$	909,218	$	12,434	$	1,614,957
Financial liabilities
Embedded derivative for equity-indexed contracts	$	—	$	—	$	111,618	$	—		111,618

Schedule of Financial Assets and Liabilities at Fair Value

The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy, for financial assets and financial liabilities as of June 30, 2023 and December 31, 2022, respectively:

	June 30, 2023
			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical Assets		Observable		Unobservable
	Carrying		and Liabilities		Inputs		Inputs		Fair
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Policy loans	$	55	$	—	$	—	$	55	$	55
Cash		194,275		194,275		—		—		194,275
Liabilities:
Policyholder deposits (deposit-type contracts)		2,218,725		—		—		2,218,725		2,218,725

	December 31, 2022
			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical Assets		Observable		Unobservable
	Carrying		and Liabilities		Inputs		Inputs		Fair
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Policy loans	$	25	$	—	$	—	$	25	$	25
Cash		191,414		191,414		—		—		191,414
Liabilities:
Policyholder deposits (deposit-type contracts)		1,743,348		—		—		1,743,348		1,743,348

Schedule of Recurring Basis Using Level Three Inputs

	June 30, 2023
			Total realized and unrealized gains (losses)
	Beginning Balance			Included in Income	Included in OCI		Net Purchases, Issuances, Sales, and Settlements		Ending Balance
(In thousands)
Assets
Term loans	$	558,972	$	-	$	(4,947)	$	129,377	$	683,402
Mortgage loans on real estate,
held for investment		227,047		-		-		125,861		352,908
Deposits and notes receivable		1,306		-		-		1,665		2,971
Other invested assets		99,997		-		2,096		(6,955)		95,138
Preferred stock		21,871		(4,220)		-		6,202		23,853
Policy loans		25		-		-		30		55
Total level 3 assets	$	909,218	$	(4,220)	$	(2,851)	$	256,180	$	1,158,327
Liabilities
Embedded derivative for equity-indexed contracts		(111,618)		30,115		-		(61,297)		(142,800)
Total level 3 liabilities	$	(111,618)	$	30,115	$	-	$	(61,297)	$	(142,800)

	December 31, 2022
			Total realized and unrealized gains (losses)
(In thousands)	Beginning Balance			Included in Income	Included in OCI		Net Purchases, Issuances, Sales, and Settlements		Ending Balance
Assets
Term loans	$	267,468	$	-	$	(2,683)	$	294,187	$	558,972
Mortgage loans on real estate,
held for investment		183,203		-		-		43,844		227,047
Deposits and notes receivable		500		-		-		806		1,306
Other invested assets		35,293		-		3,452		61,252		99,997
Preferred stock		18,686		-		(4,229)		7,414		21,871
Policy loans		87		-		-		(62)		25
Total level 3 assets	$	505,237	$	-	$	(3,460)	$	407,441	$	909,218
Liabilities
Embedded derivative for equity-indexed contracts		(123,692)		(10,193)		-		22,267		(111,618)
Total level 3 liabilities	$	(123,692)	$	(10,193)	$	-	$	22,267	$	(111,618)

Summary of unobservable inputs for AFS and trading securities

	June 30, 2023
(In millions, except for percentages and multiples)	Fair value	Valuation technique	Unobservable inputs	Minimum	Maximum	Weighted average*	Impact of an increase in the input on fair value
Term loans	$682.9	Yield Analysis	Discount rates	4.6%	17.3%	12.4%	Decrease
Mortgage loans on real estate	$352.9	Yield Analysis	Principal funded	NA	NA	NA	Decrease
Interest sensitive contract liabilities - fixed indexed annuities embedded derivatives	$142.8	Option Budget Method	Nonperformance risk	0.6%	1.5%	1.1%	Decrease
			Option budget	1.1%	5.9%	2.9%	Increase
			Surrender rate	0.5%	15% (base) 30% (add'l shock)	12.5%	Decrease
Other invested assets	$95.1	Market Approach	EBITDA Multiples	2.6x	3.1x	2.8x	NA
			Discount rates	8.0%	25.5%	14.5%	NA
Preferred stock	$9.7	Yield Analysis	Discount rates	24.0%	28.0%	26.0%	Increase
Detachable warrants	$2.4	Market Approach GPCM	EBITDA Multiples	10.0x	11.5x	100.0%	Decrease
Preferred stock	$11.8	Market Approach	EBITDA Multiples	2.55x	3.05x	2.8x	Decrease
* Weighted by account value

	December 31, 2022
(In millions, except for percentages and multiples)	Fair value	Valuation technique	Unobservable inputs	Minimum	Maximum	Weighted average*	Impact of an increase in the input on fair value
Term loans	$559.0	Yield Analysis	Discount rates	4.6%	17.3%	12.4%	Decrease
Mortgage loans on real estate	$227.0	Yield Analysis	Principal funded	NA	NA	NA	Decrease
Interest sensitive contract liabilities - fixed indexed annuities embedded derivatives	$111.6	Option Budget Method	Nonperformance risk	0.6%	1.5%	1.1%	Decrease
			Option budget	1.1%	5.7%	2.7%	Increase
			Surrender rate	0.5%	15% (base) 30% (add'l shock)	10.5%	Decrease
Other invested assets	$100.0	Market Approach	EBITDA Multiples	2.6x	3.1x	2.8x	NA
			Discount rates	8.0%	25.5%	14.5%	NA
Preferred equity	$6.1	Yield Analysis	Discount rates	24.0%	28.0%	26.0%	Increase
Detachable warrants	$2.2	Market Approach GPCM	EBITDA Multiples	10.0x	11.5x	100.0%	Decrease
Preferred stock	$31.4	Market Approach	EBITDA Multiples	2.55x	3.05x	2.8x	Decrease
* Weighted by account value

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Deposit-Type Contracts (Tables)

6 Months Ended

Jun. 30, 2023

Deposit-Type Contracts

Schedule of deposit-type contracts

(In thousands)	June 30, 2023		December 31, 2022
Beginning balance	$	1,743,348	$	1,075,439
US Alliance		(634)		(2,176)
Unified Life Insurance Company		-		(10)
Ironbound Reinsurance Company Limited		3,134		5,959
Ascendant Re		145		(3,185)
Crestline SP1		2,490		(11,623)
American Republic Insurance Company		2,735		(4,080)
SRC4		2,791		613
Deposits received		494,532		745,083
Investment earnings (includes embedded derivative)		30,115		(10,193)
Withdrawals		(59,931)		(51,659)
Policy charges		-		(820)
Ending balance	$	2,218,725	$	1,743,348

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Reinsurance (Tables)

6 Months Ended

Jun. 30, 2023

Reinsurance

Summary of significant reinsurance amounts

A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of June 30, 2023 and December 31, 2022 is as follows:

(In thousands)	June 30, 2023		December 31, 2022
Assets:
Reinsurance recoverables	$	39,899	$	20,190
Liabilities:
Deposit-type contracts
Direct	$	2,218,725	$	1,743,348
Reinsurance ceded		(1,123,475)		(912,982)
Retained deposit-type contracts	$	1,095,250	$	830,366

Schedule of significant reinsurance balances

The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by third-party reinsurers as of June 30, 2023:

							Recoverable/				Total Amount
			Recoverable		Recoverable		(Payable) on Benefit		Ceded		Recoverable/
(In thousands)	AM Best		on Paid		on Unpaid		Reserves/Deposit-		Due		(Payable) to/from
Reinsurer	Rating		Losses		Losses		type Contracts		Premiums		Reinsurer
Ironbound Reinsurance Company Limited		NR	$	-	$	-	$	5,338	$	-	$	5,338
Optimum Re Insurance Company		A		-		-		690		-		690
Sagicor Life Insurance Company		A-		-		238		10,626		(326)		10,538
Ascendant Re		NR		-		-		(3,906)		-		(3,906)
Crestline SP1		NR		-		-		(14,352)		-		(14,352)
American Republic Insurance Company		A		-		-		3,364		-		3,364
SRC4		NR		-		-		(12,749)		-		(12,749)
Unified Life Insurance Company		NR		-		25		991		(14)		1,002
US Alliance Life and Security Company		NR		-		-		49,997		(23)		49,974
			$	-	$	263	$	39,999	$	(363)	$	39,899

The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by third-party reinsurers as of December 31, 2022:

							Recoverable on				Total Amount
			Recoverable		Recoverable		Benefit		Ceded		Recoverable
(In thousands)	AM Best		on Paid		on Unpaid		Reserves/Deposit-		Due		from
Reinsurer	Rating		Losses		Losses		type Contracts		Premiums		Reinsurer
Ironbound Reinsurance Company Limited		NR	$	-	$	-	$	(344)	$	-	$	(344)
Optimum Re Insurance Company		A		-		-		601		-		601
Sagicor Life Insurance Company		A-		-		154		10,744		(303)		10,595
Ascendant Re		NR		-		-		(2,130)		-		(2,130)
Crestline SP1		NR		-		-		(3,357)		-		(3,357)
American Republic Insurance Company		A		-		-		5,879		-		5,879
SRC4		NR		-		-		(44,442)		-		(44,442)
Unified Life Insurance Company		NR		-		41		986		(17)		1,010
US Alliance Life and Security Company		NR		-		-		52,400		(22)		52,378
			$	-	$	195	$	20,337	$	(342)	$	20,190

Schedule of ceding commissions from the reinsurers

The tables below shows the ceding commissions from the reinsurers, excluding SRC1 and SRC3, and what was earned on a GAAP basis for the three and six months ended June 30, 2023 and 2022:

	Three months ended June 30,
(In thousands)	2023								2022
Reinsurer	Gross Ceding Commission		Expense Allowance(1)		Interest on Ceding Commission		Earned Ceding Commission		Gross Ceding Commission		Expense Allowance		Interest on Ceding Commission		Earned Ceding Commission
Unified Life Insurance Company	$	—	$	—	$	—	$	9	$	-	$	-	$	-	$	6
Ironbound Reinsurance Company Limited		—		—		43		125		-		-		49		144
Ascendant Re		181		175		23		100		-		-		23		77
US Alliance Life and Security Company		—		—		11		73		-		-		14		76
Crestline Re SP 1		771		716		193		758		1,491		2,401		88		559
American Republic Insurance Company		1		48		84		257		1,026		1,774		30		197
SRC4		2,514		2,401		86		176		-		-		-		-
	$	3,467	$	3,340	$	440	$	1,498	$	2,517	$	4,175	$	204	$	1,059

	Six months ended June 30,
(In thousands)	2023								2022
Reinsurer	Gross Ceding Commission		Expense Allowance(1)		Interest on Ceding Commission		Earned Ceding Commission		Gross Ceding Commission		Expense Allowance		Interest on Ceding Commission		Earned Ceding Commission
Unified Life Insurance Company	$	—	$	—	$	—	$	11	$	—	$	—	$	—	$	14
Ironbound Reinsurance Company Limited		—		—		93		253		—		—		98		258
Ascendant Re		181		175		46		185		—		—		47		163
US Alliance Life and Security Company		—		—		25		156		—		—		28		163
Crestline SP1		1,805		1,631		272		1,640		2,525		4,231		168		1,065
American Republic Insurance Company		560		753		106		562		1,827		3,227		52		349
SRC4		3,881		3,614		86		264		—		—		—		—
	$	6,427	$	6,173	$	628	$	3,071	$	4,352	$	7,458	$	393	$	2,012

(1) Includes: acquisition and administrative expenses, commission expense allowance and product development fees.

Schedule of ceding commissions deferred on each reinsurance transaction

(In thousands)	June 30, 2023		December 31, 2022
Reinsurer	Deferred Gain on Reinsurance Transactions		Deferred Gain on Reinsurance Transactions
US Alliance Life and Security Company(1)	$	-	$	152
Unified Life Insurance Company(1)		352		217
Ironbound Reinsurance Company Limited(2)		4,811		4,876
Ascendant Re		3,104		2,947
US Alliance Life and Security Company(2)		2,025		2,069
American Republic Insurance Company(2)		7,684		7,502
Crestline SP1(2)		19,346		18,475
SRC4(2)		5,892		1,825
	$	43,214	$	38,063

1) These reinsurance transactions on our legacy life insurance business received gross ceding commissions on the effective dates of the transaction. The difference between the statutory net adjusted reserves and the GAAP adjusted reserves plus the elimination of DAC and value of business acquired related to these businesses reduces the gross ceding commission with the remaining deferred and amortized over the lifetime of the blocks of business.

2) These reinsurance transactions include the ceding commissions and expense allowances which are accounted for as described in (1).

Schedule of retained and reinsurance balance sheets

The tables below shows the retained and reinsurance consolidated balance sheets:

	June 30, 2023						December 31, 2022
(In thousands)	Retained		Reinsured		Consolidated		Retained		Reinsured		Consolidated
Assets
Total investments	$	1,104,198	$	982,401	$	2,086,599	$	812,177	$	802,780	$	1,614,957
Cash and cash equivalents		125,156		69,119		194,275		127,291		64,123		191,414
Deferred acquisition costs, net		57,604		-		57,604		43,433		-		43,433
Premiums receivable		-		372		372		-		-		-
Accrued investment income		14,648		20,402		35,050		11,307		13,858		25,165
Reinsurance recoverables		(62,609)		102,508		39,899		(6,853)		27,405		20,552
Property and equipment, net		1,811		-		1,811		1,897		-		1,897
Receivable for securities sold		441		-		441		2,033		8,485		10,518
Other assets		9,255		2,735		11,990		12,259		236		12,495
Total assets	$	1,250,504	$	1,177,537	$	2,428,041	$	1,003,544	$	916,887	$	1,920,431
Liabilities and Stockholders’ Equity
Liabilities:
Benefit reserves	$	944	$	11,702	$	12,646	$	1,332	$	11,613	$	12,945
Deposit-type contracts		1,103,844		1,114,881		2,218,725		841,980		901,368		1,743,348
Other policy-holder funds		6,069		405		6,474		4,105		-		4,105
Notes payable		25,000		-		25,000		25,000		-		25,000
Deferred gain on coinsurance transactions		231		42,983		43,214		38,063		-		38,063
Payable for securities sold		44,656		-		44,656		8,872		-		8,872
Other liabilities		40,460		7,566		48,026		49,815		3,906		53,721
Total liabilities	$	1,221,204	$	1,177,537	$	2,398,741	$	969,167	$	916,887	$	1,886,054
Stockholders’ Equity:
Preferred stock	$	-	$	-	$	-	$	-	$	-	$	-
Voting common stock		4		-		4		4		-		4
Additional paid-in capital		139,085		-		139,085		138,482		-		138,482
Treasury stock		(175)		-		(175)		(175)		-		(175)
Accumulated deficit		(67,746)		-		(67,746)		(63,019)		-		(63,019)
Accumulated other comprehensive loss		(57,433)		-		(57,433)		(51,386)		-		(51,386)
Total Midwest Holding Inc.'s stockholders' equity	$	13,735	$	-	$	13,735	$	23,906	$	-	$	23,906
Noncontrolling interest		15,565		-		15,565		10,471		-		10,471
Total stockholders' equity		29,300		-		29,300		34,377		-		34,377
Total liabilities and stockholders' equity	$	1,250,504	$	1,177,537	$	2,428,041	$	1,003,544	$	916,887	$	1,920,431

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Income Tax Matters (Tables)

6 Months Ended

Jun. 30, 2023

Income Tax Matters

Schedule of deferred tax assets and liabilities

Significant components of the Company’s deferred tax assets and liabilities as of June 30, 2023 and December 31, 2022 are as follows:

(In thousands)	June 30, 2023		December 31, 2022
Deferred tax assets:
Loss carryforwards	$	4,519	$	2,672
Capitalized costs		55		79
Stock option granted		1,193		1,066
Policy acquisition costs		8,205		6,489
General business credits		6		6
Derivative option allowance		310		-
Sec 163(j) limitation		171		171
Benefit reserves		10,478		12,010
Impairments		535		403
Unrealized losses on investments		15,267		13,624
Other		1,928		1,928
Total deferred tax assets		42,667		38,448
Less valuation allowance		(40,729)		(35,305)
Total deferred tax assets, net of valuation allowance		1,938		3,143
Deferred tax liabilities:
Intangible assets		147		147
Derivative option allowance		-		2,150
Bond Discount		1,912		936
Property and equipment		(121)		(90)
Total deferred tax liabilities		1,938		3,143
Net deferred tax assets	$	-	$	-

Schedule of effective tax rate reconciliation

There was income tax expense of $3 million and $2.1 million for the three months ended June 30, 2023 and 2022. and $5.9 million and $2.6 million of tax expense for the six months ended June 30, 2023 and 2022. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to pretax income, as a result of the following:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Computed expected income tax benefit (expense)	$	428	$	(409)	$	(2,357)	$	(1,508)
Reduction (increase) in income taxes resulting from:
Interest maintenance reserve and reinsurance		(18)		61		51		(18)
Nondeductible expenses		(3)		(3)		(6)		(5)
Change in valuation allowance		(3,593)		2,480		(3,781)		(1,052)
Deferred tax adjustment		-		(4)		-		(14)
AETR adjustment		76		-		76		-
Prior year true-up		141		-		141		-
Subtotal of (increases) decreases		(3,397)		2,534		(3,519)		(1,089)
Tax (benefit) expense	$	(2,969)	$	2,125	$	(5,876)	$	(2,597)

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Leases (Tables)

6 Months Ended

Jun. 30, 2023

Leases

Schedule of Supplemental Balance Sheet Information Related to Leases

Supplemental balance sheet information for our leases as of June 30, 2023 and December 31, 2022 is as follows:

(In thousands)	Classification	June 30, 2023		December 31, 2022
Assets
Operating	Operating lease right-of-use assets	$	2,083	$	2,119
Liabilities
Operating lease	Operating lease liabilities	$	2,106	$	2,135

Schedule of Components of Lease Expenses

Our operating lease expense for the three and six months ended June 30, 2023 and 2022 is as follows:

		Three months ended June 30,				Six months ended June 30,
(In thousands)	Classification	2023		2022		2023		2022
Operating	General and administrative expense	$	3	$	3	$	7	$	7

Schedule of Operating Leases Minimum

Minimum contractual obligations for our leases as of June 30, 2023 are as follows:

(In thousands)	Operating Leases
2023	$	224
2024		378
2025		342
2026		345
2027		353
2028		362
2029 and after		1,041
Total remaining lease payments	$	3,045

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Equity (Tables)

6 Months Ended

Jun. 30, 2023

Equity

Summary of Balance of and Changes in Each Component of AOCI

(In thousands)	Unrealized investment gains (losses) on fixed maturities, net of offsets
Balance at December 31, 2021	$	2,634
Other comprehensive (loss) before reclassifications, net of tax		(54,975)
Less: Reclassification adjustments for losses realized in net income		955
Balance, December 31, 2022		(51,386)
Other comprehensive (loss) before reclassifications, net of tax		(6,230)
Less: Reclassification adjustments for losses realized in net income, net of tax		183
Balance, June 30, 2023	$	(57,433)

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Long-Term Incentive Plans (Tables)

6 Months Ended

Jun. 30, 2023

Long-Term Incentive Plans

Schedule of Changes in outstanding options activities

		Weighted Average Exercise Price Per Share		Range of Option Exercise Prices per Share	Total Outstanding	Outstanding, Non-vested	Vested and Exercisable
December 31, 2022	$	32.19	$	11.20 - 55.02	319,121	271,517	47,604
Granted		17.12		17.20	5,750	5,750	-
Prior year adjustment		39.38		16.37 - 55.02	-	(7,390)	7,390
Vested		-		-	-	-	-
Exercised		-		-	-	-	-
Forfeited		36.73		25.00 - 55.02	(4,150)	(4,150)	-
Expired		-		-	-	-	-
June 30, 2023	$	31.85	$	11.20 - 55.02	320,721	265,727	54,994

Schedule of Option information segregated by ranges of exercise prices

	June 30, 2023
	Total Outstanding Options				Vested and Exercisable
Range of Option Exercise Prices per Share	Options		Weighted Average Exercise Price per Share	Weighted Average Remaining Term	Options		Weighted Average Exercise Price per Share	Weighted Average Remaining Term
> $50.00	49,353	$	55.02	7.71	7,390	$	55.02	7.59
$40.00 - $49.99	127,751		41.25	7.69	36,042		41.25	7.59
$30.00 - $39.99	-		-	-	-		-	-
$20.00 - $29.99	25,967		23.16	7.64	5,877		25.00	7.28
$10.00 - $19.99	115,000		13.43	9.00	4,285		16.37	7.59
< $10.00	-	$	-	-	-	$	-	-

Schedule of outstanding restricted stock and restricted stock units

	Total Outstanding Units			Vested Units
	Units		Weighted Average Grand Date Fair Value	Units		Weighted Average Grant Date Fair Value
December 31, 2022	17,207	$	13.84	1,163	$	50.00
Granted	6,984		25.76	-		-
Vested	-		-	-		-
Forfeited	-		-	-		-
Released	(16,044)		11.22	-		-
June 30, 2023	8,147	$	22.08	1,163	$	50.00

Schedule of assumptions used to calculate compensation expense

	June 30,	December 31,
	2023	2022
Volatility	287.3%	4.16% - 4.26%
Weighted-average volatility	287.3%	3.7%
Expected term (in years)	6.54 yrs	2 - 7
Risk-free rate	3.57%	0.02% - 2.15%

Schedule of outstanding remaining non-vested shares

	June 30, 2023
	Awards Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
Stock unit awards at December 31, 2022	287,561	$	16.96	$	32.29
Options granted	5,750		16.56		17.12
Restricted stock units granted	6,984		16.56		-
Vested	(23,434)		15.76		55.02
Forfeited or expired	(5,400)		20.51		36.73
Ending Balance at June 30, 2023	271,461	$	16.92	$	31.85

	December 31, 2022
	Stock Options Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
stock unit awards at December 31, 2021	317,217	$	25.80	$	40.13
Options granted	117,367		9.57		14.92
Restricted stock units granted	18,718		—		—
Vested	(56,678)		21.12		36.53
Forfeited or expired	(109,063)		23.82		38.87
Ending Balance at December 31, 2022	287,561	$	16.96	$	32.29

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Statutory Net Income and Surplus (Tables)

6 Months Ended

Jun. 30, 2023

Statutory Net Income and Surplus

Statutory Accounting Practices Disclosure

The following table represents the net gains or (losses) as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
American Life	$	(18,528)	$	8,298	$	(35,116)	$	17,891
SRC1	$	1,583	$	(981)	$	4,797	$	(2,253)
SRC3	$	629	$	(564)	$	917	$	(95)

The following table represents the Capital and Surplus as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

(In thousands)
		June 30, 2023		December 31, 2022
American Life	$	58,135	$	69,936
SRC1	$	16,979	$	9,615
SRC3	$	8,348	$	6,088

The following table represents the premiums sales as filed in the statutory-basis annual statement with the Nebraska Department of Insurance for American Life and the Vermont Department of Insurance for SRC1 and SRC3:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
American Life	$	138,920	$	72,498	$	231,207	$	130,616
SRC1	$	-	$	-	$	-	$	-
SRC3	$	(52)	$	23,905	$	123	$	23,757

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies.

Schedule of other commitments

(In thousands)	June 30, 2023		December 31, 2022
Due in one year or less	$	73,566	$	52,951
Due in two years		28,892		43,604
Due in three years		21,847		7,731
Due in four years		11,737		13,277
Due in five years and after		55,245		61,432
	$	191,287	$	178,995

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Nature of Operations and Basis of Presentation - (Narrative) (Details) $ / shares in Units, $ in Thousands, £ in Millions												1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Feb. 28, 2023	Jan. 01, 2023 USD ($)	Nov. 22, 2022 USD ($)	Sep. 30, 2022 USD ($)	Dec. 30, 2021	Dec. 20, 2021 USD ($)	Nov. 10, 2021	Jun. 26, 2021	Sep. 28, 2020 GBP (£)	May 12, 2020 USD ($)	Apr. 24, 2020	Apr. 30, 2023 USD ($)	Jun. 30, 2023 USD ($) $ / shares	Jun. 30, 2022 USD ($) $ / shares	Jun. 30, 2023 USD ($) product segment $ / shares	Jun. 30, 2022 USD ($) $ / shares	Dec. 31, 2022 USD ($)	Mar. 31, 2023 USD ($)	Feb. 02, 2022 USD ($)	Dec. 31, 2020
Number of reporting segment | segment															1
Number of products | product															6
Number of bonus plans | product															2
Mortgage backed and asset backed securities at fair value													$ 7,700		$ 7,700		$ 7,700
Mortgage servicing rights MSR impairment recovery															1,400	$ 1,400	1,400
Equity securities, fair value													5,144		5,144		5,111
Investment escrow													1,600		1,600		784
Fund investments															727	44,257
Other investments in fund													19,000		19,000
Investment income													24,248	$ 10,541	43,441	16,783
Other investments in private credit and equipment leases													10,200		10,200
Investments in Redeemable Preferred Stock													10,000		10,000		10,000
Pledged assets, market value													187,200		187,200
Premiums receivable													372		372		362
FHLB borrowing capacity													170,300		170,300		121,100
Other invested assets													107,902		107,902		112,431
Impairment allowance on investment															0
Perpetual preferred stock													33,800		33,800		31,400
Impairment on preferred stock														534		534
Notes receivable													6,400		6,400		6,269
Valuation allowance on policy loans													0		0
Depreciation													100	100	200	100
Accumulated depreciation													1,600		1,600		1,400
Unrealized gains (losses)															(14,400)		(10,500)
Embedded derivatives gain													$ 3,900	$ 2,900	$ 3,900	$ 2,900
Basic Income (loss) per common share | $ / shares													$ (1.04)	$ 2.48	$ (0.01)	$ 2.53
Outstanding advances under FHLB funding agreements													$ 66,000		$ 66,000
Accumulated deficit													(67,746)		(67,746)		(63,019)
Allowance for credit losses on investments													11,752		11,752			$ 14,196
Fixed maturities, Allowance for credit losses													$ 8,916		$ 8,916
Cumulative effect of change in accounting estimate
Allowance for credit losses on investments																	16,670
2016-13 | Cumulative effect of change in accounting estimate
Accumulated deficit		$ (4,700)
Allowance for credit losses on investments		(16,500)
Reinsurance recoverables		(11,800)
Change in allowance for expected credit losses		200
Fixed maturities, Allowance for credit losses		$ 4,500
BBB+
Interest rate													5.00%		5.00%
Ascona Group Holdings Ltd
Investment income													$ 500	$ 200	$ 2,800	$ 1,800
Market value													12,200	200	12,200	200	10,500
Fair value of preferred stock													12,200		12,200		10,500
Investment income, non-controlling interest													100	$ 100	700	$ 500
SRC3
Ownership interest							100.00%
Ascona Asset Holding LLC
Preferred equity | £									£ 3.6
PF Collinwood Holdings LLC
Other invested assets													11,200		11,200		13,700
SRC1
Sale of non controlling interest																	$ 15,000
Python Asset Holding LLC
Other investments in fund																			$ 7,400
Investment income															$ 700
Ownership (as a percent)																			100.00%
Furniture and Fixtures | Minimum
Useful life															3 years
Furniture and Fixtures | Maximum
Useful life															7 years
Computer Software, Intangible Asset
Useful life															3 years
FHLB advances
Percentage of borrowing equals the purchase of FHLB activity-based common stock																	4.50%
Percentage of net aggregate admitted retained assets equals the maximum amount of borrowing																	5.00%
Advances received from FHLB under funding agreements															$ 37,000		$ 29,000
Repayments on FHLB funding agreements															0
Outstanding advances under FHLB funding agreements													66,000		66,000		29,000
FHLB funding agreements, matured on March 1, 2024 Member
Outstanding advances under FHLB funding agreements													$ 16,000		$ 16,000
Interest Rate													5.10%		5.10%
FHLB funding agreements, matured on January 22, 2025
Outstanding advances under FHLB funding agreements													$ 13,000		$ 13,000
Interest Rate													5.47%		5.47%
FHLB Second Funding Agreements, Matured On January 22, 2025
Outstanding advances under FHLB funding agreements													$ 2,000		$ 2,000
Interest Rate													5.17%		5.17%
FHLB funding agreements, matured on August 16, 2025
Outstanding advances under FHLB funding agreements													$ 8,000		$ 8,000
Interest Rate													5.48%		5.48%
FHLB Funding Agreements, Matured On September 1, 2027
Outstanding advances under FHLB funding agreements													$ 4,000		$ 4,000
Interest Rate													5.40%		5.40%
FHLB funding agreements, matured on September 15, 2027
Outstanding advances under FHLB funding agreements													$ 8,000		$ 8,000
Interest Rate													5.20%		5.20%
FHLB Funding Agreements, Matured On October 1, 2027
Outstanding advances under FHLB funding agreements													$ 9,000		$ 9,000
Interest Rate													5.41%		5.41%
FHLB Funding Agreements, Matured On December 1, 2027
Outstanding advances under FHLB funding agreements													$ 6,000		$ 6,000
Interest Rate													5.63%		5.63%
Securities Purchase Agreement | SRC1
Ownership (as a percent)													30.00%		30.00%
Seneca Re Agreement
Basic Income (loss) per common share | $ / shares													$ 1.04		$ (0.01)	$ 2.53
Seneca Re Agreement | MYGA
Percentage of indemnity coinsurance											25.00%
Seneca Re Agreement | FIA
Percentage of indemnity coinsurance											40.00%
Seneca Re Agreement | SRC1 | MYGA-3
Percentage of multi year guaranteed annuity				10.00%
SRC1 | SRC1
Ownership (as a percent)							100.00%
Master Letter Agreement
Reinsurance payable												$ 550,000
Credit Agreement | Revolving Credit Facility
Loan term			3 years
Maximum borrowing capacity			$ 30,000
Outstanding balance													$ 25,000		$ 25,000		25,000
Unutilized credit													5,000		$ 5,000
American Life and Security National Life Insurance
Percentage of quota share of liabilities	0.00%
American Life and Security National Life Insurance | US Alliance Agreement | MYGA
Percentage of multi year guaranteed annuity								20.00%
American Life and Security National Life Insurance | US Alliance Agreement | FIA
Percentage of fixed indexed annuity								20.00%							20.00%
SRC4
Net premium income				$ 21,400											$ 21,400
Net statutory reserves													21,500		21,500
Amount owed deposit account				$ 21,500
Reinsurance payable													12,749		$ 12,749		44,442
SRC4 | Seneca Re Agreement | MYGA-5
Percentage of multi year guaranteed annuity				45.00%
Percentage of indemnity coinsurance															45.00%
SRC4 | Seneca Re Agreement | MYGA-3
Percentage of indemnity coinsurance															10.00%
Multi Year Guaranteed Annuity
Number of products | product															2
Multi Year Guaranteed Annuity | SRC3
Percentage of indemnity coinsurance							45.00%
Multi Year Guaranteed Annuity | Crestline Assurance Holdings LLC | Master Letter Agreement
Percentage of indemnity coinsurance											25.00%
Fixed Index Annuity
Number of products | product															2
Fixed Index Annuity | SRC3
Percentage of indemnity coinsurance							45.00%
One time reinsurance funding for a quota share of the liabilities																	10,000
Fixed Index Annuity | Crestline Assurance Holdings LLC | Master Letter Agreement
Percentage of indemnity coinsurance											40.00%
Collateralized loan obligation
Fixed maturities, Allowance for credit losses													480		$ 480			$ 610
Collateralized loan obligation | Cumulative effect of change in accounting estimate
Fixed maturities, Allowance for credit losses																	588
Exchange Traded Funds
Equity securities, fair value													5,100		5,100		$ 5,100
Mortgage loans on real estate one
Mortgage backed and asset backed securities at fair value													$ 7,700		7,700
Mortgage servicing rights MSR impairment recovery															1,400
Mortgage loans on real estate two
Mortgage servicing rights MSR impairment recovery															600
ORIX USA | SRC1
Ownership (as a percent)					30.00%	30.00%
Sale of non controlling interest						$ 15,000									$ 15,000
Percentage of ownership interest sold					70.00%	70.00%
ORIX USA | Securities Purchase Agreement
Percentage of ownership interest sold															70.00%
American Life | PF Collinwood Holdings LLC
Ownership (as a percent)													100.00%		100.00%
Investment Manager
Other investments in fund													$ 97,700		$ 97,700
Other invested assets													$ 107,900		$ 107,900
American Life | Ascona Group Holdings Ltd
Ownership interest													74.00%		74.00%					74.00%
American Life | Multi Year Guaranteed Annuity | Crestline Assurance Holdings LLC | Master Letter Agreement
Percentage of indemnity coinsurance												20.00%
American Life | Five Year Multi-Year Guaranteed Annuity | Crestline Assurance Holdings LLC | Master Letter Agreement
Percentage of indemnity coinsurance												10.00%
American Life | Fixed Index Annuity | Master Letter Agreement
Percentage of indemnity coinsurance												0.00%
Seneca Reinsurance Company, LLC
Contributions made										$ 300
Ownership percentage acquired										100.00%
Crestline Assurance Holdings LLC | Ascona Group Holdings Ltd
Ownership interest													26.00%		26.00%					26.00%

XML

Nature of Operations and Basis of Presentation - Deferred acquisition costs (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Deferred Acquisition Costs
Deferred Policy Acquisition Cost, Beginning Balance	$ 43,433	$ 24,530
Additions	19,356	23,857
Amortization	(3,938)	(3,905)
Interest	(841)	(883)
Impact of unrealized investment losses	(406)	(166)
Deferred Policy Acquisition Cost, Ending Balance	$ 57,604	$ 43,433

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Nature of Operations and Basis of Presentation - Earnings (loss) per share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Nature of Operations and Summary of Significant Accounting Policies
Net income (loss) attributable to Midwest Holding Inc.	$ (3,883)	$ 9,266	$ (53)	$ 9,452
Weighted average common shares outstanding	3,736,933	3,737,564	3,728,594	3,737,564
Stock options and deferred compensation agreements	126,868	12,000	126,868	12,000
Denominator for earnings (loss) per common share	3,863,801	3,749,564	3,855,462	3,749,564
Basic Income (loss) per common share	$ (1.04)	$ 2.48	$ (0.01)	$ 2.53
Diluted Income (loss) per common share	$ (1.04)	$ 2.47	$ (0.01)	$ 2.52
Common stock, shares issued	3,744,645		3,744,645		3,727,976
Common stock, shares outstanding	3,744,645		3,744,645		3,727,976
Non-voting common shares authorized	2,000,000		2,000,000		2,000,000
Common stock, shares authorized	20,000,000		20,000,000		20,000,000
Preferred stock, shares authorized	2,000,000		2,000,000		2,000,000

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Non-controlling Interest (Details) $ in Thousands, £ in Millions				3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 30, 2021	Dec. 20, 2021 USD ($)	Sep. 28, 2020 GBP (£)	Jun. 30, 2023 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2023 USD ($)	Jun. 30, 2022 USD ($)	Dec. 31, 2022 USD ($)	Dec. 31, 2020
Investment income				$ 24,248	$ 10,541	$ 43,441	$ 16,783
SRC1
Sale of non controlling interest								$ 15,000
Ascona Asset Holding LLC
Preferred equity | £			£ 3.6
Ascona Group Holdings Ltd
Market value				12,200	200	12,200	200	10,500
Investment income				500	200	2,800	1,800
Investment income, non-controlling interest				100	$ 100	700	$ 500
Fair value of preferred stock				$ 12,200		$ 12,200		10,500
American Life | Ascona Group Holdings Ltd
Ownership interest				74.00%		74.00%			74.00%
Crestline Assurance Holdings LLC | Ascona Group Holdings Ltd
Ownership interest				26.00%		26.00%			26.00%
ORIX USA | SRC1
Percentage of ownership interest sold	70.00%	70.00%
Sale of non controlling interest		$ 15,000				$ 15,000
Ownership (as a percent)	30.00%	30.00%
Cumulative income (loss)				$ 3,700		$ 3,700		$ (5,500)

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Investments (Schedule of Amortized Cost and Estimated Fair Value of Investments) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022	Mar. 31, 2023
Amortized Cost	$ 1,609,005	$ 1,269,735
Fixed maturities, Allowance for credit losses	(8,916)
Total fixed maturities	1,538,912	1,214,635
Mortgage loans on real estate, held for investment amortized cost	354,401
Mortgage loans on real estate, held for investment	352,908	227,047
Mortgage loan on real estate, Allowance for credit losses	(1,493)		$ (2,709)
Derivatives, Cost	34,639	30,239
Derivatives, Gross Unrealized Gains	9,870	2,694
Derivatives, Gross Unrealized Losses	(7,648)	(16,999)
Estimated Fair Value	36,861	15,934
Common Stock		1,306
Equity Securities, Amortized Cost	5,592	5,592
Equity securities, Gross Unrealized Losses	(448)	(481)
Equity securities, fair value	5,144	5,111
Other invested assets, Cost	107,149	108,979
Other invested assets, Allowance for credit losses	(1,343)		(1,173)
Other invested assets, Gross Unrealized Gains	2,285	3,667
Other invested assets, Gross Unrealized Losses	(189)	(215)
Other invested assets (Allowance for credit losses of $1,343 in 2023.)	107,902	112,431
Investment escrow	1,600	784
Preferred stock , Amortized cost	38,026	35,644
Preferred stock, Gross Unrealized Gains	1,357	1,757
Preferred stock, Gross Unrealized Losses	(5,578)	(5,986)
Preferred stock, Fair value	33,805	31,415
Deposits and notes receivable, Amortized Cost	11,012	8,359
Deposits and notes receivable, Estimated Fair Value	11,012	8,359
Notes receivable	6,400	6,269
Policy Loans	55	25
Total investments, Amortized Cost	2,159,879	1,685,620
Allowance for credit losses on investments	(11,752)		(14,196)
Investments, Gross Unrealized Gains	18,970	11,668
Investments, Gross Unrealized Losses	(80,498)	(82,331)
Investments, Fair Value Disclosure	2,086,599	1,614,957
Fixed Maturities
Amortized Cost	1,609,005	1,269,735
Fixed maturities, Allowance for credit losses	(8,916)
Gross Unrealized Gains	5,458	3,550
Gross Unrealized Losses	(66,635)	(58,650)
Total fixed maturities	1,538,912	1,214,635
U.S. government obligations
Amortized Cost	1,451	1,343
Gross Unrealized Gains	268
Gross Unrealized Losses	(68)	(81)
Total fixed maturities	1,651	1,262
Mortgage-back securities
Amortized Cost	458,248	316,105
Fixed maturities, Allowance for credit losses	(1,035)		(3,592)
Gross Unrealized Gains	1,478	469
Gross Unrealized Losses	(32,477)	(22,508)
Total fixed maturities	426,214	294,066
Asset-backed securities
Amortized Cost	44,127	34,728
Fixed maturities, Allowance for credit losses			(245)
Gross Unrealized Gains	76	17
Gross Unrealized Losses	(3,985)	(3,989)
Total fixed maturities	40,218	30,756
Collateralized loan obligation
Amortized Cost	358,240	308,871
Fixed maturities, Allowance for credit losses	(480)		(610)
Gross Unrealized Gains	1,591	726
Gross Unrealized Losses	(20,485)	(21,924)
Total fixed maturities	338,866	287,673
States and Political Subdivisions - general obligations
Amortized Cost	128	104
Gross Unrealized Losses	(3)	(3)
Total fixed maturities	125	101
States and Political Subdivisions - special revenue
Amortized Cost		228
Gross Unrealized Losses		(23)
Total fixed maturities		205
Corporate
Amortized Cost	54,532	46,700
Fixed maturities, Allowance for credit losses	(1,297)
Gross Unrealized Gains	358	415
Gross Unrealized Losses	(4,670)	(5,515)
Total fixed maturities	48,923	41,600
Term loans
Amortized Cost	692,279	561,656
Fixed maturities, Allowance for credit losses	(6,104)		$ (5,867)
Gross Unrealized Gains	1,687	1,923
Gross Unrealized Losses	(4,947)	(4,607)
Total fixed maturities	$ 682,915	$ 558,972

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Investments (Schedule of Information Related to Allowance for Credit Losses) (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2023
Fixed Maturities
Ending balance	$ 8,916	$ 8,916
Mortgage loans on real estate, held for investment
Beginning balance	2,709
Credit Loss Expense for the Current Period	(1,216)	(531)
Ending balance	1,493	1,493
Other invested asset
Beginning balance	1,173
Credit Loss Expense for the Current Period	170	(360)
Ending balance	1,343	1,343
Total allowance
Beginning balance	14,196
Credit Loss Expense for the Current Period	(2,444)	(4,918)
Ending balance	11,752	11,752
Cumulative effect of change in accounting estimate
Mortgage loans on real estate, held for investment
Beginning balance		2,024
Other invested asset
Beginning balance		1,703
Total allowance
Beginning balance		16,670
Fixed Maturities
Fixed Maturities
Ending balance	8,916	8,916
Mortgage-back securities
Fixed Maturities
Beginning balance	3,592
Credit Loss Expense for the Current Period	(2,557)	(2,529)
Ending balance	1,035	1,035
Mortgage-back securities | Cumulative effect of change in accounting estimate
Fixed Maturities
Beginning balance		3,564
Corporate
Fixed Maturities
Credit Loss Expense for the Current Period	1,297	1,297
Ending balance	1,297	1,297
Asset-backed securities
Fixed Maturities
Beginning balance	245
Credit Loss Expense for the Current Period	(245)	(273)
Asset-backed securities | Cumulative effect of change in accounting estimate
Fixed Maturities
Beginning balance		273
Collateralized loan obligation
Fixed Maturities
Beginning balance	610
Credit Loss Expense for the Current Period	(130)	(108)
Ending balance	480	480
Collateralized loan obligation | Cumulative effect of change in accounting estimate
Fixed Maturities
Beginning balance		588
Term loans
Fixed Maturities
Beginning balance	5,867
Credit Loss Expense for the Current Period	237	(2,414)
Ending balance	$ 6,104	6,104
Term loans | Cumulative effect of change in accounting estimate
Fixed Maturities
Beginning balance		$ 8,518

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Investments (Schedule of Credit Ratings of Fixed Maturity Securities) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Marketable Securities [Line Items]
Total fixed maturities	$ 1,538,912	$ 1,214,635
Fixed Maturities
Marketable Securities [Line Items]
Total fixed maturities	$ 1,538,912	$ 1,214,635
Percent	100.00%	100.00%
Fixed Maturities | Investment grade
Marketable Securities [Line Items]
Total fixed maturities	$ 1,402,541	$ 1,115,885
Percent	91.10%	91.90%
Fixed Maturities | Investment grade | AAA and U.S. Government
Marketable Securities [Line Items]
Total fixed maturities	$ 200,014	$ 124,183
Percent	13.00%	10.20%
Fixed Maturities | Investment grade | AA
Marketable Securities [Line Items]
Total fixed maturities	$ 29,185	$ 815
Percent	1.90%	0.10%
Fixed Maturities | Investment grade | A
Marketable Securities [Line Items]
Total fixed maturities	$ 420,690	$ 371,371
Percent	27.30%	30.60%
Fixed Maturities | Investment grade | BBB
Marketable Securities [Line Items]
Total fixed maturities	$ 752,652	$ 619,516
Percent	48.90%	51.00%
Fixed Maturities | Non investment grade | BB and other
Marketable Securities [Line Items]
Total fixed maturities	$ 136,371	$ 98,750
Percent	8.90%	8.10%

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Investments (Schedule of Unrealized Loss of Securities) (Details) $ in Thousands	Jun. 30, 2023 USD ($) security	Dec. 31, 2022 USD ($) security
Fixed Maturities
Estimated Fair Value, Total	$ 1,312,526	$ 1,120,411
Gross Unrealized Loss, Total	$ (66,635)	$ (58,650)
Number of Securities, Total | security	551	568
U.S. government obligations
Estimated Fair Value, Less than 12 months		$ 1,135
Gross Unrealized Loss, Less than 12 months		$ (70)
Number of Securities, Less than 12 months | security		13
Estimated Fair value, Greater than 12 months	$ 1,146	$ 126
Gross Unrealized Loss, Greater than 12 months	$ (68)	$ (11)
Number of Securities, Greater than 12 months | security	9	5
Mortgage-back securities
Estimated Fair Value, Less than 12 months	$ 233,146	$ 233,624
Gross Unrealized Loss, Less than 12 months	$ (12,202)	$ (18,464)
Number of Securities, Less than 12 months | security	93	89
Estimated Fair value, Greater than 12 months	$ 87,683	$ 17,985
Gross Unrealized Loss, Greater than 12 months	$ (20,275)	$ (4,044)
Number of Securities, Greater than 12 months | security	57	14
Asset-backed securities
Estimated Fair Value, Less than 12 months	$ 14,234	$ 24,552
Gross Unrealized Loss, Less than 12 months	$ (1,386)	$ (3,278)
Number of Securities, Less than 12 months | security	10	23
Estimated Fair value, Greater than 12 months	$ 22,814	$ 5,321
Gross Unrealized Loss, Greater than 12 months	$ (2,599)	$ (711)
Number of Securities, Greater than 12 months | security	23	7
Collateralized loan obligation
Estimated Fair Value, Less than 12 months	$ 76,097	$ 203,549
Gross Unrealized Loss, Less than 12 months	$ (2,786)	$ (16,730)
Number of Securities, Less than 12 months | security	52	252
Estimated Fair value, Greater than 12 months	$ 162,126	$ 37,814
Gross Unrealized Loss, Greater than 12 months	$ (17,699)	$ (5,194)
Number of Securities, Greater than 12 months | security	240	47
States and Political Subdivisions - general obligations
Estimated Fair Value, Less than 12 months	$ 125	$ 101
Gross Unrealized Loss, Less than 12 months	$ (3)	$ (3)
Number of Securities, Less than 12 months | security	2	1
States and Political Subdivisions - special revenue
Estimated Fair Value, Less than 12 months		$ 47
Gross Unrealized Loss, Less than 12 months		$ (2)
Number of Securities, Less than 12 months | security		3
Estimated Fair value, Greater than 12 months		$ 158
Gross Unrealized Loss, Greater than 12 months		$ (21)
Number of Securities, Greater than 12 months | security		7
Corporate
Estimated Fair Value, Less than 12 months	$ 17,722	$ 37,286
Gross Unrealized Loss, Less than 12 months	$ (1,010)	$ (5,426)
Number of Securities, Less than 12 months | security	16	64
Estimated Fair value, Greater than 12 months	$ 14,888	$ 376
Gross Unrealized Loss, Greater than 12 months	$ (3,660)	$ (89)
Number of Securities, Greater than 12 months | security	45	7
Term loans
Estimated Fair Value, Less than 12 months	$ 682,545	$ 558,337
Gross Unrealized Loss, Less than 12 months	$ (4,947)	$ (4,607)
Number of Securities, Less than 12 months | security	4	36

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Investments (Schedule of Fixed Maturities) (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Investments.
Amortized Cost, Due in one year or less	$ 100,739
Amortized Cost, Due after one year through five years	859,855
Amortized Cost, Due after five years through ten years	440,299
Amortized Cost, Due after ten years through twenty years	175,126
Amortized Cost, Due after twenty years	32,986
Amortized Cost	1,609,005	$ 1,269,735
Estimated Fair Value, Due in one year or less	99,049
Estimated Fair Value, Due after one year through five years	840,065
Estimated Fair Value, Due after five years through ten years	403,551
Estimated Fair Value, Due after ten years through twenty years	170,768
Estimated Fair Value, Due after twenty years	25,479
Estimated Fair Value	$ 1,538,912	$ 1,214,635

XML

Investments (Schedule of Investments Measured at Fair Value on a Recurring Basis) (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Mar. 31, 2023	Dec. 31, 2022
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Mortgage loan on real estate, Allowance for credit losses	$ (1,493)	$ (2,709)
Mortgage loans on real estate, held for investment	352,908		$ 227,047
1-4 Family
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Mortgage loans on real estate, before allowance for credit losses	56,335		59,579
Hospitality
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Mortgage loans on real estate, before allowance for credit losses	14,144		12,902
Land
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Mortgage loans on real estate, before allowance for credit losses	77,961		62,119
Multifamily(5+)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Mortgage loans on real estate, before allowance for credit losses	58,711		34,072
Retail Mortgage Loans
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Mortgage loans on real estate, before allowance for credit losses	45,681		22,119
Other.
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Mortgage loans on real estate, before allowance for credit losses	$ 101,569		$ 36,256

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Investments (Schedule of Mortgage Loan Investments) (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Mortgage loans on real estate, held for investment	$ 352,908	$ 227,047
0%-59.99%
Mortgage loans on real estate, held for investment	230,140	108,281
60%-69.99%
Mortgage loans on real estate, held for investment	76,970	79,968
70%-79.99%
Mortgage loans on real estate, held for investment	27,704	33,268
80% or greater
Mortgage loans on real estate, held for investment	$ 18,094	$ 5,530

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Investments (Components of Net Investment Income) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Gross investment income	$ 52,529	$ 27,672	$ 104,616	$ 49,695
Less: investment expenses	(5,367)	(2,515)	(11,564)	(4,726)
Less: amounts charged to reinsurers	(22,914)	(14,616)	(49,611)	(28,186)
Investment income, net of expenses	24,248	10,541	43,441	16,783
Fixed Maturities
Gross investment income	33,841	14,173	67,902	26,837
Mortgage loans
Gross investment income	6,298	2,963	12,973	5,383
Other invested assets
Gross investment income	2,142	2,501	5,464	3,896
Other interest income
Gross investment income	$ 10,248	$ 8,035	$ 18,277	$ 13,579

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Investments (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Impairment on fixed maturities			$ 0
Amortized cost	$ 2,800		2,800		$ 1,200
Fair value	2,800		2,800		1,000
Mortgage backed and asset backed securities at fair value	7,700		7,700		7,700
Mortgage servicing rights MSR impairment recovery			1,400	$ 1,400	$ 1,400
Proceeds from sales of available-for-sale investments	8,100	$ 94,000	58,500	187,600
Gross realized gain	300	100	300	1,500
Unrealized gains (losses) associated with assets of third party reinsurers that are retained by American Life	23,900	10,500	43,100	16,800
Mortgage loans on real estate one
Mortgage backed and asset backed securities at fair value	7,700		7,700
Mortgage servicing rights MSR impairment recovery			1,400
Mortgage loans on real estate two
Mortgage servicing rights MSR impairment recovery			600
Maximum
Gross realized losses	$ 100	$ 1,200	$ 100	$ 1,700
Mortgage Loans Secured by Property | New York | Geographic Concentration Risk
Concentration risk percentage			19.00%		24.00%
Mortgage Loans Secured by Property | New Jersey | Geographic Concentration Risk
Concentration risk percentage			16.00%
Mortgage Loans Secured by Property | New Zealand | Geographic Concentration Risk
Concentration risk percentage			9.00%
Mortgage Loans Secured by Property | Florida | Geographic Concentration Risk
Concentration risk percentage			7.00%		15.00%
Mortgage Loans Secured by Property | TEXAS | Geographic Concentration Risk
Concentration risk percentage			7.00%
Mortgage Loans Secured by Property | Delaware | Geographic Concentration Risk
Concentration risk percentage					10.00%
Mortgage Loans Secured by Property | California | Geographic Concentration Risk
Concentration risk percentage					6.00%
Mortgage Loans Secured by Property | Arizona | Geographic Concentration Risk
Concentration risk percentage					5.00%

XML

Derivative Instruments (Details) $ in Thousands	Jun. 30, 2023 USD ($) contract	Dec. 31, 2022 USD ($) contract
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Estimated Fair Value	$ 36,861	$ 15,934
Derivatives not designated as hedge | Equity-indexed options
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional Amount	$ 911,030	$ 831,657
Number of Contracts | contract	668	595
Estimated Fair Value	$ 36,700	$ 15,592
Derivatives not designated as hedge | Equity-indexed embedded derivative
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional Amount	$ 866,847	$ 782,997
Number of Contracts | contract	7,095	6,131
Estimated Fair Value	$ 142,800	$ 111,618

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Derivative Instruments - Funds Withheld Provision (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Total return swap value	$ 3,900	$ 2,900	$ 3,900	$ 2,900
Unrealized losses			14,400		$ 10,500
Unrealized gain/(loss) in value	(4,495)	$ 18,296	6,047	$ 28,511
Reinsurance recoverables (See Note 8)	39,899		39,899		20,190
American Republic Insurance Company
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Reinsurance recoverables (See Note 8)	3,364		3,364		5,879
US Alliance Life and Security Company
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Reinsurance recoverables (See Note 8)	49,974		49,974		52,378
Funds With held Provision Agreement
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Book value of assets	999,596		999,596		782,573
Market value of assets	985,172		985,172		772,109
Total return swap value			14,424		10,464
Unrealized loss on embedded derivatives			14,400		10,500
Funds With held Provision Agreement | American Republic Insurance Company
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Book value of assets	170,992		170,992		150,413
Market value of assets	163,894		163,894		143,952
Total return swap value			7,098		6,461
Funds With held Provision Agreement | Crestline SP 1
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Book value of assets	447,113		447,113		354,806
Market value of assets	446,708		446,708		356,374
Total return swap value			405		(1,568)
Funds With held Provision Agreement | Ironbound Reinsurance Company Limited
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Book value of assets	164,611		164,611		159,644
Market value of assets	159,116		159,116		154,477
Total return swap value			5,495		5,167
Funds With held Provision Agreement | Ascendent Re
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Book value of assets	64,479		64,479		56,064
Market value of assets	62,626		62,626		54,790
Total return swap value			1,853		1,274
Funds With held Provision Agreement | SRC1
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Book value of assets	152,401		152,401		61,646
Market value of assets	$ 152,828		152,828		62,516
Total return swap value			$ (427)		$ (870)

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Fair Values of Financial Instruments (Schedule of Financial Instruments at Fair Value Measured on a Recurring Basis) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	$ 1,538,912	$ 1,214,635
Mortgage loans on real estate, held for investment	352,908	227,047
Derivative instruments (See Note 4)	36,861	15,934
Equity securities, fair value	5,144	5,111
Other Invested assets	107,902	112,431
Investment escrow	1,600	784
Federal Home Loan Bank stock		1,306
Preferred stock	33,805	31,415
Deposits and notes receivable	11,012	8,359
Notes receivable	6,400	6,269
Policy Loans	55	25
Total Investments	2,086,599	1,614,957
Embedded derivative for equity-indexed contracts	142,800	111,618
Transfers between levels	0	0
Carrying Amount
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Invested assets	12,764	12,434
Total Investments	12,764	12,434
Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative instruments (See Note 4)	36,861	15,934
Equity securities, fair value	5,144	5,111
Investment escrow		784
Preferred stock	9,952	9,544
Deposits and notes receivable	8,041	7,053
Notes receivable		6,269
Total Investments	915,995	693,305
Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mortgage loans on real estate, held for investment	352,908	227,047
Other Invested assets	95,138	99,997
Federal Home Loan Bank stock		1,306
Preferred stock	23,853	21,871
Deposits and notes receivable	2,971	1,306
Policy Loans	55	25
Total Investments	1,157,840	909,218
Embedded derivative for equity-indexed contracts	142,800	111,618
Fixed Maturities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	1,538,912	1,214,635
Fixed Maturities | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	855,997	655,663
Fixed Maturities | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	682,915	558,972
U.S. government obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	1,651	1,262
U.S. government obligations | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	1,651	1,262
Mortgage-back securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	426,214	294,066
Mortgage-back securities | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	426,214	294,066
Asset-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	40,218	30,756
Asset-backed securities | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	40,218	30,756
Collateralized loan obligation
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	338,866	287,673
Collateralized loan obligation | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	338,866	287,673
States and Political Subdivisions - general obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	125	101
States and Political Subdivisions - general obligations | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	125	101
States and Political Subdivisions - special revenue
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities		205
States and Political Subdivisions - special revenue | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities		205
Corporate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	48,923	41,600
Corporate | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	48,923	41,600
Term loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	682,915	558,972
Term loans | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	$ 682,915	$ 558,972

XML

Fair Values of Financial Instruments (Schedule of Financial Assets and Liabilities at Fair Value) (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Assets
Cash	$ 194,275	$ 191,414
Liabilities:
Notes payable	25,000	25,000
Fair Value, Inputs, Level 1
Assets
Cash	194,275	191,414
Fair Value, Inputs, Level 3
Assets
Policy loans	55	25
Liabilities:
Policyholder deposits (Deposit-type contracts)	2,218,725	1,743,348
Carrying Amount
Assets
Policy loans	55	25
Cash	194,275	191,414
Liabilities:
Policyholder deposits (Deposit-type contracts)	2,218,725	1,743,348
Fair Value
Assets
Policy loans	55	25
Cash	194,275	191,414
Liabilities:
Policyholder deposits (Deposit-type contracts)	$ 2,218,725	$ 1,743,348

XML

Fair Values of Financial Instruments (Recurring Basis Level 3) (Details) - Fair Value, Inputs, Level 3 - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Assets
Beginning Balance	$ 909,218	$ 505,237
Total realized and unrealized gains (losses) Included In Income	(4,220)
Total realized and unrealized gains (losses) Included In AOCI	$ (2,851)	$ (3,460)
Fair Value, Asset, Recurring Basis, Unobservable Input Reconciliation, Asset, Gain (Loss), Statement of Other Comprehensive Income or Comprehensive Income [Extensible Enumeration]	Other comprehensive (loss) before reclassifications, net of tax	Other comprehensive (loss) before reclassifications, net of tax
Net Purchases, Issuances, Sales, and Settlements	$ 256,180	$ 407,441
Ending Balance	1,158,327	909,218
Liabilities
Beginning Balance	(111,618)	(123,692)
Total realized and unrealized gains (losses) Included In Income	$ 30,115	$ (10,193)
Fair Value, Liability, Recurring Basis, Unobservable Input Reconciliation, Gain (Loss), Statement of Income or Comprehensive Income [Extensible Enumeration]	Net realized gains (losses) on investments	Net realized gains (losses) on investments
Net Purchases, Issuances, Sales, and Settlements	$ (61,297)	$ 22,267
Ending Balance	(142,800)	(111,618)
Equity-indexed embedded derivative
Liabilities
Beginning Balance	(111,618)	(123,692)
Total realized and unrealized gains (losses) Included In Income	30,115	(10,193)
Net Purchases, Issuances, Sales, and Settlements	(61,297)	22,267
Ending Balance	(142,800)	(111,618)
Term loans
Assets
Beginning Balance	558,972	267,468
Total realized and unrealized gains (losses) Included In AOCI	(4,947)	(2,683)
Net Purchases, Issuances, Sales, and Settlements	129,377	294,187
Ending Balance	683,402	558,972
Policy loans
Assets
Beginning Balance	25	87
Net Purchases, Issuances, Sales, and Settlements	30	(62)
Ending Balance	55	25
Mortgage loans on real estate, held for investment
Assets
Beginning Balance	227,047	183,203
Net Purchases, Issuances, Sales, and Settlements	125,861	43,844
Ending Balance	352,908	227,047
Deposits and notes receivable
Assets
Beginning Balance	1,306	500
Net Purchases, Issuances, Sales, and Settlements	1,665	806
Ending Balance	2,971	1,306
Other invested assets
Assets
Beginning Balance	99,997	35,293
Total realized and unrealized gains (losses) Included In AOCI	2,096	3,452
Net Purchases, Issuances, Sales, and Settlements	(6,955)	61,252
Ending Balance	95,138	99,997
Preferred Stock
Assets
Beginning Balance	21,871	18,686
Total realized and unrealized gains (losses) Included In Income	(4,220)
Total realized and unrealized gains (losses) Included In AOCI		(4,229)
Net Purchases, Issuances, Sales, and Settlements	6,202	7,414
Ending Balance	$ 23,853	$ 21,871

XML

Fair Values of Financial Instruments (Summary of unobservable inputs) (Details)	Jun. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	$ 1,538,912,000	$ 1,214,635,000
Mortgage loans on real estate, held for investment (Allowance for credit losses of $1,493 in 2023.)	352,908,000	227,047,000
Other Invested assets	107,902,000	112,431,000
Preferred stock	33,805,000	31,415,000
Term loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	682,915,000	558,972,000
Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mortgage loans on real estate, held for investment (Allowance for credit losses of $1,493 in 2023.)	352,908,000	227,047,000
Other Invested assets	95,138,000	99,997,000
Preferred stock	23,853,000	$ 21,871,000
Preferred Stock, Valuation Technique [Extensible Enumeration]		us-gaap:MarketApproachValuationTechniqueMember
Preferred Stock, Measurement Input [Extensible Enumeration]		EBITDA Multiple
Fair Value, Inputs, Level 3 | Term loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	682,915,000	$ 558,972,000
Fair Value, Inputs, Level 3 | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)		0.080
Fair Value, Inputs, Level 3 | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)		0.255
Fair Value, Inputs, Level 3 | Weighted average
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)		0.145
Fair Value, Inputs, Level 3 | Non performance risk | Interest sensitive contract liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	$ 142,800,000	$ 111,600,000
Embedded Derivative Liability, Valuation Technique [Extensible List]	us-gaap:ValuationTechniqueOptionPricingModelMember	us-gaap:ValuationTechniqueOptionPricingModelMember
Fair Value, Inputs, Level 3 | Non performance risk | Minimum | Interest sensitive contract liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.006	0.006
Fair Value, Inputs, Level 3 | Non performance risk | Maximum | Interest sensitive contract liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.015	0.015
Fair Value, Inputs, Level 3 | Non performance risk | Weighted average | Interest sensitive contract liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.011	0.011
Fair Value, Inputs, Level 3 | Option budget | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.011	0.011
Fair Value, Inputs, Level 3 | Option budget | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.059	0.057
Fair Value, Inputs, Level 3 | Option budget | Weighted average
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.029	0.027
Fair Value, Inputs, Level 3 | Discount rates | Preferred equity
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	$ 9,700,000	$ 6,100,000
Embedded Derivative Liability, Valuation Technique [Extensible List]	mdwt:ValuationTechniqueYieldAnalysisMember	mdwt:ValuationTechniqueYieldAnalysisMember
Embedded Derivative Liability, Measurement Input [Extensible Enumeration]	Discount rates	Discount rates
Fair Value, Inputs, Level 3 | Discount rates | Term loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	$ 682,900,000	$ 559,000,000.0
Debt Securities, Available-for-sale, Valuation Technique [Extensible List]	mdwt:ValuationTechniqueYieldAnalysisMember	mdwt:ValuationTechniqueYieldAnalysisMember
Debt Securities, Available-for-Sale, Measurement Input [Extensible Enumeration]	Discount rates	Discount rates
Fair Value, Inputs, Level 3 | Discount rates | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)	0.080
Fair Value, Inputs, Level 3 | Discount rates | Minimum | Preferred equity
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.240	0.240
Fair Value, Inputs, Level 3 | Discount rates | Minimum | Term loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, term loans (as a percent)	0.046	0.046
Fair Value, Inputs, Level 3 | Discount rates | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)	0.255
Fair Value, Inputs, Level 3 | Discount rates | Maximum | Preferred equity
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.280	0.280
Fair Value, Inputs, Level 3 | Discount rates | Maximum | Term loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, term loans (as a percent)	0.173	0.173
Fair Value, Inputs, Level 3 | Discount rates | Weighted average
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)	0.145
Fair Value, Inputs, Level 3 | Discount rates | Weighted average | Preferred equity
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.260	0.260
Fair Value, Inputs, Level 3 | Discount rates | Weighted average | Term loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, term loans (as a percent)	0.124	0.124
Fair Value, Inputs, Level 3 | EBITDA Multiple
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Invested assets	$ 95,100,000	$ 100,000,000.0
Alternative Investment, Valuation Technique [Extensible Enumeration]	us-gaap:MarketApproachValuationTechniqueMember	us-gaap:MarketApproachValuationTechniqueMember
Preferred stock	$ 11,800,000	$ 31,400,000
Preferred Stock, Valuation Technique [Extensible Enumeration]	us-gaap:MarketApproachValuationTechniqueMember
Preferred Stock, Measurement Input [Extensible Enumeration]	EBITDA Multiple
Fair Value, Inputs, Level 3 | EBITDA Multiple | Detachable warrants
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total fixed maturities	$ 2,400,000	$ 2,200,000
Embedded Derivative Liability, Valuation Technique [Extensible List]	us-gaap:MarketApproachValuationTechniqueMember	us-gaap:MarketApproachValuationTechniqueMember
Embedded Derivative Liability, Measurement Input [Extensible Enumeration]	EBITDA Multiple	EBITDA Multiple
Fair Value, Inputs, Level 3 | EBITDA Multiple | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)	2.6	2.6
Fair Value, Inputs, Level 3 | EBITDA Multiple | Minimum | Detachable warrants
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.100	10.0
Interest sensitive contract liabilities, preferred stock (as a percent)	2.55	2.55
Fair Value, Inputs, Level 3 | EBITDA Multiple | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)	3.1	3.1
Fair Value, Inputs, Level 3 | EBITDA Multiple | Maximum | Detachable warrants
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.115	11.5
Interest sensitive contract liabilities, preferred stock (as a percent)	3.05	3.05
Fair Value, Inputs, Level 3 | EBITDA Multiple | Weighted average
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, other invested assets (as a percent)	2.8	2.8
Fair Value, Inputs, Level 3 | EBITDA Multiple | Weighted average | Detachable warrants
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	1.000	1.000
Interest sensitive contract liabilities, preferred stock (as a percent)	2.8	2.8
Fair Value, Inputs, Level 3 | Surrender rate | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.005	0.005
Fair Value, Inputs, Level 3 | Surrender rate | Maximum | Base | Interest sensitive contract liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.15	0.15
Fair Value, Inputs, Level 3 | Surrender rate | Maximum | Additional Shock | Interest sensitive contract liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.30	0.30
Fair Value, Inputs, Level 3 | Surrender rate | Weighted average
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest sensitive contract liabilities, embedded derivative (as a percent)	0.125	0.105
Fair Value, Inputs, Level 3 | Principal funded
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mortgage loans on real estate, held for investment (Allowance for credit losses of $1,493 in 2023.)	$ 352,900,000	$ 227,000,000.0
Mortgage Loans on Real Estate, Valuation Technique [Extensible Enumeration]	mdwt:ValuationTechniqueYieldAnalysisMember	mdwt:ValuationTechniqueYieldAnalysisMember
Mortgage Loans on Real Estate, Measurement Input [Extensible Enumeration]	Principal funded	Principal funded

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Fair Values of Financial Instruments (Narrative) (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Investment escrow	$ 1,600		$ 784
Equity securities, fair value	5,144		5,111
Notes receivable	6,400		6,269
Mortgage backed and asset backed securities at fair value	7,700		7,700
Mortgage servicing rights MSR impairment recovery	1,400	$ 1,400	1,400
Perpetual preferred stock	33,800		31,400
Preferred stock	33,805		31,415
Other Invested assets	107,902		112,431
Transfers between levels	$ 0		0
BBB+
Interest rate	5.00%
Exchange Traded Funds
Equity securities, fair value	$ 5,100		$ 5,100
Mortgage loans on real estate one
Mortgage backed and asset backed securities at fair value	7,700
Mortgage servicing rights MSR impairment recovery	1,400
Mortgage loans on real estate two
Mortgage servicing rights MSR impairment recovery	$ 600

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Deposit-Type Contracts (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Beginning balance	$ 1,743,348	$ 1,075,439
US Alliance	(634)	(2,176)
Unified Life Insurance Company		(10)
Deposits received	494,532	745,083
Investment earnings (includes embedded derivative)	30,115	(10,193)
Withdrawals	(59,931)	(51,659)
Policy charges		(820)
Ending balance	2,218,725	1,743,348
Outstanding advances under FHLB funding agreements	66,000
FHLB advances
Outstanding advances under FHLB funding agreements	66,000	29,000
Ironbound Reinsurance Company Limited
Ironbound Reinsurance Company Limited	3,134	5,959
Ascendant Re
Deposit contract	145	(3,185)
Crestline SP 1
Deposit contract	2,490	(11,623)
American Republic Insurance Company
Deposit contract	2,735	(4,080)
SRC4
Deposit contract	$ 2,791	$ 613

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Debt (Details) - USD ($) $ in Millions		3 Months Ended		6 Months Ended
	Nov. 22, 2022	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Minimum
Line of Credit Facility [Line Items]
Percentage of risk based capital percent		300.00%		300.00%
Minimum consolidated liquidity requirement		$ 3.0		$ 3.0
Maximum
Line of Credit Facility [Line Items]
Percentage of consolidated debt to capitalization		35.00%		35.00%
Credit Agreement
Line of Credit Facility [Line Items]
Interest paid		$ 0.5	$ 0.0	$ 1.1	$ 0.0
Revolving Credit Facility | Credit Agreement
Line of Credit Facility [Line Items]
Loan term	3 years
Maximum borrowing capacity	$ 30.0
Outstanding balance		25.0		25.0		$ 25.0
Unutilized credit		$ 5.0		$ 5.0
Revolving Credit Facility | Credit Agreement | Minimum | Base rate
Line of Credit Facility [Line Items]
Applicable margin	2.50%
Revolving Credit Facility | Credit Agreement | Minimum | SOFR
Line of Credit Facility [Line Items]
Applicable margin	3.50%
Revolving Credit Facility | Credit Agreement | Maximum | Base rate
Line of Credit Facility [Line Items]
Applicable margin	3.25%
Revolving Credit Facility | Credit Agreement | Maximum | SOFR
Line of Credit Facility [Line Items]
Applicable margin	4.25%

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Reinsurance (Summary of Significant Reinsurance Amounts) (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022	Dec. 31, 2021
Reinsurance
Reinsurance recoverables	$ 39,899	$ 20,190
Deposit-type contracts Direct	2,218,725	1,743,348	$ 1,075,439
Deposit-type contracts Reinsurance ceded	(1,123,475)	(912,982)
Retained deposit-type contracts	$ 1,095,250	$ 830,366

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Reinsurance (Schedule of Significant Reinsurance Balances) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Recoverable on Unpaid Losses	$ 263	$ 195
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	39,999	20,337
Ceded Due Premiums	(363)	(342)
Reinsurance recoverables	$ 39,899	$ 20,190
Ironbound Reinsurance Company Limited [Member]
AM Best Rating	NR	NR
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	$ 5,338	$ (344)
Reinsurance payable		$ (344)
Reinsurance recoverables	$ 5,338
Optimum Reinsurance Company [Member]
AM Best Rating	A	A
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	$ 690	$ 601
Reinsurance recoverables	$ 690	$ 601
Sagicor Life Insurance Company [Member]
AM Best Rating	A-	A-
Recoverable on Unpaid Losses	$ 238	$ 154
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	10,626	10,744
Ceded Due Premiums	(326)	(303)
Reinsurance recoverables	$ 10,538	$ 10,595
Ascendant Re
AM Best Rating	NR	NR
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	$ (3,906)	$ (2,130)
Reinsurance payable	$ (3,906)	$ (2,130)
Crestline SP 1
AM Best Rating	NR	NR
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	$ (14,352)	$ (3,357)
Reinsurance payable	$ (14,352)	$ (3,357)
American Republic Insurance Company
AM Best Rating	A	A
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	$ 3,364	$ 5,879
Reinsurance recoverables	$ 3,364	$ 5,879
SRC4
AM Best Rating	NR	NR
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	$ (12,749)	$ (44,442)
Reinsurance payable	$ (12,749)	$ (44,442)
Unified Life Insurance Company
AM Best Rating	NR	NR
Recoverable on Unpaid Losses	$ 25	$ 41
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	991	986
Ceded Due Premiums	(14)	(17)
Reinsurance recoverables	$ 1,002	$ 1,010
US Alliance Life and Security Company
AM Best Rating	NR	NR
Recoverable/(Payable) on Benefit Reserves/Deposit-type Contracts	$ 49,997	$ 52,400
Ceded Due Premiums	(23)	(22)
Reinsurance recoverables	$ 49,974	$ 52,378

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Reinsurance (Ceding commissions deferred) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Gross Ceding Commission	$ 3,467	$ 2,517	$ 6,427	$ 4,352
Expense Allowances	3,340	4,175	6,173	7,458
Interest On Ceding Commissions	440	204	628	393
Earned Ceding Commission	1,498	1,059	3,071	2,012
Deferred gain on coinsurance transactions	43,214		43,214		$ 38,063
Unified Life Insurance Company
Earned Ceding Commission	9	6	11	14
Deferred gain on coinsurance transactions	352		352		217
Ironbound Reinsurance Company Limited [Member]
Interest On Ceding Commissions	43	49	93	98
Earned Ceding Commission	125	144	253	258
Deferred gain on coinsurance transactions	4,811		4,811		4,876
Ascendant Re
Gross Ceding Commission	181		181
Expense Allowances	175		175
Interest On Ceding Commissions	23	23	46	47
Earned Ceding Commission	100	77	185	163
Deferred gain on coinsurance transactions	3,104		3,104		2,947
US Alliance Life and Security Company
Interest On Ceding Commissions	11	14	25	28
Earned Ceding Commission	73	76	156	163
Deferred gain on coinsurance transactions					152
Crestline SP 1
Gross Ceding Commission	771	1,491	1,805	2,525
Expense Allowances	716	2,401	1,631	4,231
Interest On Ceding Commissions	193	88	272	168
Earned Ceding Commission	758	559	1,640	1,065
Deferred gain on coinsurance transactions	19,346		19,346		18,475
American Republic Insurance Company
Gross Ceding Commission	1	1,026	560	1,827
Expense Allowances	48	1,774	753	3,227
Interest On Ceding Commissions	84	30	106	52
Earned Ceding Commission	257	$ 197	562	$ 349
Deferred gain on coinsurance transactions	7,684		7,684		7,502
US Alliance Life and Security Company(3)
Deferred gain on coinsurance transactions	2,025		2,025		2,069
SRC4
Gross Ceding Commission	2,514		3,881
Expense Allowances	2,401		3,614
Interest On Ceding Commissions	86		86
Earned Ceding Commission	176		264
Deferred gain on coinsurance transactions	$ 5,892		$ 5,892		$ 1,825

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Reinsurance (Narrative) (Details) - USD ($) $ in Thousands						6 Months Ended
	Feb. 28, 2023	Sep. 30, 2022	Nov. 10, 2021	Jun. 26, 2021	Apr. 24, 2020	Jun. 30, 2023	Dec. 31, 2022
Contingency reserves						$ 0	$ 0
Seneca Re Agreement | MYGA
Percentage of indemnity coinsurance					25.00%
Seneca Re Agreement | FIA
Percentage of indemnity coinsurance					40.00%
SRC3 | Multi Year Guaranteed Annuity
Percentage of indemnity coinsurance			45.00%
SRC3 | Fixed Index Annuity
Percentage of indemnity coinsurance			45.00%
One time reinsurance funding							$ 10,000
US Alliance Life and Security Company
Value of assets transferred to the reinsurer						$ 37,900
US Alliance Life and Security Company | US Alliance Agreement | MYGA
Percentage of multi year guaranteed annuity						20.00%
American Life | FW, Modco Agreement | MYGA
Percentage of multi year guaranteed annuity						45.00%
American Life | FW, Modco Agreement | FIA
Percentage of fixed indexed annuity						45.00%
American Life and Security National Life Insurance [Member]
Percentage of quota share of liabilities	0.00%
American Life and Security National Life Insurance [Member] | US Alliance Agreement | MYGA
Percentage of multi year guaranteed annuity				20.00%
American Life and Security National Life Insurance [Member] | US Alliance Agreement | FIA
Percentage of fixed indexed annuity				20.00%		20.00%
SRC4
Net premium income		$ 21,400				$ 21,400
Net statutory reserves						$ 21,500
Amount owed deposit account		$ 21,500
SRC4 | Seneca Re Agreement | MYGA-5
Percentage of indemnity coinsurance						45.00%
Percentage of multi year guaranteed annuity		45.00%
SRC4 | Seneca Re Agreement | MYGA-3
Percentage of indemnity coinsurance						10.00%

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Reinsurance (Retained and Reinsured Balance Sheets) (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Mar. 31, 2023	Dec. 31, 2022	Jun. 30, 2022	Mar. 31, 2022	Dec. 31, 2021
Assets [Abstract]
Total investments	$ 2,086,599		$ 1,614,957
Cash and cash equivalents	194,275		191,414
Deferred acquisition costs, net	57,604		43,433			$ 24,530
Premiums receivable	372		362
Accrued investment income	35,050		25,165
Reinsurance recoverables	39,899		20,552
Property and equipment, net	1,811		1,897
Receivable for securities sold	441		10,518
Other assets	11,990		12,495
Total assets	2,428,041		1,920,431
Liabilities:
Benefit reserves	12,646		12,945
Deposit-type contracts Direct	2,218,725		1,743,348			1,075,439
Other policy-holder funds	6,474		4,105
Notes payable	25,000		25,000
Deferred gain on coinsurance transactions	43,214		38,063
Payable for securities purchased	44,656		8,872
Other liabilities	48,026		53,721
Total liabilities	2,398,741		1,886,054
Stockholders' Equity:
Preferred stock
Voting common stock	4		4
Additional paid-in capital	139,085		138,482
Treasury stock	(175)		(175)
Accumulated deficit	(67,746)		(63,019)
Accumulated other comprehensive loss	(57,433)		(51,386)
Total Midwest Holding Inc.'s stockholders' equity	13,735		23,906
Noncontrolling interests	15,565		10,471
Total stockholders' equity	29,300	$ 24,850	34,377	$ 64,496	$ 79,190	$ 85,756
Total liabilities and stockholders' equity	2,428,041		1,920,431
Reinsurance Contract [Axis]: Reinsurance [Member]
Assets [Abstract]
Total investments	982,401		802,780
Cash and cash equivalents	69,119		64,123
Premiums receivable	372
Accrued investment income	20,402		13,858
Reinsurance recoverables	102,508		27,405
Receivable for securities sold			8,485
Other assets	2,735		236
Total assets	1,177,537		916,887
Liabilities:
Benefit reserves	11,702		11,613
Deposit-type contracts Direct	1,114,881		901,368
Other policy-holder funds	405
Deferred gain on coinsurance transactions	42,983
Other liabilities	7,566		3,906
Total liabilities	1,177,537		916,887
Stockholders' Equity:
Total liabilities and stockholders' equity	1,177,537		916,887
Reinsurance Contract [Axis]: Retained [Member]
Assets [Abstract]
Total investments	1,104,198		812,177
Cash and cash equivalents	125,156		127,291
Deferred acquisition costs, net	57,604		43,433
Accrued investment income	14,648		11,307
Reinsurance recoverables	(62,609)		(6,853)
Property and equipment, net	1,811		1,897
Receivable for securities sold	441		2,033
Other assets	9,255		12,259
Total assets	1,250,504		1,003,544
Liabilities:
Benefit reserves	944		1,332
Deposit-type contracts Direct	1,103,844		841,980
Other policy-holder funds	6,069		4,105
Notes payable	25,000		25,000
Deferred gain on coinsurance transactions	231		38,063
Payable for securities purchased	44,656		8,872
Other liabilities	40,460		49,815
Total liabilities	1,221,204		969,167
Stockholders' Equity:
Voting common stock	4		4
Additional paid-in capital	139,085		138,482
Treasury stock	(175)		(175)
Accumulated deficit	(67,746)		(63,019)
Accumulated other comprehensive loss	(57,433)		(51,386)
Total Midwest Holding Inc.'s stockholders' equity	13,735		23,906
Noncontrolling interests	15,565		10,471
Total stockholders' equity	29,300		34,377
Total liabilities and stockholders' equity	$ 1,250,504		$ 1,003,544

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Income Tax Matters (Schedule of Deferred Tax Assets and Liabilities) (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Deferred tax assets:
Loss carryforwards	$ 4,519	$ 2,672
Capitalized costs	55	79
Stock option granted	1,193	1,066
Policy acquisition costs	8,205	6,489
General business credits	6	6
Derivative option allowance	310
Sec 163(j) limitation	171	171
Benefit reserves	10,478	12,010
Impairments	535	403
Unrealized losses on investments	15,267	13,624
Other	1,928	1,928
Total deferred tax assets	42,667	38,448
Less valuation allowance	(40,729)	(35,305)
Total deferred tax assets, net of valuation allowance	1,938	3,143
Deferred tax liabilities:
Intangible assets	147	147
Derivative option allowance		2,150
Bond Discount	1,912	936
Property and equipment	(121)	(90)
Total deferred tax liabilities	1,938	3,143
Net deferred tax assets

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Income Tax Matters (Schedule of Effective Tax Rate Reconciliation) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Income Tax Matters
Computed expected income tax benefit (expense)	$ 428	$ (409)	$ (2,357)	$ (1,508)
Reduction (increase) in income taxes resulting from:
Interest maintenance reserve and reinsurance	(18)	61	51	(18)
Non deductible expenses	(3)	(3)	(6)	(5)
Change in valuation allowance	(3,593)	2,480	(3,781)	(1,052)
Deferred tax adjustment		(4)		(14)
AETR adjustment	76		76
Prior year true-up	141		141
Subtotal of (increases) decreases	(3,397)	2,534	(3,519)	(1,089)
Tax benefit (expense)	$ (2,969)	$ 2,125	$ (5,876)	$ (2,597)

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Income Tax Matters (Narratives) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2016
Deferred Tax Assets, Valuation Allowance	$ 40,729		$ 40,729		$ 35,305
U.S. federal income tax rate			21.00%
Net operating loss ("NOL") carryforwards	7,900		$ 7,900				$ 1,000
Percentage of carry forward year limited taxable income			80.00%
NOLs carryforwards, valuation allowance	1,700		$ 1,700
Income tax expense (benefit)	$ 2,969	$ (2,125)	$ 5,876	$ 2,597
SRC1
Net operating loss ("NOL") carryforwards						$ 100

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Leases (Schedule of Supplemental Balance Sheet Information Related to Leases) (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Noncurrent:
Operating lease right of use assets	$ 2,083	$ 2,119
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration]	Other assets	Other assets
Liabilities
Operating lease	$ 2,106	$ 2,135
Operating Lease, Liability, Statement of Financial Position [Extensible Enumeration]	Other liabilities	Other liabilities

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Leases (Schedule of Finance and Operating Leases Mature) (Details) $ in Thousands	Jun. 30, 2023 USD ($)
Operating Leases
2023	$ 224
2024	378
2025	342
2026	345
2027	353
2028	362
2029 and after	1,041
Total remaining lease payments	$ 3,045

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Leases (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Leases
Operating cash flows from operating leases			$ 100	$ 100
Weighted Average Remaining Term - Operating lease	8 years 6 months		8 years 6 months		10 years
Weighted Average Discount Rate - Operating lease	8.00%		8.00%		8.00%
Operating lease cost (General and administrative expense)	$ 3	$ 3	$ 7	$ 7

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Equity (Narrative) (Details) - shares	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Preferred stock
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common Stock
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	3,744,645	3,727,976
Common stock, shares outstanding	3,744,645	3,727,976
Non Voting Common Stock, Shares Issued	0	0
Non Voting Common Stock, Shares Outstanding	0	0
Reverse stock split fractions retired (in shares)	4,500
Voting common share
Common Stock
Common stock, shares authorized	20,000,000	20,000,000
Non-voting common shares
Common Stock
Common stock, shares authorized	2,000,000	2,000,000

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Equity (AOCI) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	$ 24,850	$ 79,190	$ 34,377	$ 85,756	$ 85,756
Other comprehensive (loss) before reclassifications, net of tax	4,322	(19,666)	(6,230)	(29,369)
Less: Reclassification adjustments for losses realized in net income, net of tax	173	1,369	183	858
Balance	29,300	$ 64,496	29,300	64,496	34,377
Unrealized investment gains (losses) on fixed maturities, net of offsets
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance			(51,386)	$ 2,634	2,634
Other comprehensive (loss) before reclassifications, net of tax			(6,230)		(54,975)
Less: Reclassification adjustments for losses realized in net income, net of tax			183		955
Balance	$ (57,433)		$ (57,433)		$ (51,386)

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Long-Term Incentive Plans (Details) - USD ($) $ / shares in Units, $ in Thousands			1 Months Ended		3 Months Ended			6 Months Ended		12 Months Ended
	Jun. 06, 2023	Jun. 14, 2022	Sep. 30, 2022	Jun. 30, 2021	Jun. 30, 2023	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022	Dec. 31, 2020	Dec. 31, 2019
Employee stock options					$ 296	$ 355		$ 603	$ 386
Stock Options
Expiration period								10 years
Exercise price grant date intrinsic value								$ 0.00
Weighted average exercise prices of vested and exercisable (in dollars per share)					$ 39.38			39.38
Share price					$ 26.32			$ 26.32
Vested options								$ 600
Options outstanding					$ 1,600			$ 1,600
Restricted Stock
Restricted stock granted (in shares)											18,597
Vesting percentage											25.00%
Restricted stock granted (in dollars per share)											$ 41.25
Vested (in shares)							5,812
Forfeited (in shares)							12,785
Restricted stock unit
Restricted stock granted (in shares)	6,984	18,718		5,089				6,984
Restricted stock granted (in dollars per share)	$ 25.70	$ 11.22		$ 24.34				$ 25.76
Vested (in shares)	16,044							1,163		1,163
Forfeited (in shares)			2,674
Minimum | Stock Options
Vesting period								2 years
Maximum | Stock Options
Vesting period								4 years
Long-Term Incentive Plans.
Restricted stock granted (in shares)								6,984		18,718
Restricted stock granted (in dollars per share)								$ 16.56
2019 LTIP
Employee stock options					300	300		$ 600	600
2019 LTIP | Maximum | Stock Options
Shares authorized												102,000
2020 LTIP
Additional shares authorized										150,000
Employee stock options					$ 400	$ 400		$ 400	$ 400
2020 LTIP | Maximum | Stock Options
Shares authorized											350,000

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Long-Term Incentive Plans (Options Outstanding) (Details)	6 Months Ended
	Jun. 30, 2023 $ / shares shares
Weighted Average Exercise Price Per Share
Balance at the beginning, weighted average exercise price (in dollars per share)	$ 32.19
Granted (in dollars per share)	17.12
Prior year adjustment (in dollars per share)	39.38
Forfeited (in dollars per share)	36.73
Balance at the end, weighted average exercise price (in dollars per share)	31.85
Range of Option Exercise Prices Per Share
Granted (in dollars per share)	$ 17.20
Total Outstanding
Outstanding at the beginning (in shares) | shares	319,121
Granted (in shares) | shares	5,750
Prior year adjustment (in shares) | shares	(7,390)
Forfeited (in shares) | shares	(4,150)
Outstanding at the end (in shares) | shares	320,721
Outstanding, Non-vested
Outstanding, Non-vested Options at beginning (in shares) | shares	271,517
Granted (in shares) | shares	5,750
Prior year adjustment (in shares) | shares	(7,390)
Forfeited (in shares) | shares	(4,150)
Outstanding, Non-vested Options at ending (in shares) | shares	265,727
Vested and Exercisable
Vested and Exercisable Balance at the beginning (in shares) | shares	47,604
Vested and Exercisable Prior year adjustment (in shares) | shares	7,390
Vested and Exercisable Balance at the end (in shares) | shares	54,994
Minimum
Range of Option Exercise Prices Per Share
Balance at the beginning (in dollars per share)	$ 11.20
Prior year adjustment (in dollars per share)	16.37
Forfeited (in dollars per share)	25.00
Balance at the end (in dollars per share)	11.20
Maximum
Range of Option Exercise Prices Per Share
Balance at the beginning (in dollars per share)	55.02
Prior year adjustment (in dollars per share)	55.02
Forfeited (in dollars per share)	55.02
Balance at the end (in dollars per share)	$ 55.02

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Long-Term Incentive Plans (Option information segregated by ranges of exercise prices) (Details)	6 Months Ended
	Jun. 30, 2023 $ / shares shares
Greater than $50.00
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise price range, upper limit	$ 50.00
Outstanding options | shares	49,353
Outstanding, Exercise price (in dollars per share)	$ 55.02
Outstanding, Remaining term	7 years 8 months 15 days
Vested and exercisable options | shares	7,390
Vested and exercisable, Exercise price (in dollars per share)	$ 55.02
Share-Based Payment Arrangement, Option, Exercise Price Range, Exercisable, Weighted Average Remaining Contractual Term	7 years 7 months 2 days
$40.00 - $49.99
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise price range, lower limit	$ 40.00
Exercise price range, upper limit	$ 49.99
Outstanding options | shares	127,751
Outstanding, Exercise price (in dollars per share)	$ 41.25
Outstanding, Remaining term	7 years 8 months 8 days
Vested and exercisable options | shares	36,042
Vested and exercisable, Exercise price (in dollars per share)	$ 41.25
Share-Based Payment Arrangement, Option, Exercise Price Range, Exercisable, Weighted Average Remaining Contractual Term	7 years 7 months 2 days
$30.00 - $39.99
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise price range, lower limit	$ 30.00
Exercise price range, upper limit	39.99
$20.00 - $29.99
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise price range, lower limit	20.00
Exercise price range, upper limit	$ 29.99
Outstanding options | shares	25,967
Outstanding, Exercise price (in dollars per share)	$ 23.16
Outstanding, Remaining term	7 years 7 months 20 days
Vested and exercisable options | shares	5,877
Vested and exercisable, Exercise price (in dollars per share)	$ 25.00
Share-Based Payment Arrangement, Option, Exercise Price Range, Exercisable, Weighted Average Remaining Contractual Term	7 years 3 months 10 days
$10.00 - $19.99
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise price range, lower limit	$ 10.00
Exercise price range, upper limit	$ 19.99
Outstanding options | shares	115,000
Outstanding, Exercise price (in dollars per share)	$ 13.43
Outstanding, Remaining term	9 years
Vested and exercisable options | shares	4,285
Vested and exercisable, Exercise price (in dollars per share)	$ 16.37
Share-Based Payment Arrangement, Option, Exercise Price Range, Exercisable, Weighted Average Remaining Contractual Term	7 years 7 months 2 days
Less than $10.00
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise price range, lower limit	$ 10.00

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Long-Term Incentive Plans (Restricted Stock Units) (Details) - Restricted stock unit - $ / shares			1 Months Ended		6 Months Ended	12 Months Ended
	Jun. 06, 2023	Jun. 14, 2022	Sep. 30, 2022	Jun. 30, 2021	Jun. 30, 2023	Dec. 31, 2022
Restricted Stock and Restricted Stock Units (RSUs)
Outstanding at beginning (in shares)					17,207
Granted (in shares)	6,984	18,718		5,089	6,984
Vested (in shares)	(16,044)				(1,163)	(1,163)
Forfeited (in shares)			(2,674)
Released (in shares)					(16,044)
Outstanding at ending (in shares)					8,147	17,207
Weighted Average Grant-Date Fair Value
Weighted average grant-date fair value, at the beginning (in dollars per share)					$ 13.84
Weighted average grant-date fair value, Granted (in dollars per share)	$ 25.70	$ 11.22		$ 24.34	25.76
Weighted average grant-date fair value, Vested (in dollars per share)					50.00	$ 50.00
Weighted average grant-date fair value, Awards released (in dollars per share)					11.22
Weighted average grant-date fair value, at the ending (in dollars per share)					$ 22.08	$ 13.84
Vested (in shares)	16,044				1,163	1,163
Weighted average grant-date fair value, Vested (in dollars per share)					$ 50.00	$ 50.00

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Long-Term Incentive Plans (Assumptions) (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Fair value assumptions
Expected volatility (as a percent)	287.30%
Expected volatility, minimum (as a percent)		4.16%
Expected volatility, maximum (as a percent)		4.26%
Weighted-average volatility (as a percent)	287.30%	3.70%
Risk free rate (as a percent)	3.57%
Risk free rate, minimum (as a percent)	3.57%	0.02%
Risk free rate, maximum (as a percent)		2.15%
Minimum
Fair value assumptions
Expected term (in years)	6 years 6 months 14 days	2 years
Maximum
Fair value assumptions
Expected term (in years)		7 years

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Long-Term Incentive Plans (Non-vested shares) (Details) - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Outstanding, Non-vested Options at beginning (in shares)	271,517
Granted (in shares)	5,750
Forfeited (in shares)	(4,150)
Outstanding, Non-vested Options at ending (in shares)	265,727	271,517
Balance at the beginning, weighted average exercise price (in dollars per share)	$ 32.19
Granted (in dollars per share)	17.12
Prior year adjustment (in dollars per share)	39.38
Balance at the end, weighted average exercise price (in dollars per share)	$ 31.85	$ 32.19
Long-Term Incentive Plans.
Outstanding, Non-vested Options at beginning (in shares)	287,561	317,217
Granted (in shares)	5,750	117,367
Restricted stock granted (in shares)	6,984	18,718
Vested (in shares)	(23,434)	(56,678)
Forfeited (in shares)	(5,400)	(109,063)
Outstanding, Non-vested Options at ending (in shares)	271,461	287,561
Outstanding at beginning (in dollars per share)	$ 16.96	$ 25.80
Options granted (in dollars per share)	16.56	9.57
Restricted stock granted (in dollars per share)	16.56
Vested (in dollars per share)	15.76	21.12
Forfeited (in dollars per share)	20.51	23.82
Outstanding at ending (in dollars per share)	16.92	16.96
Balance at the beginning, weighted average exercise price (in dollars per share)	32.29	40.13
Granted (in dollars per share)	17.12	14.92
Vested, weighted average exercise price (in dollars per share)	55.02	36.53
Forfeited, weighted average exercise price (in dollars per share)	36.73	38.87
Balance at the end, weighted average exercise price (in dollars per share)	$ 31.85	$ 32.29

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Statutory Net Income and Surplus (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
SRC1
Statutory net income (loss)	$ 1,583	$ (981)	$ 4,797	$ (2,253)
Statutory Capital and Surplus	16,979		16,979		$ 9,615
SRC3
Statutory net income (loss)	629	(564)	917	(95)
Statutory Capital and Surplus	8,348		8,348		6,088
Premiums Sales	(52)	23,905	123	23,757
American Life and Security Corporation
Statutory net income (loss)	(18,528)	8,298	(35,116)	17,891
Statutory Capital and Surplus	58,135		58,135		$ 69,936
Premiums Sales	$ 138,920	$ 72,498	$ 231,207	$ 130,616

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Third-party Administration (Details) - USD ($) $ in Millions	Jun. 30, 2023	Dec. 31, 2022
TPA
Related Party Transaction [Line Items]
Third party assets under management	$ 531.6	$ 501.9

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Policy Administration Fees (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Policy Administration Fees
Policy administration fees	$ 480	$ 514	$ 1,119	$ 862

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Related Party (Details) - USD ($) $ in Millions			6 Months Ended
	Jun. 29, 2022	Apr. 24, 2020	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
BBB+
Related Party Transaction [Line Items]
Interest rate			5.00%
Seneca Re Agreement
Related Party Transaction [Line Items]
Reinsurance term		3 years
Seneca Re Agreement | MYGA
Related Party Transaction [Line Items]
Percentage of indemnity coinsurance		25.00%
Seneca Re Agreement | FIA
Related Party Transaction [Line Items]
Percentage of indemnity coinsurance		40.00%
Crestline Assurance Holdings LLC
Related Party Transaction [Line Items]
Reinsurance ceded commissions			$ 0.8	$ 1.6
Reinsurance ceded expense reimbursements			0.7	$ 1.6
Assets under management			477.2		$ 423.6
Additional investments			166.7		134.3
Crestline Assurance Holdings LLC | Securities Purchase Agreement
Related Party Transaction [Line Items]
Shares issued		444,444
American Life
Related Party Transaction [Line Items]
Capital contribution		$ 5.0
American Life | UK Limited
Related Party Transaction [Line Items]
Percentage of interest acquired in financial guarantee	17.00%
SRC1
Related Party Transaction [Line Items]
Capital contribution		$ 3.3
Chelsea Holdings Midwest LLC | BBB+
Related Party Transaction [Line Items]
Interest rate	5.00%
Fair market value			6.4
Chelsea Holdings Midwest LLC | Series B Preferred Stock | BBB+
Related Party Transaction [Line Items]
Fair market value			2.3		$ 2.3
Crestline SP 1
Related Party Transaction [Line Items]
Reinsurance ceded amount			$ 515.3

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Commitments and Contingencies (Details) $ in Thousands	Jun. 30, 2023 USD ($) item	Dec. 31, 2022 USD ($)
American Life and Security Corporation
Other Commitments [Line Items]
Number of jurisdiction licensed | item	25
Unfunded Commitments
Other Commitments [Line Items]
Commitments	$ 191,287	$ 178,995
Commitments reinsurance	135,500
Unfunded Commitment
Due in one year or less	73,566	52,951
Due in two years	28,892	43,604
Due in three years	21,847	7,731
Due in four years	11,737	13,277
Due in five years and after	55,245	61,432
Total	191,287	$ 178,995
Unfunded Commitments | American Life and Security Corporation
Other Commitments [Line Items]
Commitments	55,800
Unfunded Commitment
Total	$ 55,800

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Pending Merger (Details) - $ / shares	Jun. 30, 2023	Apr. 30, 2023	Dec. 31, 2022
Business Acquisition [Line Items]
Common stock, par value (in dollars per share)	$ 0.001		$ 0.001
Midas Merger Acquisition Sub, Inc
Business Acquisition [Line Items]
Common stock, par value (in dollars per share)		$ 0.001
Right to receive per share in cash		$ 27.00