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FIRST TRINITY FINANCIAL CORP – 10-Q – : Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
First Trinity Financial Corporation ("we" "us", "our", "FTFC" or the "Company") conducts operations as an insurance holding company emphasizing ordinary life insurance products and annuity contracts in niche markets. As an insurance provider, we collect premiums in the current period to pay future benefits to our policy and contract holders. Our core TLIC and FBLIC operations include issuing modified premium whole life insurance with a flexible premium deferred annuity, ordinary whole life, final expense, term and annuity products to predominately middle income households in the states ofAlabama ,Arizona ,Arkansas ,Colorado ,Georgia ,Illinois ,Indiana ,Kansas ,Kentucky ,Louisiana ,Michigan ,Mississippi ,Missouri ,Montana ,Nebraska ,New Mexico ,North Carolina ,North Dakota ,Ohio ,Oklahoma ,Pennsylvania ,South Dakota ,Tennessee ,Texas ,Utah ,Virginia andWest Virginia through independent agents. We also realize revenues from our investment portfolio, which is a key component of our operations. The revenues we collect as premiums from policyholders are invested to ensure future benefit payments under the policy contracts. Life insurance companies earn profits on the investment spread, which reflects the investment income earned on the premiums paid to the insurer between the time of receipt and the time benefits are paid out under policies. Changes in interest rates, changes in economic conditions and volatility in the capital markets can all impact the amount of earnings that we realize from our investment portfolio. Acquisitions The Company expects to facilitate growth through acquisitions of other life insurance companies and/or blocks of life insurance and annuity business. In lateDecember 2008 , the Company completed its acquisition of 100% of the outstanding stock of FLAC for$2,500,000 and had additional acquisition related expenses of$195,234 .
In late
outstanding stock of FBLIC for
OnApril 28, 2015 , the Company acquired a block of life insurance policies and annuity contracts according to the terms of an assumption reinsurance agreement and assumed liabilities of$3,055,916 .
In 2019, FTFC's acquisition of TAI for
West Indies regulators.
EffectiveJanuary 1, 2020 , the Company acquired 100% of the outstanding common stock ofK-TENN Insurance Company ("K-TENN") from its sole shareholder in exchange for 168,866 shares of FTFC's common stock. The aggregate purchase price of K-TENN was$1,746,240 . OnJanuary 4, 2022 , FTFC acquiredRoyalty Capital Life Insurance Company ("RCLIC") fromRoyalty Capital Corporation ("Royalty") in exchange for 722,644 shares of FTFC's Class A common stock issued to unrelated parties. Royalty was dissolved immediately after FTFC acquired RCLIC. OnMarch 1, 2022 , theMissouri Department of Commerce and Insurance approved FTFC's contribution and merger of RCLIC into FBLIC.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition, results of operations and liquidity and capital resources is based on our consolidated financial statements that have been prepared in accordance withU.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We evaluate our estimates and assumptions continually, including those related to investments, deferred acquisition costs, allowance for loan losses from mortgages, value of insurance business acquired, policy liabilities, regulatory requirements, contingencies and litigation. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 33 -------------------------------------------------------------------------------- For a description of the Company's critical accounting policies and estimates, please refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . The Company considers its most critical accounting estimates to be those applied to investments in fixed maturities securities, mortgage loans on real estate, deferred policy acquisition costs, value of insurance business acquired and future policy benefits. There have been no material changes to the Company's critical accounting policies and estimates sinceDecember 31, 2021 .
Recent Accounting Pronouncements
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial
Instruments
InJune 2016 , theFinancial Accounting Standards Board ("FASB") issued updated guidance (Accounting Standards Update 2016-13) for the accounting for credit losses for financial instruments. The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables, including structured settlements that are recorded as part of reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected. The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security's amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.
The updated guidance was effective for reporting periods beginning after
recently changed and the delayed effective date is now for reporting periods
beginning after
Early adoption is permitted for reporting periods beginning afterDecember 15, 2018 . Based on the financial instruments currently held by the Company, there would not be a material effect on the Company's results of operations, financial position or liquidity if the new guidance had been adopted in the current accounting period. The impact on the Company's results of operations, financial position or liquidity at the date of adoption of the updated guidance will be determined by the financial instruments held by the Company and the economic conditions at that time.
Targeted Improvements to the Accounting for Long-Duration Contracts
InAugust 2018 , the FASB issued updated guidance (Accounting Standards Update 2018-12) to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. This update improves the timeliness of recognizing changes in the liability for future policy benefits, modifies the rate used to discount future cash flows, simplifies and improves accounting for certain market-based options or guarantees associated with deposit (i.e., account balance) contracts, simplifies the amortization of deferred acquisitions costs and expands required disclosures. The expanded disclosure requires an insurance entity to provide disaggregated roll forwards of beginning to ending balances of the following: liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities and deferred acquisition costs including disclosure about, changes to and effect of changes for significant inputs, judgments, assumptions and methods used in measurements. The updated guidance was effective for reporting periods beginning afterDecember 15, 2020 . As aSmaller Reporting Company , the effective date has been changed twice and the delayed effective date is now for reporting periods beginning afterDecember 15, 2024 . Early adoption is permitted but not elected by the Company. With respect to the liability for future policyholder benefits for traditional and limited-payment contracts and deferred acquisition costs, an insurance entity may elect to apply the amendments retrospectively as of the beginning of the earliest period presented. 34 -------------------------------------------------------------------------------- With respect to the market risk benefits, an insurance entity should apply the amendments retrospectively as of the beginning of the earliest period presented. The Company expects that the impact on the Company's results of operations, financial position and liquidity at the date of adoption of the updated guidance in 2024 will be determined by the long-duration contracts then held by the Company and the economic conditions at that time.
Income Taxes - Simplifying the Accounting for Income Taxes
InDecember 2019 , the FASB issued updated guidance (Accounting Standards Update 2019-12) for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The Company adopted this guidance in first quarter 2021. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity.
Troubled Debt Restructurings and Vintage Disclosures
InMarch 2022 , the FASB issued amendments (Accounting Standards Update 2022-2) for the accounting of troubled debt restructuring and disclosures. The amendments introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulties. The amendments promulgate that an entity must apply specific loan refinancing and restructuring guidance to determine whether a modification results in a new loan or the continuation of an existing loan. The amendments also require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The amendments in this guidance are effective for fiscal years beginning afterDecember 15, 2022 , including interim periods and should be applied prospectively. The adoption of this guidance should not have a material effect on the Company's results of operations, financial position or liquidity. Business Segments FASB guidance requires a "management approach" in the presentation of business segments based on how management internally evaluates the operating performance of business units. The discussion of segment operating results that follows is being provided based on segment data prepared in accordance with this methodology.
Our business segments are as follows:
? Life insurance operations, consisting of the life insurance operations of
TLIC, FBLIC and TAI;
? Annuity operations, consisting of the annuity operations of TLIC, FBLIC and
TAI and
? Corporate operations, which includes the results of the parent company and TMC
after the elimination of intercompany amounts. Please see below and Note 4 to the Consolidated Financial Statements for the three and six months endedJune 30, 2022 and 2021 and as ofJune 30, 2022 andDecember 31, 2021 for additional information regarding segment information.
The following is a discussion and analysis of our financial condition, results
of operations and liquidity and capital resources.
35 --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS Consolidated Condensed Results of Operations for the Three Months EndedJune 30, 2022 and 2021 (Unaudited) Three Months Ended June 30, Amount Change 2022 2021 2022 less 2021 Premiums$ 8,914,138 $ 7,879,433 $ 1,034,705 Net investment income 6,439,117 6,072,502 366,615 Net realized investment gains (losses) (148,714 ) 118,268 (266,982 ) Service fees 329,855 81,601 248,254 Other income 5,775 45,567 (39,792 ) Total revenues 15,540,171 14,197,371 1,342,800 Benefits and claims 9,595,963 8,848,014 747,949 Expenses 4,170,190 3,762,211 407,979 Total benefits, claims and expenses 13,766,153 12,610,225
1,155,928
Income before federal income tax expense 1,774,018 1,587,146 186,872 Federal income tax expense 315,803 366,103 (50,300 ) Net income$ 1,458,215 $ 1,221,043 $ 237,172 Net income per common share basic and duluted Class A common stock$ 0.1540 $ 0.1396 $ 0.0144 Class B common stock$ 0.1309 $ 0.1186 $ 0.0123 Consolidated Condensed Results of Operations for the Six Months EndedJune 30, 2022 and 2021 (Unaudited) Six Months Ended June 30, Amount Change 2022 2021 2022 less 2021 Premiums$ 17,142,920 $ 14,859,309 $ 2,283,611 Net investment income 12,888,112 12,221,344 666,768 Net realized investment gains 1,089,092 170,363 918,729 Service fees 387,395 179,588 207,807 Other income 64,272 59,341 4,931 Total revenues 31,571,791 27,489,945 4,081,846 Benefits and claims 20,385,499 18,067,268 2,318,231 Expenses 8,282,715 8,354,975 (72,260 ) Total benefits, claims and expenses 28,668,214 26,422,243
2,245,971
Income before federal income tax expense 2,903,577 1,067,702 1,835,875 Federal income tax expense 532,827 307,311 225,516 Net income$ 2,370,750 $ 760,391 $ 1,610,359 Net income per common share basic and duluted Class A common stock$ 0.2503 $ 0.0869 $ 0.1634 Class B common stock $ 0.2128$ 0.0739 $ 0.1389 36
-------------------------------------------------------------------------------- Consolidated Condensed Financial Position as ofJune 30, 2022 andDecember 31, 2021 (Unaudited) Amount Change June 30, 2022 December 31, 2021 2022 to 2021 Investment assets$ 415,029,372 $ 434,120,334 $ (19,090,962 ) Assets held in trust under coinsurance agreement 95,764,204 106,210,246 (10,446,042 ) Other assets 123,058,513 119,428,354 3,630,159 Total assets$ 633,852,089 $ 659,758,934 $ (25,906,845 ) Policy liabilities$ 476,902,571 $ 464,853,615 $ 12,048,956 Funds withheld under coinsurance agreement 96,409,968 106,586,633 (10,176,665 ) Deferred federal income taxes 3,408,861 8,966,303 (5,557,442 ) Other liabilities 4,671,298 10,957,832 (6,286,534 ) Total liabilities 581,392,698 591,364,383 (9,971,685 ) Shareholders' equity 52,459,391 68,394,551 (15,935,160 ) Total liabilities and shareholders' equity$ 633,852,089 $
659,758,934
Shareholders' equity per common share Class A common stock$ 5.5394 $ 7.8186$ (2.2792 ) Class B common stock$ 4.7085 $ 6.6458$ (1.9373 )
Results of Operations - Three Months Ended
Revenues Our primary sources of revenue are life insurance premium income and investment income. Premium payments are classified as first-year, renewal and single. In addition, realized gains and losses on investment holdings can significantly impact revenues from period to period. Our revenues for the three months endedJune 30, 2022 and 2021 are summarized as follows: (Unaudited) Three Months Ended June 30, Amount Change 2022 2021 2022 less 2021 Premiums$ 8,914,138 $ 7,879,433 $ 1,034,705 Net investment income 6,439,117 6,072,502 366,615
Net realized investment gains (losses) (148,714 ) 118,268
(266,982 ) Service fees 329,855 81,601 248,254 Other income 5,775 45,567 (39,792 ) Total revenues$ 15,540,171 $ 14,197,371 $ 1,342,800
The
2022
37
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Premiums Our premiums for the three months endedJune 30, 2022 and 2021 are summarized as follows: (Unaudited) Three Months Ended June 30, Amount Change 2022 2021 2022 less 2021 Ordinary life first year$ 645,884 $ 473,073 $ 172,811 Ordinary life renewal 1,249,460 838,080 411,380 Final expense first year 1,115,099 1,571,695 (456,596 ) Final expense renewal 5,903,695 4,996,585 907,110 Total premiums$ 8,914,138 $ 7,879,433 $ 1,034,705 The$1,034,705 increase in premiums for the three months endedJune 30, 2022 is primarily due to a$907,110 increase in final expense renewal premiums,$411,380 increase in ordinary life renewal premiums,$172,811 increase in ordinary life first year premiums that exceeded a$456,596 decrease in final expense first year premiums. The increase in final expense renewal premiums reflects the persistency of prior years' final expense production. The increase in ordinary life renewal premiums and ordinary life first year premiums primarily reflects ordinary dollar denominated life insurance policies sold in the international market by TAI. The decrease in final expense first year premiums reflects tightening of underwriting guidelines. Net Investment Income
The major components of our net investment income for the three months ended
(Unaudited)
Three Months Ended June 30, Amount Change
2022 2021 2022 less 2021
Fixed maturity securities $ 1,734,933 $ 1,727,496 $ 7,437
Equity securities 48,026 26,405 21,621
Other long-term investments 1,211,486 1,222,180 (10,694 )
Mortgage loans 4,103,208 3,478,075 625,133
Policy loans 48,755 38,957 9,798
Short-term and other investments 25,434 35,078 (9,644 )
Gross investment income 7,171,842 6,528,191 643,651
Investment expenses (732,725 ) (455,689 ) 277,036
Net investment income $ 6,439,117 $ 6,072,502 $ 366,615
The $643,651 increase in gross investment income for the three months ended June
30, 2022 is primarily due to a $625,133 increase in mortgage loans. In twelve
months since June 30, 2021 , our investments in mortgage loans increased
approximately $25.9 million .
The
2022
38 --------------------------------------------------------------------------------
Net Realized Investment Gains (Losses)
Our net realized investment gains result from sales of fixed maturity securities available-for-sale, equity securities, investment real estate and mortgage loans on real estate plus changes in fair value of equity securities.
Our net realized investment gains for the three months ended
2021 are summarized as follows:
(Unaudited)
Three Months Ended June 30, Amount Change
2022 2021 2022 less 2021
Fixed maturity securities
available-for-sale:
Sale proceeds $ 10,116,397 $ 1,549,139 $ 8,567,258
Amortized cost at sale date 10,202,405 1,483,125 8,719,280
Net realized gains (losses) $ (86,008 ) $ 66,014 $ (152,022 )
Equity securities sold:
Sale proceeds $ - $ 1 $ (1 )
Cost at sale date - 1 (1 )
Net realized gains $ - $ - $ -
Investment real estate:
Sale proceeds $ - $ 75,940 $ (75,940 )
Carrying value at sale date - 69,591 (69,591 )
Net realized gains $ - $ 6,349 $ (6,349 )
Mortgage loans on real estate:
Sale proceeds $ - $ 53,161,263 $ (53,161,263 )
Carrying value at sale date - 53,122,593 (53,122,593 )
Net realized gains $ - $ 38,670 $ (38,670 )
Equity securities, changes in fair
value $ (62,706 ) $ 7,235
Net realized investment gains (losses)
$ (266,982 ) Service Fees
The
is primarily due to an increase in fees from
brokering mortgage loans for a fee to third parties.
39 --------------------------------------------------------------------------------
Total Benefits, Claims and Expenses
Our benefits, claims and expenses are primarily generated from benefit payments, surrenders, interest credited to policyholders, change in reserves, commissions and other underwriting, insurance and acquisition expenses. Benefit payments can significantly impact expenses from period to period.
Our benefits, claims and expenses for the three months ended
2021 are summarized as follows:
(Unaudited)
Three Months Ended June 30, Amount Change
2022 2021 2022 less 2021
Benefits and claims
Increase in future policy benefits $ 2,961,862 $ 3,045,748 $ (83,886 )
Death benefits 2,885,203 2,269,494 615,709
Surrenders 438,425 372,659 65,766
Interest credited to policyholders 3,230,421 3,088,957 141,464
Dividend, endowment and supplementary
life contract benefits 80,052 71,156 8,896
Total benefits and claims 9,595,963 8,848,014 747,949
Expenses
Policy acquisition costs deferred (3,408,839 ) (3,353,999 ) (54,840 )
Amortization of deferred policy
acquisition costs 2,085,355 1,733,139 352,216
Amortization of value of insurance
business acquired 66,755 68,151 (1,396 )
Commissions 3,074,504 3,138,640 (64,136 )
Other underwriting, insurance and
acquisition expenses 2,352,415 2,176,280 176,135
Total expenses 4,170,190 3,762,211 407,979
Total benefits, claims and expenses
The
months ended
Benefits and Claims
The
2022
?
of increased final expense benefits.
Deferral and Amortization of Deferred Acquisition Costs
Certain costs related to the successful acquisition of traditional life
insurance policies are capitalized and amortized over the premium-paying period
of the policies. Certain costs related to the successful acquisition of
insurance and annuity policies that subject us to mortality or morbidity risk
over a period that extends beyond the period or periods in which premiums are
collected and that have terms that are fixed and guaranteed (i.e.,
limited-payment long-duration annuity contracts) are capitalized and amortized
in relation to the present value of actual and expected gross profits on the
policies.
These acquisition costs, which are referred to as deferred policy acquisition
costs, include commissions and other successful costs of acquiring policies and
contracts, which vary with, and are primarily related to, the successful
production of new and renewal life insurance policies and annuity contracts.
40
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For the three months ended
acquisition costs for the three months ended
There was a$54,840 increase in 2022 acquisition costs deferred. There was a$352,216 increase in the 2022 amortization of deferred acquisition costs due to 2022 surrenders and withdrawal activity and the impact of mortality.
Amortization of Value of Insurance Business Acquired
The cost of acquiring insurance business is amortized over the emerging profit of the related policies using the same assumptions that were used in computing liabilities for future policy benefits. Amortization of the value of insurance business acquired was$66,755 and$68,151 for the three months endedJune 30, 2022 and 2021, respectively, representing a$1,396 decrease. Commissions Our commissions for the three months endedJune 30, 2022 and 2021 are summarized as follows: (Unaudited) Three Months Ended June 30, Amount Change 2022 2021 2022 less 2021 Annuity$ 404,848 $ 202,132 $ 202,716 Ordinary life first year 657,203 521,275 135,928 Ordinary life renewal 104,864 58,786 46,078 Final expense first year 1,338,264 1,874,235 (535,971 ) Final expense renewal 569,325 482,212 87,113 Total commissions$ 3,074,504 $ 3,138,640 $ (64,136 ) The$64,136 decrease in commissions for the three months endedJune 30, 2022 is primarily due to a$535,971 decrease in final expense first year commissions (corresponding to$456,596 decreased final expense first year premiums) that exceed a$202,716 increase in annuity commissions (corresponding to$4,861,642 of increase annuity deposits retained) and a$135,928 increase in ordinary life first year commissions (corresponding to$172,811 increased ordinary life first year premiums).
Other Underwriting, Insurance and Acquisition Expenses
The$176,135 increase in other underwriting, insurance and acquisition expenses for the three months endedJune 30, 2022 was primarily related to an increase in salaries and benefits, third party administrative fees and expenses related to a new block of coinsurance. Federal Income Taxes FTFC filed its 2020 consolidated federal income tax return with TLIC, FBLIC and TMC. Certain items included in income reported for financial statement purposes are not included in taxable income for the current period, resulting in deferred income taxes. For the three months endedJune 30, 2022 and 2021, current income tax expense (benefit) was ($6,054 ) and$1,510 , respectively. For the three months endedJune 30, 2022 and 2021, deferred federal income tax expense was$321,857 and$364,593 , respectively. 41
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Net Income Per Common Share Basic
For the three months endedJune 30, 2022 , the net income allocated to the Class B shareholders is the total net income multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (9,470,277) of Class A shares (9,384,340) and Class B shares (85,937) as of the reporting date. For the three months endedJune 30, 2021 , the net income allocated to the Class B shareholders is the total net income multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (8,747,633) of Class A shares (8,661,696) and Class B shares (85,937) as of the reporting date. For the three months endedJune 30, 2022 , the net income allocated to the Class A shareholders of$1,444,983 is the total net income$1,458,215 less the net income allocated to the Class B shareholders$13,232 . For the three months endedJune 30, 2021 , the net income allocated to the Class A shareholders$1,209,047 is the total net income$1,221,043 less the net income allocated to the Class B shareholders$11,996 .
The weighted average outstanding common shares basic for the three months ended
respectively and 101,102 for Class B shares.
Business Segments
The Company has a life insurance segment, consisting of the life insurance
operations of TLIC, FBLIC and TAI, an annuity segment, consisting of the annuity
operations of TLIC, FBLIC and TAI and a corporate segment. Results for the
parent company and the operations of TMC, after elimination of intercompany
amounts, are allocated to the corporate segment.
The revenues and income before federal income taxes from our business segments for the three months endedJune 30, 2022 and 2021 are summarized as follows: (Unaudited) Three Months Ended June 30, Amount Change 2022 2021 2022 less 2021 Revenues: Life insurance operations$ 10,320,605 $ 9,026,587 $ 1,294,018 Annuity operations 4,747,836 4,982,940 (235,104 ) Corporate operations 471,730 187,844 283,886 Total$ 15,540,171 $ 14,197,371 $ 1,342,800 Income (loss) before federal income taxes: Life insurance operations$ 1,312,518 $ 1,180,070 $ 132,448 Annuity operations (38,242 ) 382,594 (420,836 ) Corporate operations 499,742 24,482 475,260 Total$ 1,774,018 $ 1,587,146 $ 186,872 42
-------------------------------------------------------------------------------- The increases and decreases of revenues and profitability from our business segments for the three months endedJune 30, 2022 and 2021 are summarized as follows: Life Insurance Annuity Corporate Operations Operations Operations Total Revenues Premiums$ 1,034,705 $ - $ -$ 1,034,705 Net investment income 327,610 (7,450 ) 46,455 366,615 Net realized investment losses (47,583 ) (219,399 ) - (266,982 ) Service fees and other income (20,714 ) (8,255 ) 237,431 208,462 Total revenue 1,294,018 (235,104 ) 283,886 1,342,800 Benefits and claims Increase in future policy benefits (83,886 ) - - (83,886 ) Death benefits 615,709 - - 615,709 Surrenders 65,766 - - 65,766 Interest credited to policyholders - 141,464 - 141,464 Dividend, endowment and supplementary life contract benefits 8,896 - - 8,896 Total benefits and claims 606,485 141,464 - 747,949 Expenses Policy acquisition costs deferred net of amortization 635,026 (337,650 ) - 297,376 Amortization of value of insurance business acquired (697 ) (699 ) - (1,396 ) Commissions (266,852 ) 202,716 - (64,136 ) Other underwriting, insurance and acquisition expenses 187,608 179,901 (191,374 ) 176,135 Total expenses 555,085 44,268 (191,374 ) 407,979 Total benefits, claims and expenses 1,161,570 185,732 (191,374 ) 1,155,928 Income (loss) before federal income taxes (benefits)$ 132,448 $ (420,836 ) $ 475,260 $ 186,872
Results of Operations - Six Months Ended
Revenues Our primary sources of revenue are life insurance premium income and investment income. Premium payments are classified as first-year, renewal and single. In addition, realized gains and losses on investment holdings can significantly impact revenues from period to period. Our revenues for the six months endedJune 30, 2022 and 2021 are summarized as follows: (Unaudited) Six Months Ended June 30, Amount Change 2022 2021 2022 less 2021 Premiums$ 17,142,920 $ 14,859,309 $ 2,283,611 Net investment income 12,888,112 12,221,344 666,768 Net realized investment gains 1,089,092 170,363 918,729 Service fees 387,395 179,588 207,807 Other income 64,272 59,341 4,931 Total revenues$ 31,571,791 $ 27,489,945 $ 4,081,846
The
is discussed below.
43
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Premiums Our premiums for the six months endedJune 30, 2022 and 2021 are summarized as follows: (Unaudited) Six Months Ended June 30, Amount Change 2022 2021 2022 less 2021
Ordinary life first year
Ordinary life renewal 2,149,435 1,636,316
513,119
Final expense first year 2,351,474 2,997,009 (645,535 ) Final expense renewal 11,537,988 9,447,322 2,090,666 Total premiums$ 17,142,920 $ 14,859,309 $ 2,283,611 The$2,283,611 increase in premiums for the six months endedJune 30, 2022 is primarily due to a$2,090,666 increase in final expense renewal premiums,$513,119 increase in ordinary life renewal premiums,$325,361 increase in ordinary life first year premiums that exceeded a$645,535 decrease in final expense first year premiums. The increase in final expense renewal premiums reflects the persistency of prior years' final expense production. The increase in ordinary life renewal premiums and ordinary life first year premiums primarily reflects ordinary dollar denominated life insurance policies sold in the international market by TAI. The decrease in final expense first year premiums reflects tightening of underwriting guidelines. Net Investment Income
The major components of our net investment income for the six months ended
30, 2022
(Unaudited)
Six Months Ended June 30, Amount Change
2022 2021 2022 less 2021
Fixed maturity securities $ 3,670,687 $ 3,423,390 $ 247,297
Equity securities 113,099 43,404 69,695
Other long-term investments 2,523,180 2,505,074 18,106
Mortgage loans 7,881,233 7,226,307 654,926
Policy loans 92,077 77,575 14,502
Short-term and other investments 46,706 44,373 2,333
Gross investment income 14,326,982 13,320,123 1,006,859
Investment expenses (1,438,870 ) (1,098,779 ) 340,091
Net investment income $ 12,888,112 $ 12,221,344 $ 666,768
The $1,006,859 increase in gross investment income for the six months ended June
30, 2022 is primarily due $654,926 increase in mortgage loans and a $247,297
increase in fixed maturity securities. In twelve months since June 30, 2021 , our
investments in mortgage loans increased approximately $25.9 million . The
increase in fixed maturity securities is due to higher gross effective yields on
securities held in the portfolio.
The
2022
44 --------------------------------------------------------------------------------
Net Realized Investment Gains (Losses)
Our net realized investment gains result from sales of fixed maturity securities available-for-sale, equity securities, investment real estate and mortgage loans on real estate plus changes in fair value of equity securities.
Our net realized investment gains for the six months ended
2021 are summarized as follows:
(Unaudited)
Six Months Ended June 30, Amount Change
2022 2021 2022 less 2021
Fixed maturity securities
available-for-sale:
Sale proceeds $ 41,066,357 $ 3,968,218 $ 37,098,139
Amortized cost at sale date 39,928,290 3,864,553 36,063,737
Net realized gains $ 1,138,067 $ 103,665 $ 1,034,402
Equity securities sold:
Sale proceeds $ - $ 89 $ (89 )
Cost at sale date 8,000 - 8,000
Net realized gains (losses) $ (8,000 ) $ 89 $ (8,089 )
Investment real estate:
Sale proceeds $ 49,371 $ 75,940 $ (26,569 )
Carrying value at sale date 53,067 69,591 (16,524 )
Net realized gains (losses) $ (3,696 ) $ 6,349 $ (10,045 )
Mortgage loans on real estate:
Sale proceeds $ 53,208,585 $ 53,161,263 $ (53,161,263 )
Carrying value at sale date 53,208,585 53,122,593 (53,122,593 )
Net realized gains $ - $ 38,670 $ (38,670 )
Equity securities, changes in fair
value $ (37,279 ) $ 21,590
Net realized investment gains
$ 918,729 Service Fees The$207,807 increase in service fees for the six months endedJune 30, 2022 is primarily due to an increase in fees fromTrinity Mortgage Corporation brokering mortgage loans for a fee to third parties. 45 --------------------------------------------------------------------------------
Total Benefits, Claims and Expenses
Our benefits, claims and expenses are primarily generated from benefit payments, surrenders, interest credited to policyholders, change in reserves, commissions and other underwriting, insurance and acquisition expenses. Benefit payments can significantly impact expenses from period to period.
Our benefits, claims and expenses for the six months ended
2021 are summarized as follows:
(Unaudited)
Six Months Ended June 30, Amount Change
2022 2021 2022 less 2021
Benefits and claims
Increase in future policy benefits $ 6,176,835 $ 5,201,933 $ 974,902
Death benefits 6,891,443 5,793,212 1,098,231
Surrenders 753,815 721,565 32,250
Interest credited to policyholders 6,406,557 6,207,492
199,065
Dividend, endowment and supplementary life contract benefits 156,849 143,066 13,783 Total benefits and claims 20,385,499 18,067,268 2,318,231 Expenses Policy acquisition costs deferred (6,261,719 ) (6,183,472 ) (78,247 ) Amortization of deferred policy acquisition costs 3,454,338 3,522,962 (68,624 ) Amortization of value of insurance business acquired 138,964 143,320 (4,356 ) Commissions 5,735,633 6,011,223 (275,590 ) Other underwriting, insurance and acquisition expenses 5,215,499 4,860,942
354,557
Total expenses 8,282,715 8,354,975 (72,260 ) Total benefits, claims and expenses$ 28,668,214 $ 26,422,243 $ 2,245,971
The
months ended
Benefits and Claims
The
2022
?$1,098,231 increase in death benefits is primarily due to approximately$1,007,000 of increased final expense benefits and$91,000 of increased ordinary life benefits.
?
number of life policies in force and the aging of existing life policies.
Deferral and Amortization of Deferred Acquisition Costs
Certain costs related to the successful acquisition of traditional life
insurance policies are capitalized and amortized over the premium-paying period
of the policies. Certain costs related to the successful acquisition of
insurance and annuity policies that subject us to mortality or morbidity risk
over a period that extends beyond the period or periods in which premiums are
collected and that have terms that are fixed and guaranteed (i.e.,
limited-payment long-duration annuity contracts) are capitalized and amortized
in relation to the present value of actual and expected gross profits on the
policies.
These acquisition costs, which are referred to as deferred policy acquisition
costs, include commissions and other successful costs of acquiring policies and
contracts, which vary with, and are primarily related to, the successful
production of new and renewal insurance and annuity contracts.
46
--------------------------------------------------------------------------------
For the six months ended
acquisition costs for the six months ended
There was a
Amortization of Value of Insurance Business Acquired
The cost of acquiring insurance business is amortized over the emerging profit of the related policies using the same assumptions that were used in computing liabilities for future policy benefits. Amortization of the value of insurance business acquired was$138,964 and$143,320 for the six months endedJune 30, 2022 and 2021, respectively, representing a$4,356 decrease. Commissions Our commissions for the six months endedJune 30, 2022 and 2021 are summarized as follows: (Unaudited) Six Months Ended June 30, Amount Change 2022 2021 2022 less 2021 Annuity$ 464,317 $ 546,837 $ (82,520 ) Ordinary life first year 1,150,003 851,996 298,007 Ordinary life renewal 194,793 128,602 66,191 Final expense first year 2,812,929 3,575,675 (762,746 ) Final expense renewal 1,113,591 908,113 205,478 Total commissions$ 5,735,633 $ 6,011,223 $ (275,590 ) The$275,590 decrease in commissions for the six months endedJune 30, 2022 is primarily due to a$762,746 decrease in final expense first year commissions (corresponding to$645,535 decreased final expense first year premiums) that exceed a$298,007 increase in ordinary life first year commissions (corresponding to$325,361 of increased ordinary life first year premiums) and a$205,478 increase in final expense renewal commissions (corresponding to$2,090,666 increased final expense renewal premiums).
Underwriting, Insurance and Acquisition Expenses
The$354,557 increase in other underwriting, insurance and acquisition expenses for the six months endedJune 30, 2022 was primarily related to an increase in salaries and benefits, third party administrative fees and expenses related to a new block of coinsurance. Federal Income Taxes FTFC filed its 2020 consolidated federal income tax return with TLIC, FBLIC and TMC. Certain items included in income reported for financial statement purposes are not included in taxable income for the current period, resulting in deferred income taxes. For the six months endedJune 30, 2022 andJune 30, 2021 , current income tax expense was$2,216 and$1,510 . Deferred federal income tax expense was$530,611 and$305,801 for the six months endedJune 30, 2022 and 2021, respectively. 47 --------------------------------------------------------------------------------
Net Income Per Common Share Basic
For the six months endedJune 30, 2022 , the net income allocated to the Class B shareholders is the total net income multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (9,470,277) of Class A shares (9,384,340) and Class B shares (85,937) as of the reporting date. For the six months endedJune 30, 2021 , the net income allocated to the Class B shareholders is the total net income multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (8,747,633) of Class A shares (8,661,696) and Class B shares (85,937) as of the reporting date. For the six months endedJune 30, 2022 , the net income allocated to the Class A shareholders of$2,349,237 is the total net income$2,370,750 less the net income allocated to the Class B shareholders$21,513 . For the six months endedJune 30, 2021 , the net income allocated to the Class A shareholders$752,921 is the total net income$760,391 less the net income allocated to the Class B shareholders$7,470 .
The weighted average outstanding common shares basic for the six months ended
respectively and 101,102 for Class B shares.
Business Segments
The Company has a life insurance segment, consisting of the life insurance
operations of TLIC, FBLIC and TAI, an annuity segment, consisting of the annuity
operations of TLIC, FBLIC and TAI and a corporate segment. Results for the
parent company and the operations of TMC, after elimination of intercompany
amounts, are allocated to the corporate segment.
The revenues and income before federal income taxes from our business segments
for the six months ended
(Unaudited)
Six Months Ended June 30, Amount Change
2022 2021 2022 less 2021
Revenues:
Life insurance operations $ 20,268,926 $ 17,063,471 $ 3,205,455
Annuity operations 10,653,099 10,024,471 628,628
Corporate operations 649,766 402,003 247,763
Total $ 31,571,791 $ 27,489,945 $ 4,081,846
Income (loss) before income taxes:
Life insurance operations $ 1,231,853 $ 556,600 $ 675,253
Annuity operations 1,037,394 588,584 448,810
Corporate operations 634,330 (77,482 ) 711,812
Total $ 2,903,577 $ 1,067,702 $ 1,835,875
48
-------------------------------------------------------------------------------- The increases and decreases of revenues and profitability from our business segments for the six months endedJune 30, 2022 and 2021 are summarized as follows: Life Insurance Annuity Corporate Operations Operations Operations Total Revenues Premiums$ 2,283,611 $ - $ -$ 2,283,611 Net investment income 669,545 (73,377 ) 70,600 666,768 Net realized investment gains (losses) 208,195 718,534 (8,000 ) 918,729 Service fees and other income 44,104 (16,529 ) 185,163 212,738 Total revenue 3,205,455 628,628 247,763 4,081,846 Benefits and claims Increase in future policy benefits 974,902 - - 974,902 Death benefits 1,098,231 - - 1,098,231 Surrenders 32,250 - - 32,250 Interest credited to policyholders - 199,065 - 199,065 Dividend, endowment and supplementary life contract benefits 13,783 - - 13,783 Total benefits and claims 2,119,166 199,065 - 2,318,231 Expenses Policy acquisition costs deferred net of amortization 150,304 (297,175 ) - (146,871 ) Amortization of value of insurance business acquired (2,177 ) (2,179 ) - (4,356 ) Commissions (193,070 ) (82,520 ) - (275,590 ) Other underwriting, insurance and acquisition expenses 455,979 362,627 (464,049 ) 354,557 Total expenses 411,036 (19,247 ) (464,049 ) (72,260 ) Total benefits, claims and expenses 2,530,202 179,818 (464,049 ) 2,245,971 Income before federal income taxes (benefits)$ 675,253 $ 448,810
PRUCO LIFE INSURANCE CO – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
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