Midwest Holding Inc. Reports Fourth Quarter 2021 and Full-Year 2021 Results
Midwest Holding Inc. (NASDAQ: MDWT) reported its financial results for Q4 and full-year 2021, highlighting a GAAP net loss of $7.0 million in Q4, improving from a loss of $11.9 million a year prior. GAAP revenue increased to $16.0 million compared to negative revenue in Q4 2020, driven by investment income growth. However, direct written premiums declined to $104.2 million in Q4 2021 due to market competition. For the full year, the net loss was $16.6 million, with revenues of $30.1 million and invested assets growing to $975.5 million. The company anticipates premiums of $500-600 million for 2022.
- GAAP revenue increased to $30.1 million in 2021 from $10.6 million in 2020, driven by higher investment income.
- Invested assets grew significantly to $975.5 million at year-end 2021, up from $518.2 million.
- Q4 2021 saw a net loss of $7.0 million, although improved from $11.9 million in Q4 2020.
- Annuity direct written premiums declined to $104.2 million in Q4 2021 from $136.1 million in Q4 2020.
LINCOLN, Neb., March 24, 2022 /PRNewswire/ -- Midwest Holding Inc. ("Midwest") (NASDAQ: MDWT), today announced financial results for the fourth quarter and full year ended December 31, 2021.
Fourth Quarter 2021 Highlights:
- GAAP net loss was
$7.0 million compared with the$11.9 million net loss recorded in the fourth quarter of 2020. - GAAP revenue was
$16.0 million compared with negative revenue of ($0.8 million ) in the fourth quarter of 2020, driven by an increase in investment income from growth in invested assets, higher service fees and from net realized investment gains compared to a net realized investment loss in the fourth quarter of 2020. - Annuity direct written premium under statutory accounting principles ("SAP"), a non-GAAP measure, was down to
$104.2 million from$136.1 million in 2020's fourth quarter due to competitive market pricing and a limited state footprint. - Ceded premiums (SAP), decreased to
$43.8 million from$50.1 million in the year-earlier quarter consistent with a decline in direct written premium. - Expenses increased to
$20.1 million from$11.6 million in the prior year due primarily to increased staffing, stock compensation expense and other operating expenses.
Full Year 2021 Highlights:
- GAAP net loss for the year was
$16.6 million compared with the$12.4 million net loss recorded in 2020. - GAAP revenue for the year was
$30.1 million compared with revenue of$10.6 million in 2020, driven by an increase in investment income from growth in invested assets, higher service fees and from net realized investment gains. - Annuity direct written premium, a non-GAAP measure, was up to
$471.6 million from$415.6 million in 2020 reflecting strong growth in the first half of 2021, while the back half of the year encountered slowing growth from competitive market pricing and a limited state footprint. - Ceded premiums, a non-GAAP measure, were
$237.4 million compared to$228.1 million in the prior year. - Expenses increased to
$41.9 million from$21.4 million in the prior year due to increased salaries and benefits and other operating expenses. - Invested assets grew to
$975.5 million at year-end 2021 compared with$518.2 million at year- end 2020. The invested asset base benefitted from annuity sales in 2021 and from the deployment of proceeds of the capital raise at the end of 2020.
Georgette Nicholas, CEO of Midwest noted, "As we reflect on 2021, Midwest had a challenging year with various changes and headwinds encountered in the execution of its strategy. The year showed growth and key accomplishments but also the challenge of growing a new business in a dynamic market and establishing a foundation to build upon. We are taking steps and focusing our efforts on the key drivers of the business, to position ourselves to rebuild during 2022. As we move forward, I am encouraged by the trends we are seeing and the focus of the team is on the key drivers of growth in the business-premium, state expansion, reinsurance and investment management and continuing to build the operational foundation."
Ms. Nicholas said, "Our market opportunity remains significant, and our strategy is to capitalize on a growing market by distinguishing ourselves in providing annuity products to Americans saving for retirement, create and use reinsurance structures, including our captive reinsurer, to mitigate risk and provide capital support for which demand, and interest is strong from partners. We will also provide management services around investing assets in those reinsurance structures, leveraging core capabilities established and in the administration of those vehicles, all of which can generate fee revenue. The result at Midwest is a capital-light business model that we believe should produce higher returns for our shareholders over time."
Midwest reported a net loss of
Investment income rose in 2021's fourth quarter to
Amortization of deferred gain on reinsurance reached
Service fee revenue was unchanged year over year at
Other revenue finished at
Our expenses were
Midwest reported a net loss of
Investment income rose in 2021 to
Amortization of deferred gain on reinsurance reached
Service fee revenue was consistent at
Other revenue finished at
Our expenses were
For annuity premiums written, we saw a slow start in the first quarter of 2022, similar to experience in the fourth quarter of last year. We have taken pricing action on both our FIA and MYGA products in the quarter and continue to monitor our competitiveness in the market. We have also increased our focus on marketing, re-establishing and expanding our relationships on the distribution side through various channels and reallocating or adding resources relating to this initiative. We are starting to see some encouraging trends as we end the first quarter of 2022.
We have also prioritized expanding our state footprint as quickly as possible to become licensed in states where a significant number of retirees reside and where our IMOs are located. We are filing, responding to, and providing increased information to regulators and discussing how the model ensures that policyholders are protected given the capital held and supported by using reinsurance structures.
Given these dynamics, we anticipate premiums written to be in the range of
Based on the potential premium growth, we currently have capacity in place to cover the capital needs of writing the new business through existing reinsurers. We also have the potential to grow through potential transactions in the pipeline which are anticipated to close within the year. The goal is to cede, on average, approximately 70
As we grow, managing expenses continues to be an area of focus. We saw an increase in 2021 as we accelerated some costs to develop potential opportunities along with adding additional employees, advancing technology initiatives, and continuing to build the foundation of Midwest. We have and continue to take steps to restructure the organization, monitor costs closely, and invest in the areas that drive growth. We anticipate general and administrative expenses on a management basis, a non-GAAP measure, to be approximately
In addition to GAAP measures, Midwest's management utilizes a series of key performance indicators (KPI's) and non-GAAP measures 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;
- plan for and prepare future annual operating budgets and determine appropriate levels of operating investments; and
- facilitate comparison of results between periods and to better understand the underlying historical trends in our business and prospects.
These non-GAAP measures are not a substitute for GAAP measures; however, management believes that when used in conjunction with the GAAP measures, the non-GAAP measures can contribute to investors' understanding of the progress of our business. 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.
For the fourth quarter of 2021, annuity direct written premiums were
For the full year 2021, annuity direct written premiums were
We use this non-GAAP figure to measure the progress of our effort to secure third-party capital to back our reinsurance programs. Fees Received for Reinsurance sums two components: Amortization of deferred gain on reinsurance, which is a line item in our Consolidated Statements of Comprehensive Loss, and deferred coinsurance ceding commission, which is a line item in our GAAP consolidated statement of cash flows.
For the fourth quarter of 2021, fees received for reinsurance totaled
We monitor this figure to track our overhead. It includes salary and benefits and other operating expenses; however, it excludes non-cash stock-based compensation and the non-cash mark-to-market-adjustment of our option budget allowance.
G&A expense in 2021 rose to
We use this figure to monitor the expenses of our business on a cash basis. Importantly, we exclude from the calculation of management expenses the index interest credited related to our Fixed Indexed Annuities because this expense is fully hedged. Instead, we add back to Management Expenses the period's amortization of options previously purchased to provide this hedge. We view this amortized cost as our true cost of funds. Management Expenses also excludes the mark-to-market adjustment of our option budget allowance as that is recorded as a component of other operating expense.
Management expenses for 2021 were
Certain statements contained or incorporated by reference in this release constitute forward-looking statements. These statements are based on management's expectations, estimates, projections and assumptions. In some cases, you can identify forward-looking statements by terminology including "could," "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "intend," or "continue," the negative of these terms, or other comparable terminology used in connection with any discussion of future operating results or financial performance. These statements are only predictions and reflect our management's good faith present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Factors that may cause our actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward-looking statements include among others, the following possibilities:
- our business plan, particularly including our reinsurance strategy, may not prove to be successful;
- our reliance on third-party insurance marketing organizations to market and sell our annuity insurance products through a network of independent agents;
- adverse changes in our ratings obtained from independent rating agencies;
- failure to maintain adequate reinsurance;
- our inability to expand our insurance operations outside the 21 states and District of Columbia in which we are currently licensed;
- our annuity insurance products may not achieve significant market acceptance;
- we may continue to experience operating losses in the foreseeable future;
- the possible loss or retirement of one or more of our key executive personnel;
- intense competition, including the intensification of price competition, competitive pressures from established insurers with greater financial resources, the entry of new competitors, and the introduction of new products by new and existing competitors;
- adverse state and federal legislation or regulation, including decreases in rates, limitations on premium levels, increases in minimum capital and reserve requirements, benefit mandates and tax treatment of insurance products;
- fluctuations in interest rates causing a reduction of investment income or increase in interest expense and in the market value of interest-rate sensitive investment;
- failure to obtain new customers, retain existing customers, or reductions in policies in force by existing customers;
- higher service, administrative, or general expense due to the need for additional advertising, marketing, administrative or management information systems expenditures;
- changes in our liquidity due to changes in asset and liability matching;
- possible claims relating to sales practices for insurance products; and
- lawsuits in the ordinary course of business.
Midwest Holding has announced plans to host a conference call to discuss financial and operating results for the fourth quarter and full year 2021 on March 25, 2022, at 12:00 p.m. Eastern Time. The Company also posted those results on the investor relations section of its website at https://ir.midwestholding.com after the close of the financial markets on March 24, 2022.
To register for this conference call, please go to this link. Registrants will receive confirmation with dial-in details.
The call may also be accessed via webcast, using this link.
A replay of the webcast will be made available after the call on the Investor Relations page of the Company's website at https://ir.midwestholding.com
Midwest Holding Inc. is a growing, technology-enabled, services-oriented annuity platform. Midwest designs and develops annuity products that are distributed through independent distribution channels, to a large and growing demographic of U.S. retirees. Midwest originates, manages and typically transfers these annuities through reinsurance arrangements to asset managers and other third-party investors. Midwest also provides the operational and regulatory infrastructure and expertise to enable asset managers and third-party investors to form and manage their own reinsurance capital vehicles.
For more information, please visit www.midwestholding.com
Investor contact: ir@midwestholding.com
Media inquiries: press@midwestholding.com
CONSOLIDATED BALANCE SHEETS | ||||||
December 31, 2021 | December 31, 2020 | |||||
(In thousands, except share information) | ||||||
Assets | ||||||
Fixed maturities, available for sale, at fair value | $ | 683,296 | $ | 377,163 | ||
Mortgage loans on real estate, held for investment | 183,203 | 94,990 | ||||
Derivative instruments (See Note 5) | 23,022 | 11,361 | ||||
Equity securities, at fair value (cost: | 21,869 | — | ||||
Other invested assets | 35,293 | 21,897 | ||||
Investment escrow | 3,611 | 3,174 | ||||
Federal Home Loan Bank (FHLB) stock | 500 | — | ||||
Preferred stock | 18,686 | 3,898 | ||||
Notes receivable | 5,960 | 5,666 | ||||
Policy loans | 87 | 46 | ||||
Total investments | 975,527 | 518,195 | ||||
Cash and cash equivalents | 142,013 | 151,679 | ||||
Deferred acquisition costs, net | 24,530 | 13,456 | ||||
Premiums receivable | 354 | 314 | ||||
Accrued investment income | 13,623 | 6,807 | ||||
Reinsurance recoverables (See Note 9) | 38,579 | 32,146 | ||||
Intangible assets | 700 | 700 | ||||
Property and equipment, net | 386 | 104 | ||||
Operating lease right of use assets | 2,360 | 348 | ||||
Receivable for securities sold | 19,732 | — | ||||
Other assets | 2,113 | 1,533 | ||||
Assets associated with business held for sale (See Note 2) | — | 1,119 | ||||
Total assets | $ | 1,219,917 | $ | 726,401 | ||
Liabilities and Stockholders' Equity | ||||||
Liabilities: | ||||||
Benefit reserves | $ | 12,941 | $ | 12,776 | ||
Policy claims | 237 | 162 | ||||
Deposit-type contracts (See note 11) | 1,075,439 | 597,868 | ||||
Advance premiums | 1 | 2 | ||||
Deferred gain on coinsurance transactions | 28,589 | 18,199 | ||||
Lease liabilities (See Note 13): | ||||||
Operating lease | 2,364 | 397 | ||||
Payable for securities purchased | 5,546 | — | ||||
Other liabilities | 9,044 | 9,553 | ||||
Liabilities associated with business held for sale (See Note 2) | — | 1,114 | ||||
Total liabilities | 1,134,161 | 640,071 | ||||
Contingencies and Commitments (See Note 12) | ||||||
Stockholders' Equity: | ||||||
Preferred stock, | — | — | ||||
Voting common stock, | 4 | 4 | ||||
Additional paid-in capital | 138,452 | 133,592 | ||||
Treasury stock | (175) | (175) | ||||
Accumulated deficit | (70,159) | (53,522) | ||||
Accumulated other comprehensive income | 2,634 | 6,431 | ||||
Total Midwest Holding Inc.'s stockholders' equity | 70,756 | 86,330 | ||||
Noncontrolling interests | 15,000 | — | ||||
Total stockholders' equity | 85,756 | 86,330 | ||||
Total liabilities and stockholders' equity | $ | 1,219,917 | $ | 726,401 | ||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS | ||||||
Year ended December 31, | ||||||
(In thousands, except per share data) | 2021 | 2020 | ||||
Revenues | ||||||
Investment income, net of expenses | $ | 15,737 | $ | 4,047 | ||
Net realized gain on investments (See Note 4) | 7,752 | 2,550 | ||||
Amortization of deferred gain on reinsurance transactions | 3,022 | 1,836 | ||||
Service fee revenue, net of expenses | 2,343 | 1,960 | ||||
Other revenue | 1,209 | 189 | ||||
Total revenue | 30,063 | 10,582 | ||||
Expenses | ||||||
Interest credited | 7,012 | 4,225 | ||||
Benefits | 6 | (5) | ||||
Amortization of deferred acquisition costs | 2,886 | 670 | ||||
Salaries and benefits | 16,926 | 6,347 | ||||
Other operating expenses | 15,104 | 10,200 | ||||
Total expenses | 41,934 | 21,437 | ||||
Loss from continuing operations before taxes | (11,871) | (10,855) | ||||
Income tax expense (See Note 8) | (4,766) | (1,585) | ||||
Net loss attributable to Midwest Holding, Inc. | (16,637) | (12,440) | ||||
Comprehensive income (loss): | ||||||
Unrealized gains on investments arising during the year ended | (1,422) | 7,398 | ||||
Unrealized losses on foreign currency | — | (146) | ||||
Less: Reclassification adjustment for net realized gains on | (2,375) | (1,441) | ||||
Other comprehensive (loss) income | (3,797) | 5,811 | ||||
Comprehensive loss | $ | (20,434) | $ | (6,629) | ||
Loss per common share | ||||||
Basic | $ | (4.45) | $ | (4.88) | ||
Diluted | $ | (4.45) | $ | (4.42) | ||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
Year ended December 31, | ||||||
(In thousands) | 2021 | 2020 | ||||
Cash Flows from Operating Activities: | ||||||
Loss attributable to Midwest Holding, Inc. | $ | (16,637) | $ | (12,440) | ||
Adjustments to arrive at cash provided by operating activities: | ||||||
Net premium and discount on investments | (1,244) | (423) | ||||
Depreciation and amortization | 50 | 57 | ||||
Stock options | 4,981 | 164 | ||||
Amortization of deferred acquisition costs | 2,886 | 464 | ||||
Deferred acquisition costs capitalized | (14,018) | (13,975) | ||||
Net realized gain on investments | (7,752) | (2,550) | ||||
Deferred gain on coinsurance transactions | 10,390 | 10,621 | ||||
Changes in operating assets and liabilities: | ||||||
Reinsurance recoverables | (6,434) | (4,477) | ||||
Interest and dividends due and accrued | (6,816) | (5,296) | ||||
Premiums receivable | (40) | 42 | ||||
Deposit-type liabilities | 24,371 | — | ||||
Policy liabilities | 239 | 10,042 | ||||
Receivable and payable for securities | (14,185) | — | ||||
Other assets and liabilities | (1,133) | 1,525 | ||||
Other assets and liabilities - discontinued operations | 4 | 2 | ||||
Net cash used in operating activities | (25,338) | (16,244) | ||||
Cash Flows from Investing Activities: | ||||||
Fixed maturities available for sale: | ||||||
Purchases | (660,059) | (339,282) | ||||
Proceeds from sale or maturity | 356,820 | 89,136 | ||||
Mortgage loans on real estate, held for investment | ||||||
Purchases | (160,714) | (99,356) | ||||
Proceeds from sale | 72,064 | 18,392 | ||||
Derivatives | ||||||
Purchases | (23,944) | (8,589) | ||||
Proceeds from sale | 14,578 | 1,269 | ||||
Purchase of equity securities | (22,097) | — | ||||
Other invested assets | ||||||
Purchases | (95,529) | (73,997) | ||||
Proceeds from sale | 82,272 | 54,517 | ||||
Purchase of restricted common stock in FHLB | (500) | — | ||||
Preferred stock | (14,926) | (3,898) | ||||
Notes receivable | - | (5,665) | ||||
Net change in policy loans | (41) | 60 | ||||
Net purchases of property and equipment | (331) | (69) | ||||
Net cash used in investing activities | (452,407) | (367,482) | ||||
Cash Flows from Financing Activities: | ||||||
Net transfer to noncontrolling interest | 15,000 | — | ||||
Capital contribution | (121) | 79,312 | ||||
Repurchase of common stock | - | (175) | ||||
Acquisition of noncontrolling interest | - | (500) | ||||
Receipts on deposit-type contracts | 471,646 | 415,561 | ||||
Withdrawals on deposit-type contracts | (18,446) | (2,509) | ||||
Net cash provided by financing activities | 468,079 | 491,689 | ||||
Net (decrease) increase in cash and cash equivalents | (9,666) | 107,963 | ||||
Cash and cash equivalents: | ||||||
Beginning | 151,679 | 43,716 | ||||
Ending | $ | 142,013 | $ | 151,679 | ||
Supplementary information | ||||||
Cash paid for taxes | $ | 6,450 | $ | 350 | ||
Supplemental Information –Reconciliation Calculation –Management Expenses to GAAP Expenses | |||||||
Year ended December 31, | |||||||
2021 | 2020 | ||||||
G&A | |||||||
Salaries and benefits - GAAP | $ | 16,926 | $ | 6,347 | |||
Other operating expenses - GAAP | 15,104 | 10,200 | |||||
Subtotal | 32,030 | 16,547 | |||||
Adjustments: | |||||||
Less: Stock-based compensation | (4,981) | (164) | |||||
Less: Mark-to-market option allowance | (2,417) | (3,441) | |||||
G&A | $ | 24,632 | $ | 12,942 | |||
Year ended December 31, | |||||||
2021 | 2020 | ||||||
Management Expenses | |||||||
G&A | $ | 24,632 | $ | 12,942 | |||
Management interest credited | 8,757 | 2,098 | |||||
Amortization of deferred acquisition costs | 2,886 | 670 | |||||
Expenses related to retained business | 11,643 | 2,768 | |||||
Management expenses - total | $ | 36,275 | $ | 15,710 | |||
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SOURCE Midwest Holding Inc.
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