UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b)of the Act: None
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. ☒
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth 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.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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 revised financial accounting standards provided pursuant to section 13(a) of the exchange act. ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock, $0.10 par value
as of August 1, 2026
FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
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Item |
Item Description |
Page |
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Item 1 |
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Consolidated Statements of Comprehensive Income (Loss) (unaudited) |
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Consolidated Statements of Changes in Shareholders' Equity (unaudited) |
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Item 2 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 |
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Item 4 |
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Part II - Other Information |
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Item |
Item Description |
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Item 1 |
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Item 1A |
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Item 2 |
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Item 3 |
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Item 4 |
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Item 5 |
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Item 6 |
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Consolidated Balance Sheets
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June 30, 2026 |
December 31, 2025 |
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Assets |
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Investments: |
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Available for sale fixed maturity securities (amortized cost: $ |
$ | $ | ||||||
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Equity securities, at fair value |
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Limited partnership interests |
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Mortgage loans on real estate (net of allowance for credit losses of $ |
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Other invested assets |
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Policy loans |
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Real estate, net of depreciation |
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Total investments |
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Cash and cash equivalents |
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Investment income due and accrued |
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Reinsurance related assets |
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Deferred acquisition costs, net |
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Value of business acquired, net |
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Property, equipment and software, net |
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Goodwill |
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Federal and state income tax receivable |
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Deferred tax asset, net of valuation allowance |
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Other assets |
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Total assets |
$ | $ | ||||||
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Liabilities and Shareholders' Equity |
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Liabilities: |
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Policy liabilities |
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Deposit-type contracts |
$ | $ | ||||||
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Policyholder benefit reserves |
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Dividend accumulation |
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Advance premiums |
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Total policy liabilities |
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Accounts payable and accrued expenses |
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Federal Home Loan Bank advance |
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Other liabilities |
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Total liabilities |
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Shareholders' Equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
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Accumulated other comprehensive loss |
( |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
$ | $ | ||||||
See Notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income (Loss)
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Six Months Ended June 30, |
Three Months Ended June 30, |
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2026 |
2025 |
2026 |
2025 |
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(unaudited) |
(unaudited) |
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| Income: | ||||||||||||||||
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Premium income |
$ | $ | $ | $ | ||||||||||||
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Net investment income |
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Net investment gains (losses) |
( |
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Other income |
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Total income |
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Expenses: |
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Death claims |
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Policyholder benefits |
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Increase in policyholder reserves |
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Commissions, net of deferrals |
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Amortization of deferred acquisition costs |
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Amortization of value of business acquired |
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Salaries & benefits |
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Other operating expenses |
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Total expenses |
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Net (loss) income before tax |
$ | ( |
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) | $ | $ | ||||||||
| Total income tax benefit (expense) | ( |
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Total income tax benefit (expense) |
( |
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Net (loss) income |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
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Net (loss) income per common share, basic and diluted |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
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Unrealized net holding gains (losses) arising during the period, net of tax |
( |
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Effects of discount rate changes, net of tax |
( |
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Reclassification adjustment for gains (losses) included in net income |
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Other comprehensive (loss) income |
( |
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Comprehensive (loss) income |
$ | ( |
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See Notes to Consolidated Financial Statements.
Consolidated Statements of Changes in Shareholders' Equity
Six and Three Months Ended June 30, 2026 and 2025 (unaudited)
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Accumulated |
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Number of |
Other |
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Shares of |
Common |
Additional |
Comprehensive |
Accumulated |
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Common Stock |
Stock |
Paid-in Capital |
Loss |
Deficit |
Total |
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Balance, December 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Other comprehensive income |
- | |||||||||||||||||||||||
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Stock based compensation on restricted stock awards |
- | - | ||||||||||||||||||||||
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Net loss |
- | ( |
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Balance, June 30, 2025 |
( |
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Balance, December 31, 2025 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
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Other comprehensive loss |
- | ( |
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Stock based compensation on restricted stock awards |
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Net loss |
- | ( |
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Balance, June 30, 2026 |
$ | $ | $ | ( |
) | $ | ( |
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Accumulated |
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Number of |
Other |
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Shares of |
Common |
Additional |
Comprehensive |
Accumulated |
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Common Stock |
Stock |
Paid-in Capital |
Income / (Loss) |
Deficit |
Total |
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Balance, March 31, 2025 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Other comprehensive loss |
- | ( |
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Stock based compensation on Restricted Stock Awards |
- | - | ||||||||||||||||||||||
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Net income |
- | |||||||||||||||||||||||
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Balance, June 30, 2025 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Balance, March 31, 2026 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
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Other comprehensive income |
- | |||||||||||||||||||||||
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Stock based compensation on Restricted Stock Awards |
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Net income |
- | |||||||||||||||||||||||
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Balance, June 30, 2026 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
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Six Months Ended June 30, |
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2026 |
2025 |
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(unaudited) |
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| Cash flows from operating activities: | ||||||||
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Net loss |
$ | ( |
) | $ | ( |
) | ||
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Restricted stock awards |
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Net losses realized on the sale of securities and net credit losses recognized in operations |
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Unrealized losses on equity securities |
( |
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Change in fair value of embedded derivative |
( |
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(Accretion) amortization of investment securities, net |
( |
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Deferred acquisition costs capitalized |
( |
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Deferred acquisition costs amortized |
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Value of business acquired amortized |
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Interest credited on deposit type contracts |
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(Increase) decrease in operating assets: |
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Investment income due and accrued |
( |
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Reinsurance related assets |
( |
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Deferred tax assets, net of valuation allowance |
( |
) | ( |
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Other assets |
( |
) | ( |
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Increase (decrease) in operating liabilities: |
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Policyholder benefit reserves |
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Dividend accumulation |
( |
) | ||||||
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Advance premiums |
( |
) | ( |
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Other liabilities |
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Accounts payable and accrued expenses |
( |
) | ||||||
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchase of fixed income investments |
( |
) | ( |
) | ||||
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Purchase of equity investments |
( |
) | ( |
) | ||||
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Purchase of mortgage investments |
( |
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Purchase of other invested assets |
( |
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Proceeds from fixed income sales and repayments |
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Proceeds from equity sales |
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Proceeds from mortgage repayments |
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Proceeds from other invested assets |
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Interest on policy loans |
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Increase in policy loans |
( |
) | ( |
) | ||||
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Purchase of property, equipment and software |
( |
) | ( |
) | ||||
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Net cash (used in) provided by investing activities |
( |
) | ||||||
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Cash flows from financing activities: |
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Receipts on deposit-type contracts |
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Withdrawals on deposit-type contracts |
( |
) | ( |
) | ||||
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Net cash used in financing activities |
( |
) | ( |
) | ||||
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Net increase (decrease) in cash and cash equivalents |
( |
) | ( |
) | ||||
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Cash and cash equivalents: |
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Beginning |
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|
Ending |
$ | $ | ||||||
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements (unaudited)
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Note 1. |
Description of Business and Significant Accounting Policies |
Description of business: US Alliance Corporation ("USAC") was formed as a Kansas corporation on April 24, 2009 to raise capital to form a new Kansas-based life insurance company. Our offices are located at 1303 SW First American Place, Suite 200, Topeka, Kansas 66604. Our telephone number is 785-228-0200 and our website address is www.usalliancecorporation.com.
USAC has wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was formed June 9, 2011, to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was formed April 23, 2012, to serve as a marketing resource. US Alliance Investment Corporation ("USAIC") was formed April 23, 2012 to serve as investment manager for USAC. Dakota Capital Life Insurance Company (“DCLIC”), was acquired on August 1, 2017 when USAC merged with Northern Plains Capital Corporation (“NPCC”) and was merged into USALSC on December 31, 2023. US Alliance Life and Security Company - Montana (USALSC-Montana), was acquired December 14, 2018. USALSC-Montana is a wholly-owned subsidiary of USALSC. Unless the context indicates otherwise, references herein to the "Company" refer to USAC and its consolidated subsidiaries.
The Company terminated its initial public offering on February 24, 2013. During the balance of 2013, the Company achieved approval of an array of life insurance and annuity products, began development of various distribution channels and commenced insurance operations and product sales. The Company sold its first insurance product on May 1, 2013. The Company continued to expand its product offerings and distribution channels throughout 2014 and 2015. On February 24, 2015, the Company commenced a warrant exercise offering set to expire on February 24, 2016. On February 24, 2016, the Company extended the offering until February 24, 2017 and made additional shares available for purchase. All outstanding warrants expired on April 1, 2016. The Company further extended this offering to February 24, 2024. During the 4th quarter of 2017, the Company began a private placement offering to accredited investors in the state of North Dakota. Both offerings were terminated in the second quarter of 2024.
USALSC received a Certificate of Authority from the Kansas Insurance Department ("KID") effective January 2, 2012, and sold its first insurance product on May 1, 2013. In 2023, USALSC re-domesticated to North Dakota with approval of the North Dakota Insurance Department ("NDID").
USALSC seeks opportunities to develop and market additional products.
The Company’s business model also anticipates the acquisition by USAC and/or USALSC of other insurance and insurance related companies, including third-party administrators, marketing organizations, and rights to other blocks of insurance business through reinsurance or other transactions.
Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.
The results of operation for the three and six months ended June 30, 2026 are not necessarily indicative of the results to be expected for the year ended December 31, 2026 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to financial statements prepared in accordance with US GAAP, but which are not required for interim reporting purposes, has been condensed or omitted. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in USAC’s report on Form 10-K and amendments thereto for the year ended December 31, 2025.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated from the consolidated financial statements.
Common stock and income (loss) per share: The par value for common stock is $
Income (loss) per share attributable to USAC’s common stockholders were computed based on the net income (loss) and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the three and six months ended June 30, 2026 and 2025 were
New accounting standards:
Improvements to Income Tax Disclosures
In December 2023, the FASB issued Accounting Standards Update 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"). ASU 2023-09 is intended to improve the effectiveness of income tax disclosures by requiring, among other things, the disclosure on an annual basis of: (i) specific categories in the rate reconciliation; and (ii) additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires disclosure (on an annual basis) of the following information about income taxes paid: (i) the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; and (ii) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). ASU 2023-09 was effective for annual periods beginning January 1, 2025, to be applied prospectively with an option for retrospective application (with early adoption permitted). The adoption of ASU 2023-09 modified our disclosures but did not have an impact on our financial position or results of operations.
ASU 2024-03, Disaggregation of Income Statement Expenses: Income Statement - Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses and Related Amendment
The amendments in this update require the disclosure of disaggregation of certain income statement expense line items. Specifically, the guidance requires the disclosure of additional information related to certain expenses, including employee compensation, depreciation and amortization, and certain other expenses included in each income statement line item. The amendments also require the disclosure of both the total amount of selling expenses and a definition of selling expenses.
We will adopt this update effective for the annual period beginning January 1, 2027, and interim periods beginning January 1, 2028. The adoption of this update is permitted on a prospective basis or a retrospective basis. The adoption of this update will expand our disclosures but will not have an impact on our financial position or results of operations.
ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software: Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40)
The amendments in this update modernize the recognition framework for the capitalization of internal-use software and remove all references to software development project stages. The guidance requires software development costs to be capitalized when both of the following criteria are met: (i) management has authorized and committed to funding the project, and (ii) it is probable that the project will be completed and the software will be used to perform its intended function. Additionally, the update aligns disclosure requirements for capitalized software costs with those under ASC 360-10, “Property, Plant, and Equipment.”
The amendments in this update are effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual periods. Early adoption of this update is permitted as of the beginning of an annual reporting period. Adoption of this update is permitted on a prospective, retrospective, or a modified retrospective basis. We are currently evaluating the impact the adoption of this update will have on our financial position, results of operations, and disclosures.
Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the FASB issued ASU 2018-12 "Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts". This update is aimed at improving the Codification related to long-duration contracts, which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. These updates were originally required to be applied retrospectively to the earliest period presented in the financial statements for periods beginning after December 15, 2020. The FASB subsequently delayed the effective date of ASU 2018-12 to periods beginning after December 15, 2024 for smaller reporting companies, with early adoption permitted.
In December 2022, the FASB issued amendment ASU 2022-05 "Targeted Improvements for Long-Duration Contracts" collectively, “LDTI” that originally required an insurance entity to apply a retrospective transition method as of the beginning of the earliest period presented or the beginning of the prior fiscal year if early adoption was elected. This updated guidance reduces implementation costs and complexity associated with the adoption of targeted improvements in accounting for long-duration contracts that have been derecognized in accordance with ASU 2018-12 before the delayed effective date. Without the amendments in this ASU, an insurance entity would be required to reclassify a portion of gains or losses previously recognized in the sale or disposal of insurance contracts or legal entities because of the adoption of a new accounting standard.
We adopted this guidance effective January 1, 2025, using the modified retrospective approach with changes applied as of January 1, 2024, also referred to as the transition date. The following tables summarize the impacts of the adoption of LDTI on the liability for future policy benefits, deferred acquisition costs, and stockholders' equity as of the transition date as well as impacted historical condensed consolidated financial statement line items for historical comparison.
Impact of the Adoption of LDTI as of the Transition Date:
Stockholders' Equity
The following table summarizes the changes in stockholders' equity due to the adoption of LDTI and the resulting adjusted balances as of January 1, 2024:
| Accumulated | ||||||||||||||||||||||||
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Number of |
Other |
Total | ||||||||||||||||||||||
|
Shares of |
Common |
Additional |
Accumulated |
Comprehensive |
Shareholders' |
|||||||||||||||||||
|
Common Stock |
Stock |
Paid-in Capital |
Deficit |
Loss |
Equity |
|||||||||||||||||||
|
Balance at December 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Impact of Adoption of ASU 2018-12, net of income taxes |
( |
) | ||||||||||||||||||||||
|
Balance at January 1, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
The increase in accumulated other comprehensive income in our recast of 2024 is driven primarily by the difference between the discount rate applied under the historical accounting method, which was based on an expected investment yield from our current investment strategy, and the single-A discount rate that is required as a part of the adoption of LDTI. The net favorable impact to net loss and accumulated deficit is primarily due to slower amortization of deferred acquisition costs on single pay products.
The following table presents the transition impacts as of January 1, 2024, to the Company's accumulated other comprehensive income (loss) and accumulated deficit as a result of the adoption of LDTI by product type, using the modified retrospective transition method:
|
Impact to |
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|
Impact to |
Accumulated Other | |||||||
|
Accumulated Deficit |
Comprehensive
Income (Loss) |
|||||||
|
Long-Duration - Fixed Annuity |
$ | $ | ||||||
|
Long-Duration - Universal Life |
||||||||
|
Long-Duration - Individual Life |
( |
) | ||||||
|
Long-Duration - Critical Illness |
( |
) | ||||||
|
Total Impact of Adoption of ASU 2018-12, before Income Taxes |
( |
) | ||||||
|
Less: income taxes |
( |
) | ||||||
|
Total Impact of Adoption of ASU 2018-12, net of Income Taxes |
$ | ( |
) | $ | ||||
Liability for Future Policy Benefits
The following tables summarize the changes in the liability for future policy benefits by product type due to the adoption of LDTI and the resulting adjusted balance as of January 1, 2024:
Present Value of Future Net Premiums
|
Individual Life |
Critical Illness |
Total |
||||||||||
|
Balance at December 31, 2023 |
$ | $ | $ | |||||||||
|
Impact to retained earnings (accumulated deficit) from capping of net premium ratio at transition date |
||||||||||||
|
Impact of deferred profit liability |
( |
) | ||||||||||
|
Beginning balance at original discount rate |
||||||||||||
|
Impact of flooring |
||||||||||||
|
Effect of change in discount rate assumptions |
( |
) | ( |
) | ( |
) | ||||||
|
Balance at January 1, 2024 |
$ | $ | $ | |||||||||
Present Value of Expected Future Policy Benefits
|
Individual Life |
Critical Illness |
Total |
||||||||||
|
Balance at December 31, 2023 |
$ | $ | $ | |||||||||
|
Effect of change in discount rate assumptions |
( |
) | ( |
) | ( |
) | ||||||
|
Balance at January 1, 2024 |
$ | $ | $ | |||||||||
|
Net liability for future policy benefits |
$ | $ | $ | |||||||||
|
Less: Reinsurance recoverable |
( |
) | ||||||||||
|
Net liability for future policy benefits, after reinsurance recoverable |
$ | $ | $ | |||||||||
Impact of the Adoption of LDTI on Historical Financial Statements:
The following tables present the effect of the adoption of LDTI on our historical consolidated financial statements:
|
December 31, 2024 |
||||||||||||
|
Historical Accounting |
||||||||||||
|
Balance Sheet |
Method |
As Adjusted |
Effect of Change |
|||||||||
|
Assets |
||||||||||||
|
Reinsurance related assets |
$ | $ | $ | |||||||||
|
Deferred acquisition costs, net |
||||||||||||
|
Deferred tax asset, net of valuation allowance |
( |
) | ||||||||||
|
Impacted Assets |
$ | $ | $ | ( |
) | |||||||
|
Liabilities |
||||||||||||
|
Policyholder benefit reserves |
$ | $ | $ | ( |
) | |||||||
|
Deposit-type contracts |
||||||||||||
|
Impacted Liabilities |
$ | $ | $ | ( |
) | |||||||
|
Shareholders' Equity |
||||||||||||
|
Accumulated deficit |
$ | ( |
) | $ | ( |
) | $ | |||||
|
Accumulated other comprehensive (loss) income |
( |
) | ||||||||||
|
Impacted Shareholders' Equity |
$ | ( |
) | $ | ( |
) | $ | |||||
|
June 30, 2025 |
||||||||||||
|
Historical Accounting |
||||||||||||
|
Balance Sheet |
Method |
As Adjusted |
Effect of Change |
|||||||||
|
Assets |
||||||||||||
|
Reinsurance related assets |
$ | $ | $ | |||||||||
|
Deferred acquisition costs, net |
||||||||||||
|
Deferred tax asset, net of valuation allowance |
( |
) | ||||||||||
|
Impacted Assets |
$ | $ | $ | |||||||||
|
Liabilities |
||||||||||||
|
Policyholder benefit reserves |
$ | $ | $ | ( |
) | |||||||
|
Deposit-type contracts |
||||||||||||
|
Impacted Liabilities |
$ | $ | $ | ( |
) | |||||||
|
Shareholders' Equity |
||||||||||||
|
Accumulated deficit |
$ | ( |
) | $ | ( |
) | $ | |||||
|
Accumulated other comprehensive (loss) income |
( |
) | ||||||||||
|
Impacted Shareholders' Equity |
$ | ( |
) | $ | ( |
) | $ | |||||
|
Six Months Ended June 30, 2025 |
||||||||||||
|
Historical Accounting |
||||||||||||
|
Method |
As Adjusted |
Effect of Change |
||||||||||
|
Statement of Income |
||||||||||||
|
Premium income |
$ | $ | $ | |||||||||
|
Policy benefits |
||||||||||||
|
Increase in policyholder reserves |
||||||||||||
|
Amortization of deferred acquisition costs |
( |
) | ||||||||||
|
Deferred income tax benefit (expense) |
( |
) | ||||||||||
|
Net loss |
( |
) | ( |
) | ||||||||
|
Net loss per common share, basic and diluted |
$ | ( |
) | $ | ( |
) | $ | |||||
|
Statement of Comprehensive Income (Loss) |
||||||||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | $ | |||||
|
Change in the effect of discount rate assumptions on the liability for future policy benefits, net of reinsurance, net of tax |
( |
) | ( |
) | ||||||||
|
Comprehensive income |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
|
Statement of Shareholders' Equity |
||||||||||||
|
Accumulated other comprehensive income (loss) balance at beginning of year |
$ | ( |
) | $ | $ | |||||||
|
Other comprehensive income |
( |
) | ||||||||||
|
Shareholders' equity balance at beginning of year |
||||||||||||
|
Net loss |
( |
) | ( |
) | ||||||||
|
Statement of Cash Flows |
||||||||||||
|
Cash flows from operating activities |
$ | $ | $ | |||||||||
|
Net income |
( |
) | ( |
) | ||||||||
|
Deferred acquisition costs amortized |
( |
) | ||||||||||
|
Deferred income taxes |
( |
) | ( |
) | ( |
) | ||||||
|
Change in reinsurance related assets |
( |
) | ( |
) | ( |
) | ||||||
|
Change in policy owner benefit reserves |
||||||||||||
|
Three Months Ended June 30, 2025 |
||||||||||||
|
Historical Accounting |
||||||||||||
|
Method |
As Adjusted |
Effect of Change |
||||||||||
|
Statement of Income |
||||||||||||
|
Premium income |
$ | $ | $ | |||||||||
|
Policy benefits |
||||||||||||
|
Increase in policyholder reserves |
( |
) | ||||||||||
|
Amortization of deferred acquisition costs |
( |
) | ||||||||||
|
Deferred income tax benefit (expense) |
( |
) | ( |
) | ( |
) | ||||||
|
Net income |
||||||||||||
|
Net income per common share, basic and diluted |
$ | $ | $ | |||||||||
|
Note 2. |
Investments |
Fixed Maturity
The amortized cost and fair value of available for sale investments as of June 30, 2026 and December 31, 2025 is as follows:
|
June 30, 2026 |
||||||||||||||||
|
Cost or |
Gross |
Gross |
||||||||||||||
|
Amortized |
Unrealized |
Unrealized |
||||||||||||||
|
Cost |
Gains |
Losses |
Fair Value |
|||||||||||||
|
(unaudited) |
||||||||||||||||
| Available for sale: | ||||||||||||||||
|
Fixed maturities: |
||||||||||||||||
|
US Treasury securities |
$ | $ | $ | ( |
) | $ | ||||||||||
|
Corporate bonds |
( |
) | ||||||||||||||
|
Municipal bonds |
( |
) | ||||||||||||||
|
Redeemable preferred stock |
( |
) | ||||||||||||||
|
Term loans |
( |
) | ||||||||||||||
|
Mortgage backed and asset backed securities |
( |
) | ||||||||||||||
|
Total available for sale |
$ | $ | $ | ( |
) | $ | ||||||||||
|
December 31, 2025 |
||||||||||||||||
|
Cost or |
Gross |
Gross |
||||||||||||||
|
Amortized |
Unrealized |
Unrealized |
||||||||||||||
|
Cost |
Gains |
Losses |
Fair Value |
|||||||||||||
|
Available for sale: |
||||||||||||||||
|
Fixed maturities: |
||||||||||||||||
|
US Treasury securities |
$ | $ | $ | ( |
) | $ | ||||||||||
|
Corporate bonds |
( |
) | ||||||||||||||
|
Municipal bonds |
( |
) | ||||||||||||||
|
Redeemable preferred stock |
( |
) | ||||||||||||||
|
Term loans |
( |
) | ||||||||||||||
|
Mortgage backed and asset backed securities |
( |
) | ||||||||||||||
|
Total available for sale |
$ | $ | $ | ( |
) | $ | ||||||||||
The amortized cost and fair value of debt securities as of June 30, 2026 and December 31, 2025, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
As of June 30, 2026 |
As of December 31, 2025 |
|||||||||||||||
|
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
|||||||||||||
|
(unaudited) |
||||||||||||||||
| Amounts maturing in: | ||||||||||||||||
|
One year or less |
$ | $ | $ | $ | ||||||||||||
|
After one year through five years |
||||||||||||||||
|
After five years through ten years |
||||||||||||||||
|
More than 10 years |
||||||||||||||||
|
Redeemable preferred stocks |
||||||||||||||||
|
Mortgage backed and asset backed securities |
||||||||||||||||
|
Total amortized cost and fair value |
$ | $ | $ | $ | ||||||||||||
|
Note 2. |
Investments (continued) |
Proceeds from the sale of securities, maturities, and asset paydowns in the six months ended June 30, 2026 and 2025 were $
|
Six Months Ended June 30, |
||||||||
|
(unaudited) |
||||||||
|
2026 |
2025 |
|||||||
|
Gross gains |
$ | $ | ||||||
|
Gross losses |
( |
) | ( |
) | ||||
|
Net security losses |
$ | ( |
) | $ | ( |
) | ||
|
Mortgage loans on real estate |
( |
) | ( |
) | ||||
|
Increase in allowance for credit losses |
$ | ( |
) | $ | ( |
) | ||
Proceeds from the sale of securities, maturities, and asset paydowns in the three months ended June 30, 2026 and 2025 were $
|
Three Months Ended June 30, |
||||||||
|
(unaudited) |
||||||||
|
2026 |
2025 |
|||||||
|
Gross gains |
$ | $ | ||||||
|
Gross losses |
( |
) | ( |
) | ||||
|
Net security losses |
$ | ( |
) | $ | ( |
) | ||
|
Mortgage loans on real estate |
||||||||
|
Decrease in allowance for credit losses |
$ | $ | ||||||
|
Note 2. |
Investments (continued) |
Gross unrealized losses by duration are summarized as follows:
|
Less than 12 months |
Greater than 12 months |
Total |
||||||||||||||||||||||
|
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
|||||||||||||||||||
|
Value |
Loss |
Value |
Loss |
Value |
Loss |
|||||||||||||||||||
|
June 30, 2026 |
||||||||||||||||||||||||
|
(unaudited) |
||||||||||||||||||||||||
| Available for sale: | ||||||||||||||||||||||||
|
Fixed maturities: |
||||||||||||||||||||||||
|
US Treasury securities |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
|
Corporate bonds |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Municipal bonds |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Redeemable preferred stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Term loans |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Mortgage backed and asset backed securities |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Total fixed maturities |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
|
Less than 12 months |
Greater than 12 months |
Total |
||||||||||||||||||||||
|
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
|||||||||||||||||||
|
Value |
Loss |
Value |
Loss |
Value |
Loss |
|||||||||||||||||||
|
December 31, 2025 |
||||||||||||||||||||||||
|
Available for sale: |
||||||||||||||||||||||||
|
Fixed maturities: |
||||||||||||||||||||||||
|
US Treasury securities |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||
|
Corporate bonds |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Municipal bonds |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Redeemable preferred stock |
( |
) | ( |
) | ||||||||||||||||||||
|
Term loans |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Mortgage backed and asset backed securities |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Total fixed maturities |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
Unrealized losses occur from market price declines due to changes in interest rates. The total number of available for sale fixed maturity securities in the investment portfolio in an unrealized loss position as of June 30, 2026 was
|
Note 2. |
Investments (continued) |
Mortgage Loans on Real Estate
The Company has invested in various mortgage loans through participation agreements with the original issuing entity. The Company’s mortgage loans by property type as of June 30, 2026 and December 31, 2025 are summarized as follows:
|
June 30, 2026 |
December 31, 2025 |
|||||||
|
(unaudited) |
||||||||
| Commercial mortgage loans by property type | ||||||||
|
Mixed use |
$ | $ | ||||||
|
Lodging |
||||||||
|
Multi-property |
||||||||
|
Multi-family |
||||||||
|
Single-family |
||||||||
|
Industrial |
||||||||
|
Retail/Office |
||||||||
|
Total commercial mortgages |
$ | $ | ||||||
|
Allowance for credit losses |
( |
) | ( |
) | ||||
|
Carrying value |
$ | $ | ||||||
The Company’s mortgage loans by loan-to-value ratio as of June 30, 2026 and December 31, 2025 are summarized as follows:
|
June 30, 2026 |
December 31, 2025 |
|||||||
|
(unaudited) |
||||||||
| Loan to value ratio | ||||||||
|
Over 80% |
$ | $ | ||||||
|
Over 70 to 80% |
||||||||
|
Over 60 to 70% |
||||||||
|
Over 50 to 60% |
||||||||
|
Over 40 to 50% |
||||||||
|
Over 30 to 40% |
||||||||
|
Over 20 to 30% |
||||||||
|
Over 10 to 20% |
||||||||
|
Total |
$ | $ | ||||||
|
Allowance for credit losses |
( |
) | ( |
) | ||||
|
Carrying value |
$ | $ | ||||||
The Company’s mortgage loans by maturity date as of June 30, 2026 and December 31, 2025 are summarized as follows:
|
June 30, 2026 |
December 31, 2025 |
|||||||
|
(unaudited) |
||||||||
| Maturity Date | ||||||||
|
One year or less |
$ | $ | ||||||
|
After one year through five years |
||||||||
|
Total |
$ | $ | ||||||
|
Allowance for credit losses |
( |
) | ( |
) | ||||
|
Carrying value |
$ | $ | ||||||
|
Note 2. |
Investments (continued) |
The Company evaluates commercial mortgage loans on a collective basis when similar risk characteristics exist and on an individual basis when such characteristics are not present. For individually evaluated loans where it is determined that it is not probable that all amounts due under the contractual terms will be collected, the Company measures expected credit losses based on the present value of expected future cash flows, discounted at the loan’s original effective interest rate. If repayment is expected to be provided solely through the sale or operation of the collateral, expected credit losses are measured based on the fair value of the collateral, adjusted for estimated costs to sell when appropriate. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the loans to present the net carrying value expected to be collected. Changes in the allowance are recognized through earnings as credit loss expense. Loans are written off against the allowance when deemed uncollectible.
The Company recorded a realized loss on one mortgage loan that paid off in full during the six-month period ending June 30, 2026. The mortgage loan paid off in full on June 24, 2026, in the amount of $
A second mortgage loan has an original principal amount of $
The Company has evaluated the loan for expected credit losses in accordance with FASB ASC 326. This evaluation considered the borrower’s historical payment performance, current financial condition, and the value of the collateral securing the loan. As part of this assessment, the Company determined that the loan is collateral-dependent, as repayment is expected to be provided primarily through the operation or sale of the underlying collateral. The fair value of the collateral, net of estimated costs to sell when applicable, is $
Additionally, the Company had mortgage loan participation with a specific allowance for credit losses of $
The Company has evaluated the loan for expected credit losses in accordance with FASB ASC 326. As part of this assessment, the Company considered relevant information about the borrower’s current financial condition, historical payment performance, and the value of the collateral securing the loan. Based on this evaluation, the loan is determined to be collateral-dependent, and repayment is expected to be derived primarily from the operation or sale of the collateral. The fair value of the collateral, net of estimated costs to sell when applicable, exceeds the amortized cost basis of the loan by 40%. As such, no allowance for credit losses has been recorded as of the reporting date.
Finally, the Company has loan for which a receiver has been appointed and is in the process of foreclosure. The loan was originated in February of 2026 and has an outstanding loan principal of $
The Company has evaluated the loan for expected credit losses in accordance with FASB ASC 326. As part of this assessment, the Company considered relevant information about the borrower’s current financial condition, historical payment performance, and the value of the collateral securing the loan. Based on this evaluation, the loan is determined to be collateral-dependent, and repayment is expected to be derived primarily from the operation or sale of the collateral. The fair value of the collateral, net of estimated costs to sell when applicable, exceeds the amortized cost basis of the loan by 35%. As such, no specific allowance for credit losses has been recorded as of the reporting date.
|
Note 2. |
Investments (continued) |
For mortgage loans on which the collection of interest income is uncertain, we discontinue the accrual of interest and recognize it in the period when an interest payment is received. We typically do not resume the accrual of interest on mortgage loans on nonaccrual status until there are significant improvements in the underlying financial condition of the borrower. We consider a loan to be delinquent if full payment is not received in accordance with the contractual terms of the loan.
The amount of the general loan allowance is based upon management's evaluation of the collectability of the loan portfolio, historical loss experience, delinquencies, credit concentrations, underwriting standards, and national and local economic conditions. The Company does not measure a credit loss allowance on accrued interest receivable, as we write off any uncollectible accrued interest receivable balance to net investment income in a timely manner. The Company did not charge off any uncollectible accrued interest receivable on our commercial mortgage loan portfolio during the three and six months ended June 30, 2026 and 2025.
The Company's commercial mortgage loans are pooled by risk rating and property collateral type and an estimated loss ratio is applied against each risk pool. The loss ratios are generally based upon historical loss experience for each risk pool and are adjusted for current and forecasted economic factors management believes to be relevant and supportable. Economic factors are forecasted for two years with immediate reversion to historical experience.
The following tables presents a roll-forward of our general and specific valuation allowances for our commercial mortgage loan portfolio:
|
Six Months Ended June 30, 2026 |
Six Months Ended June 30, 2025 |
|||||||||||||||
|
Specific Allowance |
General Allowance |
Specific Allowance |
General Allowance |
|||||||||||||
|
(unaudited) |
(unaudited) |
|||||||||||||||
|
Beginning allowance balance |
$ | $ | $ | $ | ||||||||||||
|
Change in provision for credit losses |
||||||||||||||||
|
Charge-offs |
( |
) | ( |
) | ||||||||||||
|
Ending Allowance |
$ | $ | $ | $ | ||||||||||||
|
Three Months Ended June 30, 2026 |
Three Months Ended June 30, 2025 |
|||||||||||||||
|
Specific Allowance |
General Allowance |
Specific Allowance |
General Allowance |
|||||||||||||
|
(unaudited) |
(unaudited) |
|||||||||||||||
|
Beginning allowance balance |
$ | $ | $ | $ | ||||||||||||
|
Charge-offs |
( |
) | ||||||||||||||
|
Change in provision for credit losses |
( |
) | ( |
) | ||||||||||||
|
Ending Allowance |
$ | $ | $ | $ | ||||||||||||
The following table presents a breakdown of our mortgage loans by aging category:
|
As of June 30, 2026 |
||||||||||||
|
Outstanding Balance |
Allowance for Credit Losses |
Net Carrying Amount |
||||||||||
|
(unaudited) |
||||||||||||
| Aging Category | ||||||||||||
|
Not past due (Current) |
$ | $ | ( |
) | $ | |||||||
|
1-30 days past due |
( |
) | $ | |||||||||
|
31-60 days past due |
||||||||||||
|
61-90 day past due |
||||||||||||
|
Over 90 days past due |
( |
) | ||||||||||
|
Mortgage loan carrying value |
$ | $ | ( |
) | $ | |||||||
|
Note 2. |
Investments (continued) |
The Company will record an "intent-to-sell impairment" as a reduction to the amortized cost of available for sale fixed maturities and other invested assets in an unrealized loss position if the Company intends to sell or it is more likely than not that the Company will be required to sell the fixed maturity before a recovery in value. A corresponding charge is recorded in net realized losses equal to the difference between the fair value on the impairment date and the amortized cost basis of the fixed maturity before recognizing the impairment.
For fixed maturity securities and other invested assets where a credit loss has been identified and no intent-to-sell impairment has been recorded, the Company will record an allowance for credit loss ("ACL") for the portion of the unrealized loss related to a credit loss. Any remaining unrealized loss on a fixed maturity after recording an ACL is the non-credit amount is recorded in other comprehensive income. The ACL is the excess of the amortized cost over the greater of the Company's best estimate present value of the expected future cash flows or the security's fair value. Cash flows are discounted at the effective yield that is used to record interest income. The ACL cannot exceed the unrealized loss and, therefore, it may fluctuate with the changes in the fair value of the fixed maturity if the fair value is greater than the Company's best estimate of the present value of expected future cash flows. The initial ACL and any subsequent changes are recorded in net realized gains and losses. The ACL is written off against amortized cost in the period in which all or a portion of the related fixed maturity is determined to be uncollectible.
Developing the Company's best estimate of expected future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions regarding the future performance. The Company's considerations include a) changes in the financial condition of the issuer and/or the underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) credit ratings, (d) payment structure of the security, and (e) the extent to which the fair value has been less than the amortized cost of the security. For non-structured securities, assumptions included, but are not limited to, economic and industry specific trends and fundamentals, instrument specific developments including changes in credit ratings, industry earnings multiples, and the issuer's ability to restructure, access capital markets, and execute asset sales.
In the second quarter of 2026, the Company recorded an additional impairment for Thames River Moorings Limited ("TRM" or "Project Cherwell") in the amount of $
Investment Income, Net of Expenses
The components of net investment income for the six months ended June 30, 2026 and 2025 are as follows:
|
Six Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
(unaudited) |
||||||||
|
Fixed maturities |
$ | $ | ||||||
|
Mortgages |
||||||||
|
Equity securities |
||||||||
|
Other invested assets |
||||||||
|
Cash and cash equivalents |
||||||||
|
Less investment expenses |
( |
) | ( |
) | ||||
| $ | $ | |||||||
|
Note 2. |
Investments (continued) |
The components of net investment income for the three months ended June 30, 2026 and 2025 are as follows:
|
Three Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
(unaudited) |
||||||||
|
Fixed maturities |
$ | $ | ||||||
|
Mortgages |
||||||||
|
Equity securities |
||||||||
|
Other invested assets |
||||||||
|
Cash and cash equivalents |
||||||||
|
Less investment expenses |
( |
) | ( |
) | ||||
| $ | $ | |||||||
Net Investment Gains (losses)
Net investment losses for the six months ended June 30, 2026 and 2025 are summarized as follows:
|
Six Months Ended June 30, |
||||||||
|
(unaudited) |
||||||||
|
2026 |
2025 |
|||||||
|
Recognized gains on sale of investments |
$ | $ | ( |
) | ||||
|
Realized losses on charge offs of investments |
( |
) | ( |
) | ||||
|
Change in allowance for credit loss recognized in earnings |
( |
) | ( |
) | ||||
|
Unrealized net gains recognized in earnings |
||||||||
|
Embedded derivative |
( |
) | ||||||
|
Net investment losses |
$ | $ | ( |
) | ||||
Net investment losses for the three months ended June 30, 2026 and 2025 are summarized as follows:
|
Three Months Ended June 30, |
||||||||
|
(unaudited) |
||||||||
|
2026 |
2025 |
|||||||
|
Recognized losses on sale of investments |
$ | $ | ( |
) | ||||
|
Realized losses on charge offs of investments |
( |
) | ||||||
|
Change in allowance for credit loss recognized in earnings |
||||||||
|
Unrealized net gains recognized in earnings |
||||||||
|
Embedded derivative |
( |
) | ( |
) | ||||
|
Net investment gains |
$ | $ | ||||||
|
Note 3. |
Derivative Instruments |
Accounting for Derivative Instruments
See Note 4 for a detailed description of the accounting treatment for derivative instruments, including embedded derivatives.
Types of Derivatives used by the Company
The Company’s derivatives consist of a reinsurance contract allocated hedge recorded through the change in value of embedded derivative in net investment losses on the statement of comprehensive loss.
Summary of Derivative Positions
The fair value of the Company’s derivative financial instruments on the consolidated balance sheets is as follows:
|
June 30, 2026 |
December 31, 2025 |
||||||||||||||||
|
Derivative |
Derivative |
Balance |
|||||||||||||||
|
Asset |
Liability |
Asset |
Liability |
Reported In |
|||||||||||||
|
|
(unaudited) |
||||||||||||||||
| Derivatives: | |||||||||||||||||
|
Embedded derivatives: |
|||||||||||||||||
|
Reinsurance contract allocated hedge |
$ | $ | $ | $ |
Reinsurance related assets |
||||||||||||
The following tables shows the change in the fair value of the derivative financial instruments in the consolidated statements of comprehensive income (loss):
|
Six Months Ending |
Six Months Ending |
Balance |
|||||||
|
June 30, 2026 |
June 30, 2025 |
Reported In |
|||||||
|
(unaudited) |
(unaudited) |
||||||||
| Derivatives: | |||||||||
|
Embedded derivatives: |
|||||||||
|
Change in reinsurance contract allocated hedge |
$ | $ | ( |
) |
Net investment gains (losses) |
||||
|
Three Months Ending |
Three Months Ending |
Balance |
|||||||
|
June 30, 2026 |
June 30, 2025 |
Reported In |
|||||||
|
(unaudited) |
(unaudited) |
||||||||
| Derivatives: | |||||||||
|
Embedded derivatives: |
|||||||||
|
Change in reinsurance contract allocated hedge |
$ | ( |
) | $ | ( |
) |
Net investment losses |
||
|
Note 4. |
Fair Value Measurements |
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. The Company uses 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 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
|
● |
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For common and preferred stock classified as Level 2, fair value is generally determined using observable market-based pricing inputs, including quoted prices for similar equity securities, broker-dealer or third-party pricing service quotations, recently reported market transactions, exchange or dealer market indications, and other observable inputs such as issuer-specific credit spreads, dividend terms, call features, market yields, and liquidity considerations, as applicable. |
|
● |
Level 3 inputs are unobservable for the asset or liability and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
Investments, available for sale: Fair values of available for sale fixed maturity securities are provided by a third party pricing service. The pricing service uses a variety of sources to determine fair value of securities. The Company’s fixed maturity securities are highly liquid, which allows for a high percentage of the portfolio to be priced through pricing sources.
Equity securities: Fair values for equity securities are also provided by a third party pricing service and are derived from active trading on national market exchanges.
Embedded derivative: The fair value of the reinsurance related assets represents the Company’s allocation of the fair value of the corresponding derivative instruments used in the hedge which are based on the quoted market prices of the underlying derivative instruments. The fair value of the underlying assets for both embedded derivatives are generally based upon market observable inputs with industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy. The Company’s utilization of a credit-valuation adjustment did not have a material effect on the change in fair value of the embedded derivatives for the six and three months ended June 30, 2026 and June 30, 2025.
|
Note 4. |
Fair Value Measurements (continued) |
The table below presents the amounts of assets measured at fair value on a recurring basis as of June 30, 2026 and December 31,2025:
|
June 30, 2026 |
||||||||||||||||
|
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
|
(Unaudited) |
||||||||||||||||
|
Fixed maturities: |
||||||||||||||||
|
US Treasury securities |
$ | $ | $ | $ | ||||||||||||
|
Corporate bonds |
||||||||||||||||
|
Municipal bonds |
||||||||||||||||
|
Redeemable preferred stock |
||||||||||||||||
|
Term loans |
||||||||||||||||
|
Mortgage backed and asset backed securities |
||||||||||||||||
|
Total fixed maturities |
||||||||||||||||
|
Equities: |
||||||||||||||||
|
Common stock |
||||||||||||||||
|
Preferred stock |
||||||||||||||||
|
Total equities |
||||||||||||||||
|
Other invested assets |
||||||||||||||||
|
Reinsurance contract allocated hedge |
||||||||||||||||
|
Limited partnership interests |
||||||||||||||||
|
Total |
$ | $ | $ | $ | ||||||||||||
|
December 31, 2025 |
||||||||||||||||
|
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
|
Fixed maturities: |
||||||||||||||||
|
US Treasury securities |
$ | $ | $ | $ | ||||||||||||
|
Corporate bonds |
||||||||||||||||
|
Municipal bonds |
||||||||||||||||
|
Redeemable preferred stock |
||||||||||||||||
|
Term loans |
||||||||||||||||
|
Mortgage backed and asset backed securities |
||||||||||||||||
|
Total fixed maturities |
||||||||||||||||
|
Equities: |
||||||||||||||||
|
Common stock |
||||||||||||||||
|
Preferred stock |
||||||||||||||||
|
Total equities |
||||||||||||||||
|
Other invested assets |
||||||||||||||||
|
Reinsurance contract allocated hedge |
||||||||||||||||
|
Limited partnership interests |
||||||||||||||||
|
Total |
$ | $ | $ | $ | ||||||||||||
|
Note 4. |
Fair Value Measurements (continued) |
The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:
|
Mortgage |
Other |
Limited |
||||||||||||||||||
|
For the six months ended June 30, 2026 |
Corporate |
Backed |
Term |
Invested |
Partnership |
|||||||||||||||
|
(unaudited) |
Bonds |
Securities |
Loans |
Assets |
Interests |
|||||||||||||||
|
Fair value, beginning of period |
$ | $ | $ | $ | $ | |||||||||||||||
|
Principal payment |
( |
) | ( |
) | ( |
) | ||||||||||||||
|
Acquisition |
||||||||||||||||||||
|
Investment related gains (losses), net |
( |
) | ( |
) | ( |
) | ||||||||||||||
|
Fair value, end of period |
$ | $ | $ | $ | $ | |||||||||||||||
|
Mortgage |
Other |
Limited |
||||||||||||||||||
|
For the Three Months Ended June 30, 2026 |
Corporate |
Backed |
Term |
Invested |
Partnership |
|||||||||||||||
|
(unaudited) |
Bonds |
Securities |
Loans |
Assets |
Interests |
|||||||||||||||
|
Fair value, beginning of period |
$ | $ | $ | $ | $ | |||||||||||||||
|
Principal payment |
( |
) | ||||||||||||||||||
|
Acquisition |
||||||||||||||||||||
|
Investment related gains (losses), net |
( |
) | ( |
) | ||||||||||||||||
|
Fair value, end of period |
$ | $ | $ | $ | $ | |||||||||||||||
The Company discloses 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 or non-recurring basis are discussed on the previous page. The estimated fair value approximates carrying value for accrued interest. The methodologies for other financial assets and financial liabilities are discussed below:
Cash and cash equivalents: The carrying amounts approximate fair value because of the short maturity of these instruments.
Investment income due and accrued: The carrying amounts approximate fair value because of the short maturity of these instruments. The Company classifies accrued investment income within Level 3 of the fair value hierarchy because the fair value measurement relies principally on unobservable inputs, including management’s assessment of collectability, expected timing of receipt and the relationship of the accrued amount to the credit characteristics of the related investment. Although the expected collection period is generally short and the carrying amount approximates fair value, there is no active secondary market or independently observable pricing input for the standalone receivable. Accordingly, the lowest level input that is significant to the measurement is unobservable, supporting Level 3 classification.
Mortgage loans on real estate: Mortgage loans on real estate are carried at unpaid principal value. The fair value of mortgage loans on real estate is estimated using a discounted cash flow method under which expected cash flows are discounted using market-based rates for loans with similar terms and credit characteristics. The discount rates are based on U.S. Treasury par yields for tenors corresponding to the loans' remaining maturities, plus credit spread adjustments based on NAIC rating. Although the U.S. Treasury yields are observable, the credit spread adjustments used to reflect borrower and loan-specific risk are unobservable and significant to the measurements; accordingly, the fair value of mortgage loans is classified within Level 3 of the fair value hierarchy.
Limited partnership interests: Limited partnership interests are measured at fair value using the most recently reported net asset value (“NAV”) provided by investee fund’s general partner or investment manager as a valuation input. The Company does not apply the NAV practical expedient under ASC 820 to these investments. Reported NAV is used as the starting point for the Company’s fair value estimate because the underlying partnership investments are not traded in an active market and quoted market prices are not available. Management evaluates whether the reported NAV requires adjustment to reflect information available as of the Company’s reporting date, including the timing of the investee’s NAV reporting, capital contributions and distributions, changes in underlying investment values, known liquidity or redemption restrictions, and any other fund-specific or market information that would affect the price a market participant would receive in an orderly transaction. As of June 30, 2026, no adjustment was made when management determined that the reported NAV reflected the best estimate of fair value at the measurement date. Because the valuation relies on fund-reported NAV and other inputs that are not observable in active markets, including the fair values of the fund’s underlying private investments, liquidity assumptions, redemption or transfer restrictions, and management’s assessment of whether NAV requires adjustment, the investment is classified within Level 3 of the fair value hierarchy.
Reinsurance contract allocated hedge: The carrying value of funds withheld at interest approximates fair value as funds are specifically identified in the agreement. The fair value of the specified funds is based on the fair value of the underlying assets that are held by the ceding company. The ceding company uses a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs to value the securities held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.
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.
Federal Home Loan Bank Advances: FHLB advances are stated at the outstanding principal balances, and the carrying value approximates fair value. The Company classifies Federal Home Loan Bank advances within Level 3 of the fair value hierarchy when the measurement incorporates significant unobservable inputs. These inputs may include management’s estimate of an appropriate market borrowing spread for the Company, adjustments for collateral requirements, the effect of prepayment or call features, and entity-specific nonperformance risk. Although certain benchmark interest rates and yield curves used in the valuation may be observable, the Company’s estimated borrowing spread, and other adjustments are not directly observable in an active market for identical liabilities and are significant to the fair value measurement. As a result, the fair value measurement is categorized within Level 3.
Policyholder deposits in deposit-type contracts: The fair value for policyholder deposits 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 the nonperformance risk of the liabilities.
|
Note 4. |
Fair Value Measurements (continued) |
The estimated fair values of the Company’s financial assets and liabilities at June 30, 2026 and December 31, 2025 are as follows:
|
June 30, 2026 |
||||||||||||||||||||
|
(unaudited) |
||||||||||||||||||||
|
Carrying Value |
Fair Value |
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
|
Financial assets: |
||||||||||||||||||||
|
Cash and cash equivalents |
$ | $ | $ | $ | $ | |||||||||||||||
|
Mortgage loans on real estate |
||||||||||||||||||||
|
Investment income due and accrued |
||||||||||||||||||||
|
Policy loans |
||||||||||||||||||||
|
Total financial assets (excluding available for sale investments) |
$ | $ | $ | $ | $ | |||||||||||||||
|
Financial liabilities: |
||||||||||||||||||||
|
Federal Home Loan Bank advance |
$ | $ | $ | $ | $ | |||||||||||||||
|
Policyholder deposits in deposit-type contracts |
||||||||||||||||||||
|
Total financial liabilities |
$ | $ | $ | $ | $ | |||||||||||||||
|
December 31, 2025 |
||||||||||||||||||||
|
Carrying Value |
Fair Value |
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
|
Financial assets: |
||||||||||||||||||||
|
Cash and cash equivalents |
$ | $ | $ | $ | $ | |||||||||||||||
|
Mortgage loans on real estate |
||||||||||||||||||||
|
Investment income due and accrued |
||||||||||||||||||||
|
Policy loans |
||||||||||||||||||||
|
Total financial assets (excluding available for sale investments) |
$ | $ | $ | $ | $ | |||||||||||||||
|
Financial liabilities: |
||||||||||||||||||||
|
Federal Home Loan Bank advance |
$ | $ | $ | $ | $ | |||||||||||||||
|
Policyholder deposits in deposit-type contracts |
||||||||||||||||||||
|
Total financial liabilities |
$ | $ | $ | $ | $ | |||||||||||||||
During the six and three months ended June 30, 2026 and 2025, there were no transfers in or out of level 3.
|
Note 5. |
Liability for Future Policyholder Benefits |
The liability for future policy benefits is determined as the present value of expected future policy benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company's insurance contracts. Future net premiums receivable are future gross premiums receivable under the contract multiplied by the NPR.
The calculation of the liability for future policy benefits involves numerous assumptions including assumptions related to discount rate, lapses, mortality, and morbidity. The discount rate assumptions were initially set based on the expected investment yield of the assets supporting the reserves at the transition date of LDTI which was January 1, 2024, for policies originally issued on or before the transition date. The discount rate assumptions for new cohorts established after the transition date, are initially set based on the policy issuance date or policy renewal date, and are based on an upper-medium grade fixed-income instrument, which is generally equivalent to a single-A interest rate matched to the duration of our insurance liabilities.
The initial, also referred to as the original, discount rate assumptions established for each cohort are used to determine interest accretion which is reported as a component of policy benefits on the statements of comprehensive income. After policy issuance or policy renewal, the discount rate assumptions are updated quarterly and used to update the liability at each reporting date to the current discount rate, with the corresponding change reflected as the change in the effect of discount rate assumptions on the liability for future policy benefits, net of reinsurance, on the statement of changes in other comprehensive income (loss). Policyholder lapse and mortality assumptions reflect the probability that an insureds’ coverage is discontinued due to lapsation or death of the insured. For our life insurance products, mortality assumptions also reflect the probability that a benefit payment occurs. Policyholder lapse and mortality assumptions are based on actual experience or industry standards, adjusted as appropriate. Claim incidence and claim resolution rate assumptions related to morbidity and mortality are based on actual experience or industry standards adjusted as appropriate to reflect our actual experience and future expectations.
Cash flow assumptions are reviewed and updated, as needed, at least annually. Assumptions may be updated more frequently if necessary based on trending experience and future expectations. On a quarterly basis, cohort level cash flow measures are updated based on the emergence of actual experience. The updated cash flows are used to determine the updated net premiums and the net premium ratio, which is the present value of benefits and related expenses divided by the present value of gross premiums. The updated net premium ratio is used to calculate the updated liability for future policy benefits as of the beginning of the year, at the original discount rate. The change in the liability for future policy benefits related to changes in the discount rate is reported in other comprehensive income. The impact of all other changes in the liability for future policy benefits are reflected as increases in policyholder benefit reserves in the consolidated statements of income.
For most products, a net premium methodology is applied to each cohort to estimate the liability for claims not yet incurred in which discounted gross benefits are compared to discounted gross premiums. In this methodology, actual experience to date is combined with projected future cash flows to determine a net premium ratio for each cohort. The future cash flows include the costs of future expected claims as well as future cash flows on claims that have already been incurred. The net premium ratio is then used to estimate the liability for future policy benefits. The liability for future policy benefits represents the present value of future claims and associated expenses less the present value of future net premiums, which is derived by multiplying the present value of future gross premium by the net premium ratio.
|
Note 5. |
Liability for Future Policyholder Benefits (continued) |
The following tables present the changes in the present value of expected future net premiums and the present value of expected future policy benefits by product type as of and for the periods ended June 30, 2026 and December 31, 2025. The present value of expected future net premiums and the present value of expected future policy benefits are presented gross of ceded reinsurance.
|
Present Value of Expected Future Net Premiums |
||||||||||||
|
As of June 30, 2026 |
||||||||||||
|
Individual Life |
Critical Illness |
Total |
||||||||||
|
Balance, beginning of year |
$ | ( |
) | $ | $ | ( |
) | |||||
|
Beginning balance at original discount rate |
( |
) | ( |
) | ||||||||
|
Effect of changes in cash flow assumptions |
( |
) | ( |
) | ||||||||
|
Effect of actual variances from expected experience |
( |
) | ||||||||||
|
Adjusted beginning of year balance |
( |
) | ( |
) | ||||||||
|
New issues |
||||||||||||
|
Interest accrual |
||||||||||||
|
Net premiums collected |
( |
) | ( |
) | ( |
) | ||||||
|
Derecognition (lapses) |
||||||||||||
|
Ending balance at original discount rate |
( |
) | ( |
) | ||||||||
|
Effect of changes in discount rate assumptions |
( |
) | ( |
) | ( |
) | ||||||
|
Balance, end of period |
$ | ( |
) | $ | $ | ( |
) | |||||
|
Present Value of Expected Future Policy Benefits |
||||||||||||
|
Individual |
||||||||||||
|
Life |
Critical Illness |
Total |
||||||||||
|
Balance, beginning of year |
$ | $ | $ | |||||||||
|
Beginning balance at original discount rate |
||||||||||||
|
Effect of changes in cash flow assumptions |
||||||||||||
|
Effect of actual variances from expected experience |
( |
) | ||||||||||
|
Adjusted beginning of year balance |
||||||||||||
|
New issues |
||||||||||||
|
Death benefits |
( |
) | ( |
) | ||||||||
|
Surrender/maturity |
( |
) | ( |
) | ||||||||
|
Other benefits |
( |
) | ( |
) | ||||||||
|
Dividends |
||||||||||||
|
Return of premium |
||||||||||||
|
Expense included in Reserve |
( |
) | ( |
) | ( |
) | ||||||
|
Interest accrued |
||||||||||||
|
Ending balance at original discount rate |
||||||||||||
|
Effect of changes in discount rate assumptions |
( |
) | ( |
) | ( |
) | ||||||
|
Balance, end of period |
$ | $ | $ | |||||||||
|
Net liability for future policy benefits |
$ | $ | ( |
) | $ | |||||||
|
Flooring of liability at zero at cohort level |
||||||||||||
|
Net liability for future policy benefits, post-flooring |
||||||||||||
|
Less: Reinsurance recoverable |
( |
) | ||||||||||
|
Net liability for future policy benefits, after reinsurance recoverable |
$ | $ | $ | |||||||||
|
Note 5. |
Liability for Future Policyholder Benefits (continued) |
|
Present Value of Expected Future Net Premiums |
As of December 31, 2025 |
|||||||||||
|
Individual |
||||||||||||
|
Life |
Critical Illness |
Total |
||||||||||
|
Balance, beginning of year |
$ | $ | $ | |||||||||
|
Beginning balance at original discount rate |
||||||||||||
|
Effect of changes in cash flow assumptions |
( |
) | ( |
) | ||||||||
|
Effect of actual variances from expected experience |
( |
) | ( |
) | ||||||||
|
Adjusted beginning of year balance |
( |
) | ( |
) | ||||||||
|
New issues |
||||||||||||
|
Interest accrual |
||||||||||||
|
Net premiums collected |
( |
) | ( |
) | ( |
) | ||||||
|
Derecognition (lapses) |
||||||||||||
|
Ending balance at original discount rate |
( |
) | ( |
) | ||||||||
|
Effect of changes in discount rate assumptions |
( |
) | ( |
) | ( |
) | ||||||
|
Balance, end of year |
$ | ( |
) | $ | $ | ( |
) | |||||
|
Present Value of Expected Future Policy Benefits |
||||||||||||
|
Individual |
||||||||||||
|
Life |
Critical Illness |
Total |
||||||||||
|
Balance, beginning of year |
$ | $ | $ | |||||||||
|
Beginning balance at original discount rate |
||||||||||||
|
Effect of changes in cash flow assumptions |
||||||||||||
|
Effect of actual variances from expected experience |
( |
) | ( |
) | ||||||||
|
Adjusted beginning of year balance |
||||||||||||
|
New issues |
||||||||||||
|
Death benefits |
( |
) | ( |
) | ( |
) | ||||||
|
Surrender/maturity |
( |
) | ( |
) | ||||||||
|
Other benefits |
( |
) | ( |
) | ||||||||
|
Dividends |
( |
) | ( |
) | ||||||||
|
Return of premium |
||||||||||||
|
Expense included in Reserve |
( |
) | ( |
) | ( |
) | ||||||
|
Interest accrued |
||||||||||||
|
Ending balance at original discount rate |
||||||||||||
|
Effect of changes in discount rate assumptions |
( |
) | ( |
) | ( |
) | ||||||
|
Balance, end of year |
$ | $ | $ | |||||||||
|
Net liability for future policy benefits, pre-flooring |
$ | $ | ( |
) | $ | |||||||
|
Flooring of liability at zero at cohort level |
||||||||||||
|
Net liability for future policy benefits, post-flooring |
||||||||||||
|
Less: Reinsurance recoverable |
( |
) | ||||||||||
|
Net liability for future policy benefits, after reinsurance recoverable |
$ | $ | $ | |||||||||
|
Note 5. |
Liability for Future Policyholder Benefits (continued) |
The following table provides a reconciliation of future policyholder benefits reported in the table above to total future policyholder benefits:
|
June 30, 2026 |
December 31, 2025 |
|||||||
|
Liability for future policyholder benefits |
$ | $ | ||||||
|
In course of settlements |
||||||||
|
Incurred but not reported |
||||||||
|
Other |
||||||||
|
Total liability for future policyholder benefits |
$ | $ | ||||||
The following table provides the amount of undiscounted expected gross premiums and expected future benefits and expenses for the products reported in the table above:
|
June 30, 2026 (undiscounted) |
||||||||
|
Individual |
|
|||||||
|
Life |
Critical Illness |
|||||||
|
Expected future gross premiums |
$ | $ | ||||||
|
Expected future benefits and expenses |
$ | $ | ||||||
|
June 30, 2026 (discounted) |
||||||||
|
Individual |
||||||||
|
Life |
Critical Illness |
|||||||
|
Expected future gross premiums |
$ | $ | ||||||
|
Expected future benefits and expenses |
$ | $ | ||||||
|
December 31, 2025 (undiscounted) |
||||||||
|
Individual |
|
|||||||
|
Life |
Critical Illness |
|||||||
|
Expected future gross premiums |
$ | $ | ||||||
|
Expected future benefits and expenses |
$ | $ | ||||||
|
December 31, 2025 (discounted) |
||||||||
|
Individual |
|
|||||||
|
Life |
Critical Illness |
|||||||
|
Expected future gross premiums |
$ | $ | ||||||
|
Expected future benefits and expenses |
$ | $ | ||||||
|
Note 6. |
Deposit-type Contracts |
Liabilities for deferred annuity 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 weighted average effective crediting rate for the six months ended June 30, 2026 was
|
Six months ended |
Six months ended |
|||||||
|
June 30, |
June 30, |
|||||||
|
2026 |
2025 |
|||||||
|
Balance at beginning of period |
$ | $ | ||||||
|
Deposits received |
||||||||
|
Interest credited |
||||||||
|
Withdrawals |
( |
) | ( |
) | ||||
|
Balance at end of period |
$ | $ | ||||||
The premium deposit funds credit interest based upon a fixed interest rate set by the Company. The Company has the ability to change this rate subject to minimums established by law or administrative regulation.
Liabilities for premium deposit fund 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 withdrawals. The following table provides information about premium deposit fund deposit-type contracts for the six months ended June 30, 2026 and 2025.
|
Six months ended |
Six months ended |
|||||||
|
June 30, |
June 30, |
|||||||
|
2026 |
2025 |
|||||||
|
Balance at beginning of period |
$ | $ | ||||||
|
Deposits received |
||||||||
|
Interest credited |
||||||||
|
Withdrawals |
( |
) | ( |
) | ||||
|
Balance at end of period |
$ | $ | ||||||
|
Note 7. |
Deferred Acquisition Costs |
The following tables display the changes in DAC throughout the period by product type:
|
Fixed |
Individual |
|||||||||||||||
|
Annuity |
Life |
Critical Illness |
Total |
|||||||||||||
|
Balance at December 31, 2025 |
$ | $ | $ | $ | ||||||||||||
|
Capitalization |
||||||||||||||||
|
Amortization expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
Experience Adjustments |
( |
) | ( |
) | ||||||||||||
|
Balance at June 30, 2026 |
$ | $ | $ | $ | ||||||||||||
|
Fixed |
Individual |
|||||||||||||||
|
Annuity |
Life |
Critical Illness |
Total |
|||||||||||||
|
Balance at December 31, 2024 |
$ | $ | $ | $ | ||||||||||||
|
Capitalization |
||||||||||||||||
|
Amortization expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
Experience Adjustments |
( |
) | ( |
) | ||||||||||||
|
Balance at June 30, 2025 |
$ | $ | $ | $ | ||||||||||||
|
Note 8. |
Income Tax Provision |
The Company uses the estimated effective tax rate ("ETR") method in computing the interim tax provision. Certain items, including those deemed unusual, infrequent, or that cannot be reliably estimated, are treated as discrete items and excluded from the estimated annual ETR ("AETR"). In these cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the AETR, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions and are recorded in the period in which the change occurs. The AETR is revised, as necessary, at the end of successive interim reporting periods.
The Company's effective income tax rate was
The Company is required to evaluate the recoverability of its deferred tax assets and establish a valuation allowance, if necessary, to reduce its deferred tax asset to an amount that is more likely than not to be realizable. Considerable judgment and the use of estimates are required when determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. When evaluating the need for a valuation allowance, the Company considers many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of temporary differences; the length of time carryovers can be utilized; and any tax planning strategies the Company would employ to avoid a tax benefit from expiring unused.
As of June 30, 2026, based on all available evidence, we concluded that a valuation allowance should remain on a portion of the deferred tax asset related to capital loss carryforwards that are not more-likely-than-not to be realized. For the six months ended June 30, 2026, the Company did not record an increase to the valuation allowance associated with capital loss carryforwards. At June 30, 2026, and December 31, 2025, the Company has recorded a total valuation allowance of approximately $
|
Note 9. |
Contingencies and Commitments |
Investment Commitments
The Company entered into a subscription agreement with Mutual Capital Investment Fund, LP on November 11, 2022. The agreement set forth a capital commitment of $
|
Note 10. |
Operating Segments |
The Company operates as a reportable segment, defined by our comprehensive business model that encompasses writing direct business and opportunistically assuming reinsurance through wholly owned subsidiaries, namely USALSC and DCLIC (which was merged into USALSC in 2023). On a direct basis, the Company underwrites a diverse range of insurance products, including term life, whole life, group life, short- and long-term disability, critical illness, juvenile term, annuities, and preneed products. Additionally, the Company assumes annuities and life policies on a coinsurance basis.
Our products are underwritten opportunistically across various channels without differentiation in profitability evaluation by product type or whether they were written directly or assumed. This cohesive strategy allows for a streamlined assessment of our overall performance.
The Company’s chief executive officer and chief financial officer employ a consistent set of financial metrics and performance indicators. This approach renders it impractical to separate operations into distinct segments. Key performance indicators utilized by the chief operating decision makers (CODMs) include cash flow from insurance activities, total income, operating expenses as a percentage of total expenses, and net loss per share.
|
Note 10. |
Operating Segments (continued) |
Resource allocation is centralized, with all major decisions made at the corporate level rather than by separate divisions. This ensures a unified approach to managing resources and strategic initiatives across the organization.
The Company’s financial results are reported collectively, as the financial performance of our operations does not vary significantly among different areas of the business. For instance, the Company does not bifurcate its investment portfolio by product type, further underscoring the integrated nature of our operations.
The CODMs assess the performance of the Company and allocate resources based on net income, which is also reported on the consolidated income statement. The measure of the Company's single segment assets is reflected in total consolidated assets on the balance sheet.
Since we operate as one segment, segment revenue, profit and loss and expenses are the same as presented in the consolidated statements of comprehensive income.
|
Note 11. |
Accumulated Other Comprehensive Income (Loss) |
A summary of the Company’s accumulated other comprehensive income (loss) is presented in the table below:
|
Total |
||||||||||||
|
|
Accumulated |
|||||||||||
|
Available |
LFPB |
Other |
||||||||||
|
for Sale |
Discount |
Comprehensive |
||||||||||
|
Securities |
Rate Changes |
Income (Loss) |
||||||||||
|
Balance, December 31, 2024 |
( |
) | ||||||||||
|
Current period other comprehensive income, net of tax |
( |
) | ( |
) | ||||||||
|
Reclassifications, net of tax |
( |
) | ( |
) | ||||||||
|
Balance, December 31, 2025 |
$ | ( |
) | $ | $ | ( |
) | |||||
|
Current period other comprehensive income, net of tax |
( |
) | ( |
) | ||||||||
|
Reclassifications, net of tax |
||||||||||||
|
Balance, June 30, 2026 |
( |
) | ( |
) | ||||||||
|
Note 12. |
Subsequent Events |
All of the effects of subsequent events that provide additional evidence about conditions that existed at the balance sheet date, including the estimates inherent in the process of preparing the consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after, but before the consolidated financial statements are issued. In some cases, unrecognized subsequent events are disclosed to keep the consolidated financial statements from being misleading. The Company has evaluated subsequent events through August 13, 2026, the date of the release of the consolidated financial statements. The Company entered into a revised employment agreement with Mr. Brown in June of 2026 which called for the creation of a stock incentive plan. This plan has not yet been finalized.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in this Form 10-Q. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, and many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.
Overview
USAC was formed as a Kansas corporation on April 24, 2009 to raise capital to form a new life insurance company. We presently conduct our business through our four wholly-owned subsidiaries: USALSC, a life insurance corporation; USALSC-Montana, a life insurance corporation; USAMC, an insurance marketing corporation; and USAIC, an investment management corporation
On January 2, 2012, USALSC was issued a Certificate of Authority to conduct life insurance business in the State of Kansas. We began third-party administrative services in 2015. USALSC re-domesticated to North Dakota in 2023. USALSC is currently authorized to conduct business in 18 states.
On August 1, 2017, the Company merged with Northern Plains Capital Corporation with the Company being the surviving entity. As a result of the merger, the Company acquired Dakota Capital Life Insurance Company which became a wholly owned subsidiary of USALSC. In 2023, Dakota Capital Life Insurance Company was merged into USALSC.
On December 14, 2018, the Company acquired Great Western Life Insurance Company. Great Western Life Insurance Company was renamed US Alliance Life and Security Company – Montana and is a subsidiary of USALSC.
The Company assumes business under reinsurance treaties. On January 1, 2013, the Company entered into an agreement to assume 20% of a certain block of health insurance policies from Unified Life Insurance Company. This agreement was terminated effective December 31, 2025. On September 30, 2017, the Company entered into an agreement (the “2017 ALSC Agreement”) to assume 100% of a certain block of life insurance policies from American Life & Security Company (“ALSC”). Effective January 1, 2020, the Company entered into an agreement with ALSC (the “2020 ALSC Agreement “) to assume a quota share percentage of a block of annuity policies. Effective December 31, 2020 USALSC entered into an agreement with ALSC, which provided for ALSC to recapture all reserves previously ceded to USALSC with respect to a portion of the 2017 ALSC Agreement.
Effective December 31, 2023 USALSC entered into an agreement with Lewer Life Insurance LLIC to assume a block of life and annuity policies.
Effective October 1, 2025, USALSC-Montana entered into an agreement with the Montana Funeral Trust, resulting in the issuance of $17,354,974 of annuity contracts.
Mergers and Acquisitions
On May 23, 2017, the Company entered into a definitive merger agreement with Northern Plains Capital Corporation. The merger transaction closed on August 1, 2017. NPCC shareholders received .5841 shares of US Alliance Corporation stock for each share of NPCC stock owned. USAC issued 1,644,458 shares of common stock to holders of NPCC shares.
On October 11, 2018, the Company entered into a stock purchase agreement with Great Western Insurance Company to acquire Great Western Life Insurance Company. The transaction closed on December 14, 2018. USALSC paid $500,000 to acquire all of the outstanding shares of GWLIC.
Effective December 31, 2020, DCLIC acquired a block of life insurance policies according to the terms of an assumption agreement with ALSC. The Company acquired fixed maturity securities and cash of $9,181,100, assumed liabilities of $10,972,785 and recorded VOBA of $2,163,541.
On December 31, 2023, DCLIC was merged into its parent company, USALSC.
Critical Accounting Policies and Estimates
Our accounting and reporting policies are in accordance with GAAP. Preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is an explanation of our accounting policies and the estimates considered most significant by management. 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. A detailed discussion of significant accounting policies is provided in this report in the Notes to Consolidated Financial Statements included with this quarterly report.
Valuation of Investments
The Company's principal investments are in fixed maturity, mortgage participations, and equity securities. Fixed maturity, classified as available for sale, are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in comprehensive income (loss). Our fixed income investment manager utilizes external independent third-party pricing services to determine the fair values of investment securities available for sale. Equity securities are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in net income. Mortgages, including mortgage loan participations, are carried at unpaid principal balances, net of any unamortized premium or discount and valuation allowances.
The recognition of credit losses on debt securities is dependent on the facts and circumstances related to the specific security. If we determine a credit loss exists, the difference between amortized cost and fair value is recognized in the consolidated statements of comprehensive income. Our membership in the Federal Home Loan Bank (“FHLB”) provides additional liquidity which further reduces the likelihood that we would be required to sell a security prior to recovery for liquidity purposes.
Mortgage loans on real estate, including mortgage loan participations, are carried at unpaid principal balances, net of any unamortized premium or discount and valuation allowances. Interest income is accrued on the principal amount of the mortgage loans based on its contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. The Company accrues interest on loans until probable the Company will not receive interest or the loan is 90 days past due. Interest income, amortization of premiums, accretion of discounts and prepayment fees are reported in investment income, net of related expenses in the consolidated statements of comprehensive income.
A mortgage loan is considered to be impaired when, based on the current information and events, 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 on mortgage loans are established based upon inherent losses expected by management to be realized in connection with future dispositions or settlement 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, the value of the loan’s collateral if the loan is in the process of foreclosure or is otherwise collateral-dependent, or the loan’s market value if the loan is being sold. These evaluations are revised as conditions change and new information becomes available. In addition to historical experience, management considers qualitative factors that include the impact of changing macro-economic conditions, which may not be currently reflected in the loan portfolio performance, and the quality of the loan portfolio.
Interest accrued or received on the net carrying amount of the impaired loan will be included in investment income or applied to the principal of the loan, depending on the assessment of the collectability of the loan. Mortgage loans deemed to be uncollectible or that have been foreclosed would be charged off against the valuation allowances and subsequent recoveries, if any, are credited to the valuation allowances. Changes in valuation allowances are reported in net investment gains (losses) on the consolidated statements of comprehensive income.
Other invested assets include collateral loans and private credit investments. The collateral loans and private credit investments are carried at fair value. The inputs used to measure these assets are classified as Level 3 within the fair value hierarchy.
Limited partnership interests consist of an investment in Mutual Capital Investment Fund. Limited partnerships interests are carried at net asset value as determined by a third-party valuation.
Deferred Acquisition Costs
The Company capitalizes and amortizes over the life of the premiums produced incremental direct costs 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. An entity may defer incremental direct costs of contract acquisition that are incurred in transactions with independent third parties or employees as well as the portion of employee compensation and other costs directly related to underwriting, policy issuance and processing, medical inspection, and contract selling for successfully negotiated contracts. Additionally, an entity may capitalize as a deferred acquisition cost only those advertising costs meeting the capitalization criteria for direct-response advertising. Our insurance contracts are grouped by product type and contract issue year into cohorts consistent with the grouping used to estimate the related contract liabilities. DAC is amortized on a constant level basis over the life of the policy. For all products, in-force volume metrics are used as the constant level basis. The lapse and mortality assumptions used to amortize DAC are consistent with the assumptions used to estimate the liability for future policy benefits. The underlying assumptions used to determine DAC amortization are updated concurrently with any related assumption changes for the liability for future policy benefits and changes in estimates are recognized prospectively over the remaining expected term of the related contracts. An experience adjustment is applied if actual terminations are greater than expected.
Policyholder Benefits
Liabilities for future policy benefits represent the cost of claims that we estimate we will eventually pay to our policyholders which includes policy liabilities for claims not yet incurred and for claims that have been incurred or are estimated to have been incurred but not yet reported to us. The liability for future policy benefits is calculated based on the present value of the estimated future policy benefits less the present value of estimated future net premiums collected. Net premiums represent the portion of the gross premium required to provide for all benefits and expenses, excluding acquisition costs or any costs that are required to be charged to expense as incurred. In calculating the liability for future policy benefits, our long-duration contracts are grouped into cohorts by product type, contract issue year for direct business, and assumption year for assumed business.
The calculation of the liability for future policy benefits involves numerous assumptions including assumptions related to discount rate, lapses, mortality, and morbidity. Effective January 1, 2025, the Company has adopted an accounting pronouncement related to targeted improvements to the accounting for long-duration contracts ("LDTI"), with a January 1, 2024 transition date (the "LDTI Transition Date"). The discount rate assumptions were initially set based on the expected investment yield of the assets supporting the reserves at the LDTI Transition Date, for policies originally issued on or before the LDTI Transition Date. The discount rate assumptions for new cohorts established after the transition date, are initially set based on the policy issuance date or policy renewal date, and are based on an upper-medium grade fixed-income instrument, which is generally equivalent to a single-A interest rate matched to the duration of our insurance liabilities. The initial, also referred to as the original, discount rate assumptions established for each cohort are used to determine interest accretion which is reported as a component of policy benefits on the statements of comprehensive income. After policy issuance or policy renewal, the discount rate assumptions are updated quarterly and used to update the liability at each reporting date to the current discount rate, with the corresponding change reflected as the change in the effect of discount rate assumptions on the liability for future policy benefits, net of reinsurance, on the statement of changes in other comprehensive income (loss). According to actuarial sensitivity tests, a 1% increase or decrease in interest rates is estimated to decrease or increase our policyholder benefit reserve by approximately $3 million. A 5% change in mortality is estimated to change our policyholder benefit reserve by approximately $70,000.
New Accounting Standards
A detailed discussion of new accounting standards is provided in Note 1 to Consolidated Financial Statements beginning on p. 7 of this quarterly report.
Discussion of Consolidated Results of Operations
Total Income. Insurance revenues are primarily generated from premium revenues and investment income. Total income for the six months ended June 30, 2026 and 2025 are summarized in the table below.
|
Six Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
Income: |
||||||||
|
Premium income |
$ | 7,389,233 | $ | 8,554,211 | ||||
|
Net investment income |
4,058,074 | 3,715,390 | ||||||
|
Net investment gains (losses) |
59,954 | (329,778 | ) | |||||
|
Other income |
175,449 | 218,555 | ||||||
|
Total income |
$ | 11,682,710 | $ | 12,158,378 | ||||
In the first six months of 2026, total income decreased to $11,682,710, a decrease of $475,668 or 4% from the 2025 first six months total income of $12,158,378. The decrease is driven by a reduction in premium income.
Total income for the three months ended June 30, 2026, and 2025 is summarized in the table below.
|
Three Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
(unaudited) |
||||||||
| Income: | ||||||||
|
Premium income |
$ | 3,485,031 | $ | 4,134,618 | ||||
|
Net investment income |
2,026,853 | 1,990,662 | ||||||
|
Net investment gains |
171,761 | 719,895 | ||||||
|
Other income |
104,669 | 131,191 | ||||||
|
Total income |
$ | 5,788,314 | $ | 6,976,366 | ||||
In the three months ended June 30, 2026, total income decreased to $5,788,314, a decrease of $1,188,052 or 17% from the same period in 2025 total income of $6,976,366. The decrease is driven by a reduction in premium income and a reduction in net investment gains.
Premium income: Premium income for the first six months of 2026 was $7,389,233 compared to $8,554,211 in the first six months of 2025, a decrease of $1,164,978 or 14%. The decrease was driven by a decrease in assumed premiums partially offset by growth in direct single and recurring premiums. Even though it is a reduction in revenue, ceded premium increases reflect the growth of our group policy premiums as we target small companies to assist them with their employee benefits.
Direct, assumed and ceded premiums for the six months ended June 30, 2026 and 2025 are summarized in the following table.
|
Six Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
Direct |
$ | 7,397,962 | $ | 6,654,057 | ||||
|
Assumed |
786,032 | 2,879,270 | ||||||
|
Ceded |
(794,761 | ) | (979,116 | ) | ||||
|
Total |
$ | 7,389,233 | $ | 8,554,211 | ||||
The Company continuously searches for new product and distribution opportunities to continue to increase premium production on a direct and assumed basis.
Premium income for the three months end June 30, 2026 was $3,485,031 compared to $4,134,618 in the same period of 2025, a decrease of $649,587 or 16%. The decrease was driven by a decrease in assumed premiums partially offset by growth in direct single and recurring premiums. Even though it is a reduction in revenue, ceded premium increases reflect the growth of our group policy premiums as we target small companies to assist them with their employee benefits.
Direct, assumed and ceded premiums for the three months ended June 30, 2026 and 2025 are summarized in the following table.
|
Three Months ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
(unaudited) |
||||||||
|
Direct |
$ | 3,549,174 | $ | 3,356,399 | ||||
|
Assumed |
300,069 | 1,376,992 | ||||||
|
Ceded |
(364,212 | ) | (598,773 | ) | ||||
|
Total |
$ | 3,485,031 | $ | 4,134,618 | ||||
Investment income, net of expenses: The components of net investment income for the six months ended June 30, 2026 and 2025 are as follows:
|
Six Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
(unaudited) |
||||||||
|
Fixed maturities |
$ | 2,873,250 | $ | 2,854,332 | ||||
|
Mortgages |
1,085,379 | 1,039,737 | ||||||
|
Equity securities |
101,713 | 134,503 | ||||||
|
Other invested assets |
72,608 | 62,113 | ||||||
|
Cash and cash equivalents |
195,990 | 107,961 | ||||||
| 4,328,940 | 4,198,646 | |||||||
|
Less investment expenses |
(270,866 | ) | (483,256 | ) | ||||
| $ | 4,058,074 | $ | 3,715,390 | |||||
Net investment income for the first six months of 2026 was $4,058,074, compared to $3,715,390 for the same period in 2025, an increase of $342,684 or 9%. The increase in investment income is a result of increased yields and increased assets.
The components of net investment income for the three months ended June 30, 2026 and 2025 are as follows:
|
Three Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
(unaudited) |
||||||||
|
Fixed maturities |
$ | 1,482,256 | $ | 1,516,706 | ||||
|
Mortgages |
535,531 | 598,842 | ||||||
|
Equity securities |
49,709 | 65,026 | ||||||
|
Other invested assets |
37,351 | 32,602 | ||||||
|
Cash and cash equivalents |
83,164 | 41,629 | ||||||
| 2,188,011 | 2,254,805 | |||||||
|
Less investment expenses |
(161,158 | ) | (264,143 | ) | ||||
| $ | 2,026,853 | $ | 1,990,662 | |||||
Net investment income for the three months ended June 30, 2026 was $2,026,853, compared to $1,990,662 for the same period in 2025, an increase of $38,191 or 2%. The increase in investment income is a result of increased yields and increased assets.
Net investment gains (losses): Accounting standards require that the unrealized gains and losses on equity securities be reported as income on the consolidated statements of comprehensive income (loss). For the six months ended June 30, 2026 and 2025, net investment gains are summarized in the following table.
|
Six Months Ended June 30, |
||||||||
|
(unaudited) |
||||||||
|
2026 |
2025 |
|||||||
|
Recognized gains on sale of investments |
$ | 28,649 | $ | (80,877 | ) | |||
|
Realized losses on charge offs of investments |
(159,173 | ) | (420,013 | ) | ||||
|
Change in allowance for credit loss recognized in earnings |
(63,996 | ) | (10,723 | ) | ||||
|
Unrealized net gains recognized in earnings |
216,742 | 575,798 | ||||||
|
Embedded derivative |
37,732 | (393,963 | ) | |||||
|
Net investment losses |
$ | 59,954 | $ | (329,778 | ) | |||
Realized gains and losses related to the sale of securities for the six months ended June 30, 2026 and 2025 are summarized as follows:
|
Six Months Ended June 30, |
||||||||
|
(unaudited) |
||||||||
|
2026 |
2025 |
|||||||
|
Gross gains |
$ | 41,566 | $ | - | ||||
|
Gross losses |
(172,090 | ) | (500,890 | ) | ||||
|
Net security losses |
$ | (130,524 | ) | $ | (500,890 | ) | ||
|
Mortgage loans on real estate |
(63,996 | ) | (10,723 | ) | ||||
|
Increase in allowance for credit losses |
$ | (63,996 | ) | $ | (10,723 | ) | ||
For the three months ended June 30, 2026 and 2025, net investment gains are summarized in the following table.
|
Three Months Ended June 30, |
||||||||
|
(unaudited) |
||||||||
|
2026 |
2025 |
|||||||
|
Recognized losses on sale of investments |
$ | 47,191 | $ | (24,744 | ) | |||
|
Realized losses on charge offs of investments |
(159,173 | ) | - | |||||
|
Change in allowance for credit loss recognized in earnings |
24,505 | 422,252 | ||||||
|
Unrealized net gains recognized in earnings |
262,352 | 597,588 | ||||||
|
Embedded derivative |
(3,114 | ) | (275,201 | ) | ||||
|
Net investment gains |
$ | 171,761 | $ | 719,895 | ||||
Realized gains and losses related to the sale of securities for the three months ended June 30, 2026 and 2025 are summarized as follows:
|
Three Months Ended June 30, |
||||||||
|
(unaudited) |
||||||||
|
2026 |
2025 |
|||||||
|
Gross gains |
$ | 24,552 | $ | - | ||||
|
Gross losses |
(136,534 | ) | (24,744 | ) | ||||
|
Net security losses |
$ | (111,982 | ) | $ | (24,744 | ) | ||
|
Mortgage loans on real estate |
24,505 | 422,252 | ||||||
|
Decrease in allowance for credit losses |
$ | 24,505 | $ | 422,252 | ||||
Other income: Other income for the six months ended June 30, 2026 was $175,449 compared to $218,555 for the same period in 2025, a decrease of $43,106 or 19%. Other income for the three months ended June 30, 2026 was $104,669 compared to $131,191 for the same period in 2025, a decrease of $26,522 or 20%.
Expenses. Expenses for the six months ended June 30, 2026 and 2025 are summarized in the table below.
|
Six Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
Expenses: |
||||||||
|
Death claims |
$ | 2,636,746 | $ | 2,750,026 | ||||
|
Policyholder benefits |
2,265,694 | 3,922,850 | ||||||
|
Increase in policyholder reserves |
3,936,660 | 2,810,683 | ||||||
|
Commissions, net of deferrals |
203,926 | 445,138 | ||||||
|
Amortization of deferred acquisition costs |
425,691 | 441,487 | ||||||
|
Amortization of value of business acquired |
46,210 | 46,210 | ||||||
|
Salaries & benefits |
867,315 | 818,230 | ||||||
|
Other operating expenses |
1,659,240 | 1,351,978 | ||||||
|
Total expenses |
$ | 12,041,482 | $ | 12,586,602 | ||||
Expenses for the three months ended June 30, 2026 and 2025 are summarized in the table below.
|
Three Months Ended June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
(unaudited) |
||||||||
| Expenses: | ||||||||
|
Death claims |
$ | 1,226,545 | $ | 1,307,781 | ||||
|
Policyholder benefits |
1,117,513 | 1,830,311 | ||||||
|
Increase in policyholder reserves |
1,866,958 | 1,136,813 | ||||||
|
Commissions, net of deferrals |
103,703 | 196,648 | ||||||
|
Amortization of deferred acquisition costs |
210,757 | 273,563 | ||||||
|
Amortization of value of business acquired |
23,105 | 23,105 | ||||||
|
Salaries & benefits |
425,910 | 436,992 | ||||||
|
Other operating expenses |
746,624 | 635,618 | ||||||
|
Total expenses |
$ | 5,721,115 | $ | 5,840,831 | ||||
Death claims: Death benefits were $2,636,746 in the six months ended June 30, 2026 compared to $2,750,026 for the same period in 2025, a decrease of $113,280 or 4%. This decrease is attributable to a small reduction in pre-need life claims. We expect these claims to grow as we continue to increase the size of our in-force business.
Death benefits were $1,226,545 in the three months ended June 30, 2026 compared to $1,307,781 for the same period in 2025, a decrease of $81,236 or 6%. This decrease is attributable to a small reduction in pre-need life claims. We expect these claims to grow as we continue to increase the size of our in-force business.
Policyholder benefits: Policyholder benefits were $2,265,694 in the six months ended June 30, 2026 compared to $3,922,850 for the same period in 2025, a decrease of $1,657,156 or 42%. The primary driver of this decrease is a decrease in assumed benefits.
Policyholder benefits were $1,117,513 in the three months ended June 30, 2026 compared to $1,830,311 for the same period in 2025, a decrease of $712,798 or 39%. The primary driver of this decrease is a decrease in assumed benefits.
Increase in policyholder reserves: Policyholder reserves increased $3,936,660 in the six months ended June 30, 2026, compared to $2,810,683 for the same period in 2025, an increase of $1,125,977 or 40%. The increase in reserve growth is driven by increased direct premiums and LDTI assumption changes.
Policyholder reserves increased $1,866,958 in the three months ended June 30, 2026, compared to $1,136,813 for the same period in 2025, an increase of $730,145 or 64%. The increase in reserve growth is driven by increased direct premiums, a reduction in claims, and LDTI assumption changes.
Commissions, net of deferrals: The Company pays commissions to the ceding company on a block of assumed policies as well as commissions to agents on directly written business. Commissions, net of deferrals, were $203,926 in the six months ended June 30, 2026, compared to $445,138 for the same period in 2025, a decrease of $241,212 or 54%. This decrease is due to a reduction in assumed premiums.
Commissions, net of deferrals, were $103,703 in the three months ended June 30, 2026, compared to $196,648 for the same period in 2025, a decrease of $92,945 or 47%. This decrease is due to a reduction in assumed premiums.
Amortization of deferred acquisition costs: The amortization of deferred acquisition costs ("DAC") was $425,691 in the six months ended June 30, 2026, compared to $441,487 for the same period in 2025, a decrease of $15,796 or 4%. The decrease is driven by changes in DAC amortization patterns.
The amortization of deferred acquisition costs ("DAC") was $210,757 in the three months ended June 30, 2026, compared to $273,563 for the same period in 2025, a decrease of $62,806 or 23%. The decrease is driven by changes in DAC amortization patterns.
Amortization of value of business acquired: The amortization of value of business acquired (“VOBA”) was $46,210 in the six months ended June 30, 2026 and 2025, respectively. VOBA is being amortized straight-line over 30 years. The amortization of VOBA was $23,105 in the three months ended June 30, 2026 and 2025, respectively.
Salaries and benefits: Salaries and benefits were $867,315 for the six months ended June 30, 2026, compared to $818,230 for the same period in 2025, an increase of $49,085 or 6%. The increase was driven by increased employee benefit costs and fluctuations in staffing levels.
Salaries and benefits were $425,910 for the three months ended June 30, 2026, compared to $436,992 for the same period in 2025, a decrease of $11,082 or 3%. The decrease was driven by fluctuations in staffing levels.
Other expenses: Other operating expenses were $1,659,240 in the six months ended June 30, 2026, compared to $1,351,978 for the same period in 2025, an increase of $307,262 or 23%. The increase is driven by an increase in audit costs and marketing costs.
Other operating expenses were $746,624 in the three months ended June 30, 2026, compared to $635,618 for the same period in 2025, an increase of $111,006 or 17%. The increase is driven by an increase in marketing costs, state examination fees, and premium tax.
Federal income tax expenses: Federal income tax benefit of $67,311 was recorded for the six months ended June 30, 2026 compared to tax benefit of $269 for the same period in 2025. Federal income tax expense of $27,227 was recorded for the three months ended June 30, 2026 compared to tax expense of $216,050 for the same period in 2025.
Net loss: Our net loss was $291,461 in the six months ended June 30, 2026 compared to a net loss of $427,955 for the same period in 2025, an improvement of $136,494. Our net loss per share was $0.04 compared to a net loss per share of $0.06 in 2025, basic and diluted. Our net income was $39,972 in the three months ended June 30, 2026 compared to a net income of $919,485 for the same period in 2025. Our net income per share was $0.01 compared to a net income per share of $0.12 in 2025, basic and diluted.
Discussion of Consolidated Balance Sheet
Assets. Assets have increased to $151,876,372 as of June 30, 2026, an increase of $3,196,270 or 2% from December 31, 2025 assets of $148,680,102. This is primarily the result of an increase in mortgage loans and equity securities.
Available for sale fixed maturity securities: As of June 30, 2026, we had available for sale fixed maturity assets of $88,686,166, an increase of $2,151,462 or 3% from the December 31, 2025 balance of $86,534,704. The increase is driven by new purchases.
Equity securities, at fair value: As of June 30, 2026, we had equity assets of $8,517,432, an increase of $4,975,020 or 140% from the December 31, 2025 balance of $3,542,412. This increase is driven by the purchase of equity securities.
Limited partnership interests: As of June 30, 2026, we had limited partnership interests of $1,803,095, an increase of $510,090 or 40% from our December 31, 2025 balance of $1,293,005. This is driven by additional investments in the Mutual Capital Investment Fund.
Mortgage loans on real estate: As of June 30, 2026, we had mortgage loans on real estate of $32,417,262, an increase of $8,772,225 or 37% from the December 31, 2025 balance of $23,645,037. The increase is the result of new mortgage loan participations.
Other invested assets: As of June 30, 2026, we had other invested assets of $989,514, a decrease of $29,126 or 3% from the December 31, 2025 balance of $1,018,640.
Policy loans: As of June 30, 2026, our policy loans were $43,264, an increase of $1,950 or 5% from the December 31, 2025 balance of $41,314. The increase is a result of normal policy loan activity.
Real estate, net of depreciation: As of June 30, 2026, we had real estate assets of $1,587,687 related to our home office building, a decrease of $10,292 or 1% from the December 31, 2025 balance of $1,597,979. The decrease is the result of depreciation.
Cash and cash equivalents: As of June 30, 2026, we had cash and cash equivalent assets of $3,541,701, a decrease of $14,495,203 or 80% from the December 31, 2025 balance of $18,036,904. This decrease was the result of cash being deployed into invested assets.
Investment income due and accrued: As of June 30, 2026, our investment income due and accrued was $1,196,679 compared to $860,697 as of December 31, 2025, an increase of $335,982 or 39%. This increase is attributable to investment activity.
Reinsurance related assets: As of June 30, 2026, our reinsurance related assets were $836,164 compared to $1,177,656 as of December 31, 2025, a decrease of $341,492 or 29%. This decrease is the result of changes in the net settlement due to/from ALSC under our 2020 ALSC Agreement.
Deferred acquisition costs, net: As of June 30, 2026, our deferred acquisition costs were $4,680,690 compared to $4,739,627 as of December 31, 2025, a decrease of $58,937 or 1%. The decrease is the result of amortization.
Value of business acquired, net: As of June 30, 2026 our value of business acquired asset was $2,194,923 compared to $2,241,133 as of December 31, 2025, a decrease of $46,210 or 2%. The decrease is the result of amortization of VOBA.
Property, equipment and software, net: As of June 30, 2026 our property, equipment and software assets were $114,676, a decrease of $4,392 or 4% from the December 31, 2025 balance of $119,068. The decrease is the result of depreciation.
Goodwill: As of June 30, 2026 and December 31, 2025, our goodwill was $277,542. Goodwill was established as a result of our merger with NPCC. We have determined that there has been no impairment to our goodwill balance.
Deferred tax asset, net of valuation allowance: The Company had a net deferred tax asset of $3,454,691 as of June 30, 2026, an increase of $453,779 or 15% from the December 31, 2025 balance of $3,000,912. The increase is the result of deferred federal income tax benefits.
Other assets: As of June 30, 2026, our other assets were $1,499,514, an increase of $981,414 or 189% from the December 31, 2025 balance of $518,100. The increase is a result of securities receivable and additional pre-paid expenses.
Liabilities. Our total liabilities were $139,168,478 as of June 30, 2026, an increase of $3,485,730 or 3% from our December 31, 2025 liabilities of $135,682,748. The increase is driven by an increase in our policy liabilities.
Policy liabilities: Our total policy liabilities as of June 30, 2026 were $135,901,645 compared to $132,757,740 as of December 31, 2025, an increase of $3,143,905 or 2%. This increase is the result of growth in our policyholder benefit reserves.
Accounts payable and accrued expenses: As of June 30, 2026, our accounts payable and accrued expenses were $1,193,418 compared to $1,575,654 as of December 31, 2025, a decrease of $382,236 or 24%. The decrease is driven by changes in reinsurance settlement payables.
Federal Home Loan Bank advance: As of June 30, 2026 and December 31, 2025, respectively, the Company has outstanding advances of $1,250,000 with the Federal Home Loan Bank of Topeka.
Other liabilities: As of June 30, 2026, we had other liabilities of $823,415 compared to $99,354 as of December 31, 2025, an increase of $724,061. The increase is the result of changes in investment-related payables.
Shareholders’ Equity. Our shareholders’ equity was $12,707,894 as of June 30, 2026, a decrease of $289,460 or 2% from our December 31, 2025 shareholders’ equity of $12,997,354. The decrease in shareholders’ equity was driven by our net loss.
Investments
Our investment philosophy is reflected in the allocation of our investments. We emphasize investment grade debt securities with smaller holdings in equity securities, mortgages and other investments. 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, 2026 and December 31, 2025.
|
June 30, 2026 |
December 31, 2025 |
|||||||||||||||
|
Carrying |
Percent |
Carrying |
Percent |
|||||||||||||
|
Value |
of Total |
Value |
of Total |
|||||||||||||
|
|
(unaudited) |
|||||||||||||||
| Fixed maturities: | ||||||||||||||||
|
US Treasury securities |
$ | 729,834 | 0.5 | % | $ | 732,892 | 0.5 | % | ||||||||
|
Corporate bonds |
27,058,199 | 19.7 | % | 28,299,216 | 20.9 | % | ||||||||||
|
Municipal bonds |
5,760,379 | 4.2 | % | 5,807,136 | 4.3 | % | ||||||||||
|
Redeemable preferred stocks |
1,506,863 | 1.1 | % | 1,998,438 | 1.5 | % | ||||||||||
|
Term Loans |
12,968,088 | 9.4 | % | 11,005,804 | 8.1 | % | ||||||||||
|
Mortgage backed and asset backed securities |
40,662,803 | 29.5 | % | 38,691,218 | 28.4 | % | ||||||||||
|
Total fixed maturities |
88,686,166 | 64.4 | % | 86,534,704 | 63.7 | % | ||||||||||
|
Mortgage loans |
32,417,262 | 23.6 | % | 23,645,037 | 17.4 | % | ||||||||||
|
Other invested assets |
989,514 | 0.7 | % | 1,018,640 | 0.8 | % | ||||||||||
|
Limited partnership interests |
1,803,095 | 1.3 | % | 1,293,005 | 1.0 | % | ||||||||||
|
Equities: |
||||||||||||||||
|
Common stock |
7,115,101 | 5.2 | % | 2,097,203 | 1.5 | % | ||||||||||
|
Preferred stock |
1,402,331 | 1.0 | % | 1,445,209 | 1.1 | % | ||||||||||
|
Total equities |
8,517,432 | 6.2 | % | 3,542,412 | 2.6 | % | ||||||||||
|
Real estate, net of depreciation |
1,587,687 | 1.2 | % | 1,597,979 | 1.2 | % | ||||||||||
|
Cash and cash equivalents |
3,541,701 | 2.6 | % | 18,036,904 | 13.3 | % | ||||||||||
|
Total |
$ | 137,542,857 | 100.0 | % | $ | 135,668,681 | 100.0 | % | ||||||||
The total value of our investments and cash and cash equivalents increased to $137,542,857 as of June 30, 2026 from $135,668,681 at December 31, 2025, an increase of $1,874,176 or 1%. Increases in investments are primarily attributable to premium income.
The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of June 30, 2026 and December 31, 2025.
|
June 30, 2026 |
December 31, 2025 |
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|
Fair |
Percent |
Fair |
Percent |
|||||||||||||
|
Value |
of Total |
Value |
of Total |
|||||||||||||
|
(unaudited) |
||||||||||||||||
|
AAA and U.S. Government |
$ | 9,236,537 | 10.4 | % | $ | 8,939,711 | 10.3 | % | ||||||||
|
AA |
15,092,637 | 17.0 | % | 13,834,491 | 16.0 | % | ||||||||||
|
A |
12,120,126 | 13.7 | % | 11,839,821 | 13.7 | % | ||||||||||
|
BBB |
38,863,212 | 43.8 | % | 30,102,608 | 34.8 | % | ||||||||||
|
BB |
2,319,109 | 2.6 | % | 2,965,831 | 3.4 | % | ||||||||||
|
B |
1,200,144 | 1.4 | % | 1,236,377 | 1.4 | % | ||||||||||
|
Not Rated - Certificates of Deposit |
7,950,000 | 9.0 | % | 8,650,000 | 10.0 | % | ||||||||||
|
Not Rated - Private Placement |
1,904,401 | 2.1 | % | 8,965,865 | 10.4 | % | ||||||||||
|
Total |
$ | 88,686,166 | 100.0 | % | $ | 86,534,704 | 100.0 | % | ||||||||
The amortized cost and fair value of debt securities as of June 30, 2026 and December 31, 2025, by contractual maturity, are shown below. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
As of June 30, 2026 |
As of December 31, 2025 |
|||||||||||||||
|
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
|||||||||||||
|
|
(unaudited) |
|||||||||||||||
| Amounts maturing in: | ||||||||||||||||
|
One year or less |
$ | 374,537 | $ | 373,419 | $ | 1,074,089 | $ | 1,072,360 | ||||||||
|
After one year through five years |
26,955,703 | 26,763,606 | 23,367,252 | 23,263,307 | ||||||||||||
|
After five years through ten years |
3,541,709 | 3,444,331 | 4,878,273 | 4,797,585 | ||||||||||||
|
More than 10 years |
19,011,375 | 15,935,144 | 19,722,631 | 16,711,796 | ||||||||||||
|
Redeemable preferred stocks |
1,671,335 | 1,506,863 | 2,142,141 | 1,998,438 | ||||||||||||
|
Mortgage backed and asset backed securities |
41,000,206 | 40,662,803 | 38,852,468 | 38,691,218 | ||||||||||||
|
Total amortized cost and fair value |
$ | 92,554,865 | $ | 88,686,166 | $ | 90,036,854 | $ | 86,534,704 | ||||||||
Market Risk of Financial Instruments
We hold a diversified portfolio of investments that primarily includes cash, bonds, equity securities, mortgage loans, and other invested assets. Each of these investments is subject to market risks that can affect their return and their fair value. The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and equity risk.
Interest Rate Risk
Interest rate risk arises from the price sensitivity of investments to changes in interest rates. Interest represents 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. Changes in fair value of our fixed maturity securities due to interest rates are reflected through accumulated other comprehensive income. Significant fluctuations may result in material volatility of accumulated other comprehensive income.
We work to mitigate our exposure to adverse interest rate movements through laddering the maturities of the fixed maturity investments and through maintaining cash and other short-term investments to assure sufficient liquidity to meet our obligations and to address reinvestment risk considerations. Due to the composition of our book of insurance business, we believe it is unlikely that we would encounter large surrender activity due to an interest rate increase that would force the disposal of fixed maturities at a loss. Additionally, USALSC is a member of the FHLB of Topeka, which provides access to liquidity and further reduces the likelihood of disposing of fixed maturities at a loss.
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 established investment policies and guidelines which address the quality of creditors and counterparties, concentration limits, diversification practices and acceptable risk levels. These policies and guidelines are regularly reviewed and approved by senior management and USAC's Board of Directors.
Liquidity and Capital Resources
Premium income, deposits to policyholder account balances, investment income, and capital raising are the primary sources of funds while withdrawals of policyholder account balances, investment purchases, policy benefits in the form of claims, and operating expenses are the primary uses of funds. To ensure we will be able to pay future commitments, the funds received as premium payments and deposits are invested in primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will in the future meet our ongoing cash flow needs. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Our investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. Cash flow projections and cash flow tests under various market interest scenarios are also performed annually to assist in evaluating liquidity needs and adequacy. The Company has two past due loan participations with principal net of allowances in the amount of $2,442,131. The Company does not anticipate these loans to have a material impact on our financial condition or liquidity. As a member of the Federal Home Loan Bank, USALSC has immediate access to additional cash liquidity, if needed. As of June 30, 2026, the Company has approximately $1,900,000 of immediate borrowing capacity at the Federal Home Loan Bank.
Net cash provided by operating activities was $3,533,435 for the six months ended June 30, 2026. The primary sources of cash from operating activities were policyholder premiums and investment income. The primary uses of cash for operating activities were for payment of commissions to agents and settlement of policy liabilities. Net cash used in investing activities was $17,097,407. The primary use of cash was purchases of fixed maturity, mortgage, and equity investments. Cash used in financing activities was $931,231. The primary uses of cash were withdrawals on deposit-type contracts.
As of June 30, 2026, we had cash and cash equivalents totaling $3,541,701. We believe that our existing cash and cash equivalents are sufficient to fund the anticipated operating expenses and capital expenditures for the foreseeable future. We have based this estimate upon assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. The growth of USALSC and USALSC-Montana, our insurance subsidiaries, is uncertain and may require additional capital as it continues to grow.
Impact of Inflation
Insurance premiums are established before the amount of losses, or the extent to which inflation may affect such losses and expenses, are known. We attempt, in establishing premiums, to anticipate the potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by us. Inflation also affects the rate of investment return on the investment portfolio with a corresponding effect on investment income.
Off-Balance Sheet Arrangements
We have no 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company”, the Company does not 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 of Directors.
As required by Exchange Act Rule 13a-15(b), management of the Company, including the Chief Executive Officer and the Vice President conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e). Based upon an evaluation at the end of the period, the Chief Executive Officer and the Vice President concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the Exchange Act.
There were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the three and six months ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.
Part II – Other Information
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 business, and we are not aware of any claims that could materially affect our financial position or results of operation.
As a “smaller reporting company”, the Company is not required to provide disclosure pursuant to this item.
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
.
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EXHIBITS |
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3.1 |
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3.1.1 |
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3.1.2 |
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3.2 |
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3.2.1 |
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| 10.1† | Employment Agreement dated June 1, 2026 between US. Alliance Corporation and Jeffrey Brown, filed as Exhibit 10.1 to the Company's Current Report of Forrm 8-K filed on June 2, 2026 (File No. 00055627), is incorporated herein by reference as Exhibit 10.1. |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS** |
Inline XBRL Instance |
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101.SCH** |
Inline XBRL Taxonomy Extension Schema |
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101.CAL** |
Inline XBRL Taxonomy Extension Calculation |
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101.DEF** |
Inline XBRL Taxonomy Extension Definition |
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101.LAB** |
Inline XBRL Taxonomy Extension Labels |
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101.PRE** |
Inline XBRL Taxonomy Extension Presentation |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
* Filed herewith
† Management or compensatory contract.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized
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US Alliance |
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Corporation |
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(Registrant) |
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Date |
August 14, 2026 |
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By |
/s/ Jack H. Brier |
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Jack H. Brier, President and Chairman |