MDWT Midwest Holding Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

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CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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Date of Report (Date of earliest event reported): August 11, 2023

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Midwest Holding Inc.

(Exact name of registrant as specified in its charter)

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2900 South 70th Street, Suite 400

Lincoln, Nebraska 68506
(Address of principal executive offices) (Zip Code)
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(402)  817-5701

(Registrant’s telephone number, including area code)

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

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☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

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☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

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☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))

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☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

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

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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

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

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Item 2.02 Results of Operations and Financial Condition.

On August 11, 2023, Midwest Holding Inc. (the “Company”) issued a press release announcing its financial and operating results for the three and six months ended June 30, 2023. A copy of the press release is furnished herewith as Exhibit 99.1.

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The information in this Current Report on Form 8-K furnished pursuant to Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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Item 9.01 Financial Statements and Exhibits.

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(d) Exhibits.

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The following exhibits are included with this Current Report on Form 8-K:

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SIGNATURE

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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Dated: August 11, 2023

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Midwest Holding Inc. Reports Second Quarter 2023 Results

LINCOLN, Neb., August 11, 2023 / PR Newswire/ -- Midwest Holding Inc. (“Midwest”) (NASDAQ: MDWT), today announced financial results for the quarter and six months ended June 30, 2023.

Highlights for the second quarter 2023:

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Highlights for the six months ended June 30, 2023:

Georgette Nicholas, CEO of Midwest noted, "We are focused on the execution of our business strategy related to distribution, pricing, products, investment management, and reinsurance to position the Company for further growth. We are pleased with the progress we have made in obtaining the necessary approvals required for completing the Antarctica merger and still anticipate closing in the second half of 2023."

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Q2 2023 versus Q2 2022 on a GAAP basis

Midwest reported net loss of $3.9 million for Q2 2023; this compares with income of $9.3 million in the second quarter of the prior year. On a diluted, per-share basis, this quarter’s net income was negative $(1.04) compared with $2.47 reported in Q2 2022.

Investment income rose in the second quarter of 2023 to $24.2 million from $10.5 million in the same period for the prior year. Driving the change was an increase in invested assets as well as performance on those assets, benefiting from sourcing investments with a higher yield. 

Amortization of deferred gain on reinsurance reached $1.5 million this quarter compared with $1.0 million in Q2 2022. This was due to growth in the deferred gain on co-insurance on the balance sheet to $43.2 million compared to $38.1 million a year ago, which reflects ceding commission received on reinsurance with third parties.

Service fee revenue was at $0.6 million in Q2 2023, up from $0.4 million in Q2 2022. Service fee revenue consists of fee revenue generated by our wholly owned asset manager, 1505 Capital LLC, for asset management services provided to third-party clients.

Policy administration fee revenue for the quarter was $0.5 million, unchanged from the same period in 2022. Policy administration fee revenue is generated by providing ancillary services, such as policy administration, to third parties as well as collecting policy surrender charges. The increase was correlated with the growth in policies written and ceded to reinsurance partners. 

Our expenses were $26.5 million in the second quarter of 2023 compared with negative $(1.4) million in the second quarter of the prior year. Contributing to the increase was interest credited expense, compared to negative interest credited in the prior period, as well as mark-to-market expense which is included in other operating expenses. Total expenses have increased from variable costs associated with increased premiums written related to technology, distribution, product fees, and premium taxes along with expenses related to state expansion and capital initiatives. Salaries and benefits increased with the addition, repositioning, and retention of personnel to support growth and manage a tighter labor market.

Six Months Ended June 30, 2023 versus Six Months Ended June 30, 2022 on a GAAP basis

Midwest reported net loss of $(0.1) million for the six months ended June 30, 2023; this compares with income of $9.5 million in the same period of the prior year. On a diluted, per-share basis, this year’s to date net income was negative $(0.01) compared with $2.52 reported at June 30, 2022.

Investment income rose in the first six months of 2023 to $43.4 million from $16.8 million in the same period for the prior year. Driving the change was an increase in invested assets as well as performance on those assets, benefiting from sourcing investments with a higher yield. 

Amortization of deferred gain on reinsurance reached $3.1 million for the first six months of 2023 compared with $2.0 million in the same period of 2022. This was due to growth in the deferred gain on co-insurance on the balance sheet to $43.2 million compared to $38.1 million at year end, which reflects ceding commission received on reinsurance with third parties.

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Service fee revenue was at $1.3 million in the first six months of 2023, down from $1.5 million in the same period of 2022, as the prior year included a performance fee received on the payoff of a mortgage. Service fee revenue consists of fee revenue generated by our wholly owned asset manager, 1505 Capital LLC, for asset management services provided to third-party clients.

Policy administration fee revenue for the first six months of 2023 was $1.1 million versus $0.9 million in the same period in 2022. Policy administration fee revenue is generated by providing ancillary services, such as policy administration, to third parties as well as collecting policy surrender charges. The increase was correlated with the growth in policies written and ceded to reinsurance partners. 

Our expenses were $56.3 million in the first half of 2023 compared with $(4.7) million in the first half of the prior year. Contributing to the increase was interest credited expense, compared to negative interest credited in the prior period, as well as mark-to-market expense which is included in other operating expenses. Total expenses have increased from variable costs associated with increased premiums written related to technology, distribution, product fees, and premium taxes along with expenses related to state expansion and capital initiatives. Salaries and benefits increased with the addition, repositioning, and retention of personnel to support growth and manage a tighter labor market.

Guidance

We continue to see a growing fixed annuity market with new competitors and various movements in pricing. Our focus is to maintain a competitive position on pricing and service to continue sales momentum in 2023.

State expansion efforts remain a key priority. We are excited to begin writing business in Florida, Georgia, and Kentucky, where we were granted approval to conduct business and obtained our product approvals. We anticipate that the addition of these states could add approximately 33% growth to our existing premium written. We have other active state applications in process and will provide updates as they progress.

Given our start for 2023, we estimate that premiums written for 2023 will be in the range of $850 million to $950 million (SAP) as of now.

The goal is to cede, on average, approximately 70-90% of our premium in a year to generate ceded commission fees and manage capital, although through the first half of 2023 we ceded approximately 48%. We expect to cede approximately 55-65% in 2023 given that the demand from reinsurance partners is strong. We have capacity in place to cover anticipated written premium through existing partners along with additional potential reinsurance transactions in the pipeline.

We continue to focus on expense management, making key investments to support growth of the business and bring efficiencies with technology. We anticipate general and administrative expenses on a management basis, a non-GAAP measure, to be approximately $30 to $32 million for the full year 2023.

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Key Performance Indicators and Non-GAAP Financial Measures for the Three and Six Months Ended June 30, 2023

In addition to GAAP measures, Midwest’s management utilizes a series of key performance indicators (KPI’s) and non-GAAP measures to, among other things:

These non-GAAP measures are not a substitute for GAAP measures; however, management believes that when used in conjunction with the GAAP measures, the non-GAAP measures can contribute to investors’ understanding of the progress of our business. Non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to, our operating performance measures as prescribed by GAAP.

Annuity Premiums (a KPI)

For the second quarter of 2023, annuity direct written premiums were $263.2 million compared with $156.0 million in the second quarter of 2022. Ceded premiums were $116.3 million in 2023’s second quarter compared to $59.9 million in the second quarter of 2022. Of the second quarter 2023 sales of $263.2 million, 57% was in the MYGA category and the remaining 43% consisted of sales of FIA.

For the first six months of 2023, annuity direct written premiums were $457.8 million compared with $254.1 million in the same period of 2022. Ceded premiums were $218.4 million in 2023’s first six months compared to $100 million in the first six months of 2022. Of the 2023 year to date sales of $457.8 million, 62% was in the MYGA category and the remaining 38% consisted of sales of FIA.

Fees Received for Reinsurance (a KPI)

Fees received for reinsurance amounted to $4.8 million in the quarter compared to $3.2 million in the prior year second quarter. Fees received for reinsurance for the six months ending June 30, 2023 were $8.2 million compared to $5.6 million in the same six months of the prior year. We use this non-GAAP figure to measure the progress of our effort to secure third-party capital to back our reinsurance programs. Fees received for reinsurance sums two components: Amortization of deferred gain on reinsurance, which is a line item in our Consolidated Statements of Comprehensive Loss, and deferred coinsurance ceding commission, which is a line item in our GAAP Consolidated Statements of Cash Flows.

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General and Administrative (“G&A”) Expenses (a non-GAAP measure)

We monitor this figure to track our overhead. It includes salary and benefits and other operating expenses; however, it excludes non-cash stock-based compensation and the non-cash mark-to-market-adjustment of our option budget allowance.

G&A expenses in Q2 2023 have risen to $12.5 million from $7.0 million at the same point in the prior year. For the six months ended June 30, 2023 expenses rose to $24.0 million compared to $15.9 million for the six months ended June 30, 2022.

Total expenses have increased from variable costs associated with increased premiums written related to technology, distribution, product fees, and premium taxes along with expenses related to state expansion and capital initiatives. Salaries and benefits increased with the addition, repositioning, and retention of personnel to support growth and manage a tighter labor market.

Management Expenses (a non-GAAP measure)

We use this figure to monitor the expenses of our business on a cash basis. Importantly, we exclude from the calculation of management expenses the index interest credited related to our FIAs because this expense is fully hedged. Instead, we add back to Management Expenses the period’s amortization of options previously purchased to provide this hedge. We view this amortized cost as our true cost of funds. Management Expenses also excludes the mark-to-market adjustment of our option budget allowance, as that is recorded as a component of other operating expense.

Management expenses for the second quarter of 2023 were $18.4 million compared with $10.9 million in the same period of the prior year. Management expenses for the six months ended June 30, 2023 were $35.3 million compared to $23.7 million for the same six months in 2022. Principal drivers of the increase were higher interest credited and increases in expenses from retained premiums along with the increase in G&A noted above.

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SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated by reference in this release constitute forward-looking statements. These statements are based on management's expectations, estimates, projections and assumptions. In some cases, you can identify forward-looking statements by terminology including "could," "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "intend," “target,” “contemplate,” “project,” or "continue," the negative of these terms, or other comparable terminology used in connection with any discussion of future operating results or financial performance. These statements are only predictions and reflect our management's good faith present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

Factors that may cause our actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward-looking statements include among others, the following possibilities:

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In addition, this communication and any documents referred to in this communication contain certain forward-looking statements within the meaning of the federal securities laws with respect to the proposed acquisition of Midwest Holding Inc. (the “Company”) by an affiliate of Antarctica Capital, LLC, including, but not limited to, statements regarding the anticipated timing of the closing of the proposed transaction. These forward-looking statements generally are identified by the words “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “intend,” “target,” “contemplate,” “project,” and similar expressions. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication, including but not limited to: (i) the risk that the proposed transaction may not be completed in a timely manner or at all, (ii) the failure to satisfy the conditions to the consummation of the proposed transaction, including approval of the proposed transaction by the stockholders of the Company and the receipt of necessary regulatory approvals, (iii) the occurrence of any event, change or other circumstance that could give rise to the termination of the proposed transaction, (iv) the effect of the announcement or pendency of the proposed transaction on the Company’s business relationships, operating results, and business generally, including the termination of any business contracts, (v) risks that the proposed transaction disrupts current plans and operations of the Company and potential difficulties in hiring and retaining key personnel as a result of the proposed transaction, (vi) risks related to diverting management’s attention from the Company’s ongoing business operations, (vii) risks that any announcements related to the proposed transaction could have adverse effects on the Company’s stock price, credit ratings, or operating results, (viii) the outcome of any legal proceedings that may be instituted related to the Merger Agreement or the proposed transaction and (ix) the significant transactions costs that the parties will incur in connection with the proposed transaction. The risks and uncertainties may be amplified by economic, market, business, or geopolitical conditions or competition, or changes in such conditions, negatively affecting the Company’s business, operations, and financial performance. The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the Company’s business as described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed from time to time with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and the Company assumes no obligation to, and does not intend to, update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law.

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About Midwest Holding Inc.

Midwest Holding Inc. is a growing, technology-enabled, services-oriented annuity platform. Midwest designs and develops annuity products that are distributed through independent distribution channels, to a large and growing demographic of U.S. retirees. Midwest originates, manages, and typically transfers these annuities through reinsurance arrangements to asset managers and other third-party investors. Midwest also provides the operational and regulatory infrastructure and expertise to enable asset managers and third-party investors to form and manage their own reinsurance capital vehicles.

For more information, please visit www.midwestholding.com

Investor contact: ir@midwestholding.com

Media inquiries: press@midwestholding.com

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Consolidated Balance Sheets
(in thousands)

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Consolidated Statements of Comprehensive Loss
(in thousands, except per share amounts)

(Unaudited)

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Consolidated Statements of Cash Flows
(in thousands)

(Unaudited)

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Supplemental Information – Reconciliation – Management Expenses to GAAP Expenses
(in thousands)

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