Life insurance operations, consisting of the life insurance operations of TLIC, FBLIC and TAI;
Consolidated Condensed Results of Operations for the Years Ended December 31, 2020 and 2019
Results of Operations - Years Ended December 31, 2020 and 2019
The increase in final expense renewal premiums reflects the persistency of prior years’ final expense production. The increase in ordinary life renewal premiums primarily reflects ordinary life insurance policies sold in the international market by TAI. The increase in final expense first year premiums represents management’s focus on expanding final expense production by contracting new, independent agents in expanded locations.
Our net realized investment gains result from sales of fixed maturity securities, mortgage loans on real estate, equity securities, investment real estate, preferred stock securities and changes in the fair value of equity securities.
$2,914,317 increase in death benefits is primarily due to approximately $2,387,000 of increased final expense benefits and approximately $527,000 of increased ordinary life benefits due to increased mortality exposure related to increased amount of policies in force, increased exposure in the senior age demographic group of the final expense block of business and the impact of the Coronavirus Disease Pandemic 2019 (“COVID-2019”).
The $7,071,067 increase in assets held in trust under the coinsurance agreement is due to assets acquired under TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company that is administered on a funds withheld basis.
The $2,874,987 increase in deferred federal income taxes during the year ended December 31, 2020 was due to $2,100,584 of increased deferred federal income taxes on the unrealized appreciation of fixed maturity and preferred stock available-for-sale and $774,403 of operating deferred federal tax expense.
As discussed in Note 1 to the consolidated financial statements, management’s policy is to treat the value of acquired insurance in force as an intangible asset with a definite life and amortize the value over the emerging profits of the related policies. This accounting policy is deemed critical as it requires management to make difficult and subjective judgements about the recoverability of this asset. To address this critical audit matter, we engaged an actuarial professional with specialized skills and knowledge who assisted in examining, reviewing, and testing the actuarial assumptions and methods used in determining the value of insurance business acquired and the related amortization. We also performed analytical procedures to determine appropriateness of the balance and related expense.
In conjunction with this 2020 acquisition, the cash and non-cash impact on operating, investing and financing activities is summarized as follows.
The Company owns 100% of TAI (formerly known as Citizens American Life, Inc.). TAI was incorporated in Barbados, West Indies on March 24, 2016 for the primary purpose of forming a life insurance company producing United States of America (U.S.) dollar denominated life insurance policies and annuity contracts outside of the United States and Barbados. TAI is licensed as an Exempt Insurance Company under the Exempt Insurance Act of Barbados. TAI was initially involved in developing life insurance and annuity contracts through an association with distribution channels but is now issuing life insurance policies and annuity contracts. The Company’s acquisition of TAI was formally approved by Barbados regulators and the certifications were received in 2019.
These proposals received Form A regulatory approval from the Oklahoma Insurance Department (“OID”) on February 27, 2020 and the Missouri Department of Commerce and Insurance (“MDCI”) on December 31, 2019, followed by formal adoption by FTFC’s Board of Directors on March 12, 2020. Effective March 12, 2020, FTFC’s Class B shareholders were entitled to elect a majority of FTFC’s Board of Directors (one-half plus one) but will only receive, compared to FTFC’s Class A shareholders, 85% of cash dividends, stock dividends or amounts due upon any FTFC merger, sale or liquidation event. FTFC’s Class B shareholders may also convert one share of FTFC’s Class B common stock for a .85 share of FTFC’s Class A common stock. FTFC’s Class A shareholders will elect the remaining Board of Directors members and will receive 100% of cash dividends, stock dividends or amounts due upon any Company merger, sale or liquidation event.
On December 31, 2008, FTFC made FLAC a 15 year loan in the form of a surplus note in the amount of $250,000 with an interest rate of 6% payable monthly, that was approved by the Oklahoma Insurance Department (“OID”). This surplus note is eliminated in consolidation.
Other assets consist primarily of advances to mortgage loan originator, receivable for securities sold, federal and state income taxes recoverable, guaranty funds, notes receivable, prepaid assets, deposits, other receivables and property and equipment.
As of December 31, 2019, the Company held 24 available-for-sale fixed maturity securities with an unrealized loss of $521,271, fair value of $7,357,453 and amortized cost of $7,878,724. These unrealized losses were primarily due to market interest rate movements in the bond market as of December 31, 2019. The ratio of the fair value to the amortized cost of these 24 securities is 93%.
Fixed maturity securities was 97% investment grade as rated by Standard & Poor’s as of December 31, 2020 and December 31, 2019.
The balances of and changes in the Company’s credit losses related to residential and commercial (includes apartment, industrial, lodging, office building and retail) mortgage loans on real estate as of and for the years ended December 31, 2020 and 2019 are summarized as follows (excluding $67,028,720 and $61,757,602 of mortgage loans on real estate as of December 31, 2020 and 2019, respectively, with one loan originator where independent mortgage loan balances are held in escrow by a third party for the benefit of the Company):
The pretax components of the Company’s other comprehensive income and the related income tax expense (benefit) for each component for the years ended December 31, 2020 and 2019 are summarized as follows:
The pretax and the related income tax components of the amounts reclassified from the Company’s accumulated other comprehensive income (loss) to the Company’s consolidated statements of operations for the years ended December 31, 2020 and 2019 are summarized as follows: