UTG INC
For the period ended Sep 30, 2024. Filed Nov 13, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 13, 2024
UTGNStored price and day change unavailable
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-12.
0000832480-24-000014
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-13.
0000832480-24-000019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 67 previous paragraphs and 67 current paragraphs.
41 unchanged; 26 reworded; 0 added; 0 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 5 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Reworded paragraphs (26)
Previous wording
During the six-months ended June 30, 2024, there were no additions to or changes in the critical accounting policies disclosed in the 2023 Form 10-K.
Current wording
During the nine-months ended September 30, 2024, there were no additions to or changes in the critical accounting policies disclosed in the 2023 Form 10-K.
Previous wording
On a consolidated basis, the Company reported net income attributable to common shareholders of approximately $15.6 million for the six-month period ended June 30, 2024, and net income attributable to common shareholders of approximately $6.5 million for the three-month period ended June 30, 2024.
Current wording
On a consolidated basis, the Company reported net income attributable to common shareholders of approximately $41.9 million for the nine-month period ended September 30, 2024, and net income attributable to common shareholders of approximately $26.3 million for the three-month period ended September 30, 2024.
Previous wording
For the six-month period ended June 30, 2023, the Company reported a net loss attributable to common shareholders of approximately $(6.9) million, and net income attributable to common shareholders of approximately $80,000 for the three-month period ended June 30, 2023
Current wording
For the nine-month period ended September 30, 2023, the Company reported a net loss attributable to common shareholders of approximately $(1.7) million, and net income attributable to common shareholders of approximately $5.2 million for the three-month period ended September 30, 2023.
Previous wording
For the six-month period ended June 30, 2024, the Company reported total revenues of approximately $29.7 million and for the same period in 2023 total revenues of approximately $3.3 million. The Company reported total revenues of approximately $13.1 million and $6.4 million for the three-month period ended June 30, 2024 and 2023, respectively.
Current wording
For the nine-month period ended September 30, 2024, the Company reported total revenues of approximately $68.7 million and for the same period in 2023 total revenues of approximately $16.0 million. The Company reported total revenues of approximately $39.0 million and $12.7 million for the three-month period ended September 30, 2024 and 2023, respectively.
Previous wording
The variance in total revenue between second quarter 2023 and 2024 results, and the year-to-date is primarily the result of the change in the fair value of equity securities. The Company reported a second quarter 2024 gain in the change in the fair value of equity securities of approximately $6.8 million and a year-to-date 2024 gain of approximately $18.9 million. In 2023, the Company reported a second quarter gain in the change in the fair value of equity securities of approximately $1.5 million and a year-to-date loss of approximately $(7.2) million. The stock markets have experienced volatility in recent periods, which in general, should always be expected.
Current wording
The variance in total revenue between third quarter 2023 and 2024 results, and the year-to-date is primarily the result of the change in the fair value of equity securities. The Company reported a third quarter 2024 gain in the change in the fair value of equity securities of approximately $32.3 million and a year-to-date 2024 gain of approximately $51.2 million. In 2023, the Company reported a third quarter loss in the change in the fair value of equity securities of approximately $(23,000) and a year-to-date loss of approximately $(7.2) million. The stock markets have experienced volatility in recent periods, which in general, should always be expected.
Previous wording
The Company reported revenue before net investment gains (losses) of approximately $10.4 million and $9.5 million for the six-month-period ended 2024 and 2023, respectively. The Company reported $5.8 million and $4.6 million, respectively, of revenue before net investment gains (losses) for the second quarter of 2024 and 2023, respectively. The increase in the 2024 results, when compared to 2023, are the result of an increase in net investment income in the second quarter and year-to-date.
Current wording
The Company reported revenue before net investment gains (losses) of approximately $15.4 million and $14.2 million for the nine-month-period ended September 30, 2024 and 2023, respectively. The Company reported $5.0 million and $4.8 million, respectively, of revenue before net investment gains (losses) for the third quarter of 2024 and 2023, respectively. The increase in the 2024 results, when compared to 2023, are the result of an increase in net investment income in the third quarter and year-to-date.
Previous wording
Net investment income represented 71% and 69% of the Company's revenue before net investment gains (losses) as of June 30, 2024 and 2023, respectively. For the second quarter ended June 30, net investment income represented 74% and 71% of revenue before net investment gains (losses) for 2024 and 2023, respectively. When comparing current and prior year results, net investment income was comparable in a majority of the investment categories outside of the equity securities, mortgage loans, short term, and cash and cash equivalents investment portfolios.
Current wording
Net investment income represented 71% and 70% of the Company's revenue before net investment gains (losses) as of 2024 and 2023, respectively. For the third quarter ended September 30, net investment income represented 72% and 72% of revenue before net investment gains (losses) for 2024 and 2023, respectively. When comparing current and prior year results, net investment income was comparable in a majority of the investment categories outside of the equity securities, mortgage loans, short term, and cash and cash equivalents investment portfolios.
Previous wording
Beginning in March 2022 and ending in July 2023, the Federal Open Market Committee (“FOMC”) aggressively raised interest rates to fight inflation. During this time period, the interest rate environment experienced eleven rate increases totaling 5.25%, including four increases during the first part of 2023. While these actions had a negative impact on some of our investments currently owned, this has also allowed for better yields on cash balances and recent investments acquired as investments mature.
Current wording
Beginning in March 2022 and ending in July 2023, the Federal Open Market Committee (“FOMC”) aggressively raised interest rates to fight inflation. During this time period, the interest rate environment experienced eleven rate increases totaling 5.25%, including four increases during the first part of 2023. While these actions had a negative impact on some of our investments currently owned, this has also allowed for better yields on cash balances and recent investments acquired as investments mature. In September 2024, the FOMC declined the interest rate 0.50% making the current rate 4.75%. The Company anticipates a similar decline in earnings on cash balances and any new investments that are acquired as investments mature.
Previous wording
Earnings from the equity securities investment portfolio represented approximately 12% and 15% of the total consolidated investment income reported by the Company during the six months ended June 30, 2024 and 2023, respectively. Income from the equity securities portfolio was up approximately 112% or $429,000 when comparing second quarter 2024 and 2023 results. This second quarter increase in equity securities earnings is the result of lease bonuses received for new drillings related to certain oil and gas equity holdings.
Current wording
Earnings from the equity securities investment portfolio represented approximately 15% and 8% of the total consolidated investment income reported by the Company during the nine months ended September 30, 2024 and 2023, respectively. Income from the equity securities portfolio was up approximately 73% or $410,000 when comparing third quarter 2024 and 2023 results. This third quarter increase in equity securities earnings is the result of increased dividends on some of the Company’s equity holdings.
Previous wording
Mortgage loan investment income declined approximately 38%, or $256,000 when comparing year-to-date 2024 to 2023. Second quarter earnings from mortgage loan investments were also down approximately 38%, or $127,000 when comparing 2024 to 2023. This is the result of two large payoffs on a mortgage loan in the first and second quarters of 2023.
Current wording
Mortgage loan investment income declined approximately 29%, or $264,000 when comparing year-to-date 2024 to 2023. Third quarter earnings from mortgage loan investments were also down approximately 3%, or $8,000 when comparing 2024 to 2023. This is the result of two large payoffs on mortgage loans in the first and second quarters of 2023.
Previous wording
The earnings reported by the cash and short term investments represented 13% and 5% of the total consolidated investment income reported by the Company during the six months ended June 30, 2024 and 2023, respectively. Second quarter 2024 and 2023 earnings from cash and short term investments represented approximately 12% and 6% of the total investment income reported by the Company, respectively. The increase in earnings in this category is the result of a combination of higher cash and short term holdings in 2024 and from increased interest rates received from banks and other deposit institutions in 2024 compared to 2023.
Current wording
The earnings reported by the cash and short term investments represented 12% and 6% of the total consolidated investment income reported by the Company during the nine months ended September 30, 2024 and 2023, respectively. Third quarter 2024 and 2023 earnings from cash and short term investments represented approximately 11% and 8% of the total investment income reported by the Company, respectively. The increase in earnings in this category is the result of a combination of higher cash and short term holdings in 2024 and from increased interest rates received from banks and other deposit institutions due to FOMC rate changes. With the September 2024 rate decline of 0.50%, the Company anticipates experiencing a similar decline in earnings on cash balances going forward.
Previous wording
The sale of two equity securities holdings represents approximately $181,000 of the realized investment gains from equity securities during 2023. In 2024, the sale of three equity securities represents all the realized investment gains from equity securities.
Current wording
The sale of three equity securities holdings represents approximately $297,000 of the realized investment gains from equity securities during 2023. In 2024, the sale of four equity securities represents all the realized investment gains from equity securities.
Previous wording
In 2024, the Company reported realized gains on real estate of $166,000. This was the result of the sale of several smaller parcels of property located in Kentucky resulting in gains of approximately $101,000, and the sale of one smaller parcel of property located in Illinois that produced a gain of approximately $65,000. The 2023 real estate gains are the result of sales of real estate in Kentucky that included a land parcel that produced a gain of approximately $480,000.
Current wording
In 2024, the Company reported realized gains on real estate of $166,000. This was the result of the sale of several smaller parcels of property located in Kentucky resulting in gains of approximately $101,000, and the sale of one smaller parcel of property located in Illinois that produced a gain of approximately $65,000. The 2023 real estate gains are the result of sales of real estate in Kentucky producing realized gains of approximately $760,000. Additionally, during third quarter 2023, the Company sold a large land parcel in West Virginia realizing a gain of $7.6 million.
Previous wording
The Company reported a year-to-date 2024 change in the fair value of equity securities of approximately $18.9 million, and a second quarter 2024 gain of approximately $6.8 million. In 2023, The Company reported a year-to-date change in the fair value of equity securities of approximately $(7.2) million, and a second quarter gain of approximately $1.5 million. This line item is material to the results reported in the Condensed Consolidated Statements of Operations, and this line item can also be extremely volatile, as it reflects changes in the stock market. While these results can be material and volatile, most of the equity holdings of the Company were acquired with a long-term view, thus making these intermediate changes in value of less concern to Management. Management monitors its equity holdings looking more at the specific entity and market it is in relative to performance and less to changes due to general market swings that occur over the holding period of the investment.
Current wording
The Company reported a year-to-date 2024 change in the fair value of equity securities of approximately $51.2 million, and a third quarter 2024 gain of approximately $32.3 million. In 2023, The Company reported a year-to-date change in the fair value of equity securities of approximately $(7.2) million, and a third quarter loss of approximately $(23,403). This line item is material to the results reported in the Condensed Consolidated Statements of Operations, and this line item can also be extremely volatile, as it reflects changes in the stock market. While these results can be material and volatile, most of the equity holdings of the Company were acquired with a long-term view, thus making these intermediate changes in value of less concern to Management. Management monitors its equity holdings looking more at the specific entity and market it is in relative to performance and less to changes due to general market swings that occur over the holding period of the investment.
Previous wording
In 2023, the Company saw negative results in its equity investments. However, most all the negative results occurred in the first quarter of 2023. Since that time, we reported a slight rebound, and it appears to be the result of market stabilization. Equity investments primarily in the oil and gas area represent almost all the unrealized gains reported in 2024 and unrealized losses reported in 2023. Periodic pull backs and rallies are expected by management. Management believes its current equity investments continue to be solid investments for the Company and have further growth potential; however, changes in market conditions could cause volatility in market prices.
Current wording
In 2023, the Company saw negative results in its equity investments. However, most all the negative results occurred in the first quarter of 2023. Equity investments primarily in the oil and gas area represent almost all the unrealized gains reported in 2024 and unrealized losses reported in 2023. Periodic pull backs and rallies are expected by management. Management believes its current equity investments continue to be solid investments for the Company and have further growth potential; however, changes in market conditions could cause volatility in market prices.
Previous wording
The Company reported total benefits and other expenses of approximately $10 million for the six month period ended June 30, 2024, a decrease of approximately 16% from the same period in 2023. Benefits, claims and settlement expenses represented approximately 55% and 61% of the Company's total expenses for the six month periods ended June 30, 2024 and 2023, respectively. The other major expense category of the Company is operating expenses, which represented approximately 42% and 36% of the Company's total expenses for the six month periods ended June 30, 2024 and 2023, respectively.
Current wording
The Company reported total benefits and other expenses of approximately $15.7 million for the nine month period ended September 30, 2024, a decrease of approximately 16% from the same period in 2023. Benefits, claims and settlement expenses represented approximately 58% of the Company's total expenses for the nine month periods ended September 30, 2024 and 2023, respectively. The other major expense category of the Company is operating expenses, which represented approximately 39% and 40% of the Company's total expenses for the nine month periods ended September 30, 2024 and 2023, respectively.
Previous wording
Life benefits, claims and settlement expenses, net of reinsurance benefits and claims were down approximately 24% when comparing the six months ended June 30, 2024, and 2023. When comparing second quarter 2024 and 2023 results, life benefits, claims and settlement expenses were down approximately 31%. Policy claims vary from period to period and therefore, fluctuations in mortality are to be expected and are not considered unusual by Management.
Current wording
Life benefits, claims and settlement expenses, net of reinsurance benefits and claims were down approximately 16% when comparing the nine months ended September 30, 2024, and 2023. When comparing third quarter 2024 and 2023 results, life benefits, claims and settlement expenses were down approximately 1%. Policy claims vary from period to period and therefore, fluctuations in mortality are to be expected and are not considered unusual by Management.
Previous wording
Operating expenses decreased approximately 2% in the six month period ended June 30, 2024 as compared to the same period in 2023. There is one expense item that comprises the majority of the decrease in operating expenses, charitable contributions. Charitable expense was approximately $91,000 less in the six month period ended June 30, 2024 as compared to the same period in 2023. Charitable expense fluctuates based on reported taxable income of the Company. Expenses in the remaining categories are comparable between years.
Current wording
Operating expenses decreased approximately 17% in the nine month period ended September 30, 2024 as compared to the same period in 2023. There is one expense item that comprises the majority of the decrease in operating expenses, charitable contributions. Charitable expense was approximately $791,000 less in the nine month period ended September 30, 2024 as compared to the same period in 2023. Charitable expense fluctuates based on reported taxable income of the Company. Expenses in the remaining categories are comparable between years.
Previous wording
The Company’s total investments represented 85% and 83% of the Company’s total assets as of June 30, 2024, and December 31, 2023, respectively. Fixed maturities and equity securities consistently represented a substantial portion, 75% and 72%, of the total investments during 2024 and 2023, respectively. The overall investment mix, as a percentage of total investments, remained fairly consistent when comparing the respective investments held as of June 30, 2024 and December 31, 2023.
Current wording
The Company’s total investments represented 85% and 83% of the Company’s total assets as of September 30, 2024, and December 31, 2023, respectively. Fixed maturities and equity securities consistently represented a substantial portion, 77% and 72%, of the total investments during 2024 and 2023, respectively. The overall investment mix, as a percentage of total investments, remained fairly consistent when comparing the respective investments held as of September 30, 2024 and December 31, 2023.
Previous wording
As of June 30, 2024, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets, shareholders’ equity or results from operations. To provide additional flexibility and liquidity, the Company has identified all fixed maturity securities as "investments available for sale". Investments available for sale are carried at market value, with changes in market value charged directly to the other comprehensive component of shareholders' equity. Changes in the market value of available for sale securities resulted in net unrealized gains (losses) of approximately $(1.7) million and $865,000 as of June 30, 2024 and 2023, respectively. The variance in the net unrealized gains and losses is the result of normal market fluctuations mainly related to changes in interest rates in the marketplace.
Current wording
As of September 30, 2024, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets, shareholders’ equity or results from operations. To provide additional flexibility and liquidity, the Company has identified all fixed maturity securities as "investments available for sale". Investments available for sale are carried at market value, with changes in market value charged directly to the other comprehensive component of shareholders' equity. Changes in the market value of available for sale securities resulted in net unrealized gains (losses) of approximately $1.3 million and $(2.0) million as of September 30, 2024 and 2023, respectively. The variance in the net unrealized gains and losses is the result of normal market fluctuations mainly related to changes in interest rates in the marketplace.
Previous wording
Total shareholders' equity decreased by approximately 9% as of June 30, 2024, compared to December 31, 2023. The increase is mainly attributable to an increase in retained earnings, which is the result of the current year net income reported by the Company partially offset by the decline in market value of the available for sale fixed maturities portfolio.
Current wording
Total shareholders' equity increased by approximately 26.8% as of September 30, 2024, compared to December 31, 2023. The increase is mainly attributable to an increase in retained earnings, which is the result of the current year net income reported by the Company and by the increase in market value of the available for sale fixed maturities portfolio.
Previous wording
During October of 2023, the Federal Home Loan Bank approved the renewal of UG’s Cash Management Advance Application (“CMA”). The CMA is a source of overnight liquidity utilized to address the day-to-day cash needs of a Company. The CMA gives the company the option of selecting a variable rate of interest for up to 90 days or a fixed rate for a maximum of 30 days. The variable rate CMA is prepayable at any time without a fee, while the fixed CMA is not prepayable prior to maturity. The Company has pledged bonds with a collateral lendable value of $19.8 million as of June 30, 2024. During the fourth quarter of 2023, the Company borrowed $19 million and planned to utilize the funds for investing activities. During the first quarter of 2024, the Company repaid the entire outstanding principal balance.
Current wording
During October of 2024, the Federal Home Loan Bank approved the renewal of UG’s Cash Management Advance Application (“CMA”). The CMA is a source of overnight liquidity utilized to address the day-to-day cash needs of a Company. The CMA gives the company the option of selecting a variable rate of interest for up to 90 days or a fixed rate for a maximum of 30 days. The variable rate CMA is prepayable at any time without a fee, while the fixed CMA is not prepayable prior to maturity. The Company has pledged bonds with a collateral lendable value of $20.2 million as of September 30, 2024. During the fourth quarter of 2023, the Company borrowed $19 million and planned to utilize the funds for investing activities. During the first quarter of 2024, the Company repaid the entire outstanding principal balance.
Previous wording
Cash used in operating activities was approximately $1.4 million in 2024 and cash used by operating activities was approximately $6.1 million in 2023. Sources of operating cash flows of the Company, as with most insurance entities, is comprised primarily of premiums received on life insurance products and income earned on investments. Uses of operating cash flows consist primarily of payments of benefits to policyholders and beneficiaries and operating expenses. The Company has not marketed any significant new products for several years. As such, premium revenues continue to decline with the exception of fluctuations in reinsurance premiums. Management anticipates future cash flows from operations to remain similar to historic trends.
Current wording
Cash used in operating activities was approximately $552,000 in 2024 and cash used by operating activities was approximately $9.7 million in 2023. Sources of operating cash flows of the Company, as with most insurance entities, is comprised primarily of premiums received on life insurance products and income earned on investments. Uses of operating cash flows consist primarily of payments of benefits to policyholders and beneficiaries and operating expenses. The Company has not marketed any significant new products for several years. As such, premium revenues continue to decline with the exception of fluctuations in reinsurance premiums. Management anticipates future cash flows from operations to remain similar to historic trends.
Previous wording
During 2024, the Company’s investing activities provided net cash of approximately $15.2 million and provided net cash of approximately $4.1 million in 2023. The Company recognized proceeds of approximately $38.2 million and $27.3 million from investments sold and matured in 2024 and 2023, respectively. The Company used approximately $23.0 million and $23.2 million to acquire investments during 2024 and 2023, respectively. The net cash provided by or used in investing activities is expected to vary from year to year depending on market conditions and management’s ability to find and negotiate favorable investment contracts.
Current wording
During 2024, the Company’s investing activities provided net cash of approximately $15.2 million and provided net cash of approximately $11.9 million in 2023. The Company recognized proceeds of approximately $45.5 million and $59.6 million from investments sold and matured in 2024 and 2023, respectively. The Company used approximately $30.3 million and $47.6 million to acquire investments during 2024 and 2023, respectively. The net cash provided by or used in investing activities is expected to vary from year to year depending on market conditions and management’s ability to find and negotiate favorable investment contracts.
Previous wording
Net cash used in financing activities was approximately $19.4 and $19.5 million during 2024 and 2023, respectively. As of June 30, 2024 and 2023, the Company had no debt outstanding with third parties.
Current wording
Net cash used in financing activities was approximately $19.8 and $19.9 million during 2024 and 2023, respectively. As of September 30, 2024 and 2023, the Company had no debt outstanding with third parties.
Previous wording
The Company had cash and cash equivalents of approximately $35.5 million and $41.2 million as of June 30, 2024 and December 31, 2023, respectively. The Company has a portfolio of marketable fixed maturity securities that could be sold, if an unexpected event were to occur. These securities had a fair value of approximately $96.1 million at June 30, 2024. However, the strong cash flows from investing activities, investment maturities and the availability of the line of credit facilities make it unlikely that the Company would need to sell securities for liquidity purposes.
Current wording
The Company had cash and cash equivalents of approximately $36.0 million and $41.2 million as of September 30, 2024 and December 31, 2023, respectively. The Company has a portfolio of marketable fixed maturity securities that could be sold, if an unexpected event were to occur. These securities had a fair value of approximately $99.9 million at September 30, 2024. However, the strong cash flows from investing activities, investment maturities and the availability of the line of credit facilities make it unlikely that the Company would need to sell securities for liquidity purposes.