UTG INC

Previous wording

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates. The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of variability. The Company's critical accounting policies and the related estimates considered most significant by Management are disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. Management has identified the accounting policies related to cost of insurance acquired, assumptions and judgments utilized in determining if declines in fair values of investments are other-than-temporary, and valuation methods for investments that are not actively traded as those, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's Condensed Consolidated Financial Statements and this Management's Discussion and Analysis.

Current wording

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates. The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of variability. The Company's critical accounting policies and the related estimates considered most significant by Management are disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. Management has identified the accounting policies related to cost of insurance acquired, assumptions and judgments utilized in determining whether any decline in value is the result of a credit loss or other factors, and valuation methods for investments that are not actively traded as those, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's Condensed Consolidated Financial Statements and this Management's Discussion and Analysis.

Previous wording

During the three-months ended March 31, 2025, there were no additions to or changes in the critical accounting policies disclosed in the 2024 Form 10-K.

Current wording

During the six-months ended June 30, 2025, there were no additions to or changes in the critical accounting policies disclosed in the 2024 Form 10-K.

Previous wording

On a consolidated basis, the Company reported net income attributable to common shareholders of approximately $12.8 and $9.2 million for the three-month period ended March 31, 2025 and 2024.

Current wording

On a consolidated basis, the Company reported net income attributable to common shareholders of approximately $11.0 million and $14.6 million for the six-month period ended June 30, 2025 and 2024, and net income (loss) attributable to common shareholders of approximately ($1.8) million and $5.3 million for the three-month period ended June 30, 2025 and 2024, respectively.

Previous wording

For the three-month period ended March 31, 2025, the Company reported total revenues of approximately $21.9 million and for the same period in 2024 total revenues of approximately $16.9 million.

Current wording

For the six-month period ended June 30, 2025, the Company reported total revenues of approximately $25.3 million and for the same period in 2024 total revenues of approximately $28.5 million. The Company reported total revenues of approximately $3.4 million and $11.6 million for the three-month period ended June 30, 2025 and 2024, respectively.

Previous wording

The variance in total revenue between first quarter 2025 and 2024 is primarily the result of the change in the fair value of equity securities. The Company reported a first quarter 2025 gain in the change in the fair value of equity securities of approximately $16.3 million. In 2024, the Company reported a first quarter gain in the change in the fair value of equity securities of approximately $12.0 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 second quarter 2025 and 2024 is primarily the result of the change in the fair value of equity securities. The Company reported a second quarter 2025 loss in the change in the fair value of equity securities of approximately ($1.3) million and a year-to-date 2025 gain of approximately $15.0 million. In 2024, the Company reported a second quarter gain in the change in the fair value of equity securities of approximately $5.4 million and a year-to-date gain of approximately $17.7 million. The stock markets have experienced volatility in recent periods, which in general, should always be expected.

Previous wording

Net investment income represented 67% and 66% of the Company's revenue before net investment gains (losses) as of March 31, 2025 and 2024, respectively. When comparing current and prior year results, net investment income was comparable in most of the investment categories outside of the short term, 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 June 30, 2025 and 2024, respectively. For the second quarter ended June 30, net investment income represented 76% and 74% of revenue before net investment gains (losses) for 2025 and 2024, respectively. When comparing current and prior year results, net investment income was comparable in most of the investment categories outside of the real estate, cash, and short term investment portfolios.

Previous wording

The earnings reported by the cash and short term investments represented 10% and 14% of the total consolidated investment income reported by the Company during the three months ended March 31, 2025 and 2024, respectively. The decrease in earnings in this category is the result of a combination of higher cash and short term holdings in 2024 and from decreased interest rates received from banks and other deposit institutions due to FOMC rate changes. With the 2024 rate declines of 1%, the Company anticipates experiencing a similar decline in earnings on cash balances going forward.

Current wording

The earnings reported by the cash and short term investments represented 9% and 13% of the total consolidated investment income reported by the Company during the six months ended June 30, 2025 and 2024, respectively. The decrease in earnings in this category is the result of a combination of higher cash and short term holdings in 2024 and from decreased interest rates received from banks and other deposit institutions due to FOMC rate changes. With the 2024 rate declines of 1%, the Company anticipates experiencing a similar decline in earnings on cash balances going forward.

Previous wording

In 2025, the sale of one equity security represents all the realized investment gains from equity securities.

Current wording

In 2025, the sale of two equity securities represents all the realized investment gains from equity securities.

Previous wording

In 2024, the Company reported realized gains on real estate of $37,461. This was the result of the sale of several smaller parcels of property located in Kentucky.

Current wording

In 2025, the Company reported realized gains on real estate of $46,846. This was the result of the sale of one small parcel of property located in Kentucky.

Previous wording

The Company reported a year-to-date 2025 change in the fair value of equity securities of approximately $16.3 million. In 2024, The Company reported a year-to-date change in the fair value of equity securities of approximately $12.4 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 2025 change in the fair value of equity securities of approximately $15.0 million, and a second quarter loss of approximately ($1.3) million. In 2024, The Company reported a year-to-date change in the fair value of equity securities of approximately $17.7 million, and a second quarter gain of approximately $5.4 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.

Previous wording

In 2025 and 2024, the Company saw positive results in its equity investments. Equity investments primarily in the oil and gas area represent almost all the unrealized gains reported in 2025 and 2024. 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 2025 and 2024, the Company saw mostly positive results in its equity investments. One equity investment caused a second quarter decline in 2025, but overall, there have been positive results year-to-date. Equity investments primarily in the oil and gas area represent almost all the unrealized gains reported in 2025 and 2024. 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 $5.4 million for the the three month period ended March 31, 2025, an increase of approximately 6% from the same period in 2024. Benefits, claims and settlement expenses represented approximately 58% and 56% of the Company's total expenses for the three month periods ended March 31, 2025 and 2024, respectively. The other major expense category of the Company is operating expenses, which represented approximately 40% and 41% of the Company's total expenses for the three month periods ended March 31, 2025 and 2024, respectively.

Current wording

The Company reported total benefits and other expenses of approximately $10.9 million for the ended June 30, 2025, an increase of approximately 9% from the same period in 2024. Benefits, claims and settlement expenses represented approximately 60% and 55% of the Company's total expenses for the six month periods ended June 30, 2025 and 2024, respectively. The other major expense category of the Company is operating expenses, which represented approximately 37% and 42% of the Company's total expenses for the six month periods ended June 30, 2025 and 2024, respectively.

Previous wording

Life benefits, claims and settlement expenses, net of reinsurance benefits and claims were up approximately 11% when comparing the three months ended March 31, 2025 and 2024. 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 up approximately 18% when comparing the six months ended June 30, 2025, and 2024. When comparing second quarter 2025 and 2024 results, life benefits, claims and settlement expenses were up approximately 26%. 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 increased approximately 2% in the three month period ended March 31, 2025 as compared to the same period in 2024. Although it is a minor increase, there is one expense item that is attributable to the increase in operating expenses, charitable contributions. Charitable expense was approximately $85,000 more in the three month period ended March 31, 2025 as compared to the same period in 2024. 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 3% in the six-month period ended June 30, 2025 as compared to the same period in 2024. All expense categories are comparable between years.

Previous wording

The following table reflects, by investment category, the investments held by the Company:

Current wording

The following table reflects, by investment category, the investments held by the Company as of June 30, 2025, and December 31, 2024:

Previous wording

The Company’s total investments represented 86% and 84% of the Company’s total assets as of March 31, 2025, and December 31, 2024, respectively. Fixed maturities and equity securities consistently represented a substantial portion, 83%, of the total investments during 2025 and 2024, respectively. The overall investment mix, as a percentage of total investments, remained fairly consistent when comparing the respective investments held as of March 31, 2025 and December 31, 2024.

Current wording

The Company’s total investments represented 86% and 84% of the Company’s total assets as of June 30, 2025, and December 31, 2024, respectively. Fixed maturities and equity securities consistently represented a substantial portion, 85% and 84%, of the total investments during 2025 and 2024, respectively. The overall investment mix, as a percentage of total investments, remained fairly consistent when comparing the respective investments held as of June 30, 2025 and December 31, 2024.

Previous wording

As of March 31, 2025, 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 $729,000 and ($620,000) as of March 31, 2025 and 2024, 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 June 30, 2025, 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 $1,017,000 and ($791,000) as of June 30, 2025 and 2024, 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 increased by approximately 6.4% as of March 31, 2025, compared to December 31, 2024. 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.

Current wording

Total shareholders' equity increased by approximately 5.6% as of June 30, 2025, compared to December 31, 2024. 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 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 $21.6 million as of March 31, 2025. The Company has no outstanding borrowings on the CMA at March 31, 2025 nor had any borrowing activity during 2025.

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 $21.7 million as of June 30, 2025. The Company has no outstanding borrowings on the CMA at June 30, 2025 nor had any borrowing activity during 2025.

Previous wording

Cash used in operating activities was approximately $3.3 million in 2025 and cash used by operating activities was approximately $2.0 million in 2024. 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 $4.3 million in 2025 and cash used in operating activities was approximately $1.4 million in 2024. 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 2025, the Company’s investing activities used net cash of approximately $5.0 million and provided net cash of approximately $20.7 million in 2024. The Company recognized proceeds of approximately $6.8 million and $26.0 million from investments sold and matured in 2025 and 2024, respectively. The Company used approximately $11.8 million and $5.3 million to acquire investments during 2025 and 2024, 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 2025, the Company’s investing activities used net cash of approximately $2.4 million and provided net cash of approximately $15.2 million in 2024. The Company recognized proceeds of approximately $12.9 million and $38.2 million from investments sold and matured in 2025 and 2024, respectively. The Company used approximately $15.3 million and $23.0 million to acquire investments during 2025 and 2024, 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 $229,000 and $19.0 million during 2025 and 2024, respectively. As of March 31, 2025 and 2024, the Company had no debt outstanding with third parties.

Current wording

Net cash used in financing activities was approximately $134,000 and $19.4 million during 2025 and 2024, respectively. As of June 30, 2025 and 2024, the Company had no debt outstanding with third parties.

Previous wording

The Company had cash and cash equivalents of approximately $36.8 million and $45.3 million as of March 31, 2025 and December 31, 2024, 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 $74.3 million at March 31, 2025. 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 $38.4 million and $45.3 million as of June 30, 2025 and December 31, 2024, 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 $73.1 million at June 30, 2025. 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.