MIDWEST HOLDING INC. – 10-K

Caution Regarding Forward-Looking Statements

The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and the notes to
those statements included in this Annual Report on Form 10-K and it includes
many forward-looking statements which involve many risks and uncertainties
including those referred to herein. Our actual results could differ materially
from those indicated in such forward-looking statements as a result of certain
factors, such as those set forth herein under "Summary of Risks Associated with
our Business and Voting Common Stock" and "Risk Factors." We are under no duty
to update any of the forward-looking statements after the date of this annual
report to conform these statements to actual results.

Overview

Midwest Holding Inc. ("Midwest," "the Company," "we," "our," or "us") was
incorporated in Nebraska on October 31, 2003 for the purpose of operating a
financial services company. We redomesticated from the State of Nebraska to the
State of Delaware on August 27, 2020. We are in the annuity insurance business
and operate through our wholly owned subsidiaries, American Life & Security
Corp. ("American Life"), 1505 Capital LLC ("1505 Capital"), and our sponsored
captive reinsurance company, Seneca Reinsurance Company, LLC ("Seneca Re").

Management evaluates the Company as one reporting segment in the life insurance
industry. We are primarily engaged in the underwriting and marketing of annuity
products through American Life, and then reinsuring such products with
third-party reinsurers, and since May 13, 2020, with Seneca Re protected cells
as described below. American Life presently offers five annuity products, two
MYGAs, a FIA, and two bonus plans associated with the FIA product. It is not
presently offering any traditional life insurance products. American Life's
legacy product offerings consisted of a multi-benefit life insurance policy that
combined cash value life insurance with a tax deferred annuity and a single
premium term life product.

American Life is a Nebraska-domiciled life insurance company, which is also
commercially domiciled in Texas, that is currently licensed to sell, underwrite,
and market life insurance and annuity products in 22 states and the District of
Columbia.

In early 2020, Seneca Re, a Vermont limited liability company, was formed by us
to operate as a Vermont licensed sponsored captive insurance company to reinsure
various types of risks on behalf of American Life and third party capital
providers through one or more special purpose entities known as "protected
cells." On April 15, 2020, Midwest entered into an operating agreement with
Seneca Re and as of December 31, 2021, Seneca Re had two protected cells, Seneca
Incorporated Cell, LLC 2020-01 ("SRC1") and Seneca Incorporated Cell, LLC
2021-03 ("SRC3") and both of which are consolidated in our financial statements.

1505 Capital LLC ("1505 Capital"), a Delaware limited liability company, is an
SEC registered investment adviser. Its financial results have been consolidated
with ours since the date of its acquisition on June 15, 2020. . At December 31,
2021, 1505 Capital had approximately $405 million total third-party assets under
management.

On April 24, 2020, we entered into a Securities Purchase Agreement with
Crestline Assurance Holdings LLC, a Delaware limited liability company
("Crestline Assurance"), Xenith Holdings LLC, and Vespoint LLC, pursuant to
which Crestline Assurance purchased 444,444 shares of our voting common stock,
at $22.50 per share for $10.0 million. With the net proceeds we contributed $5.0
million to American Life. Also, effective as of April 24, 2020, in a separate
transaction, we sold 231,655 shares of common stock to various investors in a
private placement at $22.50 per share for $5.227 million

On July 27, 2020, American Life entered into a reinsurance agreement (the
"Reinsurance Agreement") with a new protected cell formed by Seneca Re (Seneca
Incorporated Cell, LLC 2020-02 ("SRC2")). SRC2 was capitalized by Crestline
Management, L.P. ("Crestline"), a significant shareholder of Midwest via a
Crestline subsidiary, Crestline Re SPC1. The Reinsurance Agreement, which was
effective as of April 24, 2020, and was entered into pursuant to a Master Letter
Agreement (the "Master Agreement") dated and effective as of April 24, 2020,
among American Life, Seneca Re and Crestline. The Reinsurance Agreement supports
American Life's new business

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production by providing reinsurance capacity for American Life to write certain
kinds of FIAs and MYGAs. Concurrently with the Reinsurance Agreement, American
Life and SRC2 each entered into investment management agreements with Crestline,
pursuant to which Crestline manages the assets that support the reinsured
business; and American Life and SRC2 entered into a trust agreement whereby SRC2
maintains for American Life's benefit a trust account that supports the
reinsured business.

Under the Master Agreement, Crestline agreed to provide reinsurance funding for
a quota share percentage of 25% of the liabilities of American Life arising from
MYGAs and a quota share percentage of 40% for American Life's FIAs. The Master
Agreement expires on April 24, 2023.

In addition, pursuant to the Master Agreement, agreed to enter into a separate
agreement whereby, among other things and subject to certain conditions,
American Life will agree to reinsure additional new business production to one
or more reinsurers formed and/or capitalized by Crestline, Midwest or an
appropriate affiliate will refer potential advisory clients to Crestline, and
American Life will consider investing in certain assets originated or sourced by
Crestline.

Effective December 8, 2020, American Life entered into a novation agreement with
SRC2 and Crestline Re SPC,  for and on behalf of Crestline Re SP1, under which
the above-described reinsurance, trust and related asset management agreements
were novated and replaced with substantially similar agreements entered into by
American Life and Crestline Re SP1.

In December 2020, we completed a public offering of our voting common stock for
gross proceeds of $70.0 million (see Note 17 to the Consolidated financial
statements herein). In connection therewith, our common stock was approved for
listing and began trading on the Nasdaq Capital Market under the symbol "MDWT."

At June 26, 2021the Nebraska Department of Insurance (“NDOI”) issued its
non-disapproval of the Amended Coinsurance Agreement (“Modco AEG Agreement”) of
American life with American Republic Insurance Company (“AEG”), a Iowa
domiciled reinsurance company. The agreement ended on June 30, 2021.

Under the Modco AEG Agreement, American Life cedes to AEG, on a modified
coinsurance basis, 20% quota share of certain liabilities with respect to its
MYGA-5 business and an initial 20% quota share of certain liabilities with
respect to its FIA products. American Life has established a Modco Deposit
Account to hold the assets for the Modco Agreement. The initial settlement
included net premium income of $37.5 million and net statutory reserves of $34.8
million for the modified coinsurance account. The amount paid to the Modified
Deposit Account from AEG was $2.4 million.

On November 10, 2021, Midwest purchased 1,000 shares of Common Stock, $.01 par
value per share for a total purchase price of $5.7 million for 100% ownership in
an intermediary holding company. Also, on November 10, 2021, Seneca Re Protected
Cell 2021-03 ("SRC3") was granted a Certificate of Authority by the Vermont
Department of Financial Regulation. The intermediary holding company contributed
capital of $5.5 million to purchase 100% of SRC3 Class A and B capital stock.
Also, on November 10, 2021, American Life and SRC3 entered into a Funds Withheld
and Modified Coinsurance Agreement, whereby, SRC3 agreed to provide reinsurance
funding for a quota share percentage of 45% of the liabilities of American Life
arising from its MYGA and quota share percentage of 45% of American Life's FIA
products.

On December 30, 2021, Midwest closed the sale of approximately 70% of SRC1 to a
subsidiary of ORIX Corporation USA for $15.0 million. Under the terms of the
agreement, Midwest holds a 30% ownership interest in SRC1. ORIX Advisers, LLC,
another subsidiary of ORIX USA, will be the manager of the assets underlying
SRC1's reinsurance obligations going forward, replacing Midwest's asset
management arm, 1505 Capital LLC.

COVID-19[female[feminine

We continue to closely monitor developments related to the COVID-19 pandemic to
assess any potential adverse impact on our business. Due to the evolving and
highly uncertain nature of this pandemic, it currently is not possible to
provide a longer-term estimate of potential insurance or reinsurance exposure or
the indirect effects the pandemic may have on our results of operations,
financial condition or liquidity. Management implemented our business continuity
plan in early March 2020 and operated through July 2020 with the majority of
employees working remotely. Operations continued as normal despite a sharp
increase in sales during the period. We continue to monitor the Center for
Disease Control and Prevention and State of Nebraska guidelines regarding
employee safety. Our management continues to monitor our investments and cash
flows to evaluate the impact as this pandemic evolves.

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Industry trends and market conditions

Interest rate environment

Overall, interest rates remained at historically low levels in 2021, however the
Federal Reserve is expected to begin increasing short-term interest rates in
early 2022. We seek to address our interest rate risk through managing the
duration of the liabilities and purchasing and holding high quality, long-term
assets that mirror that duration.

Competetion

We are operating in a highly competitive market with various sizes of
diversified financial institutions, established insurance and reinsurance
companies. Our annuity market is being impacted by the growing aging population
and the need to evaluate their retirement options. We believe our technology and
customer service along with our ability to structure solutions position us to
provide value to annuity consumers through various distribution channels.

Discontinuation of Libor

The Financial Conduct Authority ("FCA"), the U.K. regulator of the London
Interbank Offered Rate ("LIBOR"), previously indicated that it intends to stop
persuading or compelling panel banks to submit quotes used to determine LIBOR
after 2021. On November 30, 2020, the Intercontinental Exchange ("ICE")
Benchmark Administration ("IBA"), the administrator of LIBOR, announced a
consultation regarding its intention to cease the publication of one week and
two-month U.S. Dollar LIBOR settings at the end of December 2021, but to extend
the publication of the remaining U.S. Dollar LIBOR settings (overnight and one,
three, six and 12 month U.S. Dollar LIBOR) until the end of June 2023. The IBA
intends to share the results of the consultation with the FCA and publish a
summary of the responses. U.S. bank regulators acknowledged the announcement
and, subject to certain limited exceptions, advised banks to cease writing new
U.S. Dollar LIBOR contracts by the end of 2021.

We are in the process of analyzing and identifying our population of securities,
financial instruments and contracts that utilize LIBOR (collectively "LIBOR
Instruments") to determine if we have any material exposure to the transition
from LIBOR. To the extent we hold LIBOR Instruments, the terms of these
instruments may have fallback provisions that provide for an alternative
reference rate when LIBOR ceases to exist. For securities without adequate
fallback provisions already in place, legislation governing securities under New
York law has been enacted to provide a safe harbor for transition to the
recommended alternative reference rate. In addition, federal legislation has
been introduced to provide the same protection for securities not governed by
New York law.

Notwithstanding, in preparation for the phase out of LIBOR, we may need to
renegotiate our LIBOR Instruments that utilize LIBOR. However, these efforts may
not be successful in mitigating the legal and financial risk from changing the
reference rate in our LIBOR Instruments. Furthermore, the discontinuation of
LIBOR may adversely impact our ability to manage and hedge exposures to
fluctuations in interest rates using derivative instruments.

As a result, the transition of our LIBOR Instruments to alternative reference
rates may result in adverse changes to the net investment income, fair market
value and return on those investments. We intend to continue to evaluate and
monitor the risks associated with the LIBOR transition which include identifying
and monitoring our exposure to LIBOR, monitoring the market adoption of
alternative reference rates and ensuring operational processes are updated to
accommodate alternative rates. Due to uncertainty surrounding alternative rates,
we are unable to predict the overall impact of this change at this time.

Significant Accounting Policies and Estimates

Our accounting and reporting policies are in accordance with GAAP. Preparation
of our Consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. The following is a summary of our significant accounting policies and
estimates. 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. Our
accounting policies, judgments and estimates have not changed significantly over
our disclosed accounting periods. For further discussion of our accounting
policies and estimates see "Note 1 - Nature of Operations and Summary of
Significant Accounting Policies" to our Consolidated financial statements.
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Valuation of Investments
All fixed maturities owned by the Company are considered available-for-sale and
are included in the Consolidated financial statements at their fair value as of
the financial statement date. Premiums and discounts on fixed maturity debt
instruments are amortized using the scientific-yield method over the term of the
bonds. Realized gains and losses on securities sold during the year are
determined using the specific identification method. Unrealized holding gains
and losses, net of applicable income taxes, are included in accumulated other
comprehensive income.

Declines in the fair value of available-for-sale securities below their
amortized cost are evaluated to assess whether any other-than-temporary
impairment loss should be recorded. In determining if these losses are expected
to be other-than-temporary, the Company considers severity of impairment,
duration of impairment, forecasted recovery period, issuer credit ratings, and
the intent and ability of the Company to hold the investment until the recovery
of the cost.

The recognition of other-than-temporary impairment losses on debt securities is
dependent on the facts and circumstances related to the specific security. If
the Company intends to sell a security or it is more likely than not that the
Company would be required to sell a security prior to recovery of the amortized
cost, the difference between amortized cost and fair value is recognized in the
statement of comprehensive income as an impairment. If the Company does not
expect to recover the amortized basis, does not plan to sell the security, and
if it is not more likely than not that the Company would be required to sell a
security before the recovery of its amortized cost, the recognition of the
impairment is bifurcated. The Company recognizes the credit loss portion as
realized losses and the noncredit loss portion in accumulated other
comprehensive loss. The credit component of other-than-temporary impairment is
determined by comparing the net present value of projected cash flows with the
amortized cost basis of the debt security. The net present value is calculated
by discounting the Company's best estimate of projected future cash flows at the
effective interest rate implicit in the fixed income security at the date of
acquisition. Cash flow estimates are driven by assumptions regarding probability
of default, including changes in credit ratings, and estimates regarding timing
and amount of recoveries associated with a default. As of December 31, 2020, the
Company analyzed its securities portfolio and determined that an impairment of
approximately $35,000 should be recorded for one debt security, an impairment of
$500,000 was recognized on a preferred stock, and a valuation allowance of
$777,000 established on one lease. The valuation allowance on the lease of
$777,000 was released as of March 31, 2021 due to the sale of the investment.
The Company had no impairment to recognize as of December 31, 2021.

Investment income consists of interest, dividends, gains and losses from the
equity method of accounting for certain investments, and real estate income,
which are recognized on an accrual basis along with the amortization of premiums
and discounts.

Certain available-for-sale investments are maintained as collateral under funds
withheld ("FW") and modified coinsurance ("Modco") agreements but the assets and
total returns or losses on the asset portfolios belong to the third-party
reinsurers. American Life has treaties with several third-party reinsurers that
have FW and Modco provisions. In a Modco agreement, the ceding entity retains
the assets equal to the modified coinsurance reserves retained. In a FW
agreement, assets that would normally be paid over to a reinsurer are withheld
by the ceding company to permit statutory credit for unauthorized reinsurers to
reduce the potential credit risk. The unrealized gains/losses on those
investments are passed through to the third-party reinsurers, through the fair
value of our total return swap, as either a realized gain or loss on the
Consolidated Statements of Comprehensive Loss.

Intangible assets

We assess the recoverability of indefinite-lived intangible assets at least
annually or whenever events or circumstances suggest that the carrying value of
an identifiable indefinite-lived intangible asset may exceed the sum of the
future discounted cash flows expected to result from its use and eventual
disposition. If the asset is considered to be impaired, the amount of any
impairment is measured as the difference between the carrying value and the fair
value of the impaired asset.

Our indefinite-lived intangible assets consist of American Life's state
licenses. We compared the carrying value to the current costs of obtaining
licenses in those states. As of December 31, 2021, the sum of the fair value of
those licenses exceeded the carrying value of the indefinite-lived intangible
assets.

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Reinsurance

We expect to reinsure most of the risks associated with our issued annuities.
Our reinsurers may be domestic, foreign or capital markets investors seeking to
assume U.S. insurance business. In most reinsurance transactions, American Life
will remain exposed to the credit risk of reinsurers, or the risk that one or
more reinsurers may become insolvent or otherwise unable or unwilling to pay for
policyholder claims. We seek to mitigate the credit risk relating to reinsurers
by generally either requiring that the reinsurer post substantial collateral or
make other financial commitments as a security for the reinsured risks. Under
these reinsurance agreements, there typically is a monthly or quarterly
settlement of premiums, claims, surrenders, collateral, and other administration
fees.

In a typical reinsurance transaction, we receive a ceding commission and
reimbursement of certain expenses at the time liabilities are reinsured, plus
ongoing fees for the administration of the business ceded. Our reinsurers are
typically not "accredited" or qualified as reinsurers under Nebraska law. In
order to receive credit for reinsurance for transactions with these reinsurers
and to reduce potential credit risk, we usually hold collateral from the
reinsurer on a FW basis or require the reinsurer to maintain a trust that holds
assets backing up its obligation to pay claims on the business it assumes. In
some cases, the reinsurer may appoint an investment manager to manage these
assets pursuant to guidelines approved by us that are consistent with state
investment statutes and regulations relating to reinsurance. When our investment
advisor subsidiary, 1505 Capital, is appointed to manage these assets, we
receive additional ongoing asset management fees.

Future Policy Benefits

We establish liabilities for amounts payable under our policies, including
annuities. Generally, amounts are payable over an extended period of time. Under
GAAP, our annuities are treated as deposit liabilities, where we use account
value in lieu of future policy reserves. Our FIA reserves are calculated by an
independent consulting actuary and our MYGA reserves equal the account value
from our policy administration system. We currently do not offer traditional
life insurance products.

Income Taxes

Deferred tax assets are recorded based on the differences between the financial
statement and tax basis of assets and liabilities at the applicable tax rates.
The principal assets and liabilities giving rise to these differences are
investments, insurance reserves, and deferred acquisition costs. A deferred tax
asset valuation allowance is established when there is uncertainty that such tax
assets would be realized. We have no uncertain tax positions that we believe are
more-likely-than not that the benefit will not be realized.

Revenue recognition

Amounts received as payment for annuities are recognized as deposits to
policyholder account balances and included deposit-type contract liabilities.
Annuity premiums are shown as a financing activity in the consolidated statement
of cash flows. Revenues from these contracts are comprised of fees earned for
administrative and policyholder services, which are recognized over the period
of the annuity contracts and included in other revenue. Through our reinsurance
contracts, revenues are earned through ceding commissions, which are
capitalized, and our independent consulting actuary determines the amounts to be
recognized as income over the period of the annuity contracts. Deferred
coinsurance ceding commissions are shown as an operating activity in the
consolidated statement of cash flows. Revenues from asset management services
are recognized as earned.

Derivative Instruments

Derivatives are used to hedge the risks experienced in our ongoing operations,
such as equity, interest rate, and cash flow risks, or for other risk management
purposes, which primarily involve managing liability risks associated with our
FIA product and reinsurance agreements. Derivatives are financial instruments
whose values are derived from interest rates, foreign exchange rates, financial
indices, or other underlying notional amounts. Derivative assets and liabilities
are carried at fair value on the Consolidated balance sheets.

To qualify for hedge accounting, at the inception of the hedging relationship,
we formally document our designation of the hedge as a cash flow or fair value
hedge and our risk management objective and strategy for undertaking the hedging
transaction identifying  how the hedging instrument is expected to hedge the
designated risks related to the hedged item, the method to retrospectively, and
prospectively assess the hedging instrument's effectiveness and the method to be
used to measure ineffectiveness. A derivative

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designated as a hedging instrument must be assessed as being highly effective in
offsetting the designated risk of the hedged item. Hedge effectiveness is also
assessed periodically throughout the life of the designated hedging
relationship.

In late 2019, we began investing in options to hedge our interest rate risks on
our FIA product. Options typically do not qualify for hedge accounting;
therefore, we chose not to use hedge accounting for the related options that we
currently have. We value our derivatives at fair market value with the offset
being recorded on our consolidated statement of comprehensive loss as a realized
gain or (loss).

In addition, reinsurance agreements written on an FW basis contain
derivatives on our FIA product. Gains or (losses) associated with
the performance of the assets held in the relevant deposit and the funds retained
accounts are reflected as realized gains or (losses) in our consolidated accounts.
statement of comprehensive loss.

Derivatives

The Company entered into derivative instruments to hedge FIA products that
guarantee the return of principal to the policyholders and credit interest based
on a percentage of the gain in a specified market index. To hedge against
adverse changes in equity indices, the Company entered into contracts to buy
equity indexed options. The change in fair value of the derivatives for hedging
the FIA index credits and the related embedded derivative liability fluctuated
from period to period based on the change in the market interest rates. The
indexed reserves are measured at fair value for the current period and future
periods. We hedge with options that align with the terms of our FIA product
which is between three and seven years. We have analyzed our hedging strategy on
our FIA product and believe it is effective as of December 31, 2021.

American Life also has agreements with several third-party reinsurers that have
FW and Modco provisions under which the assets related to the reinsured business
are maintained by American Life as collateral; however, ownership of the assets
and the total return on the asset portfolios belong to the third-party
reinsurers. Under GAAP, this arrangement is considered an embedded derivative as
discussed in "Note 5 - Derivative Instruments" to our Consolidated financial
statements. Assets carried as investments on American Life's financial
statements for the third-party reinsurers contained unrealized gains as of
December 31, 2021 and 2020, of approximately $ 161,000 and $2.9 million,
respectively. The terms of the contracts with the third-party reinsurers provide
that unrealized gains on the portfolios accrue to the third-party reinsurers. We
account for these unrealized gains by recording equivalent realized gains or
losses on our consolidated statement of comprehensive loss. Accordingly, the
unrealized gains on the assets held by American Life on behalf of the
third-party reinsurers were offset by recording an embedded derivative gain of
$2.7 million and loss of $2.9 million as of December 31, 2021 and 2020,
respectively. If prices of investments fluctuate, the unrealized gains or losses
of the third-party reinsurers may also fluctuate; therefore, the associated
embedded derivative gain (loss) recognized by us would be increased or decreased
accordingly.

Net Loss

In this section, unless otherwise specified, the discussion below first compares
year ended December 31, 2021 in the same year ended December 31, 2020.

We incurred a comprehensive loss of $20.1 million in 2021 compared with a
comprehensive loss of $6.6 million in 2020. Our revenues increased to $30.1
million from $10.6 million driven by an overall increase in investment income
and realized gains along with fee revenue. But our expenses increased by an even
greater amount in dollar terms - to $41.9 million from $21.4 million. Driving
the increase in expenses was significant increases in our salaries and benefits
and in our other operating expenses. The increase in expenses were to support
potential growth of the business from increases costs to attract talent, legal
and consulting to support transactions, investment structures, and state
expansion along with technology initiatives.

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Other reasons for the increase in the consolidated statement of comprehensive income in 2021
loss:

Taxes. Our GAAP effective tax rate was 35.6% in 2021, compared to 14.7% in

1) 2020. Note 8 of our financial statements provides additional information

to this increase in the tax rate.

Change in unrealized investment gains. This change was $4.4 million in 2021

2) compared to $7.4 million in 2020. Lower interest rates in 2020

greatly increased the value of our fixed income investments

than was the case in 2021.

Our FIA products have three components that influence our consolidated statement of
overall loss:


The derivatives we purchase to hedge stock market risk we would otherwise face
from our FIA. We carry these derivatives at fair value on our balance sheet,
recording the change in fair value in our consolidated statement of
comprehensive loss as either a realized gain or realized loss. In 2021, the
increase in the market value of the derivative assets was $2.7 million compared
to the market value of the derivative assets of $3.5 million in 2020 in our net
realized gain on investments.

The derivative integrated into our AIFs. We account for this derivative at fair value,

with the change in fair value recorded in the credited interest line of our

consolidated statement of comprehensive income. On all of our products,

1) the interest credited was $7.0 million in 2021 compared to $4.2 million in 2020.

The decrease in the value of the embedded derivative related to our AIFs was

included in this aggregate interest credited. Reflecting our risk management,

the change in the value of the embedded derivative is equal to the change in the

value of the option contracts we use to hedge that exposure.

Option budget reinsurers pay us to buy derivative assets. We mark

these assets to be marketed in each period. Separately, we record an amount payable to the

reinsurers which is due to a reinsurer when a policy is surrendered, a

the annuitant dies or a policy lapses. We compare what the reinsurer paid for the

2) initial option budget at market value at the end of the period. the

change in market value is added to or subtracted from the amount payable to the

reinsurer to cover the obligations of the reinsurer towards the policyholder. This

change in market value has resulted in a $2.4 million was included in our other

operating expenses in 2021 compared to $3.4 million spending in the past

year.

American Life has treaties with several third-party reinsurers that have funds
withheld and modified coinsurance provisions. As a result of changes in interest
rates, assets held on behalf of the third-party reinsurers had unrealized gains
of approximately $161,000 and $2.9 million at December 31, 2021 and 2020,
respectively. The terms of the contracts with the third-party reinsurers provide
that unrealized gains or losses on the asset portfolio accrue to the reinsurers.
We account for the change in these unrealized gains or losses by recording
equivalent realized gains or losses on our consolidated statement of
comprehensive loss. We recorded the decrease in the unrealized gains as a
realized gain of $2.7 million in 2021 compared to a realized loss of $2.9
million in 2020.

Consolidated Results of Operations - Years Ended December 31, 2021 and 2020

Revenue

Here is a summary of our sources of income:

                                                    Year ended December 31,
(In thousands)                                        2021             2020
Investment income, net of expenses                $     15,737     $      

4,047

Net realized gains on investments (See Note 4)           7,752            

2,550

Amortization of deferred gain on reinsurance             3,022            

1,836

Service fee revenue, net of expenses                     2,343            1,960
Other revenue                                            1,209              189
                                                  $     30,063     $     10,582

Premium revenue: The introduction of our MYGA and FIA products generated a large
volume of new business in 2021 and 2020; however, these products are defined as
investment contracts under U.S. GAAP. Accordingly the funds we received from our
customers under these contracts were recorded on our balance sheet as a
deposit-type liability - and not, importantly, as premium revenue.

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Investment income, net of expenses: The components of net investment income for
The years 2021 and 2020 were as follows:

                                         Year ended December 31,
(In thousands)                             2021             2020
Fixed maturities                      $       16,443     $     3,661
Mortgage loans                                   185             992
Other invested assets                            665             103
Other interest income                            298               -
Gross investment income                       17,591           4,756
Less: investment expenses                    (1,854)           (709)

Investment income, net of expenses $15,737 $4,047

Investment income, net of expenses consisted of investment income generated from
our retained investment assets that are not ceded to reinsurers. The increase
was due to the investment income earned on our bonds and mortgage loans
purchased with the sales of our MYGA and FIA products that were not ceded to
reinsurers during the period, as well as deployment of excess cash towards
credit investments with attractive yields and risk-return profiles. As of
December 31, 2021 and 2020, on a gross consolidated basis, our investment
portfolio (excluding cash) was $975.5 million and $518.2 million, respectively,
as a result of proceeds from our MYGA and FIA product sales.

Net realized gains on investments: Net realized gains on investments were $7.8
million
in 2021 compared to $2.6 million in 2020. This latter figure included

 a gain of $2.7 million and a loss of $2.9 million from a total return swap
embedded derivative in 2021 and 2020, respectively. In 2021, there were net
realized gains of $2.7 million related to derivatives we own to hedge the
obligations to FIA policyholders; such gains were partially offset by an
increase in the mark-to-market change in embedded derivative liability within
interest credited expense and an increase in FIA-related mark-to-market option
allowance expense flowing through other operating expenses. The change in fair
value of FIA hedging derivatives is driven by the performance of the indices
upon which our call options are based.

American Life has treaties with several reinsurers that have funds withheld
coinsurance provisions, under which the assets backing the treaties are
maintained by American Life as collateral but the assets and total return on the
asset portfolios belong to the reinsurers. Under GAAP this arrangement is
considered an embedded derivative as discussed in Note 5 - Derivative
Instruments to our Consolidated financial statements. The change in fair value
of the total return swap is included in net realized gains or losses on
investments. Assets carried as investments on American Life's financial
statements for the third-party reinsurers contained unrealized gains of
approximately $161,000 and $2.9 million for years ended December 31, 2021 and
2020, respectively. The terms of the contracts with the third-party reinsurers
provide that unrealized gains or losses on the portfolios accrue to the
third-party reinsurers. We recorded the unrealized gains accruing to third-party
reinsurers via a total return swap resulting in a realized gain of $2.7 million
and a realized loss of $2.9 million in 2021 and 2020, respectively.

Amortization of deferred gain on reinsurance: The increase in 2021 to $3.0
million
from $1.8 million in 2020 was due to a higher deferred gain on
reinsurance, partly thanks to higher reinsurance premiums in 2021.

Service fee revenue, net of expenses: Service fee revenue, net of expenses,
consists of fee revenue generated by 1505 Capital, for asset management services
provided to third-party clients, some of whom are our reinsurers. The increase
in this revenue, to $2.3 million in 2021 from $1.9 million in 2020, was due
primarily to the level of asset management services provided by 1505 Capital to
third-party clients.

Other revenue: Other revenue consists of revenue generated by us for providing
ancillary services such as third-party administration ("TPA") to clients. The
increase in 2021 was due to an increased provision of ancillary services,
including TPA, to clients and policy charges.

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Expenses

Our expenses for the periods indicated are summarized in the table below:

                                                Year ended December 31,
(In thousands)                                    2021             2020
Interest credited                             $      7,012     $      4,225
Benefits                                                 6              (5)
Amortization of deferred acquisition costs           2,886              670
Salaries and benefits                               16,926            6,347
Other operating expenses                            15,104           10,200
                                              $     41,934     $     21,437

Interest credited: The increase was primarily due to the interest credited in
2021 relating to the MYGA product of $2.8 million. Interest credited related to
our retained FIA policies was approximately positive $4.2 million and $3.4
million for 2021 and 2020, respectively. The FIA interest credited is related to
the fair market value of the embedded derivative which is owed to policyholders.
This was partially offset by the realized gain on our total return swap that is
included in the net realized gain on investment above.

Benefits: These include death benefits, inherited life insurance policies,
which has not changed significantly in 2021 compared to 2020 death benefits.

Amortization of deferred acquisition costs: The increase was due to the
acquisition costs relating to the sale of American Life's MYGA and FIA products
where we retained approximately 50% of the business in 2021 compared to the 45%
retained in 2020. These figures include the Seneca Re protected cells, SRC1 and
SRC3, DAC amortization.

Salaries and benefits The significant increase to $16.9 million compared with
$6.4 million was due to costs incurred to attract and add personnel to service
our business growth and the cost related to non-cash stock consideration. We are
hiring more in-house expertise to service our growth initiatives and reduce the
reliance on third-party providers. Salaries and benefits in 2021 included
non-cash stock consideration of approximately $5.0 million relating to the
vesting of stock options of a former Co-CEOs, upon resigning from our Company.
The remaining increase in salaries and benefits was related to bonuses to paid
to retain talent.

Other operating expenses: Other operating expenses were approximately $4.9
million
higher mainly due to:

Our AIF product has embedded derivatives included in the account value. Those

derivatives are market driven. Reinsurers who reinsure FIA ​​products

pay an option allowance to American Life to purchase derivatives. From

? December 31, 2021the valuation at the market price of these allowances was positive

position so that American Life suffered a $2.4 million fee and payable to

reinsurers for this increase. As the market fluctuates in the future, the brand

the amount of the option allowance could increase or decrease.

Increase in other expenses related to the legal fees of $2.1 million Related

? mainly to regulatory matters and consultation on the execution of

reinsurance operations partially or not carried out.

Increases in other expenses related to taxes, licenses and

? approximately $1.1 million due to Nebraska state review audit and

increased actuarial costs; consultants to support the implementation of our activity

plan and office overhead to support business growth.

Taxes

Income tax expense increased by $3.2 million for $4.8 million in 2021 from $1.6
million
in 2020. This evolution is mainly due to the evolution of the
modified coinsurance tax reserves of reinsurance.

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Investments

Most investments on our Consolidated balance sheets are held on behalf of our
reinsurers as collateral under our reinsurance agreements. As a result, our
investment allocations are largely a function of our collective reinsurer
investment allocations. While the reinsurers own the investment risk on these
assets, we typically restrict their investment allocations via control over the
selection of the asset manager as well as asset restrictions set forth in
investment guidelines and control over the investment manager. In many of our
reinsurance agreements, 1505 Capital acts as the asset manager for a fee.

Our investment guidelines typically include U.S. government bonds, corporate
bonds, commercial mortgages, asset backed securities, municipal bonds, and
collateral loans. The duration of our investments is 5 to 10 years in line with
that of our liabilities. We do allow non-U.S. dollar denominated investments
where the foreign exchange risk is hedged back to U.S. dollars.

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 December 31, 2021 and 2020. Increases in fixed maturity
securities primarily resulted from the sale of our MYGA and FIA products during
2021.

                                            December 31, 2021         December 31, 2020
                                          Carrying      Percent     Carrying     Percent
(In thousands)                              Value       of Total      Value      of Total
Fixed maturity securities:
Bonds:
U.S. government obligations              $     1,882         0.2 %  $   6,164         0.9 %
Mortgage-backed securities                    55,280         4.9       14,757         2.2
Asset-backed securities                       24,951         2.2        7,450         1.1
Collateralized loan obligation               274,523        24.6      214,324        32.0
States and political subdivisions --
general obligations                              114           -          118           -
States and political subdivisions --
special revenue                                5,612         0.5        6,202         0.9
Corporate                                     37,139         3.3      125,863        18.9
Term Loans                                   267,468        23.9            -           -
Trust preferred                                2,237         0.2        2,285         0.3
Redeemable preferred stock                    14,090         1.3            -           -
Total fixed maturity securities              683,296        61.1      377,163        56.3
Mortgage loans on real estate, held
for investment                               183,203        16.4       94,990        14.2
Derivatives                                   23,022         2.1       11,361         1.7
Equity securities                             21,869         2.0            -           -
Other invested assets                         35,293         3.2       21,897         3.3
Investment escrow                              3,611         0.3        3,174         0.5
Federal Home Loan Bank (FHLB) stock              500           -           
-           -
Preferred stock                               18,686         1.7        3,898         0.6
Notes receivable                               5,960         0.5        5,666         0.8
Policy Loans                                      87           -           46           -
Cash and cash equivalents                    142,013        12.7      151,679        22.6
Total investments, including cash and
cash equivalents                         $ 1,117,540       100.0 %  $ 669,874       100.0 %


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  Table of Contents

The following table shows the distribution of the credit ratings of our
portfolio of fixed maturity securities by carrying value as of December 31, 2021
and 2020.

                            December 31, 2021       December 31, 2020
                           Carrying                Carrying
(In thousands)               Value      Percent      Value      Percent
AAA and U.S. Government    $   2,674        0.4 %  $   3,071        0.8 %
AA                               482        0.1        5,818        1.5
A                            168,141       24.6       49,445       13.1
BBB                          462,699       67.7      247,636       65.7
Total investment grade       633,996       92.8      305,970       81.1
BB and other                  49,300        7.2       71,193       18.9
Total                      $ 683,296      100.0 %  $ 377,163      100.0 %

Reflecting the quality of the securities we hold, 92.8% and 81.1% of all
fixed-maturity securities were of high quality December 31, 2021 and
2020, respectively.

We expect our sales of MYGA and FIA products to result in an increase in
investable assets in future periods.

Market risks of financial instruments

The primary market risks affecting the investment portfolio are interest rate
risk, credit risk and liquidity risk. With respect to investments that we hold
on our balance sheet as collateral, our reinsurers bear the market risks related
to these investments, while we bear the market risks on any net retained
investments.

Interest rate risk

Interest rate risk arises from the price sensitivity of investments to changes
in interest rates. Interest and dividend income represent 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. Our liabilities also have interest rate risk though GAAP does not
require our liabilities to be marked to market. We mitigate interest rate risk
by monitoring and matching the duration of assets compared to the duration
of
liabilities.

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 diversification of investments amongst many corporations and numerous
industries. Additionally, our investment policy limits the size of holding
in
any particular issuer.

Liquidity Risk
We are exposed to liquidity risk when liabilities come due. In order to pay a
policyholder, we may need to liquidate assets. If our assets are illiquid
assets, we might be unable to convert an asset into cash without giving up
capital and income due to a lack of buyers or an inefficient market. We seek to
mitigate this risk by keeping a portion of our investment portfolio in liquid
investments.

Legal accounting and regulation

Our primary insurance subsidiary, American Life, is required to prepare
statutory financial statements in accordance with SAP prescribed by the NDOI.
SAP primarily differs from GAAP by charging policy acquisition costs to expense
as incurred, establishing future benefit liabilities using actuarial assumptions
as well as valuing investments and certain assets and accounting for deferred
taxes on a different basis. For further discussion regarding SAP as well as net
income (loss) of American Life under SAP, see Note 14 to our

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Contents

consolidated financial statements. From December 31, 2021American life
maintained sufficient capital and surplus to comply with regulations
conditions.

State insurance laws and regulations govern the operations of all insurers and
reinsurers such as our insurance and reinsurance company subsidiaries. These
various laws and regulations require that insurance companies maintain minimum
amounts of statutory surplus as regards policyholders and risk-based capital and
determine the dividends that insurers can pay without prior approval from
regulators. The statutory net income of American Life is one of the primary
sources of additions to our statutory surplus as regards policyholders, in
addition to capital contributions from us.

We have reported our insurance subsidiaries' assets, liabilities and results of
operations in accordance with GAAP, which varies from SAP. The following items
are principal differences between SAP and GAAP. SAP:

? requires that we exclude certain assets, called disallowed assets, from

balance sheet.

requires us to expense policy acquisition costs when incurred, whereas GAAP

? allows us to defer and amortize policy acquisition costs over the

political life.

? dictates the amount of a deferred tax asset that we can allow on a

statutory balance sheet.

requires us to carry certain investments at cost or amortized cost, whereas we

? recognize other investments at fair value; however, GAAP requires us to record

all investments at fair value.

allows bonds to be recognized at amortized cost or at fair value depending on the rating

? received from NAIC Securities Assessment Officewhile they are

recognized at fair value under GAAP.

makes it possible to recognize income from ceding commissions when they are posted if the cost of

? the acquisition and renewal of the associated company exceeds the disposal commissions,

but under GAAP, this revenue is deferred and recognized over the period covered.

requires that we record reserves in liabilities and expenses for policies

? writing, while we record all transactions related to annuity products under

GAAP as deposit type contract liabilities.

requires that a provision for reinsurance liabilities be established for reinsurance

recoverable on paid losses older than 90 days and for unsecured amounts

? recoverable from unregistered reinsurers. Under GAAP, there is no charge for

unsecured amounts ceded to an unlicensed insurance company

the affiliate’s state of domicile and a reserve for uncollectible reinsurance is

charged to profits rather than to surplus or equity.

requires an additional eligibility test described in the declarations on the

Accounting Principles, No. 101 and the change in deferred income tax is

reported directly in capital and surplus, rather than being reported as a

? component of income tax expense under GAAP. Our insurance subsidiaries must

file with the insurance supervisory authorities an “annual declaration” which

   reports, among other items, net income (loss) and surplus as regards
   policyholders, which is called stockholders' equity under GAAP.


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  Table of Contents

The table below shows our SAP net profit (loss) for 2021 and 2020 for each
of our insurance subsidiaries, then reconciled with GAAP.

                                                                                    Year ended December 31,
(In thousands)                                                                       2021               2020
Consolidated GAAP net loss                                                 

($16,637) ($12,440)
Exclude: Midwest non-insurance trading entities (American Life & Seneca Re) (6,961)

              (342)
GAAP net loss of statutory insurance entities                              

($9,676) $(12,098)

GAAP net loss by statutory insurance entity:
American Life                                                                   $      (8,742)      $    (15,970)
Seneca Re Protected Cell 01                                                              (321)              3,872
Seneca Re Protected Cell 03                                                              (613)                  -
SAP net loss                                                                    $      (9,676)      $    (12,098)

Reconciliation of GAAP and SAP
GAAP net loss of American Life                                             
           (8,742)           (15,970)
Increase (decrease) due to:
Deferred acquisition costs                                                            (34,451)           (30,787)
Coinsurance transactions                                                               171,687             91,331
Carrying value of reserves                                                           (133,028)           (42,389)
Foreign exchange and derivatives                                                             -            (3,944)
Gain on sale of investments, net of asset valuation reserve                            (1,861)              7,160
Other                                                                                       40               (19)
SAP net (loss) income of American Life                                     

($6,355) $5,382

GAAP net (loss) income of Seneca Re Protected Cell 01                                    (321)              3,872
Increase (decrease) due to:
Deferred acquisition costs                                                             (3,343)           (17,808)
Coinsurance transactions                                                                37,763            147,503
Carrying value of reserves                                                            (36,995)          (138,999)
Gain on sale of investments, net of asset valuation reserve                              1,847            (4,001)
Other                                                                                       45                  -
SAP net loss of Seneca Re Protected Cell                                   

$(1,004) ($9,433)

GAAP net income of Seneca Re Protected Cell 03                             
             (613)                  -
Increase (decrease) due to:
Deferred acquisition costs                                                            (10,325)                  -
Coinsurance transactions                                                                88,704                  -
Carrying value of reserves                                                            (84,865)                  -
Gain on sale of investments, net of asset valuation reserve                                282                  -
Other                                                                                     (34)                  -
SAP net loss of Seneca Re Protected Cell 03                                     $      (6,851)      $           -

SAP net loss of statutory insurance entities                               

($14,210) $(4,051)

We discuss below non-GAAP financial measures that management uses in conjunction
with GAAP financial measures as an integral part of managing our business and
to, among other things:

• monitor and evaluate the performance of our business and financial operations
performance;

• facilitate internal comparisons of the historical operational performance of our
Commercial operations;

• review and assess the operational performance of our management team;

• analyze and evaluate financial and strategic planning decisions regarding
future transactions; and

• plan and prepare future annual operating budgets and determine the
operational investment levels.

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.

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Operating Metric – Annuity Premiums

We monitor annuity premiums as a key operating metric in evaluating the
performance of our business. Annuity premiums, also referred to as sales or
direct written premiums, do not correspond to revenues under GAAP, but are
relevant metrics to understand our business performance. Under SAP, our annuity
premiums received are treated as premium revenue. Our premium metrics include
all sums paid into an individual annuity in a given period. We typically
transfer all or a substantial portion of the premium and policy obligations to
reinsurers. Ceded premium represents the premium we transfer to reinsurers in a
given period. Retained premium represents the portion of premium received during
a given period that was not ceded to reinsurers and will either be reinsured in
a subsequent period or retained by us. We typically retain premiums prior to
transferring them to reinsurers to facilitate block and other reinsurance
transactions involving portfolios of annuity premiums.

The following table sets forth premiums received under SAP. Under GAAP these
products are defined as deposit-type contracts; therefore, the premium revenue
is accounted under GAAP as deposit-type liabilities on our Consolidated balance
sheets and is not recognized in our consolidated statement of comprehensive
loss

                                   Year ended December 31,
(In thousands)                       2021              2020

Annuity premiums (SAP)
Annuity Direct Written Premiums $471,646 $415,561
Premiums ceded

                       (237,411)        (228,125)
Net premiums retained           $      234,235      $   187,436


The increase in annuity direct written premiums reflect strong sales in the
first half of 2021, while the third and fourth quarters encountered a
challenging sales environment, in which competitors were pricing rates on
annuity products aggressively. We sell annuities through the IMO channel. We aim
to grow annuity direct written premiums by further developing our relationships
with existing IMOs and increasing the number of IMO partners that distribute our
annuity products, as well as increasing the number of states in which we are
licensed to sell our annuity products. We also aim to distribute to new
channels, including the registered investment advisor (RIA) channel as well as
the bank and broker-dealer channels. The increase in ceded premiums was
attributable primarily to the increase in annuity direct written premiums
discussed above.

Operating Metric – Fees Received for Reinsurance

                                         Year ended December 31,
(In thousands)                             2021             2020
Fees received for reinsurance(1)
Fees received for reinsurance - total  $     13,412     $     12,457


(1) Consists of: 1) amortization of deferred gain on reinsurance, which is a
line item from our GAAP Consolidated Statements of Comprehensive Loss; and 2)
deferred coinsurance ceding commission, which is a line item from our GAAP
Consolidated Statements of Cash Flows.

Commissions received for reinsurance are defined as the net commissions received for
reinsurance transactions entered into during the period and includes cessions
committee. We calculate the fees received for reinsurance by adding two
components: 1) amortization of the deferred gain on reinsurance which is a line
item of our GAAP Consolidated Statements of Comprehensive Income; and 2)
deferred coinsurance ceding commission, which is a line item in our GAAP
Consolidated Statements of Cash Flows.

For the year ended December 31, 2021, fees received for reinsurance increased by
$1.0 million compared to the prior year period due to higher ceded premiums. For
the year ended December 31, 2021, the components of fees received for
reinsurance included $3.0 million of amortization of deferred gain on
reinsurance from our GAAP Consolidated Statements of Comprehensive (Loss) Income
and $10.4 million of deferred coinsurance ceding commission from our GAAP
Consolidated Statements of Cash Flows.

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Contents

Reconciliation – Management fees and GAAP fees

                                                           Year ended December 31,
                                                             2021             2020
Management Expenses
G&A                                                       $     24,632      $  12,942

Management interest credited                                     8,757          2,098
Amortization of deferred acquisition costs                       2,886     

670

Expenses related to retained business                           11,643     
    2,768
Management expenses - total                               $     36,275      $  15,710

                                                           Year ended December 31,
                                                             2021             2020
G&A
Salaries and benefits - GAAP                              $     16,926      $   6,347
Other operating expenses - GAAP                                 15,104     

10,200

Subtotal                                                        32,030     

16,547

Adjustments:

Less: Stock-based compensation                                 (4,981)     

(164)

Less: Mark-to-market option allowance                          (2,417)     
  (3,441)
G&A                                                       $     24,632      $  12,942

                                                           Year ended December 31,
                                                             2021             2020
Management Interest Credited
Interest credited - GAAP                                  $      7,012      $   4,225
Adjustments:
Less: FIA interest credited - GAAP                             (4,169)     

(3,432)

Add: FIA options cost - amortized                                5,914     
    1,305
Management interest credited                              $      8,757      $   2,098

                                                           Year ended December 31,
                                                             2021             2020
Reconciliation - Management Expenses to GAAP Expenses
Total expenses - GAAP                                     $     41,934      $  21,437
Adjustments:
Less: Benefits                                                     (6)              5
Less: Stock-based compensation                                 (4,981)     

(164)

Less: Mark-to-market option allowance                          (2,417)     

(3,441)

Less: FIA interest credited - GAAP                             (4,169)     

(3,432)

Add: FIA options cost - amortized                                5,914     
    1,305
Management expenses - total                               $     36,275      $  15,710


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Operating Metric – Management and General and Administrative Expenses

In addition to total expenses, we utilize management expenses as an economic
measure to evaluate our financial performance. Management expenses consist of
total GAAP expenses adjusted to eliminate items that fluctuate from quarter to
quarter in a manner unrelated to core operations, which we believe are useful in
analyzing operating trends. The most significant adjustments to arrive at
management expenses include the use of management interest credited (as
discussed below), the exclusion of stock-based compensation and the exclusion of
the mark-to-market option allowance expense (included in other operating
expenses) payable to reinsurers to cover their obligations under FIA policies we
have reinsured with them. We believe the combined presentation and evaluation of
total expenses together with management expenses provides information that can
enhance an investor's understanding of our underlying operating results.

For the year ended December 31, 2021, GAAP general and administrative expenses
totaled $41.9 million compared to $21.4 million for the prior year. For the year
ended December 31, 2021, as disclosed above, included in these expenses is
mainly salaries, benefits and other operating expenses, along with $5.0 million
of non-cash stock-based compensation and $2.4 million of non-cash mark-to-market
expense of our derivative option allowance, which we exclude in our management
G&A.

Operating Metric – Management Interest Credited

We utilize management interest credited, a component of management expenses, as
an economic measure to evaluate our financial performance. GAAP interest
credited contains significant technical considerations related to fair value
accounting with respect to the mark-to-market change in the FIA embedded
derivative liability and change in actuarial valuation of the FIA reserve, both
of which are sensitive to changes in the market as well as changes in actuarial
assumptions. Due to these technical considerations that we believe are less
meaningful to management and investors, we exclude the GAAP interest credited
expense related to our FIA products and include the amortized cost of options we
purchase to service our FIA policy obligations. The sum of GAAP interest
credited related to our multi-year guaranteed annuity ("MYGA") products and the
amortized cost of options we purchase to service our FIA products constitutes
management interest credited.

For the year ended December 31, 2021, GAAP interest credited totaled $7.0
million compared to $4.2 million for the prior year. For the year ended December
31, 2021, as disclosed above, included in these expenses is GAAP interest
credited related to our retained FIA policies of approximately positive $4.2
million. For the year ended December 31, 2021, as disclosed above in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

Cash and capital resources

At December 31, 2021 and 2020, we had cash and cash equivalents totaling $142.0
compared $151.7 million, respectively. We believe that our existing cash and
cash equivalents will be sufficient to fund our anticipated operating expenses
and capital transaction expenditures for the foreseeable future. We have not
seen an impact on our cash flows related to the COVID-19 pandemic during the
last two years. As our state expansion continues, we expect an increase in our
sales of our MYGA and FIA products.

The NAIC has established minimum capital requirements in the form of RBC that
factors the type of business written by an insurance company, the quality of its
assets and various other aspects of its business to develop a minimum level of
capital known as "authorized control level risk-based capital" and compares this
level to adjusted statutory capital that includes capital and surplus as
reported under SAP, plus certain investment reserves. Should the ratio of
adjusted statutory capital to control level RBC fall below 200%, a series of
remedial actions by the affected company would be required. As of December 31,
2021, and 2020, the RBC ratio of American Life was 764.069% and 1,092,205%,
respectively. In December, 2020, Midwest contributed $50.0 million of the
capital raise which was reflected in the high 2020 RBC ratio.

American Life had a legacy block of business that was ceded off to a third-party
reinsurer on July 1, 2018 through an indemnity reinsurance agreement that
transferred 90% to the assumptive reinsurer, resulting in American Life
transferring all the risk and financial obligations of those policyholders
to
the third-party reinsurer.

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Comparative Cash Flows

Cash flow is an important component of our business model because we receive
annuity premiums and invest them upon receipt for our reinsurers and us and for
the benefit of our policyholders.

The following table summarizes our cash flows from operational, investing and
financing activities for the periods indicated. See the Consolidated Statements
of Cash Flow in our Consolidated financial statements for more detailed
information.

                                                        Year ended December 31,
                                                          2021            2020
(In thousands)
Net cash used in operating activities                 $    (25,338)    $  

(16,244)

Net cash used in investing activities                     (452,407)      

(367,482)

Net cash provided by financing activities                   468,079       

491,689

Net (decrease) increase in cash and cash equivalents        (9,666)       
107,963
Cash and cash equivalents:
Beginning of period                                         151,679         43,716
End of period                                         $     142,013    $   151,679

Cash flows used in operating activities

Net cash used for operating activities was $25.3 million for the year ended
December 31, 2021, which was comprised primarily of an increase in receivable
and payable for securities $14.2 million, capitalized DAC of $14.0 million, net
realized gain on investments of $7.8 million, accrued investment income of $6.8
million, and amounts recoverable from reinsurers of $6.4 million, and. These
were offset by deposit-type liabilities of $24.4 million, and an increase in
deferred coinsurance ceding commission due to a third-party reinsurance
transaction of $10.4 million.

Cash used in investing activities

Net cash used for investing activities for 2021 was $452.4 million. The primary
source of cash used was from our purchase of investments from sales of the MYGA
and FIA products of $977.8 million. Offsetting this use of cash was our sale of
investments of $525.7 million.

Cash flow from financing activities

Net cash provided by financing activities in 2021 was $468.1 million. the
the main source of cash was net receipts on MYGA and FIA products from $453.2
million
.

Off-balance sheet arrangements

We do not have any 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.

SECTION 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ON MARKET RISK.

As a small reporting company, we are not required to disclose
in accordance with this article.

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