Q2 2021 Midwest Holding Inc Earnings Call

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Ladies and gentlemen, welcome to the Midwest holding incorporated Q2, 2021 earnings call My.

My name is Lydia and it'll be coordinating your call today.

If you'd like to ask a question during the presentation you may do so by pressing star followed by one on your telephone keypad.

I will now hand, you over to our host today Tom Bumbly. Please go ahead Tom.

Good afternoon, and welcome to the Midwest Holdings second quarter 2021 earnings call. This is Tom bubble head of business development and Midwest. Joining me for today's presentation will be our co CEO and founder Michael Salem, as well as our Chief Financial Officer, Deborah ironic and.

And director of corporate Finance No June Q yeah.

Yesterday evening Midwest issued our Q2.2021 earnings release announcing our financial results. During today's call. We will reference this letter a copy of which can be found on the investor Relations page of our website at.

IR Dot Midwest holding dot com.

While this call will reflect items discussed within that document for more comprehensive information about our financial performance. We also encourage you to read through our 10-Q.

Which has been filed with the Securities and Exchange Commission before we begin I want to remind you that matters from today's call will include forward looking statements related to our operating performance financial goals and business outlook, which are based on management's current beliefs and assumptions.

These forward looking statements reflect our opinions as of the date of this call.

We undertake no obligation to revise this information as a result of new developments that may occur.

Looking statements are subject to various risks.

The uncertainties and other factors that could cause our actual results to differ materially from those expected and described today.

In addition, we are subject to a number of risks that may significantly impact our business and financial results for.

For a more detailed description of our risk factors. Once again. Please review our Form 10-K, where you will see a discussion of factors that could cause the company's actual results to differ materially from these statements.

A replay of this conference call will be available on our website under the Investor Relations section.

I would also like to remind you that during the call we will discuss some non-GAAP measures and discussing Midwest performance you.

You can find the reconciliation of those historical measures to the nearest comparable GAAP measures in our earnings release.

We have several exciting developments to report for the second quarter and I'll turn the call over to Michael to tell you more Michael.

Thank you Tom and good afternoon, everyone. It's a pleasure to be with you today to report on Midwest Holdings second quarter results.

It was a solid quarter and we continue to execute on our plan.

On a macro level, our opportunity remains as strong as ever the wealth management and insurance value chain continues to be under tremendous flux.

Yet managers are becoming insurance companies traditional insurers are divesting of assets.

Private equity is aggregating technology historically.

We expect this industry realignment to continue for some time.

The true winners to be determined decades not years.

Midwest was in fact built for this environment from the ground up as a technology enabled life and annuity company.

At the forefront of our vision is our commitment to driving value to our customers and partners.

We do this as an open architecture product manufacturer.

Our platform allows us to aggregate and cure rate alternative asset management that we repackage and distribute to individuals seeking to fund their retirement and institutions seeking unique uncorrelated returns.

Our business is positioned to be aligned with these key stakeholders by connecting them to attractive products with top customer service all powered by information and technology.

We believe we have the people the platform and the vision to be a long term winner in this market.

In the past quarter, we solidly executed in pursuit of our opportunity.

Importantly, we advanced our reinsurance pipeline, including closing a transaction that helped drive our strong financial results.

As we've said before these types take time to build but we are building them to support long term sustainable growth.

Additionally, we have advanced our technology and operating infrastructure crucially positioning us for long term scalability.

And we also expanded our distribution efforts, notably, adding eight pumps and with over two decades of experience to spearhead this important area of our growth.

We are moving quickly we are driven by an incredible energy and we are attracting incredible people.

We believe that our team and our speed will be key drivers in our success and our admittedly higher than forecasted expenses reflect our opportunity to move more quickly than we expected.

From a top line perspective, we are satisfied with where we are.

Our FIA production is in line with our expectations and our module products like we've said before are more price sensitive, but we currently see an opportunity in the market. So our production should be more balanced in the second half.

While we know investors and analysts are going to be focused on our short term growth. Our focus is equally on investing in our platform and our capabilities to support long term sustainable growth.

These investments will take time to materialize into tangible results, but if you simply look at the scale of the market and our relative size.

2% market share in fixed annuities alone, we would be at over $2 billion of production.

And the opportunity is much bigger than that.

So hopefully that provides some context on our approach.

In summary, we feel exceptionally well positioned for our long term success at.

At this moment in our company's trajectory there is incredible excitement so much promising activity.

The continued unwavering commitment to the hard work on the road ahead.

And with that I'll now turn it over to our CFO Deborah.

Thank you Michael and thank you everyone for joining us today.

Pleased to be able to report on Midwest financial highlights during the quarter and our company's financial position.

Our premium volume remained strong.

We wrote $125.9 million in annuity direct premiums in the second quarter of 2021, representing 26% growth from $99.7 million in the second quarter of last year.

In the second quarter of 2021 management revenue was $9.1 million.

84% from the second quarter of 2020.

Management operating income loss available to common shareholders in the second quarter of 2021 increase to income of <unk> 8 million compared to a loss of <unk> 6 million in the second quarter of 2020.

As Michael mentioned, we are moving quickly.

And are investing to capitalize on the opportunity in front of us.

For the second quarter of 2021, G&A expenses, excluding stock based compensation and the mark to market of the derivative option allowance.

Total $5.9 million compared to $3.7 million in the second quarter of 2020.

We will now open the line for questions.

Thank you Deborah.

Like to ask a question. Please press star followed by one on your telephone keypad now.

If you'd like to withdraw your question. Please press star followed by a.

The bank to ask a question. Please ensure that you'll find is amit you'd likely.

Our first question comes from John Barnidge of Piper Sandler.

John Your line is now open. Please go ahead.

Thank you.

I was hoping you could maybe talk about your new reinsurance partner.

You announced and how we should be thinking about maybe the ceded commission ratio going forward as you begin to work with new.

Reinsurance counterparties.

Yes sure. Thanks, Thanks, John.

Thanks for joining us today.

We're excited about the relationship that we built with American Enterprise group.

They are a very strong counterparty large mutual insurance company.

A tremendous amount of due diligence on our product and our reinsurance opportunities that we feel that is extremely validating.

Of our more of our business model, and our and our reinsurance product and.

And expect it to be a long term relationship or.

Midwestern American life.

In terms of our ceded commission ratio.

No.

Mary based on product mix, our 10 year FIA product.

It has been.

The term has higher ceding commission.

Nick.

May change to our module products, which are a bit shorter dated we could see those Cds ceding commission rates come down.

But overall, we're very happy with where our margins are as a business.

And then can you talk about your expectations around.

Maybe adding a external counterparty and American enterprise, what that means for your outlook on new.

Reinsurance relationships and the balance of the year and what your expectation is around that pipeline.

Yeah sure so our reinsurance pipeline as you know the junior important aspect of our business.

Is our one of our most significant priorities and we built an incredible infrastructure.

Pipeline around distributing our reinsurance products to institutional investors.

And asset managers, who are seeking uncorrelated unique returns that can be derived from our annuity premium.

The goal here is really to build long term scalable partnerships, which do take some time, but we're expecting in the second half of the year to add maybe one or two additional partnerships, we expect to be able to get to our 90% ceded target.

In the year.

And we're very pleased with the quality and scale of the partners that we're working with and really it's a fantastic opportunity. We have a very unique product in the marketplace that has a very very strong traction.

That's helpful. Maybe my last question and I'll re queue can you talk about net investment income in the quarter. Maybe was there was there a continued cash drag.

And if so maybe sizing and when you anticipate to have that exited thank you.

Yes, so we did have a little bit of cash drag as well as some one time.

Item in our investment income in this quarter, we would expect in the second half of the year for that to trend.

<unk> higher to our target of four 5%.

ROA.

Where we are kind of going into the into the second half we feel good about and so we would expect that to trend higher over the next.

A couple of quarters.

Thanks for the answers.

Thank you.

Thank you. Our next question comes from Matthew <unk> of JMP.

Please go ahead.

Hey, Thanks, good morning.

The first question Michael I was hoping you could give us a little bit of color you touched on kind of.

Building the business towards the a couple of billion dollar sort of business can you help us big picture with as we think about the levers to get there whether it be new products.

Bigger share of wallet with your existing IMO partners, New IMO partners.

New distribution channels.

Geographic expansion you guys have a lot of path ahead of you.

Do you have a view on which of those are most meaningful.

Two Midwest in both in the near term and the longer term as you work towards those targets.

Yes, no. Thanks, Matt that's a great question. So really the answer is all of the above and our strategy is to make sure we have.

We're doing a lot of little things to add value to our end fin.

<unk> financial adviser.

And distribute and distribution partners.

The most meaningful thing we can do.

Really the IMO channel.

Is to add add states and expand our geographic footprint.

Where we are.

Still at.

Around 22 state. We did have we do have applications that we're going to be submitted in the second half and do we expect to expand our state footprint over the next 12 to 18 months significantly and Thats something that were working and focused on in addition to that we have.

And.

Seven year FIA product that we'll be launching shortly.

We are going to be launching a fee only product in the channel that we're quite excited about it.

And also adding additional indices to our FIA product in the second half.

When we look at it we're taking a strategy, which we want to build build and deepen our IRR relationships.

Expand our distribution to the RIAA and BD channel channel and expand our state footprint as well as our product mix.

Great and then and then just a kind.

Kind of a numbers question.

I know you've been investing a lot in.

Is there any.

Even back half guidance or just how should we think about kind of the numbers in the current quarter and the first quarter.

Versus where you might see that going as you think about.

Hiring people and investing in future growth.

Yes, sure. So I think in terms of the.

The way, we're looking at the back half it pretty stable.

Stable run rate, we feel that we're on there may be some additional.

Is that kind of could have been in the second quarter, but will be pushed third quarter. So although we did beat our expectation on second quarter expenses that could in the short term catch up a bit overall.

<unk> as a <unk>.

Highly quickly.

Quickly growing company is something that we're not we're not exactly optimizing at this point.

Focus really is on our speed and our.

Our infrastructure and making sure that we're making the right investments to get to that $2 billion platform target.

And.

There should be a lot of room I would say in our expenses as we grow to optimize and get more out of our current budget.

No.

No.

As mentioned our expenses have been a bit higher than forecasted we're really bringing on strong people building a fantastic team building a very strong infrastructure, we're very happy with where we are.

Great. Thanks very much.

My questions.

Congrats on a nice quarter.

Thanks, Matt.

We have a follow up question from John Barnidge of Piper Sandler John Please.

Please go ahead.

Thank you can you talk about maybe your G&A expectations for 'twenty, one 'twenty two.

I think know Jane do you want to talk a little bit about that too.

2021, I don't think we're prepared to talk job for 'twenty, one, but I think I think we could talk a bit about 'twenty one.

Yes.

John.

Yes, I think.

If you sort of look at the $5.9 million for the quarter.

G&A.

I'd say thats slightly above slightly below run rate for <unk>.

For G&A that we expect for the year.

So.

If you sort of take a little bit more than that run rate implied run rate number then that's that's kind of where you're shaking out so.

Around $24 million, maybe a tad bit more is kind of what we expect for the year.

Okay. That's helpful and then.

With American enterprise.

Coming online being a mutual.

Well capitalized has has this changed like your existing reinsurance counterparties now that youre getting more diversified is there the potential for their appetite and ability to take more to increase.

Yes, I mean, I think with any with any partner.

We will look to deliver on our side of the relationship obviously drive a strong product that has dropped strong return for our reinsurance partners and then.

And then partner with scalable Counterparties that we can add to one relationship is built so we would hope with any with any counterparty that we're bringing on that we can scale with them and certainly American enterprises.

That sounds great. Thanks for the answers best of luck in the quarter ahead.

Thanks, John.

Thank you as a reminder, ladies and gentlemen, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.

We have no further questions in the queue, So I'll hand.

Back to Michael Saylor for closing remarks.

Thank you and thank you everyone for joining US today, we hope you enjoy the balance of your summer and look forward to speaking to investors that would like to talk a privately.

Thank you.

Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.

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