2022 Annual Report
April 5, 2023
Dear Shareholder,
I am glad to report to you that our company had an excellent year. We have an
experienced team, and I think that contributes greatly to our strong results.
These are uncertain and challenging economic times. We will continue to do our
best to navigate them carefully.
The stock buyback plan continues to be in place for those who may want to sell. If
you have questions or a desire to sell, please feel free to give our office a call.
We look forward to 2023 and what it holds for us.
Thank you for your continued investment in us.
Sincerely,
Jesse T. Correll
Chairman
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Business Overview
UTG, Inc. (the “Registrant”, “Company” or “UTG”) is an insurance holding company incorporated
in the state of Delaware in 2005 and headquartered in Stanford, KY. The Company’s principal
subsidiary is Universal Guaranty Life Insurance Company (“UG”). The Registrant and its primary
subsidiary have only one significant segment, insurance.
The holding company has no significant business operations of its own and relies on fees,
dividends, and other distributions from its operating subsidiary as the principal source of cash flows
to meet its obligations. The Company may explore supplemental sources of income in the future.
The cash outlays of the Company mainly consist of operational costs and the costs of repurchasing
Company common stock.
Universal Guaranty Life Insurance Company is an Ohio domiciled life insurance company and is
licensed in 37 states. The Company’s dominant business is individual life insurance, which includes
the servicing of existing insurance business in-force, the acquisition of other companies in the
insurance business, and the administration processing of life insurance business for other entities.
The Insurance Company’s operations are conducted through its administrative office located in
Stanford, Kentucky.
UG has several wholly-owned and majority-owned subsidiaries. The subsidiaries were formed to
hold certain real estate and other investments. The investments were placed into the limited liability
companies and partnerships to provide additional protection to the policyholders and to UG.
UTG has a strong philanthropic program. The Company generally allocates a portion of its earnings
to be used for its philanthropic efforts primarily targets to Christ-centered organizations or
organizations that help the weak or poor. The Company also encourages its staff to be involved on
a personal level through monetary giving, volunteerism, and the use of their talents to assist those
less fortunate than themselves. Through these efforts, the Company hopes to make a positive
difference in the local community, state, nation, and world.
This document at times will refer to the Registrant’s largest shareholder, Mr. Jesse T. Correll and
certain companies controlled by Mr. Correll. Mr. Correll holds a majority ownership of First
Southern Funding LLC, a Kentucky corporation, (“FSF”) and First Southern Bancorp, Inc. (“FSBI”),
a financial services holding company. FSBI operates through its 100% owned subsidiary bank,
First Southern National Bank (“FSNB”). Banking activities are conducted through multiple locations
within south-central and western Kentucky. Mr. Correll is Chief Executive Officer and Chairman of
the Board of Directors of UTG and is currently UTG’s largest shareholder through his ownership
control of FSF, FSBI and affiliates. At December 31, 2022, Mr. Correll owns or controls directly
and indirectly approximately 65% of UTG’s outstanding stock.
At December 31, 2022, the Company had consolidated assets of $448 million, consolidated
liabilities of $290 million and total shareholders’ equity of $158 million. The Company’s consolidated
liabilities include policyholder liabilities and accruals of $249 million.
The Company’s principal executive office is located at 205 North Depot Street, Stanford, Kentucky
40484. The Company’s telephone number is 217-241-6300.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is Management’s discussion and analysis of the financial condition and results of
operations of UTG, Inc. and its subsidiaries (collectively with the Parent, the “Company”) for the
years ended December 31, 2022 and 2021. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this report.
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Cautionary Statement Regarding Forward-Looking Statements
This report on Form 10-K contains certain forward-looking statements within the meaning of Section
27A of the Securities Act of1933 and Section 21E of the Securities Exchange Act of 1934, which
are intended to be covered by the safe harbors created by those laws. We have based our forward-
looking statements on our current expectations and projections about future events. Our forward-
looking statements include information about possible or assumed future results of operations. All
statements, other than statements of historical facts, included or incorporated by reference in this
report that address activities, events or developments that we expect or anticipate may occur in the
future, including such things as the growth of our business and operations, our business strategy,
competitive strengths, goals, plans, future capital expenditures and references to future successes
may be considered forward-looking statements. Also, when we use words such as “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “plan,” “probably,” or similar expressions, we are making
forward-looking statements.
Numerous risks and uncertainties may impact the matters addressed by our forward-looking
statements, any of which could negatively and materially affect our future financial results and
performance.
Although we believe that the assumptions underlying our forward-looking statements are
reasonable, any of these assumptions, and, therefore, the forward-looking statements based on
these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties
inherent in the forward-looking statements that are included in this report, our inclusion of this
information is not a representation by us or any other person that our objectives and plans will be
achieved. In light of these risks, uncertainties and assumptions, any forward-looking event
discussed in this report may not occur. Our forward-looking statements speak only as of the date
made, and we undertake no obligation to update or review any forward-looking statement, whether
as a result of new information, future events or other developments, unless the securities laws
require us to do so.
Overview
UTG, Inc., a Delaware corporation, is a life insurance holding company. The Company’s dominant
business is individual life insurance, which includes the servicing of existing insurance policies in-
force, the acquisition of other companies in the life insurance business, the acquisition of blocks of
business and the administration and processing of life insurance business for other entities.
UTG has a strong philanthropic program. The Company generally allocates a portion of its
earnings to be used for its philanthropic efforts primarily targeted to Christ-centered organizations
or organizations that help the weak or poor. The Company also encourages its staff to be involved
on a personal level through monetary giving, volunteerism and use of their talents to assist those
less fortunate than themselves. Through these efforts, the Company hopes to make a positive
difference in the local community, state, nation, and world.
On February 21, 2023 Mr. James Rousey submitted a letter of resignation stating is desire to retire.
In this regard, he retired as President of UTG, Inc. and its subsidiary, Universal Guaranty Life
Insurance Company, as well as his position as a Director of both entities. This was effective as of
the date of the letter. The Board of Directors of UTG, Inc. and Universal Guaranty Life Insurance
Company formally accepted the resignation letter on February 22, 2023. Mr. Jesse Correll, CEO
and Chairman of the Board of the companies, will assume the title of President initially. This
information was filed on Form 8-K with the SEC on February 24, 2023.
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Critical Accounting Policies
We have identified the accounting policies below as critical to the understanding of our results of
operations and our financial condition. The application of these critical accounting policies in
preparing our consolidated financial statements requires Management to use significant judgments
and estimates concerning future results or other developments including the likelihood, timing, or
amount of one or more future transactions or amounts. Actual results may differ from these
estimates under different assumptions or conditions. On an on-going basis, we evaluate our
estimates, assumptions and judgments based upon historical experience and various other
information that we believe to be reasonable under the circumstances. For a detailed discussion
of other significant accounting policies, see Note 1 – Summary of Significant Accounting Policies
in the Notes to the Consolidated Financial Statements.
Future Policy Benefits – Because of the long-term nature of insurance contracts, the insurance
company is liable for policy benefit payments that will be made in the future. The liability for future
policy benefits is determined by standard actuarial procedures common to the life insurance
industry. The accounting policies for determining this liability are disclosed in Note 1 – Summary
of Significant Accounting Policies in the Notes to the Consolidated Financial Statements.
Cost of Insurance Acquired – The costs of acquiring blocks of insurance from other companies
or through the acquisition of other companies are deferred and recorded as deferred acquisition
costs. The deferred amounts are recorded as an asset and amortized to expense in a systematic
manner as indicated in Note 1 – Summary of Significant Accounting Policies in the Notes to the
Consolidated Financial Statements.
Valuation of Securities – The Company’s investment portfolio consists of fixed maturities, equity
securities, trading securities, mortgage loans, notes receivable and real estate to provide funding
of future policy contractual obligations. The Company’s fixed maturities are classified as available-
for-sale. Available-for-sale fixed maturity investments are carried at fair value with unrealized
gains and losses reported in accumulated other comprehensive income (loss) in the Consolidated
Balance Sheets.
Equity securities reported at fair value, which include common and preferred stocks, are reported
at fair value with unrealized gains and losses reported as a component of net income (loss).
Equity securities reported at cost are reported at their cost basis, minus impairment, if any, plus or
minus changes resulting from observable price changes in orderly transactions for the identical or
a similar investment of the same issuer.
Mortgage loans on real estate are carried at their unpaid principal balances, adjusted for
amortization of premium or discount and valuation allowances. Valuation allowances are
established for impaired loans when it is probable that contractual principal and interest will not be
collected.
Real estate held-for-investment is stated at cost less accumulated depreciation. Depreciation is
computed on a straight-line-basis for financial reporting purposes using estimated useful lives of 3
to 30 years. The Company periodically reviews its real estate held-for-investment for impairment
and test for recoverability whenever events or changes in circumstances indicate the carrying value
may not be recoverable. Real estate for which the Company commits toa plan to sell within one
year and actively markets in its current condition, for a reasonable price, in comparison to its
estimated fair value, is classified as held-for-sale. Real estate held-for-sale is stated at lower of
depreciated cost or estimated fair value less expected disposition costs and is not depreciated.
Notes receivable are reported at their unpaid principal balances, adjusted for valuation
allowances. Valuation allowances are established for impaired loans when it is probable that
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contractual principal and interest will not be collected. Interest accruals are analyzed based on the
likelihood of repayment. The Company does not utilize a specified number of days delinquent to
cause an automatic non-accrual status.
The Company’s trading securities and equity securities are carried at fair value with unrealized
gains and losses reported in income in the Consolidated Statements of Operations. Fair value is
the price that the Company would expect to receive upon sale of the asset in an orderly transaction.
While the available-for-sale fixed maturity securities are generally expected to be held to maturity,
they are classified as available-for-sale and are sold periodically to manage risk. Although all of the
fixed maturity securities are classified as available-for-sale, the Company has the ability and intent
to hold the securities until maturity. See Note 2 – Investments in the Notes to the Consolidated
Financial Statements for detailed disclosures regarding the Company’s investment portfolio.
Impairment of Investments – The Company continually monitors the investment portfolio for
investments that have become impaired; where fair value has declined below carrying value. While
the value of the investments in the Company’s portfolio continuously fluctuates due to market
conditions, an other-than-temporary impairment charge is recorded only when a security has
experienced a decline in fair market value which is deemed to be other than temporary. The
policies and procedures the Company uses to evaluate and account for impairments of investments
are disclosed in Note 1 – Summary of Significant Accounting Policies and Note 2 – Investments in
the Notes to the Consolidated Financial Statements. The Company makes every effort to
appropriately assess the status and value of the securities with the information available regarding
an other-than-temporary impairment. However, itis difficult to predict the future prospects of a
distressed or impaired security.
Deferred Income Taxes – The provision for deferred income taxes is based on the asset and
liability method of accounting for income taxes. Under this method, deferred income taxes are
recognized by applying enacted statutory tax rates to temporary differences between amounts
reported in the Consolidated Financial Statements and the tax basis of existing assets and
liabilities. A valuation allowance is recognized for the portion of deferred tax assets that, in
Management’s judgment, is not likely to be realized.
Results of Operations
During March 2020, a global pandemic was declared by the World Health Organization related to
the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic
significantly impacted the economic conditions in the U.S. and globally, accelerating during the first
half of March 2020, as federal, state, and local governments reacted to the public health crisis,
creating significant uncertainties in the U.S. economy. Over the ensuing months, the economy
slowly began to return to a pre-pandemic norm. At this time, it appears the pandemic is behind us,
though there continues to be mutating variants of the virus and regional outbreaks around the world.
The impact of this seems to have been lessened by vaccines and immunity buildup. During this
time the Company did not experience any significant slow-down in activities, however, the
Company did see an increase in mortality experience. The Company reported 138 Covid claims
totaling $1,246,373 in 2020, 166 Covid claims totaling $1,293,625 in 2021 and 80 Covid claims
totaling $1,229,875 in 2022. The latter part of 2022 saw a significant decline in Covid claims. While
we believe our mortality experience has returned to pre-pandemic norms, we cannot be absolutely
certain at this time.
On a consolidated basis, the Company had net income attributable to common shareholders of
approximately $34.3 million and $9.7 million in 2022 and 2021, respectively. In 2022, income
before income taxes was approximately $44 million compared to $11.8 million in 2021. Total
revenues were approximately $70 million in 2022 and $35.6 million in 2021.
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One-time events, primarily reflected in realized gains, comprise a substantial portion of the net
income and revenue reported by the Company during 2022 and 2021. The magnitude of realized
investment gains and losses in a given year is a function of the timing of trades of investments
relative to the markets themselves as well as the recognition of any impairments on
investments. Future earnings will be significantly negatively impacted should earnings from these
one-time items not be realizable in a future period. While Management believes there remain
additional investments with such one-time earnings, when or if realized remains uncertain.
The Company reported a change in fair value of equity securities of approximately $33.7 million
and $14.1 million for the years ended December 31, 2022 and 2021, respectively. This line item is
material to the results reported in the Consolidated Statements of Operations. This line item can
also be extremely volatile, reflecting changes in the stock market. 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 itis in relative to
performance and less to changes due to general market swings that occur over the holding period
of the investment.
While the Company has seen significant positive results on its equity investments in the last two
years, a pull back or downward market adjustment could slow these gains or even result in losses
in future periods. 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.
Total benefits and other expenses paid in 2022 were approximately $25.8 million compared to
$23.8 million in 2021.
In summary, the Company’s basis for future revenue is expected to come from the following primary
sources: Conservation of business currently in-force, the maximization of investment earnings and
the acquisition of other companies or policy blocks in the life insurance business. Management has
placed a significant emphasis on the development of these revenue sources to enhance these
opportunities.
Revenues
Premiums and policy fee revenues, net of reinsurance premiums and policy fees, declined
approximately 11% when comparing 2022 to 2021. The Company writes very little new business.
Unless the Company acquires a new company or a block of in-force business, Management
expects premium revenue to continue to decline on the existing block of business at a rate
consistent with prior experience. The Company’s average persistency rate for all policies in-force
for 2022 and 2021 was approximately 96.8% and 95.7%, respectively. Persistency is a measure
of insurance in-force retained in relation to the previous year. A positive impact on premium income
is the consistency of the lapse percentage. Persistency of the business has been consistent over
the last several years. The lapse percentages were 3.2% and 4.3% for 2022 and 2021, respectively.
The following table summarizes the Company’s investment performance for the years ended
December 31:
Net investment income
Net realized investment gains
Change in fair value of equity
securities
2022
2021
$
20,811,471 $
14,168,911
33,690,712
9,050,325
6,021,653
14,121,883
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The following table reflects net investment income of the Company for the years ended December
31:
Fixed maturities
Equity securities
Trading securities
Mortgage loans
Real estate
Notes receivable
Policy loans
Cash and cash equivalents
Short-term investments
Total consolidated investment income
Investment expenses
Consolidated net investment income
2022
2021
4,153,453 $
2,539,579
(13,283)
1,580,647
15,424,260
933,886
4,566,293
1,274,147
22,568
706,883
3,241,689
1,558,406
489,823
606,347
203,250
5,056
25,316,671
(4,505,200)
20,811,471 $
2,567
0
11,978,900
(2,928,575)
9,050,325
$
$
Net investment income represented approximately 30% and 25% of the Company's total revenues
as of December 31, 2022 and 2021, respectively. Income from the fixed maturities, equity
securities, and real estate portfolios represented 87% and 76%, respectively, of the gross
investment income reported by the Company for 2022 and 2021. Income from the fixed maturities
portfolio declined in 2022 as compared to 2021. The equity securities portfolio and the real estate
portfolio performed very well in 2022, representing 71% of the total consolidated investment
income.
In March 2020, with the onset of the pandemic in America, financial markets became jittery
experiencing a significant drop in the major market indices. In response, the Federal Reserve
dropped interest rates to near zero. This action resulted in a drop in all other interest rates in the
marketplace. While this increased the fair value of the Company’s current fixed income holdings, it
made finding investments to acquire, with any type of historic yield, nearly impossible. In recent
periods our economy has heated up with inflation running at higher than desired levels by Federal
Reserve standards. In this regard, the Federal Reserve began increasing interest rates in 2022.
This has resulted in an increase in the yields available in the bond market and drives the unrealized
loss on the bond portfolio.
Since the start of 2022, we have seen more volatility in the U.S. markets in general and have seen
an increase in bonds yields. This is due to the Federal Open Market Committee (“FOMC”)
aggressively raising interest rates to fight the inflation that is currently being experienced. The
interest rate environment experienced seven rate changes totaling 4.25% during 2022 and are
expected to continue into early 2023. While these actions had a negative impact on some of our
investments that we currently own, this will also allow for better yields on future investments
acquired as current investments mature.
Income from the fixed maturities investment portfolio represented 16% and 38% of the total
consolidated investment income for the years ended December 31, 2022 and 2021, respectively.
When comparing earnings from the fixed maturities portfolio for the years ended December 31,
2022 and 2021 income was down approximately 9%. The decrease is due to the maturity of certain
fixed maturity investments during 2022. The Company’s investment in fixed maturities continues to
decline as we have, for the most part, chosen not to reinvest in fixed maturities and any
reinvestment has been at lower rates. As of December 31, 2022, and 2021, fixed maturities
represented 30% and 38%, respectively, of the total investments owned by the Company.
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Income from the equity securities portfolio was approximately double that of the prior year and
represents approximately 10% of the total consolidated investment income for 2022. Distributions
from four securities represented 62% of the 2022 income from the equity securities income. These
four securities are associated with the oil and gas industry. During 2022, the Company disposed of
a significant portion of two of these securities. Future results are expected to vary based upon these
disposals and other investing decisions made by Management. The equity securities investment
portfolio represents 45% and 37% of the total investment portfolio as of December 31, 2022 and
2021, respectively.
Income from the real estate portfolio represented 61% of the consolidated investment income for
2022 and is approximately $12.2 million higher than the amount reported in 2021. During 2022, the
Company received $2.3 million of income from timber sales as compared to $217,000 in the prior
year. Included in the 2022 real estate income is $10.4 million of income from oil and gas royalty
distributions, which represents approximately 67% of the current year total income from the real
estate portfolio. In 2021, the Company recorded less than $1 million of income from oil and gas
royalties. During the latter part of 2021 and in 2022, several of the royalty interests fully depleted
and there was in an increase in the number of wells coming online for production. As a result of the
Russian invasion of the Ukraine, the United States placed a ban on Russian oil. This ban caused
the price of oil to increase dramatically from an average price of $69 per barrel in 2021 to an
average price per barrel of $97 in 2022. In 2021, total cash flows from oil and gas royalties were
approximately $5.3 million of which $930,000 was reported as income. In 2022, total cash flows
from oil and gas royalties were approximately $13.1 million of which $10.4 million was reported as
income. In the first quarter of 2023, the average price per barrel of oil has declined to $80. While
Management anticipates continued distributions from the oil and gas royalties, they are expected
to vary depending on market conditions.
The earnings from the real estate investment portfolio are expected to vary depending on the real
estate activities and market conditions. The real estate investment portfolio represents 10% and
11% of the total investment portfolio as of December 31, 2022 and 2021, respectively.
The following table reflects net realized investment gains (losses) for the years ended December
31:
2022
2021
Fixed maturities available for sale
Equity securities
Real estate
Equity securities – OTTI
Fixed maturities available for sale – OTTI
Consolidated net realized investment gains
Change in fair value of equity securities – held
Change in fair value of equity securities – sold
Total change in fair value of equity securities
$
(528) $
8,877,148
5,292,291
(5,000,000)
0
9,168,911
19,212,045
14,478,667
33,690,712
55,867
3,087,978
2,877,808
0
(393,455)
5,628,198
12,584,561
1,537,322
14,121,883
Net investment gains
$
42,859,623 $
19,750,081
Realized gains and losses from equity securities represent the difference between the fair value at
the beginning of the reporting period and the fair value at the time of sale. The total gains from
equity securities sold in 2022 were approximately $23.4 million, of which $8.9 million is being
reported as gains from equity securities and $14.5 million is reported as a component of the change
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in the fair value of equity securities. The disposal of two equity securities represented 89% of the
total gains from the equity securities portfolio. The Company fully disposed of one equity security
that produced a realized gain of $6.6 million in 2022. The Company disposed of 7,500 shares of
an equity security, associated with the oil and gas industry, producing a realized gain of $14.3
million. The Company still owns 5,000 shares of this equity security as of December 31, 2022. This
disposal will impact future dividend earnings of the Company as it represented a significant portion
of the 2022 investment income from equity securities.
The total gains from equity securities sold in 2021 were approximately $4.6 million, of which $3.1
million is being reported as gains from equity securities and $1.5 million is reported as a component
of the change in the fair value of equity securities. The Company disposed of 2,500 shares of an
equity security, associated with the oil and gas industry, producing a realized gain of $2.2 million.
During the year ended December 31, 2021, the Company also reported additional gains of
approximately $851,000 from the sales of the music royalties.
The Company reported a change in fair value of equity securities of approximately $33.7 million
and $14.1 million for the years ended December 31, 2022 and 2021, respectively. This line item is
material to the results reported in the Consolidated Statements of Operations. This line item can
also be extremely volatile, reflecting changes in the stock market. While both 2021 and 2022
reflected positive results, 2022 results were more than double of that of 2021. 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.
While the Company has seen significant positive results from its equity investments in the last two
years, a pull back or downward market adjustment could slow these gains or even result in losses
in future periods. 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.
Included in the 2022 and 2021 net investment gains are other-than-temporary impairments of $5
million and $393,000, respectively. The other-than-temporary impairments recognized during 2022
and 2021 were taken as a result of Management’s assessment and determination of value of the
investment. The investments were written down to better reflect their current expected value.
During 2022, the Company sold real estate located in Kentucky and recognized a gain of
approximately $3.7 million from the sale. The 2021 real estate gains are mainly the result of the
sale of real estate located in Illinois and Florida. During 2021, the Company sold its home office
building located in Springfield, IL. The sale of this property produced a gain of approximately $1
million and represented approximately 36% of the investment gains from real estate. The Company
sold real estate in Florida and recognized a gain of approximately $1.3 million, which represents
approximately 44% of the gains reported for the real estate investment portfolio.
Realized investment gains are the result of one-time events and are expected to vary from year to
year.
In summary, the Company’s basis for future revenue is expected to come from the following primary
sources: Conservation of business currently in-force, the maximization of investment earnings and
the acquisition of other companies or policy blocks in the life insurance business. Management has
placed a significant emphasis on the development of these revenue sources to enhance these
opportunities.
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Expenses
The Company reported total benefits and other expenses of approximately $25.8 million and $23.8
million for the years ended December 31, 2022 and 2021, respectively. Benefits, claims and
settlement expenses represented approximately 57% and 68% of the Company’s total expenses
for 2022 and 2021, respectively. The other major expense category of the Company is operating
expenses, which represented 41% and 30% of the Company’s total expenses for 2022 and 2021,
respectively.
Benefits, claims and settlement expenses, net of reinsurance benefits, were down approximately
9% when comparing 2022 and 2021 activity. Policy claims vary from year to year and therefore,
fluctuations in mortality are to be expected and are not considered unusual by Management.
Early in the COVID-19 pandemic, the Company implemented a process to monitor death claims
resulting from COVID-19. Prior to the pandemic, death benefits were $12.6 million, $12.8 million
and $12.4 million in 2017, 2018 and 2019, respectively. During the two years of the pandemic, total
death benefits were $14.3 million and $16 million in 2020 and 2021, respectively. In 2022, total
death benefits, net of reinsurance, declined to $13.3 million. Death benefits of the Company have
been higher than recent past experience, even when adjusting for the identified COVID-19 claims.
This anomaly is showing throughout the entire U.S. insurance industry. Industry experts believe
this increase is death benefits while not always directly related to COVID-19, are caused indirectly
by the pandemic due to delays in medical care as a result of the lockdown in 2020 and then later,
people’s fears of seeking out treatment and trouble making up appointments. This is further
compounded by depression from isolation. While we believe our mortality experience has returned
to pre-pandemic norms, we cannot be absolutely certain at this time.
Changes in policyholder reserves, or future policy benefits, also impact this line item. Reserves
are calculated on an individual policy basis and generally increase over the life of the policy as a
result of additional premium payments and acknowledgment of increased risk as the insured
continues to age.
The short-term impact of policy surrenders is negligible since a reserve for future policy benefits
payable is held which is, at a minimum, equal to and generally greater than the cash surrender
value of a policy. The benefit of fewer policy surrenders is primarily received over a longer time
period through the retention of the Company’s asset base.
Overall, the Company’s persistency for business in-force remained relatively steady at 96.8% in
2022 compared to 95.7% in 2021.The Company’s actual experience for earned interest,
persistency, and mortality varies from the assumptions applied to pricing and for determining
premiums. Accordingly, differences between the Company’s actual experience and those
assumptions applied may affect the profitability of the Company. The Company monitors
investment yields, and when necessary adjusts credited interest rates on its insurance products to
preserve targeted interest spreads.
Operating expenses increased approximately 48% or $3.4 million in 2022 as compared to that of
the same period in 2021. Bonuses paid to employees were approximately $600,000 higher in 2022
as compared to 2021 and were driven by the Company’s 2022 performance.
UTG has a strong philanthropic program. The Company generally allocates a portion of its earnings
to be used for its philanthropic efforts primarily targeted to Christ-centered organizations or
organizations that help the weak or poor. Charitable contributions made by the Company are
expected to vary from year to year depending on the earnings of the Company. In 2022, the
Company paid approximately $2 million in charitable donations.
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Net amortization of cost of insurance acquired decreased approximately 4% when comparing
current and prior year activity. Cost of insurance acquired is established when an insurance
company is acquired or when the Company acquires a block of in-force business. The Company
assigns a portion of its cost to the right to receive future profits from insurance contracts existing at
the date of the acquisition. Cost of insurance acquired is amortized with interest in relation to
expected future profits, including direct charge-offs for any excess of the unamortized asset over
the projected future profits. The interest rates may vary due to risk analysis performed at the time
of acquisition on the business acquired. The Company utilizes a 12% discount rate on the
remaining unamortized business. The amortization is adjusted retrospectively when estimates of
current or future gross profits to be realized from a group of products are revised. Amortization of
cost of insurance acquired is particularly sensitive to changes in interest rate spreads and
persistency of certain blocks of insurance in-force. This expense is expected to decrease unless
the Company acquires a new block of business.
Management continues to place significant emphasis on expense monitoring and cost containment.
Maintaining administrative efficiencies directly impacts net income.
Investment Information
Financial Condition
Investments are the largest asset group of the Company. The Company's insurance subsidiary is
regulated by insurance statutes and regulations as to the type of investments they are permitted to
make, and the amount of funds that may be used for any one type of investment.
The following table reflects, by investment category, the investments held by the Company as of
December 31:
Fixed maturities
Equity securities, at fair value
Equity securities, at cost
Mortgage loans
Real estate
Notes receivable
Policy loans
Short-term investments
Total investments
Fixed maturities
Equity securities, at fair value
Equity securities, at cost
Trading securities
Mortgage loans
2022
$ 108,313,059
150,053,686
15,683,343
30,698,694
34,934,352
14,424,127
6,567,434
3,596,941
$ 364,271,636
2021
$ 140,963,881
122,229,121
14,543,343
(1,116)
29,183,562
As a % of
Total
Investments
As a % of
Total Assets
30%
41%
4%
8%
10%
4%
2%
1%
100%
24%
33%
4%
7%
8%
3%
1%
1%
81%
As a % of
Total
Investments
As a % of
Total Assets
38%
33%
4%
0%
8%
32%
28%
3%
0%
7%
12
Real estate
Notes receivable
Policy loans
Total investments
39,748,261
17,722,976
7,390,497
$ 371,780,525
10%
5%
2%
100%
9%
4%
2%
85%
The Company's investments are generally managed to match related insurance and policyholder
liabilities. The comparison of investment return with insurance or investment product crediting rates
establishes an interest spread. Interest crediting rates on adjustable-rate policies have been
reduced to their guaranteed minimum rates, and as such, cannot be lowered any further. Policy
interest crediting rate changes and expense load changes become effective on an individual policy
basis on the next policy anniversary. Therefore, it takes a full year from the time the change was
determined for the full impact of such change to be realized. If interest rates decline in the future,
the Company will not be able to lower rates and both net investment income and net income will
be impacted negatively.
The Company’s total investments represented 81% and 85% of the Company’s total assets as of
December 31, 2022 and 2021, respectively. Fixed maturities and equity securities, at fair value,
consistently represent the majority of the Company’s total investments – 71% in 2022 and 2021.
As of December 31, 2022, 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 income
component of shareholders' equity. Changes in the market value of available for sale securities
resulted in net unrealized gains (losses) of approximately $(27.8) million and $(7.1) million as of
December 31, 2022 and 2021, 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.
Management continues to view the Company’s investment portfolio with utmost priority. Significant
time has been spent internally researching the Company’s risk and communicating with outside
investment advisors about the current investment environment and ways to ensure preservation of
capital and mitigate losses. Management has put extensive efforts into evaluating the investment
holdings. Additionally, members of the Company’s Board of Directors and investment committee
have been solicited for advice and provided with information. Management reviews the Company’s
entire portfolio on a security level basis to be sure all understand our holdings, potential risks and
underlying credit supporting the investments. Management intends to continue its close monitoring
of its bond holdings and other investments for possible deterioration or market condition changes.
Future events may result in Management’s determination that certain current investment holdings
may need to be sold which could result in gains or losses in future periods. Such future events
could also result in other than temporary declines in value that could result in future period
impairment losses.
There are a number of significant risks and uncertainties inherent in the process of monitoring
impairments and determining if impairment is other-than-temporary. These risks and uncertainties
related to Management’s assessment of other-than-temporary declines in value include but are not
limited to: the risk that Company's assessment of an issuer's ability to meet all of its contractual
obligations will change based on changes in the credit characteristics of that issuer; the risk that the
economic outlook will be worse than expected or have more of an impact on the issuer than
anticipated; the risk that fraudulent information could be provided to the Company's investment
professionals who determine the fair value estimates.
13
Liquidity
Liquidity provides the Company with the ability to meet on demand the cash commitments required
by its business operations and financial obligations. The Company’s liquidity is primarily derived
from cash balances, a portfolio of marketable securities and line of credit facilities. The Company
has two principal needs for cash – the insurance company’s contractual obligations to policyholders
and the payment of operating expenses.
Parent Company Liquidity
UTG is a holding company that has no day-to-day operations of its own. Cash flows from UTG’s
insurance subsidiary, UG, are used to pay costs associated with maintaining the Company in good
standing with states in which it does business and purchasing outstanding shares of UTG stock.
UTG's cash flow is dependent on management fees received from its insurance subsidiary,
stockholder dividends from its subsidiary and earnings received on cash balances. As of December
31, 2022, and 2021, substantially all of the consolidated shareholders’ equity represents net assets
of its subsidiaries. In 2022, the Parent company received $3 million in dividends from its insurance
subsidiary and $5 million in 2021. Certain restrictions exist on the payment of dividends from the
insurance subsidiary to the Parent company. For further information regarding the restrictions on the
payment of dividends by the insurance subsidiary, see Note 9 – Shareholders’ Equity in the Notes to
the Consolidated Financial Statements. Although these restrictions exist, dividend availability from
the insurance subsidiary has historically been sufficient to meet the cash flow needs of the Parent
company.
Insurance Subsidiary Liquidity
Sources of cash flows for the insurance subsidiary primarily consist of premium and investment
income. Cash outflows from operations include policy benefit payments, administrative expenses,
taxes, and dividends to the Parent company.
Short-Term Borrowings
During October of 2022, the Federal Home Loan Bank approved 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 $22.3 million. During the fourth
quarter of 2022, the Company borrowed $19 million and planned to utilize the funds for investing
activities. The interest rate on the borrowed funds is variable and currently is 4.42%. During the first
quarter of 2023, the Company repaid the entire outstanding principal balance.
Consolidated Liquidity
Cash used in operating activities was approximately $5.3 million and $12.5 million in 2022 and
2021, respectively. 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 policy
holders and beneficiaries and operating expenses. The Company has not marketed any significant
new products for several years. As such, premium revenues continue to decline. Management
anticipates future cash flows from operations to remain similar to historic trends.
During 2022 and 2021, the Company’s investing activities provided (used) net cash of
approximately $26.2 million and $(18.1) million, respectively. The Company recognized proceeds
of approximately $79.7 million and $59.3 million from investments sold and matured in 2022 and
14
2021, respectively. The Company used approximately $53.5 million and $78.7 million to acquire
investments during 2022 and 2021, respectively. The net cash provided by 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.
Net cash provided by (used in) financing activities was approximately $(6.4) million and $22.3
million during 2022 and 2021, respectively. As of December 31, 2022, and 2021, the Company had
$19 million and $24 million in debt outstanding with third parties, respectively.
The Company had cash and cash equivalents of approximately $45.3 million and $30.8 million as
of December 31, 2022 and 2021, 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 $108.3 million and $141 million at December 31, 2022 and 2021,
respectively. 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. See Note 2 – Investments in the Notes to the Consolidated
Financial Statements for detailed disclosures regarding the Company’s investment portfolio.
Management believes the overall sources of liquidity available will be sufficient to satisfy its financial
obligations.
Capital Resources
The Company’s capital structure consists of available short-term debt, long-term debt and
shareholders’ equity. A complete analysis and description of the short-term and long-term debt
issues available as of December 31, 2022 and 2021 are presented in Note 7–Credit Arrangements
in the Notes to the Consolidated Financial Statements.
The Company had $19 million and $24 debt outstanding as of December 31, 2022 and 2021,
respectively.
The NAIC's risk-based capital requirements require insurance companies to calculate and report
information under a risk-based capital formula. The risk-based capital (RBC) formula measures
the adequacy of statutory capital and surplus in relation to investment and insurance risks such as
asset quality, mortality and morbidity, asset and liability matching and other business factors. The
RBC formula is used by state insurance regulators as an early warning tool to identify, for the
purpose of initiating regulatory action, insurance companies that potentially are inadequately
capitalized.
At December 31, 2022, UG has a ratio of approximately 6.10, which is 610% of the authorized
control level. Accordingly, the Company meets the RBC requirements.
The Board of Directors of UTG has authorized the repurchase in the open market or in privately
negotiated transactions of UTG’s common stock. At a meeting of the Board of Directors in March
of 2022, the Board of Directors of UTG authorized the repurchase of up to an additional $2 million
of UTG’s common stock, for a total repurchase of $22 million of UTG’s common stock in the open
market or in privately negotiated transactions. Company Management has broad authority to
operate the program, including the discretion of whether to purchase shares and the ability to
suspend or terminate the program. Open market purchases are made based on the last available
market price but may be limited. During 2022, the Company repurchased 24,308 shares through
the stock repurchase program for $685,808. Through December 31, 2022, UTG has spent
$19,309,437 in the acquisition of 1,326,213 shares under this program.
Shareholders’ equity was approximately $157.6 million and $140.8 million as of December 31, 2022
and 2021, respectively. Total shareholders' equity increased approximately 12% in 2022 as
15
compared to 2021. The increase is primarily attributable to net income from operations. As of
December 31, 2022, and 2021, the Company reported accumulated other comprehensive income
(loss) of approximately $(7.1) million and $10.3 million, respectively.
For the periods ended December 31, 2022 and 2021, the decrease in accumulated other
comprehensive income was approximately$(17.4) million and $(5.3) million, respectively, as a
result of unrealized losses on fixed maturity securities. 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.
The Company's investments provide sufficient return to cover future obligations. The Company
carries all of its fixed maturity holdings as available for sale, which are reported in the Consolidated
Financial Statements at their fair value.
New Accounting Pronouncements
See Note 1 – Summary of Significant Account Policies in the Notes to the Consolidated Financial
Statements for information regarding new accounting pronouncements.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, financing activities or other
relationships with unconsolidated entities or other persons.
Contractual Obligations
As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1) of
Regulation S-K, the Company has elected to comply with certain scaled disclosure reporting
obligations, and therefore does not have to provide the information required by this item.
Management’s Report on Internal Controls Over Financial Reporting
Our Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The
Company’s internal control over financial reporting is designed to provide reasonable assurance
regarding the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles.
The Company’s Management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2022. In making the assessment, Management used the
criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in
Based on Management’s assessment,
Management concluded that, as of December 31, 2022, the Company’s internal control over financial
reporting was effective.
Internal Control-Integrated Framework (2013).
This annual report does not include an attestation report of the Company’s independent registered
public accounting firm regarding internal control over financial reporting. Management’s report was
not subject to attestation by the Company’s independent registered public accounting firm pursuant
to rules of the Securities and Exchange Commission that permit the Company to provide only
Management’s report in this Annual Report.
Changes in Internal Controls
There have been no changes in the Company’s internal control over financial reporting since
December 31, 2022, in connection with the evaluation required by paragraph (d) of Exchange Act
16
Rule 13a-15(e) and 15d-15(e), that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting. The Company’s process for evaluating
controls and procedures is continuous and encompasses constant improvement of the design and
effectiveness of established controls and procedures and the remediation of any deficiencies, which
may be identified during this process.
17
18
19
20
UTG, Inc.
Consolidated Balance Sheets
As of December 31, 2022 and 2021
ASSETS
Investments:
Investments available for sale:
Fixed maturities, at fair value (amortized cost $117,279,820 and
$127,949,963)
Equity securities, at fair value (cost $77,015,688 and $68,403,168)
Equity securities, at cost
Mortgage loans on real estate at amortized cost
Investment real estate, net
Notes receivable
Policy loans
Short-term investments
Total investments
Cash and cash equivalents
Accrued investment income
Reinsurance receivables:
Future policy benefits
Policy claims and other benefits
Cost of insurance acquired
Income taxes receivable
Other assets
Total assets
2022
2021
108,313,059 140,963,881
150,053,686 122,229,121
15,683,343 14,543,343
30,698,694 29,183,562
34,934,352 39,748,261
14,424,127 17,722,976
7,390,497
0
364,271,636 371,781,641
6,567,434
3,596,941
45,290,385 30,787,278
1,264,159
1,371,677
24,318,030 24,740,562
4,426,997
3,386,501
975,373
1,097,246
447,534,365 438,459,757
4,638,857
2,698,153
0
4,945,627
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits
Policy claims and benefits payable
Other policyholder funds
Dividend and endowment accumulations
Income taxes payable
Deferred income taxes
Notes payable
Trading securities, at fair value (proceeds $0 and $2,202)
Other liabilities
Total liabilities
Shareholders' equity:
Common stock - no par value, stated value $.001 per share.
Authorized 7,000,000 shares - 3,164,809 and 3,166,669 shares issued
and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total UTG shareholders' equity
Noncontrolling interest
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying notes.
4,189,081
4,072,879
318,096
229,582,664 235,367,680
3,941,305
345,248
14,802,746 14,686,166
0
11,582,138 13,680,396
24,000,000
19,000,000
1,116
0
5,193,039
5,958,385
289,505,989 297,214,950
3,166
3,176
32,693,972 32,780,587
131,989,352 97,731,347
(7,111,586) 10,253,151
157,574,904 140,768,252
476,555
158,028,376 141,244,807
447,534,365 438,459,757
453,472
21
UTG, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2022 and 2021
Revenue:
Premiums and policy fees
Ceded reinsurance premiums and policy fees
Net investment income
Other income
Revenues before net investment gains (losses)
Net investment gains (losses):
Other-than-temporary impairments
Other realized investment gains, net
Change in fair value of equity securities
Total net investment gains
Total revenues
Benefits and other expenses:
Benefits, claims and settlement expenses:
Life
Ceded reinsurance benefits and claims
Annuity
Dividends to policyholders
Commissions
Amortization of cost of insurance acquired
Operating expenses
Interest expense
Total benefits and other expenses
Income before income taxes
Income tax expense
Net income
2022
2021
8,384,604
(2,697,382)
20,811,471
350,519
26,849,212
(5,000,000)
14,168,911
33,690,712
42,859,623
69,708,835
15,703,526
(2,449,533)
1,029,156
311,400
(116,571)
688,348
10,497,302
108,722
25,772,350
9,080,039
(2,680,050)
9,050,325
412,982
15,863,296
(393,455)
6,021,653
14,121,883
19,750,081
35,613,377
17,137,166
(2,380,366)
993,937
324,543
(121,287)
714,970
7,115,530
4,051
23,788,544
43,936,485
9,572,139
11,824,833
2,069,673
34,364,346
9,755,160
Net income attributable to noncontrolling interest
(106,341)
(92,097)
Net income attributable to common shareholders
34,258,005
9,663,063
Amounts attributable to common shareholders:
Basic income per share
10.81
3.05
Diluted income per share
10.81
3.05
Basic weighted average shares outstanding
3,167,719
3,171,919
Diluted weighted average shares outstanding
3,167,719
3,171,919
See accompanying notes.
22
UTG, Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2022 and 2021
2022
2021
Net income
34,364,346
9,755,160
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during period, pre-tax
Tax (expense) benefit on unrealized holding gains (losses) arising during the
period
(27,824,173)
(7,085,803)
5,843,076
1,488,019
Unrealized holding gains (losses) arising during period, net of tax
(21,981,097)
(5,597,784)
Less reclassification adjustment for (gains) losses included in net income
528
337,587
Tax expense (benefit) for (gains) losses included in net income
(111)
(70,893)
Reclassification adjustment for (gains) losses included in net income, net of tax
417
266,694
Subtotal: Other comprehensive income (loss), net of tax
(21,980,680)
(5,331,090)
Comprehensive income
12,383,666
4,424,070
Less comprehensive income attributable to noncontrolling interests
(106,341)
(92,097)
Comprehensive income attributable to UTG, Inc.
12,277,325
4,331,973
See accompanying notes.
23
24
UTG, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2022 and 2021
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash used in operating activities:
Amortization (accretion) of investments
Other-than-temporary impairments
Realized investment gains, net
Change in fair value of equity securities
Unrealized trading (gains) losses included in income
Realized trading (gains) losses included in income
Amortization of cost of insurance acquired
Depreciation and depletion
Stock-based compensation
Charges for mortality and administration of universal life and annuity products
Interest credited to account balances
Change in accrued investment income
Change in reinsurance receivables
Change in policy liabilities and accruals
Change in income taxes receivable (payable)
Change in other assets and liabilities, net
Net cash used in operating activities
Cash flows from investing activities:
Proceeds from investments sold and matured:
Fixed maturities available for sale
Equity securities
Trading securities
Mortgage loans
Real estate
Notes receivable
Policy loans
Total proceeds from investments sold and matured
Cost of investments acquired:
Fixed maturities available for sale
Equity securities
Trading securities
Mortgage loans
Real estate
Notes receivable
Policy loans
Short-term investments
Total cost of investments acquired
Sale of property and equipment
Net cash provided by investing activities
Cash flows from financing activities:
Policyholder contract deposits
Policyholder contract withdrawals
Proceeds from notes payable/line of credit
Payments of principal on notes payable/line of credit
Purchase of treasury stock
Issuance of stock
Noncontrolling contributions/(distributions) of consolidated subsidiary
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2022
2021
34,364,346
9,755,160
138,587
5,000,000
(14,168,911)
(33,690,712)
1,086
12,197
688,348
2,032,627
599,192
(5,943,417)
3,767,177
(107,518)
210,672
(2,836,498)
5,164,454
(565,949)
(5,334,319)
13,128,136
36,126,454
17,983
3,655,779
12,659,854
12,329,505
1,752,613
79,670,324
(2,614,165)
(27,523,161)
(32,382)
(5,158,911)
(4,586,280)
(9,030,657)
(929,549)
(3,591,885)
(53,466,990)
0
26,203,334
4,555,115
(5,106,391)
58,500,000
(63,500,000)
(685,808)
0
(128,824)
(6,365,908)
14,503,107
30,787,278
45,290,385
210,665
393,455
(6,021,653)
(14,121,883)
(2,059)
(20,509)
714,970
2,757,522
287,934
(6,325,818)
3,896,162
77,484
88,449
(5,470,342)
(1,243,870)
2,570,898
(12,453,435)
21,581,106
5,892,777
41,708
12,270,055
8,370,848
8,639,320
2,503,273
59,299,087
(4,078,459)
(32,991,005)
(30,243)
(20,634,252)
(10,960,910)
(8,680,000)
(1,303,246)
0
(78,678,115)
1,324,647
(18,054,381)
4,466,422
(5,588,394)
24,000,000
0
(537,379)
5,005
(76,314)
22,269,340
(8,238,476)
39,025,754
30,787,278
25
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Business – UTG, Inc. is an insurance holding company. The Company’s dominant business is
individual life insurance, which includes the servicing of existing insurance in-force and the
acquisition of other companies in the life insurance business. UTG and its subsidiaries are
collectively referred to as the “Company”.
During March 2020, a global pandemic was declared by the World Health Organization related to
the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic
significantly impacted the economic conditions in the U.S. and globally, accelerating during the first
half of March 2020, as federal, state, and local governments reacted to the public health crisis,
creating significant uncertainties in the U.S. economy. Over the ensuing months, the economy
slowly began to return to a pre-pandemic norm. At this time, it appears the pandemic is behind us,
though there continues to be mutating variants of the virus and regional outbreaks around the world.
The impact of this seems to have been lessened by vaccines and immunity buildup. During this
time the Company did not experience any significant slow-down in activities, however, the
Company did see an increase in mortality experience. While we believe our mortality experience
has returned to pre-pandemic norms, we cannot be absolutely certain at this time.
This document at times will refer to the Registrant’s largest shareholder, Mr. Jesse T. Correll and
certain companies controlled by Mr. Correll. Mr. Correll holds a majority ownership of First
Southern Funding, LLC (“FSF”), a Kentucky corporation, and First Southern Bancorp, Inc. (“FSBI”),
a financial services holding company. FSBI operates through its 100% owned subsidiary bank,
First Southern National Bank (“FSNB”). Banking activities are conducted through multiple locations
within south-central and western Kentucky. Mr. Correll is Chief Executive Officer, President, and
Chairman of the Board of Directors of UTG and is currently UTG’s largest shareholder through his
ownership control of FSF, FSBI and affiliates. At December 31, 2022, Mr. Correll owns or controls
directly and indirectly approximately 65% of UTG’s outstanding stock.
UTG’s life insurance subsidiary has several wholly owned and majority-owned subsidiaries. The
subsidiaries were formed to hold certain real estate and other investments. The investments were
placed into the limited liability companies and partnerships to provide additional protection to the
policyholders and to UG.
Basis of Presentation – The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of
America (“GAAP”), under guidance issued by the Financial Accounting Standards Board (“FASB”).
The preparation of financial statements in accordance with GAAP requires Management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of Consolidation – The accompanying consolidated financial statements include the
accounts of the Registrant and its wholly and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated during consolidation.
Business Segments – The Company has only one business segment – life insurance.
26
Investments – The Company reports its investments as follows:
Fixed Maturity Investments – The Company classifies its fixed maturity investments, which include
bonds, as available for sale. Investments classified as available for sale are carried at fair value
with unrealized gains and losses, net of deferred taxes, reflected directly in accumulated other
comprehensive income. Premiums and discounts on debt securities purchased at other than par
value are amortized and accreted, respectively, to interest income in the Consolidated Statements
of Operations, using the constant yield method over the period to maturity. Net realized gains and
losses on sales of available for sale securities, and unrealized losses considered to be other-than-
temporary, are recorded to net realized investment gains (losses) in the Consolidated Statements
of Operations.
Equity Securities at Fair Value – Investments in equity securities, which include common and
preferred stocks, are reported at fair value with unrealized gains and losses reported as a
component of net income (loss).
Equity Securities at Cost – These investments are reported at their cost basis, minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for
the identical or a similar investment of the same issuer.
Mortgage Loans on Real Estate – Mortgage loans on real estate are reported at their unpaid
principal balances, adjusted for amortization of premium or discount and valuation allowances.
Valuation allowances are established for impaired loans when it is probable that contractual
principal and interest will not be collected.
Investment Real Estate – Real estate held-for-investment is stated at cost less accumulated
depreciation. Depreciation is computed on a straight-line-basis for financial reporting purposes
using estimated useful lives of 3 to 30 years. Real estate for which the Company commits to a plan
to sell within one year and actively markets in its current condition, for a reasonable price, in
comparison to its estimated fair value, is classified as held-for-sale. Real estate held-for-sale is
stated at lower of depreciated cost or estimated fair value less expected disposition costs and is
not depreciated.
Notes Receivable – Notes receivable are reported at their unpaid principal balances, adjusted for
valuation allowances. Valuation allowances are established for impaired loans when it is probable
that contractual principal and interest will not be collected. Interest accruals are analyzed based on
the likelihood of repayment. The Company does not utilize a specified number of days delinquent
to cause an automatic non-accrual status.
Policy Loans – Policy loans are reported at their unpaid balances, including accumulated interest,
but not in excess of the cash surrender value of the related policy.
Short-Term Investments – Short-term investments have remaining maturities exceeding three
months and under 12 months at the time of purchase and are stated at amortized cost, which
approximates fair value.
Gains and Losses – Realized gains and losses include sales of investments and investment
impairments. If any, other-than-temporary impairments in fair value are recognized in net income
on the specific identification basis.
Fair Value – Fair values for cash, short-term investments, short-term debt, receivables, and
payables approximate carrying value. Fair values for fixed maturities, equity securities and certain
other assets are determined in accordance with specific accounting guidance. Fair values are
based on quoted market prices, where available. Otherwise, fair values are based on quoted
market prices of comparable instruments in active markets, quotes in inactive markets, or other
27
observable criteria. Mortgage loans on real estate and notes receivable are estimated using
discounted cash flow analyses. For more specific information regarding the Company’s
measurements and procedures in valuing financial instruments, see Note 3 – Fair Value
Measurements.
Impairment of Investments – The Company evaluates its investment portfolio for other-than-
temporary impairments as described in Note 2 – Investments. If a security is deemed to be other-
than-temporarily impaired, the cost basis of the security is written down to fair value and is treated
as a realized loss.
Current accounting guidance states that if an entity intends to sell or if it is more likely than not that
it will be required to sell an impaired security prior to recovery of its cost basis, the security is to be
considered other-than-temporarily impaired and the full amount of impairment must be charged to
earnings. Otherwise, losses on fixed maturities which are other-than-temporarily impaired are
separated into two categories, the portion of the loss which is considered credit loss and the portion
of the loss which is due to other factors. The credit loss portion is charged to earnings while the
loss due to other factors is charged to other comprehensive income.
Cash Equivalents – Cash equivalents consist of money market accounts and investments with
maturities of three months or less when purchased.
Cash – Cash consists of balances on hand and on deposit in banks and financial institutions.
Reinsurance - In the normal course of business, the Company seeks to limit its exposure to loss
on any single insured and to recover a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under excess coverage and coinsurance contracts. The
Company retains a maximum of $125,000 of coverage per individual life.
Reinsurance receivables are recognized in a manner consistent with the liabilities relating to the
underlying reinsured contracts. The cost of reinsurance related to long-duration contracts is
accounted for over the life of the underlying reinsured policies using assumptions consistent with
those used to account for the underlying policies.
Cost of Insurance Acquired - When an insurance company is acquired, the Company assigns a
portion of its cost to the right to receive future cash flows from insurance contracts existing at the
date of the acquisition. The cost of policies purchased represents the actuarially determined
present value of the projected future profits from the acquired policies. Cost of insurance acquired
is amortized with interest in relation to expected future profits, including direct charge-offs for any
excess of the unamortized asset over the projected future profits. The amortization is adjusted
retrospectively when estimates of current or future gross profits to be realized from a group of
products are revised.
Property and Equipment - Company-occupied property, data processing equipment and furniture
and office equipment are stated at cost less accumulated depreciation of $2,123,831 at December
31, 2022 and 2021. Depreciation is computed on a straight-line basis for financial reporting
purposes using estimated useful lives of 3 to 30 years. Depreciation expense was $0 and $66,517
for the years ended December 31, 2022 and 2021, respectively.
Future Policy Benefits and Expenses - The liabilities for traditional life insurance and accident
and health insurance policy benefits are computed using a net level method. These liabilities
include assumptions as to investment yields, mortality, withdrawals, and other assumptions based
on the life insurance subsidiary’s experience adjusted to reflect anticipated trends and to include
provisions for possible unfavorable deviations. The Company makes these assumptions at the time
28
the contract is issued or, in the case of contracts acquired by purchase, at the purchase date.
Future policy benefits for individual life insurance and annuity policies are computed using interest
rates ranging from 2.0% to 6.0% for life insurance and 2.5% to 7.5% for annuities. Benefit reserves
for traditional life insurance policies include certain deferred profits on limited-payment policies that
are being recognized in income over the policy term. Policy benefit claims are charged to expense
in the period that the claims are incurred. The mortality rate assumptions for policies currently
issued by the Company are based on 2017 CSO Ultimate tables. Withdrawal rate assumptions are
based upon Linton B or C, which are industry standard actuarial tables for forecasting assumed
policy lapse rates.
Benefit reserves for universal life insurance and interest sensitive life insurance products are
computed under a retrospective deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims that are charged to expense include
benefit claims in excess of related policy account balances. Interest crediting rates for universal
life and interest sensitive products range from 3.0% to 6.0% as of December 31, 2022 and 2021.
Policy Claims and Benefits Payable - Policy and contract claims include provisions for reported
claims in process of settlement, valued in accordance with the terms of the policies and contracts,
as well as provisions for claims incurred and unreported. The estimate of incurred and unreported
claims is based on prior experience. The Company makes an estimate after careful evaluation of
all information available to the Company. There is no certainty the stated liability for policy claims
and benefits payable, including the estimate for incurred but unreported claims, will be the
Company’s ultimate obligation.
Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax impact attributable to differences between
the financial statement book values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. More information
concerning income taxes is provided in Note 6 –Income Taxes.
Earnings Per Share – The objective of both basic earnings per share (“EPS”) and diluted EPS is
to measure the performance of an entity over the reporting period. The Company presents basic
and diluted EPS on the face of the Consolidated Statements of Operations. Basic EPS is computed
by dividing income available to common shareholders by the weighted average common shares
outstanding for the period. Diluted EPS is calculated by adding to shares outstanding the additional
net effect of potentially dilutive securities or contracts, such as stock options, which could be
exercised or converted into common shares.
Recognition of Revenues and Related Expenses - Premiums for traditional life insurance
products, which include those products with fixed and guaranteed premiums and benefits, consist
principally of whole life insurance policies, and certain annuities with life contingencies are
recognized as revenues when due. Limited payment life insurance policies defer gross premiums
received in excess of net premiums, which is then recognized in income in a constant relationship
with insurance in-force. Accident and health insurance premiums are recognized as revenue pro
rata over the terms of the policies. Benefits and related expenses associated with the premiums
earned are charged to expense proportionately over the lives of the policies through a provision for
future policy benefit liabilities and through deferral and amortization of deferred policy acquisition
costs. For universal life and investment products, generally there is no requirement for payment of
premium other than to maintain account values at a level sufficient to pay mortality and expense
charges. Consequently, premiums for universal life policies and investment products are not
reported as revenue, but as deposits. Policy fee revenue for universal life policies and investment
products consists of charges for the cost of insurance and policy administration fees assessed
29
during the period. Expenses include interest credited to policy account balances and benefit claims
incurred in excess of policy account balances.
Recently Issued Accounting Standards
In December of 2022, the FASB issued Accounting Standards Update No. 2022-05, Financial
Services-Insurance (Topic 944): Transition for Sold Contracts. ASU 2022-05 amends transition
guidance in ASU No. 2018-12, Financial Services - Insurance (Topic944): Targeted Improvements
to the Accounting for Long-Duration Contracts (LDTI), for contracts that have been derecognized
because of a sale or disposal of individual or a group of contracts or legal entities before the LDTI
effective date. This ASU amends the LDTI transition guidance to allow an insurance entity to make
an accounting policy election to exclude certain contracts or legal entities from applying the LDTI
guidance when, as of the LDTI effective date, (a) the insurance contracts have been derecognized
because of a sale or disposal and (b) the insurance entity has no significant continuing involvement
with the derecognized contracts. See below for further analysis regarding ASU No. 2018-12.
In July of 2022, the FASB issued Accounting Standards Update No. 2022-03, Fair Value
Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual
Sale Restrictions. ASU 2022-03 is intended to improve financial reporting for investors and other
financial statement users by increasing comparability of financial information across reporting
entities that have investments in equity securities measured at fair value that are subject to
contractual restrictions preventing the sale of those securities. The amendments in the ASU clarify
that a contractual restriction on the sale of an equity security is not considered part of the unit of
account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-
03 is effective for fiscal years, including interim periods within those fiscal years, beginning after
December 15, 2024 for smaller reporting companies. The Company is currently evaluating the
impact that the adoption of this guidance will have on its consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services-
Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts or
ASU 2018-12. ASU 2018-12 significantly changes how insurers account for long-duration
insurance contracts. The new guidance will require insurers to review and update, if necessary, the
assumptions used to measure insurance liabilities periodically, rather than retain assumptions used
at contract inception. The updated guidance also changes the recognition and measurement of
deferred acquisition costs (DAC) and created a new category of benefit features called market risk
benefits (MRB) that will be measured at fair value. The guidance also significantly expands the
disclosure requirements for long-duration contracts. The ASU was originally effective for fiscal
years, and interim periods within those years, for years beginning after December 15, 2020 and
early adoption is permitted. The guidance on measuring the liabilities for future policy benefits and
DAC will be adopted on a modified retrospective basis as of the earliest period presented in the
year of adoption. The guidance on MRB will be adopted on a retrospective basis as of the earliest
period presented in the year of adoption. In November of 2019, the FASB issued ASU 2019-09,
which delayed the effective date of ASU 2018-12 to fiscal years beginning after December 15, 2024
for smaller reporting companies. The Company is currently evaluating the impact that the adoption
of this guidance will have on its consolidated financial statements.
Note 2 – Investments
Available for Sale Securities – Fixed Maturity Securities
The Company’s insurance subsidiary is regulated by insurance statutes and regulations as to the
type of investments they are permitted to make, and the amount of funds that may be used for any
one type of investment.
30
Investments in available for sale securities are summarized as follows for the years ended
December 31:
2022
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies and
authorities
U.S. special revenue and assessments
All other corporate bonds
Total
2021
Original or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
$
0
$
18,315,321
$
0
7,535,018
65,529
91,429,481
117,279,820 $ 65,529 $
(1,104,146)
$ 17,211,175
(335,918)
7,199,100
(7,592,226)
83,902,784
(9,032,290) $ 108,313,059
Original or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies
and authorities
U.S. special revenue and assessments
All other corporate bonds
Total
$
$
355,623
25,312,358
$
$
982,668
7,540,867
95,096,738 11,692,705
127,949,963 $ 13,030,996 $
(17,078)
$ 25,650,903
0
8,523,535
0 106,789,443
(17,078) $ 140,963,881
The amortized cost and estimated market value of debt securities at December 31, 2022, by
contractual maturity, is shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
Fixed Maturities Available for Sale
December 31, 2022
Amortized
Cost
Estimated
Fair Value
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Fixed maturities with no single maturity date
Total
$
$
7,501,489
45,914,985
14,876,371
22,013,592
26,973,383
117,279,820
$
$
7,393,130
43,837,255
14,341,653
19,389,980
23,351,041
108,313,059
By insurance statute, the majority of the Company’s investment portfolio is invested in investment
grade securities to provide ample protection for policyholders.
31
Below investment grade debt securities generally provide higher yields and involve greater risks
than investment grade debt securities because their issuers typically are more highly leveraged
and more vulnerable to adverse economic conditions than investment grade issuers. In addition,
the trading market for these securities is usually more limited than for investment grade debt
securities. Debt securities classified as below-investment grade are those that receive a Standard
& Poor’s rating of BB+ or below.
The Company held below investment grade investments with an estimated market value of $0 as
of December 31, 2022 and December 31, 2021.
The fair value of investments with sustained gross unrealized losses are as follows as of
December 31:
2022
Less than 12 months
12 months or longer
Total
Fair value
Unrealized
losses
Fair value
Unrealized
losses
Fair value
Unrealized
losses
U.S. Government and govt.
agencies and authorities
U.S. special revenue and
assessments
All other corporate bonds
Total fixed maturities
$ 17,211,175
(1,104,146)
$
7,199,100
80,144,564
$ 104,554,839
(335,918)
(7,592,226)
(9,032,290)
$
0
0
0
0
0
0
0
0
$
17,211,175
(1,104,146)
7,199,100
80,144,564
(335,918)
(7,592,226)
$ 104,554,839 (9,032,290)
2021
Less than 12 months
12 months or longer
Total
Unrealized
Unrealized
Fair value
losses
Fair value
losses
Fair value
Unrealized
losses
U.S. Government and govt.
agencies and authorities
Total fixed maturities
$
$
4,042,825
4,042,825
(17,078)
(17,078)
$
$
0
0
0
0
$
$
4,042,825
4,042,825
(17,078)
(17,078)
The following table provides additional information regarding the number of securities that were in
an unrealized loss position for greater than or less than twelve months:
Less than
12 months
12 months
or longer
As of December 31, 2022
Fixed maturities
As of December 31, 2021
Fixed maturities
57
3
0
0
Total
57
3
Substantially all of the unrealized losses on fixed maturities available for sale at December 31,
2022 and 2021 are attributable to changes in market interest rates and general disruptions in the
credit market subsequent to purchase. The Company does not currently intend to sell nor does it
expect to be required to sell any of the securities in an unrealized loss position. Based upon the
Company’s expected continuation of receipt of contractually required principal and interest
payments and its intent and ability to retain the securities until price recovery, as well as the
Company’s evaluation of other relevant factors, the Company deems these securities to be
temporarily impaired as of December 31, 2022 and 2021.
32
Cost Method Investments
The Company held equity investments with an aggregate cost of $15,683,343 and $14,543,343 at
December 31, 2022 and 2021, respectively. These equity investments were not reported at fair
value because it is not practicable to estimate their fair values due to insufficient information being
available. Management reviews and considers events or changes in circumstances that might have
a significant adverse effect on the reported value of those investments. Based on Management’s
evaluation of the equity securities reported at cost, the Company reported an other-than-temporary
impairment of $5 million on one security during the fourth quarter of 2022. The other-than-
temporary impairment was taken as a result of Management’s assessment and determination of
value of the investment.
During 2022 and 2021, the Company acquired $7 million and $0, respectively, in equity securities
reported at cost.
Trading Securities
Securities designated as trading securities are reported at fair value, with gains or losses resulting
from changes in fair value recognized in net investment income on the Consolidated Statements of
Operations. Trading Securities included exchange-traded equities and exchange-traded options.
Trading securities carried as liabilities were securities sold short. A gain, limited to the price at
which the security was sold short, or a loss, potentially unlimited in size, will be recognized upon
the termination of the short sale. The fair value of derivatives included in trading security assets
and trading security liabilities as of December 31, 2022 was $0 and $0, respectively. The fair value
of derivatives included in trading security assets and trading security liabilities as of December31,
2021 was $1,116 and $0, respectively. Earnings from trading securities are classified in cash flows
from operating activities. The derivatives held by the Company are for income generation purposes
only.
The following table reflects trading securities revenue charged to net investment income for the
periods ended December 31:
2022
2021
Net unrealized gains (losses)
Net realized gains (losses)
Net unrealized and realized gains
(losses)
$
$
(1,086)
(12,197)
(13,283)
$
2,059
20,509
22,568
Mortgage Loans
The Company, from time to time, acquires mortgage loans through participation agreements with
FSNB. FSNB has been able to provide the Company with additional expertise and experience in
underwriting commercial and residential mortgage loans, which provide more attractive yields than
the traditional bond market. The Company is able to receive participations from FSNB for three
primary reasons: 1) FSNB has already reached its maximum lending limit to a single borrower, but
the borrower is still considered a suitable risk; 2) the interest rate on a particular loan may be fixed
for a long period that is more suitable for UG given its asset-liability structure; and 3) FSNB’s loan
growth might at times outpace its deposit growth, resulting in FSNB participating such excess loan
growth rather than turning customers away. For originated loans, the Company’s Management is
responsible for the final approval of such loans after evaluation. Before a new loan is issued, the
applicant is subject to certain criteria set forth by Company Management to ensure quality control.
33
These criteria include, but are not limited to, a credit report, personal financial information such as
outstanding debt, sources of income, and personal equity. Once the loan is approved, the
Company directly funds the loan to the borrower. The Company bears all risk of loss associated
with the terms of the mortgage with the borrower.
During 2022 and 2021, the Company acquired $5,158,911 and $20,634,252 in mortgage loans,
respectively. FSNB services the majority of the Company’s mortgage loan portfolio. The Company
pays FSNB a 0.25% servicing fee on these loans and a one-time fee at loan origination of 0.50%
of the original loan cost to cover costs incurred by FSNB relating to the processing and
establishment of the loan.
During 2022 and 2021, the maximum and minimum lending rates for mortgage loans were:
2022
2021
Maximum
rate
Minimum
Maximum
Minimum
rate
rate
rate
Farm Loans
Commercial Loans
Residential Loans
5.00 %
7.00 %
5.00 %
4.50 %
4.00 %
4.15 %
6.00 %
5.50 %
5.00 %
4.50 %
4.10 %
4.15 %
Most mortgage loans are first position loans. Loans issued are generally limited to no more than
80% of the appraised value of the property.
The Company has in place a monitoring system to provide Management with information regarding
potential troubled loans. Letters are sent to each mortgagee when the loan becomes 30 days or
more delinquent. Management is provided with a monthly listing of loans that are 60 days or more
past due. All loans 90 days or more past due are placed on a non-performing status and classified
as delinquent loans. Quarterly, coinciding with external financial reporting, the Company reviews
each delinquent loan and determines how each delinquent loan should be classified. Management
believes the current internal controls surrounding the mortgage loan selection process provide a
quality portfolio with minimal risk of foreclosure and/or negative financial impact.
Changes in the current economy could have a negative impact on the loans, including the financial
stability of the borrowers, the borrowers’ ability to pay or to refinance, the value of the property held
as collateral and the ability to find purchasers at favorable prices. Interest accruals are analyzed
based on the likelihood of repayment. In no event will interest continue to accrue when accrued
interest along with the outstanding principal exceeds the net realizable value of the property. The
Company does not utilize a specified number of days delinquent to cause an automatic non-accrual
status.
A mortgage loan reserve is established and adjusted based on Management’s quarterly analysis
of the portfolio and any deterioration in value of the underlying property which would reduce the net
realizable value of the property below its current carrying value. The mortgage loan reserve was
$0 at December 31, 2022 and 2021.
The following table summarizes the mortgage loan holdings of the Company for the periods ended
December 31:
In good standing
Overdue interest over 90 days
Total mortgage loans
Total foreclosed loans during the year
2022
$ 30,698,694
0
$ 30,698,694
0
$
2021
27,102,789
2,080,773
29,183,562
0
$
$
$
34
Investment Real Estate
Real estate held-for-investment is stated at cost less accumulated depreciation. Depreciation is
computed on a straight-line-basis for financial reporting purposes using estimated useful lives of 3
to 30 years. The Company periodically reviews its real estate held-for-investment for impairment
and tests for recoverability whenever events or changes in circumstances indicate the carrying
value may not be recoverable. During 2022 and 2021, no impairments were recognized on the
investment real estate.
Note 3 - Fair Value Measurements of the Consolidated Financial Statements provides further
information regarding the fair value of financial instruments that are not measured at fair value. The
investment real estate owned by the Company is included in this portion of the Note 3 - Fair Value
Measurements disclosure.
The following table provides an allocation of the Company's investment real estate by type for the
periods ended December 31:
2022
2021
Raw land
Commercial
Residential
Land, minerals, and royalty
interests
Total investment real estate
$ 11,634,472 $ 14,538,507
5,124,847 4,347,423
3,402,502 3,813,936
14,772,531
17,048,395
$ 34,934,352 $ 39,748,261
The Company’s investment real estate portfolio includes ownership in oil and gas royalties. As of
December 31, 2022, and 2021, investments in oil and gas royalties represented 42% and 43%,
respectively, of the total investment real estate portfolio. See Note 13 - Concentrations of the
Consolidated Financial Statements for additional information regarding the allocation of the oil
and gas investment real estate holdings by industry type.
Gains and losses recognized on the disposition of the properties are recorded as realized gains
and losses in the Consolidated Statements of Operations. During 2022 and 2021, the Company
acquired $4,586,280 and $10,960,910 of investment real estate, respectively.
Notes Receivable
Notes receivable represent collateral loans and promissory notes issued by the Company and are
reported at their unpaid principal balances, adjusted for valuation allowances. Valuation allowances
are established for impaired loans when it is probable that contractual principal and interest will not
be collected. The valuation allowance as of December 31, 2022 and 2021 was $0. Interest accruals
are analyzed based on the likelihood of repayment. The Company does not utilize a specified
number of days delinquent to cause an automatic non-accrual status. During 2022 and 2021, the
Company acquired $9,030,657 and $8,680,000 of noted receivable, respectively.
Before a new note is issued, the applicant is subject to certain criteria set forth by Company
Management to ensure quality control. Once the note is approved, the Company directly funds the
note to the borrower. Several of the notes have participation agreements in place, whereas the
Company has reduced its investment in the note receivable by participating a portion of the note to
a third party.
35
Similar to the mortgage loans, FSNB services several of the notes receivable. The Company, and
the participants in the notes, share in the risk of loss associated with the terms of the note with the
borrower, based upon their ownership percentage in the note. The Company has in place a
monitoring system to provide Management with information regarding potential troubled loans.
Short-Term Investments
Short-term investments have remaining maturities exceeding three months and under 12 months
at the time of purchase and are stated at amortized cost, which approximates fair value. The short-
term investments consist of United States Treasury securities.
During 2022 and 2021, the Company acquired $3,591,885 and $0, respectively, in short-term
investments.
Analysis of Investment Operations
The following table reflects the Company’s net investment income for the periods ended December
31:
2022
2021
Fixed maturities
Equity securities
Trading securities
Mortgage loans
Real estate
Notes receivable
Policy loans
Cash and cash equivalents
Short-term investments
Total consolidated investment income
Investment expenses
Consolidated net investment income
$
$
4,153,453
2,539,579
(13,283)
1,580,647
15,424,260
933,886
489,823
203,250
5,056
25,316,671
(4,505,200)
20,811,471
$
$
4,566,293
1,274,147
22,568
706,883
3,241,689
1,558,406
606,347
2,567
0
11,978,900
(2,928,575)
9,050,325
The following table presents net investment gains (losses) and the change in net unrealized gains
on investments for the periods ended December 31:
Realized gains:
Sales of fixed maturities
Sales of equity securities
Sales of real estate
Total realized gains
Realized losses:
Sales of fixed maturities
Sales of equity securities
Sales of real estate
Other-than-temporary impairments
Total realized losses
Net realized investment gains (losses)
2022
2021
$
$
4,683
8,986,784
5,326,838
14,318,305
(5,211)
(109,636)
(34,547)
(5,000,000)
(5,149,394)
9,168,911
55,867
3,142,720
2,877,808
6,076,395
0
(54,742)
0
(393,455)
(448,197)
5,628,198
36
Change in fair value of equity securities:
Change in fair value of equity securities held at
the end of the period
Change in fair value of equity securities
Net investment gain (losses)
Change in net unrealized gains (losses) on
available-for-sale investments included in other
comprehensive income:
Fixed maturities
Net increase (decrease)
33,690,712
33,690,712
42,859,623
$
$
14,121,883
14,121,883
19,750,081
$
$
(27,824,173)
(27,824,173)
$
$
(7,085,803)
(7,085,803)
Other-Than-Temporary Impairments
The Company regularly reviews its investment securities for factors that may indicate that a decline
in fair value of an investment is other than temporary. The factors considered by Management in
its regular review to identify and recognize other-than-temporary impairment losses on fixed
maturities include, but are not limited to: the length of time and extent to which the fair value has
been less than cost; the Company’s intent to sell, or be required to sell, the debt security before
the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term
prospects of the issuer; adverse changes in ratings announced by one or more rating agencies;
subordinated credit support, whether the issuer of a debt security has remained current on principal
and interest payments; current expected cash flows; whether the decline in fair value appears to
be issuer specific or, alternatively, a reflection of general market or industry conditions, including
the effect of changes in market interest rates. If the Company intends to sell a debt security, or it
is more likely than not that it would be required to sell a debt security before the recovery of its
amortized cost basis, the entire difference between the security’s amortized cost basis and its fair
value at the balance sheet date would be recognized by a charge to other-than-temporary losses
in the Consolidated Statements of Operations.
Management regularly reviews its real estate portfolio in comparison to appraisal valuations and
current market conditions for indications of other-than-temporary impairments. If a decline in value
is judged by Management to be other-than-temporary, a loss is recognized by a charge to other-
than-temporary impairment losses in the Consolidated Statements of Operations.
Based on Management’s review of the investment portfolio, the Company recorded the following
losses for other-than-temporary impairments in the Consolidated Statements of Operations for the
periods ended December 31:
2022
2021
Other than temporary impairments:
Fixed Maturities
Common Stock
Total other than temporary
impairments
$
$
0
5,000,000
$
393,455
0
5,000,000
$
393,455
The other-than-temporary impairment recognized during 2022 and 2021 was taken as a result of
Management’s assessment and determination of value of the investment. The investments were
written down to better reflect its current expected value.
37
Investments on Deposit
The Company had investments with a fair value of $7,771,724 and $8,401,031 on deposit with various
state insurance departments as of December 31, 2022 and 2021, respectively.
Note 3 – Fair Value Measurements
Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are
measured and classified in accordance with a fair value hierarchy consisting of three levels based
on the observability of valuation inputs:
Level 1 – Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in
active markets.
Level 2 – Valuation methodologies include quoted prices for similar assets and liabilities in active
markets or quoted prices for identical, quoted prices for identical or similar assets or liabilities in
markets that are not active, or the Company may use various valuation techniques or pricing
models that use observable inputs to measure fair value.
Level 3 – Valuation is based upon unobservable inputs that are supported by little or no market
activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect
the Company’s own assumptions about the inputs that market participants would use in pricing the
asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, the level in the fair value hierarchy within which the fair value
measurement in its entirety falls is determined based on the lowest level input that is significant to
the fair value measurement in its entirety.
The following table presents information about assets and liabilities measured at fair value on a
recurring basis and indicates the level of the fair value measurement based on the observability of
the inputs used as of December 31:
Level 1
Level 2
Level 3
Net Asset
Value
Total
2022
Financial assets:
Fixed maturities available
for sale:
U.S. Government and
government agencies and
authorities
$ 17,211,175 $
0 $
U.S. special revenue and
assessments
Corporate securities
Total fixed maturities
Equity securities:
Common stocks
Preferred stocks
Total equity securities
Total financial assets
Liabilities
Trading Securities
0 7,199,100
0 83,902,784
17,211,175 91,101,884
0 $
0
0
0
0 $ 17,211,175
0 7,199,100
0 83,902,784
0 108,313,059
45,999,477 6,651,800 6,720,643 89,434,766 148,806,686
0 1,247,000
0 1,247,000
45,999,477 6,651,800 7,967,643 89,434,766 150,053,686
$ 63,210,652 $ 97,753,684 $ 7,967,643 $ 89,434,766 $ 258,366,745
0
$
0 $
0 $
0 $
0 $
0
38
2021
Financial assets:
Fixed maturities available
for sale:
U.S. Government and
government agencies
and authorities
U.S. special revenue and
assessments
Corporate securities
Total fixed maturities
Equity securities:
Common stocks
Preferred stocks
Total equity securities
Total financial assets
Liabilities
Trading Securities
Level 1
Level 2
Level 3
Net Asset
Value
Total
$ 25,650,903 $
0 $
0 8,523,535
0 106,789,443
25,650,903 115,312,978
0 $
0
0
0
0 $ 25,650,903
0 8,523,535
0 106,789,443
0 140,963,881
40,784,660 16,711,180 5,861,486 57,603,597 120,960,923
0 1,268,198
40,784,660 16,732,378 7,108,486 57,603,597 122,229,121
$ 66,435,563 $ 132,045,356 $ 7,108,486 $ 57,603,597 $ 263,193,002
21,198 1,247,000
0
$
(1,116 ) $
0 $
0 $
0 $
(1,116 )
The following is a description of the valuation techniques used the by Company to measure assets
reported at fair value on a recurring basis. There have been no significant changes in the valuation
techniques utilized by the Company during 2022 or 2021.
Available for Sale Securities
Securities classified as available for sale are recorded at fair value on a recurring basis. Securities
classified as Level 1 utilized fair value measurements based upon quoted market prices, when
available. If quoted market prices are not available, the Company obtains fair value measurements
from recently executed transactions, market price quotations, benchmark yields and issuer spreads
to value Level 2 securities. In certain instances where Level 1 or Level 2 inputs are not available,
securities are classified within Level 3 of the hierarchy. Fair value determinations for Level 3
measurements are estimated on a quarterly basis where assumptions used are reviewed to ensure
the estimated fair value complies with accounting standards generally accepted in the United
States.
Equity Securities at Fair Value
Equity securities consist of common and preferred stocks mainly in private equity investments,
financial institutions, and publicly traded corporations. Equity securities for which there is sufficient
market data are categorized as Level 1 or 2 in the fair value hierarchy. For the equity securities in
which quoted market prices are not available, the Company uses industry standard pricing
methodologies, including discounted cash flow models that may incorporate various inputs such as
payment expectations, risk of the investment, market data, and health of the underlying company.
The inputs are based upon Management’s assumptions and available market information. When
evidence is believed to support a change to the carrying value from the transaction price,
adjustments are made to reflect the expected cash flows, material events and market data. These
investments are included in Level 3 of the fair value hierarchy.
Equity Securities at Net Asset Value
Certain equity securities carried at fair value, which do not have readily determinable fair values,
use net asset value (“NAV”) and are excluded from the fair value hierarchy. These investments are
generally not readily redeemable by the investee. See Note 8 –Commitments and Contingencies
for additional information regarding unfunded commitments.
39
Trading Securities
Trading securities are recorded at fair value. They are classified as Level 1 and utilize fair value
measurements based upon quoted market prices.
Change in Level 3 Recurring Fair Value Measurements
The following table presents the changes in Level 3 assets and liabilities measured at fair value on
a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and
liabilities.
Balance at December 31, 2021
Realized gains (losses)
Unrealized gains (losses)
Purchases
Sales
Balance at December 31, 2022
Equity
Securities,
Fair Value
Equity
Securities,
Net Asset
Value
Total
$ 7,108,486 $ 57,603,597 $ 64,712,083
198,125 327,863
525,988
202,208 19,628,294 19,830,502
866,668 14,394,717 15,261,385
(407,844 ) (2,519,705 ) (2,927,549 )
$ 7,967,643 $ 89,434,766 $ 97,402,409
Both observable and unobservable inputs may be used to determine the fair values of positions
classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments
held at December 31, 2022 and 2021 may include changes in fair value that were attributable to
both observable and unobservable inputs.
Quantitative Information About Level 3 Fair Value Measurements
The following table presents information about the significant unobservable inputs used for
recurring fair value measurements for certain Level 3 instruments and include only those
instruments for which information about the inputs is reasonably available to the Company, such
as data from independent third-party valuation service providers and from internal valuation
models.
Financial Assets
Common stocks
Common stocks
Total
$
$
Fair Value at
December 31,
2022
89,434,766 $
7,967,643
97,402,409 $
Fair Value at
December 31,
2021
57,603,597
7,108,486
64,712,083
Valuation Technique
Net Asset Value
Pricing Model
Uncertainty of Fair Value Measurements
The significant unobservable inputs used in the determination of the fair value of assets classified
as Level 3 have an inherent measurement uncertainty that if changed could result in higher or lower
fair value measurements of these assets as of the reporting date.
Equity Securities at Fair Value
Fair market value for equity securities is derived based on unobservable inputs, such as projected
normalized revenues and industry standard multiples of revenue for the equity securities valued
using pricing model. Significant increases (decreases) in either of those inputs in isolation would
result in a significantly higher (lower) fair value measurement.
40
Investments in Certain Entities Carried at Fair Value Using Net Asset Value per Share
Investment
Category
Common stocks
Growth equity
Redeemable
$
Non-redeemable
$
Total
Investment
Category
Common stocks
Growth equity
Redeemable
$
Non-redeemable
$
Total
Fair Value at
December 31, 2022
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
43,724,562 $
45,710,204
89,434,766 $
0
7,779,867
7,779,867
Quarterly
n/a
45 days
n/a
Fair Value at
December 31, 2021
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
28,546,227 $
29,057,370
57,603,597 $
0
5,288,967
5,288,967
Quarterly
n/a
45 days
n/a
Fair Value Measurements on a Nonrecurring Basis
Certain assets are not carried at fair value on a recurring basis. Accordingly, such investments are
only included in the fair value hierarchy disclosure when the investment is subject to re-
measurement at fair value after initial recognition and the resulting re-measurement is reflected in
the Consolidated Financial Statements. The Company did not recognize any re-measurements or
impairments of financial instruments during the years ended December 31, 2022 and 2021.
Fair Value Information About Financial Instruments Not Measured at Fair Value
Certain assets are not carried at fair value on a recurring basis. Accordingly, such investments are
only included in the fair value hierarchy disclosure when the investment is subject to re-
measurement at fair value after initial recognition and the resulting re-measurement is reflected in
the Consolidated Financial Statements.
The following table presents the carrying amount and estimated fair values of the Company’s
financial instruments not measured at fair value and indicates the level in the fair value hierarchy
of the estimated fair value measurement based on the observability of the inputs used as of
December 31:
Carrying
Amount
Estimated
Fair Value
Level
1
Level 2
Level 3
2022
Assets
Preferred stock, at cost $ 15,683,343 $ 15,683,343 $
Mortgage loans on real
estate
30,698,694 29,735,873
Investment real estate 34,934,352 92,425,241
14,424,127 14,812,523
Notes receivable
6,567,434 6,567,434
Policy loans
Liabilities
Notes Payable
19,000,000 19,000,000
0 $
0
0
0
0
0 $ 15,683,343
0 29,735,873
0 92,425,241
0 14,812,523
0 6,567,434
0 19,000,000
0
41
Carrying
Amount
Estimated
Fair Value
Level
1
2021
Common stock, at cost
$ 5,860,000 $ 5,860,000 $ 0 $
Preferred stock, at cost 8,683,343 8.683,343 0
Mortgage loans on real
Level 2
estate
Investment real estate
Notes receivable
Policy loans
Liabilities
Notes Payable
29,183,562 29,183,562 0
39,748,261 96,463,112 0
17,722,976 17,722,976 0
7,390,497 7,390,497 0
Level 3
0
0
$ 5,860,000
8,683,343
0
0
0
0
29,183,562
96,463,112
17,722,976
7,390,497
24,000,000 24,000,000 0 24,000,000
0
The above estimated fair value amounts have been determined based upon the following valuation
methodologies. Considerable judgment was required to interpret market data in order to develop
these estimates. Accordingly, the estimates are not necessarily indicative of the amounts which
could be realized in a current market exchange. The use of different market assumptions or
estimation methodologies may have a material effect on the fair value amounts.
The fair values of mortgage loans on real estate are estimated using discounted cashflow analyses
and interest rates being offered for similar loans to borrowers with similar credit ratings. The inputs
used to measure the fair value of our mortgage loans on real estate are classified as Level 3 within
the fair value hierarchy.
Investment real estate is recorded at the lower of the net investment in the real estate or the fair
value of the real estate less costs to sell. The determination of fair value assessments are
performed on a periodic, non-recurring basis by external appraisal and assessment of property
values by Management. The inputs used to measure the fair value of our investment real estate
are classified as Level 3 within the fair value hierarchy.
The fair values of notes receivable are estimated using discounted cash flow analyses and interest
rates being offered for similar loans to borrowers with similar credit ratings. The inputs used to
measure the fair value of the notes receivable are classified as Level 3within the fair value
hierarchy.
Policy loans are carried at the aggregate unpaid principal balances in the Consolidated Balance
Sheets which approximate fair value and earn interest at rates ranging from 4% to 8%. Individual
policy liabilities in all cases equal or exceed outstanding policy loan balances. The inputs used to
measure the fair value of our policy loans are classified as Level 3 within the fair value hierarchy.
The carrying value for notes payable is a reasonable estimate of fair value subject to floating rates of
interest. The fair value of notes payable with fixed rate borrowings is determined based on the
borrowing rates currently available to the Company for loans with similar terms and average
maturities. The inputs used to measure the fair value of our notes payable are classified as Level 2
within the fair value hierarchy.
Note 4 - Reinsurance
As is customary in the insurance industry, the insurance subsidiary cedes insurance to, and
assumes insurance from, other insurance companies under reinsurance agreements. Reinsurance
agreements are intended to limit a life insurer’s maximum loss on a large or unusually hazardous
risk or to obtain a greater diversification of risk. The ceding insurance company remains primarily
liable with respect to ceded insurance should any reinsurer be unable to meet the obligations
42
assumed by it. However, it is the practice of insurers to reduce their exposure to loss to the extent
that they have been reinsured with other insurance companies. The Company sets a limit on the
amount of insurance retained on the life of any one person. The Company will not retain more than
$125,000, including accidental death benefits, on any one life. As of December 31, 2022, the
Company had gross insurance in-force of approximately $897 million of which approximately $184
million was ceded to reinsurers. As of December 31, 2021, the Company had gross insurance in-
force of approximately $948 million of which approximately $193 million was ceded to reinsurers.
The Company’s reinsured business is ceded to numerous reinsurers. The Company monitors the
solvency of its reinsurers in seeking to minimize the risk of loss in the event of a failure by one of
the parties. The Company is primarily liable to the insureds even if the reinsurers are unable to
meet their obligations. The primary reinsurers of the Company are large, well-capitalized entities.
Most recently, UG utilized reinsurance agreements with Optimum Re Insurance Company
(“Optimum”), and Swiss Re Life and Health America Incorporated (“SWISS RE”). Optimum and
SWISS RE currently hold an “A” (Excellent) and “A+” (Superior) rating, respectively, from A.M.
Best, an industry rating company. The reinsurance agreements were effective December 1, 1993
and covered most new business of UG. Under the terms of the agreements, UG cedes risk
amounts above its retention limit of $100,000 with a minimum cession of $25,000. Ceded amounts
are shared equally between the two reinsurers on a yearly renewable term (“YRT”) basis, a
common industry method. The treaty is self-administered; meaning the Company records the
reinsurance results and reports them to the reinsurers.
Also, Optimum is the reinsurer of 100% of the accidental death benefits (“ADB”) in force of UG. This
coverage is renewable annually at the Company’s option. Optimum specializes in reinsurance
agreements with small to mid-size carriers such as UG.
UG entered into a coinsurance agreement with Park Avenue Life Insurance Company (“PALIC”)
effective September 30, 1996. Under the terms of the agreement, UG ceded to PALIC substantially
all of its then in-force paid-up life insurance policies. Paid-up life insurance generally refers to non-
premium paying life insurance policies. Under the terms of the agreement, UG sold 100%of the
future results of this block of business to PALIC through a coinsurance agreement. UG continues
to administer the business for PALIC and receives a servicing fee through a commission allowance
based on the remaining in-force policies each month. PALIC has the right to assumption reinsure
the business, at its option, and transfer the administration. The Company is not aware of any such
plans. PALIC’s ultimate parent, The Guardian Life Insurance Company of America (“Guardian”),
currently holds an “A++” (Superior) rating from A.M. Best. The PALIC agreement accounts for
approximately 64% of UG’s reinsurance reserve credit, as of December 31, 2022 and 2021.
The Company does not have any short-duration reinsurance contracts. The effect of the
Company’s long-duration reinsurance contracts on premiums earned in 2022 and 2021 were as
follows:
Direct
Assumed
Ceded
Net Premiums
2022
Premiums Earned
8,384,604
$
0
(2,697,382)
5,687,222
$
2021
Premiums Earned
9,080,076
$
(37)
(2,680,050)
6,399,989
$
43
Note 5 – Cost of Insurance Acquired
When an insurance company is acquired, the Company assigns a portion of its cost to the right to
receive future cash flows from insurance contracts existing at the date of the acquisition. The cost of
policies purchased represents the actuarially determined present value of the projected future profits
from the acquired policies. Cost of insurance acquired is amortized with interest in relation to
expected future profits, including direct charge-offs for any excess of the unamortized asset over the
projected future profits. The interest rates utilized may vary due to differences in the blocks of
business. The interest rate utilized in the amortization calculation of the remaining cost of insurance
acquired is 12%. The amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a group of products are revised.
Cost of insurance acquired, beginning of year
$
Interest accretion
Amortization
Net amortization
Cost of insurance acquired, end of year
$
2022
3,386,501
501,324
(1,189,672)
(688,348)
2,698,153
$
$
2021
4,101,471
587,120
(1,302,090)
(714,970)
3,386,501
Estimated net amortization expense of cost of insurance acquired for the next five years is as
follows:
Interest
Accretion Amortization
1,079,979
975,187
877,240
799,520
292,926
418,722
339,372
263,074
189,374
116,157
Net
Amortization
661,257
635,815
614,166
610,146
176,769
2023
2024
2025
2026
2027
Note 6 – Income Taxes
UTG and UG file separate federal income tax returns.
Income tax expense (benefit) consists of the following components:
Current tax
Deferred tax
Income tax expense
2022
2021
$
$
7,054,454
2,517,685
9,572,139
$
$
(32,134)
2,101,807
2,069,673
The expense for income taxes differed from the amounts computed by applying the applicable
United States statutory rate of 21% as of December 31, 2022 and 2021, before income taxes as a
result of the following differences:
44
Tax computed at statutory rate
Changes in taxes due to:
Non-controlling interest
Dividend received deduction
Oil & gas royalty’s depletion
Income tax expense
2022
$ 9,226,662 $ 2,483,215
2021
(22,332) (19,340)
(142,790) (107,180)
(170,123) (60,969)
680,722 (226,053)
$ 9,572,139 $ 2,069,673
The following table summarizes the major components that comprise the net deferred tax liability
as reflected in the balance sheets:
2022
2021
Investments
Cost of insurance acquired
Management/consulting fees
Future policy benefits
Deferred gain on sale of subsidiary
Other assets (liabilities)
Reserves adjustment
Federal tax DAC
Deferred tax liability
$
$
10,794,061
566,612
(8,206)
(718,338)
1,387,490
(330,488)
144,158
(253,151)
11,582,138
$
$
12,159,338
711,165
(8,518)
(447,958)
1,387,490
(57,783)
192,212
(255,550)
13,680,396
At December 31, 2022 and 2021, the Company had gross deferred tax assets of $1,808,474 and
$1,292,790, respectively, and gross deferred tax liabilities of $13,390,612 and $14,973,186,
respectively, resulting from temporary differences primarily related to the life insurance subsidiary.
A valuation allowance is to be provided when it is more likely than not that deferred tax assets will
not be realized by the Company. No valuation allowance has been recorded relating to the
Company’s deferred tax assets since, in Management’s judgment, the Company will more likely
than not have sufficient taxable income in future periods to fully realize its existing deferred tax
assets.
The Company’s Federal income tax returns are periodically audited by the Internal Revenue
Service (“IRS”). There are currently no examinations in process, nor is Management aware of any
pending examination by the IRS. The Company follows the accounting guidance for uncertainty in
income taxes using the provisions of Financial Accounting Standards Board (“FASB”) ASC 740,
Income Taxes. Using that guidance, tax positions initially need to be recognized in the financial
statements when it is more-likely-than-not the position will be sustained upon examination by the
tax authorities. Such tax positions initially and subsequently need to be measured as the largest
amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement with the tax authority assuming full knowledge of the position and relevant facts. The
Company has evaluated its tax positions, expiring statutes of limitations, changes in tax law and
new authoritative rulings and believes that no disclosure relative to a provision of income taxes is
necessary, at this time, to cover any uncertain tax positions. Tax years that remain subject to
examination are the years ended December 31, 2019, 2020, 2021, and 2022.
The Company classifies interest and penalties on underpayment of income taxes as income tax
expense. No interest or penalties were included in the reported income taxes for the years
presented. The Company is not aware of any potential or proposed changes to any of its tax filings.
45
Note 7 – Credit Arrangements
At December 31, 2022 and 2021, the Company had the following lines of credit available:
Instrument
Issue Date
Maturity
Date
Revolving
Credit Limit
December 31,
2021
Borrowings
Repayments
December
31, 2022
Lines of Credit:
UTG
11/20/2013
11/20/2023 $
8,000,000 $
-
-
- $
-
UG - CMA
10/21/2021
10/6/2023
25,000,000
24,000,000
58,500,000
63,500,000
19,000,000
The UTG line of credit carries interest at a fixed rate of 6.500% and is payable monthly. As
collateral, UTG has pledged 100% of the common voting stock of its wholly owned subsidiary,
Universal Guaranty Life Insurance Company ("UG").
During October of 2022, the Federal Home Loan Bank approved UG’s Cash Management Advance
Application (“CMA”). 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 $22,250,086. During the fourth quarter of 2022,
the Company borrowed $19 million and planned to utilize the funds for investing activities. The
interest rate on the borrowed funds is variable and currently is 4.42%. During the first quarter of
2023, the Company repaid the entire outstanding principal balance.
Note 8 – Commitments and Contingencies
The insurance industry has experienced a number of civil jury verdicts which have been returned
against life and health insurers in the jurisdictions in which the Company does business involving
the insurers’ sales practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Some of the lawsuits have resulted in the award of substantial judgments against
the insurer, including material amounts of punitive damages. In some states, juries have
substantial discretion in awarding punitive damages in these circumstances. In the normal course
of business, the Company is involved from time to time in various legal actions and other state and
federal proceedings. Management is of the opinion that the ultimate disposition of the matters will
not have a materially adverse effect on the Company’s results of operations or financial position.
Under the insurance guaranty fund laws in most states, insurance companies doing business in a
participating state can be assessed up to prescribed limits for policyholder losses incurred by
insolvent or failed insurance companies. Although the Company cannot predict the amount of any
future assessments, most insurance guaranty fund laws currently provide that an assessment may
be excused or deferred if it would threaten an insurer’s financial strength. Mandatory assessments
may be partially recovered through a reduction in future premium tax in some states. The Company
does not believe such assessments will be materially different from amounts already provided for
in the consolidated financial statements, though the Company has no control over such
assessments.
46
The following table represents the total funding commitments and the unfunded commitment as of
December 31, 2022 related to certain investments:
RLF III, LLC
Sovereign’s Capital, LP Fund I
Sovereign's Capital, LP Fund II
Sovereign's Capital, LP Fund III
Garden City Companies, LLC
Carrizo Springs Music, LLC
Legacy Venture X, LLC
QCC Investment Co., LLC
Great American Media Group, LLLC
Sovereign’s Capital Evergreen Fund I, LLC
PBEX, LLC
Sovereign’s Capital Lower Middle Market
Fund II, LP
Elisha’s Properties, LLC
Granite Shoals Music, LLC
Legacy Venture XI, LLC
SFR X Holdings, LLC
Total
Unfunded
Funding
Commitment
Commitment
398,120
$ 4,000,000 $
13,000
500,000
92,034
1,000,000
3,000,000
505,453
2,000,000 1,090,531
5,000,000
189,711
3,000,000 1,620,000
1,500,000
150,000
4,000,000 2,510,000
150,967
3,000,000
49,343
2,000,000
3,000,000 2,188,539
1,096,750
491,823
6,500,000 5,633,332
2,000,000 1,920,000
1,550,000 1,550,000
During 2006, the Company committed to invest in RLF III, LLC (“RLF”), which makes land-based
investments in undervalued assets. RLF makes capital calls as funds are needed for continued
land purchases.
During 2012, the Company committed to invest in Sovereign’s Capital, LP Fund I (“Sovereign’s”),
which invests in companies in emerging markets. Sovereign’s makes capital calls to investors as
funds are needed.
During 2015, the Company committed to invest in Sovereign’s Capital, LP Fund II (“Sovereign’s
II”), which invests in companies in emerging markets. Sovereign’s II makes capital calls to investors
as funds are needed.
During 2018, the Company committed to invest in Sovereign’s Capital, LP Fund III (“Sovereign’s
III”), which invests in companies in emerging markets. Sovereign’s III makes capital calls to
investors as funds are needed.
During 2020, the Company committed to invest in Garden City Companies, LLC (“Garden City”),
which invests primarily in companies in the healthcare, inspection/testing services and
maintenance service arena. Garden City makes capital calls to investors as funds are needed.
During 2020, the Company committed to invest in Carrizo Springs Music, LLC (“Carrizo”), which
invests in music royalties. Carrizo makes capital calls to its investors as funds are needed to
acquire the royalty rights.
During 2020, the Company committed to invest in Legacy Venture X, LLC (“Legacy Venture X”),
which is a fund of funds. Legacy Venture X makes capital calls to its investors as funds are needed.
47
During 2021, the Company committed to invest in QCC Investment Co., LLC (“QCC”). The funds are
being utilized to purchase a manufacturing entity. QCC makes capital calls to its investors as funds
are needed.
During 2021, the Company committed to fund a collateral loan for Great American Media Group, LLC
(“GAM”). GAM makes draw requests on the loan as funds are needed to fund the operating needs of
the Company.
During 2021, the Company committed to invest in Sovereign’s Capital Evergreen Fund I, LLC
(“Evergreen”), which invests in companies in emerging markets. Evergreen makes capital calls to
investors as funds are needed.
During 2022, the Company committed to fund a collateral loan for PBEX, LLC (“PBEX"). PBEX makes
draw requests on the loan as funds are needed to fund the operating needs of the Company.
During 2022, the Company committed to invest in Sovereign's Capital Lower Middle Market Fund II,
LP ("Sovereign's LMM"), which invests in companies in emerging markets. Sovereign's LMM makes
capital calls to investors as funds are needed.
During 2022, the Company committed to invest in Elisha's Properties, LLC ("Elisha's"), which
investment in real estate properties. Elisha's makes capital calls as funds are needed.
During 2022, the Company committed to invest in Granite Shoals Music, LLC (“Granite”), which
invests in music royalties. Granite makes capital calls to its investors as funds are needed to acquire
the royalty rights.
During 2022, the Company committed to invest in Legacy Venture XI, LLC (“Legacy Venture XI”),
which is a fund of funds. Legacy Venture XI makes capital calls to its investors as funds are needed.
During 2022, the Company issued a letter of credit to SFR X Holdings, LLC ("SFR"). SFR will make
draw requests on the loan as funds are needed to meet the operational needs of the LLC.
Note 9 – Shareholders’ Equity
Stock Repurchase Program – The Board of Directors of UTG has authorized the repurchase in
the open market or in privately negotiated transactions of UTG’s common stock. At a meeting of
the Board of Directors in March of 2022, the Board of Directors of UTG authorized the repurchase
of up to an additional $2 million of UTG’s common stock, for a total repurchase of $22 million of
UTG’s common stock in the open market or in privately negotiated transactions. Company
Management has broad authority to operate the program, including the discretion of whether to
purchase shares and the ability to suspend or terminate the program. Open market purchases are
made based on the last available market price but may be limited. During 2022, the Company
repurchased 24,308 shares through the stock repurchase program for $685,808. Through
December 31, 2022, UTG has spent $19,309,437 in the acquisition of 1,326,213 shares under this
program.
Director Compensation - Effective January 1, 2018, a compensation arrangement was approved
whereby each outside Director annually received $5,000 as a retainer and $2,500 per meeting
attended. The compensation is be paid in the form of UTG, Inc. common stock. The value is
determined annually on the close of business December 20th or the next business day should
December 20 be a weekend or holiday, based on the activity of the year just ending. Reasonable
travel expenses are reimbursed in cash as incurred. UTG’s Director Compensation policy provides
that Directors who are employees of UTG or its affiliates do not receive any compensation for their
services as Directors except for reimbursement for reasonable travel expenses for attending each
48
meeting.
In December of 2022, the Company issued 4,485 shares of its common stock as compensation to
the Directors. The shares were valued at $25.06 per share, the market value at the date of issue.
During 2022, the Company recorded $112,394 in operating expense related to the stock issuance.
In December of 2021, the Company issued 4,269 shares of its common stock as compensation to
the Directors. The shares were valued at $27.50 per share, the market value at the date of issue.
During 2021, the Company recorded $117,398 in operating expense related to the stock issuance.
Other Compensation - During 2022, the Company issued 17,963 shares of stock to management
and employees as compensation at a cost of $486,798. During 2021, The Company issued 6,294
shares of stock to management and employees as compensation at a cost of $170,537. These
awards are determined at the discretion of the Board of Directors.
Earnings Per Share - The following is a reconciliation of basic and diluted weighted average
shares outstanding used in the computation of basic and diluted earnings per share:
Basic weighted average shares outstanding
Weighted average dilutive options outstanding
Diluted weighted average shares outstanding
2022
3,167,719
0
3,167,719
2021
3,171,919
0
3,171,919
The computation of diluted earnings per share is the same as basic earnings per share for the
years ending December 31, 2022 and 2021, as there were no outstanding securities, options or
other offers that give the right to receive or acquire common shares of UTG.
Statutory Restrictions – Restrictions exist on the flow of funds to UTG from its insurance subsidiary.
Statutory regulations require life insurance subsidiaries to maintain certain minimum amounts of
capital and surplus. UG is required to maintain minimum statutory surplus of $2,500,000. At
December 31, 2022, substantially all of the consolidated shareholders’ equity represents net assets
of UTG’s subsidiaries.
UG is domiciled in the state of Ohio. Ohio requires notification within 5 business days to the insurance
commissioner following the declaration of any ordinary dividend and at least ten calendar days prior
to payment of such dividend. Ordinary dividends are defined as the greater of: a) prior year statutory
net income or b) 10% of statutory capital and surplus. Extraordinary dividends (amounts in excess
of ordinary dividend limitations) require prior approval of the insurance commissioner and are not
restricted to a specific calculation. UG paid ordinary dividends of $3 million and $5 million to UTG in
2022 and 2021, respectively. No extraordinary dividends were paid during the two-year period. UTG
used the dividends received during 2022 and 2021 to purchase outstanding shares of UTG stock and
for general operations of the Company.
Note 10 - Statutory Accounting
The insurance subsidiary prepares its statutory-based financial statements in accordance with
accounting practices prescribed or permitted by the Ohio Department of Insurance. These
principles differ significantly from accounting principles generally accepted in the United States of
America. “Prescribed” statutory accounting practices include state laws, regulations, and general
administrative rules, as well as a variety of publications of the National Association of Insurance
Commissioners (NAIC). “Permitted” statutory accounting practices encompass all accounting
practices that are not prescribed; such practices may differ from state to state, from company to
company within a state, and may change in the future.
49
The following table reflects UG’s statutory basis net income and capital and surplus (shareholders’
equity) as of December 31:
2022
2021
Net income
Capital and surplus
$
18,782,335
93,269,301
$
450,976
64,726,088
Note 11 – Related Party Transactions
The articles of incorporation of UG contain the following language under item 12 relative to related
party transactions:
A director shall not be disqualified from-dealing with or contracting with the corporation as vendor,
purchaser; employee, agent or otherwise; nor, in the absence of fraud, shall any transaction or
contract or act of this corporation be void or in any way affected or invalidated by the fact that any
director or any firm of which any director is a member or any corporation of which any director is a
shareholder, director or officer is in any way interested in such transaction or contract or act,
provided the fact that such director or such firm or such corporation so interested shall be disclosed
or shall be known to the Board of Directors or such members thereof as shall be present at any
meeting of the Board of Directors at which action upon any such contract or transaction or act shall
be taken: nor shall any such director be accountable or responsible to the company for or in respect
to such transaction or contract or act of. This corporation or for any gains or profits realized by him
by reason of the fact that he or any firm of which he is a member or any corporation of which he is
a shareholder, director or officer is interested in such action or contract; and any such director may
be counted in determining the existence of a quorum of any meeting of the Board of Directors of
the company which shall authorize or take action in respect to any such contractor transaction or
act and may vote thereat to authorize, ratify, or approve any such contractor transaction or act, with
like force and effect as if he or any firm of which he is a member or any corporation of which he is
a shareholder, director or officer were not interested in such transaction or contract or act.
On February 20, 2003, UG purchased $4 million of a trust preferred security offering issued by First
Southern Bancorp, Inc. (“FSBI”). The security has a mandatory redemption after 30 years with a
call provision after 5 years. The security pays a quarterly dividend at a fixed rate of 6.515%. The
Company received dividends of $165,138 and $165,137 during 2022 and 2021, respectively.
On March 30, 2009, UG purchased $1 million of FSBI common stock. The sale and transfer of this
security is restricted by the provisions of a stock restriction and buy-sell agreement.
UTG has a 30.10% ownership interest in an aircraft that is jointly owned with First Southern National
Bank and Bandyco, LLC. Bandyco, LLC is affiliated with the Estate of Ward F. Correll. Mr. Correll
is the father of Jesse Correll and a former director of the Company. The aircraft is used for business
related travel by various officers and employees of the Company. For years 2022 and 2021, UTG
paid $553,533 and $248,977 for costs associated with the aircraft, respectively.
Effective January 1, 2007, UTG entered into administrative services and cost sharing agreements
with its subsidiary. Under this arrangement, the subsidiary pays its proportionate share of
expenses, based on an allocation formula. During 2022 and 2021, UG paid $7,862,902 and
$6,824,829, respectively, in expenses. The Ohio Department of Insurance has approved the
cost sharing agreement and it is Management’s opinion that where applicable, costs have been
50
allocated fairly and such allocations are based upon accounting principles generally accepted in
the United States of America.
The Company from time to time acquires mortgage loans through participation agreements with
FSNB. FSNB services the Company’s mortgage loans including those covered by the participation
agreements. The Company pays a 0.25% servicing fee on these loans and a one-time fee at loan
origination of 0.50% of the original loan cost to cover costs incurred by FSNB relating to the
processing and establishment of the loan. The Company paid $24,146 and $23,508 in servicing
fees and $0 and $48,901 in origination fees to FSNB during 2022 and 2021, respectively.
Effective January 1, 2017, UTG entered into a shared services contract with FSNB. Pursuant to
the terms of the agreement, UTG and FSNB will utilize the services of the other’s staff in certain
instances for the betterment of both entities. Personnel within departments, such as accounting,
human resources, and information technology, are shared between the entities. Costs of these
resources are then reimbursed between the companies. The shared services arrangement
provides benefits to both parties such as access to a greater pool of knowledgeable staff,
efficiencies from elimination of redundancies and more streamlined operations.
The Company reimbursed expenses incurred by employees of FSNB relating to salaries, travel and
other costs incurred on behalf of or relating to the Company and received reimbursements from
FSNB. The Company paid $895,317 and $895,100 in 2022 and 2021, respectively to FSNB in net
reimbursement of such costs.
Effective July 1, 2018, the Company assumed the employees of several smaller entities owned or
associated with UTG. The purpose of this was to support the continued efforts to further streamline
operations amongst associated entities. The salaries, benefits, and payroll related processing fees
are 100% reimbursed by the associated entities on a monthly basis. During 2022 and 2021, the
Company received reimbursements of $1,134,315 and $947,689, respectively.
The Company rents a portion of the first floor and second floor of an 8,000 square foot, two-story
office building, located in Stanford, KY. The first floor of the building is occupied by UTG and FSNB
employees that are included in the shared services agreement between the two entities. The
second floor is occupied by the customer service call centers for both UTG and FSNB employees.
The building is owned by FSNB and UTG pays $2,000 per month in rent to FSNB for the portion of
the building occupied by UTG employees. The Company paid rent of $24,000 to FSNB in 2022 and
2021.
As previously disclosed in the Notes Receivable section of Note 2 - Investments, several of the
Company’s notes have participation agreements in place with third parties. Certain participation
agreements are with FSF, a related party. The participation agreements are sold without recourse
and assigned to the participant based on their pro-rata share of the principal, interest and collateral
as specified in the participation agreements. The undivided participations in the notes receivable
range from 20% - 50%. The total amount of loans participated to FSF was $79,674 and $111,869
as of December 31, 2022 and 2021, respectively.
During 2022, FSF sold all of its membership interest in three limited liability companies ("LLC") to
a wholly owned subsidiary of UTG at a price of $1 per entity. The three LLCs are listed on the
Company's organization chart as wholly owned subsidiaries of Stanford Wilderness Road, LLC.
51
During 2021, UG purchased several real estate parcels from FSF at a cost of $1,502,035. UG also
purchased one real estate parcel from FSNB in 2021 at a cost of $80,000.
Note 12 – Other Cash Flow Disclosures
On a cash basis, the Company paid the following expenses for the periods ended December 31:
Interest
Federal income tax
$
83,995
1,890,000
$
785
1,202,000
2022
2021
Note 13 – Concentrations
The Company maintains cash balances in financial institutions that at times may exceed federally
insured limits. The Company maintains its primary operating cash accounts with First Southern
National Bank, an affiliate of the largest shareholder of UTG, Mr. Jesse T. Correll, the Company’s
CEO and Chairman. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk on cash and cash equivalents.
Because UTG serves primarily individuals located in three states, the ability of our customers to
pay their insurance premiums is impacted by the economic conditions in these areas. As of
December 31, 2022, and 2021, approximately 50% and 51%, respectively, of the Company’s total
direct premium was collected from Illinois, Ohio, and Texas. Thus, results of operations are heavily
dependent upon the strength of these economies.
The Company reinsures that portion of insurance risk which is in excess of its retention limits.
Retention limits range up to $125,000 per life. Life insurance ceded represented 20% of total life
insurance in-force at December 31, 2022 and 2021. Insurance ceded represented 40% and 36%
of premium income for 2022 and 2021, respectively. The Company would be liable for the reinsured
risks ceded to other companies to the extent that such reinsuring companies are unable to meet
their obligations.
The Company owns a variety of investments associated with the oil and gas industry. These
investments represented approximately 31% and 22% of the Company’s total invested assets at
December 31, 2022 and 2021, respectively. The following table provides an allocation of the oil
and gas investments by type as of December 31:
Land,
Minerals &
Royalty
Interests
2022
Fixed maturities, at fair value $
Equity securities, at fair value 93,811,806
14,772,536
Investment real estate
1,950,657
Notes receivable
0 $ 1,060,710 $ 1,060,710
0 93,811,806
0 14,772,536
0 1,950,657
Exploration
Total
Total
$ 110,534,999 $ 1,060,710 $ 111,595,709
52
2021
Fixed maturities, at fair value
Equity securities, at fair value
Investment real estate
Notes receivable
Land,
Minerals &
Royalty
Interests
Exploration
Total
$
60,932,033
16,351,500
5,000,000
0 $ 1,249,040 $ 1,249,040
0 60,932,033
0 16,351,500
0 5,000,000
Total
$ 82,283,533 $ 1,249,040 $ 83,532,573
As of December 31, 2022, and 2021, the Company owned two equity securities that represented
approximately 50% and 53%, respectively, of the total investments associated with the oil and gas
industry.
The Company’s results of operations and financial condition have in the past been, and may in the
future be, adversely affected by the degree of certain industry specific concentrations in the
Company’s investment portfolio. The Company has significant exposure to investments associated
with the oil and gas industry. Events or developments that have a negative effect on the oil and gas
industry may adversely affect the valuation of our investments in this specific industry. The
Company’s ability to sell its investments associated with the oil and gas industry may be limited.
Note 14 – Selected Quarterly Financial Data
As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1)
of Regulation S-K, the Company has elected to comply with certain scaled disclosure reporting
obligations, and therefore does not have to provide the information required by this item.
53
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Jesse T. Correll
Chairman of the Board,
Chief Executive Officer, and President
Theodore C. Miller
Senior Vice President,
Chief Financial Officer
Douglas P. Ditto
Vice President
April R. Chapman
Chief Executive Officer of Generous Giving
Jesse T. Correll
Chairman, President and Director
of First Southern Bancorp, Inc.
Preston H. Correll
Founder, Marksbury Farm Market and
Owner, St. Asaph Farm
John M. Cortines
Director of Generosity, Maclellan Foundation
Thomas F. Darden, II
Founder and Chief Executive Officer
of Cherokee
Howard L. Dayton, Jr.
Founder and Chief Executive Officer of
Compass – finances God’s way
Thomas E. Harmon
Owner and President of Harmon Foods, Inc.
Gabriel J. Molnar
Chief Financial Officer, Capstone Realty, Inc.
Peter L. Ochs
Founder of Capital III and
Founding Member of Trinity Academy
54
SHAREHOLDER INFORMATION
Annual Meeting
The 2023 Annual Meeting of Shareholders will be held on Wednesday, June 7, 2023 at 9:30 a.m.
eastern time at 205 North Depot Street, Stanford, Kentucky 40484. All shareholders are welcome to
attend and to take part in the discussion of Company affairs.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities
The Registrant is a public company whose common stock is traded in the over-the-counter
market. Over-the-counter quotations can be obtained using the UTGN stock symbol.
The following table shows the high and low closing prices for each quarterly period during the past
two years, without retail mark-up, mark-down or commission and may not necessarily represent
actual transactions. The quotations below were acquired from the Yahoo Finance web site, which
also provides quotes for over-the-counter traded securities such as UTG.
2022
2021
Period
High
Low
High
Low
First quarter
Second quarter
Third quarter
Fourth quarter
30.00
29.00
33.28
33.28
27.10
23.00
23.60
25.06
34.00
28.00
34.00
30.00
26.00
24.56
26.01
27.00
UTG has not declared or paid any dividends on its common stock in the past two fiscal years and
has no current plans to pay dividends on its common stock as it intends to retain all earnings for
investment in and growth of the Company’s business. See Note 9 – Shareholders’ Equity in the
Notes to the Consolidated Financial Statements for information regarding dividend restrictions,
including applicable restrictions on the ability of the Company’s life insurance subsidiary to pay
dividends.
As of January 31, 2023, there were 4,321 record holders of UTG common stock.
Purchases of Equity Securities
The following table provides information with respect to purchases we made of our common stock
during the three months ended December 31, 2022 and total repurchases:
Total
Number of
Shares
Purchased
Oct. 1 through Oct. 31, 2022
Nov. 1 through Nov. 30, 2022
Dec. 1 through Dec. 31, 2022
Total
964 $
1,347 $
376 $
2,687
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
Maximum
Number of
Shares
That May
Yet Be
Purchased
Under the
Program
Approximate
Dollar Value
That May Yet
Be Purchased
Under the
Program
964
1,347
376
2,687
N/A
N/A
N/A
$
$
$
2,739,059
2,701,014
2,690,563
Average
Price
Paid Per
Share
33.28
28.24
27.79
55
The Board of Directors of UTG has authorized the repurchase in the open market or in privately
negotiated transactions of UTG’s common stock. At a meeting of the Board of Directors in March of
2022, the Board of Directors of UTG authorized the repurchase of up to an additional $2 million of
UTG’s common stock, for a total repurchase of $22 million of UTG’s common stock in the open market
or in privately negotiated transactions. Company Management has broad authority to operate the
program, including the discretion of whether to purchase shares and the ability to suspend or
terminate the program. Open market purchases are made based on the last available market price
but may be limited. During 2022, the Company repurchased 24,308 shares through the stock
repurchase program for $685,808. Through December 31, 2022, UTG has spent $19,309,437 in the
acquisition of 1,326,213 shares under this program.
56
Corporate Office
205 North Depot Street
Stanford, KY 40484
(217) 241-6300
Corporate Website
www.utgins.com
Shareholder Services
The Company acts as its own transfer agent. Communications regarding stock transfer, lost
certificates or changes of address should be directed to the Stock Transfer Department at the
corporate office address above or telephone (217) 241-6410.
Certified Public Accountants
Armanino LLP
St. Louis, Missouri
Request for Information
Shareholders may receive a copy, without charge, of the annual report, Form 10-K, or Form 10-Q
upon written request. Copies of Form 10-K or Form 10-Q are also available electronically at the
Securities and Exchange Commission’s Web site address at www.sec.gov.
57