Midwest Holding Inc (MDWT) 2020 Q4 法說會逐字稿

Good afternoon. Thank you for attending the Midwest Holding Inc. Q4 full-year 2020 results call. (Operator Instructions)

I will now like to pass the conference over to your host, Tom Bumbolow, Head of Business Development with Midwest Holdings. Thank you. You may proceed, Mr. Bumbolow.

Good afternoon, and welcome to Midwest Holding, Inc.'s fourth-quarter and full-year 2020 earnings presentation. This is Tom Bumbolow, Head of Business Development here at Midwest. Joining me for today's presentation will be our co-CEOs and Founders, Michael Salem and Mike Minnich, as well as our Chief Financial Officer, Debra Havranek.

Earlier this afternoon, Midwest issued our fiscal year 2020 stakeholder letter announcing our financial results. During today's call, we will reference this letter, a copy of which can be found on the Investor Relations page of our website at ir.midwestholding.com. While this call will reflect items discussed within that document, for more comprehensive information about our financial performance, we also encourage you to read our annual report on Form 10-K for the fourth quarter of 2020, which has been filed with the Securities and Exchange Commission this evening.

Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today.

In addition, we are subject to a number of risks that may significantly impact our business and financial results. For a more detailed description of our risk factors, once again, please review our Form 10-K where you will see a discussion of factors that could cause the company's actual results to differ materially from these statements.

A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will mention some non-GAAP measures in discussing Midwest's performance. You can find the reconciliation of those historic measures to the nearest comparable GAAP measures in our stakeholder letter and 10-K.

And with that, I'll turn the call over to Michael Salem. Michael?

Thanks, Tom, and good afternoon, everyone. Thank you for joining us. I'm excited to share our results for the first time as a NASDAQ-listed public company. On today's call, Mike and I will be reviewing Midwest's fourth-quarter and full-year performance, as well as sharing an overview of our strategic vision and key drivers in our growth.

To begin, 2020 was an extraordinary year for Midwest. In just our third year of operations, we found ourselves confronting a global pandemic. Despite this challenging environment, we're pleased to share that our results were incredibly strong. This is in large part because of our unique platform.

For those of you who are just getting to know us, I'd like to quickly begin by discussing who we are. Midwest was built from the ground up, with the goal of reimagining and correcting the inefficiencies of today's life and annuity insurance value chain. We made it our mission to remove cost and complexity from the existing model and to do something no other company has done before, that is, to directly connect individuals seeking to fund their retirement with asset managers and institutional investors seeking unique uncorrelated returns. This end-to-end approach is truly innovative.

Today, we are proud of what we have built: a technology-enabled, services-oriented asset liability management platform. So why Midwest and why now? In the midst of a global digital transformation, the life and annuity insurance industry has remained stagnant, missing critical opportunities to innovate customer experience and value. Incumbents are hindered by bureaucracy and legacy technology, while the new capital being invested in the industry is narrowly focused, seeking an opportunity simply to serve existing interests.

At Midwest, we have taken a different approach. We recognized the time for innovation is now. Notably, our model is designed to protect the interest of our customers by creating value through an improved supply chain built on end-to-end technology, one that does not prioritize the interest of one group or the other, but instead strives for the mutual benefit of both customers and institutions.

Our platform is comprised of four tightly integrated businesses. American Life, our insurance carrier, provides best-in-class life and annuity products. Our reinsurance management company, Seneca Re, allows us to source alternative and capital markets-based reinsurance capacity. 1505 Capital, our integrated asset manager, drives value for both our annuity customers and our reinsurance partners. And m.pas, our policy administration solution, provides us a low cost and highly scalable operating infrastructure.

By controlling the value chain, we're able to reduce costs, continually identify efficiencies and improvements and quickly develop new products and solutions as the market dictates. Our platform is powered by a unique team of interdisciplinary experts: technology, asset management, reinsurance, operations, tax, and accounting professionals, all collaborating to build a better business, one to serve the needs of our customers and generate long-term value for our stakeholders.

Our approach is deliberate and different. We've built our business to be capital-light to avoid balance sheet risk. We've developed it on open architecture to adapt to the evolving market landscape for the years ahead, and it's supported by an extremely talented group of people. We always say this is a people business. And without our team, we wouldn't be where we are today.

And with that, I'd like to turn over the call to Mike Minnich to discuss our results and platform strategy for 2021.

Thanks, Michael. 2020 was an incredible year for Midwest. Our technology advantage and our open architecture allowed us to perform in what was otherwise a very challenging year for the industry. We are well positioned to deliver strong growth as we exit the pandemic and the recovery takes hold.

Let's look at our numbers for 2020. Our annuity premiums grew 158% to $415 million from $160 million in 2019. This strong growth is in significant contrast to the fixed annuity market that was down over 10% last year. And we expect to continue growing strongly as the market recovers. We are budgeting $600 million of annuity premiums in 2021.

Regarding revenue, our adjusted revenue grew 241% to $24.1 million. And importantly, our business was profitable, and we expect our margins to continue to expand. Founded on the principles of innovation, forward thinking, and flexibility, we made significant investments in our platform with operational leverage and scalability in mind.

Three years ago, we built the first fully cloud-based annuity platform. This technology-first approach allowed us to transition our employees quickly and safely into a work-from-home environment with minimal disruption. Our rapid growth was uninterrupted while working in a virtual environment.

Our business model was designed to be sustainable. As an open-architecture insurance model, we cap multiple sources of capital, assets, and product distribution to remain relevant in any environment. We're simply providing the infrastructure required for insurance business to happen and being paid fees for the value we add.

As recent events would indicate, the industry is beginning to recognize the value of our model, but nobody else was built from the ground up without any legacy to specifically capitalize on this incredible opportunity. Having designed and implemented the insurance model of the future, our focus is squarely on continued growth, innovation, and disruption.

With that in mind, I wanted to spend a minute speaking about our initiatives for 2021. First and foremost, we are continuing to develop and execute on our reinsurance pipeline. Interest and activity in fixed annuities from asset managers and other investors is accelerating. Midwest is uniquely positioned to take advantage of these capital flows as a value-added partner.

Additionally, we will continue to launch new products and solutions. We are pleased to announce that today, we launched our new three-year MYGA product. As with prior product launches, we were able to do this expediently, leveraging our platform's analytics and talented team to assess and meet the industry needs.

Finally, we are also continuing to invest strategically in new initiatives, seeking to expand both our distribution of insurance products and our access to reinsurance capital. These long-term investments build upon our core competencies. We are leaning into our platform to deliver more for our partners while lowering industry costs and complexity in the process. We believe this focus will serve as a key point of differentiation over the long run.

In conclusion, we have incredible momentum, which we plan to carry forward into 2021.

And with that, we'll open it up for questions.

(Operator Instructions) Matt Carletti, JMP.

Mike, I was hoping you could expand on the comments you had there about increasing the reinsurance partner demand. And can you help us understand how that's gone, both from IPO and then following some of the more recent block transactions in the insurance space?

And then a second part of that question, as you mentioned $600 million of a target for direct premiums for '21, what does that encompass in terms of expected additional partners or with your current partners? What needs to be done on the partnership side, on the reinsurance side, to support those numbers?

Sure. No problem. I'd say, like, with respect to the reinsurance pipeline, it's really been as strong as we've ever seen it. And with the block transactions that you're seeing in the marketplace, it's really bringing more and more attention to our model, and the value that we bring to a potential partner to get them in business quite quickly.

We're being fairly deliberate in terms of the partners that we're bringing online, looking for long-term partners to support our business through multiple years. With respect to our annuity pipeline, we're targeting three or four new reinsurance partners per year, and we feel quite good about being able to achieve that.

Okay, great. Very helpful. And then just my one other question, just a model question if you can provide it. The split of MYGA and FIA premiums written in the quarter would be great -- or the year -- I could back into the quarter, either one.

I don't have the exact number off-hand, but we have been running at roughly a 75% FIA production and 25% MYGA production. But that will vary quarter to quarter depending on which products, or we are pricing more competitively in the marketplace.

Okay. And then just, I guess, just one last question if I could, just on the front end. Can you just give us a little bit of perspective as we look back at 2020, just what impact do you think just the COVID environment had on people's buying activity in 2020? And as your mobility in the economy and so forth reopen in '21, should we expect a reversion to the mean from that?

I think that from our perspective, we would expect that the market as a whole will pick up. It's interesting, as you can see in our numbers and our experience, that we were not really aware when we were in the depths of COVID that the industry itself was suffering because our volumes were increasing dramatically. In terms of going into Q4, we were able to back our rates back a bit and maintain similar volumes, recognizing that the industry was going to be picking up from the pace at which we had been experiencing.

Great. Thanks very much for the color and best of luck.

Yeah, thank you.

John Barnidge, Piper Sandler.

Thank you very much and congrats on your first call. Can you talk about how much of the operating expenses in 4Q '20 were onetime in nature related to the offering or other planning that was onetime in nature?

Sure. So I think, certainly, as we ramped up to be a NASDAQ-listed public company, we had some expenses come on as well as expenses related to the offering. I think as we go forward, we would expect our margins to continue to expand. And we would expect to add expenses based on what is a very, very strong opportunity but really kind of investing for the future.

Okay. And then can you talk about your outlook for further state expansion and a pathway to a ratings upgrade?

Sure. So your second question, we were put on watch positive by AM Best following the offering. That is generally a one- to two-year review cycle. So that would be the timing of -- as we continue to execute on our business plan, what we would expect on that front.

And the state expansion, we are expecting to continue at the current pace that we have. We just added Michigan, which is worth about 10% growth to us, and we'll be strategically working on our state expansion this year and think that all the momentum of the company as well as the offering and additional capital will be very supportive in that effort.

Great. Thank you very much for the answers and best of luck.

Thank you.

(Operator Instructions) There are no additional questions waiting at this time. I will now pass it back to the management team for closing remarks.

Thank you. And thank you to all our listeners and stakeholders, and we're very excited about the opportunity we have at Midwest, and we are committed and determined to take advantage of that. So look forward to speaking to many of you in the coming weeks. And take care. Thank you.

Thank you.

That concludes the Midwest Holding Inc. Q4 full-year 2020 results call. Enjoy the rest of your day.