Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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"). The following discussion of the financial condition and results of operations of the Company should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company and the related Notes thereto appearing in the Company's annual report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission, and our unaudited Condensed Consolidated Financial Statements and related Notes thereto appearing elsewhere in this quarterly report.

Cautionary Statement Regarding Forward-Looking Statements

This report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 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.

Critical Accounting Policies

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

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

Results of Operations

On a consolidated basis, the Company reported net income attributable to common shareholders of approximately $21.3 million for the nine-month period ended September 30, 2025, and net income attributable to common shareholders of approximately $10.3 million for the three-month period ended September 30, 2025.

Revenues

For the nine-month period ended September 30, 2025, the Company reported total revenues of approximately $42.6 million and for the same period in 2024 total revenues of approximately $68.9 million. The Company reported total revenues of approximately $17.3 million and $40.4 million for the three-month period ended September 30, 2025 and 2024, respectively.

The variance in total revenue between third quarter 2025 and 2024 is primarily the result of the change in the fair value of equity securities. The Company reported a third quarter 2025 gain in the change in the fair value of equity securities of approximately $10.7 million and a year-to-date 2025 gain of approximately $25.7 million. In 2024, the Company reported a third quarter gain in the change in the fair value of equity securities of approximately $33.8 million and a year-to-date gain of approximately $51.5 million. The stock markets have experienced volatility in recent periods, which in general, should always be expected.

This line item is material to the results reported in the Condensed Consolidated Statements of Operations, and this line item can also be extremely volatile, as it reflects changes in the stock market. While these results can be material and volatile, most of the equity holdings of the Company were acquired with a long-term view, thus making these intermediate changes in value of less concern to Management. Management monitors its equity holdings looking more at the specific entity and market it is in relative to performance and less to changes due to general market swings that occur over the holding period of the investment.

The Company reported revenue before net investment gains (losses) of approximately $14.5 million and $15.3 million for the nine-month-period ended September 30, 2025 and 2024, respectively. The Company reported $5.2 million and $5.0 million, respectively, of revenue before net investment gains (losses) for the third quarter of 2025 and 2024, respectively. The 2025 results are comparable to 2024 for third quarter and year-to-date.

The following table summarizes our investment performance.

The following table reflects net investment income of the Company:

Net investment income represented 73% and 71% of the Company's revenue before net investment gains (losses) as of September 30, 2025 and 2024, respectively. For the third quarter ended September 30, net investment income represented 77% and 72% of revenue before net investment gains (losses) for 2025 and 2024, respectively. When comparing current and prior year results, net investment income was comparable in most of the investment categories outside of the cash and short term investment portfolios.

In the second half of 2024, the Federal Open Market Committee ("FOMC") cut the interest rate 3 times for a total of 1% making the rate 4.50%. The rate was cut again in September 2025 making the rate 4.25%. The Company anticipates a similar decline in earnings on cash balances and any new investments that are acquired as investments mature. In October 2025, the FOMC cut the interest rate again making the current rate 4.00%.

The earnings reported by the cash and short term investments represented 9% and 12% of the total consolidated investment income reported by the Company during the nine months ended September 30, 2025 and 2024, respectively. The decrease in earnings in this category is the result of a combination of higher cash and short term holdings in 2024 and from decreased interest rates received from banks and other deposit institutions due to FOMC rate changes. With the 2024 and 2025 rate declines of 1.25% through September 30, the Company anticipates experiencing a similar decline in earnings on cash balances going forward.

The following table reflects net investment gains (losses):

Realized investment gains are the result of one-time events and are expected to vary from year to year.

In 2025, the sale of three equity securities represents all the realized investment gains from equity securities year-to-date with one of these sales being in third quarter.

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

The Company reported a year-to-date 2025 change in the fair value of equity securities of approximately $25.7 million, and a third quarter gain of approximately $10.7 million. In 2024, The Company reported a year-to-date change in the fair value of equity securities of approximately $51.5 million, and a second quarter gain of approximately $33.8 million. This line item is material to the results reported in the Condensed Consolidated Statements of Operations, and this line item can also be extremely volatile, as it reflects changes in the stock market. While these results can be material and volatile, most of the equity holdings of the Company were acquired with a long-term view, thus making these intermediate changes in value of less concern to Management. Management monitors its equity holdings looking more at the specific entity and market it is in relative to performance and less to changes due to general market swings that occur over the holding period of the investment.

In 2025 and 2024, the Company saw mostly positive results in its equity investments. Equity investments primarily in the oil and gas area represent almost all the unrealized gains reported in 2025 and 2024. Periodic pull backs and rallies are expected by management. Management believes its current equity investments continue to be solid investments for the Company and have further growth potential; however, changes in market conditions could cause volatility in market prices.

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.

Expenses

The Company reported total benefits and other expenses of approximately $15.7 million for the nine month period ended September 30, 2025, which is comparable to the same period in 2024. Benefits, claims and settlement expenses represented approximately 59% and 58% of the Company's total expenses for the nine month periods ended September 30, 2025 and 2024, respectively. The other major expense category of the Company is operating expenses, which represented approximately 39% and 39% of the Company's total expenses for the nine month periods ended September 30, 2025 and 2024, respectively.

Life benefits, claims and settlement expenses, net of reinsurance benefits and claims were similar when comparing the nine months ended September 30, 2025, and 2024. When comparing third quarter 2025 and 2024 results, life benefits, claims and settlement expenses were down approximately 24%. Policy claims vary from period to period and therefore, fluctuations in mortality are to be expected and are not considered unusual by Management.

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.

Operating expenses were similar in the three month period, but decreased approximately 2% in the nine-month period ended September 30, 2025 as compared to the same period in 2024. All expense categories are comparable between years.

As mentioned above in the Overview section of the Management Discussion and Analysis, 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.

Net amortization of cost of insurance acquired decreased approximately 3% 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.

Financial Condition

Investment Information

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 September 30, 2025, and December 31, 2024:

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 84% and 84% of the Company's total assets as of September 30, 2025, and December 31, 2024, respectively. Fixed maturities and equity securities consistently represented a substantial portion, 87% and 84%, of the total investments during 2025 and 2024, respectively. The overall investment mix, as a percentage of total investments, remained fairly consistent when comparing the respective investments held as of September 30, 2025 and December 31, 2024.

As of September 30, 2025, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets, shareholders' equity or results from operations. To provide additional flexibility and liquidity, the Company has identified all fixed maturity securities as "investments available for sale". Investments available for sale are carried at market value, with changes in market value charged directly to the other comprehensive component of shareholders' equity. Changes in the market value of available for sale securities resulted in net unrealized gains (losses) of approximately $1,441,000 and 1,107,000 as of September 30, 2025 and 2024, respectively. The variance in the net unrealized gains and losses is the result of normal market fluctuations mainly related to changes in interest rates in the marketplace.

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.

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.

Capital Resources

Total shareholders' equity increased by approximately 10% as of September 30, 2025, compared to December 31, 2024. The increase is mainly attributable to an increase in retained earnings, which is the result of the current year net income reported by the Company and by the increase in market value of the available for sale fixed maturities portfolio.

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 September 30, 2025, and December 31, 2024, substantially all of the consolidated shareholders' equity represents net assets of its subsidiaries. As of September 30, 2025, the Parent company has received no dividends from its insurance subsidiary. 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 2025, the Federal Home Loan Bank approved the renewal of UG's Cash Management Advance Application ("CMA"). The CMA is a source of overnight liquidity utilized to address the day-to-day cash needs of a Company. The CMA gives the company the option of selecting a variable rate of interest for up to 90 days or a fixed rate for a maximum of 30 days. The variable rate CMA is prepayable at any time without a fee, while the fixed CMA is not prepayable prior to maturity. The Company has pledged bonds with a collateral lendable value of $21.4 million as of September 30, 2025. The Company has no outstanding borrowings on the CMA at September 30, 2025 nor had any borrowing activity during 2025.

Consolidated Liquidity

Cash used in operating activities was approximately $4.4 million in 2025 and $552,000 in 2024. Sources of operating cash flows of the Company, as with most insurance entities, is comprised primarily of premiums received on life insurance products and income earned on investments. Uses of operating cash flows consist primarily of payments of benefits to policyholders and beneficiaries and operating expenses. The Company has not marketed any significant new products for several years. As such, premium revenues continue to decline with the exception of fluctuations in reinsurance premiums. Management anticipates future cash flows from operations to remain similar to historic trends.

During 2025, the Company's investing activities provided net cash of approximately $9.2 million and provided net cash of approximately $15.2 million in 2024. The Company recognized proceeds of approximately $28.2 million and $45.5 million from investments sold and matured in 2025 and 2024, respectively. The Company used approximately $18.9 million and $30.3 million to acquire investments during 2025 and 2024, respectively. The net cash provided by or used in investing activities is expected to vary from year to year depending on market conditions and management's ability to find and negotiate favorable investment contracts.

Net cash used in financing activities was approximately $625,000 and $19.8 million during 2025 and 2024, respectively. As of September 30, 2025 and 2024, the Company had no debt outstanding with third parties.

The Company had cash and cash equivalents of approximately $49.5 million and $45.3 million as of September 30, 2025 and December 31, 2024, respectively. The Company has a portfolio of marketable fixed maturity securities that could be sold, if an unexpected event were to occur. These securities had a fair value of approximately $72.6 million at September 30, 2025. However, the strong cash flows from investing activities, investment maturities and the availability of the line of credit facilities make it unlikely that the Company would need to sell securities for liquidity purposes.

Management believes the overall sources of liquidity available will be sufficient to satisfy its financial obligations.