2 0 1 9
A N N U A L
R E P O R T
T E A M W O R K
F U N E R A L
D I R E C T O R S
L I F E
TABLE
OF
CONTENTS
Letter To Our Stakeholders
1
Teamwork 5 Management’s Discussion and Analysis
19
Five-Year Summary
23
Balance Sheet
24
Summary of Operations
25
Statement of Shareholder’s Equity
25
Statement of Cash Flow
26
DIG Board of Directors
27
FDLIC Corporate Officers
28
L E T T E R
T O
O U R
S T A K E H O L D E R S
And I sent messengers to them, saying, “I am doing a great work and I cannot come down. Why should the work stop while I leave it and come down to you?“ NEHEMIAH 6:3
KRIS SEALE President & Chief Executive Officer
1
A NNUA L RE POR T 2 0 1 9
I love the Old Testament book of Nehemiah. Nehemiah was an
BEST, MOST-RESPECTED PROVIDER OF SERVICE TO THE FUNERAL INDUSTRY.”
ordinary guy – a cupbearer for the king. God inspired him with the idea to
We implemented this statement as our overriding vision in 2001, and it
rebuild the wall around Jerusalem and unite the Jewish people there. God
remains as relevant today as it was then.
did not ask him to part the Red Sea or record the Ten Commandments like
Our 5 Strategic Objectives further define our Statement of Purpose:
Moses; God did not have him build an ark and save mankind like Noah; God
•
To grow the company
did not require him to kill a giant and become king like David. God simply
•
To be known as a great place to work
asked him to rebuild a wall and bring people together to do it. This really
•
To be known as helpers of people
doesn’t sound very impressive, does it?
•
To be known as a leading provider of service to our industry
•
To have good financial results
However, Nehemiah’s life provides an excellent example of leadership for us. There are several lessons we can learn from Nehemiah, all of which apply to Funeral Directors Life Insurance Company and our leadership: 1. Nehemiah did not ignore the vision and the leading from God – he
Like Nehemiah, we are guided by the vision that God has given us. Each year, we create our business plan based on our Statement of Purpose and these Strategic Objectives. Our business plan provides direction and guidance as we strive to achieve our ambitious vision.
took action. 2. He brought people together to accomplish a common mission – teamwork.
For 2019, here are some accomplishments that moved us toward our vision:
3. He exercised strong administrative skills by developing
•
Directors Investment Group, Inc. (the ultimate holding company
solutions to deal with internal and external problems, issues, and
for Funeral Directors Life) acquired 100% of Passare, a funeral
distractions.
home administration and collaboration software platform – this
4. He overcame opposition from outsiders as well as from internal turmoil.
is a gamechanger for Funeral Directors Life. •
5. He kept his focus – he persevered. 6. He accomplished goals which resulted in a people
We implemented the “StoryBrand” content model for our companies and for our funeral home clients.
•
We continued the growth and momentum of our Wolfelt Initiative (our partnership with Dr. Alan Wolfelt to bring solid education to
encouraged, renewed, and excited about their future.
preneed funeral sales professionals, funeral directors, and the
Let’s explore how these six lessons from Nehemiah were on display at
general public) as is demonstrated by an increased demand
Funeral Directors Life in 2019.
for workshops, funeral director continuing education, and participation in our training from a wide range of individuals in
VISION
the funeral profession. Proverbs 19:18 says, “Where there is no vision, the people are
•
We continued to see the benefits of the DIG Wellness Center
unrestrained.” Our Statement of Purpose and our 5 Strategic Objectives
through lower health insurance claims, leading to reduced health
create the vision for our company. Our Statement of Purpose is “TO BE THE
insurance premiums.
FUNERA L DI REC T O RSL I FE.C O M
2
•
We achieved record sales in 2019, with an increase of more than
•
13% over sales recorded in 2018.
We expanded the use of the DIG U/Lessonly learning platform throughout the company to train employees on specific job tasks and skills, increase their understanding of the insurance industry
TEAMWORK
and funeral profession, and improve gaps in soft skills areas. •
It’s been said often, “Teamwork makes the dream work!” Nehemiah
We introduced CULTIVATE, our management/leadership development program, to help supervisors and managers grow
was the master of teamwork. Think about it – Nehemiah rebuilt the wall
in their roles.
around Jerusalem in 52 days with no modern equipment in 444 B.C.! He
•
We adopted Slope as our new actuarial modeling platform.
somehow got lots of diverse people to cooperate and rebuild pieces of
•
We established a Security Awareness program.
the wall – no one had to build the entire wall, just their piece. Apparently, Nehemiah developed the acronym T-E-A-M (Together Everyone Achieves
OVERCOMING OPPOSITION
More). At Funeral Directors Life, we have worked diligently to establish a
I love the way Nehemiah dealt with opposition. As the opposition
culture of teamwork, where our staff values each other as much as they
became more intense, Nehemiah became more resolved to accomplish
value our customers. We all know that by working together we can achieve
what God had sent him to do – rebuild the wall. You can sense Nehemiah’s
so much more.
frustration with and contempt for his opposers in Nehemiah 6:3 when he
During 2019, we emphasized teamwork by:
says to them, “I am doing a great work and I cannot come down. Why should
•
Launching a new and much improved FDLIC website.
the work stop while I leave it and come down to you?” The scripture says that
•
Creating the DIG Development division from Funeral Directors
his opposition came to him four different times to draw him away from the
Life’s Information Technology department in order to serve
work and possibly to kill him, and each time, Nehemiah says the same thing:
and integrate all DIG companies’ and divisions’ technology
“I am doing a great work and I cannot come down. Why should the work stop
development needs.
while I leave it and come down to you?”
•
Creating Common DIG Operations from Funeral Directors Life’s
Nehemiah’s resolve to stay focused and to turn away from opposition
Operations department in order to achieve consistency in
is truly an inspiration. I pray that I might have his strength, his wisdom, and
training, processes, and communication across all companies/
his commitment to God’s work.
divisions. •
Merging the Lead Generation and Social Media Management
For 2019, here are a few areas where Funeral Directors Life overcame opposition:
teams to provide a seamless experience for our funeral home
•
We created an extensive Enterprise Risk Management plan.
customers.
•
We continued our development of our funeral information website, funeralbasics.org, with cutting-edge content.
ADMINISTRATIVE SKILLS
•
We achieved outstanding success with our edgy new informational webinar series – intended to wake up funeral professionals and
Like Nehemiah, we see the importance of ensuring administrative efficiency and strength. By excelling in our administrative skills, we can:
get them to think strategically. •
We created Funeral Directors Life Insurance Company of
1) work more efficiently for our customers, 2) keep our overhead under
Louisiana in response to the requests of our Louisiana funeral
control, and 3) have a well-trained and more attentive staff.
home clients in order to address insurance licensing regulations
In 2019, we made an administrative impact in the following areas:
3
A NNUA L RE POR T 2 0 1 9
in the state.
•
We created a Cybersecurity division through the establishment
•
of the Information Security department, in response to the development of our Enterprise Risk Management program and
2018. •
in response to recent cyberattacks seen in other businesses and industries.
We improved CLAIMCHECK revenue by more than 33% over We closed the year with a record number of Select Producers (full-time, employed sales team) with a total of 57.
•
We recruited and hired a record number of Select Producers in one year – 36 new hires.
KEEPING THE FOCUS/PERSEVERING
•
We achieved a new monthly sales record with $28.7 million in sales in the month of October.
Nehemiah had laser focus and extraordinary perseverance! He knew
•
We grew Social Media Management revenue by 72%.
that God’s intention for him was to build the wall, and no matter what obstacles were placed in his way, he was dead set on finishing the job.
CONCLUSION
During 2019, we stayed focused on our strategic objectives by: • •
Launching FDTV to promote thought-leading ideas and education to the funeral profession, through video format.
showed us what true leadership looks like. I pray that I might be a leader like
Continuing to see momentum in our trust conversion business
Nehemiah – one worth following!
with more than $14.6 million converted from trust accounts to •
The example of Nehemiah is one we should reflect on often. He
I continue to be blessed with the team of people who work here with
Funeral Directors Life insurance and annuity products.
me at Funeral Directors Life. Their focus, their faith, and their fellowship
Gaining recognition from Texas Monthly magazine as one of the
have pushed me to become a better leader and have made our company
Best Places to Work in Texas and from Fortune magazine as one
the envy of most! I am blessed to work with, struggle with, and celebrate
of the Best Workplaces in Financial Services & Insurance in the
with my team each day.
United States for the third year in a row.
Finally, we continue to appreciate the confidence you have shown in our company – thank you! All of us at Funeral Directors Life remain committed
ACCOMPLISHING GOALS
to you and to our vision – To be the best, most-respected provider of service to the funeral industry!
Encouraged, Renewed, & Excited for the Future How do you think Nehemiah felt on day 52, when he could look back and see that the vision God had given him had been completed? How do you
Blessings,
think his team of people felt about their accomplishment? Don’t you know they were in awe and disbelief? When we complete a major project that we know God has guided us toward, we love to look back and celebrate what was accomplished.
KRIS SEALE
In addition, we feel encouraged, renewed, and excited about the future.
President & Chief Executive Officer
For 2019, we had some accomplishments that left us feeling encouraged, renewed, and excited: •
We received an upgrade in outlook from AM Best, going from a negative outlook to a stable outlook within 12 months – a very rare achievement.
FUNERA L DI REC T O RSL I FE.C O M
4
Alone we can do so little, together
T E A M W O R K
we can do so much. HELEN KELLER
5
A NNUA L RE POR T 2 0 1 9
RATIO OF CAPITAL &
2019 was a very successful year for Funeral Directors Life. Not only in
a sense of ownership in our common goals, a heart for serving others, a
terms of financial gains – we achieved our highest-ever net income – but
desire to honor and respect one another, a strong sense of mission, and
also in terms of growth as a team.
accountability for achieving results.
Throughout the last two years, we hit our stride as a company, and
In 2019, our executive team read Excellence Wins by Horst Schulze, the
fueled by increased momentum in 2018, our team has had to grow in order
former president, co-founder, and COO of the world-class Ritz-Carlton hotels.
to keep up with the needs of our customers. In fact, our team at Funeral
In his book, Schulze reveals many of his “non-negotiables,” or imperatives
Directors Life has grown from 167 to 209, an increase of over 20% in just
that keep his entire team all working toward a common goal.
two years!
In this annual report, we will cover a few of our own “non-negotiables,”
With rapid growth comes the need to state and restate the vision that
that is, the values that we hold most dear, as a reminder to all – our
got us here in the first place. In order to move forward and continue to grow,
employees, customers, stakeholders, and even future customers. This is
we must have every team member rowing in the same direction! They must
who we are. This is what we believe. This is who you are doing business
be on board with our culture, expectations, values, and strategic objectives.
with. This is what our team has accomplished. As a team, we welcome you to
As a company, our mission, or our common goal, is “To be the best,
join in our vision to change the world by serving others with integrity, honor,
most-respected provider of service to the funeral profession.” When we have
and respect.
a common goal, we are all rowing in the same direction. We are all striving toward a single purpose: to serve others with excellence in all aspects of what we do as a company. If we are all doing our own thing, our own way, we lose focus, and our customers begin to suffer for it. Only when we as a team are committed to a single vision will we succeed. As scripture says in Proverbs 29:18, “Where there is no vision, the people are unrestrained.” Unrestrained people are self-oriented, looking out only for themselves. They lack direction, initiative, motivation, and purpose. That is not the kind of team we are trying to cultivate. Rather, we are growing a team that has
209 167 2018
2019
Over 20% Increase
in just 2 years!
Funeral Directors Life’s Team has Grown From
167 209 to
FUNERA L DI REC T O RSL I FE.C O M
6
Individual commitment to a group effort—that is what makes a team work, a company work, a society work, a civilization work. VINCE LOMBARDI
7
A NNUA L RE POR T 2 0 1 9
S E N S E O F O W N E R S H I P
Sales Growth
$273,591.3 Million
$242,906.6 Million
TO GROW THE COMPANY
One of our 5 Strategic Objectives is “To Grow the Company.” We believe that healthy things grow, and if we want to be a healthy company, we
2018
need to be growing in all aspects of the business. What we don’t want to do
2019
is grow complacent and rest on our laurels. In order to grow, we need team members who have a strong sense of ownership not only in their respective “jobs,” but in the company as a whole. People with an ownership mindset go beyond their job descriptions to
Facility Square Footage
do what needs to be done. People with an employee mindset, even good
2018
employees, rarely think beyond the scope of their assigned tasks. Owners look at the big picture. They have the end in mind and take initiative to find a way to meet that goal. People with an employee mindset do what they’ve always done before without questioning why or how they are doing it.
Increased by
68%
Problems proliferate and inefficient workarounds take shape. Nobody feels
2019
empowered to innovate or change how things are done. At Funeral Directors Life, we are blessed with many employees who have an ownership mindset. Some even have actual ownership in our parent company, DIG! But even if they don’t, many of our employees have an extraordinary sense of pride and ownership in what they do. These are employees who create new solutions, bridge gaps across department lines, share burdens, help each other when the need arises, collaborate on solutions, and think beyond their prescribed tasks to help the company grow. So, thank you. We could not do what we do without you.
Funeral Directors Life is Growing!
70%
of sales in 2019 were in states outside of Texas
Number of Clients 1725 1631
2019 2018
FUNERA L DI REC T O RSL I FE.C O M
8
COMMUNITY
AMAZING FACILITIES
TOGETHER NURSE PRACTITIONER LEADERSHIP CHRISTIAN WHY EMPLOYEES SAY THIS IS A GREAT WORKPLACE
FAMILY
ANNUAL INCENTIVE TRIP
CARE
FREE FRUIT
UNIQUE CULTURE
WELLNESS CENTER MONTHLY LUNCHEONS
LOVE
ONSITE CLINIC
BOOK STUDIES
9
A NNUA L RE POR T 2 0 1 9
HELP
PEOPLE
GYM
TO BE KNOWN AS A GREAT PLACE TO WORK
Be devoted to each other like a loving family. Excel in showing respect for each other. ROMANS 12:10
Many companies hire people to perform a function. But in the book Excellence Wins, Horst Schulze says in no uncertain terms that hiring to perform a function is unethical. Chairs perform a function. Machines perform functions. People are spiritual beings who bring their creativity, imagination, hearts, and souls to work with them every day.
GOD’S WORD TRANSLATION
Schulze writes, “When we identify an operational function and then go looking for a warm body to fill that function, we are being short-sighted. We’re treating people as just another category of things. I believe this is not only bad practice, but even immoral. It ignores the God-given talent and worth of the human being. It depersonalizes them, reducing them to the level of office supplies.” He goes on to say that valuing the humanness of the employee is an echo of God’s second-greatest command: “Love your neighbor as yourself.” Because we spend just as much or more time at work as we do with our families and communities, our coworkers are some of our closest neighbors!
H O N O R & R E S P E C T
That is why, as a company founded on Christian principles, it is so important for us to cultivate a positive, encouraging, respectful, and honoring workplace. We want to be known as a great place to work because that is part of our contribution to God’s work and our way of honoring every human being who crosses our path. We want everyone who works for us, whether they are here for a short time or a long time, to feel honored, respected, and loved!
FUNERA L DI REC T O RSL I FE.C O M
10
Give your hands to serve, and your hearts to love. MOTHER TERESA
11
A NNUA L RE POR T 2 0 1 9
H E A R T O F S E R V I C E
As Isaiah says, “How beautiful on the mountains are the feet of the messenger who brings good news, the good news of peace and salvation, the news that the God of Israel reigns!” Isaiah 52:7, New Living Translation TO BE KNOWN AS HELPERS OF PEOPLE
When selecting people to come and join us in our mission, one of the things we look for is a heart of service. This may have many dimensions and expressions. Some people serve through volunteer work, others by preparing meals for the sick, or by lighting up the room with a smile and a positive attitude. Others serve through encouraging words spoken at just the right time. Some serve through heartfelt prayers for the sick and hurting. Some serve through leadership, and others serve with their amazing organizational and administrative skills. In whatever way we serve or work, we are called to do so as “unto the Lord.” Kris Seale, our President and CEO, often reminds our employees during luncheons or gatherings that we do not work for him. We are working for the Lord. The Message translation puts this concept so plainly: “Servants, do what you’re told by your earthly masters. And don’t just do the minimum that will get you by. Do your best. Work from the heart for your real Master, for God, confident that you’ll get paid in full when you come into your inheritance. Keep in mind always that the ultimate Master you’re serving is Christ. The sullen servant who does shoddy work will be held responsible. Being a follower of Jesus doesn’t cover up bad work.” (Colossians 3:23) Thankfully, we have been fortunate to find team members who take this calling fully to heart. They serve enthusiastically at every opportunity. They serve one another, our community, and even those around the world with a sincere heart. We are eternally grateful for these servants of Christ who honor us and the Lord by being known throughout our community and the world as “Helpers of People.”
2019 MISSION TRIP During the 2019 Mission Trip, over 100 volunteers including employees, funeral directors, sales professionals, board members, and guests helped build two homes for two families in San José del Cabo, Mexico! VOLUNTEER OPPORTUNITIES Our employees consistently volunteer their time, resources, and energy to benefit others near and far. A few of the causes we support regularly are the Alzheimer’s Association, Pregnancy Resources of Abilene, CASA, AYSA, Children’s Grief Connection, and many more! HANDS & FEET PROGRAM The “Hands & Feet” Program allows our employees to be the hands and feet of Jesus to one another. Employees volunteer for projects such as helping coworkers move, paint, tackle yardwork, or complete necessary projects and repairs that they couldn’t do on their own. PRAYER TEAM The intercessory prayer team is a group of employees who have committed to pray for needs as they arise, large and small. Prayer requests come from coworkers, policyholders, funeral home clients, and sales professionals who are facing challenging circumstances and need the support and love of others who will intercede for them. CHAPLAIN Our corporate chaplain is available to be a listening ear and to offer support, encouragement, and godly counsel as needs arise. In 2019, Ray Thompson, our corporate chaplain, was recognized by the elders of Beltway Park Baptist Church as a licensed minister.
FUNERA L DI REC T O RSL I FE.C O M
12
Here is what drives us: We want to be the best in our category. HORST SCHULZE, FORMER COFOUNDER, P R E S I D E N T, A N D C O O O F R I T Z - C A R LT O N H O T E L C O M PA N Y
13
A NNUA L RE POR T 2 0 1 9
S E N S E O F M I S S I O N
To support funeral directors in their mission to bring hope and healing to grieving families, Funeral Directors Life offers a one-stop shop for almost every area of the funeral home’s business. TO BE KNOWN AS A LEADING PROVIDER OF SERVICE TO OUR INDUSTRY
Being known as a leading provider of service in our profession is a
TURNKEY PRENEED PROGRAM Preneed services for funeral homes including recruiting, hiring, training, and ongoing management for preneed staff. SOCIAL MEDIA MANAGEMENT A hands-on service that provides funeral homes with a consistent and active
pretty ambitious goal, and there are many ways that we are working toward
presence on social media.
achieving that goal. But you may be wondering…why? Why should we spend
AUDIO/VISUAL SOLUTIONS
our days selling more preneed policies, paying claims, taking calls from
Professional video production services that allow funeral homes to share
customers, and all the other little daily tasks that keep everything running
their story, values, and message with their community.
smoothly? Why does what we do and how we do it matter?
PRECARE PLANNING & FUNDING
Surely it isn’t just to make money. If that were the case, we wouldn’t put
A revolutionary online preplanning and funding tool to help funeral homes
so much time and energy into the array of services we provide beyond our
connect with families online and compete against online providers.
policies and insurance products.
DIGICON®
No. It’s about something bigger. A bigger mission. A deeper “WHY.”
The funeral profession’s most advanced preneed sales software, which saves
When we really look at why we do what we do, it comes down to this: we
time, offers a 100% digital experience, and includes an accuracy review for
want to bring hope and healing to those who grieve. It’s as simple as that.
error-free contracts, every time.
Our company was founded by funeral directors who saw families struggling
FULL-SERVICE MARKETING
with the loss of a loved one every day. On top of the pain of loss, they had to
Strategic marketing solutions that coordinate the funeral home’s at-need
come up with money to pay for a funeral in a short amount of time, which
and preneed marketing to create a consistent message across all media
made things even more stressful.
channels.
We believe that the funeral should not be a time to worry about things like money, delayed insurance claims, and logistics. The funeral should be a time when families can focus 100% of their attention and energy on grieving well and supporting one another through the loss. So, our goal to be known as the leading provider of service comes into crystal clear focus when we know our why. Why do we want to be a leading provider of service to the funeral industry? Because grieving families need a funeral director who can guide them and be with them when they need someone the most. With the services we provide, the funeral director’s time is freed up to be present with the families they serve -- to “mourn with those who mourn.”
PASSARE® The ONLY preneed to at-need software integration is now offered by Funeral Directors Life through Passare, the funeral profession’s most advanced atneed collaboration software. CLAIMCHECK® A division of Funeral Directors Life offering 100% risk-free life insurance assignments, with claims paid within 24-48 hours of verification of benefits. DIRECTORS BUSINESS SOLUTIONS A division of Funeral Directors Life offering funeral homes business solutions such as financing for business expansion, accounting services, payroll services, and business valuations for succession planning.
FUNERA L DI REC T O RSL I FE.C O M
14
A wise person should have money in their head, but not in their heart. J O N AT H A N S W I F T
15
A NNUA L RE POR T 2 0 1 9
A C C O U N TA B I L I T Y
In the last two years, we have taken these top 4 objectives to new TO ACHIEVE GOOD
heights. We’ve outdone all of our previous accomplishments throughout
FINANCIAL RESULTS
the years, and then some. And so, perhaps it is not a coincidence that our financial results have followed this rising trend, too.
We’ve often said that if we focus on achieving our top 4 objectives, “To grow the Company,” “To be known as a great place to work,” “To be known as helpers of people,” and “To be known as a leading provider of service to our industry,” the last objective, “To achieve good financial results,” will take care of itself.
Total Assets have grown by over IN 2019 SALES GREW BY RATIO OF CAPITAL & SURPLUS TO TOTAL ASSETS IS AT A STRONG
12.63%
Net Income reached
139%
$14.27
million in 2019, a new record!
in the last 10 years
8.9%
FUNERA L DI REC T O RSL I FE.C O M
16
Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to attain uncommon results. ANDREW CARNEGIE
17
A NNUA L RE POR T 2 0 1 9
L O O K I N G A H E A D
CONCLUSION
As a team, it is always good to pause, look back, and see what we’ve accomplished. Despite a challenging low interest rate environment and despite a rapidly changing marketplace, our team at Funeral Directors Life continues to grow the company and maintain a strong financial position. Together, we really do achieve more! For our stakeholders, we believe it is important for you to know our vision, our mission, and our heart—what drives us to continue to work toward achieving the extraordinary goals we have set for ourselves. Because of our vision and our team, Funeral Directors Life is now the ONLY preneed company in the world (and quite possibly the Universe) to offer funeral home clients a comprehensive array of business solutions, from preneed solutions to cutting-edge technology, effective marketing, and even at-need solutions, all while providing the best, most-respected customer service in our profession. Looking ahead, the company is in a strong position, both financially and as a team, to meet whatever challenges we may face. As President and CEO Kris Seale has often said, “We are doing a great work, and we cannot come down!”
FUNERA L DI REC T O RSL I FE.C O M
18
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2019 ANALYSIS OF FINANCIAL POSITION For 2019, the financial position of Funeral Directors Life Insurance Company (FDLIC) remained strong as the Company maintained an A.M. Best Insurance Company Rating of A- (Excellent) with an improved outlook. The significant increase in year-over-year new business sales production along with the Company’s consistent investment strategy resulted in a combined increase in premium and investment income of just over $30 million. While claims paid exceeded 2018, they were much lower than projected, and with higher new business sales, reserve increases were approximately 25% higher than the previous year. General insurance expenses increased significantly (after a spending hiatus in 2018) for increase in sales-related expenses and technology – particularly as it relates to information security and Enterprise Risk Management. Finally, the significant decrease in the federal income tax expense when compared to net income before taxes, was the result of 100% tax deductibility of an aircraft purchased by the Company in November of 2019. Net income was consistent with 2018 and the Company ended the year with a strong ratio of Capital and Surplus to Assets of 8.9%. No other material transactions occurred outside the normal scope of business during 2019. ASSETS The Total Assets of Funeral Directors Life Insurance Company (FDLIC) grew to $1.512 billion, an increase of $102.6 million or 7.28% from yearend 2018 to year-end 2019. As of December 31, 2019, FDLIC’s assets were distributed as follows: 97.70% in investments, 1.08% in investment income due and accrued, .46% in deferred and uncollected life insurance premiums and annuity considerations, .27% in deferred tax assets and .49% in various other assets. Invested Assets: For 2019, the primary investment held by FDLIC was bonds (government, agency, and corporate) representing 85.0% of invested assets or $1.256 billon. The emphasis regarding the investment portfolio has consistently involved maximizing book yield, limiting risk, achieving appropriate liquidity, and matching the cash inflow of invested assets with the projected cash outflow of the Company’s insurance liabilities. This is known as an Asset Liability Management (ALM) strategy. Throughout 2019, FDLIC maintained this approach to matching the expected cash flows.
19
A NNUA L RE POR T 2 0 1 9
This conservative approach to managing assets has been consistent since 1993 and was designed to reduce risk and provide assurance that the cash flow of assets is appropriate to provide for the claims of the Company. The growth in Company assets has allowed FDLIC to “average into the market” over many different interest rate environments, and in all areas of the yield curve. In combination with a disciplined approach to investing, this has enabled FDLIC to lower the market value volatility of the portfolio to interest rate fluctuations. During the year, FDLIC increased the diversification of its portfolio by both asset class and number of issues. Therefore, risk related to individual securities and single asset sectors has been reduced. Treasury yields fell all across the yield curve in 2019 with the largest declines occurring in the 5 to 10-year part of the curve. FDLIC invested throughout the year over various parts of the curve. Despite the volatility and sustained low interest rate environment, FDLIC has continued to follow the long-term investment strategy and focus on diversification in terms of capital and surplus, Asset Valuation Reserve (AVR), and the Company’s asset liability matching. Specific attention has been placed on investing shorter on the curve to capture good relative value while addressing some of the cash needs from an ALM perspective. Additionally, the Company continues to look for ways to minimize book yield give-up yet position the invested assets in manner that is prudent for policyholders yet maximizes the risk/return tradeoff. At year-end 2019, FDLIC’s portfolio contained just under 1,000 different bond issues of which 97.4% were investment grade. FDLIC’s allocation of industrial and miscellaneous bonds maintained the greatest allocation at 85.5% of total bonds; special revenue and assessment bonds comprised of U.S. Agency and municipal bonds totaled 13.8%; and U.S. Government bonds was 0.7% of total bonds. At year-end 2019, there was $1.0 million of preferred stocks in the portfolio. FDLIC may consider investing in additional selective preferred securities going forward but only on a limited basis and consistent with the following parameters: a) dividends must be cumulative, b) the yield must be greater than or equal to the average sector yield of a thirty-year bond less a deduction of one year’s AVR requirement created by the asset, c) the purchase of preferred stocks below an SVO 2 rating will be restricted, and d) the total amount invested in preferred stocks will not exceed 5% of the total assets of the Company. FDLIC’s total common stock portfolio was $12.5 million representing .84% of invested assets and consisted largely of the Company’s two wholly owned insurance subsidiaries totaling $10.8 million. On June 25, 2019, the
TOTAL ASSETS 2000 1500 1000 500 0
10
11
12
13
14
15
16
17
18
19
AGGREGATE LIFE RESERVES 1500 I N
M I L L I O N S
1200 900
At year-end 2019, real estate represented 1.54% of invested assets compared to 1.21% in 2018. The $6.1 million year-over-year increase was due largely to the addition of 35,000 square feet to the Company’s home office. Cash and short-term investments represented .18% of invested assets at $2.6 million compared to $7.6 million at year-end 2018. Other invested assets consist of loans to parent that were issued in the first quarter of 2007 which comprised .30% of invested assets. Principal reduction on these loans was $404.7 thousand for the year. The portfolio is conservatively positioned to allow for continued improvements during 2020. New cash flows during 2020 are expected to be reinvested at slightly lower levels than 2019 as yields continue to remain low. The overall book yield did decrease during 2019, but the portfolio remains diversified and in a positive position to move forward in 2020 and the years to come. Diversification will continue in order to reduce exposure to single portfolio issues, and FDLIC will diligently invest to provide for the historical investment objectives of the Company. Other assets remained consistent with the previous year with the exception of a $1.163 million increase in furniture and equipment related to the expansion of the home office and a $1.329 million increase in life insurance proceeds receivable from insurance companies due to the growth of the Company’s insurance assignment division.
600 LIABILITIES
300 0
10
11
12
13
14
15
16
17
18
19
Company purchased 100% (100,000 shares) of a newly formed life insurance company, Funeral Directors Life Insurance Company of Louisiana, for $4.5 million in cash. The acquisition was in response to the requests of FDLIC’s Louisiana funeral home clients in order to address insurance licensing issues in the state. The Company also owns Kentucky Funeral Directors Life Insurance Company domiciled in Kentucky. In January, the Company sold the majority of its publicly traded common stocks at a small gain ending the year with $1.7 million invested in the Monteagle Select Value Fund, a mutual fund that invests only in Biblically responsible entities. During 2019, FDLIC’s mortgage loan portfolio increased by $16.4 million for new loans of $38.3 million offset by $22.0 million of loans repaid during the year. The mortgage loan portfolio represented 12.07% of invested assets as opposed to 11.76% in 2018. Virtually all mortgage loans made and retained by FDLIC are made to funeral home customers and have consistently performed. As of year-end, the Company had no mortgage loans over 30 days past due.
At year-end 2019, FDLIC’s liabilities were distributed as follows: 97.79% in Aggregate Reserve for Life Contracts, .94% in AVR, .28% in Accrued Commissions, .27% in Premiums and Annuity Consideration Received in Advance, .27% in Interest Maintenance Reserve (IMR), .09% in Policy Claims, .07% in Provision for Policyholders’ Dividends and Coupons Payable, and .29% in all other liabilities. The life insurance and annuity reserves are primarily medium to long term in nature. Life insurance reserves are calculated on a conservative basis, with 94.1% of the reserves being calculated using an interest factor of 4% or less. Annuity reserves are equal to the current cash surrender value of the annuities plus additional reserves required by Actuarial Guideline 33. The terms of the annuity contracts are conservative, offering interest guarantees of 1% to 5% and no bailout provisions. Provision for policyholder dividends decreased slightly during 2019. Essentially, a policyholder dividend is the growth rate applied to preneed products and credited to funeral home customers. Annually, the Company estimates the dollar amount of dividend to be paid with respect to Participating Polices in the following calendar year.
FUNERA L DI REC T O RSL I FE.C O M
20
The IMR increased $2.28 million from year-end 2018 for net realized capital gains of $2.451 million less amortization of $171.5 thousand. The significant gains were the result of a strategic repositioning that occurred in the third quarter of 2019 to sell longer duration assets where excess cash flows existed, capture gains as a result of the low interest rate environment and reinvest proceeds in the two- to five- year part of the curve. The AVR increased $2.589 million or 24.91% in 2019 compared to $1.076 million or 11.55% increase from 2017 to 2018. The significant year-over-year increase was due entirely to changes to the reserve calculation factors issued by the National Association of Insurance Commissioners (NAIC) in December of 2019. Generally, the differences between years in the other liability categories did not result from any significant changes in liability trends but were the result of normal business.
CAPITAL & SURPLUS
150 I N
AVR calculation negatively impacted the Company’s capital and surplus by approximately $800.0 thousand. The ratio of Capital and Surplus to Total Assets was 8.9% at year-end 2019 compared to 9.2% at year-end 2018. No other material favorable or unfavorable trends existed in FDLIC’s Capital and Surplus accounts.
TOTAL REVENUE 300 I N
M I L L I O N S
250 200 150 100 50
M I L L I O N S
120
0 10
11
12
13
14
15
16
17
18
19
90 RESULTS OF OPERATIONS
60
REVENUE
30 0
10
11
12
13
14
15
16
17
18
19
CAPITAL AND SURPLUS Total Capital and Surplus increased $4.2 million for 2019 as compared to the increase of $13.7 million in 2018. The increase in 2019 consisted of net income of $14.274 million, a $1.083 million increase in deferred income tax adjustment, and unrealized gains of $393.2 thousand offset by an AVR increase of $2.589 million and an $8.951 million increase in non-admitted assets. Non-admitted assets are assets, that for statutory accounting purposes, the NAIC does not allow insurance companies to include in their financial statements. The majority of non-admitted assets is related to the Company’s purchase of an aircraft in November of 2019. With over 70% of the Company’s business produced in states outside of Texas, the purchase of the aircraft was essential to the continued expansion of new business sales. The aircraft was fully deductible for tax purposes resulting in federal income tax savings of $1.7 million. The non-admitted asset will be reversed over the next ten years as the aircraft is depreciated. The revision to the
21
A NNUA L RE POR T 2 0 1 9
New business issued for 2019 was approximately 12.63% higher than 2018 production, resulting in significantly improved premium income as well as increased new money to invest. Annuity premium income increased 12.64% from 2018 to 2019 while Ordinary Life, Group Life, and Industrial Life premiums increased 7.93% year over year for a total increase between years of $25.44 million or 10.97% compared to a 9.15% increase from 2017 to 2018. Single pay new business sales production remained at 73.0%, consistent with 2018. Approximately $15 million in premium income came from trust conversions which typically require higher commissions and reserves in year one but are profitable in future years. Net investment income increased $4.6 million from year-end 2018 to year-end 2019 compared to the $4.9 million increase from year-end 2017 to year-end 2018. As of December 2019, future asset cash flows exceeded the liability cash flows for a projected thirty years assuming a reinvestment rate of five percent in all years. A continued focus in 2019 was to better align some of the upcoming calendar years and any cash flow discrepancies. The significant improvement in investment income in 2019 was due to increased new money to invest and an increase in mortgage loan investments. The average yield on new bond purchases in 2019 decreased approximately 29
basis points from 2018 while the yield on the total bond portfolio dropped from 4.99% at year-end 2018 to 4.86% at year-end 2019 due to calls and maturities of higher yielding securities and continued alignment of cash flows. The average yield on new mortgage loans increased 41 basis points year over year and was approximately 200 basis points higher than bond yields. Net new dollars invested for 2019 were $99.8 million compared to $89.1 million for 2018.
net income between 2018 and 2019: 1) a 12.63% increase in new business production positively impacted both premium income and investment income; 2) increased mortgage loan investments (yielding approximately 200 basis points higher than bond purchases) increased investment returns; 3) increased general expenses related to sales generation and technology; and 4) the reduction in the federal income tax expense due to increased tax deductions.
EXPENSES
CASH FLOW AND LIQUIDITY
For 2019, overall expenses increased $32.93 million or 11.78% from the previous year compared to the $16.37 million or 6.22% increase from year-end 2017 to year-end 2018. Death and annuity benefits paid during the year exceeded 2018 by $4.76 million but were $7 million less than expected. Monthly claims expense averaged $13.6 million in 2019 compared to $13.2 million in 2018. With the increase in new business sales, the increase in aggregate reserves from year to year was up $18.2 million or 24.5% from 2018. Commissions were up approximately $3.9 million or 18.1% for the significant increase in sales during the year. General insurance expenses exceeded 2018 by $5.203 million or 24.7% compared to a $2.034 million or 8.8% decrease from 2017 to 2018. Significant areas of increased spending were related to sales, marketing and technology. The Company accelerated approximately $1 million of 2018 proposed expenses into 2017 in an effort to reduce federal income tax expense under the higher tax rate in 2017 and limited salary increases and general spending in 2018 to improve future earnings. No other material expense changes occurred during 2019.
Through the consistency of premium income and the growth of investment income, FDLIC has continued to maintain extremely positive cash flow. Premium and investment income have allowed FDLIC to meet all obligations and invest a considerable amount of the remainder. This trend is expected to continue for 2020 and beyond. However, FDLIC has made appropriate plans for the future by continuing the investment strategy of matching asset maturities with liability cash flow projections. FDLIC continues to be positively positioned from a portfolio structure as well as a reporting standpoint. Moreover, the diversification, structure of the investment portfolio, and limited exposure to troubled securities has afforded FDLIC the opportunity to benefit versus competition. New cash flows during 2020 are expected to be reinvested at similar levels as that of 2019. The Federal Reserve lowered short-term borrowing rates with three quarter point increases in the federal funds rate in 2019, which reverted the Treasury yield curve to a more normalized shape. The Fed expects the Federal Funds rate to remain flat in 2020, currently projecting no change to the benchmark short-term borrowing rate. FDLIC has maintained considerable liquidity over the years and will continue to do so in the future. As stated above, current cash flow has always been sufficient to meet maturing insurance and annuity obligations, as well as operating expenses; however, if FDLIC is required, by some catastrophic event, to generate cash flow, it may do so by liquidating its highly marketable securities.
NET INCOME 15 I N
M I L L I O N S
12 9
CONCLUSION
6 3 0
10
11
12
13
14
15
16
17
18
19
NET INCOME For 2019, net income was $14.27 million – consistent with 2018 net income of $14.23 million. The following facts are relevant when comparing
FDLIC has experienced steady and consistent growth over the last five years despite the continued low interest rate environment. The Company continues to focus on preserving/maintaining an appropriate level of capital and surplus. For 2019, FDLIC will continue its expansion into states outside of Texas, which now provide more than 70% of the Company’s new business production. As discussed above, FDLIC will continue to invest in accordance with its long-standing investment philosophy and fully expects to maintain its portfolio book yield and income. As long as interest rates remain at or above current levels, the Company anticipates comparable financial results for 2020.
FUNERA L DI REC T O RSL I FE.C O M
22
SELECTED FINANCIAL AND STATISTICAL DATA (FIVE-YEAR SUMMARY)
In Thousands Year Ended December 31 2019 2018 2017 2016 2015 New Business Issued $ 273,591.3 $ 242,905.6 $ 215,592.7 $ 231,390.9 $ 231,774.2 Premium Income 257,303.0 231,867.8 212,428.6 225,161.1 218,088.0 Insurance In Force 1,757,010.9 1,633,121.9 1,536,323.8 1,457,870.7 1,362,311.2 Aggregate Life Reserves 1,347,590.7 1,255,314.2 1,181,182.2 1,117,010.8 1,039,849.3 Capital & Surplus 134,219.2 130,008.2 116,317.1 110,424.5 99,103.2 Net Income 14,274.7 14,232.6 8,402.9 12,460.9 7,961.6 Total Assets 1,512,334.9 1,409,755.4 1,320,343.6 1,248,024.5 1,159,081.0 Net Investment Income 71,862.3 67,226.9 62,317.8 61,174.8 56,969.5 A. M. Best Rating A- A- A- A- ARatio of Capital & Surplus to Total Assets 8.87% 9.22% 8.81% 8.85% 8.55% INVESTED ASSET MIX Bonds 85.0% 85.2% 89.8% 89.8% 89.1% Stocks 1.0% 1.1% 0.4% 0.4% 0.5% Mortgage Loans on Real Estate 12.1% 11.8% 7.9% 7.6% 8.1% Real Estate 1.5% 1.2% 1.3% 1.6% 1.7% Cash or Short-term Investments 0.2% 0.6% 0.1% 0.1% 0.1% Other Invested Assets 0.2% 0.2% 0.4% 0.5% 0.5%
23
A NNUA L RE POR T 2 0 1 9
BALANCE SHEET
In Thousands Year Ended December 31 2019 2018 ASSETS Bonds $ 1,255,857.0 $ 1,174,014.5 Preferred Stocks 1,000.0 Stocks-Common/Public 1,691.4 6,628.7 Stocks-Subsidiaries 10,777.2 5,985.4 Mortgage Loans 178,337.6 161,983.8 Real Estate 22,735.0 16,632.1 Policy Loans 5.3 5.9 Cash and Short-Term Investments 2,635.7 7,630.7 Other Invested Assets 4,438.0 4,842.7 Total Invested Assets 1,477,477.2 1,377,723.8 Furniture and Equipment 1,992.4 829.1 Deferred Premiums 7,015.5 6,607.7 Accrued Investment Income 16,344.4 16,115.9 Deferred Tax Asset 4,051.5 3,953.4 CLAIMCHECK Receivables 4,285.1 2,956.4 Other Assets 1,168.8 1,569.1 Total Assets $ 1,512,334.9 $ 1,409,755.4 LIABILITIES Policy Reserves $ 1,347,590.7 $ 1,255,314.2 Policy Claims 1,217.9 1,262.0 Provision For Policyholder Dividends 1,000.0 1,200.0 Premiums Received in Advance 3,679.6 3,294.4 Interest Maintenance Reserve 3,762.2 1,482.2 Accrued Commissions 3,826.2 3,473.9 Accounts Payable 459.8 402.3 Other Liabilities 3,596.9 2,924.5 Asset Valuation Reserve 12,982.4 10,393.7 Total Liabilities $ 1,378,115.7 $ 1,279,747.2 SHAREHOLDER’S EQUITY Common Stock 2,500.0 2,500.0 Additional Paid-In Capital 3,031.0 3,031.0 Surplus 128,688.2 124,477.2 Total Shareholder’s Equity 134,219.2 130,008.2 Total Liabilities and Shareholder’s Equity $ 1,512,334.9 $ 1,409,755.4
FUNERA L DI REC T O RSL I FE.C O M
24
SUMMARY OF OPERATIONS In Thousands
Year Ended December 31
2019 2018 REVENUE Life Premiums and Annuity Payments $ 257,303.0 $ 231,867.8 Net Investment Income 71,862.3 67,226.9 Other Income 1,495.1 1,134.7 Total Revenue 330,660.4 300,229.4 BENEFITS & EXPENSES Death and Annuity Benefits 163,549.7 158,788.8 Other Benefits 1,308.4 1,027.9 Increase in Aggregate Reserves 92,284.2 74,110.8 Operating Expenses and Commissions 55,358.7 45,605.8 Dividends to Policyholders 1,445.6 1,634.2 Total Benefits and Expenses 313,946.6 281,167.5 Income Before Capital Gains & Income Taxes 16,713.8 19,061.9 Capital Gains (Losses) Net of Income Taxes 82.6 (13.7) Income Before Income Taxes 16,796.4 19,048.2 Less Provision for Income Taxes 2,521.7 4,815.6 NET INCOME $ 14,274.7 $ 14,232.6
STATEMENT OF SHAREHOLDER’S EQUITY In Thousands
Year Ended December 31
2019 2018 CAPITAL & SURPLUS Shareholder’s Equity Beginning Balance $ 130,008.2 $ 116,317.0 Net Income 14,274.7 14,232.6 Unrealized Gain (Loss) on Investments 393.2 (316.9) Change in Deferred Tax 1,083.3 1,257.2 Change in Non-Admitted Assets (8,951.5) (405.6) Change in Asset Valuation Reserve (2,588.7) (1,076.1) Shareholder’s Equity Ending Balance $ 134,219.2 $ 130,008.2
25
A NNUA L RE POR T 2 0 1 9
STATEMENT OF CASH FLOW
In Thousands Year Ended December 31 2019 2018 CASH FLOW FROM OPERATING ACTIVITIES Premiums and Annuity Payments $ 256,862.9 $ 231,364.8 Investment Income Received 75,087.3 69,690.3 Other Income Received 1,323.8 815.6 Benefits and Loss Related Payments (164,851.5) (159,994.4) Operating Expenses Paid (54,622.3) (44,805.8) Policyholder Dividends Paid (1,644.3) (1,689.7) Income Taxes Paid (3,310.8) (3,783.9) Net Cash Provided by Operating Activities 108,845.1 91,596.9 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from Investments Sold 147,648.2 85,704.1 Other Cash Provided (Applied) (9,096.6) (546.4) Acquisition of Investments: Bonds (201,879.3) (90,676.3) Stocks (5,756.0) (7,392.4) Mortgage Loans (38,639.2) (71,858.9) Real Estate (6,117.4) (26.3) Other Invested Assets - (1.8) Net Cash Used in Investing Activities (113,840.3) (84,798.0) NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (4,995.2) 6,798.9 CASH AND SHORT-TERM INVESTMENTS Beginning of Year 7,630.7 831.8 End of Year $ 2,635.5 $ 7,630.7
FUNERA L DI REC T O RSL I FE.C O M
26
BOARD OF DIRECTORS Allan Adams Denton, TX Leslie Branon Montz
DIRECTORS INVESTMENT GROUP
Brownwood, TX
Jack Cypert
Snyder, TX
Jerry Edwards
Palo Pinto, TX
Mark France
Austin, TX
Robert Hamil
Abilene, TX
Jeff Harper
San Angelo, TX
Mike Lemons
Austin, TX
Pat Patton
Sauk Centre, MN
Darrell Rains
Austin, TX
Kris Seale
Abilene, TX
Kasi Welch Baker
Midland, TX
EMERITUS DIRECTORS Jay Kelly
27
A NNUA L RE POR T 2 0 1 9
Odessa, TX
Tommy Welch
Big Spring, TX
Bob White
Weatherford, TX
FUNERAL DIRECTORS LIFE
Kris Seale
Terri Bannister
Todd Carlson
Terry Groban
Paul Lovelace
Dwayne McGraw
Dawson Rodriguez
Jeff Stewart
Addison Templeton
CORPORATE OFFICERS Kris Seale
Amy Biggs
President & Chief Executive Officer, Chairman of the Board
Vice President of Operations
Terri Bannister
Jason Gazaille
Executive Vice President & Chief Learning Officer
Vice President of Finance
Todd Carlson
Melissa Magers
Executive Vice President & Chief Sales Officer
Vice President of Accounting
Terry Groban
Drew Seale
Executive Vice President & Chief Financial Officer, Secretary, Treasurer
Vice President of Sales Operations
Paul Lovelace
Zack Shahan
Executive Vice President & Chief Corporate Development Officer
Vice President of Security Operations
Dwayne McGraw
Kyle Swearingen
Executive Vice President & Chief Actuary
Vice President of Development
Dawson Rodriguez
Kevin Gaffney
Executive Vice President & Chief Information Security Officer
Regional Sales Vice President
Jeff Stewart
Shaun Gaffney
Executive Vice President & Chief Marketing Officer
Regional Sales Vice President
Addison Templeton
John Harrington
Executive Vice President & Chief Operations Officer
Regional Sales Vice President Mark Owen Regional Sales Vice President
FUNERA L DI REC T O RSL I FE.C O M
28
6550 DIRECTORS PARKWAY ABILENE, TEXAS 79606 800-692-9515 WWW.FUNERALDIRECTORSLIFE.COM
ITEM NUMBER 200