FDLIC 2020 Annual Report

2020 ANNUAL REPORT

TABLE

OF

CONTENTS

Letter To Our Stakeholders

1

Non-Negotiables 8 Management’s Discussion and Analysis

20

Five-Year Summary

25

Balance Sheet

26

Summary of Operations

27

Statement of Shareholder’s Equity

27

Statement of Cash Flow

28

DIG Board of Directors

29

FDLIC Corporate Officers

30

KRIS SEALE | PRESIDENT & CHIEF EXECUTIVE OFFICER

THE STOCKDALE PARADOX

I cannot think of a better way to begin this 2020 Annual Report than with a

You must maintain unwavering faith that you can and will prevail

review of the Stockdale Paradox! Obviously, 2020 was a challenging and difficult

in the end, regardless of the difficulties, and at the same time,

year for our business, for our customers, for our staff, and for each one of us

have the discipline to confront the most brutal facts of your

individually, but not near as challenging as the circumstances faced by Admiral

current reality, whatever they might be.

Stockdale. As I reflect on 2020, Admiral Stockdale’s statements rings in my ears.

In 2020, we did not lose our faith; we based our decisions on the “brutal facts;”

The Stockdale Paradox refers to Admiral Jim Stockdale, who was the highest-

we consistently studied current reality; and we focused on what we could do,

ranking United States military officer in the “Hanoi Hilton” prisoner-of-war camp

not what we couldn’t do. While we cannot imagine or fathom what Admiral

during the height of the Vietnam War. Tortured over twenty times during his

Stockdale had to endure, we can appreciate his wisdom and understanding as

eight-year imprisonment from 1965 to 1973, Stockdale lived out the war without

we face difficulties in life!

any prisoner’s rights, no set release date, and no certainty as to whether he would even survive to see his family again. “I never lost faith in the end of the

Obviously, faith and our trust in God’s promises, through the teaching of Jesus

story,” he said. “I never doubted not only that I would get out, but also that I

Christ, provide us with the way to approach difficulties and challenges – and

would prevail in the end and turn the experience into the defining event of my

all the issues of 2020 were no different. Numerous Bible passages provided

life, which, in retrospect, I would not trade.” In addition, he said, “You must

guidance and direction as we navigated through the uncharted waters of 2020,

never confuse faith that you will prevail in the end—which you

but none more so than the Gospel of John, Chapter 15.

can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

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The disciples had just shared in the Passover Supper with Jesus. He humbly

L E T T E R

T O

O U R

washed their feet and began to describe the events that would lead to His

S T A K E H O L D E R S

an uncertain future: with worry, concern for themselves, and sorrow.

crucifixion. It is uncertain how much the disciples understood about what was about to take place, but Jesus proceeds to comfort them and prepare them for

John 15:9-17 says: “As the Father has loved me, so have I loved you. Now remain

His coming death. Through the Last Supper, the washing of the feet, and Jesus’

in my love. If you keep my commands, you will remain in my love, just as I have

words in John 15, Jesus emphasizes the themes of discipline, obedience,

kept my Father’s commands and remain in his love. I have told you this so that

unity, and love.

my joy may be in you and that your joy may be complete. My command is this: Love each other as I have loved you. Greater love has no one than this: to lay

Jesus delivers what has been referred to as His Farewell Discourse, and through

down one’s life for one’s friends. You are my friends if you do what I command.

it, He accomplishes the following:

I no longer call you servants, because a servant does not know his master’s

1. He teaches His disciples to remain disciplined and to continue the work

business. Instead, I have called you friends, for everything that I learned from my

He started,

Father I have made known to you. You did not choose me, but I chose you and

2. He encourages them to remain obedient and to follow His example,

appointed you so that you might go and bear fruit—fruit that will last—and so

3. He emphasizes the importance of unity even as challenges arise, and most

that whatever you ask in my name the Father will give you. This is my command:

importantly

Love each other.”

4. He stressed the importance of love, specifically loving each other.

Let’s explore how discipline, obedience, unity, and love, taught by Jesus It’s worth noting that while Jesus was delivering a message of strength and

in His Farewell Discourse, and illustrated in the Stockdale Paradox played itself

comfort, His disciples responded, much like we do when we face challenges and

out at Funeral Directors Life in 2020.

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DISCIPLINE John 15:10 says, “If you keep my commands, you will remain in my love, just as I have kept my Father’s commands and remain in His love.” Keeping the

FDLIC’s client base last year.

• Through our disciplined actions in 2020, A.M. Best Company affirmed our rating of A- with a stable outlook.

commands of God through Jesus requires discipline. In 2020, we had to

• We continued to focus on expanding our Social Media Management and

demonstrate discipline to follow scripture and trust Jesus while enduring

CLAIMCHECK client base, and we succeeded, setting revenue records in

incredible pressure from sources beyond our control. Through this discipline,

both of these business segments.

we accomplished the following last year:

• After being over 100% of budget through March, preneed funeral sales

OBEDIENCE

were 60% less than budget in April; 40% less than budget in May; and

John 15:12 says, “My command is this: Love each other as I have loved you.”

15% less than plan in June – however, through discipline and faith, we set

Jesus instructs us in this passage to be obedient and follow His leadership. Being

new monthly sales records in June, July, August, September, November,

obedient means trust the Word of God. With all the confusion and turmoil in

and December.

2020, obedience was one of the more difficult things to practice. However,

• The average preneed funeral sale fell from an average of $5,700 to $4,700

sticking to God’s Word guided us. Romans 13:1-5 says:

in May – however, through discipline and faith, the average sale bounced back to $5,600 by the end of the year.

“Let everyone be subject to the governing authorities, for there is no authority

• Our sales management team remained disciplined and continued to

except that which God has established. The authorities that exist have been

contract with new funeral home clients even though their travel was

established by God. Consequently, whoever rebels against the authority

restricted for most of 2020 – more than 160 new funeral homes joined

is rebelling against what God has instituted, and those who do so will bring

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judgment on themselves. For rulers hold no terror for those who do right, but

• We applied for, and received, the Paycheck Protection Plan (PPP)

for those who do wrong. Do you want to be free from fear of the one in authority?

loan, which helped considerably. We applied to the Small Business

Then do what is right and you will be commended. For the one in authority

Administration for forgiveness of the loan, as appropriate, when the

is God’s servant for your good. But if you do wrong, be afraid, for rulers do

economy opened up and regulations allowed.

not bear the sword for no reason. They are God’s servants, agents of wrath to

• With interest rates at all-time lows, we continued our disciplined

bring punishment on the wrongdoer. Therefore, it is necessary to submit to the

investment approach and invested in improving our infrastructure and

authorities, not only because of possible punishment but also as a matter of

expanding our home office in order to prepare for future growth – the

conscience.” Through obedience, we did the following:

rent associated with the home office expansion, as an example, provided

• In order to address the issues surrounding the COVID-19 pandemic, we

a higher return (5.55%) than we could have achieved in the bond market.

established a Business Continuity Team which: o Adopted a Pandemic Policy.

UNITY

o Initiated a response system to determine appropriate courses of

John 15:13 says, “Greater love has no one than this: to lay down one’s life for

action to the most-recent COVID-19 developments – a 7-level plan of

one’s friends.” In this passage, Jesus communicates the importance of unity –

directives was created, with increased response activities as the virus

that no matter what, we must stand together! In 2020, selfishness continued

became more severe, for informing our staff of the actions to take

to pervade our nation, even though Jesus teaches that working together and

based on the severity of the virus and the directives of government.

selflessness are the keys to success. Here are some things we accomplished in

o Began weekly All Staff Zoom Meetings to update our employees and Board of Directors concerning the pandemic and our response.

2020 that signify the unity we profess:

• We read through the book Excellence Wins by Horst Schulze, co-founder

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of The Ritz-Carlton Hotel Company, and through feedback from our

provided over 100 helpful, funeral service-related webinars and Wolfelt

employees, supervisors, and executives, identified 22 non-negotiables

trainings for funeral homes through virtual meetings.

that unify us as a company and help us make decisions.

• We developed an online Arrangement GuideTM for people who would like

LOVE

to plan some, or all, of their funeral online, with optional involvement of

John 15:15-17 says, “I no longer call you servants, because a servant does not

a salesperson.

know his master’s business. Instead, I have called you friends, for everything

• For our funeral home clients and preneed funeral sales professionals,

that I learned from my Father I have made known to you. You did not choose me,

our software development team developed an e-signature process for

but I chose you and appointed you so that you might go and bear fruit—fruit

completing preneed funeral contracts without necessarily having face-to-

that will last—and so that whatever you ask in my name the Father will give you.

face interactions.

This is my command: Love each other.” Jesus illustrates clearly how He loves us

• We expanded FDLIC’s agency relationships by: o Developing the Proxima product which led to increased production from Laker Planning and Advanced Planning, Inc. o Signing an agreement in late July with the largest preneed funeral marketing organization in the United States – Precoa. o Signing an agreement with one of the largest preneed funeral marketing organizations in Utah – Family Service Agency, Inc. o Advancing our agreement, signed late in 2019, with one of the largest preneed funeral marketing organizations in Pennsylvania – Vantage Point Preneed.

• We created an online preneed funeral sales presentation to allow people to meet with our sales professionals online, without physical contact.

and communicates clearly that we are to “Love Each Other” – L.E.O.! Here are a few ways that we showed love during 2020:

• We picked up the L.E.O. (Love Each Other) mantra that Tom Allen, Head Football Coach of Indiana University, started with his team for the 2020 season – L.E.O. allowed us to focus on positively loving each other rather than focusing on the overwhelming negatives of 2020.

• We made the decision to have no layoffs during the shutdown – we announced this to our people in early March to give them confidence and to ease their minds.

• We continued to pay all of our people, including our commissioned employee-salespeople (Select Producers), through the shutdown, until the economy stabilized.

• We quickly expanded our imperative to become a “thought leader” in

• We were recognized for the 7th time by Texas Monthly magazine and Best

the funeral profession – throughout the COVID-19 shutdown period, we

Companies Group as one of the Best Companies to Work in Texas, and we

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were certified once again as a Great Place To Work®, which puts us in an

pushed me to become a better leader and have made our company the envy

elite group among the best workplaces in the United States.

of most! I am blessed to work with, struggle with, and celebrate with my team each day. In 2020, we never lost faith, we never lost hope as we confronted

CONCLUSION

the “brutal reality of our situation.” And through God’s grace, we not only

As was seen in 2020, the truth of God’s Word is not restricted to a certain culture

survived… dare I say, we thrived!

or point-in-time. The concepts of discipline, obedience, unity, and love are just as true today as ever, and they transcend time, place, and maybe more

Finally, we continue to appreciate the confidence you have shown in our

importantly, our current circumstances.

company – thank you! All of us at Funeral Directors Life remain committed to you and to our vision – To be the best, most-respected provider of service to

The command to “love each other” (L.E.O.) was the biggest lesson for me in

the funeral industry!

2020. I don’t typically struggle with loving God. With people, on the other hand…. It is convicting to understand that loving those around us is, as Jesus said, very closely related to loving God.

Blessings,

We live in a society and in a time that is all about “self.” Selfishness runs rampant in the minds and actions of many Americans, which was on full display in 2020. Despite our technological advancements and extreme connectivity to

KRIS SEALE

others, Americans are more isolated and self-seeking than ever before. It makes

President & Chief Executive Officer

me wonder, what would our families, our communities, and our nation look like

Funeral Directors Life

if we focused on loving each other rather than our selfish pursuits. I commit to doing a much better job of extending love to others, and I hope you will too.

As I have said before, I am blessed with the team of people who work here, with me, at Funeral Directors Life. Their focus, their faith, and their fellowship have

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2020 will go down in history as a year unlike any other.

Our nation faced challenges from every angle: the pandemic, riots and protests, severe weather and storms, fires, and a contentious election. Yet in spite of all these challenges, our company and our people rose to the occasion and turned things around.

When COVID-19 first hit, we ran estimates on how this pandemic might affect us. It would have been easy to give into fear as state after state went into

Our leadership led us in company meetings, informing and educating all

lockdown in the spring of 2020. But after all the disruptions that could have

employees weekly, while our intercessory prayer team prayed daily for hun-

affected our business, we ended the year at only 3.7% below the previous

dreds of employees, family, friends and customers.

year’s sales results. We even had several record-breaking months of sales

We could have grace for one another and bear each

after the pandemic hit! How? Instead of focusing on what we couldn’t do and

other’s burdens (Galatians 6:2)

what we couldn’t control, we chose to focus on what we could do:

Inspired by our company-wide book study on Excellence Wins by Horst Schultze, we grew in all aspects of our work by creating and focusing on our

We could put our faith in God, that He would not

principles of serving others through the establishment of 22 Non-Negotiable

abandon us or forsake us (Deuteronomy 31:6)

Principles.

Our people demonstrated creativity and innovation in finding new ways of connecting with customers remotely.

As we look back, it would have been easy to see all that went wrong in 2020.

We could encourage and lift one another up in love

But in this annual report, we want to show you, our stakeholders, what went

(1 Thessalonians 5:11)

right. We will be sharing the 22 principles that our team determined were

Throughout the year, we provided guidance, resources, insight, and advice

non-negotiable for our company during one of the most difficult years we

to our employees and customers, who were also facing new challenges daily.

have ever faced. The road was rough, but our employees, leaders, sales

We could give thanks in ALL circumstances and pray

managers and sales professionals met the challenge head-on…and the re-

without ceasing (1 Thessalonians 5:16-18)

sults speak for themselves.

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22 NON-NEGOTIABLES In 2020, we adopted 22 Non-Negotiables as our new standards of performance, inspired by our company-wide book study on Excellence Wins by Horst Schulze. Non-Negotiables are specific principles that our Board, our management team, and all of our employees agree are “NonNegotiable,” thus shaping our business culture.

These principles set a standard that we will do our best to uphold as a corporation and as individuals. They are promises that we are making to our employees, co-workers, Board of DIrectors, sales professionals, DIG shareholders, policyholders, and clients.

The following pages will share these 22 Non-Negotiables and what they mean to our company corporately and to our employees at an individual level. We are proud of these principles, and we want to share them with all of our stakeholders so that you can better understand who we are as a company and what we stand for.

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We are uncompromising in our dedication to operating by Christian principles.

As a company founded on Christian principles, this is our #1 Non-Negotiable. How is this Non-Negotiable currently applied at Funeral Directors Life?

Our Christian principles are a core element in our everyday actions, but here are a few examples: •

• • • • • •

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Honesty and Integrity (Righteousness): We want to do what is right no matter the cost and fulfill the greatest commandment to love God with all our heart, soul, mind, and strength.

Love Each Other (L.E.O.): We want to fulfill the second greatest commandment by loving our neighbor as we love ourselves.

Helpers of People: This is one of our Strategic Objectives as a company!

Generosity: We love to give generously because God has been so faithful and generous to us.

Respect: We follow the Golden Rule, treating others as we would want to be treated.

Servant Leadership: We lead by example, with humility, always thinking of others first.

Gratitude: We give thanks to God for all He has done to bless our lives and our company. He has blessed us in more ways than we can imagine!

“As a company, we offer so much more than preneed policies. We offer compassion, concern, and love. Our company deals with people during the most difficult time in their lives - the loss of a loved one. We give them someone to talk to and a shoulder to cry on. We give them love.

The greatest example I’ve seen of this in action was when my dad passed away. My family was stunned by the outpouring from FDLIC as a company and from individual employees. We were provided meals. Flowers and plants were sent to the funeral home. We received cards and other condolences.

We truly felt people’s concern and love for us.”

Darrell Richardson, Senior Accountant

We will not jeopardize the integrity of our mission statement, “to be the best, most-respected” in any situation.

Horst Schulze states in his book Excellence Wins that “slogans and vision statements on the wall don’t work. Belief systems work. Culture works.” A company’s mission means nothing if it is not a core element of our everyday thoughts and actions. Our mission at Funeral Directors Life is “To be the best, most-respected provider of service to the funeral industry.” This mission statement has been a part of our culture and has withstood the test of time for 20 years. As Kris Seale states, “Our mission statement leads us to make the right decisions when we are faced with challenging situations, by asking ourselves ‘What is the best, most-respected thing?’”

“To me, this Non-Negotiable means we won’t compromise our commitment to the ideal of being the best, most-respected provider of service to the funeral industry! Period! In my department, this makes decisions easier. When confronted with a situation where it would be easier to just acquiesce to a client that insists we do something we know is wrong, we make the right decision despite the cost to our client or the company. It also means that if someone wants to do business with us, but we find out that they are unethical, immoral, or at odds with our values and integrity, we withdraw from the relationship, regardless of the potential gain. We put integrity first and profitability second.”

Shaun Gaffney, Vice President of Corporate Development

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We will operate with transparency and clarity in action and behavior to fellow employees, our customers, and our community.

This Non-Negotiable is another way that we live out our mission to do the “best, most-respected thing” in all circumstances. Clarity and transparency demonstrate intent and help build trust with employees and customers.

During the pandemic throughout 2020, when many families and businesses were feeling doubt and uncertainty, everyone at Funeral Directors Life received peace because of the transparency and clarity offered by Kris Seale and the company. As we navigated the challenges that came with COVID-19, we all knew that our jobs were secure because Kris communicated with us from the beginning. Kris also began communicating with the company on a weekly basis to provide important company-wide updates. In addition, before any law had instructed companies to provide grace in situations like policy lapses, we had already decided to do so in order to let our policyholders know that they could get through these tough times without additional financial worries. Clear communication and transparency alleviated fears and built trust during one of the most uncertain times our company has faced.

“As a representative of FDLIC, this Non-Negotiable means I can have open and honest communication with customers, which helps to establish reasonable expectations when advocating solutions. By operating with transparency and clarity, I am able to establish high levels of trust with customers, making it easier to gain commitments and achieve desired results. I could cite many examples of how I’ve seen this demonstrated in our company, but just last week, I had one of my first product selection meetings with a longtime customer located in NW Minnesota. After presenting information to the owner about having to lower our crediting rates on policies and detailing the reason for doing so, he thanked me for the information.

He then went on to tell me a contrasting story of a supplier who changed prices on vaults recently and did NOT inform him of the changes in person. Instead, the change was buried somewhere in a memo that he luckily saw when going through some marketing materials. He said the change would have been a disaster had he not caught it. After telling me the story, he told me how much he appreciates our in-person meetings and company updates. Imagine that! I gave this customer BAD news and he thanked me for it. This Non-Negotiable is powerful and is truly at the heart of who we are as a company.”

Scott Tufto, Director of Sales Development

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We will always treat one another and our customers with respect and integrity, seeking to do what is right, not what is easy.

One of the principles discussed in Horst Schulze’s Excellence Wins states that customers simply want the person whom they’re dealing with to be nice to them. This goes for our co-workers as well. That is why we treat everyone with respect and operate with transparency in our actions. What if we thought of our job descriptions this way: “My job is to be nice to people and to treat them with respect.” Another way to think of it is the Golden Rule: “My job is to treat others as I would want them to treat me.” If we think of our roles this way, it is not so hard to complete our tasks and get things done while also caring for others enough to treat them well and do the right thing in every circumstance, rather than taking the easy way out.

“In my position in the Help Center, I have to make sure I do what is right for our customers every time I pick up the phone or send an email. I have to do this because not only is that my responsibility, but it’s what I desire in life.

I’ve always wanted to help people, and there’s no good feeling in doing something halfway. If I want to truly help someone and maintain that respect and integrity, I have to do it the right way the first time. Every day, I see my friends in the Help Center do what is right. Jessie is currently working to make sure an error in one of our systems is being fixed so that our agents get their earned reimbursements. It is a very manual process that requires her to make individual adjustments based on several years of contracts sold. This is not the work of someone doing what is easy, but the work of someone who wants to make it right and make sure it is done with integrity. She will not be happy until everything is done the proper way.”

Matthew Curtis, Help Center Technician

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We will continue our commitment to teamwork, assisting each other, stepping out of our primary duties when necessary, being flexible to serve where needed.

2020 required us to take an “all hands on deck” approach like we never have before. We are blessed with many employees who consistently go beyond their job description to help one another as needed, but throughout 2020, our employees took this “helpers of people” mindset to a new level!

Every day, we saw evidence of our employees “carrying one another’s burdens” (Galatians 6:2). Many stepped up to fill in for a sick or quarantined co-worker. Many pushed projects forward that were pivotal for our success in 2020, such as educational webinars for our sales professionals on virtual selling techniques, electronic signature collection in DIGicon®, and so much more.

We are extremely grateful and humbled by the commitment of all our amazing team members for being “helpers of people”!

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Kelly Owens, Select Producer

We take responsibility for the quality of our work, always striving to improve our efficiency and outcomes, without sacrificing quality or integrity in the process.

Taking responsibility for the quality of our work is one way that we are living up to our Strategic Objective “to be known as the leading provider of service to the industry.” Our customers expect excellence from us at every interaction with the company. They don’t know what tasks are part of our job and what tasks are not part of our job. They know that they need a certain task done, and you are the person they are talking to. That interaction could go two different ways. The person could let the moment pass, or the person could stretch just a little bit to go above and beyond the client’s expectations.

When each individual takes personal responsibility for the quality of the entire customer experience, something amazing happens. We become more than the sum of our parts. We become an unstoppable team that is able to elevate the standard of excellence for our entire industry.

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“This Non-Negotiable has been critical this year to help us all be productive and quite honestly sane. This year, it has been demonstrated through the continuation of Monday Huddles, Wednesday Webinars, and ongoing Home Office assistance with Customer Service, DIGicon, IT, or New Business. It is one of the things I love most about FD. Since joining our company over 6 years ago, it became immediately evident that teamwork, assisting others, stepping up to the plate when and wherever needed is the norm. I’m proud to be part of our company that instills this attitude and mindset in its employees. I have been on both sides of this Non-Negotiable as the one to assist and the one requiring assistance.”

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“I feel that my work is reflective of my character, so I have always wanted to produce high quality work. As an extension of that, I see myself as a representative for the company. Because my eyes are often the last on products that go out to our customers, I act as if everything I send out is a first impression to the receiver of our company. I want that to be a good impression, so they come back for more.”

Kim Bruton, Marketing Assistant

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We will constantly seek to personally grow and improve – physically, mentally, and spiritually.

This Non-Negotiable has been a part of our culture at Funeral Directors Life for a long time. It’s part of our DNA. Our goal as a company with this NonNegotiable is to create an environment where it is easy for employees to grow and improve: mind, body, and soul. Why? Because with every employee who joins our company, whether they are with us for 20+ years or for less than one, we want to have a positive impact on their lives. We want to empower each employee whose lives we touch to reach their goals and be better for the time they have spent with us.

“FDLIC has embodied this Non-Negotiable for as long as I’ve been a part of this company. The Wellness Center clinic and gym on site for employees demonstrates to all of us that our health matters. We are constantly challenged mentally to improve ourselves and to grow professionally by our Learning & Development team.

Regarding our spiritual health, our Corporate Chaplain Ray Thompson is always available for a spontaneous prayer time. I remember when I started my role as an ASM, he told me I could call him for prayer support as I got started. I’ll never forget that. He is constantly available to shepherd all FD employees in any way he can, and it means a lot to have that type of support. I feel confident bringing on new people knowing that they are stepping into a world-class organization that feeds our bodies, minds, and souls.”

Myra Dykes, Active Sales Manager

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We will serve as a guide to our customers by demonstrating thought leadership and a focus on helping them best serve their stakeholders.

A few years ago, sales guru Anthony Iannarino introduced us to the concept of the “4 Levels of Value Creation.” They are:

Level 1: Basic/Transactional (companies are forced to compete based on price) Level 2: A Better Customer Experience (think Ritz-Carlton vs. Motel 6) Level 3: Able to Solve Customer Problems (a concierge model of service) Level 4: A Strategic Partner (a trusted guide) Level 4 value creation means that you are offering a better experience, solving customer problems AND providing thought leadership and strategic advice as a trusted guide. That is ultimately the level of service we want to provide to our customers in the funeral profession.

“The perfect example for this Non-Negotiable happened recently with a prospect, not even a customer. I walked into a funeral home for the first time, and in our conversation, found out that the director needed information on an old preneed company that no longer is in business. A customer of his had a preneed with this company, and they needed help finding out how to get access to those funds. I knew Anissa Minatra was the person who could make this happen. I reached out and shared the situation with her. As expected, she figured out what was going on, and passed the information on to the funeral home. He now can take care of this customer and has allowed me to come back in and talk about possibly partnering with him. This is the kind of stuff we do all the time, and it makes me so proud to work with FDLIC!” Michael Robinson, Market Center Manager

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We identify and IMMEDIATELY correct defects.

As Horst Schulze says in Excellence Wins, “Any defect, any shortfall, any disconnection along the way, will spoil the product, sending the customer away unhappy.” Immediately correcting defects is an important aspect of our Strategic Objective, “to be known as the leading provider of services to the industry.” We want to offer exceptional, remarkable service. Our goal is perfection! But when we fall short of our goal, whether through our own fault or not, we want to IMMEDIATELY leap into action to make it right for our customer, and go above and beyond to maintain that customer’s trust and loyalty.

“To me, this Non-Negotiable means that the buck stops with me, and I will do everything I can to correct mistakes.

Many times in my long history of family service and sales management, errors have happened. It might be because of a misunderstanding, a mistake on the contract, or even a funeral home employee who miscommunicates something to a family. 100% of the time, I contact the family, and many times connect to the Home Office, identify the problem, and get it resolved immediately. There is very little back and forth, and it does not leave the problem hanging out only to add anxiety or more frustration. Every time this happens, my families love that issues are resolved so quickly. They feel like they have a team of people working for them and looking out for their best interests. The funeral home loves this, too, because it keeps their families happy, and therefore keeps them happy. It’s amazing that even when a mistake occurs, if you do all you can to immediately correct the error, it’s an opportunity to build trust with the family and the funeral home.”

Sunshine Andersland, Select Producer

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We NEVER blame the customer or other team members for an issue; we own the problem/issue, apologize, and resolve the issue.

Horst Schulze says in Excellence Wins, “If you get a complaint, you own it whether you caused the problem or not.” This means that our responsibility is to apologize to the customer and resolve issues without blaming others.

This is how we create loyalty with customers and co-workers and build trust with them.

No one wins when we play the “blame game.” Not the client, not the co-worker, not the company, and certainly not us. This Non-Negotiable is a great example of how we can put L.E.O (Love Each Other) into practice! Consider the words of Peter who knew a thing or two about blame: “Above all, love each other deeply because love covers a multitude of sins” (1 Peter 4:8).

“To me, this Non-Negotiable is extremely important! Our customers do not care where the fault lies within our organization when an issue occurs. When they are talking to me, I am the current representative of FD; they expect me to own it. As an analytical, enneagram Type 1 person, one of my main character traits is that I don’t like to do anything wrong or get in trouble. And it’s safe to say, that goes double for owning something that belongs to someone else! However, in the last few years, I have found this practice to be very rewarding and beneficial to relationships with our agencies and customers. They are always thankful when an issue is handled quickly and with the best solution possible, and it helps strengthen their trust in us as a partner. Personally, I have put this into practice when I discover an issue stemming from an outsourced vendor. Though the problem falls on their shoulders, I always go to our customer and apologize first thing. I offer an explanation of the issue and how it occurred, and always provide a possible solution to make things right. Our customer does not have a relationship with our vendor; they have a relationship with us. It is our responsibility to make it right in their eyes!”

Kelley Baber, Lead Generation Specialist

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We will make our customer’s experience memorable and unique.

One of our Strategic Objectives at Funeral Directors Life is to be known as “a great place to work.” We see this as creating a memorable and unique experience for our employees – it’s how we demonstrate how much we value our employees. Our workplace culture has a focus on wellbeing for mind, body, and soul – that is one of the ways that we create that very special, unique and memorable experience. We value the whole person, and we try to provide facilities, programs, and benefits that support the mind, body, and soul.

It’s the same for our clients. We want to create a unique and memorable experience for them in the way we answer phones, have conversations, build relationships, and value them as a whole person. Not just for what they bring to the company, but for who they are.

“Earlier this year, one of the regulars during our daily 8:20 Morning Prayer group suggested that we pray for a funeral home client each day. So, shortly thereafter, we began praying for a different client each day. It wasn’t long before another regular suggested that we send a letter each day to the client we prayed for, so that they would know that someone out there was thinking about them and praying for them. In the letter, we express our appreciation for what the funeral home does for grieving families as well as mentioning our Intercessory Prayer Group and offering to pray about anything specific that the client requests. The letters have been very well received and have generated many thank-yous and additional prayer requests from our clients.

One specific funeral homeowner sent us a note stating that he knew of no other ‘for-profit corporate business entity’ that had ever prayed for him and his business!”

Ray Thompson, Corporate Chaplain

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We demonstrate versatility in all communication – observing the best way to communicate and using that knowledge to help others better understand us.

We know that building strong relationships, internally and externally, can help us with our first Strategic Objective: “to grow the company.” Just as sales guru Anthony Iannarino says, “all things being equal, relationships win!”

Demonstrating versatility in all communication helps us to grow those relationships. If we communicate poorly with others, we can lose teammates, customers, and revenue. That is why our Learning & Development team has placed a high priority on training every employee on the basics of social styles and how to be versatile in communication. As the company grows, a more diverse range of social styles is coming together to solve problems and work toward the common good. Our skills in versatile communication help us create stronger teams so we can better serve our customers.

“One of the first things that caught my attention after spending time at the Home Office after I began my career with FD was how important ‘versatility’ was. It was used in nearly every training or communication. Being versatile with our communication is so important because it helps us understand and be understood. This also allows us to relate better with different styles of communicators who may not have had this important training and practice. In my role, it is important that we look for clues to figure out how our customer prefers to interact socially so that we are most effective in our communication. We have to continue to flex our style to match theirs. I truly believe that this is one of the most important trainings that we offer.”

Brad Payne, Market Center Manager

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We have a heart for serving others, our community, and beyond – we give generously, always asking, “what more can I do?”

Our friend John O’Leary brought this question to us when he spoke to our company at the end of 2019—right before the pandemic hit. This question resonated with us so deeply that we added it to our Non-Negotiable list.

Our heart for service is expressed in our Strategic Objective, “To be known as helpers of people,” but it goes beyond an objective. It’s in our blood. So, throughout 2020, we continued to ask ourselves, “What more can we do?”

This led us to work harder than we have ever worked! We produced over 100 educational webinars for our clients and sales professionals to help them adapt to the “new normal.” We pushed out an online signature option for DIGicon. We created an online planning and funding tool, The Arrangement Guide. We gave more than we knew we had to give! And then we gave more.

And through it all, we were blessed to be part of the successful rebound that our customers and sales professionals experienced in the second half of the year!

“This is a Non-Negotiable that is biblically based. We are in it to serve, and that is of importance to all of our companies. It’s part of our DNA. It’s part of why Funeral Directors Life was founded in the first place. A group of funeral directors led by Bill Seale didn’t like the way they were being served by preneed companies and decided to do something about it! We see examples of this Non-Negotiable everywhere: our mission trips, our book studies, our Chaplain, our sabbaticals. The end result of this is the empowerment that we see in our employees. We see employees like Mary Beth Hensley asking Kris, ‘This employee needs help. How about we come up with an opportunity for our employees to pitch in and help each other out?’ And now we have the ‘Hands and Feet’ program that has helped so many employees with things like moving, yard work, painting, and so much more. I think our heart for serving others is one of our distinguishing factors that makes us different.”

Jeff Stewart, Executive Vice President & Chief Marketing Officer

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Safety and security are everyone’s duty.

Similar to Horst Schulze’s statement in Excellence Wins, “customer service is everybody’s job,” we at Funeral Directors Life believe that safety and security is also everyone’s job. As scammers, phishers, and “bad actors” become more prevalent, we need to become more diligent in protecting the information that is entrusted to us. Corporately, we have an Information Security team that monitors our systems and ensures we have the latest technology protecting our sensitive information. But we knew it was not enough. So, throughout 2020, we instituted quarterly training for all employees to educate them about the potential threats of phishing, social engineering, as well as malicious links, viruses, malware, and ransomware that are out there.

And our employees have taken this training to heart! We have seen our exposure to threats go down dramatically since training began.

“When I was a teacher, I received minimal training about the exploitive nature of phishing and phishing attacks in general. In 2017, during my second year of teaching, a fellow teacher at my school clicked on a malicious link and exposed our information to an outside source (we were briefed on the severity of the attack at our staff meeting). I remember thinking, no wonder they clicked on that link. We’ve never received extensive training about the signs to look for or what these attacks are.

At FD, it’s obvious we take security seriously. The KnowBe4 courses have been immensely helpful. I’m well aware of the different types of phishing attacks, and I feel more confident each time I identify one of the simulated phishing emails. Overall, this is an essential Non-Negotiable that – quite literally – impacts our company, technology, and credibility.”

Amanda Williams, Copywriter

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We demonstrate a positive mindset in all interactions with people, seeking to positively influence others with our words and actions (i.e., no complaining).

Positivity and encouragement are key ingredients in creating our workplace culture. They influence the relationships we have within the company and with those we serve. Complaining destroys positivity, bringing others down and creating a culture of grumbling and blame. Gratitude elevates the positivity in a room and creates a culture of honor, encouragement, and praise. As a company, we show gratitude to others through Performance Plus awards presented during company luncheons; through 2-year pins and tenure awards; through merit and tenure bonuses, and so much more.

We believe that the more we can encourage and positively influence our employees, the happier they will be, and happy employees equal happy customers!

“I have noticed every leader in this company displays a positive mindset and a motivational attitude. Everyone in DIG understands mindset is the key to your success or failure, and if you change the way you look at things, the things you look at change. Our management team is so positive and motivating. They want to see us become our very best selves. Working in sales, you don’t always encounter positive people; and hearing the word ‘no’ over and over can take a toll on a salesperson’s level of motivation. Our managers are so good at encouraging and never discouraging.

They seem to know just when to call, email, text, or visit to offer the encouragement needed. We are so blessed to have so many top notch, professional, and motivational leaders to helps us through the challenges we face every day.”

Jessica Smith, Select Producer

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We will continually encourage and build each other up.

Compared to Non-Negotiable #15 above, this principle takes “personal positivity” even further. Having a positive mindset is the first step in being able to positively influence others. Continually encouraging and building each other up goes beyond having a positive mindset to helping others change their mindset, too. Here are a few examples of how we continually encourage one another and build each other up: • • • • • • • • • •

Daily morning prayer and accessibility to our Corporate Chaplain, as needed The intercessory prayer team and praying at meetings Mission trips to help others in need Giving generously of time and money Personal training, motivation, and accountability with our Director of Wellness Words of encouragement and continuous improvement opportunities with Learning & Development Kudos and congratulations emails celebrating successes Book studies and conversations with fellow employees Celebrations for milestones (company and personal!)

And so much more!

“I’ve never worked in such an uplifting, positive, and encouraging environment as I have at this company! I’m a positive person, but goodness, I’ve learned so much from many others in this company that demonstrate OUTSTANDING positivity! I see it in the smiles when greeted daily by co-workers, people laying a task aside to give you their full attention, encouraging scripture being shared, group prayers being prayed, and celebrations all around! At our company, we encourage and build one another up by celebrating individual achievements (birthdays, weddings, babies) and company milestones frequently!”

Nadene Smith, Director of Business Services at CLAIMCHECK®

All of these practices encourage and build employees up, mind, body, and soul, and they combine together to make Funeral Directors Life a truly great place to work.

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We will demonstrate a culture of continuous improvement, personally and professionally, by not resting on past accomplishments and never saying, “we have always done it that way.”

Horst Schulze says in Excellence Wins, “Results emerge as we measure our realities and make adjustments.” We can all tend to get stuck in our routines and ways of doing things. However, doing things because we’ve always done them that way is not a good enough reason to keep doing them that way. We must be willing to make adjustments along the way as circumstances change.

One way that we’ve demonstrated this Non-Negotiable is through technology like DIGicon® and our all-new online preneed planning tool released in 2020, The Arrangement GuideTM! This tool allows families to plan ahead online and fund a preneed plan from the comfort of home.

When you have a culture that promotes new ideas and questioning of current processes, everyone wins. This focus on continuous improvement allows us to better serve our teammates and our customers.

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“In my role at CLAIMCHECK, I am learning new things every day. I love talking with my team and bouncing ideas off each other. Every day, we face a new challenge in figuring out issues that come up with collecting funds from different insurance companies. Being able to talk it out with our team and supervisors who have extensive knowledge helps us continuously improve our processes. I see this every week in our meetings, as we discuss different strategies for doing our jobs even better so that we can not only collect the company’s money as quickly as possible, but we can also make certain that families can get their portion of the benefits sooner, too.”

Brystel Baldwin, CLAIMCHECK Collection Specialist

We do what we say we’ll do; promises made = promises delivered.

According to Horst Schulze in Excellence Wins, there are three types of customers: dissatisfied customers, satisfied customers, and loyal customers. As a company, we want to go above and beyond to make all of our customers loyal, including our internal “customers” (i.e., co-workers). Horst Schulze lists the first way to lose customers is to cut back on the promise of your brand.

Maintaining loyal customers is impossible without following through with our promises or providing a unique experience for the customer.

“When we seek out new clients and show them all the things we can do for them, we commit to doing all we said we would do. We work just as hard to keep the client as we did to get the client. For example, for our Social Media Management clients, we create a number of Facebook images each month for our funeral homes depending on the plan they join. We completely customize the static images with their logo and brand colors. We even create graphics from scratch if they have an idea of their own! So, not only do we offer an excellent social media plan, but we also take the plan a step further to tailor it for each funeral home.”

Marley Moncus, Graphic Designer

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We value relationships with our customers and with our teammates – so we will communicate in a manner that demonstrates that value.

In Excellence Wins, Horst Schulze makes this astounding declaration: “When we identify an operational function and then go looking for a warm body to fill that function, we are being shortsighted. We’re treating people as just another category of things. I believe this is not only a 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.”

This Non-Negotiable is a perfect example of how we put our L.E.O. (Love Each Other) commitment into practice. How do we demonstrate our value for others? Through love! John 13:34 says, “A new command I give you: Love one another. As I have loved you, so you must love one another.” We show how much we value others when we love one another as Jesus loved us.

“This year has shown just how important it is to stay connected and continue to nurture all of our relationships.

No one knows what another person is going through, but simply being there and being present says more than words sometimes. Our customers have appreciated all of the webinars and continuing education events that we have offered for FREE! That demonstrates the value we have for them and this profession. Our company has allowed people to work from home, provided the equipment, and made sure everyone knew their job was secure. That demonstrates integrity and shows the value the company leadership has for me as an employee.

We have missed seeing our customers and teammates in person and giving everyone big hugs (I’m a hugger!), but through webinars, Zoom meetings, and calls on TEAMS, we have continued to meet together and make connections, and demonstrate how much we value one another. Still, I can’t wait to see everyone in person again!”

Pam Ulery, Director of Sales Development

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We will not jeopardize the integrity of our mission statement, “to be the best, most-respected” in any situation.

Conflict is inevitable, and in 2020, the level of conflict that was possible on a national scale was on full display. But what if we saw conflict as an opportunity? When we encounter conflict at our company, whether with co-workers, policyholders, or clients, what if we saw that conflict as a chance for us to strengthen the relationship and create loyalty because of how the conflict is handled? Is it hard? Absolutely. Is it possible? Absolutely! To solve conflict, we go back, again and again, to our mission statement and the question: “What is the best, most-respected thing to do?” To understand the conflict from the other person’s perspective, we ask ourselves, “If it were me, how would I want to be treated?”

While we cannot always find perfect resolutions to conflict, we can seek to understand and do our best to find a win-win situation for everyone involved.

“In order to serve all customers better, we must be quick to listen and slow to speak. Yes, it may take a while, and we may have to ask lots of questions. But it is worth going the extra mile because we will build better relationships in the long run. I spoke to a customer yesterday that had my Customer Ambassador card, and initially, I could not figure out what the customer needed. We visited for about ten minutes, and finally, I figured out it was a question for Passare. The person did not mind that I took the time to research and ask questions. She was happy to speak with me and will most likely continue to call. It is the same with our internal customers; we must treat them with the same respect and time. At the end of the day, we are helpers of all people.”

Diana Elizondo, Customer Ambassador

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We will trust others until/unless they demonstrate they cannot be trusted.

Trust is built on both character and competence. As Stephen Covey says in his book, The Speed of Trust, “Trust is equal parts character and competence...

You can look at any leadership failure, and it’s always a failure of one or the other.” Our character at Funeral Directors Life is established in our mission to be “the best, most-respected provider of service” and our integrity to never compromise our mission, our values, or our Christian principles. The second part of trust is competence—that we do what we say we will do on time, with excellence, and free of defects. We strive daily to earn the trust of our employees, policyholders, sales professionals, funeral home clients, and partner marketing organizations by demonstrating both character and competence. And, as we develop relationships with others, we offer them our trust first, without reservations. Only until we see evidence of a lack of character or a lack of competence do we take a step back and evaluate the relationship. In that case, we must go back to our Non-Negotiable #2: “We will not jeopardize the integrity of our mission statement, ‘to be the best, most-respected’ in any situation.”

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“Trust is the basis of every relationship, whether it’s personal or work related. This Non-Negotiable made me think of the COVID-19 situation. At first, not a lot was known about the virus and how it spread. We had a lot of people working remotely at the very beginning. But the company continually did the ‘best, most-respected thing.’

Our leadership developed a pandemic plan with levels of risk. They had specific actions that should be taken at each level. Our employees began to come back because they felt the company was taking responsibility for their health and safety.

To me, that just shows how much people trust that management is taking care of them and keeping them safe.”

Peyton Sanders, Leadership Development Academy

We will maintain the confidentiality of information put in our care by our customers and teammates.

Our ability to maintain the confidentiality of information that is entrusted to us is another way that we demonstrate competence and maintain the trust of our customers, policyholders, and teammates. While we all have different roles regarding this Non-Negotiable, we all have a responsibility to uphold an environment of both safety and privacy. Both physical and digital security are essential in making Funeral Directors Life “a great place to work.” We must also protect confidential information of not only our customers, but our teammates as well. It can take just one click or one mistake to jeopardize the trust placed in Funeral Directors Life by our customers and employees.

“We live in a high-tech world, and we maintain highly confidential and private information about each of the families we serve as well as information about our company.

The bad guys are always systematically searching for any kind of breach in security to obtain information for their own benefit. We cannot afford to let our guard down.”

Gregg Havlak, Director of Sales Development

Conclusion These 22 Non-Negotiables introduced in 2020 are essentially what makes us who we are. They are not new concepts; they are simply putting words to principles that we have followed for a long time and that have become an ingrained part of our company culture. Our hope is that by sharing these Non-Negotiables with you, our stakeholders, we will be able to share our heart for service, our fierce desire for excellence, our dedication to our Strategic Objectives, and our desire to dedicate our lives to serving God and honoring Him in all we do.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

DECEMBER 31, 2020 ANALYSIS OF FINANCIAL POSITION For 2020, 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 a stable outlook.

Like many other insurance companies across the nation, COVID-19 had a significant impact on new business sales production in 2020. After starting the new year at over 100% of budgeted new business production, sales took a significant dip in the months of April and May. The vast majority of preneed sales are obtained through face-to-face meetings with the elderly and their families as they are making funeral arrangements. State and national mandates enforced during the pandemic challenged the sales team to rely entirely on technology as a means of meeting with families. Virtual meetings were achieved via Microsoft Teams and Zoom, utilizing an online sales presentation to allow people to meet with our sales professionals online, without physical contact. FDLIC made the decision to have no layoffs during the shutdown and continued to pay all employees, including our commissioned employee-salespeople. Because of these efforts, the company rebounded in the second half of the year, achieving record sales in June, July, August, September, November, and December.

COVID-19 had a drastic impact on domestic Treasury yields, pushing already historically low yields to new depths of depressed yields. Initially, spreads on non-Government bonds widened due to fear and uncertainty in the market; however, as the year pressed on, spreads tightened considerably. 2020 began the year with the 10-year Treasury at 1.92% and fell to its lowest thus far in August at 0.51%. Industries hardest hit include airlines, energy, lodging, and leisure. With yields plunging to and remaining near all-time lows, the market value of bonds in the secondary market increased dramatically. Considering these aspects in the market, FDLIC took this as an opportunity to sell low and non-investment grade securities, cleaning up the watch list and capturing attractive gains while improving the overall portfolio yield upon reinvestment – all with no adverse impact to surplus.

While claims significantly exceeded 2019, which was somewhat expected after several consecutive years of lower than projected claims, the increase was further compounded by the impact that COVID-19 had on the

death rate. Year-over-year claims increased by $38.5 million and exceeded expectations by just over $26 million. Although higher claims were somewhat offset by the release of reserves, the excessive increase, and the shortfall in new business production, and thus premium income, had a significant impact to net gain from operations. Despite the challenges brought about by the pandemic, further depressed interest rates, and unprecedented claims activity, the Company maintained a strong ratio of Capital and Surplus to Assets of 8.89%. No other material transactions occurred outside the normal scope of business during 2020.

TOTAL ASSETS 2000 I N

M I L L I O N S

1500 1000 500 0

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ASSETS The Total Assets of FDLIC grew to $1.583 billion, an increase of $70.9 million or 4.69% from year-end 2019 to year-end 2020. As of December 31, 2020, FDLIC’s assets were distributed as follows: 97.77% in investments, .98% in investment income due and accrued, .47% in deferred and uncollected life insurance premiums and annuity considerations, .36% in receivables due from insurance companies, .27% in deferred tax assets, and .15% in various other assets.

Invested Assets: For 2020, the primary investment held

by FDLIC was bonds (government, agency, and corporate) representing 83.66% of invested assets or $1.295 billion. The emphasis regarding the investment portfolio has consistently involved maximizing book yield, limiting risk, achieving appropriate liquidity, and matching the cash inflow

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AGGREGATE LIFE RESERVES 1500 I N

M I L L I O N S

1200 900 600 300 0

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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 2020, FDLIC maintained this approach to matching the expected cash flows. 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 have continued their downward trajectory but fell to a very large degree all across the yield curve in 2020, with the largest declines in the shorter part of the curve. FDLIC invested throughout the year over various parts of the curve. Despite the volatility and global pandemic that resulted in an extremely depressed 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, and the Company’s asset liability matching strategy. Specific attention has been placed on investing shorter on the curve to address cash needs from an ALM perspective and provide a more immunized portfolio. Additionally, the Company continues to look for ways to minimize book yield give-up, yet position the invested assets in a manner that is prudent for policyholders while maximizing the risk/return tradeoff.

At year-end 2020, FDLIC’s portfolio contained nine-hundred and sixtyone (961) different bond issues with an overall portfolio average rating of NAIC 1, duration of approximately 8.69 years, and an average coupon of

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5.13%. As of year-end 2020, FDLIC held within the portfolio only fifty-one (51) issues rated below NAIC 2, representing 4.2% of total bonds. However, thirteen of these non-investment grade issues were strategically purchased as NAIC 3 rated bonds to fill shorter cash flow years while assisting in keeping the overall book yield high. This non-investment grade program has strict requirements on what can be purchased, and no more than 10% of capital and surplus can be allocated to this strategy. As of December 31, 2020, FDLIC’s allocation of industrial and miscellaneous bonds maintained the greatest allocation at 88.5% of total bonds; special revenue and assessment bonds comprised of U.S. Agency and municipal bonds totaled 10.9%; and U.S. Government bonds were 0.6% of total bonds.

At year-end 2020, 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) investment in any one preferred stock shall not exceed 10% of capital and surplus, b) aggregate investment in all preferred stocks shall not exceed 40% of capital and surplus, c) preferred stocks with non-sinking fund previsions shall not exceed 10% of total assets, d) 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 asset valuation reserve requirement created by the asset, e) the purchase of preferred stocks below an SVO 2 rating will be restricted, and f) 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 $13.7 million, representing .89% of invested assets and consisting largely of the Company’s two wholly owned insurance subsidiaries totaling $11 million. The Company owns Kentucky Funeral Directors Life Insurance Company domiciled in Kentucky as well as Funeral Directors Life Insurance Company of Louisiana domiciled in Louisiana. The public common stock portfolio consists solely of the Monteagle Select Value Fund, valued at $2.674 million, a mutual fund that invests only in biblically-responsible entities.

During 2020, FDLIC’s mortgage loan portfolio increased by $22 million for new loans of $39.6 million offset by $17.6 million of loans repaid during the year. The mortgage loan portfolio represented 12.95% of invested assets as opposed to 12.07% in 2019. 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 2020, real estate represented 1.70% of invested assets compared to 1.54% in 2019. $15.5 million represents the Home Office property, and $10.8 million represents the Company’s investment property.

The $3.6 million year-over-year increase was due largely to the addition of 35,000 square feet to the Company’s Home Office completed in early 2020. The Company received a $1 million grant from the local development corporation for the expansion and commitment to add new jobs.

Cash and short-term investments represented .35% of invested assets at $5.4 million compared to $2.6 million at year-end 2019.

Other Invested Assets consisted of loans to parent that were issued in the first quarter of 2007, which comprised .26% of invested assets and Surplus Debentures of $2.2 million or .14% of invested assets. Principal reduction on the loans to parent was $443.7 thousand for the year.

The portfolio is conservatively positioned to allow for continued improvements during 2021. FDLIC will maintain its long-term focus and not attempt to “time the market” with regard to interest rates. The focus will remain on providing for the policyholders and limiting both market risk and reinvestment risk. New cash flows during 2021 are expected to be reinvested at lower levels than 2020 as yields continue to experience downward pressure. The overall book yield did decrease during 2020, but the portfolio remains diversified and in a positive position to move forward in 2021 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 $1.392 million increase in life insurance proceeds receivable from insurance companies due to the growth of the Company’s insurance assignment division.

LIABILITIES At year-end 2020, FDLIC’s liabilities were distributed as follows: 97.02% in Aggregate Reserve for Life Contracts, .86% in Asset Valuation Reserve, .75% in Interest Maintenance Reserve, .27% in accrued commissions, .26% in Premiums and Annuity Consideration Received in Advance, .25% in borrowed funds, .13% in policy claims, .07% in Provision for Policyholders’ Dividends and Coupons Payable, and .39% 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 94.81% 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 stayed the same from year-end 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 dividends to be paid with respect to Participating Polices in the following calendar year.

The Interest Maintenance Reserve increased $6.99 million from yearend 2019 for net realized capital gains of $7.228 million less amortization

of $235.0 thousand. The significant gains were the result of a strategic repositioning that occurred in the first and fourth quarters of 2020. In the first quarter, bond securities were sold as a strategy to take substantial gains and invest over a shorter period of time while rates were low. The fourth quarter disposals were a part of a strategy to remove watch list concerns with minimal impact to surplus, provide positive amortization in the future, and provide proceeds to invest in mortgage loans. The Asset Valuation Reserve decreased $608.4 thousand or 4.69% in 2020 compared to a $2.589 million or 24.91% increase from 2018 to 2019. The year-overyear decrease was due to realized capital losses recognized in the income statement.

Federal Income Tax liability for 2020 was $1.19 million compared to a tax recoverable of $780.0 thousand for 2019. The 2019 recoverable was the result of significant first-year tax depreciation taken during the year.

Borrowed money of $3.663 million in 2020 includes a $2.628 million loan from the Paycheck Protection Program (PPP) provided through the Small Business Administration (SBA) and established by section 1102 of the Coronavirus Aid, Relief, and Economic Security Act. The loan was used to support our commitment of no layoffs and no reductions in pay. The Company submitted an application for forgiveness of the PPP loan on October 1, 2020, and to date has not received a determination from the SBA. The Company also received a $1.035 million grant from the Development Corporation of Abilene, Inc. The investment incentive payment was based upon the Company’s expansion of its corporate headquarters and its commitment to create 70 additional positions over a 5-year period. The terms of the grant require the funds to be recorded as a liability for the first four years until the employment terms have been satisfied, at which time the loan will be granted and converted to income.

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 AND SURPLUS Total Capital and Surplus increased $6.5 million for 2020 as compared to the increase of $4.2 million in 2019. The increase in 2020 consisted of net income of $5.094 million, a $663.8 thousand increase in deferred income tax adjustment, a $608.4 thousand decrease in asset valuation reserve, and unrealized gains of $441.2 thousand offset by a $286.7 thousand increase in non-admitted assets. The majority of non-admitted assets relate to deferred income taxes and negative agent reserve balances partially offset by depreciation on non-admitted capital assets and a small amount of prepaid expenses. The ratio of Capital and Surplus to Total Assets was 8.89% at yearend 2020 compared to 8.87% at year-end 2019. No other material favorable or unfavorable trends existed in FDLIC’s Capital and Surplus accounts.

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CAPITAL & SURPLUS

150 I N

M I L L I O N S

120 90 60 30 0

11

12

13

14

15

16

17

18

19

20

RESULTS OF OPERATIONS REVENUE New business issued for 2020 was approximately 3.7% lower than 2019 production due entirely to the onset of COVID-19 with significant impact affecting the months of April and May. The shortfall in sales as well as a shift to more multi-pay business resulted in lower year-over-year premium income.

Annuity premium income decreased 8.11% from 2019 to 2020 while Ordinary Life, Group Life, and Industrial Life premiums increased 3.15% year-over-year for a total decrease between years of $10.71 million or 4.16% compared to a 10.97% increase from 2018 to 2019. Single pay

TOTAL REVENUE 300 I N

M I L L I O N S

250 200 150 100 50 0 11

23

12

13

14

15

A NNUA L RE POR T 2 0 2 0

16

17

18

19

20

new business sales production for 2020 was 71.9% of total production, a decrease from 73.0% in 2019. The decrease in annuity premium income is due largely to the decrease in year-over-year trust conversions. In 2020, approximately $7.6 million in premium income came from trust conversions compared to $15.1 million in 2019. Trust conversions typically result in higher commissions and reserves in year one but are profitable in future years.

Net investment income increased $4.4 million from year-end 2019 to year-end 2020 compared to the $4.6 million increase from year-end 2018 to year-end 2019. As of December 2020, future asset cash flows exceeded the liability cash flows for a projected thirty years. A continued focus in 2020 was to better align some of the upcoming calendar years and any cash flow discrepancies. The year-over-year improvement in investment income in 2020 was largely due to prepayment income from called and tendered bond securities. The average yield on new bond purchases in 2020 decreased approximately 23 basis points from 2019 while the yield on the total bond portfolio dropped from 4.86% at year-end 2019 to 4.70% at year-end 2020 due to calls and maturities of higher yielding securities and continued alignment of cash flows. The average yield on new mortgage loans decreased 106 basis points year over year but was approximately 117 basis points higher than bond yields. Net new dollars invested for 2020 were $70.4 million compared to $99.8 million for 2019.

EXPENSES For 2020, overall expenses decreased $1.54 million or .49% from the previous year compared to the $32.93 million or 11.78% increase from year-end 2018 to year-end 2019. Death and annuity benefits paid during the year exceeded 2019 by $38.56 million and were $26.1 million above expected. Monthly claims expense averaged $16.8 million in 2020 compared to $13.6 million in 2019. With the year-over-year decrease in new business sales and the extraordinary increase in claims, aggregate reserves from year to year were down $40.3 million or 43.72% from 2019.

Commissions were down approximately $238.6 thousand or .94% for the decrease in sales during the year. General insurance expenses exceeded 2019 by $658.5 thousand or 2.5% compared to a $5.203 million or 24.7% increase from 2018 to 2019. Increased spending related to salaries and benefits was offset by decreases in sales and marketing expenses. Net realized capital losses of $4.45 million occurred in 2020 compared to $82.6 thousand in net realized capital gains in 2019. Capital losses in 2020 were due to significant losses taken for impaired assets and disposals of troubled securities. No other material expense changes occurred during 2020.

NET INCOME 15 I N

M I L L I O N S

12 9 6 3 0

11

12

13

14

15

16

17

18

19

20

NET INCOME For 2020, net income was $5.09 million, down from 2019 net income of $14.27 million. The following facts are relevant when comparing net income between 2019 and 2020: 1) the onset of COVID-19 resulted in a 3.7% decrease in new business production negatively impacting both premium income and investment income; 2) increased prepayment income from bond calls and tenders positively impacted investment income; 3) significantly increased claims and decreased new business production led to decreased reserves; 4) the net realized capital losses from impaired assets in the bond portfolio; and 5) federal income tax expense increased year over year for increase in taxable income. In 2019, the Company was able to take significant tax deductions for 100% first-year depreciation on investment in capital assets. Net income fell below 2019 by $9 million.

CASH FLOW AND LIQUIDITY

1.92% to .51%., and the Federal Reserve lowered short-term borrowing rates to effectively zero as a stimulus to the economy, keeping the short end of the Treasury yield curve low. Moreover, the Fed is committed to maintaining low rates to provide easy money even if inflation rises above their historical two percent target and doing “whatever it takes” to support the post-pandemic domestic economy and expects the Federal Funds rate to remain flat for the next couple of years.

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.

CONCLUSION While COVID-19 negatively impacted growth in 2020, FDLIC has experienced steady and consistent growth over time despite the continued low interest rate environment. Even with the challenges produced by the pandemic, FDLIC had adequate surplus to sustain the shortfall. The Company entered 2021 with a very strong ratio of capital and surplus to assets. The investment portfolio is highly diversified and structured to generate cash flows sufficient to provide for the cash needs of the Company.

These cash needs include the expected claims and all operating needs of the Company. With the continued impact of the global pandemic into 2021, FDLIC is constantly monitoring investment activity, using technology to communicate with employees and customers, and evaluating opportunities to reduce expenses. It is unclear the carryover impact that COVID-19 will have into 2021. However, we believe the worst to be past. FDLIC is strongly positioned for growth in 2021 and beyond.

Through the inflows 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 2021 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 the competition. New cash flows during 2021 are expected to be reinvested at similar, low levels as that of 2020. During 2020, the 10-year treasury fell 141 basis points from

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SELECTED FINANCIAL AND STATISTICAL DATA (FIVE-YEAR SUMMARY)

In Thousands Year Ended December 31

2020 2019 2018 2017 2016

New Business Issued $ 257,477.2 $ 273,591.3 $ 242,905.6 $ 215,592.7 $ 231,390.9 Premium Income 246,545.4 257,252.1 231,867.8 212,428.6 225,161.1 Insurance In Force 1,826,999.9 1,757,010.9 1,633,121.9 1,536,323.8 1,457,870.7 Aggregate Life Reserves 1,399,580.3 1,347,599.7 1,255,314.2 1,181,182.2 1,117,010.8 Capital & Surplus 140,743.1 134,219.2 130,008.2 116,317.1 110,424.5 Net Income 5,094.1 14,274.7 14,232.6 8,402.9 12,460.9 Total Assets 1,583,286.0 1,512,467.4 1,409,755.4 1,320,343.6 1,248,024.5 Net Investment Income 76,291.0 71,862.3 67,226.9 62,317.8 61,174.8 A. M. Best Rating A- A- A- A- ARatio of Capital & Surplus to Total Assets 8.89% 8.87% 9.22% 8.81% 8.85%

INVESTED ASSET MIX Bonds 83.7% 85.0% 85.2% 89.8% 89.8% Stocks 1.1% 1.0% 1.1% 0.4% 0.4% Mortgage Loans on Real Estate 12.9% 12.1% 11.8% 7.9% 7.6% Real Estate 1.7% 1.5% 1.2% 1.3% 1.6% Cash or Short-term Investments 0.3% 0.2% 0.6% 0.1% 0.1% Other Invested Assets 0.3% 0.2% 0.2% 0.4% 0.5%

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A NNUA L RE POR T 2 0 2 0

BALANCE SHEET

In Thousands Year Ended December 31

2020 2019 ASSETS

Bonds $ 1,294,931.8 $ 1,255,857.0

Preferred Stocks 1,000.0 1,000.0

Stocks-Common/Public 2,673.8 1,691.4

Stocks-Subsidiaries 11,031.4 10,777.2

Mortgage Loans 200,388.1 178,337.6

Real Estate 26,302.3 22,735.0

Policy Loans 5.4 5.3

Surplus Debentures 2,236.0

Cash and Short-Term Investments 5,359.2 2,635.7

Other Invested Assets

3,994.4 4,438.0

Total Invested Assets 1,547,922.4 1,477,477.2

Furniture and Equipment 1,794.7 1,992.4

Deferred Premiums 7,513.9 7,015.5

Accrued Investment Income 15,580.0 16,344.4

Deferred Tax Asset 4,213.0 4,051.5

CLAIMCHECK Receivables 5,677.3 4,285.1

Other Assets 584.7 1,301.3

Total Assets $ 1,583,286.0 $ 1,512,467.4

LIABILITIES

Policy Reserves $ 1,399,580.3 $ 1,347,599.7

Policy Claims 1,891.3 1,217.9

Provision For Policyholder Dividends 1,000.0 1,000.0

Premiums Received in Advance 3,814.1 3,679.6

Interest Maintenance Reserve 10,754.8 3,762.2

Accrued Commissions 3,946.6 3,826.2

Accounts Payable 637.1 490.8

Borrowed Funds 3,663.6

Other Liabilities 4,881.1 3,689.4

Asset Valuation Reserve 12,374.0 12,982.4

Total Liabilities 1,442,542.9 1,378,248.2

SHAREHOLDER’S EQUITY

Common Stock 2,500.0 2,500.0

Additional Paid-In Capital 3,031.0 3,031.0

Surplus 135,212.1 128,688.2

Total Shareholder’s Equity 140,743.1 134,219.2

Total Liabilities and Shareholder’s Equity $ 1,583,286.0 $ 1,512,467.4

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SUMMARY OF OPERATIONS In Thousands

Year Ended December 31

2020 2019 REVENUE

Life Premiums and Annuity Payments $ 246,545.4 $ 257,252.1

Net Investment Income 76,291.0 71,862.3

Other Income 2,254.3 1,495.3

Total Revenue 325,090.7 330,609.7

BENEFITS & EXPENSES

Death and Annuity Benefits 202,114.1 163,549.7

Other Benefits 1,147.0 1,273.5

Increase in Aggregate Reserves 51,935.2 92,278.1

Operating Expenses and Commissions 55,658.6 55,358.7

Dividends to Policyholders 1,503.2 1,435.9

Total Benefits and Expenses 312,358.1 313,895.9

Income Before Capital Gains & Income Taxes 12,732.6 16,713.8

Captial Gains (Losses) Net of Income Taxes (4,445.2) 82.6

Income Before Income Taxes 8,287.4 16,796.4

Less Provision for Income Taxes 3,193.3

2,521.7

NET INCOME $ 5,094.1 $ 14,274.7

STATEMENT OF SHAREHOLDER’S EQUITY In Thousands

Year Ended December 31

2020 2019 CAPITAL & SURPLUS

Shareholder’s Equity Beginning Balance $ 134,219.2 $ 130,008.2

Net Income 5,094.1 14,274.7

Unrealized Gain on Investments 441.2 393.2

Change in Deferred Tax 663.8 1,083.3

Change in Non-Admitted Assets (283.6) (8,951.5)

Change in Asset Valuation Reserve 608.4 (2,588.7)

Shareholder’s Equity Ending Balance $ 140,743.1 $ 134,219.2

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A NNUA L RE POR T 2 0 2 0

STATEMENT OF CASH FLOW

In Thousands Year Ended December 31

2020 2019 CASH FLOW FROM OPERATING ACTIVITIES

Premiums and Annuity Payments $ 245,824.6 $ 256,862.9

Investment Income Received 80,619.5 75,087.3

Other Income Received 2,019.3 1,323.8

Benefits and Loss Related Payments (202,567.2) (164,851.5)

Operating Expenses Paid (55,469.2) (54,622.3)

Policyholder Dividends Paid (1,510.7) (1,644.3)

Income Taxes Paid (1,957.3) (3,310.8)

Net Cash Provided By Operating Activities 66,959.0 108,845.1

CASH FLOW FROM INVESTING ACTIVITIES

Proceeds from Investments Sold 183,112.4 147,648.0

Other Cash Provided (Applied) 4,028.7 (8,719.1)

Acquisition of Investments:

Bonds (205,220.6) (201,879.3)

Stocks (1,418.1) (5,756.0)

Mortgage Loans (40,333.5) (38,369.2)

Real Estate (4,404.2) (6,765.3)

Other Invested Assets (0.1) 0.6

Net Cash Used In Investing Activities (64,235.4) (113,840.3)

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 2,723.6 (4,995.2) CASH AND SHORT-TERM INVESTMENTS

Beginning Of Year End Of Year $

2,635.5 5,359.1 $

FUNERA L DI REC T O RSL I FE.C O M

7,630.7 2,635.5

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DIRECTORS INVESTMENT GROUP

BOARD OF DIRECTORS Allan Adams Denton, TX Leslie Branon Montz

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

Dr. Reagan Ramsower

Waco, TX

Drew Seale

Abilene, TX

Kris Seale

Abilene, TX

Kasi Welch Baker

Midland, TX

EMERITUS DIRECTORS Jay Kelly

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Odessa, TX

Tommy Welch

Big Spring, TX

Bob White

Weatherford, TX

Kris Seale

Terri Bannister

Todd Carlson

Terry Groban

Paul Lovelace

Dwayne McGraw

Dawson Rodriguez

Jeff Stewart

Addison Templeton

CORPORATE OFFICERS Kris Seale President & Chief Executive Officer, Chairman of the Board Terri Bannister Executive Vice President & Chief Learning Officer Todd Carlson Executive Vice President & Chief Sales Officer Terry Groban Executive Vice President & Chief Financial Officer, Secretary, Treasurer Paul Lovelace Executive Vice President & Chief Corporate Development Officer Dwayne McGraw Executive Vice President & Chief Actuary Dawson Rodriguez Executive Vice President & Chief ­­Information Security Officer Jeff Stewart Executive Vice President & Chief Marketing Officer Addison Templeton Executive Vice President & Chief Operations Officer

Amy Biggs Vice President of Operations Shaun Gaffney Vice President of Corporate Development Jason Gazaille Vice President of Finance Melissa Magers Vice President of Accounting Drew Seale Vice President of Sales Operations Zack Shahan Vice President of Security Operations Kyle Swearingen Vice President of Development Kevin Gaffney Regional Sales Vice President John Harrington Regional Sales Vice President Mark Owen Regional Sales Vice President Jeffery “Stewy” Stewart Regional Sales Vice President

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6550 DIRECTORS PARKWAY ABILENE, TEXAS 79606 800-692-9515 WWW.FUNERALDIRECTORSLIFE.COM

ITEM NUMBER 200