Edgar Filing: GWG Holdings, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________

FORM 10-Q

________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from _________ to ________

Commission File Number: None

________________

GWG HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

________________

Delaware		26-2222607
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

220 South Sixth Street, Suite 1200

Minneapolis, MN 55402

(Address of principal executive offices, including zip code)

(612) 746-1944

(Registrant’s telephone number, including area code)

________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of May 11, 2018, GWG Holdings, Inc. had 5,813,555 shares of common stock outstanding.

GWG HOLDINGS, INC.

Index to Form 10-Q

for the Quarter Ended March 31, 2018

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, 2018, and December 31, 2017	1
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017	2
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	3
	Consolidated Statement of Changes in Stockholders’ Equity	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 4.	Controls and Procedures	43

PART II. OTHER INFORMATION
Item 6.	Exhibits	45

SIGNATURES		46

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2018			December 31, 2017
	(unaudited)
ASSETS
Cash and cash equivalents	$	141,212,907		$	114,421,491
Restricted cash		16,552,256			28,349,685
Investment in life insurance policies, at fair value		687,389,479			650,527,353
Secured MCA advances		1,639,818			1,661,774
Life insurance policy benefits receivable		12,302,730			16,658,761
Other assets		7,402,317			7,237,110
TOTAL ASSETS	$	866,499,507		$	818,856,174

LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES
Senior credit facility with LNV Corporation	$	209,447,613		$	212,238,192
L Bonds		469,729,977			447,393,568
Accounts payable		3,611,900			6,394,439
Interest and dividends payable		15,896,267			15,427,509
Other accrued expenses		4,066,763			3,730,723
TOTAL LIABILITIES	$	702,752,520		$	685,184,431

STOCKHOLDERS’ EQUITY

REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 100,000; shares outstanding 98,358 and 98,611; liquidation preference of $98,932,000 and $99,186,000 as of March 31, 2018 and December 31, 2017, respectively)		90,915,026			92,840,243

SERIES 2 REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 150,000; shares outstanding 134,951 and 88,709; liquidation preference of $135,712,000 and $89,208,000 as of March 31, 2018 and December 31, 2017, respectively)		121,454,205			80,275,204
COMMON STOCK
(par value $0.001: shares authorized 210,000,000; shares issued and outstanding 5,813,555 as of both March 31, 2018 and December 31, 2017)		5,813			5,813
Additional paid-in capital		—			—
Accumulated deficit		(48,628,057	)		(39,449,517	)
TOTAL STOCKHOLDERS’ EQUITY		163,746,987			133,671,743

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	866,499,507		$	818,856,174

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended
	March 31, 2018			March 31, 2017
REVENUE
Gain on life insurance policies, net	$	13,868,745		$	19,399,819
MCA income		66,810			246,577
Interest and other income		606,117			441,949
TOTAL REVENUE		14,541,672			20,088,345

EXPENSES
Interest expense		16,063,337			13,244,215
Employee compensation and benefits		3,742,669			3,163,062
Legal and professional fees		1,173,629			946,348
Other expenses		2,740,577			2,780,322
TOTAL EXPENSES		23,720,212			20,133,947

INCOME (LOSS) BEFORE INCOME TAXES		(9,178,540	)		(45,602	)
INCOME TAX EXPENSE (BENEFIT)		—			(500	)

NET INCOME (LOSS)		(9,178,540	)		(45,102	)

Preferred stock dividends		3,704,484			1,867,760
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(12,883,024	)	$	(1,912,862	)

NET INCOME (LOSS) PER SHARE
Basic	$	(2.22	)	$	(0.32	)
Diluted	$	(2.22	)	$	(0.32	)

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		5,813,555			5,912,946
Diluted		5,813,555			5,912,946

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended
	March 31, 2018			March 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(9,178,540	)	$	(45,102	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Change in fair value of life insurance policies		(16,645,594	)		(13,883,833	)
Amortization of deferred financing and issuance costs		2,263,188			2,666,203
Deferred income taxes		—			(500	)
Preferred stock issued in lieu of cash dividends		—			336,789
(Increase) decrease in operating assets:
Life insurance policy benefits receivable		4,356,031			(3,630,000	)
Other assets		(165,207	)		1,426,318
Increase (decrease) in operating liabilities:
Accounts payable and other accrued expenses		(1,545,208	)		1,209,417
NET CASH FLOWS USED IN OPERATING ACTIVITIES		(20,915,330	)		(11,920,708	)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in life insurance policies		(25,299,825	)		(22,689,333	)
Carrying value of matured life insurance policies		5,083,294			2,368,974
Proceeds from Secured MCA advances		88,766			770,387
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(20,127,765	)		(19,549,972	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on (repayments of) Senior Credit Facilities		(3,054,335	)		(3,254,500	)
Payments for issuance of senior debt		—			(114,294	)
Payments for redemption of Series I Secured Notes		—			(5,449,889	)
Proceeds from issuance of L Bonds		36,661,099			24,868,659
Payments for issuance and redemption of L Bonds		(12,245,448	)		(24,171,597	)
Repurchase of common stock		—			(1,603,560	)
Proceeds from issuance of preferred stock		41,865,169			27,179,194
Payment for issuance of preferred stock		(3,157,695	)		(2,017,487	)
Payment for redemption of preferred stock		(327,224	)		(386,739	)
Preferred stock dividends		(3,704,484	)		(1,867,760	)
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES		56,037,082			13,182,027

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		14,993,987			(18,288,653	)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
BEGINNING OF PERIOD		142,771,176			116,313,578
END OF PERIOD	$	157,765,163		$	98,024,925

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED

(unaudited)

	Three Months Ended
	March 31, 2018		March 31, 2017
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	13,475,000	$	10,471,000
Premiums paid, including prepaid	$	11,833,000	$	10,960,000
Stock-based compensation	$	213,000	$	303,000
Payments for exercised stock options	$	37,000	$	—

NON-CASH INVESTING AND FINANCING ACTIVITIES
L Bonds:
Conversion of accrued interest and commissions payable to principal	$	342,000	$	508,000
Conversion of maturing L Bonds to redeemable preferred stock	$	4,421,000	$	—
Series A Preferred Stock:
Issuance of Series A Preferred Stock in lieu of cash dividends	$	—	$	171,000
Investment in life insurance policies included in accounts payable	$	1,350,000	$	1,237,000

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

	Preferred Stock Shares		Preferred Stock			Common Shares		Common Stock (par)			Additional Paid-in Capital			Accumulated Deficit			Total Equity
Balance, December 31, 2016	2,699,704		$	78,726,297		5,980,190		$	5,980		$	7,383,515		$	(18,817,294	)	$	67,298,498

Net loss	—			—		—			—			—			(20,632,223	)		(20,632,223	)

Issuance of common stock	—			—		33,810			33			320,970			—			321,003

Redemption of common stock	—			—		(200,445	)		(200	)		(1,603,360	)		—			(1,603,560	)

Issuance of Series A preferred stock	71,237			498,659		—			—			—			—			498,659

Redemption of Series A preferred stock	(2,711,916	)		(20,199,792	)	—			—			—			—			(20,199,792	)

Issuance of redeemable preferred stock	129,622			122,933,106		—			—			(2,338,457	)		—			120,594,649

Redemption of redeemable preferred stock	(1,328	)		(1,327,776	)	—			—			—			—			(1,327,776	)

Preferred stock dividends	—			(8,925,807	)	—			—			(3,776,534	)		—			(12,702,341	)

Stock-based compensation	—			1,410,760		—			—			13,866			—			1,424,626

Balance, December 31, 2017	187,319		$	173,115,447		5,813,555		$	5,813		$	—		$	(39,449,517	)	$	133,671,743

Net income	—			—		—			—			—			(9,178,540	)		(9,178,540	)

Issuance of redeemable preferred stock	46,317			43,159,571		—			—			—			—			43,159,571

Redemption of redeemable preferred stock	(327	)		(327,224	)	—			—			—			—			(327,224	)

Preferred stock dividends	—			(3,704,484	)	—			—			—			—			(3,704,484	)

Stock-based compensation	—			125,921		—			—			—			—			125,921

Balance, March 31, 2018	233,309		$	212,369,231		5,813,555		$	5,813		$	—		$	(48,628,057	)	$	163,746,987

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Nature of Business and Summary of Significant Accounting Policies

Nature of Business — We are a financial services company committed to disrupting and transforming the life insurance and related industries. We built our business by creating opportunities for consumers to obtain significantly more value for their life insurance policies in a secondary market as compared to the traditional options offered by the insurance industry. We are enhancing and extending our activities in the life insurance industry through innovation in our products and services, business processes, financing strategies, and advanced epigenetic technologies. At the same time, we are creating opportunities for investors to receive income and capital appreciation from our investment activities in the life insurance and related industries.

GWG Holdings, Inc. and all of its subsidiaries are incorporated and organized in Delaware. Unless the context otherwise requires or we specifically so indicate, all references in these footnotes to “we,” “us,” “our,” “our Company,” “GWG,” or the “Company” refer to GWG Holdings, Inc. and its subsidiaries collectively and on a consolidated basis. References to the full names of particular entities, such as “GWG Holdings, Inc.” or “GWG Holdings,” are meant to refer only to the particular entity referenced.

On December 7, 2015, GWG Holdings formed a wholly owned subsidiary, GWG MCA, LLC. On January 13, 2016, GWG MCA, LLC was converted to a corporation and became GWG MCA Capital, Inc. GWG MCA Capital, Inc. was formed to provide cash advances to small businesses.

On August 25, 2016, GWG Holdings formed a wholly owned subsidiary, Actüa Life & Annuity Ltd., renamed to Life Epigenetics Inc. (“Life Epigenetics”) in August 2017, to engage in various life insurance related businesses and activities related to its exclusive license for “DNA Methylation Based Predictor of Mortality” technology.

Use of Estimates — The preparation of our condensed consolidated financial statements in conformity with the Generally Accepted Accounting Principles in the United States of America (GAAP) requires management to make significant estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue during the reporting period. We regularly evaluate estimates and assumptions, which are based on current facts, historical experience, management’s judgment, and various other factors that we believe to be reasonable under the circumstances. Our actual results may differ materially and adversely from our estimates. The most significant estimates with regard to these condensed consolidated financial statements relate to (1) the determination of the assumptions used in estimating the fair value of our investments in life insurance policies and (2) the value of our deferred tax assets and liabilities.

Cash and Cash Equivalents — We consider cash in demand deposit accounts and temporary investments purchased with an original maturity of three months or less to be cash equivalents. We maintain our cash and cash equivalents with highly rated financial institutions. The balances in our bank accounts may exceed Federal Deposit Insurance Corporation limits. We periodically evaluate the risk of exceeding insured levels and may transfer funds as we deem appropriate.

Life Insurance Policies — Accounting Standards Codification 325-30, Investments in Insurance Contracts permits a reporting entity to account for its investments in life insurance policies using either the investment method or the fair value method. We elected to use the fair value method to account for our life insurance policies. We initially record our purchase of life insurance policies at the transaction price, which is the amount paid for the policy, inclusive of all external fees and costs associated with the acquisition. At each subsequent reporting period, we re-measure the investment at fair value in its entirety and recognize the change in fair value as unrealized gain or loss in the current period, net of premiums paid, within gain on life insurance policies, net in our condensed consolidated statements of operations.

In a case where our acquisition of a policy is not complete as of a reporting date, but we have nonetheless advanced direct costs and deposits for the acquisition, those costs and deposits are recorded as other assets on our condensed consolidated balance sheets until the acquisition is complete and we have secured title to the policy. On both March 31, 2018 and December 31, 2017, a total of $0 of our other assets comprised direct costs and deposits that we had advanced for life insurance policy acquisitions.

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Nature of Business and Summary of Significant Accounting Policies (cont.)

We also recognize realized gain (or loss) from a life insurance policy upon one of the two following events: (1) our receipt of notice or verified mortality of the insured; or (2) our sale of the policy (upon filing of change-of-ownership forms and receipt of payment). In the case of mortality, the gain (or loss) we recognize is the difference between the policy benefits and the carrying value of the policy once we determine that collection of the policy benefits is realizable and reasonably assured. In the case of a policy sale, the gain (or loss) we recognize is the difference between the sale price and the carrying value of the policy on the date we receive sale proceeds.

Other Assets — Life Epigenetics is engaged in various life insurance related businesses and activities related to its exclusive license for the “DNA Methylation Based Predictor of Mortality” technology for the life insurance industry. The cost of entering into this license agreement is included in other assets on our condensed consolidated balance sheets.

To maintain the Company’s life insurance provider licenses in certain states, we are required to keep cash security deposits with the states’ licensing authorities. Security deposits included in other assets were $575,000 at both March 31, 2018 and December 31, 2017.

Stock-Based Compensation — We measure and recognize compensation expense for all stock-based payments at fair value on the grant date over the requisite service period. We use the Black-Scholes option pricing model to determine the weighted-average fair value of options. For restricted stock grants, fair value is determined as of the closing price of our common stock on the date of grant. Stock-based compensation expense is recorded in general and administrative expenses based on the classification of the employee or vendor. The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards and the expected duration.

The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on the standard deviation of the average continuously compounded rate of return of five selected comparable companies. We have not historically issued any common stock dividends and do not expect to do so in the foreseeable future.

Deferred Financing and Issuance Costs — Loans advanced to us under our senior credit facility with LNV Corporation, as described in Note 6, are reported net of financing costs, including issuance costs, sales commissions and other direct expenses, which are amortized using the straight-line method over the term of the facility. We had no loans advanced to us under our senior credit facility with Autobahn Funding Company during the year ended December 31, 2017, as described in Note 5. The Series I Secured Notes and L Bonds, as respectively described in Notes 7 and 8, are reported net of financing costs, which are amortized using the interest method over the term of those borrowings. The Series A Convertible Preferred Stock (“Series A”), as described in Note 9, was reported net of financing costs (including the fair value of warrants issued), all of which were fully amortized using the interest method as of December 31, 2017. Selling and issuance costs of Redeemable Preferred Stock (“RPS”) and Series 2 Redeemable Preferred Stock (“RPS 2”), described in Notes 10 and 11, are netted against additional paid-in-capital, if any, and then against the outstanding balance of the preferred stock.

Earnings (loss) per Share — Basic earnings (loss) per share attributable to common shareholders are calculated using the weighted-average number of shares outstanding during the reported period. Diluted earnings (loss) per share are calculated based on the potential dilutive impact of our Series A, RPS, RPS 2, warrants and stock options. Due to our net loss attributable to common shareholders for the three months ended March 31, 2018, there are no dilutive securities.

Recently Issued Accounting Pronouncements — On February 25, 2016, the FASB issued Accounting Standards Update 2016-02 Leases (“ASU 2016-02”). The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 provides more transparency and comparability in the financial statements of lessees by recognizing all leases with a term greater than twelve months on the balance sheet. Lessees will also be required to disclose key information about their leases. Early adoption is permitted. We are currently evaluating the impact of the adoption of this pronouncement and have not yet adopted ASU 2016-02 as of March 31, 2018.

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Nature of Business and Summary of Significant Accounting Policies (cont.)

In March 2016, the FASB issued Accounting Standards Update 2016-09 (“ASU 2016-09”) to simplify the accounting for stock compensation related to the following items: income tax accounting, award classification, estimation of forfeitures, and cash flow presentation. The new guidance is effective for fiscal years beginning after December 15, 2016. We adopted ASU 2016-09 effective January 1, 2017. The impact of the adoption was not material to the financial statements.

In November 2016, the FASB issued Accounting Standards Update 2016-18 (“ASU 2016-18”), which amends ASC 230 Statement of Cash Flows to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The guidance, to be applied retrospectively when adopted, requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. We adopted ASU 2016-18 as of March 31, 2018. The impact of the adoption was not material to the financial statements.

(2) Restrictions on Cash

Under the terms of our senior credit facility with LNV Corporation (discussed in Note 6), we are required to maintain collection and payment accounts that are used to collect policy benefits from pledged policies, pay annual policy premiums, interest and other charges under the facility, and distribute funds to pay down the facility. The agents for the lender authorize the disbursements from these accounts. At March 31, 2018 and December 31, 2017, there was a balance of $11,735,000 and $19,967,000, respectively, in these collection and payment accounts.

To fund the Company’s acquisition of life insurance policies, we are required to maintain escrow accounts. Distributions from these accounts are made according to life insurance policy purchase contracts. At March 31, 2018 and December 31, 2017, there was a balance of $4,818,000 and $8,383,000, respectively, in the Company’s escrow accounts.

(3) Investment in Life Insurance Policies

Life insurance policies are valued based on unobservable inputs that are significant to their overall fair value. Changes in the fair value of these policies, net of premiums paid, are recorded in gain on life insurance policies, net in our condensed consolidated statements of operations. Fair value is determined on a discounted cash flow basis that incorporates life expectancy assumptions generally derived from reports obtained from widely accepted life expectancy providers, other than insured lives covered under small face amount policies (i.e., $1 million in face value benefits or less), assumptions relating to cost-of-insurance (premium) rates and other assumptions. The discount rate we apply incorporates current information about discount rates applied by other public reporting companies owning portfolios of life insurance policies, the discount rates observed in the life insurance secondary market, market interest rates, the estimated credit exposure to the insurance companies that issued the life insurance policies and management’s estimate of the operational risk premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole. Management has discretion regarding the combination of these and other factors when determining the discount rate. As a result of management’s analysis, a discount rate of 10.45% was applied to our portfolio as of both March 31, 2018 and December 31, 2017.

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(3) Investment in Life Insurance Policies (cont.)

A summary of our policies, organized according to their estimated life expectancy dates as of the reporting date, is as follows:

	As of March 31, 2018					As of December 31, 2017
Years Ending December 31,	Number of Policies	Estimated Fair Value		Face Value		Number of Policies	Estimated Fair Value		Face Value
2018	7	$	4,584,000	$	4,889,000	8	$	4,398,000	$	4,689,000
2019	39		48,373,000		62,030,000	48		63,356,000		83,720,000
2020	82		82,265,000		129,005,000	87		79,342,000		127,373,000
2021	95		95,308,000		164,094,000	98		96,154,000		170,695,000
2022	113		102,343,000		202,210,000	90		85,877,000		181,120,000
2023	93		74,048,000		181,905,000	93		69,467,000		175,458,000
2024	103		78,156,000		225,134,000	100		77,638,000		228,188,000
Thereafter	410		202,312,000		788,799,000	374		174,295,000		704,905,000
Totals	942		687,389,000		1,758,066,000	898	$	650,527,000	$	1,676,148,000

We recognized life insurance benefits of $14,504,000 and $18,975,000 during the three months ended March 31, 2018 and 2017, respectively, related to policies with a carrying value of $5,083,000 and $2,369,000, respectively, and as a result recorded realized gains of $9,421,000 and $16,606,000.

Reconciliation of gain on life insurance policies:

	March 31, 2018			March 31, 2017
Change in estimated probabilistic cash flows	$	19,005,000		$	14,034,000
Unrealized gain on acquisitions		6,974,000			10,602,000
Premiums and other annual fees		(12,197,000	)		(11,090,000	)
Change in discount rates(1)		—			—
Change in life expectancy evaluation(2)		(4,868,000	)