SECURITY NATIONAL FINANCIAL CORP New Standards Disclosure

Recent Accounting Pronouncements

 

Accounting Standards Adopted in 2025

 

ASU No. 2018-12: “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts” — Issued in August 2018, ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits on traditional long-duration contracts by requiring that assumptions be updated after contract inception and by modifying the rate used to discount future cash flows. The standard is aimed at improving the accounting for certain market-based options or guarantees associated with deposit or account balance contracts, simplifying amortization of deferred acquisition costs while improving and expanding required disclosures. In November 2020, ASU No. 2020-11: “Financial Services – Insurance (Topic 944): Effective Date and Early Application,” was issued. This ASU was issued to provide additional time for the implementation of ASU No. 2018-12 by deferring the effective date by one year. For smaller reporting companies, this update is effective for annual reporting periods beginning after December 15, 2024, and interim reporting periods beginning after December 15, 2025. On December 31, 2025, the Company adopted ASU No. 2018-12, using the modified retrospective approach, for changes to the liability for future policy benefits and deferred policy acquisition costs. The Company applied the guidance as of a transition date of January 1, 2024, and retrospectively adjusted prior period amounts to reflect the new guidance. The Company’s consolidated financial statements are presented under the new guidance for reporting periods beginning January 1, 2024.

 

After adoption, cash flow assumptions, such as mortality, lapse, and expense, will be reviewed at least annually and, if necessary, they will be updated to reflect actual experience and current expectations in the calculation of the Company’s future policy benefits. Historically, cash flow assumptions were locked in at policy issuance and remained in place for the life of the business—even when material variances emerged between assumptions and actual experience—except in the case of a premium deficiency. Under the new guidance, net premiums are capped at 100 percent of gross premiums at the cohort level. Adoption of this standard also requires changes in the future treatment of the Company’s Deferred Acquisition Cost (“DAC”) asset.

 

Historically, the interest rate used to calculate the Company’s future policy benefits was set at policy issuance and remained in effect for the life of the policy. The Company used an expected investment portfolio rate of return based on a conservative experience assumption. The new guidance seeks to improve reporting on the financial impact associated with interest rate sensitivity. To accomplish this, future policy benefits are calculated using a discount rate based on an upper-medium-grade (A-rated) fixed income instrument.

 

The initial future policy benefit for each cohort is calculated using the original discount rate and then remeasured using the current discount rate curve. The original rate is used to determine interest accretion on the liability—which is included in net earnings—as well as to calculate the net premiums in both scenarios. The impact of remeasurement, from the original locked-in discount rate to the current rate, is reported as a component of the Company’s AOCI. This original discount rate is locked in at the cohort’s inception or at the Transition Date and will continue to be used in determining the impact on future net earnings associated with that contract.

 

DAC is used by insurance companies to defer costs related to acquiring insurance policies. Under the new guidance, amortization methods are simplified, and DAC for all insurance contracts will be subject to constant-level basis amortization over the lifetime of the policy. Historically, traditional life contracts were amortized in proportion to premiums over the expected premium-paying period. Additionally, shadow DAC is no longer reported.

 

The requirements of the new guidance did not impact capital and surplus or net income under statutory accounting practices, cash flows on the Company’s policies, or the underlying economics of the Company’s business.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2025 and 2024

 

1)	Significant Accounting Policies (Continued)

 

The following table presents a summary of the January 1, 2024 transition date impact by providing a roll forward of the ending reported balances as of December 31, 2023, to the opening balances as of January 1, 2024 for the impacted consolidated balance sheet line items.

 

Schedule of Recent Accounting Pronouncements

		Receivable from Reinsurers				Deferred Policy Acquistion Costs				Value of Business Acquired				Future Policy Benefits and Unpaid Claims				Unearned Premium Reserve				Income Taxes				Accumulated Other Comprehensive Income (loss)				Retained Earnings
Balance as reported, December 31, 2023		$	14,857,059			$	116,351,067			$	8,467,613			$	916,038,616			$	2,543,822			$	13,752,981			$	(6,885,558	)		$	206,978,373
Effect of discount rate remeasurement of future policy benefits			-				-				-				(6,775,997	)			-				1,422,959				5,353,038				-
Removal of related amounts in accumulated other comprehensive income (loss)			-				3,531				(330,494	)			-				1,310				(68,937	)			(259,336	)			-
Other balance sheet reclassifications and adjustments			(164,530	)			-				296				10,632				-				(36,722	)			-				(138,144	)
Balance as adjusted, January 1, 2024		$	14,692,529			$	116,354,598			$	8,137,415			$	909,273,251			$	2,545,132			$	15,070,281			$	(1,791,856	)		$	206,840,229

 

The transition date impacts associated with the adoption of ASU No. 2018-12 were applied as follows:

 

Future Policy Benefits (“FPB”) (See Note 12)

 

	●	Contracts in-force as of the transition date were grouped into cohorts; a revised NPR was calculated for each cohort using the existing transition date balance, best estimate cash flow assumptions without a provision for adverse deviation, and the historical discount rates used for the contracts within the cohort prior to the adoption of ASU No. 2018-12 (the “locked-in” discount rate). For any cohorts where the net premiums exceeded gross premiums (NPR exceeded 100%), the FPB was increased by $10,214 for the excess of net premiums over gross premiums, with a corresponding adjustment recorded to opening retained earnings as of the transition date;
	●	The difference between the FPB calculated at the current upper-medium grade discount rate and the FPB calculated at the locked-in discount rate was recorded as an adjustment to opening accumulated other comprehensive income as of the transition date; and
	●	Corresponding adjustments were made to ceded reinsurance balances.

 

Limited-payment long-duration products transition follows a similar approach to traditional non-participating products, except that these product cohorts may have a deferred profit liability (“DPL”) which is adjusted at the transition date. If an increase to FPB depleted the DPL, the remaining adjustment was recorded to opening retained earnings as of the transition date.

 

Deferred Acquisition Costs (“DAC”) and Value of Business Acquired (“VOBA”) (See Note 9)

 

The opening balances of these accounts were adjusted for the removal of the related amounts in accumulated other comprehensive income, as these balances are no longer amortized using expected future gross premiums, margins, profits or earned premiums.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2025 and 2024

 

1)	Significant Accounting Policies (Continued)

 

The following tables present amounts as previously reported in 2024, the effect upon those amounts from the adoption of the new guidance under ASU No. 2018-12, and the resulting adjusted amounts that are reflected in the consolidated financial statements included herein. The following tables only include those line items impacted by the adoption of the new guidance.

 Schedule of Error Correcetion Prior Period Adjustments

		As Previously Reported				Effect of Change				As Currently Reported
Consolidated Balance Sheets:		December 31, 2024
		As Previously Reported				Effect of Change				As Currently Reported
Assets:
Receivable from reinsurers		$	13,831,093			$	(14,430	)		$	13,816,663
Deferred policy and pre-need contract acquisition costs			122,661,298				4,558,609				127,219,907
Value of business acquired			7,491,600				110,921				7,602,521
Total Assets			1,489,807,214				4,655,100				1,494,462,314
Liabilities:
Future policy benefits and unpaid claims			802,004,527				(49,923,869	)			752,080,658
Unearned premium reserve			2,011,679				1,566				2,013,245
Income taxes			13,079,257				11,461,255				24,540,512
Total liabilities			1,151,024,935				(38,461,048	)			1,112,563,887
Stockholders’ Equity:
Accumulated other comprehensive income (loss), net of taxes			(6,951,266	)			40,670,895				33,719,629
Retained earnings			225,359,186				2,445,253				227,804,439
Total stockholders’ equity			338,782,279				43,116,148				381,898,427
Total liabilities and stockholders’ equity		$	1,489,807,214			$	4,655,100			$	1,494,462,314

 

		As Previously Reported				Effect of Change				As Currently Reported
Consolidated Statements of Earnings:		Year Ended December 31, 2024
		As Previously Reported				Effect of Change				As Currently Reported
Benefits and expenses:
Policyholder benefits and claims		$	98,955,459			$	1,657,632			$	100,613,091
Amortization of deferred policy and pre-need acquisition  costs and value of business acquired			15,940,371				(4,927,755	)			11,012,616
Total benefits and expenses			300,418,898				(3,270,123	)			297,148,775
Earnings before income taxes			34,103,770				3,270,123				37,373,893
Income tax expense			(7,568,002	)			(686,726	)			(8,254,728	)
Net earnings		$	26,535,768			$	2,583,397			$	29,119,165
Net earnings per Class A equivalent common share (1)		$	1.08			$	0.11			$	1.19
Net earnings per Class A equivalent common share -  assuming dilution (1)		$	1.05			$	0.11			$	1.16

 

(1)	Adjusted retroactively for the effect of annual stock dividends

 

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2025 and 2024

 

1)	Significant Accounting Policies (Continued)

 

		As Previously Reported				Effect of Change				As Currently Reported
Consolidated Statements of Comprehensive Income:		Year Ended December 31, 2024
		As Previously Reported				Effect of Change				As Currently Reported
Net earnings		$	26,535,768			$	2,583,397			$	29,119,165
Other comprehensive income:
Unrealized gains (losses) on fixed maturity securities available for sale			(79,228	)			68,186				(11,042	)
Interest rate remeasurement of future policy benefits			-				44,966,236				44,966,236
Other comprehensive income (loss), before income tax			(79,790	)			45,034,422				44,954,632
Income tax benefit (expense)			14,082				(9,457,229	)			(9,443,147	)
Other comprehensive income (loss), net of income tax			(65,708	)			35,577,193				35,511,485
Comprehensive income (loss)		$	26,470,060			$	38,160,590			$	64,630,650

 

		As Previously Reported				Effect of Change				As Currently Reported
Consolidated Statement of Stockholders’ Equity:		Year Ended December 31, 2024
		As Previously Reported				Effect of Change				As Currently Reported
Accumulated other comprehensive income (loss)		$	(6,951,266	)		$	40,670,895			$	33,719,629
Retained earnings			225,359,186				2,445,253				227,804,439
Total stockholders’ equity		$	338,782,279			$	43,116,148			$	381,898,427

 

		As Previously Reported				Effect of Change				As Currently Reported
Consolidated Statement of Cash Flows:		Year Ended December 31, 2024
		As Previously Reported				Effect of Change				As Currently Reported
Cash flows from operating activities:
Net earnings		$	26,535,768			$	2,583,397			$	29,119,165
Provision for deferred income taxes			311,971				686,726				998,697
Policy and pre-need acquisition costs amortized			15,032,413				(4,554,691	)			10,477,722
Value of business acquired amortized			907,958				(373,064	)			534,894
Future policy benefits and unpaid claims		$	30,522,998			$	1,657,632			$	32,180,630

 

ASU No. 2023-09: “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” — Issued in December 2023, ASU 2023-09 requires that public business entities, on an annual basis: (i) disclose specific categories in the rate reconciliation and (ii) provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments in this update require that all entities disclose on an annual basis the following information about income taxes paid: (i) the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and (ii) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The Company adopted ASU 2023-09 retrospectively for the annual period beginning January 1, 2025. The adoption of this standard did not affect the Company’s financial position or results of operations. Refer to Note 16 for the disclosures regarding income taxes.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2025 and 2024

 

1)	Significant Accounting Policies (Continued)

 

Accounting Standards Issued But Not Yet Adopted

 

ASU No. 2024-03: “Income Statement-Reporting Comprehensive Income- Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” — Issued in November 2024, ASU 2024-03 requires public business entities to disclose, in the notes to the consolidated financial statements, specified information about certain expenses at each interim and annual reporting period. ASU 2024-03 requires disclosures about specific types of expenses (i.e., (a) purchases of inventory, (b) employee compensation, (c) depreciation and (d) intangible asset amortization) included in the expense captions presented on the face of the statement of earnings as well as disclosures about selling expenses. ASU 2024-03 does not change the requirements for the presentation of expenses on the statement of earnings. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Accordingly, the Company will adopt the standard commencing with its annual reporting period ending December 31, 2027. The Company is in the process of estimating the potential impact of this new standard on the consolidated financial statements.

 

ASU No. 2025-11: “Interim Reporting (Topic 270): Narrow-Scope Improvements” — Issued in December 2025, ASU 2025-11 clarifies the form, content, and disclosure requirements for interim financial statements and the application of Topic 270. The update differentiates requirements by entity type: SEC registrants must continue to follow SEC rules for condensed financial statements; non-SEC registrants may present either full or condensed statements, using either the ASU’s guidance or SEC-style condensed guidance; and not-for-profit entities follow the non-SEC model with additional presentation considerations specific to NFP reporting. The ASU also compiles a comprehensive list of required interim disclosures for condensed statements from across the Codification, supported by conforming edits, to improve usability (while not replacing underlying guidance). In addition, the ASU reinforces a disclosure principle requiring entities to provide interim disclosures for significant events or transactions that have had a material effect since the most recent year-end, such as changes in accounting principles, key estimates, financing arrangements, long-term contracts, or the reporting entity. The amendments are effective for public business entities for interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. The guidance may be applied prospectively or retrospectively. The Company is in the process of estimating the potential impact of this new standard on the consolidated financial statements.

 

The Company has reviewed other recent accounting pronouncements and has determined that they will not significantly impact the Company’s results of operations or financial position.

 

 

SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2025 and 2024