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

For the quarterly period ended March 31, 2017

COMMISSION FILE NUMBER 000-10685

Midwest Holding Inc.
(Exact name of registrant as specified in its charter)

Nebraska	20-0362426
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
2900 S. 70th, Suite 400, Lincoln, Nebraska	68506
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (402) 489-8266

Former name, former address and former fiscal year, if changed since last report: Not applicable

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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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). Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
Emerging growth company ☐

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 reviewed 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 by Rule 12b-2 of the Act). Yes ☐ No ☒

As of May 1, 2017, there were 22,558,956 shares of Voting Common Stock, par value $0.001 per share, issued and outstanding.

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MIDWEST HOLDING INC.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item No.		Item Caption		Page
Item 1.		Financial Statements		3
		Consolidated Balance Sheets		3
		Consolidated Statements of Comprehensive Income		4
		Consolidated Statements of Cash Flows		5
		Notes to Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		25
Item 4.		Controls and Procedures		25
PART II – OTHER INFORMATION
Item No.		Item Caption		Page
Item 1.		Legal Proceedings		26
Item 1A.		Risk Factors		26
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3.		Defaults Upon Senior Securities		26
Item 4.		Mine Safety Disclosures		26
Item 5.		Other Information		26
Item 6.		Exhibits		27
		Signatures		28

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Midwest Holding Inc. and Subsidiaries
Consolidated Balance Sheets

		March 31, 2017				December 31, 2016
Assets
Investments, available for sale, at fair value
Fixed maturities (amortized cost: $28,093,745 and $29,024,083, respectively)		$	27,031,780			$	27,738,939
Real estate, held for investment			514,719				517,729
Policy Loans			414,721				412,583
Total investments			27,961,220				28,669,251
Cash and cash equivalents			1,221,510				661,545
Amounts recoverable from reinsurers			11,647,173				11,704,055
Interest due and accrued			338,115				312,054
Due premiums			600,960				670,989
Deferred acquisition costs, net			2,499,107				2,568,799
Value of business acquired, net			1,659,945				1,726,192
Intangible assets			700,000				700,000
Property and equipment, net			166,246				158,471
Other assets			145,217				95,773
Total assets		$	46,939,493			$	47,267,129
Liabilities and Stockholders' Equity
Liabilities:
Benefit reserves		$	24,640,449			$	24,606,543
Policy claims			435,394				565,148
Deposit-type contracts			16,773,409				16,012,567
Advance premiums			63,227				52,074
Total policy liabilities			41,912,479				41,236,332
Accounts payable and accrued expenses			1,055,039				1,211,875
Surplus notes			550,000				550,000
Total liabilities			43,517,518				42,998,207
Commitments and Contingencies (See Note 8)
Stockholders' Equity:
Preferred stock, Series A, $0.001 par value. Liquidation preference $6.00 per share.
Authorized 2,000,000 shares; issued and outstanding 74,159 shares
as of March 31, 2017 and December 31, 2016.			74				74
Preferred stock, Series B, $0.001 par value. Liquidation preference $6.00 per share.
Authorized 1,000,000 shares; issued and outstanding 102,669 shares as of
as of March 31, 2017 and December 31, 2016.			103				103
Common stock, $0.001 par value. Authorized 120,000,000 shares;
issued and outstanding 22,558,956 shares
as of March 31, 2017 and December 31, 2016.			22,559				22,559
Additional paid-in capital			33,015,364				33,036,924
Accumulated deficit			(28,577,351	)			(27,533,447	)
Accumulated other comprehensive loss			(1,038,774	)			(1,257,291	)
Total stockholders' equity			3,421,975				4,268,922
Total liabilities and stockholders' equity		$	46,939,493			$	47,267,129

See Notes to Consolidated Financial Statements.

3

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Midwest Holding Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

		Three months ended March 31,
		2017				2016
Income:
Premiums		$	832,847			$	927,433
Investment income, net of expenses			254,680				213,128
Net realized (losses) gains on investments			(35,504	)			2,885
Miscellaneous income			18,800				50,307
			1,070,823				1,193,753
Expenses:
Death and other benefits			295,257				229,022
Interest credited			219,232				170,594
Increase in benefit reserves			145,126				167,025
Amortization of deferred acquisition costs			158,705				122,494
Salaries and benefits			614,108				520,230
Other operating expenses			682,299				753,308
			2,114,727				1,962,673
Loss before income taxes			(1,043,904	)			(768,920	)
Income tax expense			-				-
Net loss			(1,043,904	)			(768,920	)
Comprehensive loss:
Unrealized gains on investments
arising during period			183,013				451,894
Less: reclassification adjustment for net
realized losses (gains) on investments			35,504				(2,885	)
Other comprehensive loss			218,517				449,009
Comprehensive loss		$	(825,387	)		$	(319,911	)
Net loss per common share, basic and diluted		$	(0.05	)		$	(0.04	)

See Notes to Consolidated Financial Statements.

4

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Midwest Holding Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

		Three Months ended March 31,
		2017				2016
Cash Flows from Operating Activities:
Net loss		$	(1,043,904	)		$	(768,920	)
Adjustments to arrive at cash provided by operating activities:
Net premium and discount on investments			53,312				53,305
Depreciation and amortization			85,647				110,007
Deferred acquisition costs capitalized			(93,674	)			(29,338	)
Amortization of deferred acquisition costs			158,705				122,494
Net realized losses (gains) on investments			35,504				(2,885	)
Changes in operating assets and liabilities:
Amounts recoverable from reinsurers			56,882				228,672
Interest and dividends due and accrued			(26,061	)			6,608
Due premiums			70,029				51,985
Policy liabilities			132,237				74,984
Other assets and liabilities			(206,280	)			16,387
Other assets and liabilities held for sale			-				(9,435	)
Net cash used for operating activities			(777,603	)			(146,136	)
Cash Flows from Investing Activities:
Securities available for sale:
Purchases			(3,870,624	)			(4,131,457	)
Proceeds from sale or maturity			4,712,145				3,819,463
Net change in equity securities carried at cost:
Purchases			-				25,000
Proceeds from sale			-				1,434
Net change in policy loans			(2,138	)			9,458
Acquisition of Northstar Financial Corporation			-				2,427,394
Net purchases of property and equipment			(24,165	)			(27,101	)
Net cash provided by investing activities			815,218				2,124,191
Cash Flows from Financing Activities:
Preferred stock dividend			(21,560	)			(21,560	)
Receipts on deposit-type contracts			863,617				713,317
Withdrawals on deposit-type contracts			(319,707	)			(221,685	)
Net cash provided by financing activities			522,350				470,072
Net decrease in cash and cash equivalents			559,965				2,448,127
Cash and cash equivalents:
Beginning			661,545				1,192,336
Ending		$	1,221,510			$	3,640,463

See Notes to Consolidated Financial Statements.

5

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Midwest Holding Inc. and Subsidiaries
Supplemental Cash Flow Information
(Unaudited)

		March 31, 2017			March 31, 2016
Supplemental Disclosure of Non-Cash Information
Common stock issued on Northstar Acquisition			-			2,405,874
		$	-		$	2,405,874

See Notes to Consolidated Financial Statements.

6

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 1. Nature of Operations and Summary of Significant Accounting Policies

Nature of operations: Midwest Holding Inc. (“Midwest” or “the Company”) was incorporated in Nebraska on October 31, 2003 for the primary purpose of operating a financial services company. The Company is in the life insurance business and operates through its wholly owned subsidiary, American Life & Security Corp. (“American Life”). The Company has made several acquisitions of life insurance companies and related entities since 2008, all of which have been merged into the Company or into American Life.

Basis of presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions from the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”), should be read in connection with the reading of these interim unaudited consolidated financial statements.

In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the three months period ended March 31, 2017, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017. All material inter-company accounts and transactions have been eliminated in consolidation.

Investments: All fixed maturities and a portion of the equity securities owned by the Company are considered available-for-sale and are included in the consolidated financial statements at their fair value as of the financial statement date. Bond premiums and discounts are amortized using the scientific-yield method over the term of the bonds. Realized gains and losses on securities sold during the year are determined using the specific identification method. Unrealized holding gains and losses, net of applicable income taxes, are included in comprehensive loss.

Declines in the fair value of available for sale securities below their amortized cost are evaluated to assess whether any other-than-temporary impairment loss should be recorded. In determining if these losses are expected to be other-than-temporary, the Company considers severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings, and the intent and ability of the Company to hold the investment until the recovery of the cost.

The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the statement of comprehensive income as an other-than-temporary impairment. If the Company does not expect to recover the amortized basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed income security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. No other-than-temporary impairments were recognized during the three months ended March 31, 2017 or 2016.

Investment income consists of interest, dividends, and real estate income, which are recognized on an accrual basis and amortization of premiums and discounts.

Policy loans: Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. No valuation allowance is established for these policy loans as the amount of the loan is fully secured by the death benefit of the policy and cash surrender value.

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

Real estate, held for investment: Real estate, held for investment is comprised of ten condominiums in Hawaii. Real estate is carried at depreciated cost. Depreciation on residential real estate is computed on a straight-line basis over 50 years.

Cash: The Company considers all liquid investments with original maturities of three months or less when purchased to be cash equivalents. At March 31, 2017 and December 31, 2016, the Company had no cash equivalents.

Deferred acquisition costs: Deferred acquisition costs (“DAC”) consist of incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. These costs are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. The Company evaluates the types of acquisition costs it capitalizes. The Company capitalizes agent compensation and benefits and other expenses that are directly related to the successful acquisition of contracts. The Company also capitalizes expenses directly related to activities performed by the Company, such as underwriting, policy issuance, and processing fees incurred in connection with successful contract acquisitions.

Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which require an immediate review. The Company determined that no events occurred in the three months ended March 31, 2017 that suggest a review should be undertaken.

The following table provides information about deferred acquisition costs for the periods ended March 31, 2017 and December 31, 2016, respectively.

Value of business acquired: Value of business acquired (“VOBA”) represents the estimated value assigned to purchased companies or insurance in force of the assumed policy obligations at the date of acquisition of a block of policies.

Recoverability of value of business acquired is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense. The Company performs a recoverability analysis annually in the fourth quarter unless events occur which require an immediate review. The Company determined that no events occurred in the three months ended March 31, 2017 that suggest a review should be undertaken.

8

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

Property and equipment: Property and equipment are stated at cost net of accumulated depreciation. Annual depreciation is primarily computed using straight-line methods for financial reporting and straight-line and accelerated methods for tax purposes. Furniture and equipment is depreciated over 3 to 7 years and computer software and equipment is generally depreciated over 3 years. Depreciation expense totaled $16,390 and $35,490 for the three months ended March 31, 2017 and 2016, respectively. Accumulated depreciation totaled $978,254 and $961,864 as of March 31, 2017 and December 31, 2016, respectively.

Maintenance and repairs are expensed as incurred. Replacements and improvements which extend the useful life of the asset are capitalized. The net book value of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in earnings.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset may not be recoverable and exceeds estimated future undiscounted cash flows of the asset. A recognized impairment loss reduces the carrying amount of the asset to its fair value. Management has determined that no such events occurred in the three months ended March 31, 2017 that would indicate the carrying amounts may not be recoverable.

Reinsurance: In the normal course of business, the Company seeks to limit any single exposure to losses on large risks by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. The Company generally strives to diversify its credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Company’s primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers including their activities with respect to claim settlement practices and commutations, and establishes allowances for uncollectible reinsurance recoverable as appropriate. There were no allowances as of March 31, 2017 or December 31, 2016.

Benefit reserves: The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables.

Policy claims: Policy claims are based on reported claims plus estimated incurred but not reported claims developed from trends of historical data applied to current exposure.

Deposit-type contracts: Deposit-type contracts consist of amounts on deposit associated with deferred annuity riders, premium deposit funds and supplemental contracts without life contingencies.

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

Income taxes: The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2010. The provision for income taxes is based on income as reported in the financial statements. The income tax provision is calculated under the asset and liability method. Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. The Company has no uncertain tax positions that it believes are more-likely-than not that the benefit will not to be realized. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company had no accruals for payments of interest and penalties at March 31, 2017 and December 31, 2016.

Revenue recognition and related expenses: Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due.

Amounts received as payment for annuities and/or non-traditional contracts such as interest sensitive whole life contracts, single payment endowment contracts, single payment juvenile contracts and other contracts without life contingencies are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services and cost of insurance, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the consolidated statements of cash flows.

Amounts received under our multi-benefit policy form are allocated to the life insurance portion of the multi-benefit life insurance arrangement and the annuity portion based upon the signed policy.

Liabilities for future policy benefits are provided and acquisition costs are amortized by associating benefits and expenses with earned premiums to recognize related profits over the life of the contracts. Acquisition costs are amortized over the premium paying period using the net level premium method. Traditional life insurance products are treated as long duration contracts, which generally remain in force for the lifetime of the insured.

Comprehensive loss: Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses from marketable securities classified as available for sale, net of applicable taxes.

Common and preferred stock and earnings (loss) per share: The par value per common share is $0.001 with 120,000,000 voting common shares authorized, 20,000,000 non-voting common shares authorized, and 10,000,000 preferred shares authorized. At March 31, 2017 and December 31, 2016, the Company had 22,558,956 voting common shares issued and outstanding.

At December 31, 2016, the Company had 1,179 warrants outstanding. The warrants were exercisable through December 31, 2016 for 10 shares of voting common stock per warrant at an exercise price of $6.50 per share. No warrants were exercised during 2016 and are now expired.

The Class A preferred shares are non-cumulative, non-voting and convertible by the holder to voting common shares after May 2015, at a rate of 1.3 common shares for each preferred share (subject to customary anti-dilution adjustments). There is no stated dividend rate on the Class A shares, but the holders of Class A shares will receive a dividend on each outstanding share of Class A preferred stock in an amount equal to the amount of the dividend payable on each share of common stock. The par value per preferred Class A share is $0.001 with 2,000,000 shares authorized. At March 31, 2017 and December 31, 2016, the Company had 74,159 Class A preferred shares issued and outstanding.

The Class B preferred shares are non-cumulative, non-voting and convertible by the holder or the Company to voting common shares after May 1, 2017 at a rate of 2.0 common shares for each preferred share. The par value per preferred share is $0.001 with 1,000,000 shares authorized. The stated annual dividend rate on the Class B preferred shares is 7%. Dividends totaling $21,560 and $43,120 were paid as of March 31, 2017 and December 31, 2016, respectively. At March 31, 2017 and December 31, 2016, the Company had 102,669 Class B preferred shares issued and outstanding.

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

Earnings (loss) per share attributable to the Company’s common stockholders were computed based on the weighted average number of shares outstanding during each period. The weighted average number of shares outstanding during the three months ended March 31, 2017 and 2016 were 22,558,956 and 18,806,110 shares, respectively.

New accounting standards: In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326). Under the new guidance, this replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to perform credit loss estimates. This update changes the methodology from an incurred loss to an expected credit loss. An allowance for the expected credit loss will be set up and the net income will be impacted. The credit losses will be evaluated in the current period and an adjustment to the allowance can be made. The new standard becomes effective after December 15, 2019. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-1, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity investments that do not have readily determinable fair values; however; the exception requires the Company to adjust the carrying amount for impairment and observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This guidance also changes certain disclosure requirements and other aspects of current GAAP. This guidance is effective for fiscal years beginning after December 15, 2017, and is applicable to the Company in fiscal 2018. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements.

Note 2. Acquisitions and Divestitures

On March 15, 2016, Midwest acquired Northstar Financial Corporation (“Northstar”), an inactive Minnesota corporation, pursuant to an Agreement and Plan of Merger dated December 18, 2015. Pursuant to this merger, Midwest exchanged 1.27 shares of its voting common stock for each share of Northstar common stock, or approximately 4,553,000 shares. The merger of Northstar was recorded as an asset acquisition. The assets (primarily cash) and liabilities of Northstar were recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date.

Effective as of August 29, 2016, American Life sold its interest in its dormant subsidiary, Capital Reserve Life Insurance Company (“Capital Reserve”) to an unrelated third party for cash which approximated the statutory surplus of Capital Reserve, resulting in a net gain of approximately $26,000 including $50,000 cash above book value and unrealized gains on the fair market value of bonds becoming realized at the date of sale of $17,000 offset by the write-off of the VOBA of $40,714. This gain was included in the net realized gain (loss) on investments on the consolidated statement of comprehensive income.

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

Note 3. Investments

The cost or amortized cost and estimated fair value of investments classified as available-for-sale as of March 31, 2017 and December 31, 2016 are as follows:

	Cost or			Gross			Gross
	Amortized			Unrealized			Unrealized			Estimated
	Cost			Gains			Losses			Fair Value
March 31, 2017:
Fixed maturities:
U.S. government obligations	$	2,668,919		$	-		$	130,783		$	2,538,136
States and political subdivisions -- general obligations		382,281			819			1,909			381,191
States and political subdivisions -- special revenue		275,246			6,431			380			281,297
Corporate		24,767,299			17,855			953,998			23,831,156
Total fixed maturities	$	28,093,745		$	25,105		$	1,087,070		$	27,031,780
December 31, 2016:
Fixed maturities:
U.S. government obligations	$	3,390,545		$	-		$	166,326		$	3,224,219
States and political subdivisions -- general obligations		383,730			732			3,067			381,395
States and political subdivisions -- special revenue		275,262			5,633			3,160			277,735
Corporate		24,974,546			16,232			1,135,188			23,855,590
Total fixed maturities	$	29,024,083		$	22,597		$	1,307,741		$	27,738,939

The Company has five securities that individually exceed 10% of the total of the state and political subdivisions categories as of March 31, 2017. The amortized cost, fair value, credit ratings, and description of each security is as follows:

	Amortized			Estimated
	Cost			Fair Value			Credit Rating
March 31, 2017:
Fixed maturities:
States and political subdivisions -- general obligations
Bellingham Wash	$	110,731		$	110,015		AA+
Longview Washington Refunding		162,383			161,190		Aa3
Memphis Tenn		109,167			109,986		AA
States and political subdivisions -- special revenue
Philadelphia PA Auth For Indl Dev City Svc Agreement		149,430			149,647		AA
Riviera Beach FLA Pub Impt Rev		100,384			106,598		AA
Total	$	632,095		$	637,436

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

The following table summarizes, for all securities in an unrealized loss position at March 31, 2017 and December 31, 2016, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position.

	March 31, 2017								December 31, 2016
				Gross			Number					Gross			Number
	Estimated			Unrealized			of		Estimated			Unrealized			of
	Fair Value			Loss			Securities(1)		Fair Value			Loss			Securities(1)
Fixed Maturities:
Less than 12 months:
U.S. government obligations	$	2,538,136		$	130,783		14		$	3,224,219		$	166,326		17
States and political subdivisions --
general obligations		271,205			1,909		2			271,093			3,066		2
States and political subdivisions --
special revenue		25,052			380		1			171,711			3,160		2
Corporate		20,183,615			796,561		118			19,737,965			935,546		112
Greater than 12 months:
Corporate		2,031,178			157,437		15			2,558,275			199,643		12
Total fixed maturities	$	25,049,186		$	1,087,070		150		$	25,963,263		$	1,307,741		145

⁽¹⁾ We may reflect a security in more than one aging category based on various purchase dates.

Based on our review of the securities in an unrealized loss position at March 31, 2017 and December 31, 2016, no other-than-temporary impairments were deemed necessary. Management believes that the Company will fully recover its cost basis in the securities held at March 31, 2017, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment.

The amortized cost and estimated fair value of fixed maturities at March 31, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At March 31, 2017 and December 31, 2016, these required deposits had a total amortized cost of $2,754,354 and $2,747,571 and fair values of $2,660,996 and $2,635,225, respectively.

13

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

The components of net investment income for the three months ended March 31, 2017 and 2016 are as follows:

Proceeds for the three months ended March 31, 2017 and 2016 from sales of investments classified as available-for-sale were $4,712,145 and $3,619,463, respectively. Gross gains of $10,141 and $23,756 and gross losses of $45,645 and $20,871 were realized on those sales during the three months ended March 31, 2017 and 2016, respectively.

Note 4. Fair Values of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

●	Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
●	Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
●	Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

A description of the valuation methodologies used for assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Fixed maturities: Fixed maturities are recorded at fair value on a recurring basis utilizing a third-party pricing source. The valuations are reviewed and validated quarterly through random testing by comparisons to separate pricing models or other third party pricing services. For the period ended March 31, 2017, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third party prices were changed from the values received. Securities with prices based on validated quotes from pricing services are reflected within Level 2.

Cash: The carrying value of cash and cash equivalents and short-term investments approximate the fair value because of the short maturity of the instruments.

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

Policy loans: Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value. Policy loans are categorized as Level 3 in the fair value hierarchy.

Deposit-type contracts: The fair value for direct and assumed liabilities under deposit-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and nonperformance risk of the liabilities. These liabilities are categorized as Level 3 in the fair value hierarchy.

Surplus notes: The fair value for surplus notes is calculated using a discounted cash flow approach. Cash flows are projected utilizing scheduled repayments and discounted to the valuation date using market rates currently available for debt with similar remaining maturities. These notes are structured such that all interest is paid at maturity. In the following fair value tables, the Company has included accrued interest expense, which is recorded in the accounts payable and accrued expenses, of approximately $269,979 and $261,971 in carrying value of the surplus notes as of March 31, 2017 and December 31, 2016, respectively. These liabilities are categorized as Level 3 in the fair value hierarchy.

The following table presents the Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016.

				Significant
	Quoted			Other			Significant
	In Active			Observable			Unobservable			Estimated
	Markets			Inputs			Inputs			Fair
	(Level 1)			(Level 2)			(Level 3)			Value
March 31, 2017
Fixed maturities:
U.S. government obligations	$	-		$	2,538,136		$	-		$	2,538,136
States and political subdivisions — general obligations		-			381,191			-			381,191
States and political subdivisions — special revenue		-			281,297			-			281,297
Corporate		-			23,831,156			-			23,831,156
Total fixed maturities	$	-		$	27,031,780		$	-		$	27,031,780
December 31, 2016
Fixed maturities:
U.S. government obligations	$	-		$	3,224,219		$	-		$	3,224,219
States and political subdivisions — general obligations		-			381,395			-			381,395
States and political subdivisions — special revenue		-			277,735			-			277,735
Corporate		-			23,855,590			-			23,855,590
Total fixed maturities	$	-		$	27,738,939		$	-		$	27,738,939

There were no transfers of financial instruments between any levels during the three months ended March 31, 2017 or during the year ended December 31, 2016.

Accounting standards require disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis are discussed above. There were no financial assets or financial liabilities measured at fair value on a non-recurring basis.

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

The following disclosure contains the carrying values, estimated fair values and their corresponding placement in the fair value hierarchy, for financial assets and financial liabilities as of March 31, 2017 and December 31, 2016, respectively:

	March 31, 2017
				Fair Value Measurements at Date Using
				Quoted Prices in
				Active Markets
				for Identical			Significant Other			Significant
				Assets and			Observable			Unobservable
	Carrying			Liabilities			Inputs			Inputs			Fair
	Amount			(Level 1)			(Level 2)			(Level 3)			Value
Assets:
Policy loans	$	414,721		$	-		$	-		$	414,721		$	414,721
Cash		1,221,510			1,221,510			-			-			1,221,510
Liabilities:
Policyholder deposits
(Deposit-type contracts)		16,773,409			-			-			16,773,409			16,773,409
Surplus notes and accrued interest payable		819,979			-			-			816,577			816,577
	December 31, 2016
				Fair Value Measurements at Date Using
				Quoted Prices in
				Active Markets
				for Identical			Significant Other			Significant
				Assets and			Observable			Unobservable
	Carrying			Liabilities			Inputs			Inputs			Fair
	Amount			(Level 1)			(Level 2)			(Level 3)			Value
Assets:
Policy loans	$	412,583		$	-		$	-		$	412,583		$	412,583
Cash		661,545			661,545			-			-			661,545
Liabilities:
Policyholder deposits
(Investment-type contracts)		16,012,567			-			-			16,012,567			16,012,567
Surplus notes and accrued interest payable		811,971			-			-			808,602			808,602

Note 5. Income Tax Matters

Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017				December 31, 2016
Deferred tax assets:
Loss carryforwards	$	10,138,604			$	9,705,974
Capitalized costs		667,264				667,264
Unrealized losses on investments		361,068				436,949
Benefit reserves		925,673				984,640
Total deferred tax assets		12,092,609				11,794,827
Less valuation allowance		(10,446,571	)			(10,170,638	)
Total deferred tax assets, net of valuation allowance		1,646,038				1,624,189
Deferred tax liabilities:
Policy acquisition costs		639,331				571,148
Due premiums		204,326				228,136
Value of business acquired		564,381				586,905
Intangible assets		238,000				238,000
Total deferred tax liabilities		1,646,038				1,624,189
Net deferred tax assets	$	-			$	-

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

At March 31, 2017 and December 31, 2016, the Company recorded a valuation allowance of $10,446,571 and $10,170,638, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income.

Loss carryforwards for tax purposes as of March 31, 2017, have expiration dates that range from 2024 through 2036.

There was no income tax expense for the three months ended March 31, 2017 and 2016. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 34% to pretax income, as a result of the following:

	Three months ended March 31,
	2017				2016
Computed expected income tax benefit	$	(354,927	)		$	(261,433	)
Increase (reduction) in income taxes resulting from:
Meals, entertainment and political contributions		2,877				9,157
Other		236				(31,694	)
		3,113				(22,537	)
Tax benefit before valuation allowance		(351,814	)			(283,970	)
Change in valuation allowance		351,814				283,970
Net income tax expenses	$	-			$	-

Note 6. Reinsurance

A summary of significant reinsurance amounts affecting the accompanying consolidated financial statements as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016 is as follows:

The following table provides a summary of the significant reinsurance balances recoverable on paid and unpaid policy claims by reinsurer along with the A.M. Best credit rating as of March 31, 2017:

										Recoverable on						Total Amount
				Recoverable			Recoverable			Benefit			Ceded			Recoverable
		AM Best		on Paid			on Unpaid			Reserves/Deposit-			Due			from
Reinsurer		Rating		Losses			Losses			type Contracts			Premiums			Reinsurer
Optimum Re Insurance Company		A-		$	-		$	71,247		$	182,627		$	-		$	253,874
Security National Life Insurance		NR			-			117,980			-			-			117,980
Sagicor Life Insurance Company		A-			-			224,430			11,290,742			239,853			11,275,319
				$	-		$	413,657		$	11,473,369		$	239,853		$	11,647,173

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

At March 31, 2017 and December 31, 2016, total benefit reserves, policy claims, deposit-type contracts, and due premiums ceded by American Life to Sagicor were $11,275,319 and $11,446,342, respectively. American Life remains contingently liable on this ceded reinsurance should Sagicor be unable to meet their obligations

The use of reinsurance does not relieve American Life of its primary liability to pay the full amount of the insurance benefit in the event of the failure of a reinsurer to honor its contractual obligation. No reinsurer of business ceded by American Life has failed to pay policy claims (individually or in the aggregate) with respect to our ceded business.

American Life monitors several factors that it considers relevant to satisfy itself as to the ongoing ability of a reinsurer to meet all obligations of the reinsurance agreements. These factors include the credit rating of the reinsurer, the financial strength of the reinsurer, significant changes or events of the reinsurer, and any other relevant factors. If American Life believes that any reinsurer would not be able to satisfy its obligations with American Life, a separate contingency reserve may be established. At March 31, 2017 and December 31, 2016, no contingency reserve was established.

Note 7. Deposit-Type Contracts

The Company’s deposit-type contracts represent the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. Liabilities for these deposit-type contracts are included without reduction for potential surrender charges. This liability is equal to the accumulated account deposits, plus interest credited, and less policyholder withdrawals. The following table provides information about deposit-type contracts for the quarter ended March 31, 2017 and the year ended December 31, 2016:

Under the terms of American Life’s coinsurance agreement with SNL, American Life assumes certain deposit-type contract obligations, as shown in the table above. The remaining deposits, withdrawals and interest credited represent those for American Life’s direct business.

Note 8. Commitments and Contingencies

Legal Proceedings: We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of our business, and we are not aware of any claims that could materially affect our financial position or results of operations.

Regulatory Matters: State regulatory bodies and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning the Company’s compliance with laws in relation to, but not limited to, insurance and securities. The issues involved in information requests and regulatory matters vary widely. The Company cooperates in these inquiries. Agencies from the state of Nebraska are currently conducting a routine insurance regulatory examination for the period 2013 through 2016 as required by state statutes.

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Midwest Holding Inc. and Subsidiaries
Notes to Consolidated Financial Statements – Continued

Office Lease: The Company leases office space in Lincoln, Nebraska under an agreement executed October 17, 2013 that expires on January 31, 2024. The Company executed an amendment to its lease for an additional 2,876 square feet of office space on October 23, 2015, which will expire on May 31, 2017, which we do not plan to renew. Great Plains entered into a lease on October 4, 2013 for office space in Mitchell, South Dakota, which expired on November 30, 2016. First Wyoming leased space in Cheyenne, Wyoming, which expired on August 31, 2016. Rent expense for the three months ended March 31, 2017 and 2016 was $56,219 and $73,210, respectively. Future minimum lease payments for the remainder of 2017 and the subsequent years are as follows:

Note 9. Statutory Net Income and Surplus

American Life is required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Nebraska Department of Insurance. Statutory practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. First Wyoming Life and Great Plains Life merged into American Life as of September 1, 2016 and December 31, 2016, respectively. Capital Reserve was sold effective August 29, 2016. The March 31, 2016 numbers in the table below have been restated to include the First Wyoming Life and Great Plains Life balances into American Life to be consistent with the March 31 31, 2017 statutory statement filing. The following table summarizes the statutory net loss and statutory capital and surplus of American Life as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016.

The Company is considering many alternatives in order to improve surplus and liquidity. Management’s focus is on raising additional capital from outside investors. We cannot assure that additional capital will be raised, or if raised, on terms that will be economical to us. Such capital will further strengthen the Company and American Life and allow us to expand our writing of new business. Until the additional capital is raised, the Company is evaluating other activities such as sales or cessions of blocks of business and reducing expenditures.

Note 10. Surplus Notes

The following provides a summary of the Company’s surplus notes along with issue dates, maturity dates, face amounts, and interest rates as of March 31, 2017:

Any payments and/or repayments must be approved by the Nebraska Department of Insurance. As of March 31, 2017, the Company has accrued $269,979 of interest expense under accounts payable and accrued expenses on the consolidated balance sheet. No payments were made in the three months ended March 31, 2017, or during the year ended December 31, 2016. The surplus notes for $300,000 and $250,000 matured on August 1, 2016 and September 1, 2016, respectively. Due to the nature of surplus notes, a repayment cannot be made without the prior approval of the Nebraska insurance regulators.

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Note 11. Related Party Transactions

The Company commenced its third party administrative (“TPA”) services in 2012 as an additional revenue source. These services were offered to American Life through February 28, 2017, and to non-consolidated entities. These agreements, for various levels of administrative services on behalf of each company, generate fee income for the Company. Services provided vary based on their needs and can include some or all aspects of back-office accounting and policy administration. We have been able to perform our TPA services using our existing in-house resources. Fees earned during the three months ended March 31, 2017 and 2016 were $16,500 and $14,500, respectively.

Note 12. Subsequent Events

All of the effects of subsequent events that provide additional evidence about conditions that existed at March 31, 2017, including the estimates inherent in the process of preparing consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the date of the consolidated financial statements but arose after, but before the consolidated financial statements were available to be issued. In some cases, non-recognized subsequent events are disclosed to keep the consolidated financial statements from being misleading.

The Company has evaluated subsequent events through the date that the consolidated financial statements were issued and found no events to report.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition as of March 31, 2017, compared with December 31, 2016, and the results of operations for the three months ended March 31, 2017, compared with the corresponding period in 2016 of Midwest Holding Inc. and its consolidated subsidiary. The MD&A is provided as a supplement to, and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements (“Notes”) presented in “Part 1 – Item 1. Financial Statements”; our Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”), including the sections entitled “Part I – Item 1A. Risk Factors,” and “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Cautionary Note Regarding Forward-Looking Statements

Except for certain historical information contained herein, this report contains certain statements that may be considered “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, and such statements are subject to the safe harbor created by those sections. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of revenues, earnings, cash flows, capital expenditures, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed acquisition plans, new services, or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statement of assumptions underlying any of the foregoing. Words such as “believe,” “may,” “could,” “expects,” “hopes,” “estimates,” “projects,” “intends,” “anticipates,” and “likely,” and variations of these words, or similar expressions, terms, or phrases, are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks, assumptions, and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Item 1A. Risk Factors," set forth in our 2016 Form 10-K.

All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the our expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.

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Overview

We were formed on October 31, 2003 for the primary purpose of becoming a financial services company. We presently conduct our business through our sole life insurance subsidiary, American Life & Security Corp. (“American Life”). In 2009, American Life was issued a certificate of authority to conduct life insurance business in Nebraska

We have incurred losses since inception that resulted primarily from costs incurred while raising capital and establishing and operating American Life and other entities. We expect to continue to incur operating losses until American Life achieves a volume of in-force life insurance policies that provides premiums that are sufficient to cover our operating expenses.

Critical Accounting Policies and Estimates

The MD&A included in our 2016 Form 10-K contains a detailed discussion of our critical accounting policies and estimates. This report should be read in conjunction with the “Critical Accounting Policies and Estimates” discussed in our 2016 Form 10-K.

Consolidated Results of Operations

The following discussion compares the results of the quarter ended March 31, 2017 with the quarter ended March 31, 2016. Unless the context indicates otherwise, the 2017 results are stated first followed by 2016 results.

Net Loss: The increase in net loss was primarily due to the decline in premium revenue, the increase in death benefits and surrenders, interest credited, and the amortization of deferred acquisition costs. These were offset by lower reserves and the decrease in other operating expenses.

Revenues are primarily generated from premium revenues and investment income. Insurance revenues are summarized in the table below.

Premium revenue: Premium revenue decreased primarily due to our decision to reduce new life insurance policy sales to near zero in 2015 and 2016 in order to preserve the regulatory capital and surplus of American Life. The net effect is evident in the first quarter of 2017 and we expect it will be evident throughout the remainder of 2017. We expect to have limited production of new insurance business in 2017 with new sales resulting in $30,000 of new annual premium written in the first quarter of 2017.

Investment income, net of expenses: The components of net our investment income are as follows:

The increase in investment income was due primarily to the increased size of our bond portfolio. Management was more aggressive in investing excess cash during 2016, resulting in larger invested assets and smaller available cash balances. Policy loan interest and miscellaneous investment income is included in the “Other” line item above. The increase in investment expenses was due to the transfer of bonds to American Life’s custodial account from the custodial accounts that were held for First Wyoming Life and Great Plains Life prior to our acquisition of those companies.

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Net realized gains on investments: The net realized gain decreased primarily due to the call redemption of one bond.

Miscellaneous income: Miscellaneous income decreased due to repayment of one of our investments in 2016 for a gain of $32,000 offset by a slight increase in our TPA fees. We have two customers for whom we performed these services. We do not expect such services to be a significant source of future revenue. Fees earned during the three months ended March 31, 2017 and 2016 were $16,500 and $14,500, respectively.

Expenses are summarized in the table below.

Death and other benefits: Death benefits increased due to an increase in our paid claims. We expect death benefits to continue at current levels due to the age of a block of business we acquired several years ago. Claims experience on our current underwritten block has been minimal. We had one claim on American Life’s new business during the period, which net to us was only $40,000. We maintain policy reserves to offset the effect of all claims. Claim expenses on our acquired block of business are largely offset by a release in policy reserves.

Interest credited: The increase was due to the increase in the annuity deposits.

Increase in benefit reserves: The decrease in benefit reserves reflects the surrenders primarily from acquired blocks of business. American Life’s overall persistency is 95% which is above industry average and better than the pricing model for the block. The decrease was offset by the new business written in late 2016 and the first quarter of 2017 and the maturity of our in-force block of business.

Amortization of deferred acquisition costs: The increase was a result of more surrenders related to an acquired block of business. The unamortized DAC that related to those policies surrendered was expensed upon surrender.

Salaries and benefits: The increase was due to the inclusion of salary and benefits related to Northstar after its acquisition by us in 2016.

Other operating expenses: Other operating expenses decreased primarily due to the one-time expenses incurred in 2016 related to the Northstar and First Wyoming acquisitions and the redomestication of and merger of our former life subsidiaries of $125,000. These were offset by the Nebraska Department of Insurance regulatory examination fees of $80,000.

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Investments

The Company’s overall investment philosophy is reflected in the allocation of its investments. The Company emphasizes investment grade debt securities, with smaller holdings in equity securities, real estate held for investment, and policy loans. The following table shows the carrying value of our investments by investment category and cash and cash equivalents, and the percentage of each to total invested assets as of March 31, 2017 and December 31, 2016.

		March 31, 2017						December 31, 2016
		Carrying			Percent			Carrying			Percent
		Value			of Total			Value			of Total
Fixed maturity securities:
U.S. government obligations		$	2,538,136		8.7	%		$	3,224,219		11.0	%
States and political subdivisions - general
obligation			381,191		1.3				381,395		1.3
States and political subdivisions - special revenue			281,297		1.0				277,735		0.9
Corporate			23,831,156		81.6				23,855,590		81.2
Total fixed maturity securities			27,031,780		92.6				27,738,939		94.4
Cash and cash equivalents			1,221,510		4.2				661,545		2.4
Other investments:
Real estate, held for investment			514,719		1.8				517,729		1.8
Policy loans			414,721		1.4				412,583		1.4
Total		$	29,182,730		100.0	%		$	29,330,796		100.0	%

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, 2017 and December 31, 2016.

Reflecting the quality of securities maintained by the Company, 98.0% and 97.6% of all fixed maturity securities were investment grade as of March 31, 2017 and December 31, 2016, respectively. Due to the low interest rate environment, the Company has invested in bonds with “A” or “BBB” ratings.

Market Risks of Financial Instruments

The Company holds a portfolio of investments that primarily includes cash, bonds, stocks, and real estate, held for investment. Each of these investments is subject to market risks that can affect their return and their fair value. A majority of the investments are fixed maturity securities including debt issues of corporations, U.S. Treasury securities, or securities issued by government agencies. The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and equity risk.

Interest Rate Risk

Interest rate risk arises from the price sensitivity of investments to changes in interest rates. Interest and dividend income represent the greatest portion of an investment’s return for most fixed maturity securities in stable interest rate environments. The changes in the fair value of such investments are inversely related to changes in market interest rates. As interest rates fall, the interest and dividend streams of existing fixed-rate investments become more valuable and fair values rise. As interest rates rise, the opposite effect occurs. We attempt to mitigate our exposure to adverse interest rate movements through staggering the maturities of the fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet its obligations and to address reinvestment risk considerations. Due to the composition of our book of insurance business, we believe it is unlikely that we would encounter large surrender activity due to an interest rate increase that would force the disposal of fixed maturities at a loss.

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Credit Risk

We are exposed to credit risk through counterparties and within the investment portfolio. Credit risk relates to the uncertainty associated with an obligor’s ability to make timely payments of principal and interest in accordance with the contractual terms of an instrument or contract. We manage our credit risk through diversification of investments amongst many corporations and numerous industries. Additionally our investment policy limits the size of holding in any particular issuer.

Liquidity and Capital Resources

At March 31, 2017, the Company had cash and cash equivalents totaling $1,221,510. We believe that our existing cash and cash equivalents will be sufficient to fund the anticipated operating expenses and capital expenditures for at least twelve months when combined with the liquidity associated with our investment portfolio. The Company is also looking to raise additional capital in 2017. The Company has based this estimate upon assumptions that may prove to be wrong and we could use our capital resources sooner than they currently expect. Our surplus notes for $300,000 and $250,000 matured on August 1, 2016 and September 1, 2016, respectively. Due to the nature of surplus notes a repayment cannot be made without the prior approval of the Nebraska regulators and they have not approved any repayment to date.

Since inception, our operations have been financed primarily through the sale of voting common stock and preferred stock. Our operations have generated significant operating losses since we were incorporated in 2003. We expect to continue to incur losses for at least the foreseeable future.

Aside from raising capital, which has funded the vast majority of our operations, premium income, deposits to policyholder account balances, and investment income are the primary sources of funds while withdrawals of policyholder account balances, investment purchases, policy benefits in the form of claims, and operating expenses are the primary uses of funds. To ensure we will be able to meet future commitments, the funds received as premium payments and deposits are invested in primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will in the future meet our ongoing cash flow needs. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Our investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. Cash flow projections and cash flow tests under various market interest scenarios are also performed annually to assist in evaluating liquidity needs and adequacy. We currently anticipate that available liquidity sources and future cash flows will be adequate to meet our needs for funds for at least the next twelve months.

Net cash used by operating activities was $777,603 for March 31, 2017, which was comprised primarily of the net loss of $1,043,904 partially offset by an increase in policy liabilities of $132,237. Net cash provided by investing activities was $815,218. The primary source of cash was from sales of available for sale securities. Offsetting this source of cash was our purchases of investments in available-for-sale securities and the purchase of property and equipment. Net cash provided by financing activities was $522,350. The primary source of cash was net receipts on deposit-type contracts, offset by dividends paid to Class B Preferred Stock shareholders.

The Company is considering many alternatives in order to improve surplus and liquidity. Management’s focus is on raising additional capital from outside investors. We cannot assure that additional capital will be raised, or if raised, on terms that will be economical to us. Such capital will further strengthen the Company and American Life and allow us to expand our writing of new business. Until the additional capital is raised, the Company is evaluating other activities such as sales or cessions of blocks of business and reducing expenditures.

Impact of Inflation

Insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may affect such losses and expenses, are known. The Company attempts, in establishing premiums, to anticipate the potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by us. Inflation also affects the rate of investment return on the investment portfolio with a corresponding effect on investment income.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations

As a “smaller reporting company” the Company is not required to provide the table of contractual obligations required pursuant to this Item.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company,” the Company is not required to provide disclosure pursuant to this Item.

ITEM 4. CONTROLS AND PROCEDURES.

We have established disclosure controls and procedures to ensure, among other things, material information relating to our Company, including our consolidated subsidiary, is made known to our officers who certify our financial reports and to the other members of our senior management and the Board of Directors.

Management, (with the participation of our principal executive officer/principal financial officer), carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31, 2017. Based on this evaluation, our principal executive officer/principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures along with the related internal controls over financial reporting were effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Material Weakness Previously Identified

Refer to Item 9A of Part II of the 2016 Form 10-K for detail about a previously identified material weakness in the Company's internal control over financial reporting over complex and non-routine transactions. The Company has implemented the following remediation steps to address this material weakness: (i) continual evaluation and enhancement of internal technical accounting capabilities, supported by the use of third-party advisors and consultants to assist with areas requiring specialized technical accounting expertise and (ii) enhanced awareness to identify complex technical accounting topics and early identification of situations which might require the use of third-party advisors and consultants. The Company's management concluded that the material weaknesses have been remediated as of March 31, 2017.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of our business, and we are not aware of any claims that could materially affect our financial position or results of operations.

ITEM 1A. RISK FACTORS.

There have been no material changes from the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 in response to Item 1A of Part I of such Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS.

EXHIBIT
NUMBER		DESCRIPTION
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS **		XBRL Instance Document.
101.SCH **		XBRL Taxonomy Extension Schema Document.
101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB **		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document.

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 12, 2017

	MIDWEST HOLDING INC.
	By:	/s/ Mark A. Oliver
	Name:	Mark A. Oliver
	Title:	Chief Executive Officer
		Principal Executive Officer & Principal Financial Officer

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