0001209286-13-000223.txt : 20130917 0001209286-13-000223.hdr.sgml : 20130917 20130612162307 ACCESSION NUMBER: 0001209286-13-000223 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20130612 DATE AS OF CHANGE: 20130802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEMBERS Life Insurance Co CENTRAL INDEX KEY: 0001562577 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 391236386 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-186477 FILM NUMBER: 13909067 BUSINESS ADDRESS: STREET 1: 2000 HERITAGE WAY CITY: WAVERLY STATE: IA ZIP: 50677 BUSINESS PHONE: 608.238.5851 MAIL ADDRESS: STREET 1: 5910 MINERAL POINT ROAD CITY: MADISON STATE: WI ZIP: 53705 S-1/A 1 e93125.txt AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 2013 REGISTRATION NO. 333-186477 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 MEMBERS LIFE INSURANCE COMPANY (Exact name of registrant as specified in its charter) IOWA 6311 39-1236386 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
MEMBERS Life Insurance Company 2000 Heritage Way Waverly, Iowa 50677 (319) 352-4090 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Ross Hansen, Esq. MEMBERS Life Insurance Company 2000 Heritage Way Waverly, Iowa 50677 (319) 352-4090 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPY TO: Stephen E. Roth, Esq. Thomas E. Bisset, Esq. Sutherland Asbill & Brennan LLP 700 Sixth Street, NW, Suite 700 Washington, DC 20001 (202) 383-0100 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [ ]
CALCULATION OF REGISTRATION FEE ------------------------------------------------------------------------------------------------------ TITLE OF EACH AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF CLASS OF SECURITIES REGISTERED MAXIMUM OFFERING MAXIMUM REGISTRATION FEE TO BE REGISTERED PRICE AGGREGATE OFFERING PER UNIT PRICE ------------------------------------------------------------------------------------------------------ Single Premium * * $100 million $ 13,640 Deferred Annuity Contract ------------------------------------------------------------------------------------------------------
* The maximum aggregate offering price is estimated solely for the purposes of determining the registration fee. The amount to be registered and the proposed maximum offering price per unit are not applicable since these securities are not issued in predetermined amounts or units. The registration fee of $13,640 was previously paid in connection with the filing of the Registrant's initial Registration Statement on February 6, 2013. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. MEMBERS(R) MARKET ZONE ANNUITY ISSUED BY: MEMBERS LIFE INSURANCE COMPANY 2000 HERITAGE WAY WAVERLY, IOWA 50677 TELEPHONE NUMBER: 800-798-6600 OFFERED THROUGH: CUNA BROKERAGE SERVICES, INC. This prospectus describes the MEMBERS(R) Market Zone Annuity, an individual or joint owned, single premium deferred annuity contract (the "Contract") issued by MEMBERS Life Insurance Company (the "Company", "we", "us", or "our"). The Contract is designed for individuals, corporations, financial institutions, trusts, and certain retirement plans that qualify for special federal income tax treatment, as well as those that do not qualify for such treatment. The Contract offers you the ability to allocate your monies among two interest crediting options, accumulate interest earnings under the Contract and receive income payments. The Contract is not an investment in the stock market or in any securities index. You may purchase the Contract with a single Purchase Payment that is at least $5,000. You may allocate your Purchase Payment among two options - the Secure Account and the Growth Account (the "Risk Control Accounts"). For each Risk Control Account, we credit interest based in part on the performance of the S&P 500 Price Index (the "Index") over a one-year period. We hold reserves for Index Interest Rate Floor and Cap guarantees for amounts allocated to each Risk Control Account in a separate account (the "Separate Account"). Our general account assets are also available to meet the guarantees under the Contract as well as our other general obligations. THE GUARANTEES IN THIS CONTRACT ARE SUBJECT TO THE COMPANY'S FINANCIAL STRENGTH AND CLAIMS-PAYING ABILITY. We may offer additional Risk Control Accounts in the future. Not all Risk Control Accounts may be available in all markets where we offer the Contract. If you surrender your Contract or take a partial withdrawal during the Initial Index Period, we will apply a Surrender Charge and a Market Value Adjustment ("MVA") to the amount being surrendered or withdrawn that is in excess of the free annual withdrawal amount unless you qualify for the Nursing Home or Hospital waiver or terminal illness waiver, described in the prospectus. See "fees and charges on page 18," "market value adjustment" on page 16 and "access to your money" on page 19. The MVA may be either positive or negative, which means the MVA may increase or decrease the amount you receive upon surrender or partial withdrawal. THERE ARE RISKS ASSOCIATED WITH THE CONTRACT. These risks include liquidity risks, investment risks, market risks, company risks, and interest rate risks. Also, Surrender Charges and an MVA may apply for a number of years, so that the Contract should only be purchased for the long-term. Under some circumstances, you may receive less than your Purchase Payment under the Contract. In addition, partial withdrawals and surrenders will be subject to income tax and may be subject to a 10% Internal Revenue Service ("IRS") penalty tax if taken before age 59 1/2. Accordingly, you should carefully consider your income and liquidity needs before purchasing a Contract. Additional information about these risks appears under "highlights" on page 4, "access to your money" on page 19, and "federal income tax matters" on page 24. We offer the Contract through CUNA Brokerage Services, Inc., which is the principal underwriter. The principal underwriter is not required to sell any specific number or dollar amount of Contracts but will use its best efforts to sell the Contracts. There are no arrangements to place funds in an escrow, trust, or similar account. This is a continuous offering. This prospectus provides important information you should know before investing. Please keep the prospectus for future reference. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THIS CONTRACT IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY ANY BANK OR BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. The date of this prospectus is June __, 2013
TABLE OF CONTENTS GLOSSARY.......................................................................1 HIGHLIGHTS.....................................................................4 How Your Contract Works......................................................4 Contract Charges ............................................................6 Change of Annuitant Endorsement Charge ......................................6 Benefits of Your Contract ...................................................7 Risk Factors ................................................................7 Other Important Information You Should Know .................................8 GETTING STARTED - THE ACCUMULATION PERIOD .....................................9 Purchasing a Contract........................................................9 Tax-Free "Section 1035" Exchanges ...........................................9 Owner ......................................................................10 Divorce ....................................................................10 Beneficiary.................................................................10 Right to Examine ...........................................................10 ALLOCATING YOUR PURCHASE PAYMENT..............................................11 AUTOMATIC REBALANCE PROGRAM...................................................11 MARKET VALUE ADJUSTMENT ......................................................17 SURRENDER VALUE...............................................................19 FEES AND CHARGES..............................................................19 Surrender Charge............................................................19 Change of Annuitant Endorsement Charge .....................................20 Other Information ..........................................................20 ACCESS TO YOUR MONEY .........................................................20 Partial Withdrawals.........................................................20 Free annual withdrawal amount. ..........................................21 Waiver of Surrender Charges. ............................................21 o Nursing Home or Hospital Waiver. .....................................21 o Terminal Illness Waiver. .............................................22 Surrenders..................................................................22 Partial Withdrawal and Surrender Restrictions ..............................22 Right to Defer Payments ....................................................22 DEATH BENEFIT ................................................................22 Death of the Owner .........................................................22 Death of Annuitant While the Owner is Living................................23 Death Benefit Payment Options ..............................................23 Death of Owner or Annuitant After the Payout Date ..........................23 Abandoned Property Requirements.............................................24 INCOME PAYMENTS - THE PAYOUT PERIOD ..........................................24 Payout Date.................................................................24 Terms of Income Payments ...................................................24 INCOME PAYMENT OPTIONS .......................................................25 Election of an Income Payment Option........................................25
i Options ....................................................................25 FEDERAL INCOME TAX MATTERS....................................................26 Tax Status of the Contracts.................................................26 Taxation of Non-Qualified Contracts ........................................26 Taxation of Qualified Contracts ............................................28 Federal Estate Taxes, Gift and Generation-Skipping Transfer Taxes ..........28 Medicare Tax................................................................29 Federal Defense of Marriage Act ............................................29 Annuity Purchases By Nonresident Aliens and Foreign Corporations............29 Possible Tax Law Changes....................................................29 OTHER INFORMATION.............................................................30 Distribution ...............................................................30 Authority to Change.........................................................31 Incontestability............................................................31 Misstatement of Age or Gender ..............................................31 Conformity with Applicable Laws ............................................31 Reports to Owners ..........................................................31 Change of Address...........................................................31 Inquiries ..................................................................31 CORPORATE HISTORY OF THE COMPANY .............................................32 Financial Information ......................................................33 Investments ................................................................33 Reinsurance ................................................................33 Policy Liability and Accruals...............................................33 POTENTIAL RISK FACTORS THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS ......................................................................33 SELECTED FINANCIAL DATA ......................................................37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...................................................................39 Cautionary Statement Regarding Forward-Looking Information..................39 Overview....................................................................40 Critical Accounting Policies ...............................................40 Financial Condition.........................................................45 MANAGEMENT ...................................................................51 Directors and Executive Officers............................................51 FINANCIAL STATEMENTS..........................................................59 APPENDIX A: EXAMPLES OF THE PARTIAL WITHDRAWALS, FULL SURRENDER, AND THE MARKET VALUE ADJUSTMENT .....................................................A-1
THE CONTRACT MAY NOT BE AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL ANY CONTRACT AND IT IS NOT SOLICITING AN OFFER TO BUY ANY CONTRACT IN ANY STATE IN WHICH THE OFFER OR SALE IS NOT PERMITTED. WE DO NOT AUTHORIZE ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. ii -------------------------------------------------------------------------------- GLOSSARY -------------------------------------------------------------------------------- We have tried to make this prospectus as understandable as possible. However, in explaining how the Contract works, we have had to use certain terms that have special meanings. We define these terms below. ACCUMULATION PERIOD - The Accumulation Period is the period of time that: (a) begins on the Contract Issue Date as stated on your Contract Data Page; and (b) continues until the Payout Date, unless the Contract is terminated. ADJUSTED INDEX VALUE - The Initial Index Value adjusted for the Index Interest Rate Cap or Index Interest Rate Floor for the current Contract Year. ADMINISTRATIVE OFFICE - MEMBERS Life Insurance Company, 2000 Heritage Way, Waverly, Iowa 50677. Phone: 1-800-798-6600. AGE - Age as of last birthday. ANNUITANT (JOINT ANNUITANT) - The natural person(s) whose life (or lives) determines the amount of annuity payments under the Contract. AUTOMATIC REBALANCE PROGRAM - A program to automatically transfer values between the Risk Control Accounts to achieve the balance of Contract Value equal to the allocation percentages you requested. The Automatic Rebalance Program is only in effect during the Initial Index Period. BENEFICIARY - The person(s) (or entity) you named to receive proceeds payable due to the death of the Owner. Before the Payout Date, if no Beneficiary survives the Owner, we will pay the death benefit proceeds to the Owner's estate. BUSINESS DAY - Any day both the Company and the New York Stock Exchange are open for business. The Company is closed on the following holidays: New Year's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Company is closed on the day itself if those days fall Monday through Friday, the day immediately preceding if those days fall on a Saturday, and the day immediately following if those days fall on a Sunday. COMPANY - MEMBERS Life Insurance Company; also referred to as "we", "our" and "us". CONTINGENT OWNER - A contingent owner assumes control of the Contract and becomes the new Owner if the original Owner(s) dies before the Annuitant. CONTRACT - The MEMBERS Market Zone Annuity, an individual or joint owned, single premium deferred annuity contract issued by MEMBERS Life Insurance Company. CONTRACT ANNIVERSARY - The same day and month as the Contract Issue Date for each year the Contract remains in force. CONTRACT ISSUE DATE - The date from which Contract Years and Contract Anniversaries are determined. The Contract Issue Date is shown on your Data Page. CONTRACT VALUE - The current value of your annuity as provided under this Contract during the Accumulation Period. Contract Value will be impacted by the Credited Index Interest, which may be positive or negative. CONTRACT YEAR - Any twelve-month period beginning on the Contract Issue Date or Contract Anniversary and ending one day before the next Contract Anniversary. CREDITED INDEX INTEREST - The amount of index interest credited on each Contract Anniversary and at time of partial withdrawal, surrender, death and annuitization. Credited Index Interest may be positive or negative and will impact Contract Value. CREDITED INDEX INTEREST RATE - The rate used to determine the index interest to be applied to Contract Value. DEATH BENEFIT - The Contract Value adjusted for Credited Index Interest as of the date death benefits are payable. We do not apply the Surrender Charge or MVA in determining the death benefit payable. DUE PROOF OF DEATH - Proof of death satisfactory to us. Such proof may consist of the following if acceptable to us: a) a certified copy of the death record; b) a certified copy of a court 1 decree reciting a finding of death; c) any other proof satisfactory to us. GENERAL ACCOUNT - All of the Company's assets other than the assets in the Separate Account. GOOD ORDER - All necessary documents and forms that are complete and in our possession. To be in "Good Order," an instruction must be sufficiently clear so that we do not need to exercise any discretion to follow such instructions and any payment amount must meet our minimum requirements to complete the request. We reserve the right to change, from time to time, our requirements for what constitutes Good Order and which documents, forms and payment amounts are required in order for us to complete your request. We will provide you a written notice of any change in our requirements for what constitutes "Good Order" at least 10 days in advance of such change. HOSPITAL - A facility that is licensed and operated as a Hospital according to the law of the jurisdiction in which it is located. INCOME PAYMENT OPTION - An option to receive income payments during the Payout Period. INDEX - The S&P 500 Composite Stock Price or any substituted suitable alternative index. See "addition or Substitution of an Index" for the criteria we would use to identify a suitable alternative index. INDEX INTEREST - Interest we calculate that is based in part on the performance of an Index. INDEX INTEREST RATE CAP - The maximum index interest rate that we may use to determine Credited Index Interest. We may change this rate at the beginning of a Contract Year. INDEX INTEREST RATE FLOOR - The minimum index interest rate that we may use to determine the Credited Index Interest. This rate will equal the initial Index Interest Rate Floor shown on your Contract Data Page and will not change during the life of your Contract. The Index Interest Rate Floors for the Secure Account and Growth Account are currently 0% and -10% respectively. INITIAL INDEX VALUE - The index value as of the beginning of the current Contract Year. INITIAL INDEX PERIOD - The period beginning on the Contract Issue Date and ending on the Initial Index Period Expiration Date. This period coincides with the Surrender Charge Period. See "fees and charges" for more details. INITIAL INDEX PERIOD EXPIRATION DATE - The last day of the Initial Index Period which coincides with the expiration of the Surrender Charge Period. INTERNAL REVENUE CODE - The Internal Revenue Code of 1986, as amended. ISSUE DATE - The date on which we issue the Contract. We will only issue the Contract on the 10th and 25th of each month. MARKET VALUE ADJUSTMENT ("MVA") - An adjustment that we will make to the amount you receive if you surrender the Contract or take a partial withdrawal during the Initial Index Period. The MVA helps offset our costs and risks of owning fixed income and other investments used to back the guarantees under your Contract from the Contract Issue Date to the date you surrender the Contract or take a partial withdrawal. The MVA may be either positive or negative. This means that the MVA may increase or decrease the amount payable to you upon surrender or partial withdrawal. MARKET VALUE ADJUSTMENT INDEX (INDICES) - The index (indices) that we use to determine the rates of interest used in calculating the MVA. NON-QUALIFIED CONTRACT - An annuity contract that is independent of any formal retirement or pension plan. NURSING HOME - A facility that is licensed and operates as a nursing facility according to the law of the jurisdiction in which it is located. OWNER - The person(s) (or entity) who owns this Contract and whose death determines the death benefit. If there are multiple Owners, each Owner will be a joint Owner of the Contract and all references to Owner will mean joint Owners. The Owner has all rights, title and interest in this Contract during the Accumulation Period. The Owner may exercise all rights and options stated in this Contract, subject to the rights of any irrevocable Beneficiary. The Owner is also referred to as "you" or "your." PAYEE - The person(s) (or entity) who receives income payments during the Payout Period while the Annuitant is living. The Payee is the Owner, unless otherwise designated. A minor cannot be the Payee. PAYOUT DATE - The date we begin making income payments to the Payee from the Contract. 2 PAYOUT PERIOD - The phase the Contract is in once income payments begin. PURCHASE PAYMENT - The initial payment that we require to issue the Contract. We do not allow any payments under the Contract after the initial Purchase Payment. QUALIFIED CONTRACT - An annuity that is part of an individual retirement plan, pension plan or employer-sponsored retirement program. RISK CONTROL ACCOUNT - An interest crediting option to which you may allocate your contract value. RISK CONTROL ACCOUNT VALUE - The amount of Contract Value allocated to a Risk Control Account. SEPARATE ACCOUNT - A separate account that we established within our General Account and under the laws of Iowa in which we hold reserves for our guarantees under the Contract. Our other general account assets are also available to meet the guarantees under the Contract and our other general obligations. The portion of the assets of the separate account equal to the reserves and other contract liabilities with respect to the separate account will not be chargeable with liabilities arising out of any other business we may conduct. The Separate Account is not registered under the Investment Company Act of 1940. SURRENDER CHARGE - The charge we assess when you surrender either some or all of the Contract Value before the end of the Initial Index Period. SURRENDER CHARGE PERIOD - The number of Contract Years beginning on the Contract Issue Date during which we may assess a surrender charge and apply an MVA if you surrender the Contract or take a partial withdrawal. This period coincides with the Initial Index Period See "fees and charges - Surrender Charge" for more details. SURRENDER VALUE - The amount you are entitled to receive under this Contract, in the event this Contract is terminated during the Accumulation Period. It is equal to your Contract Value, less any Surrender Charges and adjusted for any MVA. UNADJUSTED INDEX VALUE - The closing value of the Index on a date on which we calculated Index Interest. If the closing value of the Index is not published on that date, we will use the closing value of the Index from the next day on which the closing value of the Index is published. WRITTEN REQUEST - A request in writing and in a form satisfactory to us signed by the Owner and received at our Administrative Office. A Written Request may also include a telephone or fax request for specific transactions that you make under the terms of an executed telephone or fax authorization with original signature, on file at our Administrative Office. 3 -------------------------------------------------------------------------------- HIGHLIGHTS -------------------------------------------------------------------------------- The following is a "summary" of the key features of the Contract. This summary does not include all of the information you should consider before purchasing a Contract. You should carefully read the entire prospectus, which contains more detailed information concerning the Contract and the Company before making an investment decision. HOW YOUR CONTRACT WORKS Your Contract is an individual or joint owned, single premium deferred annuity contract. There are two periods to your Contract, an Accumulation Period and a Payout Period. Your Contract can help you save for retirement because it can allow your Contract Value to earn interest on a tax-deferred basis and you can later elect to receive retirement income for life or a period of years. You generally will not pay taxes on your earnings until you withdraw them. Note: When you purchase the Contract, you are not buying shares in a securities index or shares of stock. During the Accumulation Period of your Contract, you allocate your Contract Value to the Risk Control Accounts, where interest is credited, if any, each Contract Year based, in part, on the investment performance of the Index (currently the S&P 500 Composite Stock Price Index), subject to an Index Interest Rate Cap and Floor that is unique to each Risk Control Account. The S&P 500 Index is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poors. The Index can go up or down based on the stock prices of the 500 companies that comprise the Index. The Index does not include dividends paid on the stocks comprising the Index and therefore does not reflect the full investment performance of the underlying stocks. We set the Index Interest Rate Caps at the Contract Issue Date and upon each Contract Anniversary. Credited Index Interest may be less than zero, depending on the Risk Control Account you elect. The Accumulation Period begins on the Contract Issue Date and continues until the Payout Date. During the Payout Period of your Contract, you can elect to receive income payments by applying Contract Value to the income Payment Options offered in your Contract. The Payout Period begins on the Payout Date and continues while income payments are paid. Please call your registered representative or the Company at 1-800-798-6600 if you have questions about how your Contract works. PURCHASE PAYMENT ---------------- You may purchase the Contract with a single initial Purchase Payment of $5,000 or more. A Purchase Payment of $1,000,000 or more requires our approval. We do not allow any payments under the Contract after the initial Purchase Payment. Multiple Contracts owned by the same individual where the sum of the Purchase Payments exceed $1,000,000 also require our approval. ALLOCATION OPTIONS ------------------ There are two Risk Control Accounts, the Secure Account and the Growth Account, among which you may allocate all or a portion of your Purchase Payment and Contract Value. Both Risk Control Accounts are available as allocation options during the Initial Index Period. Under your Contract, you choose the duration of the Initial Index Period. We currently offer Initial Index Periods with durations of 5, 7 or 10 years, but may reduce or increase the durations offered from time to time for new contracts that we issue. After the Initial Index Period, only the Secure Account will be available as an allocation option under the Contract. The Growth Account is not available after the Initial Index Period. You may allocate your Purchase payment to either or both Risk Control Accounts during the Initial Index Period, subject to the following restrictions. You must specify the percentage of your Purchase Payment 4 to be allocated to each Risk Control Account on the Contract Issue Date. The amount you direct to a particular Risk Control Account must be in whole percentages from 0% to 100% of the Purchase Payment and your total allocation must equal 100% of the Purchase Payment. If you do not indicate your allocations on the application, our Administrative Office will attempt to contact your adviser and/or you for clarification. We will not issue the Contract without your allocation instructions. The Secure Account has an Index Interest Rate Floor of 0%. Credited Index Interest for any Contract Year can never be below 0%. This means that any negative investment performance of the Index over the one-year period used in determining Credited Index Interest would not reduce your Contract Value at the end of a Contract Year. The Secure Account provides your Contract Value the most protection from negative investment performance of the Index. The Index Interest Rate Cap for the Secure Account will always be positive and will never be less than the minimum Index Interest Rate Cap for the Secure Account equal to 0.50%. On the other hand, the Growth Account has an Index Interest Rate Floor of -10%. Credited Index Interest for any Contract Year can never be below -10%. This means that negative investment performance of the Index over the one-year period used in determining Credited Index Interest could result in negative Credited Index Interest being credited that would reduce your Contract Value at the end of the Contract Year. However, any negative Credited Index Interest would not reduce your Contract Value in a Contract Year by more than 10% regardless of whether the negative investment performance of the Index over the one-year period was less than -10%. In return for accepting some risk of loss to your Contract Value allocated to the Growth Account, the Index Interest Rate Cap declared for the Growth Account would be higher than the Index Interest Rate Cap declared for the Secure Account for the same Initial Index Period which allows the potential for higher positive Credited Index Interest to be applied to your Contract Value allocated to the Growth Account. The Index Interest Rate Cap for the Growth Account will always be positive and will never be less than the minimum Index Interest Rate cap for the Growth Account equal to 0.50%. WE RESERVE THE RIGHT TO ADD OR SUBSTITUTE THE INDEX. WE WILL SUBSTITUTE THE INDEX IF THE INDEX IS DISCONTINUED OR CALCULATION OF THE INDEX IS MATERIALLY CHANGED. IF WE SUBSTITUTE THE INDEX, THE PERFORMANCE OF THE NEW INDEX MAY DIFFER FROM THE ORIGINAL INDEX. THIS, IN TURN, MAY AFFECT THE CREDITED INDEX INTEREST YOU EARN. RIGHT TO EXAMINE ---------------- The Contract provides for an initial "right to examine" period. The Owner may reject the Contract for any reason by forwarding the Contract to us with a Written Request at our Administrative Office within ten days of receiving it, or such longer period as the state in which your Contract was issued may require. If you exercise this "Right to Examine", the Contract will terminate and we will refund your Purchase Payment. Some states may require that we refund the Contract Value, which reflects interest, positive or negative, based on changes in the Index. The state in which your Contract is issued will determine which method we use. If your Contract is an IRA under the Internal Revenue Code, we will refund your Purchase Payment. Refunds will not be subject to a Surrender Charge or MVA and will be paid within seven business days following our receipt of the Contract. REBALANCING / REALLOCATION -------------------------- Upon each Contract Anniversary, after Credited Index Interest has been applied, the Automatic Rebalance Program will reallocate your Contract Value between the Risk Control Accounts based on your most recent allocation instructions that we have on file or the allocation applied on the Contract Issue Date if no additional allocation change requests have been made. You may change your allocation of Contract Value between Risk Control Accounts once each Contract Year. Any such change will take effect on the next Contract Anniversary. Your request to change your allocation instructions must be received at our Administrative Office at least two Business Days prior to your Contract Anniversary for the instructions to be effective for that Contract Anniversary. If we do not 5 receive your Written Request in time for the next Contract Anniversary, your instructions will be effective the following Contract Anniversary. WITHDRAWAL OPTIONS ------------------ The Contract offers the following liquidity features during the Accumulation Period: o Free annual withdrawal amount - Each Contract Year, beginning in Contract Year 2, you may withdraw up to 10% of your Contract Value determined as of the beginning of the Contract Year free of any Surrender Charge or MVA. The free annual withdrawal amount may be larger for certain Qualified Contracts to satisfy minimum distribution requirements set forth in the Internal Revenue Code. o Partial withdrawal option - You may take up to two withdrawals each Contract Year beginning in Contract Year 2 to the beginning of the Payout Period. We do not allow withdrawals in Contract year 1. Amounts withdrawn from your Contract Value in excess of the free annual withdrawal amount in Contract Year 2 through the end of the Initial Index Period, will be subject to a Surrender Charge and MVA. o Full surrender option - You may surrender your Contract at any time prior to beginning the Payout Period. Upon full surrender, Credited Index Interest, a Surrender Charge, and an MVA may apply. MARKET VALUE ADJUSTMENT (MVA) ----------------------------- For partial withdrawals and upon full surrender of Contract Value in excess of the free annual withdrawal amount during the Initial Index Period, we will apply an MVA. The MVA can increase or decrease your amount withdrawn or the Surrender Value, depending on how economic indicators have changed since your Contract was issued (see "market value adjustment" section for more details). You may lose a portion of your principal due to the MVA. CONTRACT CHARGES SURRENDER CHARGE ---------------- For partial withdrawals and surrenders during the Initial Index Period, we deduct a Surrender Charge equal to a percentage of the Contract Value withdrawn that is in excess of the free annual withdrawal amount (see the "fees and charges" section for more details). We will deduct the Surrender charge before we apply any MVA. For an example of how we calculate the amount you receive when you make a partial withdrawal during the Initial Index Period, see Examples 1 and 2 in "appendix a" to this prospectus. SURRENDER CHARGE AND MARKET VALUE ADJUSTMENT HARDSHIP WAIVERS ------------------------------------------------------------- We will not deduct a Surrender Charge or apply an MVA to a partial withdrawal or surrender made in the case of the following life events: o Confinement to a Nursing Home or Hospital for at least 180 consecutive days; or o Diagnosis of a terminal illness where life expectancy is 12 months or less. There are waiting periods and other restrictions that apply to these waivers, which are discussed in greater detail in the "access to your money" section. CHANGE OF ANNUITANT ENDORSEMENT CHARGE If you change the Annuitant within the first two Contract Years, we reserve the right to assess a fee to offset the expenses incurred. This fee will not exceed $150 and will be assessed on a pro-rata basis proportional to your Contract Value in the Risk Control Accounts. INCOME OPTIONS -------------- You have several income options to choose from during the Payout Period. Income payments will start on the Payout Date, and continue based on the option you elect. 6 DEATH BENEFIT ------------- The Contract provides a death benefit during the Accumulation Period. The death benefit is equal to the Contract Value adjusted for Credited Index Interest as of the date death benefits are payable. We do not apply the Surrender Charge or MVA in determining the death benefit payable. BENEFITS OF YOUR CONTRACT Your Contract offers you several benefits. o TAX DEFERRAL - Your Contract provides for tax-deferred growth. This may allow your Contract Value to grow faster because you earn interest on Contract Value that otherwise may have been paid in taxes. Your Contract Value may earn interest, the interest would compound within the Contract and the Contract Value you may have otherwise paid in taxes earns interest. Credited Index Interest earned generally is not taxed until it is withdrawn. We will apply any Credited Indexed Interest earned at the time of a partial withdrawal or surrender. You may use the Contract with certain tax qualified retirement plans, including in Roth IRA accounts. If your Contract is used with a Roth IRA or other Roth account in a tax qualified retirement plan, Credited Index Interest may not be taxed even when distributed. Please note, however, that tax qualified retirement plans provide their own tax deferral or other tax benefit; the purchase of this Contract does not provide additional tax benefits beyond those provided in the qualified plan. o FREE ANNUAL WITHDRAWALS AFTER FIRST CONTRACT YEAR - You may take a maximum of two free annual withdrawals from your Contract Value each Contract Year after the first Contract Year during the Initial Index Period. In each such Contract Year, you may withdraw up to 10% of Contract Value determined as of the beginning of the Contract Year without the application of a Surrender Charge or MVA on those amounts. Note that taxes and other penalties may apply to free annual withdrawals and withdrawals may be restricted under certain Qualified Contracts. o DEATH BENEFIT - Your Contract provides a death benefit. Death benefit proceeds become payable to the Beneficiary upon our receipt of Due Proof of Death of the Owner during the Accumulation Period (or the first Owner to die if there are Joint Owners). o PROTECTION FROM OUTLIVING YOUR INCOME - Your Contract provides you with the opportunity to receive income payments during the Payout Period. Annuitizing your Contract converts your Contract Value into a stream of income which can be based on your life expectancy. Depending upon the type of income benefit option you choose, annuitization of your Contract can provide you with an income stream that you cannot outlive. RISK FACTORS Your Contract also has various risks associated with it. We list these risk factors below, as well as other important information you should know before purchasing a Contract. o INDEX INTEREST CREDITING RISK - If the Index declines, it may or may not reduce your Contract Value in a Risk Control Account. This depends on the Risk Control Account to which you allocated your Contract Value. Nevertheless, you always assume the investment risk that no Credited Index Interest will be added to your Contract Value at the end of a Contract Year. You also bear the risk that sustained declines in the Index may result in Credited Index Interest not being credited to your Accumulated Value for a prolonged period. If your Contract Value is allocated to the Growth Account, you also assume the risk that we may credit negative Credited Index Interest. This means that Contract Value allocated to the Growth Account may decline. o LIQUIDITY RISK - We designed your Contract to be a long-term investment that you may use to help save for retirement. Your Contract is not designed to be a short-term investment. While you are always permitted to take two partial withdrawals from the Contract each Contract Year after Contract Year 1 and to surrender the Contract at any time, a surrender in Contract Year 1 and 7 partial withdrawals and surrenders in Contract Year 2 through the end of the Initial Index Period in excess of the free annual withdrawal amount, will be subject to a Surrender Charge and MVA (if applicable). We may defer payments made under this Contract for up to six months if the insurance regulatory authority of the state in which we issued the Contract approves such deferral. o MARKET RISK - The historical performance of the Index should not be taken as an indication of the future performance of the Index. While the trading prices of the underlying stocks comprising the Index will determine the level of the Index, it is impossible to predict whether the level of the Index will fall or rise. Trading prices of the underlying stocks comprising the Index will be influenced by complex and interrelated economic, financial, regulatory, geographic, judicial, political and other factors that can affect the capital markets generally and the equity trading markets on which the underlying common stocks are traded, and by various circumstances that can influence the levels of the underlying common stocks in a specific market segment or the level of a particular underlying stock. o RISK THAT WE MAY ELIMINATE OR SUBSTITUTE AN INDEX - THERE IS NO GUARANTEE THAT THE INDEX WILL BE AVAILABLE DURING THE ENTIRE TIME YOU OWN YOUR CONTRACT. WE MAY REPLACE CURRENTLY AVAILABLE INDICES IF THEY ARE DISCONTINUED OR THERE IS A MATERIAL CHANGE IN THE CALCULATION OF THE INDEX. IF WE SUBSTITUTE THE INDEX, THE PERFORMANCE OF THE NEW INDEX MAY DIFFER FROM THE ORIGINAL INDEX. THIS, IN TURN, MAY AFFECT THE CREDITED INDEX INTEREST YOU EARN AND AFFECT HOW YOU WANT TO ALLOCATE CONTRACT VALUE BETWEEN AVAILABLE RISK CONTROL ACCOUNTS. WE WILL NOT SUBSTITUTE THE INDEX UNTIL THE NEW INDEX HAS BEEN APPROVED BY THE INSURANCE DEPARTMENT IN YOUR STATE. IF WE SUBSTITUTE THE INDEX AND YOU DO NOT WISH TO ALLOCATE YOUR CONTRACT VALUE TO THE RISK CONTROL ACCOUNTS AVAILABLE UNDER THE CONTRACT, YOU MAY SURRENDER YOUR CONTRACT, BUT YOU MAY BE SUBJECT TO A SURRENDER CHARGE AND AN MVA, WHICH MAY RESULT IN A LOSS OF PRINCIPAL AND CREDITED INDEX INTEREST We will notify you in your annual report of any addition of an index or substitution or removal of the Index or otherwise in writing where it is necessary to provide advance written notification of the change prior to your Contract Anniversary. See "Addition or Substitution of an Index" for more details. o CREDITOR AND SOLVENCY RISK - Our General Account assets support the guarantees under the Contract and are subject to the claims of our creditors. AS SUCH, THE GUARANTEES UNDER THE CONTRACT ARE SUBJECT TO OUR FINANCIAL STRENGTH AND CLAIMS-PAYING ABILITY, AND THEREFORE, TO THE RISK THAT WE MAY DEFAULT ON THOSE GUARANTEES. You need to consider our financial strength and claims-paying ability in meeting the guarantees under the Contract. You may obtain information on our financial condition by reviewing our financial statements included in this prospectus. Additionally, information concerning our business and operations is set forth in the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." OTHER IMPORTANT INFORMATION YOU SHOULD KNOW o NO OWNERSHIP RIGHTS - You have no ownership rights in the underlying stocks comprising the Index. Purchasing the Contract is not equivalent to investing in the underlying stocks comprising the Index. As the Owner of the Contract, you will not have any ownership interest or rights in the underlying stocks comprising the Index, such as voting rights, dividend payments, or other distributions. o NO AFFILIATION WITH INDEX OR UNDERLYING STOCKS - We are not affiliated with the sponsor of the Index or the underlying stocks comprising that Index. Consequently, the Index and the issuers of the underlying stocks comprising the Index have no involvement with the Contract. 8 o POSSIBLE TAX LAW CHANGES - There always is the possibility that the tax treatment of the Contract could change by legislation or otherwise. We have the right to modify the Contract in response to legislative changes that could diminish the favorable tax treatment that Owners receive. You should consult a tax adviser with respect to legislative developments and their effect on the Contract. -------------------------------------------------------------------------------- GETTING STARTED - THE ACCUMULATION PERIOD -------------------------------------------------------------------------------- The Contract is an individual or joint owned, single premium deferred annuity. We describe your rights in your Contract below. Contracts issued in your state may provide different features and benefits than those described in this prospectus. A material difference may include the length of the right to examine period, the amount of and ability to waive the Surrender Charge, the Payout Date, or the availability of certain income Payment Options. In addition, certain benefit options may not be available in all states. We will include any such state variations in your Contract. Your registered representative can provide you with more information about those state variations. PURCHASING A CONTRACT We offer the Contract to individuals, certain retirement plans, and other entities. To purchase a Contract, you and the Annuitant must be no older than age 85. We sell the Contract through registered representatives who also are agents of the Company. To start the purchase process, you must submit an application to your registered representative. The Purchase Payment must either be paid at the Company's Administrative Office or delivered to your registered representative. Your registered representative will then forward your completed application and Purchase Payment (if applicable) to us. After we receive a completed application, Purchase Payment, and all other information necessary to process a purchase order, we will begin the process of issuing the Contract. There may be delays in our processing of your application because of delays in receipt of your application from the selling firm or because of delays in determining whether your Contract is suitable to you. Any such delays will affect when we issue your Contract. IMPORTANT: YOU MAY USE THE CONTRACT WITH CERTAIN TAX QUALIFIED RETIREMENT PLANS. THE CONTRACT INCLUDES ATTRIBUTES SUCH AS TAX DEFERRAL ON ACCUMULATED EARNINGS. QUALIFIED RETIREMENT PLANS PROVIDE THEIR OWN TAX DEFERRAL BENEFIT; THE PURCHASE OF THIS CONTRACT DOES NOT PROVIDE ADDITIONAL TAX DEFERRAL BENEFITS BEYOND THOSE PROVIDED IN THE QUALIFIED RETIREMENT PLAN. ACCORDINGLY, IF YOU ARE PURCHASING THIS CONTRACT THROUGH A QUALIFIED RETIREMENT PLAN, YOU SHOULD CONSIDER PURCHASING THE CONTRACT FOR ITS OTHER FEATURES SUCH AS CREDITED INDEX INTEREST THAT IS LOCKED-IN EACH CONTRACT YEAR, AND OTHER NON-TAX RELATED BENEFITS. PLEASE CONSULT A TAX ADVISER FOR INFORMATION SPECIFIC TO YOUR CIRCUMSTANCES TO DETERMINE WHETHER THE CONTRACT IS AN APPROPRIATE INVESTMENT FOR YOU. If mandated by applicable law, including Federal laws designed to counter terrorism and prevent money laundering, we may be required to reject your Purchase Payment. We may also be required to provide additional information about you or your Contract to government regulators. In addition, we may be required to block an Owner's Contract and thereby refuse to honor any request for transfers, partial withdrawals, surrender, income payments, and death benefit payments, until instructions are received from the appropriate government regulator. TAX-FREE "SECTION 1035" EXCHANGES You can generally exchange one annuity contract for another in a "tax-free exchange" under Section 1035 of the Internal Revenue Code. Before making an exchange, you should compare both contracts carefully. Remember that if you exchange another contract for the one described in this prospectus, you might have to pay a Surrender Charge or negative Market Value Adjustment on the existing contract. If the exchange does not qualify for Section 1035 tax treatment, you may have to pay federal income tax, including a possible penalty tax, on your old contract. There will be a new Surrender Charge Period for 9 this Contract and other charges may be higher (or lower) and the benefits may be different. There may be delays in our processing of the exchange. You should not exchange another contract for this one unless you determine, after knowing all the facts, that the exchange is in your best interest. In general, the person selling you this Contract will earn a commission from us. OWNER Owner means the owner named in the application or any successor if ownership has been assigned. The Owner names the Annuitant or Joint Annuitants. All rights may be exercised by the Owner subject to the rights of any other Owner and any irrevocably named Beneficiary. Any change in Owner is subject to our acceptance and we reserve the right to refuse such change on a non-discriminatory basis. If an Owner who is a natural person dies during the Annuitant's lifetime, the Beneficiary is entitled to the Death Benefit. The Death Benefit becomes payable at the death of the Owner (if there are Joint Owners, the Death Benefit will become payable after the first Joint Owner dies). If an Owner is not a natural person and the Annuitant dies before the Payout Date, the Death Benefit will be payable to the Beneficiary. If you have any questions concerning the criteria you should use when choosing Annuitants under the Contract, consult your registered representative. DIVORCE In the event of divorce, the former spouse must provide a copy of the divorce decree (or a qualified domestic relations order if it is a qualified plan) to us. The terms of the decree/order must identify the Contract and specify how the Contract Value should be allocated among the former spouses. BENEFICIARY You name a Beneficiary when you apply for the Contract. At any time before the Payout Date, you may change the Beneficiary by a Written Request sent to us, or you may name one or more Beneficiaries. A change of Beneficiary will take effect on the date the Written Request was signed. If there are multiple Owners, each Owner must sign the Written Request. In addition, any irrevocable Beneficiary must sign the Written Request. Any change is subject to payment or other actions we took before we received the request to change the Beneficiary at our Administrative Office. Before the Payout Date, if no Beneficiary survives the Owner, we will pay the death benefit proceeds to the Owner's estate (if Joint Owners, the surviving Owner will receive the death benefit proceeds). Use care when naming Beneficiaries. If you have any questions concerning the criteria you should use when choosing Beneficiaries, consult your registered representative. RIGHT TO EXAMINE You may cancel your Contract and return it to your registered representative or to us within a certain number of days after you receive the Contract and receive a refund of either the Purchase Payment you paid or your Contract Value depending upon the state in which your Contract was issued. However, if your Contract is an IRA under the Internal Revenue Code, we will refund your Purchase Payment. Generally, you must return your Contract within 10 days of receipt, but some states may permit a longer period. 10 -------------------------------------------------------------------------------- ALLOCATING YOUR PURCHASE PAYMENT -------------------------------------------------------------------------------- PURCHASE PAYMENT The minimum initial Purchase Payment for a Non-Qualified or Qualified Contract is $5,000. Our approval is required for a Purchase Payment of $1,000,000 or more. We do not allow any payments under the Contract after the initial Purchase Payment. PURCHASE PAYMENT ALLOCATION You must specify the percentage of your Purchase Payment to be allocated to each Risk Control Account on the Contract Issue Date. The amount you direct to a particular Risk Control Account must be in whole percentages from 1% to 100% of the Purchase Payment and your total allocation must equal 100% of the Purchase Payment. You may allocate your Purchase Payment to either or both Risk Control Accounts. We will only issue the Contract on the 10th and 25th of each month (an "Issue Date"). If we receive your Purchase Payment and all necessary paperwork to process your Contract before the Issue Date, we will deposit your Purchase Payment in our General Account. We then will transfer your Purchase Payment, based on the allocation you specified, to the Risk Control Accounts on the Contract Issue Date. Your Purchase Payment will begin to earn Index Interest, if any, only after it has been allocated to a Risk Control Account(s). -------------------------------------------------------------------------------- AUTOMATIC REBALANCE PROGRAM -------------------------------------------------------------------------------- Each Contract Anniversary, during the Initial Index Period, we will automatically rebalance your Contract Value among the Risk Control Accounts based on your most recent allocation instructions that we have on file, or the allocation applied on the Contract Issue Date if you have not made any additional allocation change requests. This means, for example, that if your allocation instructions require that 50% of your Contract Value be allocated to the Secure Account and 50% of your Contract Value be allocated to the Growth Account, we will transfer your Contract Values between those Accounts on the Contract Anniversary so that 50% of your Contract Value has been allocated to both the Secure Account and Growth Account following the transfer. You may change your allocation of Contract Value between the Risk Control Accounts once each Contract Year. Any new allocation change request will supersede any prior allocation change requests you made. There are no limits on the number of requests that you can make. However, your latest instructions will take effect on the next Contract Anniversary. Your request must be received at our Administrative Office at least two Business Days prior to your Contract Anniversary for the new instructions to be effective for that Contract Anniversary. If we do not receive your Written Request in time for the next Contract Anniversary, your instructions will be effective on the following Contract Anniversary. CONTRACT VALUE On the Contract Issue Date, your Contract Value equals the Purchase Payment. Each Risk Control Account is established by an allocation of a portion or all of your Purchase Payment to that Account. After the Contract Issue Date, during the Accumulation Period, your Contract Value will equal the sum of the Risk Control Account Values. 11 RISK CONTROL ACCOUNTS You may allocate your Purchase Payment to one or both of the two Risk Control Accounts we currently make available, the Secure Account and the Growth Account. We hold reserves for the Index Interest Rate Floor and Cap guarantees for amounts allocated to the Risk Control Accounts in the Separate Account. Our General Account assets are also available to meet the guarantees under the Contract as well as our other general obligations. The guarantees in this Contract are subject to the Company's financial strength and claims-paying ability. We will apply Credited Index Interest to your Contract Value allocated to a Risk Control Account on a Contract Anniversary based on the percentage change in the Index during the Contract Year just completed, subject to the interest rate calculation methodology, Index Interest Rate Cap, and Index Interest Rate Floor. In the case of a partial withdrawal, surrender, annuitization or death of the Owner that occurs during a Contract Year on a date other than a contract Anniversary, we will apply Credited Index Interest to your Contract Value allocated to a Risk Control Account based on the percentage change in the Index from the beginning of the Contract Year to the date of the partial withdrawal, surrender, annuitization or death, as applicable, subject to the interest rate calculation methodology, Index Interest Rate Cap and Index Interest Rate Floor. Please note that the Index does not include dividends paid on the stocks comprising the Index, and therefore does not reflect the full investment performance of the underlying stocks. WE RESERVE THE RIGHT TO ADD OR SUBSTITUTE THE INDEX. IF WE SUBSTITUTE THE INDEX, THE PERFORMANCE OF THE NEW INDEX MAY DIFFER FROM THE ORIGINAL INDEX. THIS, IN TURN, MAY AFFECT THE CREDITED INDEX INTEREST YOU EARN. In the unlikely event that we substitute the Index, we will attempt to add a suitable alternative index as a replacement to the Index on the same day that we remove the Index. If we are unable to do so, so that there is a brief interval between the date on which we remove the Index and add a suitable alternative index as a replacement, your Contract Value will continue to be allocated to the Risk Control Accounts. However, any Credited Index Interest we may credit your Contract Value for that Contract Year will not reflect changes in the value of the Index or the replacement index during that interim period. If you take a partial withdrawal, surrender or annuitize the Contract, or die during the interim period, we will apply Credited Index Interest to your Contract Value allocated to a Risk Control Accounts based on the percentage change in the Index from the beginning of the Contract Year to the date on which the Index became unavailable under the Contract, subject to the interest rate calculation methodology, Index Interest Rate Cap and Index Interest Rate Floor. After the Initial Index Period, only the Secure Account will be available for the allocation of your Contract Value. Your Contract Value allocated to a Risk Control Account ("Risk Control Account Value") equals: o Your Risk Control Account Value as of the last Contract Anniversary; PLUS o Any Credited Index Interest applied to Risk Control Account Value during the current Contract Year; MINUS o Gross Withdrawals from your Risk Control Account Value (the sum of all partial withdrawals taken since the last Contract Anniversary, which includes all Surrender Charges and adjusted for any MVA). Your Risk Control Account Value as of the last Contract Anniversary equals your Risk Control Account Value at the beginning of the current Contract Year. INTEREST RATE CALCULATION METHODOLOGY. Each Risk Control Account uses an annual point-to-point interest rate calculation methodology to determine the amount of Credited Index Interest. Under the 12 annual point-to-point method, the Credited Index Interest, if any, is measured based on the percentage change in the Index over a Contract Year, a one year period. Credited Index Interest is subject to an: o Index Interest Rate Cap, which is the maximum rate that we will use in the calculation of Credited Index Interest; and o Index Interest Rate Floor, which is the minimum interest rate that we will use in the calculation of Credited Index Interest. CREDITED INDEX INTEREST. Credited Index Interest is based on two factors: the Credited Index Interest Rate and your Risk Control Account Value. Specifically, Credited Index Interest equals the Credited Index Interest Rate multiplied by your Risk Control Account Value as of the last Contract Anniversary. The Credited Index Interest Rate for a Risk Control Account equals: (A/B) - 1 where: A = the Adjusted Index Value as of the current date; and B = the later of the Adjusted Index Value as of the last partial withdrawal or the Initial Index Value. YOU CAN FIND THE CREDITED INDEX INTEREST APPLIED TO YOUR CONTRACT VALUE ON THE ANNUAL STATEMENT THAT WE WILL FORWARD TO YOU FOLLOWING YOUR CONTRACT ANNIVERSARY. YOU MAY ALSO FIND THE CREDITED INDEX INTEREST THAT HAS ACCRUED TO YOUR CONTRACT VALUE PRIOR TO A CONTRACT ANNIVERSARY BY CALLING THE CUSTOMER SERVICE CENTER TOLL-FREE TELEPHONE NUMBER (800.798.6600) OR BY VIEWING ON-LINE AT http://eservice.cunamutual.com. ADJUSTED INDEX VALUE. The Adjusted Index Value depends in part on the Unadjusted Index Value (or the last Adjusted Index Value in the case where one or more partial withdrawals are made in a Contract Year). The Unadjusted Index Value for a day on which we calculate Index Interest is the closing value of the Index on that date. If the closing value of the Index is not published on that date, we will use the closing value of the Index from the next day on which the closing value of the Index is published. If you made no partial withdrawals during a Contract Year, we would calculate the Adjusted Index Value as follows: If the Unadjusted Index Value is greater than the Initial Index Value multiplied by (1 + Index Interest Rate Cap), then the Adjusted Index Value will equal the Initial Index Value multiplied by (1 + Index Interest Rate Cap). If the Unadjusted Index Value is less than the Initial Index Value multiplied by (1 + Index Interest Floor), then the Adjusted Index Value will equal the Initial Index Value multiplied by (1 + Index Interest Floor). If the Unadjusted Index Value is less than the Initial Index Value multiplied by (1 + Index Interest Rate Cap) but more than the Initial Index Value multiplied by (1 + Index Interest Rate Floor), then the Adjusted Index Value will equal the Unadjusted Index Value. For example, assume the following: o Initial Index Value = 1,000 o Index Interest Rate Cap = 15% o Index Interest Rate Floor = -10% At the time Credited Index Interest is calculated, the adjusted index value will be: o Scenario 1: Unadjusted Index Value = 1,200 o 1,200 is greater than 1,150 (1,000 x (1 + 0.15)) so the adjusted index value is equal to 1,150. o Scenario 2: Unadjusted Index Value = 850 o 850 is less than 900 (1,000 x (1 - 0.10)) so the adjusted index value is equal to 900. 13 o Scenario 3: Unadjusted Index Value = 1,100 o 1,100 is less than 1,150 (1,000 x (1 + 0.15)) and greater than 900 (1,000 x (1 - 0.10)) so the adjusted index value is equal to 1,100. SETTING THE INDEX INTEREST RATE CAP AND THE INDEX INTEREST RATE FLOOR. We consider various factors in determining the Index Interest Rate Caps and Index Interest Rate Floors, including investment returns available at the time that we issue the Contract, the costs of our risk management techniques, sales commissions, administrative expenses, regulatory and tax requirements, general economic trends, and competitive factors. We determine the Index Interest Rate Cap and the Index Interest Rate Floor at our sole discretion. We set the Index Interest Rate Cap at the beginning of each Contract Year and guarantee the Index Interest Rate Cap for the duration of the Contract Year. We guarantee the Index Interest Rate Floor for the life of your Contract. SECURE ACCOUNT -------------- If you choose to allocate all or a portion of your Purchase Payment or Contract Value to the Secure Account, we will determine Credited Index Interest based on the percentage change in the value of the Index from the Initial Index Value to the Contract Anniversary (or date of partial withdrawal, surrender, annuitization, or date of death of the Owner), subject to an Index Interest Rate Cap and an Index Interest Rate Floor. INDEX INTEREST RATE CAP FOR THE SECURE ACCOUNT. The Index Interest Rate Cap is the maximum rate that we will use in the calculation of Credited Index Interest. The initial Index Interest Rate Cap is shown on your Contract Data Page. On the first Contract Anniversary and on any subsequent Contract Anniversary, we will declare an Index Interest Rate Cap which we guarantee for the next Contract Year. We will forward advance written notice to you of the Index Interest Rate Cap prior to the start of that Contract Year. The Index Interest Rate Cap for the Secure Account will always be positive and will never be less than the minimum Index Interest Rate Cap for the Secure Account equal to 0.50%. INDEX INTEREST RATE FLOOR FOR THE SECURE ACCOUNT. The Index Interest Rate Floor for the Secure Account is zero. As a result, Credited Index Interest will never be less than zero and your Contract Value in the Secure Account will never be reduced by the application of Credited Index Interest. GROWTH ACCOUNT -------------- If you choose to allocate all or a portion of your Purchase Payment or Contract Value to the Growth Account, we will determine Credited Index Interest based on the percentage change in the value of the Index from the Initial Index Value to the Contract Anniversary (or date of partial withdrawal, surrender, annuitization, or date of death of the Owner), subject to an Index Interest Rate Cap and an Index Interest Rate Floor. The Growth Account is not available after the Initial Index Period Expiration Date. INDEX INTEREST RATE CAP FOR THE GROWTH ACCOUNT. The Index Interest Rate Cap is the maximum rate that we will use in the calculation of Credited Index Interest. The initial Index Interest Rate Cap is shown on your Contract Data Page. On the first Contract Anniversary and on any subsequent Contract Anniversary, we will declare an Index Interest Rate Cap which we guarantee for the next Contract Year. We will forward advance written notice to you of the Index Interest Rate Cap prior to the start of that Contract Year. The Index Interest Rate Cap for the Growth Account will always be positive and will never be less than the minimum Index Interest Rate Cap for the Growth Account equal to 0.50%. INDEX INTEREST RATE FLOOR FOR THE GROWTH ACCOUNT. The Index Interest Rate Floor for the Growth Account is -10%. This means that your Credited Index Interest could be negative, but it will never be less than -10% regardless of whether the investment performance of the Index during the Contract Year is less than -10%. If the Credited Index Interest is negative, your Contract Value in the Growth Account would be reduced by the application of such negative Credited Index Interest. 14 The following three examples illustrate how we credit Index Interest to the Secure and Growth Accounts based on different levels of index performance. No withdrawals are assumed to occur under these examples. Example 1: This example illustrates the calculation of Credited Index Interest when Index performance is greater than the Index Interest Rate Cap and the Index Interest Rate Floor. Assume the following information: Prior Contract Anniversary: 9/30/2012 Initial Index Value: 1,000 Secure Account Value: $75,000 Index Interest Rate Floor: 0.00% Index Interest Rate Cap: 4.00% Growth Account Value: $25,000 Index Interest Rate Floor: -10.00% Index Interest Rate Cap: 14.00% ----------------------------------------------------------- Contract Anniversary: 9/30/2013 Unadjusted Index Value: 1,200
The return on the Index is equal to the Unadjusted Index Value divided by the Initial Index Value minus 1. In this example, the return on the Index is 20% [(1.200/1.000)-1]. This is greater than the Index Interest Rate Cap and above the Index Interest Rate Floor for both the Secure and Growth Accounts. Thus, Index Interest for both Accounts is set at the cap level. Contract Value allocated to the Secure Account is credited with 4% Index Interest and Contract Value allocated to the Growth Account is credited with 14% Index Interest. Example 2: This example illustrates the calculation of Credited Index Interest when Index performance is less than the Index Interest Rate Cap and greater than the Index Interest Rate Floor. Assume the following information: Prior Contract Anniversary: 9/30/2012 Initial Index Value: 1,000 Secure Account Value: $75,000 Index Interest Rate Floor: 0.00% Index Interest Rate Cap: 4.00% Growth Account Value: $25,000 Index Interest Rate Floor: -10.00% Index Interest Rate Cap: 14.00% ----------------------------------------------------------- Contract Anniversary: 9/30/2013 Unadjusted Index Value: 1,030
The return on the Index is equal to the Unadjusted Index Value divided by the Initial Index value minus 1. In this example, the return on the Index is 3% [(1.030/1.000)-1]. This is below the Index Interest Rate Cap and above the Index Interest Rate Floor for both the Secure and Growth Accounts. Thus, Index Interest for both accounts is equal to the return on the Index. Contract Value allocated to the Secure Account is credited with 3% Index Interest and Contract Value allocated to the Growth Account is credited with 3% Index Interest. Example 3: This example illustrates the calculation of Credited Index Interest when Index performance is less than the Index Interest Rate Floor. 15 Assume the following information: Prior Contract Anniversary: 9/30/2012 Initial Index Value: 1,000 Secure Account Value: $75,000 Index Interest Rate Floor: 0.00% Index Interest Rate Cap: 4.00% Growth Account Value: $25,000 Index Interest Rate Floor: -10.00% Index Interest Rate Cap: 14.00% ----------------------------------------------------------- Contract Anniversary: 9/30/2013 Unadjusted Index Value: 800
The return on the Index is equal to the Unadjusted Index Value divided by the Initial Index Value minus 1. In this example, the return on the Index is -20% [(800/1.000)-1]. This is below the Index Interest Rate Floor for both the Secure and Growth Accounts. Thus, Index Interest for both Accounts is equal to the Index interest Rate Floor for each Risk Control Account. Contract Value allocated to the Secure Account is credited with 0% Index Interest and Contract Value allocated to the Growth Account is credited with - 10% Index Interest. This results in negative Credited Index Interest of -$2,500 being applied to the Contract Value in the Growth Account and thus is a decline in the Contract Value allocated to the Growth Account of $2,500. No Credited Index Interest would be applied to Contract Value in the Secure Account and thus the Contract Value in the Secure Account remains unchanged. ADDITION OR SUBSTITUTION OF AN INDEX. There is no guarantee that the Index will be available during the entire time you own your Contract. If: (i) the Index is discontinued, or (ii) the calculation of an Index is changed substantially, we may substitute a suitable similar broad based U.S. stock market index for the original Index. If we substitute an index, the performance of the new Index may differ from the original Index. This, in turn, may affect the Credited Index Interest you earn. We will not substitute an index until that index has been approved by the insurance department in your state. The selection criteria for a suitable alternative Index includes the following: o A sufficiently large market in exchange traded and/or over-the-counter options, futures and similar derivative instruments based on the index to allow the company to hedge Credited Index Interest Rates; o The index should be recognized as a broad based index that tracks the U.S. stock market if it is replacing an index such as the S&P 500 Index; and o The publisher of the index must allow the Company to use the index in contract and other materials for a reasonable fee. Please note that we may add or substitute an Index associated with the Risk Control Accounts by sending you written notice at your last known address stating the effective date on which the Index will be added or substituted. We will send you the notice in the annual report unless earlier written notice is necessary. 16 -------------------------------------------------------------------------------- MARKET VALUE ADJUSTMENT ("MVA") -------------------------------------------------------------------------------- If you surrender your Contract or take a partial withdrawal in excess of the free annual withdrawal amount during the Initial Index Period, we will apply the MVA to the amount being surrendered or withdrawn in excess of the free annual withdrawal amount. No MVA will apply after the end of the Initial Index Period. NOTE: THE MVA WILL EITHER INCREASE OR DECREASE THE AMOUNT YOU RECEIVE FROM A PARTIAL WITHDRAWAL OR YOUR SURRENDER VALUE. YOU MAY LOSE A PORTION OF YOUR PRINCIPAL DUE TO THE MVA REGARDLESS OF THE RISK CONTROL ACCOUNT TO WHICH YOU ALLOCATED CONTRACT VALUE. YOU DIRECTLY BEAR THE INVESTMENT RISK ASSOCIATED WITH AN MVA. YOU SHOULD CAREFULLY CONSIDER YOUR INCOME NEEDS BEFORE PURCHASING THE CONTRACT. PURPOSE OF THE MVA The MVA is an adjustment that may be made to the amount you receive in excess of the free annual withdrawal amount if you surrender the Contract during the Initial Index Period or take a partial withdrawal in excess of the free annual withdrawal amount during the Initial Index Period. The MVA reflects in part the difference between the effective yield of the Constant Maturity Treasury rate on the Contract Issue Date for a duration equal to the Initial Index Period and the effective yield of the Constant Maturity Treasury rate for a duration equal to the remaining length of the Initial Index Period at the time of surrender or partial withdrawal. In addition, the MVA reflects in part the difference between the effective yield of the BofA Merrill Lynch 1-10 Year US Corporate Constrained Index, Asset Swap Spread on the Contract Issue Date and the effective yield of the BofA Merrill Lynch 1-10 Year US Corporate Constrained Index, Asset Swap Spread at the time of surrender or partial withdrawal. The greater the difference in those effective yields, respectively, the greater the effect the MVA will have. A positive MVA will increase the amount you receive from a partial withdrawal or your Surrender Value. A negative MVA will decrease the amount you receive from a partial withdrawal or your Surrender Value. In general, if the Constant Maturity Treasury rate and BofA Merrill Lynch 1-10 Year US Corporate Constrained Index Asset Swap Spread have increased at the time of surrender or partial withdrawal over their levels at the time we issued the Contract, the MVA will be negative and will decrease the Surrender Value or amount you receive from a partial withdrawal. Similarly, if the Constant Maturity Treasury rate and BofA Merrill Lynch 1-10 Year US Corporate Constrained Index, Asset Swap Spread have decreased at the time of surrender or partial withdrawal over their levels at the time we issued the Contract, the MVA will be positive and will increase the Surrender Value or amount you receive from a partial withdrawal. The amount of the MVA also reflects in part the Credited Index Interest Rate determined at the time of surrender or partial withdrawal. We use the Credited Index Interest Rate to either decrease or increase the amount of the MVA. If the Credited Index Interest Rate is positive, we divide the amount of the withdrawal subject to the MVA by the Credited Index Interest Rate plus 1 which will decrease the amount subject to the market value adjustment factor and therefore reduce the amount of any positive or negative MVA. Conversely, if the Credited Index Interest Rate is negative, we divide the amount of the withdrawal subject to the MVA by the Credited Index Interest Rate plus 1 which will increase the amount subject to the market value adjustment factor and therefore increase the amount of any positive or negative MVA. If the Credited Index Interest Rate is 0%, we divide the amount of the withdrawal subject to the MVA by the Credited Index Interest Rate plus 1 which will not change the amount subject to the market value adjustment factor and therefore will not change the amount of any positive or negative MVA. If the Index has increased since the date on which we determined the Initial Index Value for the Current Contract Year, the Credited Index Interest Rate will be positive. If the Index has decreased since the date on which we determined the Initial Index Value for the Current Contract Year, the Credited Index Interest Rate will be negative. The MVA helps us offset our costs and risks of owning fixed income investments and other investments we use to back the guarantees under your Contract from the date we issue the Contract to the time of a surrender or partial withdrawal. 17 APPLICATION AND WAIVER For each Risk Control Account, we will calculate the MVA as of the date we receive your Written Request for surrender or partial withdrawal in Good Order at our Administrative Office. If the MVA is positive, we will increase your Surrender Value or amount you receive from a partial withdrawal by the amount of the positive MVA. If the MVA is negative, we will decrease the Surrender Value or amount you receive from a partial withdrawal by the amount of the negative MVA. We will NOT apply an MVA to: 1. free annual withdrawal amounts; 2. Death Benefit proceeds; 3. partial withdrawals that qualify for the Nursing Home or Hospital waiver or terminal illness waiver, described in this prospectus; 4. partial withdrawals taken as required minimum distributions under the Internal Revenue Code; 5. partial withdrawals or a surrender after the Initial Index Period; and 6. income payments during the Payout Period. MVA FORMULA An MVA is equal to the amount of the partial withdrawal or surrender in excess of the free annual withdrawal amount (W) divided by 1 plus the Credited Index Interest Rate (IIR*) then multiplied by the market value adjustment factor (MVAF) minus 1 or (W/(1+IIR*))x(MVAF -1). Where: IIR* = Credited Index Interest rate equal to (A/B) - 1 where: A = The Adjusted Index Value; and B = The Initial Index Value for the current Contract Year. MVAF = ((1 + I + K)/(1 + J + L)) ^N where: I = The Constant Maturity Treasury rate for a maturity consistent with the Initial Index Period (shown on your Contract Data Page); J = The Constant Maturity Treasury rate for a maturity consistent with the remaining length of the Initial Index Period; (If there is no corresponding maturity of Constant Maturity Treasury rate then the linear interpolation of the index with maturities closest to N will be used to determine I and J.) K = The BofA Merrill Lynch 1-10 Year US Corporate Constrained Index, Asset Swap Spread as of the Contract Issue Date (shown on your Contract Data Page); L = The BofA Merrill Lynch 1-10 Year US Corporate Constrained Index, Asset Swap Spread as of the withdrawal date; and N = The number of years (whole and partial) from the current date until the end of the Initial Index Period. We determine I based on the Initial Index Period you have chosen. For example, if you choose the 10- year Initial Index Period at issue, then I would correspond to the 10-year Constant Maturity Treasury rate at the time we issue the Contract. We determine J when you take a partial withdrawal or surrender. For example, if you chose the 10-year Initial Index Period at issue and surrender the Contract 2 years into the Initial Index Period, J would correspond to the Constant Maturity Treasury rate consistent with the time remaining in the Initial Index Period or 8 years (8 = 10 - 2). For I and J where there is no Constant 18 Maturity Treasury rate declared, we will use linear interpolation between declared Constant Maturity rates to determine I and J. The value of K and L on any Business Day will be equal to the closing value of the BofA Merrill Lynch 1-10 Year US Corporate Constrained Index, Asset Swap Spread on the previous Business Day. If the publication of any component of the Market Value Adjustment Indices is discontinued or if the calculation of the Market Value Adjustment Indices is changed substantially, we may substitute a new index for the discontinued or substantially changed index, subject to approval by the insurance department in your state. Before we substitute an index, we will notify you in writing of the substitution. For examples of how we calculate MVAs, see "appendix a" to this prospectus. -------------------------------------------------------------------------------- SURRENDER VALUE -------------------------------------------------------------------------------- If you surrender the Contract, you will receive the Surrender Value. The Surrender Value is equal to your Contract Value, less any Surrender Charges (described under the "fees and charges" section below), and adjusted for any MVA. -------------------------------------------------------------------------------- FEES AND CHARGES -------------------------------------------------------------------------------- We assess the following fees and charges under the Contract. SURRENDER CHARGE If you withdraw all or a portion of your Contract Value during the Initial Index Period, we may assess a Surrender Charge. Surrender charges offset promotion, distribution expenses, and investment risks born by the Company. The amount of the Surrender Charge depends on the Initial Index Period that you have chosen, the length of time you have owned your Contract, and the amount you withdraw. The Surrender Charge amount is computed as a percentage of the amount withdrawn in excess of the free annual withdrawal amount. The Surrender Charge rates are as follows: 5-YEAR, 7-YEAR, AND 10-YEAR INITIAL INDEX PERIODS
----------------------------------------------------------------------- IF YOU CHOOSE THE IF YOU CHOOSE THE IF YOU CHOOSE THE 5-YEAR PERIOD: 7-YEAR PERIOD: 10-YEAR PERIOD: ----------------------------------------------------------------------- 1 9% 1 9% 1 9% ----------------------------------------------------------------------- 2 9% 2 9% 2 9% ----------------------------------------------------------------------- 3 8% 3 8% 3 8% ----------------------------------------------------------------------- 4 7% 4 7% 4 7% ----------------------------------------------------------------------- 5 6% 5 6% 5 6% ----------------------------------------------------------------------- 6+ 0% 6 5% 6 5% ----------------------------------------------------------------------- 7 4% 7 4% ----------------------------------------------------------------------- 8+ 0% 8 3% ----------------------------------------------------------------------- 9 2% ----------------------------------------------------------------------- 10 1% ----------------------------------------------------------------------- 11+ 0% -----------------------------------------------------------------------
IT IS IMPORTANT TO NOTE THAT WE ONLY ASSESS THE SURRENDER CHARGE AND APPLY AN MVA DURING THE INITIAL INDEX PERIOD. THEREFORE, WHEN CHOOSING YOUR INITIAL INDEX PERIOD, YOU SHOULD CAREFULLY CONSIDER THE LENGTH OF TIME YOU WOULD LIKE TO BE SUBJECT TO THE SURRENDER CHARGE AND MVA. FOR MORE INFORMATION ON THE MVA, SEE "MARKET VALUE ADJUSTMENT." 19 An Initial Index Period should be chosen based on an Owner's specific investment, liquidity and retirement planning needs. For example, if you would like the potential to earn the highest positive Credited Index Interest under the Contract for as long as possible and do not foresee the need to make withdrawals from the Contract, you may want to consider the 10-Year Initial Index Period and allocate Contract Value to the Growth Account. In general, the Index Interest Rate Cap for either the Secure Account or the Growth Account increases with the duration of the Initial Index Period. In addition, in general, the Index Interest Rate Cap for the Growth Account will exceed the Index Interest Rate Cap for the Secure Account for the same Initial Index Period. Also, it is important to keep in mind that the Growth Account is only available during the Initial Index Period. Conversely, if you would like the potential to earn positive Credited Index Interest but also want to preserve your Contract Value and foresee the need to make withdrawals in six or more years, you may want to consider the 5-Year Initial Index Period and allocate Contract Value to the Secure Account. We will deduct the Surrender Charge from your withdrawal proceeds. We will deduct the Surrender charge before we apply any MVA to your withdrawal proceeds. For an example of how we calculate the amount you receive when you make a partial withdrawal during the Initial Index Period, see Examples 1 and 2 in "appendix a" to this prospectus. We will not assess the Surrender Charge on: o free annual withdrawal amounts; o Death Benefit proceeds; o partial withdrawals that qualify for the Nursing Home or Hospital waiver or terminal illness waiver, described in this prospectus; o partial withdrawals taken as required minimum distributions under the Internal Revenue Code; o partial withdrawals or a surrender after the Initial Index Period; and o income payments during the Payout Period. After the first Contract Anniversary and during the Initial Index Period, we will provide you with a free annual withdrawal amount each year. We also may waive the Surrender Charge in certain circumstances. For information on free annual withdrawals and Surrender Charge waivers, see "access to your money." CHANGE OF ANNUITANT ENDORSEMENT CHARGE If you change the Annuitant within the first two Contract Years, we reserve the right to assess a fee to offset the expenses incurred. This fee will not exceed $150 and will be assessed on a pro-rata basis proportional to your Contract Value in the Risk Control Accounts. OTHER INFORMATION We assume investment risks and costs in providing the guarantees under the Contract. These investment risks include the risks we assume in providing the floors to the Index Interest credited to the Risk Control Accounts, the surrender rights available under the Contract, the Death Benefit and the income benefits. We must provide the rates and benefits set forth in your Contract regardless of how our general account investments that support the guarantees we provide perform. To help manage our investment risks, we engage in certain risk management techniques. There are costs associated with those risk management techniques. You do not directly pay the costs associated with our risk management techniques. However, we take those costs into account when we set rates and guarantees under your Contract. 20 -------------------------------------------------------------------------------- ACCESS TO YOUR MONEY -------------------------------------------------------------------------------- PARTIAL WITHDRAWALS At any time after the first Contract Anniversary and before the Payout Date you may make two partial withdrawals each Contract Year. To make a partial withdrawal, you must submit a Written Request in Good Order to our Administrative Office. The written consent of all Owners and irrevocable Beneficiaries must be obtained before we will process the partial withdrawal. Your partial withdrawal request must specify the amount that is to be withdrawn either as a total dollar amount or as a percentage of Contract Value. We will take the partial withdrawal pro-rata from your Contract Value in the Risk Control Accounts based on your Contract Value as of the date we received your Written Request in Good Order at our Administrative Office. Partial withdrawals taken during the Initial Index Period may be subject to Surrender Charges and an MVA. (see "fees and charges" and "Market Value Adjustment"). Partial withdrawals may also be subject to income tax and, if taken before age 59 1/2, an additional 10% federal penalty tax. You should consult your tax adviser before taking a partial withdrawal. See "federal income tax matters." FREE ANNUAL WITHDRAWAL AMOUNT. After the first Contract Anniversary, we will provide you with a free annual withdrawal amount each year during the Initial Index Period. As long as the partial withdrawals you take during a Contract Year do not exceed the free annual withdrawal amount, we will not assess a Surrender Charge or apply an MVA. The free annual withdrawal amount for a Contract Year equals 10% of your Contract Value calculated as of the start of the Contract Year. If you make a partial withdrawal of less than the free annual amount, the remaining free annual withdrawal amount will be applied to any subsequent partial withdrawal which occurs during the same Contract Year. Any remaining free annual withdrawal amount will not carry over to a subsequent Contract Year. If a partial withdrawal would cause your Surrender Value to be less than $2,000, we will treat your request for partial withdrawal as a request for full surrender of your Contract. WAIVER OF SURRENDER CHARGES. We will not deduct a Surrender Charge or apply an MVA in the case of a partial withdrawal or surrender where the Owner or Annuitant qualifies for the Nursing Home or Hospital waiver or terminal illness waiver, as described below. Before granting the waiver, we may request a second opinion or examination of the Owner or Annuitant by one of our examiners. We will bear the cost of such second opinion or examination. You may exercise this waiver only once during the time you own the Contract. o NURSING HOME OR HOSPITAL WAIVER. We will not deduct a Surrender Charge or apply an MVA in the case of a partial withdrawal or surrender where any Owner or Annuitant is confined to a licensed Nursing Home or Hospital, and has been confined to such Nursing Home or Hospital for at least 180 consecutive days after the latter of the Contract Issue Date or the date of change of Owner or Annuitant. We may require verification of confinement to the Nursing Home or Hospital. The conditions that must be met are that: o the confinement in a Nursing Home or Hospital is recommended by a Physician who is duly licensed by the state to treat the injury or sickness causing the confinement and who is not an employee of the Nursing Home or Hospital where any Annuitant or Owner is confined; and o an additional free annual withdrawal amount request, accompanied by written proof of confinement and the Physician's recommendation, is received by us no later than 90 days following the date that the qualifying confinement has ended. 21 o TERMINAL ILLNESS WAIVER. We will not deduct a Surrender Charge or apply an MVA in the case of a partial withdrawal or surrender where any Owner or Annuitant is diagnosed with a terminal illness and has a life expectancy of 12 months or less. As proof, we may require a determination of the terminal illness. Such determination must be signed by the physician making the determination after the latter of Contract Issue Date or the date of change of the Owner or Annuitant. The physician may not be a member of your or the Annuitant's immediate family. Please see your Contract for more information. The laws of your state may limit the availability of the Surrender Charge waivers and may also change certain terms and/or benefits under the waivers. You should consult your Contract for further details on these variations. Also, even if you do not pay a Surrender Charge because of the waivers, you still may be required to pay taxes or tax penalties on the amount withdrawn. You should consult a tax adviser to determine the effect of a partial withdrawal on your taxes. NOTE: We do not pro-rate Credited Index Interest, the Index Interest Rate Floor or the Index Interest Rate Cap in the event of the death of the Owner during or after the Initial Index Period. SURRENDERS At any time before the Payout Date and before the death of the Owner, you may surrender your Contract for the Surrender Value described above in "surrender value." To surrender your Contract, you must make a Written Request in Good Order to our Administrative Office. The consent of all Owners and irrevocable Beneficiaries must be obtained before the Contract is surrendered. Surrender Charges and a MVA may apply to your Contract surrender. See "market value adjustment" and "fees and charges." A surrender may also be subject to income tax and, if taken before age 59 1/2, an additional 10% federal penalty tax. You should consult a tax adviser before requesting a surrender. See "federal income tax matters." PARTIAL WITHDRAWAL AND SURRENDER RESTRICTIONs Your right to make partial withdrawals and surrender the Contract is subject to any restrictions imposed by any applicable law or employee benefit plan. RIGHT TO DEFER PAYMENTS We may defer payments we make under this Contract for up to six months if the insurance regulatory authority of the state in which we issued the Contract approves such deferral. We will apply interest to the deferred payments, if required by state law. We do not pro-rate Credited Index Interest, the Index Interest Rate Floor or the Index Interest Rate Cap. -------------------------------------------------------------------------------- DEATH BENEFIT -------------------------------------------------------------------------------- DEATH OF THE OWNER If the Owner dies before the Payout Date (if there are joint Owners, the death benefit will become payable after the first joint Owner dies), a death benefit will become payable to the Beneficiary. We will pay the death benefit after we receive the following at our Administrative Office in a form and manner satisfactory to us: o Due Proof of Death of the Owner while the Contract is in force; 22 o our claim form from each Beneficiary, properly completed; and o any other documents we require. The Death Benefit will equal your Contract Value adjusted for the application of any Credited Index Interest on the date we receive Due Proof of Death. No Surrender Charges or MVA will apply to the death benefit. NOTE: We do not pro-rate Credited Index Interest, the Index Interest Rate Floor or the Index Interest Rate Cap in the event of the death of the Contract Owner during or after the Initial Index Period. Within 60 days after we receive Due Proof of Death, the Beneficiary must elect the payment method for the death benefit. Those options are described below. We will pay the death benefit in a manner that complies with the requirements of Section 72(s) or 401(a)(9) of the Internal Revenue Code, as applicable. DEATH OF ANNUITANT WHILE THE OWNER IS LIVING If the Annuitant dies during the Accumulation Period while the Owner is living and no joint Annuitant has been named, the Owner will become the Annuitant, until and unless we receive notice. If there are joint Annuitants, when an Annuitant dies, the surviving joint Annuitant will become the sole Annuitant. If the Owner is not a natural person and the last surviving Annuitant dies before the Payout Date, the Death Benefit will be payable to the Beneficiary. DEATH BENEFIT PAYMENT OPTIONS The following rules apply to the payment of the death benefit: o SPOUSES - If the sole Beneficiary is the surviving spouse of the deceased Owner, then he or she may choose to continue the Contract and become the new Owner. At the death of the surviving spouse, this provision may not be used again, even if that surviving spouse remarries. In that case, the rules for non-spouses will apply. A surviving spouse may also elect to receive the death benefit proceeds in a lump sum, apply the proceeds to an Income Payment Option, or receive the death benefit proceeds within five years of the date of the Owner's death. o NON-SPOUSES - If the Beneficiary is not the surviving spouse of the deceased Owner, then this Contract cannot be continued. Instead, upon the death of any Owner, the Beneficiary must choose one of the following: o Receive the death benefit in one lump sum following our receipt of Due Proof of Death; o Receive the death benefit (if the Beneficiary is a natural person) pursuant to one of the Income Payment Options. Payments under an Income Payment Option must begin within 1 year of the Owner's death and must not extend beyond a period certain equal to the Beneficiary's life expectancy; or o Receive the death benefit within five years of the date of the Owner's death. Upon receipt of Due Proof of Death, the Beneficiary must instruct us how to treat the proceeds subject to the distribution rules discussed above. DEATH OF OWNER OR ANNUITANT AFTER THE PAYOUT DATE If an Annuitant dies during the Payout Period, remaining income payments, if any, will be distributed as provided by the Income Payment Option in effect. 23 If an Owner dies after the start of income payout, any remaining income payments will be distributed at least as rapidly as provided by the Income Payment Option in effect. ABANDONED PROPERTY REQUIREMENTS Every state has unclaimed property laws which generally declare annuity contracts to be abandoned after a period of inactivity of three to five years from the date the Death Benefit is due and payable. For example, if the payment of a Death Benefit has been triggered, but, if after a thorough search, we are still unable to locate the Beneficiary, or the Beneficiary does not come forward to claim the death Benefit in a timely manner, the Death Benefit will be paid to the abandoned property division or unclaimed property office of the state in which the Beneficiary or you last resided, as shown on our books and records, or to our state of domicile. The "escheatment" is revocable, however, and the state is obligated to pay the Death Benefit (without interest) if your Beneficiary steps forward to claim it with the proper documentation. To prevent such escheatment, it is important that you update your Beneficiary designations, including addresses, if and as they change. To make such changes, please contact us by writing to us or calling us at our Administrative Office. -------------------------------------------------------------------------------- INCOME PAYMENTS - THE PAYOUT PERIOD -------------------------------------------------------------------------------- PAYOUT DATE When you purchase the Contract, we will set the Payout Date as the Contract Anniversary following the Annuitant's 95(th) birthday. If there are Joint Annuitants, we will set the Payout Date based on the age of the oldest Joint Annuitant. You may change the Payout Date by sending a Written Request in Good Order to our Administrative Office provided: (i) the request is made while an Owner is living; (ii) the request is received at our Administrative Office at least 30 days before the anticipated Payout Date; and (iii) the requested Payout Date is at least two years after the Contract Issue Date. Any such change is subject to any maximum maturity age restrictions that may be imposed by law and cannot extend past the Annuitant's 95(th) birthday or the original Payout Date. TERMS OF INCOME PAYMENTS We use fixed rates of interest to determine the amount of income payments payable under the Income Payment Options. Income payments will vary; however, depending on the number of Annuitants living on the Payout Date. Once income payments begin, you cannot change the terms or method of those payments. We do not apply a Surrender Charge or MVA to income payments. If there is one Annuitant living on the Payout Date, we will apply your Contract Value to provide for a Life Income Option with a 10-Year Guaranteed Period Certain, unless you have elected an Income Payment Option before the Payout Date or we are otherwise required under the Internal Revenue Code. If there are two Annuitants living on the Payout Date, we will apply your Contract Value to a Joint and Last Survivor Life Income Option with a 10-Year Guaranteed Period Certain unless you have elected an Income Payment Option before the Payout Date or we are otherwise required by the Internal Revenue Code. We describe the Life Income Option and the Joint and Last Survivor Life Income Option under "income payment options" below. We will make the first income payment on the Payout Date. We may require proof of age and sex of the Annuitant/Joint Annuitants before making the first income payment. To receive income payments, the Annuitant/Joint Annuitant must be living on the Payout Date and on the date that each subsequent payment is due as required by the terms of the Income Payment Option. We may require proof from time to time that this condition has been met. 24 -------------------------------------------------------------------------------- INCOME PAYMENT OPTIONS -------------------------------------------------------------------------------- ELECTION OF AN INCOME PAYMENT OPTION You and/or the Beneficiary may elect to receive one of the Income Payment Options described under "Options" below. The Income Payment Option and distribution, however, must satisfy the applicable distribution requirements of Section 72(s) or 401(a)(9) of the Internal Revenue Code, as applicable. The election of an Income Payment Option must be made by Written Request. The election is irrevocable after the payments commence. The Payee may not assign or transfer any future payments under any option. The amount applied under each option must be at least $2,500, or the amount required to provide an initial monthly income payment of $20. We will make income payments monthly, quarterly, semiannually, or annually. We will also furnish the amount of such payments on request. Payments that are less than $20 will only be made annually. If you do not specify an income payment option in your application, the default payment option will be Option 2 - Life Income Option with a 10-year guaranteed period. You may change this payment option any time before payments begin on the Payout Date. OPTIONS We offer the following Income Payment Options. OPTION 1 -- INSTALLMENT OPTION. We will pay monthly income payments for a chosen number of years, not less than 10, nor more than 30. If the Annuitant dies before income payments have been made for the chosen number of years: (a) income payments will be continued for the remainder of the period to the Payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 1 rates, will be paid to the Payee or to the Owner, if there is no surviving Payee. For purposes of the present value calculation guaranteed rates will be used. OPTION 2 -- LIFE INCOME OPTION -- GUARANTEED PERIOD CERTAIN. We will pay monthly income payments for as long as the Annuitant lives. If the Annuitant dies before all the income payments have been made for the guaranteed period certain: (a) income payments will be continued for the remainder of the guaranteed period to the Payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 2 rates, will be paid to the Payee or to the Owner, if there is no surviving Payee. For purposes of the present value calculation guaranteed rates will be used. The guaranteed periods are 0 (life income only), 5, 10, 15, or 20 years. OPTION 3 -- JOINT AND LAST SURVIVOR LIFE INCOME OPTION -- GUARANTEED PERIOD CERTAIN. We will pay monthly income payments for as long as either of the Annuitants lives. If at the death of the second surviving Annuitant, income payments have been made for less than 10 years: (a) income payments will be continued for the remainder of the guaranteed period certain to the Payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 3 rates, will be paid to the Payee or to the Owner, if there is no surviving Payee. For purposes of the present value calculation guaranteed rates will be used. The options described above may not be offered in all states. Further, we may offer other Income Payment Options. More than one option may be elected. Option 2 and Option 3 pay monthly income payments. We do allow partial annuitization. 25 -------------------------------------------------------------------------------- FEDERAL INCOME TAX MATTERS -------------------------------------------------------------------------------- The following discussion is general in nature and is not intended as tax advice. Each person concerned should consult a competent tax adviser. No attempt is made to consider any applicable state or other income tax laws, any state and local estate or inheritance tax, or other tax consequences of ownership or receipt of distributions under a Contract. When you invest in an annuity contract, you usually do not pay taxes on your investment gains until you withdraw the money--generally for retirement purposes. If you invest in an annuity as part of an individual retirement plan, pension plan or employer-sponsored retirement program, your contract is called a Qualified Contract. If your annuity is independent of any formal retirement or pension plan, it is termed a Non-Qualified Contract. The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. See "Non-Natural Person" below for a discussion of Non-Qualified Contracts owned by persons such as corporations and trusts that are not natural persons. TAX STATUS OF THE CONTRACTS Tax law imposes several requirements that annuities must satisfy in order to receive the tax treatment normally accorded to annuity contracts. REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for Federal income tax purposes, Section 72(s) of the Internal Revenue Code requires any Non-Qualified Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of the death of an Owner of the Contract. Specifically, section 72(s) requires that (a) if any Owner dies on or after the annuity starting date, but prior to the time the entire interest in the contract has been distributed, the entire interest in the contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such Owner's death; and (b) if any Owner dies prior to the annuity starting date, the entire interest in the Contract will be distributed within five years after the date of such Owner's death. The Non-Qualified Contracts contain provisions that are intended to comply with these Internal Revenue Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. Other rules may apply to Qualified Contracts. TAXATION OF NON-QUALIFIED CONTRACTS NON-NATURAL PERSON. If a non-natural person (e.g., a corporation or a trust) owns a Non-Qualified Contract, the taxpayer generally must include in income any increase in the excess of the account value over the investment in the Contract (generally, the Purchase Payment or other consideration paid for the contract) during the taxable year. There are some exceptions to this rule and a prospective Owner that is not a natural person should discuss these with a tax adviser. The following discussion generally applies to Contracts owned by natural persons. WITHDRAWALS. When a withdrawal from a Non-Qualified Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the Contract Value, without adjustment for any applicable Surrender Charge, immediately before the distribution over the Owner's investment in the Contract (generally, the Purchase Payments or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) at that time. The Contract Value immediately before a withdrawal may have to be increased by any positive MVA that results from a withdrawal. There is, however, no definitive guidance on the proper tax treatment of MVAs and you may want to discuss the potential tax consequences of an MVA with your tax 26 adviser. In the case of a surrender under a Non-Qualified Contract, the amount received generally will be taxable only to the extent it exceeds the Owner's investment in the Contract. In the case of a withdrawal under a Qualified Contract, a ratable portion of the amount received is taxable, generally based on the ratio of the "investment in the contract" to the individual's total account balance or accrued benefit under the retirement plan. The "investment in the contract" generally equals the amount of any non-deductible Purchase Payment paid by or on behalf of any individual. In many cases, the "investment in the contract" under a Qualified Contract can be zero. PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from a Non-Qualified Contract, there may be an imposed federal tax penalty equal to ten percent of the amount treated as income. In general, however, there is no penalty on distributions if they are: o made on or after the taxpayer reaches age 59 1/2; o made on or after the death of an Owner; o attributable to the taxpayer's becoming disabled; or o made as part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer. Other exceptions may be applicable under certain circumstances and special rules may be applicable in connection with the exceptions enumerated above. Exceptions may apply to distributions from a Qualified Contract. You should consult a qualified tax adviser. INCOME PAYMENTS. Although tax consequences may vary depending on the payout option elected under an annuity contract, a portion of each income payment is generally not taxed and the remainder is taxed as ordinary income. The non-taxable portion of an income payment is generally determined in a manner that is designed to allow you to recover your investment in the contract ratably on a tax-free basis over the expected stream of income payments, as determined when income payments start. Once your investment in the contract has been fully recovered, however, the full amount of each income payment is subject to tax as ordinary income. PARTIAL ANNUITIZATION. Under a new tax provision enacted in 2010, if part of an annuity contract's value is applied to an annuity option that provides payments for one or more lives or for a period of at least ten years, those payments may be taxed as annuity payments instead of withdrawals. The payment options under the Contract are intended to qualify for this "partial annuitization" treatment. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a Contract because of your death or the death of the Annuitant. Generally, such amounts are includible in the income of the recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as surrender of the Contract, or (ii) if distributed under a payout option, they are taxed in the same way as income payments. WITHHOLDING. Annuity distributions are generally subject to withholding for the recipient's federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions. MULTIPLE CONTRACTS. All Non-Qualified deferred annuity contracts that are issued by us (or our affiliates) to the same Owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such Owner's income when a taxable distribution occurs. FURTHER INFORMATION. We believe that the contracts will qualify as annuity contracts for Federal income tax purposes and the above discussion is based on that assumption. 27 TAXATION OF QUALIFIED CONTRACTS The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Your rights under a Qualified Contract may be subject to the terms of the retirement plan itself, regardless of the terms of the Qualified Contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the Contract comply with the law. INDIVIDUAL RETIREMENT ANNUITIES (IRAs), as defined in Section 408 of the Internal Revenue Code, permit individuals to make annual contributions of up to the lesser of a specified dollar amount for the year or the amount of compensation includible in the individual's gross income for the year. The contributions may be deductible in whole or in part, depending on the individual's income. Distributions from certain retirement plans may be "rolled over" into an IRA on a tax-deferred basis without regard to these limits. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. A 10% penalty tax generally applies to distributions made before age 59 1/2, unless an exception applies. ROTH IRAs, as described in Internal Revenue Code section 408A, permit certain eligible individuals to contribute to make non-deductible contributions to a Roth IRA in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA is generally subject to tax and other special rules apply. The Owner may wish to consult a tax adviser before combining any converted amounts with any other Roth IRA contributions, including any other conversion amounts from other tax years. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty tax may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made. SECTION 457 PLANS, while not actually providing for a qualified plan as that term is normally used, provides for certain deferred compensation plans with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The Contract can be used with such plans. Under such plans a participant may specify the form of investment in which his or her participation will be made. Under a non-governmental plan, all such investments, however, are owned by and are subject to, the claims of the general creditors of the sponsoring employer. OTHER TAX ISSUES. Qualified Contracts have minimum distribution rules that govern the timing and amount of distributions. You should refer to your retirement plan, adoption agreement, or consult a tax adviser for more information about these distribution rules. Distributions from Qualified Contracts generally are subject to withholding for the Owner's federal income tax liability. The withholding rate varies according to the type of distribution and the Owner's tax status. The Owner will be provided the opportunity to elect not have tax withheld from distributions. "Eligible rollover distributions" from section 401(a), 403(a), and governmental 457 plans are subject to a mandatory federal income tax withholding of 20%. For this purpose, an eligible rollover distribution is any distribution to an employee (or employee' spouse or former spouse as Beneficiary or alternate payee) from such a plan, except certain distributions such as distributions required by the Internal Revenue Code, distributions in a specified annuity form, or hardship distributions. The 20% withholding does not apply, however, to nontaxable distributions or if the employee chooses a "direct rollover" from the plan to a tax-qualified plan, IRA or tax sheltered annuity or to a governmental 457 plan that agrees to separately account for rollover contributions. 28 FEDERAL ESTATE TAXES, GIFT AND GENERATION-SKIPPING TRANSFER TAXES While no attempt is being made to discuss in detail the Federal estate tax implications of the Contract, a purchaser should keep in mind that the value of an annuity contract owned by a decedent and payable to a Beneficiary by virtue of surviving the decedent is included in the decedent's gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the Contingent Owner or the actuarial value of the payments to be received by the Beneficiary. Consult an estate planning adviser for more information. Under certain circumstances, the Internal Revenue Code may impose a "generation skipping transfer ("GST") tax" when all or part of an annuity contract is transferred to, or a Death Benefit is paid to, an individual two or more generations younger than the Owner. Regulations issued under the Internal Revenue Code may require us to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS. For 2013, the federal estate tax, gift tax and GST tax exemptions and maximum rates are $5,250,000 and 40%, respectively. The potential application of these taxes underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios. MEDICARE TAX Beginning in 2013, distributions from non-qualified annuity policies will be considered "investment income" for purposes of the newly enacted Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax may be applied to some or all of the taxable portion of distributions (e.g., earnings) to individuals whose income exceeds certain threshold amounts. Please consult a tax advisor for more information. FEDERAL DEFENSE OF MARRIAGE ACT The Contract provides that upon your death, a surviving spouse may have certain continuation rights that he or she may elect to exercise for the Contract's death benefit and any joint-life coverage under an optional living benefit. All Contract provisions relating to spousal continuation are available only to a person who meets the definition of "spouse" under federal law. The federal Defense of Marriage Act ("DOMA") does not recognize same-sex marriages or civil unions, even those which are permitted under individual state laws. Recently, however, several U.S. Courts of Appeals and U.S. District Courts held DOMA to be unconstitutional, and the Supreme Court is hearing a case on DOMA in 2013. Therefore, it is currently uncertain as to whether spousal continuation provisions in this Contract will not be available to such partners or same-sex marriage spouses. Consult a tax adviser for more information on this subject. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS The discussion above provides general information regarding U.S. federal income tax consequences to annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S. citizens or residents will generally be subject to U.S. federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, such purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchaser's country of citizenship or residence. Additional withholding may occur with respect to entity purchasers (including foreign corporations, partnerships and trusts) that are not U.S. residents. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S., state, and foreign taxation with respect to an annuity contract purchase. POSSIBLE TAX LAW CHANGES Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contract could change by legislation or otherwise. Consult a tax adviser with respect to 29 legislative developments and their effect on the Contract. We have the right to modify the Contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any contact and do not intend the above discussion as tax advice. -------------------------------------------------------------------------------- OTHER INFORMATION -------------------------------------------------------------------------------- DISTRIBUTION We offer the Contract on a continuous basis. We have entered into a distribution agreement with our affiliate, CUNA Brokerage Services, Inc., for the distribution of the Contract. Contracts are sold by licensed insurance agents (the "Selling Agents") in those states where the Contract may be lawfully sold. Such Selling Agents will be registered representatives of affiliated and unaffiliated broker-dealer firms (the "Selling Broker-Dealers") registered under the Securities Exchange Act of 1934, as amended (the "1934 Act"), who are members of the Financial Industry Regulatory Authority, Inc. ("FINRA") and who have entered into selling agreements with us and the principal underwriter, CUNA Brokerage Services, Inc. We and/or our affiliates pay the Selling Broker-Dealers compensation for the promotion and sale of the Contract. The Selling Agents who solicit sales of the Contract typically receive a portion of the compensation paid by the Company to the Selling Broker-Dealers in the form of commissions or other compensation, depending on the agreement between the Selling Broker-Dealer and the Selling Agent. The Selling Agents are also licensed as insurance agents by applicable state insurance authorities and appointed as agents of the Company. Selling Agents who are registered representatives of CUNA Brokerage Services, Inc. or our affiliates are also eligible for various cash benefits, such as bonuses, insurance benefits and financing arrangements, and non-cash items that we may jointly provide with CUNA Brokerage Services or our affiliates. Non-cash items include conferences, seminars and trips (including travel, lodging and meals in connection therewith), entertainment, merchandise and other similar items. Sales of the Contracts may help registered representatives of CUNA Brokerage Services qualify for such benefits. The amount and timing of commissions we may pay to Selling Broker-Dealers may vary depending on the selling agreement and the contract sold but is not expected to be more than 7.25% of the Purchase Payment. We may pay or allow other promotional incentives or payments in the form of cash or other compensation to the extent permitted by FINRA rules and other applicable laws and regulations. We also pay compensation to wholesaling broker-dealers or other firms or intermediaries, including payments to affiliates of ours, in return for wholesaling services such as providing marketing and sales support, product training and administrative services to the Selling Agents of the Selling Broker-Dealers. These allowances may be based on a percentage of the Purchase Payment. In addition to the compensation described above, we may make additional cash payments, in certain circumstances referred to as "override" compensations or reimbursements to Selling Broker-Dealers in recognition of their marketing and distribution, transaction processing and/or administrative services support. These payments are not offered to all Selling Broker-Dealers, and the terms of any particular agreement governing the payments may vary among Selling Broker-Dealers depending on, among other things, the level and type of marketing and distribution support provided. Marketing and distribution support services may include, among other services, placement of the Company's products on the Selling Broker-Dealers' preferred or recommended list, increased access to the Selling Broker-Dealers' registered representatives for purposes of promoting sales of our products, assistance in training and education of the Selling Agents, and opportunities for us to participate in sales conferences and educational seminars. The payments or reimbursements may be calculated as a percentage of the particular Selling Broker-Dealer's actual or expected aggregate sales of our indexed annuity contracts (including the Contract) and/or may be a fixed dollar amount. Broker-dealers receiving these additional payments may pass on some or all of the payments to the Selling Agent. 30 You should ask your Selling Agent for further information about what commissions or other compensation he or she, or the Selling Broker-Dealer for which he or she works, may receive in connection with your purchase of a Contract. Commissions and other incentives or payments described above are not charged directly to you. We intend to recoup commissions and other sales expenses through fees and charges deducted under the Contract. AUTHORITY TO CHANGE Only the President or Secretary of the Company may change or waive any of the terms of your Contract. Any change must be in writing and signed by the President or Secretary of the Company. INCONTESTABILITY We consider all statements in your application (in the absence of fraud) to be representations and not warranties. We will not contest your Contract. MISSTATEMENT OF AGE OR GENDER If an Annuitant's date of birth or gender is misstated, we will adjust the income payments under this Contract to be equal to the payout amount the Contract would have purchased based on the Annuitant's correct date of birth and/or gender. We will add any underpayments to the next payment. We will subtract any overpayment from future payments. We will not credit or change any interest to any underpayment or overpayment. CONFORMITY WITH APPLICABLE LAWS The provisions of the Contract conform to the minimum requirements of the state of issue. The laws of the state of issue control any conflicting laws of any other state in which the Owner may live on or after the Contract Issue Date. If any provision of your Contract is determined not to provide the minimum benefits required by the state in which the Contract is issued, such provision will be deemed to be amended to conform or comply with such laws or regulations. Further, the Company will amend the Contract to comply with any changes in law governing the Contract or the taxation of benefits under the Contract. REPORTS TO OWNERS At least annually, we will mail a report to you at your last known address of record, a report that will state the Contract Value, Surrender Value, withdrawals made since the last report and any other information required by any applicable law or regulation. You also will receive confirmations of each financial transaction, such as transfers, withdrawals, and surrenders. CHANGE OF ADDRESS You may change your address by writing to us at our Administrative Office. If you change your address, we will send a confirmation of the address change to both your old and new addresses. INQUIRIES You may make inquiries regarding your Contract by writing to us or calling us at our Administrative Office. 31 -------------------------------------------------------------------------------- CORPORATE HISTORY OF THE COMPANY -------------------------------------------------------------------------------- MEMBERS Life Insurance Company We are a wholly-owned indirect subsidiary of CMFG Life Insurance Company ("CMFG Life") and a direct wholly-owned subsidiary of CUNA Mutual Investment Corporation ("CMIC"). We were formed by CMFG Life on February 27, 1976, as a stock life insurance company under the laws of the State of Wisconsin for the purpose of writing credit disability insurance. The original name of the Company was CUDIS Insurance Society, Inc. On August 3, 1989, the Company's name changed to CUMIS Life Insurance, Inc., and was subsequently changed to its current name on January 1, 1993. League Life Insurance Company (Michigan) merged into the Company on January 1, 1992 and MEMBERS Life Insurance Company (Texas) merged into the Company on January 1, 1993. The Company re-domiciled from Wisconsin to Iowa on May 3, 2007. The Company is 100% owned by CMIC, which is in turn 100% owned by CMFG Life. On February 17, 2012, we amended and restated our Articles of Incorporation pursuant to which we amended our purpose to be the writing of any and all of the lines of insurance and annuity business authorized by Iowa Code Chapter 508 and any other line of insurance or annuity business authorized by the laws of the State of Iowa. CMFG Life is a stock insurance company organized on May 20, 1935 and domiciled in Iowa. CMFG Life is one of the world's largest direct underwriters of credit life and disability insurance, and is a major provider of qualified pension products to credit unions. Further, CMFG Life and its affiliated companies currently offer deferred and immediate annuities, individual term and permanent life insurance, and accident and health insurance. In 2012, CMFG Life was reorganized as a wholly-owned subsidiary of CUNA Mutual Holding Company, a mutual holding company. The Company is authorized to sell life, health, and annuity policies in all states in the U.S. and the District of Columbia, except New York. In 2012, approximately 65% and 21% of the premiums paid under policies issued by the Company were generated in Michigan and Texas, respectively. No other state accounts for more than 5% of the premiums paid under the Company's policies for any year in the three years ended December 31, 2012. As of December 31, 2012, we had approximately $47 million in assets and we had more than $163 million of life insurance in force. Currently, the Company primarily services existing blocks of individual and group life policies and does not actively market new business. We are planning to enter the market for new sales in 2013 with the Contract. CMFG Life provides significant services required in the conduct of the Company's operations. We have entered into the following two contracts for the administration of our business: o a Cost Sharing Agreement, pursuant to which CMFG Life performs certain administrative functions related to agent licensing, payment of commissions, actuarial services, annuity policy issuance and service, accounting and financial compliance, market conduct, general and informational services and marketing as well as share certain resources and personnel with us; o a Procurement and Disbursement and Billing and Collection Services Agreement, pursuant to which CMFG Life provides certain procurement, disbursement, billing and collection services; You may write us at 2000 Heritage Way, Waverly, Iowa 50677-9202 or call us at 1-800-798-6600. We share space with our parent, CMFG Life. CMFG Life occupies office space in Madison, Wisconsin and Waverly, Iowa that is owned by CMFG Life and its affiliates. Expenses associated with the facilities are allocated to us through the Cost Sharing Agreement described above. 32 FINANCIAL INFORMATION Our financial statements have been prepared in accordance with U.S. GAAP. INVESTMENTS Our investment portfolio consists primarily of fixed income securities. REINSURANCE We reinsure portions of our life insurance exposure with affiliated insurance companies under traditional indemnity reinsurance arrangements. We entered into a Coinsurance Agreement with CMFG Life in 2012. Under this agreement, we agreed to cede 95% of all insurance in force, including annuity contracts, as of October 31, 2012 to CMFG Life. In 2013 we entered into a second Coinsurance Agreement to cede 100% of all insurance issued on and after January 1, 2013 to CMFG Life. These agreements do not relieve us of our obligations to our policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company's underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities. POLICY LIABILITIES AND ACCRUALS The applicable accounting standards and state insurance laws under which we operate require that we record policy liabilities to meet the future obligations associated with all of our outstanding policies. -------------------------------------------------------------------------------- POTENTIAL RISK FACTORS THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS -------------------------------------------------------------------------------- ALTHOUGH ECONOMIC CONDITIONS BOTH DOMESTICALLY AND GLOBALLY HAVE CONTINUED TO IMPROVE SINCE THE FINANCIAL CRISIS IN 2008, WE REMAIN VULNERABLE TO MARKET UNCERTAINTY AND CONTINUED FINANCIAL INSTABILITY OF NATIONAL, STATE AND LOCAL GOVERNMENTS. CONTINUED DIFFICULT CONDITIONS IN THE GLOBAL CAPITAL MARKETS AND ECONOMY COULD DETERIORATE IN THE NEAR FUTURE AND AFFECT OUR FINANCIAL POSITION AND OUR LEVEL OF EARNINGS FROM OUR OPERATIONS. Markets in the United States and elsewhere experienced extreme volatility and disruption since the second half of 2007, due in part to the financial stresses affecting the liquidity of the banking system and the financial markets. This volatility and disruption reached unprecedented levels in late 2008 and early 2009. The United States entered a severe recession and recovery has proved to be slow and long-term. High unemployment rates and lower average household income levels have emerged as continued lagging indicators of a slow economic recovery. One of the strategies used by the U.S. government to stimulate the economy has been to keep interest rates low and increase the supply of United States dollars. While these strategies have appeared to be somewhat successful, any future economic downturn or market disruption could negatively impact our ability to invest our funds. Specifically, if market conditions deteriorate in 2013 or beyond: o our investment portfolio could incur other than temporary impairments; o due to potential downgrades in our investment portfolio, we could be required to raise additional capital to sustain our current business in force and new sales of our annuity products, which may be difficult in a distressed market. If capital would be available, it may be at terms that are not favorable to us; or o our liquidity could be negatively affected and we could be forced to further limit our operations and our business could suffer, as we need liquidity to pay our policyholder benefits and operating expenses. 33 The principal sources of our liquidity are monthly settlements under the coinsurance agreements with CMFG Life, annuity deposits, investment income, proceeds from the sale, maturity and call of investments and capital contributions from CMFG Life. GOVERNMENTAL INITIATIVES INTENDED TO IMPROVE GLOBAL AND LOCAL ECONOMIES THAT HAVE BEEN ADOPTED MAY NOT BE EFFECTIVE AND, IN ANY EVENT, MAY BE ACCOMPANIED BY OTHER INITIATIVES, INCLUDING NEW CAPITAL REQUIREMENTS OR OTHER REGULATIONS, THAT COULD MATERIALLY AFFECT OUR RESULTS OF OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY IN WAYS THAT WE CANNOT PREDICT. We are subject to extensive laws and regulations that are administered and enforced by a number of different regulatory authorities including state insurance regulators, the National Association of Insurance Commissioners ("NAIC") and the Securities and Exchange Commission ("SEC"). Some of these authorities are or may in the future consider enhanced or new regulatory requirements intended to prevent future crises or otherwise assure the stability of institutions under their supervision. These authorities may also seek to exercise their supervisory or enforcement authority in new or more robust ways. All of these possibilities, if they occurred, could affect the way we conduct our business and manage our capital, and may require us to satisfy increased capital requirements, any of which in turn could materially affect our results of operations, financial condition and liquidity. WE FACE POTENTIAL COMPETITION FROM COMPANIES THAT HAVE GREATER FINANCIAL RESOURCES, BROADER ARRAYS OF PRODUCTS, HIGHER RATINGS AND STRONGER FINANCIAL PERFORMANCE, WHICH MAY IMPAIR OUR ABILITY TO ATTRACT NEW CUSTOMERS AND MAINTAIN OUR PROFITABILITY AND FINANCIAL STRENGTH. We operate in a highly competitive industry. Many of our competitors are substantially larger and enjoy substantially greater financial resources, claims-paying ability and financial strength, broader and more diversified product lines and more widespread distribution relationships. Our annuity products compete with fixed indexed, traditional fixed rate and variable annuities sold by other insurance companies and also with mutual fund products, traditional bank investments and other investment and retirement funding alternatives offered by asset managers, banks and broker-dealers. Our annuity products also compete with products of other insurance companies, financial intermediaries and other institutions based on a number of factors, including crediting rates, policy terms and conditions, service provided to distribution channels and policyholders, ratings, reputation and distribution compensation. Our ability to compete will depend in part on rates of interest credited to policyholder account balances or the parameters governing the determination of index credits which is driven by our investment performance. We will not be able to accumulate and retain assets under management for our products if our investment results underperform the market or the competition, since such underperformance likely would result in asset withdrawals and reduced sales. We compete for distribution sources for our products. We believe that our success in competing for distributors will depend on factors such as our financial strength, the services we provide to, and the relationships we develop with these distributors and offering competitive commission structures. Our distributors will generally be free to sell products from whichever providers they wish, which makes it important for us to continually offer distributors products and services they find attractive. If our products or services fall short of distributors' needs, we may not be able to establish and maintain satisfactory relationships with distributors of our annuity products. Our ability to compete will also depend in part on our ability to develop innovative new products and bring them to market more quickly than our competitors. In order for us to compete in the future, we will need to continue to bring innovative products to market in a timely fashion. Otherwise, our revenues and profitability could suffer. THE LOSS OF KEY EMPLOYEES COULD DISRUPT OUR OPERATIONS. Our success depends in part on the continued service of key executives within our Company and our ability to attract and retain additional executives and employees. The loss of key employees, or our 34 inability to recruit and retain additional qualified personnel, could cause disruption in our business and prevent us from fully implementing our business strategies, which could materially and adversely affect our business, growth and profitability. CHANGES IN STATE AND FEDERAL REGULATION MAY AFFECT OUR PROFITABILITY. We are subject to regulation under applicable insurance statutes, including insurance holding company statutes, in the various states in which we transact business. Insurance regulation is intended to provide safeguards for policyholders rather than to protect shareholders of insurance companies or their holding companies. As increased scrutiny has been placed upon the insurance regulatory framework, a number of state legislatures have considered or enacted legislative proposals that alter, and in many cases increase, state authority to regulate insurance companies and holding company systems. Regulators oversee matters relating to trade practices, policy forms, claims practices, guaranty funds, types and amounts of investments, reserve adequacy, insurer solvency, minimum amounts of capital and surplus, transactions with related parties, changes in control and payment of dividends. State insurance regulators and the NAIC continually reexamine existing laws and regulations and may impose changes in the future. We are subject to the NAIC's risk-based capital requirements which are intended to be used by insurance regulators as an early warning tool to identify deteriorating or weakly capitalized insurance companies for the purpose of initiating regulatory action. We also may be required, under solvency or guaranty laws of most states in which we do business, to pay assessments up to certain prescribed limits to fund policyholder losses or liabilities for insolvent insurance companies. Although the federal government does not directly regulate the insurance business, federal legislation and administrative policies in several areas, including pension regulation, age and sex discrimination, financial services regulation, securities regulation and federal taxation, can significantly affect the insurance business. In addition, legislation has been enacted which could result in the federal government assuming some role in the regulation of the insurance industry. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was enacted and signed into law, making extensive changes to the laws regulating the financial services industry. Among other things, the Dodd-Frank Act imposes a comprehensive new regulatory regime on the over-the-counter ("OTC") derivatives marketplace. The derivatives legislation is set forth in Title VII of the Dodd-Frank Act entitled "Wall Street Transparency and Accountability" (the "Derivatives Title"). With limited exceptions, the provisions of the Derivatives Title become effective on the later of 360 days following enactment and, to the extent a provision requires rulemaking, not less than 60 days after publication in the Federal Register of the applicable final rule. However, with respect to provisions of the Derivatives Title that do not require rulemakings and therefore became effective in July 2011, the U.S. Commodities Futures Trading Commission (the "CFTC") and the SEC have issued orders temporarily exempting persons and entities from compliance with such provisions while the regulators finalize key rulemakings necessary to implement the Derivatives Title. Once effective, this legislation will subject "swap dealers" and "major swap participants" (each as defined in the legislation and further clarified by the rulemaking) to substantial supervision and regulation, including capital standards, margin requirements, business conduct standards, and recordkeeping and reporting requirements. It will also require central clearing for certain derivatives transactions that the CFTC or SEC, as applicable, determines must be cleared and are accepted for clearing by a "derivatives clearing organization" (subject to certain exceptions). Many key concepts, processes and issues under the Derivatives Title have been left to the relevant federal regulators to define and address. Although it is not possible at this time to assess the impact of the Dodd-Frank Act and any future regulations implementing the new legislation, the Dodd-Frank Act and any such regulations may subject us to additional restrictions on our hedging positions which may have an adverse effect on our ability to hedge risks associated with our business, 35 including our indexed annuity business, or on the cost of our hedging activity. Additionally, the definitions of "swap" and "security-based swap" in the Derivatives Title are very broad and could be read to include certain insurance and annuity products. Regulations further defining these terms have not been finalized, but if certain insurance and annuity products are ultimately included in the definition of swap or security-based swaps, such products, and potentially the insurance companies that offer them, will be subject to extensive federal regulation. The Dodd-Frank Act also created a Financial Stability and Oversight Council. The Council may designate by a 2/3 vote whether certain insurance companies and insurance holding companies pose a grave threat to the financial stability of the United States, in which case such companies would become subject to prudential regulation by the Board of Governors of the U.S. Federal Reserve (the "Federal Reserve Board") (including capital requirements, leverage limits, liquidity requirements and examinations). The Federal Reserve Board may limit such company's ability to enter into merger transactions, restrict its ability to offer financial products, require it to terminate one or more activities, or impose conditions on the manner in which it conducts activities. The Dodd-Frank Act also established a Federal Insurance Office under the U.S. Treasury Department to monitor all aspects of the insurance industry and of lines of business other than certain health insurance, certain long-term care insurance and crop insurance. The director of the Federal Insurance Office will have the ability to recommend that an insurance company or an insurance holding company be subject to heightened prudential standards. The Dodd-Frank Act also provides for the preemption of state laws in certain instances involving the regulation of reinsurance and other limited insurance matters. The Dodd-Frank Act requires extensive rule-making and other future regulatory action, which in some cases will take a period of years to implement. It is not possible at this time to assess the impact on our business of the establishment of the Federal Insurance Office and the Financial Stability and Oversight Council. However, the regulatory framework at the state and federal level applicable to our insurance products is evolving. The changing regulatory framework could affect the design of such products and our ability to sell certain products. Any changes in these laws and regulations could materially and adversely affect our business, financial condition or results of operations. CHANGES IN FEDERAL INCOME TAXATION LAWS MAY AFFECT SALES OF OUR PRODUCTS AND PROFITABILITY. The annuity products that we market generally provide the policyholder with certain federal income tax advantages. For example, federal income taxation on any increases in non-qualified annuity contract values (i.e., the "inside build-up") is deferred until it is received by the policyholder. With other savings and investments, such as certificates of deposit and taxable bonds, the increase in value is generally taxed each year as it is earned. From time to time, various tax law changes have been proposed that could have an adverse effect on our business, including the elimination of all or a portion of the income tax advantages for annuities. If legislation were enacted to eliminate the tax deferral for annuities, such a change may have an adverse effect on our ability to sell non-qualified annuities. Non-qualified annuities are annuities that are not sold to a qualified retirement plan. Beginning in 2013, distributions from non-qualified annuity policies will be considered "investment income" for purposes of the newly enacted Medicare tax on investment income contained in the Health Care and Education Reconciliation Act of 2010. As a result, in certain circumstances a 3.8% tax ("Medicare Tax") may be applied to some or all of the taxable portion of distributions from non-qualified annuities to individuals whose income exceeds certain threshold amounts. This new tax may have an adverse effect on our ability to sell non-qualified annuities to individuals whose income exceeds these threshold amounts and could accelerate withdrawals due to this impending additional tax. The constitutionality of the Health Care and Education Reconciliation Act of 2010 is currently the subject of multiple litigation actions initiated by various state attorneys general, and the Act is also the subject of several proposals in the US Congress for amendment and/or repeal. The outcome of such litigation and legislative action as it relates to the 3.8% Medicare Tax is unknown at this time. 36 WE FACE RISKS RELATING TO LITIGATION, INCLUDING THE COSTS OF SUCH LITIGATION, MANAGEMENT DISTRACTION AND THE POTENTIAL FOR DAMAGE AWARDS, WHICH MAY ADVERSELY IMPACT OUR BUSINESS. We may become involved in litigation, both as a defendant and as a plaintiff, relating to claims arising out of our operations in the normal course of business. In addition, state regulatory bodies, such as state insurance departments, the SEC, the Financial Industry Regulatory Authority, Inc. ("FINRA"), the Department of Labor, and other regulatory bodies regularly make inquiries and conduct examinations or investigations of companies in the annuity business concerning compliance with, among other things, insurance laws, securities laws, the Employee Retirement Income Security Act of 1974, as amended, and laws governing the activities of broker-dealers. Companies in the annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. There can be no assurance that any future litigation will not have a material adverse effect on our business, financial condition or results of operations through distraction of our management or otherwise. -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA -------------------------------------------------------------------------------- The following selected financial data is derived from the Company's financial statements and should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations". The results of operations data for the years ended December 31, 2012, 2011 and 2010 and for the three months ended March 31, 2013 and 2012 and the balance sheet data as of December 31, 2012 and 2011 and March 31, 2013 should be read in conjunction with our financial statements and related notes appearing elsewhere in this prospectus. The results for the past periods are not necessarily indicative of results that may be expected for future periods. The Company entered into reinsurance agreements with CMFG Life in 2012 and 2013 which impact the Company's financial results. See the reinsurance footnote within the Company's financial statements appearing elsewhere in this prospectus.
--------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------------- RESULTS OF OPERATIONS DATA: 2012 2011 2010 2009 2008 --------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) REVENUES Life and health premiums $ (20,459) $ 3,409 $ 3,744 $ 3,720 $ 4,115 Contract charges 460 501 533 524 539 Net investment income 1,928 2,175 2,090 1,903 2,199 Net realized gains on investments 4,319 119 245 257 1,148 --------------------------------------------------------------------------------------------------------------------- Total revenues (13,752) 6,204 6,612 6,404 8,001 --------------------------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES: Life and health insurance claims and benefits (20,028) 2,268 2,261 2,333 2,163 Interest credited to policyholder account balances 158 164 163 177 182 Operating and other expenses 1,087 1,040 827 992 1,034 --------------------------------------------------------------------------------------------------------------------- Total benefits and expenses (18,783) 3,472 3,251 3,502 3,379 --------------------------------------------------------------------------------------------------------------------- Income before income taxes 5,031 2,732 3,361 2,902 4,622 Income tax expense 1,679 921 1,074 1,766 1,774 --------------------------------------------------------------------------------------------------------------------- Net income $ 3,352 $ 1,811 $ 2,287 $ 1,136 $ 2,848 ---------------------------------------------------------------------------------------------------------------------
37
------------------------------------------------------------------------------------------------------ DECEMBER 31, BALANCE SHEET DATA: 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) ASSETS: Total investments $ 8,691 $ 53,678 $ 50,145 $ 38,696 $ 41,087 Reinsurance recoverable 26,391 - - - - Total assets 47,405 64,248 62,416 61,016 60,418 LIABILITIES AND STOCKHOLDER'S EQUITY: Claim and policy benefit reserves 24,112 23,974 24,896 25,829 26,806 Total liabilities 28,281 28,212 29,408 30,928 31,800 Total stockholder's equity 19,124 36,036 33,008 30,088 28,618 ------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------------------------- RESULTS OF OPERATIONS DATA: 2013 2012 (DOLLARS IN THOUSANDS) REVENUES Life and health premiums $ 36 $ 806 Contract charges 115 116 Net investment income 98 540 Net realized gains on investments - 58 ------------------------------------------------------------------------------------------------------ Total revenues 249 1,520 ------------------------------------------------------------------------------------------------------ BENEFITS AND EXPENSES: Life and health insurance claims and benefits 64 630 Interest credited to policyholder account balances 41 42 Operating and other expenses 328 274 ------------------------------------------------------------------------------------------------------ Total benefits and expenses 433 946 ------------------------------------------------------------------------------------------------------ Income before income taxes (184) 574 Income tax expense 15 187 ------------------------------------------------------------------------------------------------------ Net income $ (199) $ 387 ------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------ MARCH 31, DECEMBER 31, ----------------------------------------- BALANCE SHEET DATA: 2013 2012 ------------------------------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) ASSETS: Total investments $ 8,209 $ 8,691 Reinsurance recoverable 27,084 26,391 Total assets 47,770 47,405 LIABILITIES AND STOCKHOLDER'S EQUITY: Claim and policy benefit reserves 24,613 24,112 Total liabilities 28,886 28,281 Total stockholder's equity 18,884 19,124 ------------------------------------------------------------------------------------------------------
38 -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations reviews our financial condition at December 31, 2012, December 31, 2011 and March 31, 2013; our results of operations for the years ended December 31, 2012, 2011 and 2010 and for the three months ended March 31, 2013 and 2012; and where appropriate, factors that may affect future financial performance. This discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this prospectus. The dollar amounts disclosed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are "in thousands." CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION All statements, trend analyses and other information contained in this prospectus and elsewhere (such as in press releases, presentations by us, our immediate parent CMIC, or CMFG Life, our management or oral statements) relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "anticipate", "believe", "plan", "estimate", "expect", "intend", and other similar expressions, constitute forward-looking statements. We caution that these statements may vary from actual results and the differences between these statements and actual results can be material. Accordingly, we cannot assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements. Factors that could contribute to these differences include, among other things: o general economic conditions and other factors, including prevailing interest rate levels and stock and credit market performance which may affect (among other things) our ability to sell our products, our ability to access capital resources and the costs associated therewith, the fair value of our investments, which could result in other than temporary impairments, and certain liabilities, and the lapse rate and profitability of policies; o customer response to new products and marketing initiatives; o we have not previously issued or distributed a similar type of single premium deferred annuity contract; o changes in the Federal income tax laws and regulations which may affect the relative income tax advantages of our products; o increasing competition in the sale of annuities; o regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) bank and credit union sales and underwriting of insurance products and regulation of the sale, underwriting and pricing of products; and o the risk factors or uncertainties listed in this prospectus. For a detailed discussion of these and other factors that might affect our performance see the sections entitled "Risk Factors and Other Important Information You Should Know" and "Potential Risk Factors That May Affect Future Results." OVERVIEW We are a wholly-owned indirect subsidiary of CMFG Life and a direct wholly-owned subsidiary of CMIC. On May 3, 2007, the Company re-domiciled from Wisconsin to Iowa. On February 17, 2012, we amended and restated our Articles of Incorporation pursuant to which we amended our purpose to be the writing of any and all of the lines of insurance and annuity business authorized by Iowa Code Chapter 508 as authorized by the laws of the State of Iowa. We currently intend to focus our efforts on the annuity business, including the sale of the Contracts. 39 The Company is authorized to sell life, health and annuity policies in all states in the U.S. and the District of Columbia, except New York. In 2012, approximately 65% and 21% of the premiums paid under policies issued by the Company were generated in Michigan and Texas, respectively. No other state accounts for more than 5% of the premiums paid under the Company's policies for any year in the three years ended December 31, 2012. As of December 31, 2012, we had approximately $47 million in assets and we had more than $163 million of life insurance in force. Currently, the Company primarily services existing blocks of individual and group life policies and does not actively market new business. We are planning to enter the market for new sales in 2013 with the Contract. We will distribute the Contract through multiple face-to-face distribution channels, including: o Managed Agents: employees of the Company who sell insurance and investment products to members of credit unions that have contracted with the Company and its affiliates to provide these services; o Dual Employee Agents: employees of credit unions who sell insurance and investment products to members of credit unions that have contracted with the Company and its affiliates to provide these services. These agents are registered representatives of the Company's affiliated broker dealer; and o Independent Agents: agents who also represent other insurance companies and, along with or through an unaffiliated broker-dealer, contract with the Company to offer its individual life insurance and annuity products that are made available for distribution through this channel. We entered into a coinsurance agreement with CMFG Life in 2012. Under this agreement, we agreed to cede 95% of all insurance in force as of October 31, 2012 to CMFG Life. In 2013, we entered into a second coinsurance agreement to cede 100% of all insurance issued on and after January 1, 2013 to CMFG Life. These agreements do not relieve us of our obligations to our policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company's underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities. We believe that our profitability in 2013 and later will be minimal due to the coinsurance agreements with CMFG Life, as the coinsurance agreements transfer nearly all of our underwriting profits or losses to CMFG Life. CMFG Life provides significant services required of personnel in the conduct of the Company's operations. CMFG Life allocates expenses to us on the basis of time spent by employees of CMFG Life on Company matters and the use of operational resources. Management believes the allocations of expenses are reasonable and that the results of the Company's operations may have materially differed in a negative manner from the results reflected in the accompanying financial statements if the Company did not have this relationship. CRITICAL ACCOUNTING POLICIES The increasing complexity of the business environment and applicable authoritative accounting guidance requires us to closely monitor our accounting policies. The following summary of our critical accounting policies is intended to enhance your ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates. USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and in some cases 40 the difference could be material. Investment valuations, claim and policyholder benefit reserves and deferred tax asset valuation reserves are most affected by the use of estimates and assumptions. INVESTMENT VALUATION - Investments in debt securities are classified as available for sale and are carried at fair value. Unrealized gains and losses on investments in debt securities, net of federal income taxes, are included in accumulated other comprehensive income as a separate component of stockholder's equity. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value of assets and liabilities into three broad levels. The Company has categorized its financial instruments, based on the degree of subjectivity inherent in the valuation technique, as follows: o Level 1: Inputs are directly observable and represent quoted prices for identical assets or liabilities in active markets the Company has the ability to access at the measurement date. o Level 2: All significant inputs are observable, either directly or indirectly, other than quoted prices included in Level 1, for the asset or liability. This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3: One or more significant inputs are unobservable and reflect the Company's estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. For purposes of determining the fair value of the Company's investments, observable inputs are those inputs used by market participants in valuing financial instruments, which are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs, reflecting the Company's estimates of the assumptions market participants would use in valuing investments, are developed based on the best information available in the circumstances. The Company uses prices and inputs that are current as of the measurement date. In some instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The hierarchy requires the use of market observable information when available for assessing fair value. The availability of observable inputs varies by investment. In situations where the fair value is based on inputs that are unobservable in the market or on inputs from inactive markets, the determination of fair value requires more judgment and is subject to the risk of variability. The degree of judgment exercised by the Company in determining fair value is typically greatest for investments categorized in Level 3. Our assets which are measured at fair value on a recurring basis as of December 31, 2012 are presented below based on the fair value hierarchy levels. OTHER-THAN-TEMPORARY INVESTMENT IMPAIRMENTS - Investment securities are reviewed for other than temporary impairment ("OTTI") on an ongoing basis. The Company creates a watchlist of securities based largely on the fair value of an investment security relative to its cost basis. When the fair value drops below the Company's cost, the Company monitors the security for OTTI impairment. The determination of OTTI requires significant judgment on the part of the Company and depends on several factors, including: 41 o the existence of any plans to sell the investment security; o the extent to which fair value is less than book value; o the underlying reason for the decline in fair value (credit concerns, interest rates, etc.); o the financial condition and near term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions; o the Company's intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery in fair value; o the Company's ability to recover all amounts due according to the contractual terms of the agreements; and o the Company's collateral position in the case of bankruptcy or restructuring. A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company's holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the OTTI is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive income. If the Company intends to sell, at the time this determination is made, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer's business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered. For securitized debt securities, the Company considers factors including commercial and residential property changes in value that vary by property type and location and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral. For certain securitized financial assets with contractual cash flows, the Company is required to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the estimated cash flows since the last revised estimate, considering both timing and amount, an OTTI charge is recognized. The Company also considers its intent to retain a temporarily impaired security until recovery. Estimating future cash flows involves judgment and includes both quantitative and qualitative factors. Such determinations incorporate various information and assessments regarding the future performance of the underlying collateral. In addition, projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral. REINSURANCE - Reinsurance premiums, claims and benefits, commission expense reimbursements, and reserves related to reinsured business ceded are accounted for on a basis consistent with the accounting for the underlying direct policies that have been ceded and the terms of the reinsurance contracts. Premiums and insurance claims and benefits in the statements of operations and comprehensive income are reported net of the amounts ceded to other companies under such reinsurance contracts. Ceded insurance reserves and ceded benefits paid are included in reinsurance recoverables. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies. The Company entered into two coinsurance agreements with CMFG Life as described in the Overview of 42 this Management's Discussion and Analysis. As consideration for the reinsurance provided under these agreements, we transfer nearly all of our revenues to CMFG Life. Specifically, CMFG Life receives 95% of all premiums and insurance claims and benefits received on account of our existing business in force as of October 31, 2012 and 100% of all premiums and insurance claims and benefits received on account of our new business issued on or after January 1, 2013. INSURANCE RESERVES - Life and health claim and policy benefit reserves consist principally of future policy benefit reserves and reserves for estimates of future payments on incurred claims reported and unreported but not yet paid. Such estimates are developed using actuarial principles and assumptions based on past experience adjusted for current trends. Any change in the probable ultimate liabilities is reflected in net income in the period in which the change is determined. When actual experiences indicate that existing contract liabilities, together with the present value of future gross premiums will not be sufficient to recover the present value of future benefits or recover unamortized deferred acquisition costs, a premium deficiency will be recognized by either a reduction in unamortized acquisition costs or an increase in liability of future benefits. The Company entered into two coinsurance agreements with CFMG Life as described in the Overview of this Management's Discussion and Analysis. These agreements do not relieve the Company of its obligations to its policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company's underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities. INCOME TAXES - The Company recognizes taxes payable or refundable and deferred taxes for the tax consequences of differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured by applying the enacted tax rates to the difference between the financial statement and tax basis of assets and liabilities. The Company records current tax benefits and deferred tax assets utilizing a benefits-for-loss approach. Under this approach, current benefits are realized and deferred tax assets are considered realizable by the Company when realized or realizable by the consolidated group of which the Company is a member even if the benefits would not be realized on a stand-alone basis. The Company records a valuation allowance for deferred tax assets if it determines it is more likely than not that the asset will not be realized by the consolidated group. Deferred income tax assets can be realized through future earnings, including the generation of future income, reversal of existing temporary differences and available tax planning strategies. The Company is subject to tax-related audits in the normal course of operations. These audits may result in additional tax assets or liabilities. In establishing tax liabilities, the Company determines whether a tax position is more likely than not to be sustained under examination by the appropriate taxing authority. Tax positions that do not meet the more likely than not standard are not recognized. Tax positions that meet this standard are recognized in the financial statements. The Company is included in the consolidated life-nonlife federal income tax return of CUNA Mutual Holding Company ("CMHC"), the Company's ultimate parent. The Company has entered into a tax sharing agreement with CMHC and CMHC's subsidiaries. The agreement provides for the allocation of expenses based on each subsidiary's contribution to the consolidated federal income tax liability. Pursuant to the agreement, subsidiaries that have incurred losses are reimbursed regardless of the utilization of the loss in the current year. Federal income taxes recoverable reported on the balance sheet are due from affiliates. EXECUTIVE SUMMARY The Company provides life and health insurance throughout the United States servicing its existing blocks of individual and group life policies and is not actively marketing new business. The Company is managed as one life and health business segment of CMFG Life. In 2012 the Company entered into a reinsurance agreement with CMFG Life to cede 95% of its business 43 in force as of October 31, 2013. In 2013 it entered into a second agreement with CMFG Life to cede 100% of any new business written on or after January 1, 2013. See Note 7 of the Notes to the Financial Statements appearing elsewhere in this prospectus for information on the 2012 agreement. See Note 7 of the Notes to the Unaudited Condensed Financial Statements appearing elsewhere in this prospectus for information on the 2013 agreement. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010. Total revenues, which consisted mainly of premiums, net realized investment gains and investment income, were ($13,752), $6,204 and $6,612 for the years ended December 31, 2012, 2011 and 2010, respectively. The decrease in total revenues in 2012 from 2011 was primarily due to the reinsurance agreement that became effective in October 2012. Premium revenue was ($20,459), $3,409 and $3,744 for the years ended December 31, 2012, 2011 and 2010, respectively, and consists of life and health direct (and ceded in 2012) written renewal premium. The decline in 2012 premium revenue from 2011 was primarily due to the Company ceding $23,667 of premium under the reinsurance agreement with CMFG Life. The decline in 2011 premium revenue from 2010 was primarily due to the non-renewal of insurance policies. Total net investment income was $1,928, $2,175 and $2,090 for the years ended December 31, 2012, 2011 and 2010, respectively, which represents an average yield earned of 3.9%, 4.0% and 4.1% for the same periods, respectively. Net realized investment gains were $4,319, $119 and $245 for the years ended December 31, 2012, 2011 and 2010. The increase in net realized investment gains in 2012 from 2011 was due to the transfer to CMFG Life in payment of ceded premium for the Company's coinsurance agreement on its inforce business and on investments transferred for the Company's return of capital to CMIC. Net realized investment gains remained materially unchanged between 2011 and 2010. Total benefits and expenses were ($18,783), $3,472 and $3,251 for the years ended December 31, 2012, 2011 and 2010, respectively. The difference in life and health benefits and expenses was primarily due to benefits being ceded to CMFG Life and an increase in product launch expenses related to the Company's expected new product, the Contract. Life and health benefits totaled ($20,028), $2,268 and $2,261 for the years ended December 31, 2012, 2011 and 2010, respectively. The Company ceded $23,114 of life and health benefits in 2012, leading to the decline in benefits in 2012 from 2011. The Company's main expense is the payment of claims related to life insurance policies. Operating expenses totaled $1,087, $1,040 and $827 for the years ended December 31, 2012, 2011 and 2010, respectively. CMFG Life provides significant services required in the conduct of the Company's operations. Operating expenses incurred by the Company that are specifically identifiable are borne by the Company; other operating expenses are allocated from CMFG Life on the basis of time and usage studies. Operating expenses are primarily related to and include employee costs such as wages and benefits, and credit union reimbursements whereby the Company reimburses credit unions for certain administrative expenses they incur in the production of new and renewal business sold for the Company and other operating expenses such as rent, insurance and utilities. The slight increase in 2012 from 2011 is due to increased expenses of $319 related to the Contract launch offset by the reimbursement of $188 of expenses from CMFG Life related to the coinsurance agreement. The increase in 2011 from 2010 is primarily due to a review of usage studies resulting in additional expense allocations to the Company. Income tax expense is recorded at 35% offset by prior year tax benefits related to interest on accrued refunds. Net income was $3,352, $1,811 and $2,287 for the years ended December 31, 2012, 2011 and 2010, respectively. The difference in the 2012 net income was primarily due to a significant increase in realized gains on investments transferred to CMFG Life in payment of ceded premium and on investments transferred for the Company's return of capital to CMIC. The decrease in the 2011 net income was primarily due to policyholder withdrawals. 44 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012. Total revenues were $249 and $1,520 for the three months ended March 31, 2013 and 2012, respectively. The decline in total revenues was primarily due to the coinsurance agreement that MLIC entered into with CMFG Life in October 2012. Premium revenue was $36 and $806 for the three months ended March 31, 2013 and 2012, respectively, and consists of life and health direct (and ceded in 2013 to CMFG Life) written renewal premium. The differences in premium revenue were primarily due to the Company ceding $676 of premium during the three months ended March 31, 2013 to CMFG Life. Total net investment income was $98, and $540 for the three months ended March 31, 2013 and 2012, respectively, which represents an average yield earned of 2.8% and 3.7% for the same periods, respectively. The decrease in total net investment income was primarily due to the Company transferring certain investments to CMFG Life to CMIC pursuant to the coinsurance agreement and the return of capital to its parent resulting in a lower asset base to generate net investment income. Total benefits and expenses were $433 and $946 for the three months ended March 31, 2013 and 2012, respectively. The differences in life and health benefits and operating expenses were primarily due to benefits being ceded to CMFG Life and an increase in product launch expenses related to the Company's expected new product, the Contract. Life and health benefits totaled $64 and $630 for the three months ended March 31, 2013 and 2012, respectively. The Company ceded $1,182 of life and health benefits in the first quarter of 2013, leading to the decline in benefits in the 2013 period from the 2012 period. Operating expenses totaled $328 and $274 for the three months ended March 31, 2013 and first quarter of 2012, respectively. The increase in operating expenses in the first quarter of 2013 from the first quarter of 2012 is due to expenses incurred in anticipation of the launch of the Contract. Income tax expense for the three months ended March 31, 2012 is recorded at 35% offset by prior year tax benefits related to interest on accrued refunds. Net income (loss) was ($199), and $387 for the three months ended March 31, 2013 and 2012, respectively. The difference in net income (loss) is primarily due to a decline in the Company's investment income as a result of the transfer of invested assets associated with the 2012 coinsurance agreement along with an increase in expenses related to the expected launch of the Company's new product, the Contract. FINANCIAL CONDITION Investments Our investment strategy is based upon a strategic asset allocation framework that considers the need to manage our general account investment portfolio on a risk-adjusted spread basis for the underwriting of contract liabilities and to maximize return on retained capital. Our investment in bonds consists of publicly traded corporate bonds, mortgage-backed securities, and U.S. Treasury securities. While the investments are categorized as available for sale, we generally hold our bond portfolio to maturity. Insurance statutes regulate the type of investments that we are permitted to purchase and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations and our business and investment strategy, we generally seek to invest in United States government and government-sponsored agency securities and debt securities rated investment grade by established nationally recognized rating organizations or in securities of comparable investment quality, if not rated. The composition of our investment portfolio at March 31, 2013, December 31, 2012 and December 31, 2011 was as follows: 45
------------------------------------------------------------------------------------------------------ MARCH 31, DECEMBER 31, --------------------------------------------------------------------- 2013 % 2012 % 2011 % ------------------------------------------------------------------------------------------------------ Debt Securities $ 8,101 98.7% $ 8,574 98.7% $ 51,324 95.6% Policy loans 108 1.3 110 1.2 2,339 4.3 Other investments - - 7 0.1 15 0.1 ------------------------------------------------------------------------------------------------------ Total investments $ 8,209 100.0% $ 8,691 100.0% $ 53,678 100.0% ------------------------------------------------------------------------------------------------------
The table below presents our total debt securities by type at March 31, 2013, December 31, 2012 and December 31, 2011.
------------------------------------------------------------------------------------------------------ MARCH 31, DECEMBER 31, --------------------------------------------------------------------- 2013 % 2012 % 2011 % ------------------------------------------------------------------------------------------------------ U.S. government and agencies $ 2,936 36.2% $ 2,964 34.6% $ 8,055 15.7% Domestic corporate securities - - - - 22,103 43.1 Mortgage-backed securities: Residential mortgage-backed 5,165 63.8 5,610 65.4 11,598 22.6 Commercial mortgage-backed - - - - 6,790 13.2 Foreign corporate securities - - - - 2,778 5.4 ------------------------------------------------------------------------------------------------------ Total investments $ 8,101 100.0% $ 8,574 100.0% $ 51,324 100.0% ------------------------------------------------------------------------------------------------------
The amortized cost and estimated fair value of debt securities by contractual maturity are shown below at March 31, 2013. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
------------------------------------------------------------------------------------------------------ AMORTIZATION COST ESTIMATED FAIR VALUE ------------------------------------------------------------------------------------------------------ Due in one year or less $ 250 $ 253 Due after one year through five years 1,338 1,515 Due after five years through ten years 1,099 1,167 Mortgage-backed securities: Residential mortgage-backed 4,805 5,166 ------------------------------------------------------------------------------------------------------ Total debt securities $ 7,492 $ 8,101 ------------------------------------------------------------------------------------------------------
We have classified our debt securities as available for sale. Available for sale securities are reported at fair value and unrealized gains and losses, if any, on these securities (net of income taxes) are included as a separate component of stockholder's equity, thereby exposing stockholder's equity to volatility for changes in the reported fair value of securities classified as available for sale. We did not have any gross unrealized losses at March 31, 2013, December 31, 2012 or December 31, 2011. 46 LIQUIDITY AND CAPITAL RESOURCES We entered into a coinsurance agreement with CMFG Life in 2012. Under this agreement, we agreed to cede 95% of all insurance in force as of October 31, 2012 to CMFG Life. In 2013, we entered into an agreement to cede 100% of all insurance issued on and after January 1, 2013 to CMFG Life. These agreements do not relieve us of our obligations to our policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company's underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities. As consideration for the reinsurance provided under these agreements, we transfer nearly all of our revenues to CMFG Life. Specifically, CMFG Life receives 95% and 100% of all premiums and other amounts received on account of our existing business and new business, respectively. As additional consideration, we transferred assets equal to approximately 95% of our reserves as of October 31, 2012 to CMFG Life. CMFG Life pays us a monthly expense allowance to reimburse the Company for expenses and costs incurred on account of its insurance business. While the reinsurance transactions have a minimal impact on our surplus, they substantially diminish our net liabilities and greatly decrease the amount of capital and liquidity needed within the Company. As a result, the Company was able to return $18,000 of capital to its shareholder, CMIC, on November 30, 2012. This reduction in capital was approved by the Iowa Insurance Division on November 26, 2012. The Company generated $1,840, $3,260 and $5,980 in cash flow from operations for the years ended December 31, 2012, 2011, and 2010, respectively. The decreases in cash flow were primarily due to increased benefit payments, increased expenses and the non-renewal of business on the Company's older policies. The Company's sources of funds include renewal premiums and investment income. The Company's primary use of funds includes the payment of benefits and related operating expenses. The Company used $683, $1,781 and $10,390 of cash flow for investing activities for the years ended December 31, 2012, 2011, and 2010, respectively. The Company's main investing activities include the purchase and sale of debt securities. The increase in the use of cash in 2010 was driven by the Company's purchase of debt securities through the reinvestment of cash collected on prepaid taxes from CMFG Life. The Company used $84 of cash flow for financing activities for the year ended December 31, 2012 and $115 and $211 of cash flow for the years ended December 31, 2011 and 2010, respectively. The Company's main financing activities include the collection of deposits and payment of withdrawals from policyholder's accounts. The Company provided a return of capital to its parent company in 2012 of which $296 was in cash. The Company generated $1,619, and $313 in cash flow from operations for the three months ended March 31, 2013, and 2012, respectively. The increase in cash flow was primarily due to the receipt of cash from the Company's parent company. The Company's sources of funds include renewal premiums and investment income. The Company's primary use of funds includes the payment of benefits and related operating expenses. The Company received $399 and $1,019 of cash flow from its investing activities for the three months ended March 31, 2013 and 2012, respectively. The Company received cash for its sale of debt securities. The Company's cash flow decreased in 2013 due to a small investment portfolio because of the transfer of assets in 2012 for the coinsurance agreement and the return of capital to its parent. The Company received $12 and $53 of cash flow from its financing activities for the three months ended March 31, 2013 and 2012, respectively. The Company's main financing activities include the collection of deposits which exceeded its payments of withdrawals from policyholder's accounts. 47 Going forward, liquidity requirements will be met primarily through monthly settlements under the coinsurance agreements with CMFG Life. We anticipate receiving adequate cash flow from these settlements and our investment income to meet our obligations. However, a primary liquidity concern going forward will be the risk of an extraordinary level of early policyholder withdrawals. We include provisions within our policies, such as surrender charges, that help limit and discourage early withdrawals. We believe that cash flows generated from sources above will be sufficient to satisfy the near term liquidity requirements of our operations, including reasonable foreseeable contingencies. However, we cannot predict future experience regarding benefits and surrenders since benefit and surrender levels are influenced by such factors as the interest rate environment, our claims paying ability and our financial credit ratings. Most funds we receive going forward, funds which we will receive as annuity deposits, will be invested in high quality investments, those identified by the Company as investment grade, to fund our future commitments. We believe that the settlement we receive under the reinsurance agreements with CMFG Life, the diversity of our investment portfolio and a concentration of investments in high quality securities should provide sufficient liquidity to meet foreseeable cash requirements. Although there is no present need or intent to dispose of our investments, we could readily liquidate portions of our investments, if such a need arose. Sales of available for sale securities in an unrealized loss position are subject to other than temporary impairment considerations including our intent to sell. STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS We are a life and health insurer domiciled in Iowa. We file statutory basis financial statements with regulatory authorities. Our statutory capital and surplus was $16,760, $16,995 and $28,061 as of March 31, 2013, December 31, 2012 and 2011, respectively. Our statutory basis net income (loss) was ($876) and ($826) for the three months ended March 31, 2013 and 2012, respectively, and was $3,259, ($95) and ($1,219) for the years ended December 31, 2012, 2011, and 2010, respectively. We are subject to statutory regulations as to maintenance of equity and the payment of dividends. Generally, ordinary dividends from an insurance subsidiary to its parent company must meet notice requirements promulgated by the regulator of the subsidiary's state of domicile ("Insurance Department"). Extraordinary dividends, as defined by state statutes, must be approved by the Insurance Department. The Company is subject to statutory dividend restrictions in Iowa and is restricted to paying no more than $1,495 in 2013 in dividends, without prior approval of the Iowa Insurance Commission. Risk-based capital requirements promulgated by the National Association of Insurance Commissioners require U.S. insurers to maintain minimum capitalization levels that are determined based on formulas incorporating credit risk, insurance risk, interest rate risk, and general business risk. At December 31, 2012 and 2011, the Company's adjusted equity exceeded the minimum capitalization requirements. CONTRACTUAL OBLIGATIONS In December 2007, the Company entered into a Procurement and Disbursement and Billing and Collection Services Agreement with CMFG Life and certain other affiliated companies whereby CMFG Life has agreed to provide certain of our operational requirements. In January 2008 the Company entered into a Cost Sharing Agreement with CMFG Life and certain other affiliated companies. Pursuant to this agreement, CMFG Life has agreed to provide the Company with certain office and market services and personnel services. Additionally, we are allocated a certain portion of the total compensation of each of our executive officers and directors, based on various factors, the primary being the estimated time allocated to providing services to the Company. In exchange for providing these administrative functions and use of shared resources and personnel, the Company reimburses CMFG Life for the cost of providing such administrative functions, resources and personnel. The Company reimbursed CMFG Life 48 $1,044, $665 and $484 for these expenses for the years ended December 31, 2012, 2011 and 2010, respectively. The Company reimbursed CMFG Life $438 and $180 for these expenses for the three months ended March 31, 2013 and 2012, respectively. For detailed discussion of the management services agreement, the investment advisory agreement and the coinsurance agreements, see "Certain Relationships and Related Party Transactions." Going forward, we may enter into financing transactions, lease agreements, or other commitments in the normal course of our business. The Company has the following future minimum estimated claim and benefit payments as of December 31, 2012.
------------------------------------------------------------------------------------------------------ ESTIMATED FUTURE CLAIM AND BENEFIT PAYMENTS ------------------------------------------------------------------------------------------------------ Due in one year or less $ 3,291 Due after one year through three years 5,895 Due after three years through five years 5,433 Due after five years 51,571 ------------------------------------------------------------------------------------------------------ Total estimated payments $ 66,190 ------------------------------------------------------------------------------------------------------
RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES In October 2010, the Financial Account Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts ("ASU 2010-26"), which provides guidance regarding accounting for deferred acquisition costs and is effective in 2012, with prospective or retrospective application allowed. This guidance modifies the definition of costs that can be deferred by insurance entities when issuing and renewing insurance contracts. Capitalized costs can only include incremental direct costs of contract acquisition, as well as certain costs directly related to acquisition such as underwriting, policy issuance, and medical and inspection fees, and sales force contract selling. This guidance also specifies that only costs related directly to successful acquisition of new or renewal contracts can be capitalized. All other acquisition related costs should be expensed as incurred. Due to the age of MLIC's existing block of policies, all of its deferred acquisition costs have been fully amortized for the periods reported and adopting ASU 2010-26 had no impact on the financial statements presented within this prospectus. In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure requirements in U.S. GAAP and International Financial Reporting Standards ("ASU 2011-04"), which creates a consistent framework for the application of fair value measurement across jurisdictions. The new guidance clarified existing fair value measurement requirements and changed certain fair value measurement principles and disclosure requirements. There are no additional fair value measurements required upon adoption of ASU 2011-04. The amendments became effective in 2012 and did not have a material impact on MLIC's financial statements. In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income ("ASU 2011-05") which provides companies with the option to present the total of comprehensive income, components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The objective of ASU 2011-05 is to increase the prominence of items reported in other comprehensive income. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the 49 statement of changes in stockholder's equity. The Company adopted ASU 2011-05 and replaced the statement of operations with the statement of comprehensive income and modified the statement of stockholder's equity for all years presented. The FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulate Other Comprehensive Income in Accounting Standards Update No. 2011-05, in December 2011 which delayed the implementation of the portions of ASU 2011-05 that require presentation of reclassification adjustments out of accumulated other comprehensive income. ACCOUNTING STANDARDS UPDATES PENDING ADOPTION In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires companies to present information about reclassification adjustments from accumulated other comprehensive income in their financial statements in a single note or on the face of the financial statements. ASU 2013-02 is effective for periods beginning after December 15, 2012, with early adoption permitted. ASU 2013-02 did not have an impact on the Company. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Given our limited operations to date, we are not currently subject to any material market risk exposures. However, in future periods, we expect to have exposure to market risk through both our insurance operations and investment activities, although a significant portion of this risk will be reinsured by CMFG Life pursuant to the coinsurance agreements discussed above. In addition, many of the measures described herein to offset these market risks will be taken by CMFG Life as it will hold nearly all of the assets related to our insurance business as a result of the coinsurance agreements. Interest rate risk will be our primary market risk exposure. Substantial and sustained increases and decreases in market interest rates will affect the profitability of our annuity products and the fair value of our investments. Most of the interest rate risk is absorbed by CMFG Life under the coinsurance agreements. The profitability of most of our annuity products will depend on the spreads between interest yield on investments and rates credited on the annuity products. We will have the ability to adjust crediting rates (caps, participation rates or asset fee rates for indexed annuities) on substantially all of our annuity products at least annually (subject to minimum guaranteed values). In addition, substantially all of our annuity products will have surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned. However, competitive factors, including the impact of the level of surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at levels necessary to avoid narrowing of spreads under certain market conditions. A major component of our interest rate risk management program is structuring the general account investment portfolio with cash flow characteristics consistent with the cash flow characteristics of our annuity products. We use computer models to simulate cash flows expected from our existing business under various interest rate scenarios. These simulations enable us to measure the potential gain or loss in fair value of our interest rate-sensitive financial instruments, to evaluate the adequacy of expected cash flows from our assets to meet the expected cash requirements of our annuity products and to determine if it is necessary to lengthen or shorten the average life and duration of our investment portfolio. The "duration" of a security is the time weighted present value of the security's expected cash flows and is used to measure a security's sensitivity to changes in interest rates. When the durations of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in value of assets should be largely offset by a change in the value of liabilities. As of March 31, 2013, the Company's fixed debt investment portfolio consisted of $2,936 of U.S. government and agency securities and $5,165 of residential mortgage-backed securities and has an average duration of 3.2 years. With respect to our indexed annuities, we intend to purchase call options on the applicable indices to fund the annual index credits on such annuities. These options will be primarily one-year instruments purchased to match the funding requirements of the underlying policies. Fair value changes associated 50 with these investments should substantially be offset by an increase or decrease in the amounts added to policyholder account balances for indexed products. We also intend to utilize a hedging process in which we purchase options out of the money to the extent of any anticipated annual index credits under the indexed annuities. On the anniversary dates of the indexed annuities, we will purchase new one-year call options to fund the next annual index credits. The risk associated with these prospective purchases is the uncertainty of the cost, which will determine whether we are able to earn our spread on our index business. We will manage this risk through the terms of our annuities, which will permit us to change caps, participation rates and asset fees, subject to contractual features. By modifying caps, participation rates or asset fees, we can limit option costs to budgeted amounts, except in cases where the contractual features would prevent further modifications. -------------------------------------------------------------------------------- MANAGEMENT -------------------------------------------------------------------------------- DIRECTORS AND EXECUTIVE OFFICERS Our directors and executive officers are as follows:
NAME AGE POSITION ------------------------------------------ ----- ---------------------- Robert N. Trunzo 57 President and Director Steven R. Suleski 59 Secretary Brian J. Borakove 34 Treasurer Stephen W. Koslow 57 Director Thomas J. Merfeld 55 Director James M. Power 51 Director Richard R. Roy 50 Director
All executive officers and directors are elected annually. 51 Robert N. Trunzo has served as our President since May 30, 2009. Mr. Trunzo was appointed director as of November 19, 2012. He also serves as the Executive Vice President since 2005 and President since August, 2012 for CMFG Life. Mr. Trunzo has also served as the Executive Vice President of Frank F. Haack and Associates, the largest insurance-benefits and property-casualty brokerage and consulting firm in Wisconsin, from September, 2002 to June, 2005. Before joining Frank F. Haack and Associates, Mr. Trunzo served as Secretary of Commerce under Wisconsin Governor Tommy Thompson, where he directed Wisconsin's economic development efforts. He has served on the board of directors of the U.S. Chamber of Commerce. Additionally, he is a member of the American Council of Life Insurers and sits on the Council's CEO Steering Committee on Retirement and Financial Security. Steven R. Suleski has served as our Secretary and Senior Vice President since February 1, 2012. He has served as Associate General Counsel for the past 13 years at CMFG Life, from March, 1999 to present. Before joining the Company, Mr. Suleski spent 12 years at Foley & Lardner, LLP, in Madison, Wisconsin, where he was a partner specializing in securities law, mergers and acquisitions and general corporate law. Brian J. Borakove has served as our Treasurer since November 19, 2012 and VP-Corporate Treasurer since 2007. Prior to joining the Company, he was a Senior Manager, Investment Finance at Liberty Mutual Insurance in Boston, Massachusetts from 2005 to 2007. Prior to joining Liberty Mutual Insurance, Mr. Borakove served as a Senior Analyst, Treasury at FM Global in Johnston, Rhode Island from 2003-2005. Mr. Borakove held various positions at State Street Bank in Boston, Massachusetts from 2001-2003. Steven W. Koslow has been director of the Company since February 16, 2011. He has served as Chief of Ethics & Compliance for CMFG Life since December, 2007. Prior to joining the Company, from September, 1999 to December, 2007, Mr. Koslow worked as a director in the Governance, Risk & Compliance department of PricewaterhouseCoopers, Inc. in Chicago, Illinois. Previously, he held positions as counsel for MetLife, Inc. and as an attorney for law firms in Chicago and Denver. He is currently a Chairman of the Board on the Compliance and Ethics Forum for Life Insurance (CEFLI). Thomas J. Merfeld has been a director of the Company since February 16, 2011. He also has serves as the Senior Vice President and Chief Investment Risk Officer for CMFG Life where he assesses, coordinates, and manages all investment risks for CMFG Life. Mr. Merfeld served as head of asset/liability management for MEMBERS Capital Advisors, an affiliate of the Company. Prior to joining CMFG Life, Mr. Merfeld served as the Chief Financial Officer for Savers Life Insurance Company in Kansas City, Missouri. Mr. Merfeld served an investment analyst for Franklin Savings Association in Ottawa, Kansas. Mr. Merfeld served as an assistant economist for the Federal Reserve Bank in Kansas City, Missouri. James M. Power has been director of the Company since February 16, 2011. Mr. Power has also served as the Senior Vice President, Chief Products Officer for CMFG Life since August, 2005. Mr. Power spent seven years, from April, 1998 to April, 2005, with Fireman's Fund Insurance Company, ultimately serving as that company's top regional executive in the Midwest. Mr. Power has more than 20 years of progressive leadership experience in strategic planning, underwriting, marketing and agency and distribution management for Fortune 100 companies, as well as other leading national insurance companies. Richard R. Roy has been director of the Company since February 1, 2012. Mr. Roy has served as the Chief Information Officer for CMFG Life since December, 2003. Prior to joining CMFG Life, Mr. Roy served as SVP - General Manager at Metavante Corporation in Milwaukee, Wisconsin from 1991 to 2003. Mr. Roy has over 30 years of technology industry experience including 20 years in the IT vendor community working for software, services and outsourcing companies. He is an adjunct professor at Marquette University in the Graduate School of Management and has served as director of several CMFG Life subsidiaries. 52 TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS POLICY REGARDING RELATED PERSON TRANSACTIONS It is our policy to enter into or ratify related person transactions only when our Board of Directors determines that the transaction either is in, or is not inconsistent with, our best interests, including but not limited to situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternative sources or when we provide products or services to related persons on an arm's length basis on terms comparable to those provided to unrelated third parties or on terms comparable to those provided to employees generally. Therefore, we have adopted the following procedures for the review, approval or ratification of related person transactions. For purposes of the related person transaction policy, a related person transaction is a transaction, arrangement, or relationship (or any series of similar transactions, arrangements, or relationships) in which (i) we were, are or will be a participant, (ii) the amount of the transaction, arrangement or relationship exceeds $120,000, and (iii) in which a related person had, has or will have a direct or indirect material interest in the transaction. A related person means: o any person who is, or at any time since the beginning of our last fiscal year was, a member of our Board of Directors or an executive officer or a nominee to become a member of our Board of Directors; o any person who is known to be the beneficial owner of more than 5% of any class of our voting securities; o any immediate family member of any of the foregoing persons; or o any firm, corporation, or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest. Any proposed transaction with a related person shall be consummated or amended only if the following steps are taken: o Counsel (either inside or outside) will assess whether the proposed transaction is a related person transaction for purposes of this policy. o If counsel determines that the proposed transaction is a related person transaction, the proposed transaction shall be submitted to the Board of Directors for consideration at the next meeting or, in those instances in which counsel, in consultation with the President or the Treasurer, determines that it is not practicable or desirable for us to wait until the next committee meeting, to the President of the Company (who has been delegated authority to act between meetings). o The Board of Directors shall consider all of the relevant facts and circumstances available, including (if applicable) but not limited to: (i) the benefits to the Company; (ii) the impact on a director's independence in the event the related person is a director, an immediate family member of a director, or an entity in which a director is a partner, shareholder, or executive officer; (iii) the availability of other suppliers or customers for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally. 53 o The Board of Directors shall approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders, as the Board of Directors determines in good faith. The Board of Directors shall convey the decision to counsel, who shall convey the decision to the appropriate persons within the Company. At the Board of Director's first meeting of each fiscal year, it shall review any previously approved related person transactions that remain ongoing and have a remaining term of more than six months or remaining amounts payable to or receivable from the Company of more than $120,000. Based on all relevant facts and circumstances, taking into consideration the Company's contractual obligations, the Board of Directors shall determine if it is in the best interests of the Company and its shareholders to continue, modify, or terminate the related person transaction. No member of the Board of Directors shall participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person. CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS Except for the agreements noted below, there have been no transactions between the Company and any related person since January 1, 2011, nor are any such related person transactions currently being contemplated for which disclosure would be required. We entered into a coinsurance agreement with CMFG Life in 2012. Under this agreement, we agreed to cede 95% of all insurance in force as of October 31, 2012 to CMFG Life. In 2013, we entered into a second coinsurance agreement to cede 100% of all insurance issued on and after January 1, 2013 to CMFG Life. These agreements do not relieve us of our obligations to our policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company's underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities. As consideration for the reinsurance provided under these agreements, we transfer nearly all of our revenues to CMFG Life. Specifically, CMFG Life receives 95% and 100% of all premiums and other amounts received on account of our existing business and new business, respectively. As additional consideration, we transferred assets equal to 95% of our reserves as of October 31, 2012 to CMFG Life. CMFG Life pays us a monthly expense allowance to reimburse the Company for expenses and costs incurred on account of its insurance business. For the three months ended March 31, 2013 and year ended December 31, 2012, we ceded $1,182 and $23,114, respectively. See Note 7 to the Financial Statements and Note 7 to the Unaudited Condensed Financial Statements appearing elsewhere in this prospectus. In December 2007, the Company entered into a Procurement and Disbursement and Billing and Collection Services Agreement with CMFG Life and certain other affiliated companies whereby CMFG Life has agreed to provide certain of our operational requirements. In January 2008 the Company entered into a Cost Sharing Agreement with CMFG Life and certain other affiliated companies. Pursuant to this agreement, CMFG Life has agreed to provide the Company with certain office and market services and personnel services. Additionally, we are allocated a certain portion of the total compensation of each of our executive officers and directors, based on various factors, the primary being the estimated time allocated to providing services to the Company. In exchange for providing these administrative functions and use of shared resources and personnel, the Company reimburses CMFG Life for the cost of providing such administrative functions, resources and personnel. The Company reimbursed CMFG Life $1,044, $665 and $484 for these expenses in 2012, 2011 and 2010, respectively. The Company reimbursed CMFG Life $438 and $180 for these expenses for the three months ended March 31, 2013 and 2012, respectively. 54 The Company has hired MEMBERS Capital Advisors, Inc. ("MCA") to provide investment advisory services with respect to the Company's general account assets. MCA, which is 100% owned by CMIC, manages substantially all of the Company's invested assets in accordance with policies, directives and guidelines established by the Company. COMMITTEES OF THE BOARD OF DIRECTORS Our Board of Directors has not established any committees. Our Board of Directors relies on the committees of CMFG Life's Board of Directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Our Board of Directors has not established a compensation committee. None of our executive officers has served on the board of directors or compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served on our Board of Directors. EXECUTIVE COMPENSATION We share personnel with our parent company, CMFG Life, pursuant to a Cost Sharing Agreement between CMFG Life and us. Our operational needs are met by CMFG Life and certain of its affiliates pursuant to the Cost Sharing Agreement and the Procurement and Disbursement and Billing and Collection Services Agreement. Certain employees who provide services to us under such agreement are CMFG Life executive officers or employees and are paid by CMFG Life. Their compensation-related costs are allocated to us based on various factors, the primary being the estimated time allocated to providing services to us. The Company has not been issuing new policies for several years and its primary business has been managing its block of existing business. As a result, some of the current officers have not devoted any significant amounts of time to the Company and its operations. The introduction of the new product, the Contract, and filing of this registration statement will result in all officers and directors devoting more time in the future to the Company's business and more of their compensation-related costs will be allocated to the Company based upon the increased time devoted to development of this business. In order to help you understand our compensation-related costs, we have set forth below a discussion of CMFG Life's compensation policies and programs as such policies and programs relate to our named executive officers. Compensation Discussion and Analysis. These compensation policies and programs are designed to attract and retain highly qualified and motivated executive officers and employees and encourage and reward achievement of annual and long-term goals. Federal income tax law limits deductibility of compensation in excess of $1 million paid to certain named executive officers unless this compensation qualifies as "performance-based compensation." It is the intent of CMFG Life to qualify its executives' compensation for deductibility under applicable tax laws, while recognizing that there may be situations in which compensation for executive officers may not be tax deductible. NAMED EXECUTIVE OFFICERS. The primary elements of compensation for our named executive officers, who are officers of and compensated by CMFG Life, include base pay and incentive compensation. BASE PAY. The Board of Directors of CUNA Mutual Holding Company, the parent of CMFG Life, engages Mercer (US) Inc. ("Mercer") as a compensation consultant to provide advice and data with respect to compensation bench-marking and market practices for executives of CMFG Life. The most recent executive compensation review was presented to the Compensation Committee of CUNA Mutual Holding Company's Board of Directors by Mercer on May 7, 2013. Mercer develops a blended market consensus base salary for each of the positions of the named executive officers. Mercer utilizes proxy 55 data and private survey data from selected peer insurance companies public and private survey data from 2012 for the financial service and insurance industries of companies. As a result of the Company not actively marketing new business in 2012 and the limited time devoted by our President, Mr. Trunzo, to the Company, no part of his base salary was allocated to the Company during 2012. It is anticipated that this allocation will increase as a result of the launch of the Contract by the Company in the future. The amount of compensation allocated to the Company for Mr. Borakove, the Treasurer, was $800.30. This represents an allocation of gross wages, and Corporate Success Sharing Plan ("CSSP)" payment. INCENTIVE COMPENSATION. On November 16, 2012, the CUNA Mutual Holding Company Board of Directors approved the structure of the 2012 CSSP for management personnel, which includes our named executive officers. Under the CSSP for 2012, objectives were established in three different areas and weighting factors are set for each of the objectives (Operating Revenue - 40%; Operating Gain - 40%; Total Adjusted Capital - 20%). In addition, there are specific performance levels established for each objective, "Threshold", "Target" and "Superior". Depending upon the level of CMFG Life's success in meeting these objectives an incentive compensation pool is created and compensation is paid out of this pool as a percentage of each executive's base salary according to the level of individual performance. Our management and the Board of Directors believe that the combination of Operating Revenue, Operating Gain and Total Adjusted Capital create the proper focus and alignment for maximizing short-term and long-term shareholder value creation to benefit the policyholders who own CUNA Mutual Holding Company, the ultimate parent of both CMFG Life and the Company. The costs of the CSSP and other incentive programs and benefits that have been allocated to the Company for the Treasurer for 2012 is less than $500.00. This small allocation is a reflection of the fact that the named executives have historically devoted little time to the operations of the Company. These allocations are expected to increase as management is required to devote more time to the operations of the Company in the future. There is an additional incentive program for senior management personnel of CMFG Life, which includes some of the named executives, known as the Long Term Incentive Plan ("LTIP"). This plan is formula driven like the CSSP plan and is based upon CMFG Life meeting certain financial objectives but differs from the CSSP plan because the payments are not based upon individual performance but on whether or not CMFG Life meets the pre-determined corporate objectives. At the time the performance goals for the different incentive plans were approved by the Board of Directors, it was believed that the performance targets reflected an appropriate degree of stretch but that they were attainable based on successful execution of the Company's business plan and the realization of macro-economic and market conditions reasonably aligned with the Company's near term expectations. CHANGE IN CONTROL, SEPARATION AND RETIREMENT ARRANGEMENTS. CMFG Life has a written employment contract with Mr. Trunzo. None of the other named executive officers have employment contracts or separation agreements with CMFG Life. No costs associated with this employment contract have previously been allocated to the Company. NON-QUALIFIED DEFERRED COMPENSATION ARRANGEMENTS. CMFG Life permits eligible employees to defer on an elective basis a specified portion of their base salaries and incentive compensation. Any such deferrals must be made pursuant to a non-qualified deferred compensation plan between the officer and the Company. The investment of deferred amounts is directed by the individual officers and the returns on such investments is reflected in the deferred account balance of such officer. The balance of the deferred compensation accounts will be distributed to each executive who has elected to make such deferrals upon his or her death, disability or separation from service. 56 OTHER COMPENSATION. CMFG Life has a qualified 401(k) plan for all eligible employees who are eligible after thirty days of employment and attainment of age 18. CMFG Life matches 100% of employee contributions to the plan up to 5% of the employee's total compensation, subject to the limitations specified in the Internal Revenue Code. CMFG Life also maintains a Supplemental 401(k) plan in which some of the named executive officers participate that provides additional benefits and a company match within the limits prescribed by the Internal Revenue Code. In addition to the 401(k) plan, all employees of CMFG Life participate in a Defined Benefit Pension Plan. There is a non-qualified plan to which CMFG Life contributes for some of the named executives amounts that would otherwise be paid into the Defined Benefit Pension Plan but for limitations on qualified plan contributions by CMFG Life. CMFG Life offers a package of insurance benefits to all employees including health, dental, long-term disability and life insurance. Some of the named executive officers receive an annual retention payment which is a flat fee. Several of the named executive officers receive perquisites including car allowances, use of Company owned aircraft, travel to company conventions for themselves and their spouse, tax benefits and tax preparation fees. COMPENSATION SUMMARY The following table sets forth the allocated compensation based upon the estimated percentage of time the following officers devote to the affairs of MEMBERS Life Insurance Company for the 2012 fiscal year:
SALARY BONUS TOTAL** NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) --------------------------------------------------------------------------------------- (a) (b) (c) (d) (j) --------------------------------------------------------------------------------------- Robert N. Trunzo, President and Director* 2012 - - $0 --------------------------------------------------------------------------------------- Brian J. Borakove, Treasurer** 2012 $500 $300 $800 ---------------------------------------------------------------------------------------
* No costs associated with Mr. Trunzo's compensation were allocated to the Company for 2012. ** Includes compensation paid by CMFG Life that was allocated to the Company for service rendered by Mr. Borakove. DIRECTOR COMPENSATION The following directors of the Company are all officers of CMFG Life. The Company's directors receive no compensation for their service as directors of the Company but are compensated by CMFG Life for their services as officers of that company. Accordingly, no costs were allocated to the Company for services of these persons in their role as directors. Stephen W. Koslow, Thomas J. Merfeld, James M. Power, Richard R. Roy, and Robert N. Trunzo. LEGAL PROCEEDINGS Like other insurance companies, we routinely are involved in litigation and other proceedings, including class actions, reinsurance claims and regulatory proceedings arising in the ordinary course of our business. In recent years, the life insurance and annuity industry, including us and our affiliated companies, has been subject to an increase in litigation pursued on behalf of both individual and purported classes of insurance and annuity purchasers, questioning the conduct of insurance companies and their agents in the marketing of their products. In addition, state and federal regulatory bodies, such as state insurance departments and attorneys general, periodically make inquiries and conduct examinations concerning compliance by us and others with applicable insurance and other laws. In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution and changes in business practices. The Company has 57 established procedures and policies to facilitate compliance with laws and regulations and to support financial reporting. These actions are based on a variety of issues and involve a range of the Company's practices. We respond to such inquiries and cooperate with regulatory examinations in the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from all such pending actions will not materially affect the financial statements of the Company. IMPORTANT INFORMATION ABOUT THE INDEX The Product is not sponsored, endorsed, sold or promoted by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("BofA Merrill Lynch"). BofA Merrill Lynch has not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Product, nor makes any representation or warranty, express or implied, to the owners of Product or any member of the public regarding the Product or the advisability of investing in the Product, particularly the ability of the ("Indices") to track performance of any market or strategy. 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THE BOfA MERRILL LYNCH MARKS ARE TRADEMARKS OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE BY MEMBERS LIFE INSURANCE COMPANY. The Product is not sponsored, endorsed, sold or promoted by Standard & Poor's, a division of the McGraw-Hill companies, Inc. ("S&P"). S&P makes no representation or warranty, express or implied, to the owners of the Product or any member of the public regarding the advisability of investing in securities generally or in the Product particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Company is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to the Company or Product. S&P has no obligation to take the needs of the Company or the owners of the Product into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Product or the timing of the issuance or sale of the Product or in determination or calculation of the equation by which the Product is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Product. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS 58 OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. The S&P 500 Index is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poors. The Index can go up or down based on the stock prices of the 500 companies that comprise the Index. The Index does not include dividends paid on the stocks comprising the Index and therefore does not reflect the full investment performance of the underlying stocks. WE DO NOT FILE REPORTS UNDER THE 1934 ACT IN RELIANCE ON RULE 12h-7 UNDER THE 1934 ACT, WHICH PROVIDES AN EXEMPTION FROM THE REPORTING REQUIREMENTS OF SECTIONS 13 AND 15 OF THE 1934 ACT. 59 -------------------------------------------------------------------------------- FINANCIAL STATEMENTS -------------------------------------------------------------------------------- MEMBERS LIFE INSURANCE COMPANY A WHOLLY-OWNED SUBSIDIARY OF CUNA MUTUAL INVESTMENT CORPORATION FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2012 AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM INDEX TO FINANCIAL STATEMENTS OF MEMBERS LIFE INSURANCE COMPANY -------------------------------------------------------------------------------- Report of Independent Registered Public Accounting Firm .................... 1 Balance Sheets as of December 31, 2012 and 2011 ............................ 2 Statements of Operations and Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010 ........................................ 3 Statements of Stockholder's Equity for the Years Ended December 31, 2012, 2011 and 2010 ..................................................... 4 Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010 ................................................................ 5 Notes to Financial Statements Note 1--Nature of Business .............................................. 6 Note 2--Summary of Significant Accounting Policies ...................... 6 Note 3--Investments, Debt Securities .................................... 10 Note 3--Investments, Net Investment Income .............................. 11 Note 3--Investments, Net Realized Investment Gains ...................... 12 Note 3--Investments, Other-Than-Temporary Investment Impairments ........ 12 Note 3--Investments, Net Unrealized Investment Gains..................... 13 Note 3--Investments, Investment Credit Risk ............................. 13 Note 3--Investments, Assets Designated /Securities on Deposit ........... 13 Note 4--Fair Value ...................................................... 14 Note 5--Income Tax ...................................................... 18 Note 6--Related Party Transactions ...................................... 20 Note 7--Reinsurance ..................................................... 21 Note 8--Statutory Financial Data and Dividend Restrictions .............. 22 Note 9--Accumulated Other Comprehensive Income .......................... 22 Note 10--Commitments and Contingencies................................... 23 Note 11--Subsequent Events .............................................. 23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholder of MEMBERS Life Insurance Company Madison, Wisconsin We have audited the accompanying balance sheets of MEMBERS Life Insurance Company (the "Company") as of December 31, 2012 and 2011, and the related statements of operations and comprehensive income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of MEMBERS Life Insurance Company as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois April 3, 2013 MEMBERS LIFE INSURANCE COMPANY Balance Sheets December 31, 2012 and 2011 (000s omitted) --------------------------------------------------------------------------------
ASSETS 2012 2011 -------------------------------------------------------------------------------------- INVESTMENTS Debt securities, available for sale, at fair value (amortized cost 2012 - $7,903; 2011 - $47,170) $ 8,574 $ 51,324 Policy loans 110 2,339 Other invested assets 7 15 -------------------------------------------------------------------------------------- TOTAL INVESTMENTS 8,691 53,678 Cash and cash equivalents 4,926 3,853 Accrued investment income 73 569 Reinsurance recoverable from affiliate 26,391 - Premiums receivable, net 34 45 Net deferred tax asset 1,203 3,485 Receivable from affiliate 2,085 - Other assets and receivables 226 33 Federal income taxes recoverable from affiliate 3,776 2,585 -------------------------------------------------------------------------------------- TOTAL ASSETS $ 47,405 $ 64,248 -------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY -------------------------------------------------------------------------------------- LIABILITIES Claim and policy benefit reserves - life and health $ 24,112 $ 23,974 Policyholder account balances 3,797 3,885 Unearned premiums 4 53 Payables to affiliates 216 160 Accounts payable and other liabilities 152 140 -------------------------------------------------------------------------------------- TOTAL LIABILITIES 28,281 28,212 -------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 10) STOCKHOLDER'S EQUITY Common stock, $5,000 par value, authorized 1,000 shares; issued and outstanding 1,000 shares 5,000 5,000 Additional paid in capital 10,500 28,500 Accumulated other comprehensive income, net of tax expense (2012 - $248; 2011 - $1,467) 423 2,687 Retained earnings (deficit) 3,201 (151) -------------------------------------------------------------------------------------- TOTAL STOCKHOLDER'S EQUITY 19,124 36,036 -------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 47,405 $ 64,248 --------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 2 MEMBERS LIFE INSURANCE COMPANY Statements of Operations and Comprehensive Income Years Ended December 31, 2012, 2011 and 2010 (000s omitted) --------------------------------------------------------------------------------
2012 2011 2010 ----------------------------------------------------------------------------------------------- REVENUES Life and health premiums, net (Note 7) $ (20,459) $ 3,409 $ 3,744 Contract charges 460 501 533 Net investment income 1,928 2,175 2,090 Net realized investment gains 4,319 119 245 ----------------------------------------------------------------------------------------------- TOTAL REVENUES (13,752) 6,204 6,612 ----------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES Life and health insurance claims and benefits, net (Note 7) (20,028) 2,268 2,261 Interest credited to policyholder account balances 158 164 163 Operating and other expenses 1,087 1,040 827 ----------------------------------------------------------------------------------------------- TOTAL BENEFITS AND EXPENSES (18,783) 3,472 3,251 ----------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 5,031 2,732 3,361 Income tax expense 1,679 921 1,074 ----------------------------------------------------------------------------------------------- NET INCOME 3,352 1,811 2,287 ----------------------------------------------------------------------------------------------- Change in unrealized gains, net of tax expense (2012 - $210; 2011 - $716; 2010 - $428) 390 1,334 793 Reclassification adjustment for (gains) included in net income, net of tax (benefit) - (2012 - ($1,429); 2011 - ($63); 2010 - ($86)) (2,654) (117) (159) ----------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME (LOSS) (2,264) 1,217 634 ----------------------------------------------------------------------------------------------- TOTAL COMPREHENSIVE INCOME $ 1,088 $ 3,028 $ 2,921 -----------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 3 MEMBERS LIFE INSURANCE COMPANY Statements of Stockholder's Equity Years Ended December 31, 2012, 2011 and 2010 (000s omitted) --------------------------------------------------------------------------------
Accumulated Additional other Retained Total Common paid in comprehensive earnings stockholder's stock capital income (deficit) equity ----------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 2010 $ 5,000 $ 28,500 $ 836 $ (4,249) $ 30,087 Net income - - - 2,287 2,287 Other comprehensive income - - 634 - 634 ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2010 5,000 28,500 1,470 (1,962) 33,008 Net income - - - 1,811 1,811 Other comprehensive income - - 1,217 - 1,217 ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2011 5,000 28,500 2,687 (151) 36,036 Net income - - - 3,352 3,352 Return of capital to parent - (18,000) - - (18,000) Other comprehensive (loss) - - (2,264) - (2,264) ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2012 $ 5,000 $ 10,500 $ 423 $ 3,201 $ 19,124 -----------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 4 MEMBERS LIFE INSURANCE COMPANY Statements of Cash Flows Years Ended December 31, 2012, 2011 and 2010 (000s omitted) --------------------------------------------------------------------------------
2012 2011 2010 ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,352 $ 1,811 $ 2,287 Adjustments to reconcile net income to net cash provided by operating activities: Policyholder charges on investment type contracts (460) (501) (533) Interest credited to policyholder account balances 158 164 163 Amortization of bond premium and discount 249 237 180 Net realized investment gains (4,319) (119) (245) Amortization and write off of deferred charges 274 - - Premium deficiency - loss recognition event 742 - - Changes in other assets and liabilities, net of reinsurance: Accrued investment income 74 (36) (76) Reinsurance recoverable (Note 7 non-cash disclosure) (27) - - Premiums receivable 11 (16) 4 Net deferred tax asset 3,501 2,549 670 Other assets and receivables 80 (49) (6) Federal income taxes recoverable (1,191) 167 4,908 Insurance reserves (604) (924) (938) Unearned premiums (14) (7) (6) Accounts payable and other liabilities 14 (16) (428) ------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,840 3,260 5,980 ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of debt securities (4,976) (7,318) (19,088) Proceeds on sale or maturity of investments: Debt securities 4,148 5,446 8,533 Short-term investments - - 50 Net payments received on policy loans 145 91 115 ------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (683) (1,781) (10,390) ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Policyholder account deposits 361 402 455 Policyholder account withdrawals (158) (296) (245) Return of capital (Note 6 non-cash disclosure) (296) - - Change in bank overdrafts 9 9 1 ------------------------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (84) 115 211 ------------------------------------------------------------------------------------------------------- CHANGE IN CASH AND CASH EQUIVALENTS 1,073 1,594 (4,199) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,853 2,259 6,458 ------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,926 $ 3,853 $ 2,259 ------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION: Cash received during the year for income taxes $ 629 $ 1,795 $ 4,504 -------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 5 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- NOTE 1: NATURE OF BUSINESS MEMBERS Life Insurance Company ("MLIC" or the "Company") is a life and health insurance stock company organized under the laws of Iowa and a wholly-owned subsidiary of CUNA Mutual Investment Corporation ("CMIC"). CMIC is organized under the laws of Wisconsin and is a wholly-owned subsidiary of CMFG Life Insurance Company ("CMFG Life"), an Iowa life insurance company. CMFG Life and its affiliated companies primarily sell insurance and other products to credit unions and their members. Currently, MLIC does not actively market new business. The Company primarily services existing blocks of individual and group life policies. In October 2012, the Company entered into a reinsurance agreement with CMFG Life and ceded 95% of its business in force. See Note 7 for details of the agreement and related assets transferred to CMFG Life. MLIC is authorized to sell life, health and annuity policies in all states in the U.S. and the District of Columbia, except New York. In 2012 approximately 65% and 21% of premium was generated in Michigan and Texas, respectively. In both 2011 and 2010, approximately 66% and 21% of premium was generated in Michigan and Texas, respectively. No other state represents more than 5% of the Company's premiums for any year in the three years ended December 31, 2012. CMFG Life provides significant services required in the conduct of the Company's operations. Management believes allocations of expenses are reasonable, but the results of the Company's operations may have materially differed from the results reflected in the accompanying financial statements if the Company did not have this relationship. In June 2011, the Board of Directors of CMFG Life approved a plan that converted CUNA Mutual Insurance Society ("CMIS") (now known as CMFG Life Insurance Company) from a mutual insurance company structure to a mutual insurance holding company ("MHC") structure. In September 2011, policyholders and the Iowa Insurance Commissioner approved the plan of reorganization. The new MHC structure became effective January 31, 2012. Under the reorganization plan, the policyholders of CMIS, who were the members and owners of CMIS, became members and owners of a new legal entity: CUNA Mutual Holding Company ("CMHC"). A second new legal entity was also formed: CUNA Mutual Financial Group, Inc. ("CMFG") to serve as an intermediate holding company, to own CMIS and its subsidiary companies. Finally, CMIS issued 7,500,000 shares of common stock and was renamed CMFG Life Insurance Company. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and in some cases the difference could be material. Investment valuations, deferred tax asset valuation reserves, and claim and policyholder benefit reserves are most affected by the use of estimates and assumptions. SEGMENT REPORTING The Company is managed as one reportable life and health business segment. -------------------------------------------------------------------------------- 6 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- INVESTMENTS Investments in debt securities are classified as available for sale and are carried at fair value. Unrealized gains and losses on investments in debt securities, net of federal income taxes, are included in accumulated other comprehensive income as a separate component of stockholder's equity. A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company's holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the other-than-temporary impairment ("OTTI") is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive income. If the Company intends to sell, at the time this determination is made, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer's business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered. Policy loans are reported at their unpaid principal balance. Interest income related to mortgage-backed and other structured securities is recognized on an accrual basis using a constant effective yield method, based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments and such adjustments are reflected in net investment income. Prepayment assumptions for loan-backed bonds and structured securities are based on industry averages or internal estimates. Interest income related to non-structured securities is recognized on an accrual basis using a constant effective yield method. Discounts and premiums on debt securities are amortized over the estimated lives of the respective securities on an effective yield basis. Realized gains and losses on the sale of investments are determined on a specific identification basis and are recorded on the trade date. CASH AND CASH EQUIVALENTS Cash and cash equivalents include unrestricted deposits in financial institutions with maturities of 90 days or less. RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS Term-life and whole-life insurance premiums are recognized as premium income when due. Policy benefits for these products are recognized in relation to the premiums so as to result in the recognition of profits over the expected lives of the policies and contracts. DEFERRED POLICY ACQUISITION COSTS The costs of acquiring insurance business that are directly related to the successful acquisition of new and renewal business are deferred to the extent that such costs are expected to be recoverable from future profits. Such costs principally include commissions and sales costs, direct response advertising costs, premium taxes, and certain policy issuance and underwriting costs. Costs deferred on term-life and whole-life insurance products, deferred policy acquisition costs ("DAC"), are amortized in proportion to the ratio of the annual premium to the -------------------------------------------------------------------------------- 7 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- total anticipated premiums generated. Due to the age of the existing block of policies all DAC has been fully amortized as of December 31, 2012 and 2011 and there was no amortization expense in 2012, 2011 or 2010. INSURANCE RESERVES Life and health claim and policy benefit reserves consist principally of future policy benefit reserves and reserves for estimates of future payments on incurred claims reported and unreported but not yet paid. Such estimates are developed using actuarial principles and assumptions based on past experience adjusted for current trends. Any change in the probable ultimate liabilities is reflected in net income in the period in which the change is determined. When actual experiences indicate that existing contract liabilities, together with the present value of future gross premiums will not be sufficient to recover the present value of future benefits or recover unamortized deferred acquisition costs, a premium deficiency will be recognized by either a reduction in unamortized acquisition costs or an increase in liability of future benefits. The Company recognized $742 of additional reserves due to a loss recognition event in 2012. POLICYHOLDER ACCOUNT BALANCES The Company recognizes a liability at the stated account value for policyholder deposits that are not subject to significant policyholder mortality or longevity risk and for universal life-type policies. The account value equals the sum of the original deposit and accumulated interest, less any withdrawals and expense charges. Average credited rate is 4.5% in 2012, 2011 and 2010. Future minimum guaranteed interest rate during the life of the contracts is 4.5%. REINSURANCE Reinsurance premiums, claims and benefits, commission expense reimbursements, and reserves related to reinsured business ceded are accounted for on a basis consistent with the accounting for the underlying direct policies that have been ceded and the terms of the reinsurance contracts. Premiums and insurance claims and benefits in the statements of operations and comprehensive income are reported net of the amounts ceded to other companies under such reinsurance contracts. Ceded insurance reserves and ceded benefits paid are included in reinsurance recoverables. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies. INCOME TAXES The Company recognizes taxes payable or refundable and deferred taxes for the tax consequences of differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured by applying the enacted tax rates to the difference between the financial statement and tax basis of assets and liabilities. The Company records current tax benefits and deferred tax assets utilizing a benefits-for-loss approach. Under this approach, current benefits are realized and deferred tax assets are considered realizable by the Company when realized or realizable by the consolidated group of which the Company is a member even if the benefits would not be realized on a stand-alone basis. The Company records a valuation allowance for deferred tax assets if it determines it is more likely than not that the asset will not be realized by the consolidated group. Deferred income tax assets can be realized through future earnings, including but not limited to the generation of future income, reversal of existing temporary differences and available tax planning strategies. The Company is subject to tax-related audits in the normal course of operations. These audits may result in additional tax assets or liabilities. In establishing tax liabilities, the Company determines whether a tax position is more likely than not to be sustained under examination by the appropriate taxing authority. Tax positions that do -------------------------------------------------------------------------------- 8 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- not meet the more likely than not standard are not recognized. Tax positions that meet this standard are recognized in the financial statements. RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES In October 2010, the Financial Account Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts ("ASU 2010-26"), which provides guidance regarding accounting for deferred acquisition costs and is effective in 2012, with prospective or retrospective application allowed. This guidance modifies the definition of costs that can be deferred by insurance entities when issuing and renewing insurance contracts. Capitalized costs can only include incremental direct costs of contract acquisition, as well as certain costs directly related to acquisition such as underwriting, policy issuance, and medical and inspection fees, and sales force contract selling. This guidance also specifies that only costs related directly to successful acquisition of new or renewal contracts can be capitalized. All other acquisition related costs should be expensed as incurred. Due to the age of MLIC's existing block of policies, all of its deferred acquisition costs have been fully amortized for the periods reported and adopting ASU 2010-26 had no impact on the financial statements presented within. In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure requirements in U.S. GAAP and International Financial Reporting Standards ("ASU 2011-04"), which creates a consistent framework for the application of fair value measurement across jurisdictions. The new guidance clarified existing fair value measurement requirements and changed certain fair value measurement principles and disclosure requirements. There are no additional fair value measurements required upon adoption of ASU 2011-04. The amendments became effective in 2012 and did not have a material impact on MLIC's financial statements. The new disclosures are included in Note 4. In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income ("ASU 2011-05") which provides companies with the option to present the total of comprehensive income, components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The objective of ASU 2011-05 is to increase the prominence of items reported in other comprehensive income. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholder's equity. The Company adopted ASU 2011-05 and replaced the statement of operations with the statement of comprehensive income and modified the statement of stockholder's equity for all years presented. The FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulate Other Comprehensive Income in Accounting Standards Update No. 2011-05, in December 2011 which delayed the implementation of the portions of ASU 2011-05 that require presentation of reclassification adjustments out of accumulated other comprehensive income. ACCOUNTING STANDARDS UPDATES PENDING ADOPTION In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires companies to present information about reclassification adjustments from accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. ASU 2013-02 is effective for periods beginning after December 15, 2012, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2013-02. -------------------------------------------------------------------------------- 9 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- NOTE 3: INVESTMENTS DEBT SECURITIES In October 2012, the Company entered into a reinsurance agreement with CMFG Life and transferred assets as part of this agreement. See Note 7 for details of the agreement and related asset transfer. In November 2012, the Company provided a return of capital to CMIC which included a transfer of assets. See Note 6 for details of this return of capital and related asset transfer. The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2012 are as follows:
------------------------------------------------------------------------------------------------ AMORTIZED GROSS UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE ------------------------------------------------------------------------------------------------ U.S. government and agencies $ 2,697 $ 267 $ - $ 2,964 Mortgage-backed securities: Residential mortgage-backed 5,206 404 - 5,610 ------------------------------------------------------------------------------------------------ Total debt securities $ 7,903 $ 671 $ - $ 8,574 ------------------------------------------------------------------------------------------------ The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2011 are as follows: ------------------------------------------------------------------------------------------------ AMORTIZED GROSS UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE ------------------------------------------------------------------------------------------------ U.S. government and agencies $ 7,492 $ 563 $ - $ 8,055 Domestic corporate securities 19,848 2,255 - 22,103 Mortgage-backed securities: Residential mortgage-backed 10,847 751 - 11,598 Commercial mortgage-backed 6,452 338 - 6,790 Foreign corporate securities 2,531 247 - 2,778 ------------------------------------------------------------------------------------------------ Total debt securities $ 47,170 $ 4,154 $ - $ 51,324 ------------------------------------------------------------------------------------------------
No investments were non-income producing in 2012 or 2011. -------------------------------------------------------------------------------- 10 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- The amortized cost and estimated fair values of investments in debt securities at December 31, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Because of the potential for prepayment on mortgage-backed securities, such securities have not been displayed in the table below by contractual maturity.
------------------------------------------------------------------------------------- AMORTIZED ESTIMATED COST FAIR VALUE ------------------------------------------------------------------------------------- Due in one year or less $ 250 $ 255 Due after one year through five years 1,344 1,535 Due after five years through ten years 1,103 1,174 Mortgage-backed securities: Residential mortgage-backed 5,206 5,610 ------------------------------------------------------------------------------------- Total debt securities $ 7,903 $ 8,574 ------------------------------------------------------------------------------------- NET INVESTMENT INCOME Sources of investment income for the years ended December 31 are summarized as follows: ------------------------------------------------------------------------------------- 2012 2011 2010 ------------------------------------------------------------------------------------- Gross investment income: Debt securities $ 1,829 $ 2,074 $ 1,940 Policy loans 165 171 177 Other investments 39 2 23 ------------------------------------------------------------------------------------- Total gross investment income 2,033 2,247 2,140 Investment expenses (105) (72) (50) ------------------------------------------------------------------------------------- Net investment income $ 1,928 $ 2,175 $ 2,090 -------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 11 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- NET REALIZED INVESTMENT GAINS Net realized investment gains for the years ended December 31 are summarized as follows:
----------------------------------------------------------------------------------- 2012 2011 2010 ----------------------------------------------------------------------------------- Debt securities Gross gains on sales $ 4,319 $ 119 $ 245 ----------------------------------------------------------------------------------- Net realized investment gains $ 4,319 $ 119 $ 245 -----------------------------------------------------------------------------------
Proceeds from the sale of debt securities were $1,757, $2,448 and $3,876 in 2012, 2011 and 2010, respectively. OTHER-THAN-TEMPORARY INVESTMENT IMPAIRMENTS Investment securities are reviewed for OTTI on an ongoing basis. The Company creates a watchlist of securities based largely on the fair value of an investment security relative to its cost basis. When the fair value drops below the Company's cost, the Company monitors the security for OTTI impairment. The determination of OTTI requires significant judgment on the part of the Company and depends on several factors, including, but not limited to: o The existence of any plans to sell the investment security. o The extent to which fair value is less than book value. o The underlying reason for the decline in fair value (credit concerns, interest rates, etc.). o The financial condition and near term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions. o The Company's intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery in fair value. o The Company's ability to recover all amounts due according to the contractual terms of the agreements. o The Company's collateral position in the case of bankruptcy or restructuring. A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company's holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the OTTI is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive income. If the Company intends to sell, at the time this determination is made, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer's business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered. For securitized debt securities, the Company considers factors including, but not limited to, commercial and residential property changes in value that vary by property type and location and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment and -------------------------------------------------------------------------------- 12 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- include the probability of issuer default and estimates regarding timing and amount of expected recoveries. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral. For certain securitized financial assets with contractual cash flows, the Company is required to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the estimated cash flows since the last revised estimate, considering both timing and amount, an OTTI charge is recognized. The Company also considers its intent to retain a temporarily impaired security until recovery. Estimating future cash flows involves judgment and includes both quantitative and qualitative factors. Such determinations incorporate various information and assessments regarding the future performance of the underlying collateral. In addition, projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral. Management has completed a review for other-than-temporarily impaired securities at December 31, 2012 and 2011. As a result of the subjective nature of these estimates, however, provisions may subsequently be determined to be necessary as new facts emerge and a greater understanding of economic trends develop. Consistent with the Company's practices, OTTI will be recorded as appropriate and as determined by the Company's regular monitoring procedures of additional facts. NET UNREALIZED INVESTMENT GAINS The components of net unrealized investment gains included in accumulated other comprehensive income at December 31 were as follows:
------------------------------------------------------------------------------------- 2012 2011 2010 ------------------------------------------------------------------------------------- Debt securities $ 671 $ 4,154 $ 2,284 Deferred income taxes (248) (1,467) (814) ------------------------------------------------------------------------------------- Net unrealized investment gains $ 423 $ 2,687 $ 1,470 -------------------------------------------------------------------------------------
The Company did not have any gross unrealized losses at December 31, 2012, 2011 or 2010. INVESTMENT CREDIT RISK The Company maintains a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established exposure limits, diversification standards, and review procedures to mitigate credit risk. ASSETS DESIGNATED/SECURITIES ON DEPOSIT Iowa law requires that assets equal to a life insurer's "legal reserve" must be designated for the Iowa Department of Commerce, Insurance Division. The legal reserve is equal to the net present value of all outstanding policies and contracts involving life contingencies. At December 31, 2012 and 2011, debt securities, policy loans and cash with a carrying value of $6,753 and $53,053, respectively, were accordingly designated for Iowa. Other regulatory jurisdictions require cash and securities to be deposited for the benefit of policyholders. Pursuant to these requirements, securities with a fair value of $2,055 and $2,124 were on deposit with other regulatory jurisdictions as of December 31, 2012 and 2011, respectively. -------------------------------------------------------------------------------- 13 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- NOTE 4: FAIR VALUE The Company uses fair value measurements to record fair value of certain assets and liabilities and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value. Certain financial instruments, such as insurance policy liabilities other than investment-type contracts are excluded from the fair value disclosure requirements. VALUATION HIERARCHY Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value of assets and liabilities into three broad levels. The Company has categorized its financial instruments, based on the degree of subjectivity inherent in the valuation technique, as follows: o Level 1: Inputs are directly observable and represent quoted prices for identical assets or liabilities in active markets the Company has the ability to access at the measurement date. o Level 2: All significant inputs are observable, either directly or indirectly, other than quoted prices included in Level 1, for the asset or liability. This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3: One or more significant inputs are unobservable and reflect the Company's estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. For purposes of determining the fair value of the Company's assets and liabilities, observable inputs are those inputs used by market participants in valuing financial instruments, which are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs, reflecting the Company's estimates of the assumptions market participants would use in valuing financial assets and liabilities, are developed based on the best information available in the circumstances. The Company uses prices and inputs that are current as of the measurement date. In some instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The hierarchy requires the use of market observable information when available for assessing fair value. The availability of observable inputs varies by investment. In situations where the fair value is based on inputs that are unobservable in the market or on inputs from inactive markets, the determination of fair value requires more judgment and is subject to the risk of variability. The degree of judgment exercised by the Company in determining fair value is typically greatest for investments categorized in Level 3. Transfers in and out of level categorizations are reported as having occurred at the end of the quarter in which the transfer occurred. VALUATION PROCESS The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. -------------------------------------------------------------------------------- 14 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- The Company has policies and guidelines that require the establishment of valuation methodologies and consistent application of such methodologies. These policies and guidelines govern the use of inputs and price source hierarchies and provide controls around the valuation processes. These controls include appropriate review and analysis of prices against market activity or indicators of reasonableness, approval of price source changes, price overrides, methodology changes and classification of fair value hierarchy levels. The valuation policies and guidelines are reviewed and updated as appropriate. For fair values received from third parties or internally estimated, the Company's processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are appropriately recorded. The Company performs procedures to understand and assess the methodologies, process and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. When using internal valuation models, these models are developed by the Company's investment group using established methodologies. The models including key assumptions are reviewed with various investment sector professionals, accounting, operations, compliance and risk management. In addition, when fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. TRANSFERS BETWEEN LEVELS There were no transfers between Level 1 and Level 2 or between Level 2 and Level 3 during the years ended December 31, 2012 and 2011. FAIR VALUE MEASUREMENT - RECURRING BASIS The following table summarizes the Company's assets that are measured at fair value on a recurring basis as of December 31, 2012.
------------------------------------------------------------------------------------------------------ ASSETS, AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------ Debt securities: U.S. government and agencies $ 2,710 $ 254 $ - $ 2,964 Mortgage-backed securities: Residential mortgage-backed - 5,610 - 5,610 ------------------------------------------------------------------------------------------------------ Total assets $ 2,710 $ 5,864 $ - $ 8,574 ------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 15 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- The following table summarizes the Company's assets that are measured at fair value on a recurring basis as of December 31, 2011.
--------------------------------------------------------------------------------------------------- ASSETS, AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL --------------------------------------------------------------------------------------------------- Debt securities: U.S. government and agencies $ 2,782 $ 5,273 $ - $ 8,055 Domestic corporate securities - 22,103 - 22,103 Mortgage-backed securities: Residential mortgage-backed - 11,598 11,598 Commercial mortgage-backed - 6,790 - 6,790 Foreign corporate securities - 2,778 - 2,778 --------------------------------------------------------------------------------------------------- Total debt securities 2,782 48,542 - 51,324 Total assets $ 2,782 $ 48,542 $ - $ 51,324 ---------------------------------------------------------------------------------------------------
The Company had no assets or liabilities that required a fair value adjustment on a non-recurring basis as of December 31, 2012 or 2011. DETERMINATION OF FAIR VALUES The Company determines the estimated fair value of its investments using primarily the market approach and the income approach. The use of quoted prices and matrix pricing or similar techniques are examples of market approaches, while the use of discounted cash flow methodologies is an example of the income approach. A summary of valuation techniques for classes of financial assets and liabilities by fair value hierarchy level are as follows: Level 1 Measurements -------------------- U.S. government and agencies: Consists of U.S. Treasury securities and debentures (non-mortgage-backed securities/asset-backed securities) issued by agencies of the U.S. government. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access at the measurement date. Level 2 Measurements -------------------- U.S. government and agencies: Certain U.S. Treasury securities and debentures issued by agencies of the U.S. government are valued based on observable inputs such as the U.S. Treasury yield curve, market indicated spreads and quoted prices for identical assets in markets that are not active and/or similar assets in markets that are active. Domestic corporate securities: Valued based on observable inputs such as the U.S. Treasury yield curve, market indicated spreads by security rating and quoted prices for identical assets in markets that are not active and/or similar assets in markets that are active. Residential mortgage-backed securities: Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. Commercial mortgage-backed securities: Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. -------------------------------------------------------------------------------- 16 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- Foreign corporate securities: Valued based on observable inputs such as the applicable, country-specific market yield curve, market indicated spreads by security rating and quoted prices for identical assets in markets that are not active and/or similar assets in markets that are active. For the majority of assets classified as Level 2 investments, the Company values the assets using third-party pricing sources corroborated by quoted prices for similar assets in markets that are active and observable market data. FAIR VALUE MEASUREMENTS FOR FINANCIAL INSTRUMENTS NOT REPORTED AT FAIR VALUE Accounting standards require disclosure of fair value information about certain on- and off-balance sheet financial instruments which are not recorded at fair value on a recurring basis for which it is practicable to estimate that value. The following methods and assumptions were used by the Company in estimating the fair value disclosures for significant financial instruments: Cash and Accrued investment income: The carrying amounts for these instruments approximate their fair values due to their short term nature. Policy loans: The Company believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity and policy loans are often repaid by reductions to policy benefits. The carrying amounts and estimated fair values of the Company's financial instruments which are not measured at fair value on a recurring basis at December 31 are as follows:
------------------------------------------------------------------------------------------------------------------------- 2012 2011 CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE LEVEL AMOUNT FAIR VALUE LEVEL ------------------------------------------------------------------------------------------------------------------------- Financial instruments recorded as assets: Cash $ 4,926 $ 4,926 1 $ 3,853 $ 3,853 1 Policy loans 110 n/a n/a 2,339 n/a n/a Accrued investment income 73 73 2 569 569 2 -------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 17 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- NOTE 5: INCOME TAX The Company is included in the consolidated life-nonlife federal income tax return of CUNA Mutual Holding Company ("CMHC"), the Company's ultimate parent, and certain of its domestic subsidiaries. The Company has entered into a tax sharing agreement with CMHC and its subsidiaries. The agreement provides for the allocation of tax expense based on each subsidiary's contribution to the consolidated federal income tax liability. Pursuant to the agreement, subsidiaries that have incurred losses are reimbursed regardless of the utilization of the loss in the current year. Federal income taxes recoverable reported on the balance sheet are due from affiliates. INCOME TAX EXPENSE (BENEFIT) Income tax expense (benefit) for the years ended December 31 is as follows:
------------------------------------------------------------------------------------- 2012 2011 2010 ------------------------------------------------------------------------------------- Current tax expense (benefit) $ (1,822) $ (1,628) $ 404 Deferred tax expense 3,501 2,549 670 ------------------------------------------------------------------------------------- Total income tax expense (benefit) $ 1,679 $ 921 $ 1,074 -------------------------------------------------------------------------------------
RECONCILIATION TO U.S. TAX RATE Income tax expense (benefit) differs from the amount computed by applying the U.S. federal corporate income tax rate of 35% to income before income taxes due to the items listed in the following reconciliation:
------------------------------------------------------------------------------------------------------------------------------- 2012 2011 2010 ------------------------------------------------------------------------------ AMOUNT RATE AMOUNT RATE AMOUNT RATE ------------------------------------------------------------------------------------------------------------------------------- Tax expense computed at federal corporate tax rate $ 1,761 35.0% $ 956 35.0% $ 1,176 35.0% Income tax (benefit) related to prior years (82) (1.6) (35) (1.3) (102) (3.0) ------------------------------------------------------------------------------------------------------------------------------- Total income tax expense (benefit) $ 1,679 33.4% $ 921 33.7% $ 1,074 32.0% -------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 18 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- DEFERRED INCOME TAXES Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 2012 and 2011 are as follows:
-------------------------------------------------------------------------------------- 2012 2011 -------------------------------------------------------------------------------------- Deferred tax assets Policy liabilities and reserves $ 159 $ 842 Investments 1,249 4,053 Other 119 73 -------------------------------------------------------------------------------------- Gross deferred tax assets 1,527 4,968 -------------------------------------------------------------------------------------- Deferred tax liabilities Unrealized gains 248 1,467 Deferred and uncollected premium 1 16 Other 75 - -------------------------------------------------------------------------------------- Gross deferred tax liabilities 324 1,483 -------------------------------------------------------------------------------------- Net deferred tax asset $ 1,203 $ 3,485 --------------------------------------------------------------------------------------
VALUATION ALLOWANCE The Company considered the need for a valuation allowance with respect to its gross deferred tax assets as of December 31, 2012 and 2011, and based on that evaluation, the Company has determined it is more likely than not all deferred tax assets as of December 31, 2012 and 2011 will be realized. Therefore, a valuation allowance was not established. UNRECOGNIZED TAX BENEFITS A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
----------------------------------------------------------------------------------------------- 2012 2011 2010 ----------------------------------------------------------------------------------------------- Balance at January 1 $ 153 $ 164 $ 181 Additions for prior years' tax positions 4 6 3 Reductions for prior years' tax positions (2) (1) - Reductions for settlements (96) - - Reductions for expiration of statutes (13) (16) (20) ----------------------------------------------------------------------------------------------- Balance at December 31 $ 46 $ 153 $ 164 -----------------------------------------------------------------------------------------------
Included in the balance of unrecognized tax benefits at December 31, 2011 are $109 of unrecognized tax benefits that, if recognized would affect the effective income tax rate in future periods, there were no such benefits as of -------------------------------------------------------------------------------- 19 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- December 31, 2012. Management does not anticipate a material change to the Company's uncertain tax benefits during 2013. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as part of the income tax provision. During the years ended December 31, 2012 and 2011, the Company recognized approximately ($54) and $1 in interest and penalties, respectively. The Company had accrued $6 and $60 for the payment of interest and penalties at December 31, 2012 and 2011, respectively. The Company is included in a consolidated U.S. federal income tax return filed by CMHC. The Company also files income tax returns in various states. For the major jurisdictions where it operates, the Company is generally no longer subject to income tax examinations by tax authorities for years ended before December 31, 2008. However, the statutes remain open for years after December 31, 2004. The Internal Revenue Service statute of limitations for all years prior to 2008 is expected to close in early 2013. In 2012, CMFG Life and subsidiaries received approval from the Joint Committee on Taxation related to its federal income tax examinations for tax years 2005-2007. OTHER TAX ITEMS As of December 31, 2012 and 2011, the Company did not have any capital loss, operating loss or credit carryforwards. NOTE 6: RELATED PARTY TRANSACTIONS In the normal course of business, there are various transactions between the Company and other related entities. In certain circumstances, expenses such as those related to sales and marketing, administrative, operations, other support and infrastructure costs are shared between the companies. Expenses incurred that are specifically identifiable with a particular company are borne by that company; other expenses are allocated among the companies on the basis of time and usage studies. The Company reimbursed CMFG Life $1,044, $665 and $484 for these expenses in 2012, 2011 and 2010, respectively; they are included in operating and other expenses. The Company hires MEMBERS Capital Advisors, Inc. ("MCA") for investment advisory services. MCA, which is 100% owned by CMIC, manages substantially all of the Company's invested assets in accordance with policies, directives and guidelines established by the Company. Amounts receivable from affiliate are due from CMFG Life for policy loans transferred. Amounts payable to affiliates are shown in the following table:
-------------------------------------------------------------------------------------- 2012 2011 -------------------------------------------------------------------------------------- Due to: CMFG Life Insurance Company $ 211 $ 156 MEMBERS Capital Advisors, Inc. 5 4 -------------------------------------------------------------------------------------- Total $ 216 $ 160 --------------------------------------------------------------------------------------
On November 30, 2012, the Company returned capital to CMIC of $18,000, which consisted of $296 in cash and $17,704 in fair value of debt securities, which resulted in a realized gain of $1,414. See Note 7 regarding a reinsurance agreement entered into by the Company and CMFG Life. -------------------------------------------------------------------------------- 20 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- NOTE 7: REINSURANCE The Company entered into a reinsurance agreement in 2012 to cede 95% of its business in force to CMFG Life, as described below. MLIC does not have any other reinsurance agreements and the entire reinsurance recoverable of $26,391 at December 31, 2012 is due from CMFG Life. The recoverable balance is not collateralized and the Company retains the risk of loss in the event CMFG Life is unable to meet its obligations. CMFG Life is rated A (excellent) by A.M. Best Company and MLIC believes the risk of non-collection is remote.
---------------------------------------------------------------------------------------------------------- 2012 2011 2010 ---------------------------------------------------------------------------------------------------------- Policies in force $ 163,937 $ 186,688 $ 210,163 Premiums: Direct - written $ 3,208 $ 3,409 $ 3,744 Direct - unearned - - - ---------------------------------------------------------------------------------------------------------- Direct - earned 3,208 3,409 3,744 ---------------------------------------------------------------------------------------------------------- Ceded to affiliate - written (23,714) - - Ceded to affiliate - unearned 47 - - ---------------------------------------------------------------------------------------------------------- Ceded to affiliate - earned (23,667) - - ---------------------------------------------------------------------------------------------------------- Premiums, net $ (20,459) $ 3,409 $ 3,744 ---------------------------------------------------------------------------------------------------------- Claims, benefits and losses incurred: Direct $ 3,086 $ 2,268 $ 2,261 Ceded to affiliate (23,114) - - ---------------------------------------------------------------------------------------------------------- Claims, benefits and losses, net $ (20,028) $ 2,268 $ 2,261 ----------------------------------------------------------------------------------------------------------
On October 31, 2012, the Company ceded 95% of its insurance polices in force pursuant to a reinsurance agreement with CMFG Life; ongoing renewal premiums and related policy benefits are also ceded to CMFG Life at the same proportion. As a result of this agreement, the Company ceded $23,121 of earned premiums,$22,637 of benefits, $3,762 of policyholder account balances and recorded a reinsurance recoverable of $26,399 as of October 31, 2012. Substantially all the premiums were paid to CMFG Life by transferring net invested assets with a fair value of $26,883, recognizing a gain of $2,848. The difference between the assets and liabilities transferred to CMFG Life of $484 was recorded as a prepaid reinsurance asset and is being amortized to expense over the estimated fifteen year remaining life of the reinsured policies. Subsequently, the Company expensed $270 of the prepaid reinsurance asset as it determined that a portion of the cost was unrecoverable. The Company is also reimbursed for 95% of expenses incurred in the provision of policyholder and benefit payment services, and insurance taxes and charges on a go forward basis. In 2013, the Company entered into a reinsurance arrangement with CMFG Life to assume all of the new business issued. -------------------------------------------------------------------------------- 21 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- NOTE 8: STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS The Company is a life and health insurer and is domiciled in Iowa. The Company files statutory-basis financial statements with insurance regulatory authorities. The Company used no permitted practices in 2012, 2011 or 2010. Certain statutory basis financial information for MLIC is presented in the table below as of and for the years ended December 31.
------------------------------------------------------------------------------------------------------ STATUTORY BASIS STATUTORY BASIS CATPITAL AND SURPLUS NET INCOME (LOSS) 2012 2011 2012 2011 2010 ------------------------------------------------------------------------------------------------------ MLIC $ 16,995 $ 28,061 $ 3,259 $ (95) $ (1,219) ------------------------------------------------------------------------------------------------------
The Company is subject to statutory regulations as to maintenance of equity and the payment of dividends. Generally, ordinary dividends from an insurance subsidiary to its parent company must meet notice requirements promulgated by the regulator of the subsidiary's state of domicile ("Insurance Department"). Extraordinary dividends, as defined by state statutes, must be approved by the Insurance Department. The Company is subject to statutory dividend restrictions in Iowa and is restricted to paying $1,495 as of December 31, 2012. Risk-based capital requirements promulgated by the National Association of Insurance Commissioners require U.S. insurers to maintain minimum capitalization levels that are determined based on formulas incorporating credit risk, insurance risk, interest rate risk, and general business risk. At December 31, 2012 and 2011, the Company's adjusted equity exceeded the minimum requirements. NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME The components of accumulated comprehensive income are as follows:
--------------------------------------------------------------------------------------- ACCUMULATED UNREALIZED OTHER INVESTMENT COMPREHENSIVE GAINS INCOME --------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 2010 $ 836 $ 836 Change in unrealized holding gains, net of tax - $342 634 634 --------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2010 1,470 1,470 Change in unrealized holding gains, net of tax - $653 1,217 1,217 --------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2011 2,687 2,687 Change in unrealized holding gains, net of tax - ($1,219) (2,264) (2,264) --------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2012 $ 423 $ 423 ---------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 22 MEMBERS LIFE INSURANCE COMPANY Notes to Financial Statements ($ in 000s) -------------------------------------------------------------------------------- NOTE 10: COMMITMENTS AND CONTINGENCIES LEGAL MATTERS Like other members of the insurance industry, the Company is occasionally a party to a number of lawsuits and other types of proceedings, some of which may involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and involve a range of the Company's practices. The Company has established procedures and policies to facilitate compliance with laws and regulations and to support financial reporting. In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution and changes in business practices. The Company may not be advised of the nature and extent of relief sought until the final stages of the examination or proceeding. In the opinion of management, the ultimate liability, if any, resulting from all such pending actions will not materially affect the financial statements of the Company. NOTE 11: SUBSEQUENT EVENTS The Company evaluated subsequent events through April 3, 2013, the date the financial statements were issued. During this period, there were no significant subsequent events that required adjustment to or disclosure in the accompanying financial statements. -------------------------------------------------------------------------------- 23 MEMBERS LIFE INSURANCE COMPANY A WHOLLY-OWNED SUBSIDIARY OF CUNA MUTUAL INVESTMENT CORPORATION UNAUDITED CONDENSED FINANCIAL INFORMATION AS OF MARCH 31, 2013 AND DECEMBER 31, 2012 AND FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 -------------------------------------------------------------------------------- 24 MEMBERS LIFE INSURANCE COMPANY Condensed Balance Sheets, Unaudited March 31, 2013 and December 31, 2012 (000s omitted) --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31, ASSETS 2013 2012 ------------------------------------------------------------------------------------------- INVESTMENTS Debt securities, available for sale, at fair value (amortized cost 2013 - $7,492; 2012 - $7,903) $ 8,101 $ 8,574 Policy loans 108 110 Other invested assets - 7 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS 8,209 8,691 Cash and cash equivalents 6,956 4,926 Accrued investment income 80 73 Reinsurance recoverable from affiliate 27,084 26,391 Premiums receivable, net 33 34 Net deferred tax asset 1,167 1,203 Receivable from affiliate 2,067 2,085 Other assets and receivables 214 226 Federal income taxes recoverable from affiliate 1,960 3,776 ------------------------------------------------------------------------------------------- TOTAL ASSETS $ 47,770 $ 47,405 ------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------------------------------------------------------------- LIABILITIES Claim and policy benefit reserves - life and health $ 24,613 $ 24,112 Policyholder account balances 3,743 3,797 Unearned premiums 5 4 Payables to affiliates 438 216 Accounts payable and other liabilities 87 152 ------------------------------------------------------------------------------------------- TOTAL LIABILITIES 28,886 28,281 ------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9) STOCKHOLDER'S EQUITY Common stock, $5,000 par value, authorized 1,000 shares; issued and outstanding 1,000 shares 5,000 5,000 Additional paid in capital 10,500 10,500 Accumulated other comprehensive income, net of tax expense (2013 - $227; 2012 - $248) 382 423 Retained earnings 3,002 3,201 ------------------------------------------------------------------------------------------- TOTAL STOCKHOLDER'S EQUITY 18,884 19,124 ------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 47,770 $ 47,405 -------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 25 MEMBERS LIFE INSURANCE COMPANY Condensed Statements of Operations and Comprehensive Income, Unaudited Three Months Ended March 31, 2013 and 2012 (000s omitted) --------------------------------------------------------------------------------
MARCH 31, MARCH 31, 2013 2012 ------------------------------------------------------------------------------------------- REVENUES Life and health premiums, net $ 36 $ 806 Contract charges 115 116 Net investment income 98 540 Net realized investment gains(2012 includes $35 of accumulated other comprehensive income reclassification for unrealized gains on available-for-sale securities) - 58 ------------------------------------------------------------------------------------------- TOTAL REVENUES 249 1,520 ------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES Life and health insurance claims and benefits, net 64 630 Interest credited to policyholder account balances 41 42 Operating and other expenses 328 274 ------------------------------------------------------------------------------------------- TOTAL BENEFITS AND EXPENSES 433 946 ------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES (184) 574 Income tax expense 15 187 ------------------------------------------------------------------------------------------- NET INCOME (LOSS) (199) 387 Change in unrealized gains (losses), net of tax (benefit) (2013 - ($22); 2012 - ($31)) (41) (56) Reclassification adjustment for (gains) included in net income, net of tax (benefit) (2012 - ($12)) - (23) ------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE (LOSS) (41) (79) ------------------------------------------------------------------------------------------- TOTAL COMPREHENSIVE INCOME (LOSS) $ (240) $ 308 -------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 26 MEMBERS LIFE INSURANCE COMPANY Condensed Statements of Stockholder's Equity, Unaudited For the Three Months Ended March 31, 2013 and 2012 (000s omitted) --------------------------------------------------------------------------------
Accumulated Additional other Retained Total Common paid in comprehensive earnings stockholder's stock capital income (deficit) equity ----------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2012 $ 5,000 $ 10,500 $ 423 $ 3,201 $ 19,124 Net (loss) - - - (199) (199) Other comprehensive (loss) - - (41) - (41) ----------------------------------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 2013 $ 5,000 $ 10,500 $ 382 $ 3,002 $ 18,884 ----------------------------------------------------------------------------------------------------------------------- Accumulated Additional other Retained Total Common paid in comprehensive earnings stockholder's stock capital income (deficit) equity ----------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2011 $ 5,000 $ 28,500 $ 2,687 $ (151) $ 36,036 Net income - - - 387 387 Other comprehensive (loss) - - (79) - (79) ----------------------------------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 2012 $ 5,000 $ 28,500 $ 2,608 $ 236 $ 36,344 -----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 27 MEMBERS LIFE INSURANCE COMPANY Condensed Statements of Cash Flows, Unaudited For the Three Months Ended March 31, 2013 and 2012 (000s omitted) --------------------------------------------------------------------------------
MARCH 31, MARCH 31, 2013 2012 ------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (199) $ 387 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Policyholder charges on investment type contracts (115) (116) Interest credited to policyholder account balances 41 42 Amortization of bond premium and discount 22 53 Net realized investment gains - (58) Amortization and write off of deferred charges 12 - Changes in other assets and liabilities, net of reinsurance: Accrued investment income (6) 127 Reinsurance recoverable (693) - Premiums receivable 1 3 Net deferred tax asset 58 (97) Other assets and receivables 17 12 Federal income taxes recoverable 1,817 69 Insurance reserves 501 (89) Unearned premiums 1 21 Accounts payable and other liabilities 162 (41) ------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,619 313 ------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds on sale or maturity of investments: Debt securities 397 978 Net payments received on policy loans 2 41 ------------------------------------------------------------------------------------------- NET CASH PROVIDED BY INVESTING ACTIVITIES 399 1,019 ------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Policyholder account deposits 80 88 Policyholder account withdrawals (54) (45) Change in bank overdrafts (14) 10 ------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 12 53 ------------------------------------------------------------------------------------------- CHANGE IN CASH AND CASH EQUIVALENTS 2,030 1,385 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,926 3,853 ------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,956 $ 5,238 -------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- See accompanying notes to financial statements. 28 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- NOTE 1: NATURE OF BUSINESS MEMBERS Life Insurance Company ("MLIC" or the "Company") is a life and health insurance stock company organized under the laws of Iowa and a wholly-owned subsidiary of CUNA Mutual Investment Corporation ("CMIC"). CMIC is organized under the laws of Wisconsin and is a wholly-owned subsidiary of CMFG Life Insurance Company ("CMFG Life"), an Iowa life insurance company. CMFG Life and its affiliated companies primarily sell insurance and other products to credit unions and their members. Currently, MLIC does not actively market new business. The Company primarily services existing blocks of individual and group life policies. MLIC is authorized to sell life, health and annuity policies in all states in the U.S. and the District of Columbia, except New York CMFG Life provides significant services required in the conduct of the Company's operations. Management believes allocations of expenses are reasonable, but the results of the Company's operations may have materially differed from the results reflected in the accompanying financial statements if the Company did not have this relationship. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. However, the Company believes that the disclosures included herein are adequate to make the information presented not misleading. The accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring items, unless otherwise disclosed) necessary for a fair statement of the financial position as of March 31, 2013 and December 31, 2012, and the results of operations, cash flows, changes in comprehensive income and equity for the three months ended March 31, 2013 and 2012. These results are not necessarily indicative of the results to be expected for the full year. USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and in some cases the difference could be material. Investment valuations, determination of other-than-temporary impairments, deferred tax asset valuation reserves, and claim and policyholder benefit reserves are most affected by the use of estimates and assumptions. SEGMENT REPORTING The Company is managed as one reportable life and health business segment. -------------------------------------------------------------------------------- 29 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- INVESTMENTS Investments in debt securities are classified as available for sale and are carried at fair value. Unrealized gains and losses on investments in debt securities, net of federal income taxes, are included in accumulated other comprehensive income as a separate component of stockholder's equity. A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company's holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the other-than-temporary impairment ("OTTI") is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive income. If the Company intends to sell, at the time this determination is made, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer's business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered. Policy loans are reported at their unpaid principal balance. Interest income related to mortgage-backed and other structured securities is recognized on an accrual basis using a constant effective yield method, based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments and such adjustments are reflected in net investment income. Prepayment assumptions for loan-backed bonds and structured securities are based on industry averages or internal estimates. Interest income related to non-structured securities is recognized on an accrual basis using a constant effective yield method. Discounts and premiums on debt securities are amortized over the estimated lives of the respective securities on an effective yield basis. Realized gains and losses on the sale of investments are determined on a specific identification basis and are recorded on the trade date. CASH AND CASH EQUIVALENTS Cash and cash equivalents include unrestricted deposits in financial institutions with maturities of 90 days or less. The Company recognizes a liability in accounts payable and other liabilities for the amount of checks issued in excess of its current cash balance. The change in this overdraft amount is recognized as a financing activity in the Company's Statement of Cash Flow. RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS Term-life and whole-life insurance premiums are recognized as premium income when due. Policy benefits for these products are recognized in relation to the premiums so as to result in the recognition of profits over the expected lives of the policies and contracts. -------------------------------------------------------------------------------- 30 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- DEFERRED POLICY ACQUISITION COSTS The costs of acquiring insurance business that are directly related to the successful acquisition of new and renewal business are deferred to the extent that such costs are expected to be recoverable from future profits. Such costs principally include commissions and sales costs, direct response advertising costs, premium taxes, and certain policy issuance and underwriting costs. Costs deferred on term-life and whole-life insurance products, deferred policy acquisition costs ("DAC"), are amortized in proportion to the ratio of the annual premium to the total anticipated premiums generated. Due to the age of the existing block of policies all DAC has been fully amortized as of March 31, 2013 and December 31, 2012 and there was no amortization expense in the three months ended March 31, 2013 or 2012. INSURANCE RESERVES Life and health claim and policy benefit reserves consist principally of future policy benefit reserves and reserves for estimates of future payments on incurred claims reported and unreported but not yet paid. Such estimates are developed using actuarial principles and assumptions based on past experience adjusted for current trends. Any change in the probable ultimate liabilities is reflected in net income in the period in which the change is determined. When actual experience indicates that existing contract liabilities, together with the present value of future gross premiums will not be sufficient to recover the present value of future benefits or recover unamortized deferred acquisition costs, a premium deficiency will be recognized by either a reduction in unamortized acquisition costs or an increase in liability of future benefits. POLICYHOLDER ACCOUNT BALANCES The Company recognizes a liability at the stated account value for policyholder deposits that are not subject to significant policyholder mortality or longevity risk and for universal life-type policies. The account value equals the sum of the original deposit and accumulated interest, less any withdrawals and expense charges. Average credited rate is 4.5% for the three months ended March 31, 2013 and 2012. Future minimum guaranteed interest rate during the life of the contracts is 4.5%. REINSURANCE Reinsurance premiums, claims and benefits, commission expense reimbursements, and reserves related to reinsured business ceded are accounted for on a basis consistent with the accounting for the underlying direct policies that have been ceded and the terms of the reinsurance contracts. Premiums and insurance claims and benefits in the statements of operations and comprehensive income are reported net of the amounts ceded to other companies under such reinsurance contracts. Ceded insurance reserves and ceded benefits paid are included in reinsurance recoverables. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies. INCOME TAXES The Company recognizes taxes payable or refundable and deferred taxes for the tax consequences of differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured by applying the enacted tax rates to the difference between the financial statement and tax basis of assets and liabilities. The Company records current tax benefits and deferred tax assets utilizing a benefits-for-loss approach. Under this approach, current benefits are realized and deferred tax assets are considered realizable by the Company when realized or realizable by the consolidated group of which the Company is a member even if the benefits would not be realized on a stand-alone basis. The Company records a valuation allowance for deferred tax assets if it determines it is more likely than not that the asset will not be realized by the -------------------------------------------------------------------------------- 31 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- consolidated group. Deferred income tax assets can be realized through future earnings, including the generation of future income, reversal of existing temporary differences and available tax planning strategies. The Company is subject to tax-related audits in the normal course of operations. These audits may result in additional tax assets or liabilities. In establishing tax liabilities, the Company determines whether a tax position is more likely than not to be sustained under examination by the appropriate taxing authority. Tax positions that do not meet the more likely than not standard are not recognized. Tax positions that meet this standard are recognized in the financial statements. ACCOUNTING STANDARDS UPDATES PENDING ADOPTION In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires companies to present information about reclassification adjustments from accumulated other comprehensive income in their financial statements in a single note or on the face of the financial statements. ASU 2013-02 is effective for periods beginning after December 15, 2012, with early adoption permitted. ASU 2013-02 did not have an impact on the Company. -------------------------------------------------------------------------------- 32 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- NOTE 3: INVESTMENTS DEBT SECURITIES The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at March 31, 2013 are as follows:
------------------------------------------------------------------------------------------------ AMORTIZED GROSS UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE ------------------------------------------------------------------------------------------------ U.S. government and agencies $ 2,687 $ 249 $ - $ 2,936 Mortgage-backed securities: Residential mortgage-backed 4,805 360 - 5,165 ------------------------------------------------------------------------------------------------ Total debt securities $ 7,492 $ 609 $ - $ 8,101 ------------------------------------------------------------------------------------------------
The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2012 are as follows:
------------------------------------------------------------------------------------------------ AMORTIZED GROSS UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE ------------------------------------------------------------------------------------------------ U.S. government and agencies $ 2,697 $ 267 $ - $ 2,964 Mortgage-backed securities: Residential mortgage-backed 5,206 404 - 5,610 ------------------------------------------------------------------------------------------------ Total debt securities $ 7,903 $ 671 $ - $ 8,574 ------------------------------------------------------------------------------------------------
No investments were non-income producing during the three months ended March 31, 2013 or 2012. -------------------------------------------------------------------------------- 33 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- The amortized cost and estimated fair values of investments in debt securities at March 31, 2013, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Because of the potential for prepayment on mortgage-backed securities, such securities have not been displayed in the table below by contractual maturity.
------------------------------------------------------------------------------------- AMORTIZED ESTIMATED COST FAIR VALUE ------------------------------------------------------------------------------------- Due in one year or less $ 250 $ 253 Due after one year through five years 1,338 1,515 Due after five years through ten years 1,099 1,168 Mortgage-backed securities: Residential mortgage-backed 4,805 5,165 ------------------------------------------------------------------------------------- Total debt securities $ 7,492 $ 8,101 -------------------------------------------------------------------------------------
NET INVESTMENT INCOME Sources of investment income for the three months ended March 31 are summarized as follows:
2013 2012 ------------------------------------------------------------------------------------- Gross investment income: Debt securities $ 77 $ 519 Policy loans 37 40 Other investments 5 1 ------------------------------------------------------------------------------------- Total gross investment income 119 560 Investment expenses (21) (20) ------------------------------------------------------------------------------------- Net investment income $ 98 $ 540 -------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 34 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- NET REALIZED INVESTMENT GAINS Net realized investment gains for the three months ended March 31 are summarized as follows:
2013 2012 -------------------------------------------------------------------------------------- Debt securities Gross gains on sales $ - $ 58 -------------------------------------------------------------------------------------- Net realized investment gains $ - $ 58 --------------------------------------------------------------------------------------
There were no sales of debt securities for the three months ended March 31, 2013. Proceeds from the sale of debt securities were $550 for the three months ended March 31, 2012. OTHER-THAN-TEMPORARY INVESTMENT IMPAIRMENTS Investment securities are reviewed for OTTI on an ongoing basis. The Company creates a watchlist of securities based largely on the fair value of an investment security relative to its cost basis. When the fair value drops below the Company's cost, the Company monitors the security for OTTI impairment. The determination of OTTI requires significant judgment on the part of the Company and depends on several factors, including: o The existence of any plans to sell the investment security. o The extent to which fair value is less than book value. o The underlying reason for the decline in fair value (credit concerns, interest rates, etc.). o The financial condition and near term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions. o The Company's intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery in fair value. o The Company's ability to recover all amounts due according to the contractual terms of the agreements. o The Company's collateral position in the case of bankruptcy or restructuring. A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company's holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the OTTI is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive income. If the Company intends to sell, at the time this determination is made, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer's business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered. For securitized debt securities, the Company considers factors including, residential property changes in value that vary by property type and location and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment and include the probability of issuer -------------------------------------------------------------------------------- 35 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- default and estimates regarding timing and amount of expected recoveries. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral. For certain securitized financial assets with contractual cash flows, the Company is required to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the estimated cash flows since the last revised estimate, considering both timing and amount, an OTTI charge is recognized. The Company also considers its intent to retain a temporarily impaired security until recovery. Estimating future cash flows involves judgment and includes both quantitative and qualitative factors. Such determinations incorporate various information and assessments regarding the future performance of the underlying collateral. In addition, projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral. Management has completed a review for other-than-temporarily impaired securities at March 31, 2013 and December 31, 2012 and for the three months ended March 31, 2013 and 2012. As a result of the subjective nature of these estimates, however, provisions may subsequently be determined to be necessary as new facts emerge and a greater understanding of economic trends develop. Consistent with the Company's practices, OTTI will be recorded as appropriate and as determined by the Company's regular monitoring procedures of additional facts. NET UNREALIZED INVESTMENT GAINS The components of net unrealized investment gains included in accumulated other comprehensive income at March 31, 2013 and December 31, 2012 were as follows:
MARCH 31, DECEMBER 31, 2013 2012 ------------------------------------------------------------------------------------------- Debt securities $ 609 $ 671 Deferred income taxes (227) (248) ------------------------------------------------------------------------------------------- Net unrealized investment gains $ 382 $ 423 -------------------------------------------------------------------------------------------
The Company had no gross unrealized losses at March 31, 2013 or December 31, 2012. INVESTMENT CREDIT RISK The Company maintains a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established exposure limits, diversification standards, and review procedures to mitigate credit risk. -------------------------------------------------------------------------------- 36 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- NOTE 4: FAIR VALUE The Company uses fair value measurements to record fair value of certain assets and liabilities and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value. Certain financial instruments, such as insurance policy liabilities other than investment-type contracts are excluded from the fair value disclosure requirements. VALUATION HIERARCHY Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value of assets and liabilities into three broad levels. The Company has categorized its financial instruments, based on the degree of subjectivity inherent in the valuation technique, as follows: o Level 1: Inputs are directly observable and represent quoted prices for identical assets or liabilities in active markets the Company has the ability to access at the measurement date. o Level 2: All significant inputs are observable, either directly or indirectly, other than quoted prices included in Level 1, for the asset or liability. This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3: One or more significant inputs are unobservable and reflect the Company's estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. For purposes of determining the fair value of the Company's assets and liabilities, observable inputs are those inputs used by market participants in valuing financial instruments, which are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs, reflecting the Company's estimates of the assumptions market participants would use in valuing financial assets and liabilities, are developed based on the best information available in the circumstances. The Company uses prices and inputs that are current as of the measurement date. In some instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The hierarchy requires the use of market observable information when available for assessing fair value. The availability of observable inputs varies by investment. In situations where the fair value is based on inputs that are unobservable in the market or on inputs from inactive markets, the determination of fair value requires more judgment and is subject to the risk of variability. The degree of judgment exercised by the Company in determining fair value is typically greatest for investments categorized in Level 3. Transfers in and out of level categorizations are reported as having occurred at the end of the quarter in which the transfer occurred. VALUATION PROCESS The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. -------------------------------------------------------------------------------- 37 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- The Company has policies and guidelines that require the establishment of valuation methodologies and consistent application of such methodologies. These policies and guidelines govern the use of inputs and price source hierarchies and provide controls around the valuation processes. These controls include appropriate review and analysis of prices against market activity or indicators of reasonableness, approval of price source changes, price overrides, methodology changes and classification of fair value hierarchy levels. The valuation policies and guidelines are reviewed and updated as appropriate. For fair values received from third parties or internally estimated, the Company's processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are appropriately recorded. The Company performs procedures to understand and assess the methodologies, process and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. When using internal valuation models, these models are developed by the Company's investment group using established methodologies. The models including key assumptions are reviewed with various investment sector professionals, accounting, operations, compliance and risk management. In addition, when fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. TRANSFERS BETWEEN LEVELS There were no transfers between Level 1 and Level 2 or between Level 2 and Level 3 during the three months ended March 31, 2013 or 2012. FAIR VALUE MEASUREMENT - RECURRING BASIS The following table summarizes the Company's assets that are measured at fair value on a recurring basis as of March 31, 2013.
------------------------------------------------------------------------------------------------------ ASSETS, AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------ Debt securities: U.S. government and agencies $ 2,682 $ 254 $ - $ 2,936 Mortgage-backed securities: Residential mortgage-backed - 5,165 - 5,165 ------------------------------------------------------------------------------------------------------ Total assets $ 2,682 $ 5,419 $ - $ 8,101 ------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 38 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- The following table summarizes the Company's assets that are measured at fair value on a recurring basis as of December 31, 2012.
------------------------------------------------------------------------------------------------------ ASSETS, AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------ Debt securities: U.S. government and agencies $ 2,710 $ 254 $ - $ 2,964 Mortgage-backed securities: Residential mortgage-backed - 5,610 5,610 ------------------------------------------------------------------------------------------------------ Total debt securities 2,710 5,864 - 8,574 Total assets $ 2,710 $ 5,864 $ - $ 8,574 ------------------------------------------------------------------------------------------------------
The Company had no assets or liabilities that required a fair value adjustment on a non-recurring basis as of March 31, 2013 or December 31, 2012. DETERMINATION OF FAIR VALUES The Company determines the estimated fair value of its investments using primarily the market approach and the income approach. The use of quoted prices and matrix pricing or similar techniques are examples of market approaches, while the use of discounted cash flow methodologies is an example of the income approach. A summary of valuation techniques for classes of financial assets and liabilities by fair value hierarchy level are as follows: Level 1 Measurements -------------------- U.S. government and agencies: Consists of U.S. Treasury securities and debentures (non-mortgage-backed securities/asset-backed securities) issued by agencies of the U.S. government. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access at the measurement date. Level 2 Measurements -------------------- U.S. government and agencies: Certain U.S. Treasury securities and debentures issued by agencies of the U.S. government are valued based on observable inputs such as the U.S. Treasury yield curve, market indicated spreads and quoted prices for identical assets in markets that are not active and/or similar assets in markets that are active. Residential mortgage-backed securities: Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. For the majority of assets classified as Level 2 investments, the Company values the assets using third-party pricing sources corroborated by quoted prices for similar assets in markets that are active and observable market data. -------------------------------------------------------------------------------- 39 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- NOTE 5: INCOME TAX The Company is included in the consolidated life-nonlife federal income tax return of CUNA Mutual Holding Company ("CMHC"), the Company's ultimate parent, and certain of its domestic subsidiaries. The Company has entered into a tax sharing agreement with CMHC and its subsidiaries. The agreement provides for the allocation of tax expense based on each subsidiary's contribution to the consolidated federal income tax liability. Pursuant to the agreement, subsidiaries that have incurred losses are reimbursed regardless of the utilization of the loss in the current year. Federal income taxes recoverable reported on the balance sheet are due from affiliates. RECONCILIATION TO U.S. TAX RATE Income tax expense differs from the amount computed by applying the U.S. federal corporate income tax rate of 35% to income before income taxes due to the items listed in the following reconciliation:
-------------------------------------------------------------------------------------------------- MARCH 31, MARCH 31, 2013 2012 ------------------------------------------------- AMOUNT RATE AMOUNT RATE -------------------------------------------------------------------------------------------------- Tax expense (benefit) computed at federal corporate tax rate $ (65) 35.0% $ 201 35.0% Income tax expense (benefit) related to prior years and other 80 (43.5) (14) (2.4) -------------------------------------------------------------------------------------------------- Total income tax expense $ 15 8.2% $ 187 32.6% --------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 40 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- NOTE 6: RELATED PARTY TRANSACTIONS In the normal course of business, there are various transactions between the Company and other related entities. In certain circumstances, expenses such as those related to sales and marketing, administrative, operations, other support and infrastructure costs are shared between the companies. Expenses incurred that are specifically identifiable with a particular company are borne by that company; other expenses are allocated among the companies on the basis of time and usage studies. The Company reimbursed CMFG Life $438 and $180 for these expenses for the three months ended March 31, 2013 and 2012, respectively; they are included in operating and other expenses. The Company hires MEMBERS Capital Advisors, Inc. ("MCA") for investment advisory services. MCA, which is 100% owned by CMIC, manages substantially all of the Company's invested assets in accordance with policies, directives and guidelines established by the Company. Amounts receivable from affiliate are due from CMFG Life for policy loans transferred. Amounts payable to affiliates are shown in the following table:
------------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, 2013 2012 ------------------------------------------------------------------------------------------- Due to: CMFG Life Insurance Company $ 438 $ 211 MEMBERS Capital Advisors, Inc. - 5 ------------------------------------------------------------------------------------------- Total $ 438 $ 216 -------------------------------------------------------------------------------------------
See Note 7 regarding a reinsurance agreement entered into by the Company and CMFG Life. -------------------------------------------------------------------------------- 41 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- NOTE 7: REINSURANCE The Company entered into a reinsurance agreement on October 31, 2012 to cede 95% of its business in force to CMFG Life. Ongoing renewal premiums and related policy benefits are also ceded to CMFG Life at the same proportion. The Company is reimbursed for 95% of expenses incurred in the provision of policyholder and benefit payment services, and insurance taxes and charges on a go forward basis. In 2013, the Company entered into a second reinsurance arrangement with CMFG Life to cede all of its new business issued to CMFG Life. The recoverable balance due from CMFG Life at March 31, 2013 of $27,084 is not collateralized and the Company retains the risk of loss in the event CMFG Life is unable to meet its obligations. CMFG Life is rated A (excellent) by A.M. Best Company and MLIC believes the risk of non-collection is remote. The effects of reinsurance on premiums and on claims, benefits, and losses incurred for the three months ended March 31 are as follows: --------------------------------------------------------------------------------
MARCH 31, MARCH 31, 2013 2012 ------------------------------------------------------------------------------------------- Premiums: Direct - written $ 712 $ 806 Direct - unearned - - ------------------------------------------------------------------------------------------- Direct - earned 712 806 ------------------------------------------------------------------------------------------- Ceded to affiliate - written (676) - Ceded to affiliate - unearned - - ------------------------------------------------------------------------------------------- Ceded to affiliate - earned (676) - ------------------------------------------------------------------------------------------- Premiums, net $ 36 $ 806 ------------------------------------------------------------------------------------------- Claims, benefits and losses incurred: Direct $ 1,246 $ 630 Ceded to affiliate (1,182) - ------------------------------------------------------------------------------------------- Claims, benefits and losses, net $ 64 $ 630 -------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 42 MEMBERS LIFE INSURANCE COMPANY Notes to Condensed Financial Statements, Unaudited ($ in 000s) -------------------------------------------------------------------------------- NOTE 8: ACCUMULATED OTHER COMPREHENSIVE INCOME The components of accumulated comprehensive income, net of tax, are as follows: --------------------------------------------------------------------------------
NET ACCUMULATED UNREALIZED OTHER INVESTMENT COMPREHENSIVE GAINS INCOME --------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2012 $ 423 $ 423 Change in unrealized holding gains(losses), net of tax - ($21) (41) (41) --------------------------------------------------------------------------------------- BALANCE, MARCH 31, 2013 $ 382 $ 382 --------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2011 $ 2,687 $ 2,687 Change in unrealized holding gains(losses), net of tax - ($43) (79) (79) --------------------------------------------------------------------------------------- BALANCE, MARCH 31, 2012 $ 2,608 $ 2,608 ---------------------------------------------------------------------------------------
NOTE 9: COMMITMENTS AND CONTINGENCIES LEGAL MATTERS Like other members of the insurance industry, the Company is occasionally a party to a number of lawsuits and other types of proceedings, some of which may involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and involve a range of the Company's practices. The Company has established procedures and policies to facilitate compliance with laws and regulations and to support financial reporting. In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution and changes in business practices. The Company may not be advised of the nature and extent of relief sought until the final stages of the examination or proceeding. In the opinion of management, the ultimate liability, if any, resulting from all such pending actions will not materially affect the financial statements of the Company. NOTE 10: SUBSEQUENT EVENTS The Company evaluated subsequent events through June 12, 2013, the date the financial statements were issued. During this period, there were no significant subsequent events that required adjustment to or disclosure in the accompanying financial statements. -------------------------------------------------------------------------------- 43 -------------------------------------------------------------------------------- APPENDIX A: EXAMPLES OF PARTIAL WITHDRAWALS AND FULL SURRENDER WITH APPLICATION OF SURRENDER CHARGE AND MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- EXAMPLE 1 - PARTIAL WITHDRAWAL WITH A NEGATIVE MARKET VALUE ADJUSTMENT ("MVA") ------------------------------------------------------------------------------ Assume the following information at the last Contract Anniversary (9/1/2013):
------------------------------------------------------------------------------------------------------------------------- (Initial Index (Initial Index Value) x (1 + Value) x (1 + Risk Control Risk Control Initial Index Initial Index S&P 500 Index Index Interest Index Interest Account Account Allocation Rate Floor Rate Cap Value Rate Floor) Rate Cap) ------------------------------------------------------------------------------------------------------------------------- Secure 75% 0% 3.50% 1,000.00 1,000.00 1,035.00 Account ------------------------------------------------------------------------------------------------------------------------- Growth 25% -10% 14.00% 1,000.00 900.00 1,140.00 Account -------------------------------------------------------------------------------------------------------------------------
Total Contract Value = $100,000 10-Year Initial Index Period I = 10-Year Constant Maturity Treasury Rate = 3.50% K = The BofA Merrill Lynch 1-10 Year US Corporate Constrained Index Asset Swap Spread = 1.00% ------------------------------------------------------------------- Assume the following information at the time of partial withdrawal (3/1/2014): Gross partial withdrawal = $50,000.00 Unadjusted S&P 500 Index Value = 1,200.00 J = 8.5 Year Constant Maturity Treasury Rate = 4.00% L = The BofA Merrill Lynch 1-10 Year US Corporate Constrained Index Asset Swap Spread = 1.50% N = Years Remaining in Initial Index Period = 8.50 Years Surrender Charge Percent = 9.00% A-1 We take the following steps to determine the net partial withdrawal amount (excluding taxes) payable to the Owner from each Risk Control Account in connection with a partial withdrawal resulting in a negative MVA. First, we determine Credited Index Interest and Contract Value for each Risk Control Account at the time of the partial withdrawal. With respect to the Secure Account, because the Unadjusted Index Value is greater than the Initial Index Value multiplied by the sum of 1 + Index Interest Rate Cap, Credited Index Interest equals the Contract Value held in the Secure Account ($75,000) multiplied by the Initial Index Rate Cap (3.50%) or $2,625.00. We then add the Credited Index Interest ($2,625.00) to the Contract Value in the Secure Account ($75,000) to determine the Contract Value in the Secure Account at the time of partial withdrawal ($77,625.00). We follow the same steps in determining Credited Index Interest and Contract Value for the Growth Account at the time of the partial withdrawal. With respect to the Growth Account, because the Unadjusted Index Value is greater than the Initial Index Value multiplied by the sum of 1 + Index Interest Rate Cap, Credited Index Interest equals the Contract Value held in the Secure Account ($25,000) multiplied by the Initial Index Rate Cap (14.00%) or $3,500.00. We then add the Credited Index Interest ($3,500.00) to the Contract Value in the Secure Account ($25,000) to determine the Contract Value in the Growth Account at the time of partial withdrawal ($28,500). Second, we determine the free annual withdrawal amount available in connection with a partial withdrawal from each Risk Control Account at the time of the partial withdrawal. We determine the free annual withdrawal amount for each Risk Control Account on a proportional basis based on the Contract Value held in each Risk Control Account. The free annual withdrawal amount is equal to 10% of the Contract Value at the beginning of the Contract Year ($100,000.00) or $10,000. We determine the portion of the free annual withdrawal amount available from the Secure Account by calculating the percentage of Contract Value held in the Secure Account. We divide the Secure Account Value ($77,625.00) by the sum of the Secure Account Value ($77,625.00) and the Growth Account Value ($28,500.00). The result is then multiplied by the free annual withdrawal amount (10,000.00) to determine the free annual withdrawal amount available in connection with a withdrawal from the Secure Account ($7,314.49). We follow the same steps in determining the free annual withdrawal amount available in connection with a partial withdrawal from the Growth Account at the time of the partial withdrawal. We determine the portion of the free annual withdrawal amount available from the Growth Account by calculating the percentage of Contract Value held in the Growth Account. We divide the Growth Account Value ($28,500.00) by the sum of the Secure Account Value ($77,625.00) and the Growth Account Value ($28,500.00). The result is then multiplied by the free annual withdrawal amount ($10,000.00) to determine the free annual withdrawal amount available in connection with a withdrawal from the Growth Account ($2,685.51). Third, we calculate the amount of the partial withdrawal to be taken from each Risk Control Account. We determine the gross partial withdrawal amount for each Risk Control Account on a proportional basis based on the Contract Value held in each Risk Control Account. We determine the portion of the gross partial withdrawal to be taken from the Secure Account by multiplying the percentage of Contract Value held in the Secure Account by the gross partial withdrawal amount) ($50,000.00), which equals $36,572.44. A-2 We follow the same steps in determining the amount of the gross partial withdrawal to be taken from the Growth Account at the time of the partial withdrawal. We determine the portion of the gross partial withdrawal to be taken from the Growth Account by multiplying the percentage of Contract Value held in the Growth Account by the gross partial withdrawal amount ($50,000.00), which equals $13,427.56. Fourth, we determine the amount of the gross partial withdrawal that may be subject to a Surrender Charge and MVA for each Risk Control Account. We do this by subtracting the free annual withdrawal amount available from the Risk Control Account from the gross partial withdrawal amount for the Risk Control Account. For the Secure Account, the gross partial withdrawal amount ($36,572.44) minus the portion of free annual withdrawal amount available from the Secure Account in connection with the partial withdrawal ($7,314.49) equals $29,257.95. For the Growth Account, the gross partial withdrawal amount ($13,427.56) minus the portion of free annual withdrawal amount available from the Growth Account in connection with the partial withdrawal ($2,685.51) equals $10,742.05. Fifth, we determine the amount of the Surrender Charge that would be deducted from the gross partial withdrawal amount for each Risk Control Account. We do this by multiplying the amount of the gross partial withdrawal that may be subject to a Surrender Charge by the applicable Surrender Charge percentage for each Risk Control Account. For the Secure Account, the amount of the gross partial withdrawal subject to a Surrender Charge ($29,257.95) multiplied by the Surrender Charge percentage (9%) equals $2,633.22. For the Growth Account, the amount of the gross partial withdrawal subject to a Surrender Charge ($10,742.05) multiplied by the Surrender Charge percentage (9%) equals $966.78. The total Surrender Charge deducted in connection with the partial withdrawal equals $3,600.00 ($2,633.22 plus $966.78). Sixth, we determine the MVA that would be applied to the gross partial withdrawal amount for each Risk Control Account. For each Risk Control Account, we do this by dividing the amount of the gross partial withdrawal that may be subject to an MVA by the sum of 1 plus the cumulative Index Interest Rate credited to date in the current Contract Year and multiply the result by the Market Value Adjustment Factor ("MVAF"). (The MVAF is equal to (((1 + I + K) / (1 + J + L))^N) - 1 and for this example is equal to -0.0778.) For the Secure Account, we would divide $29,257.95 by 1.035 then multiply the result by -0.0778 which equals a negative MVA of $2,198.25. For the Growth Account, we would divide $10,742.05 by 1.14 then multiply the result by -0.0778 which equals a negative MVA of $732.75. The total MVA applied in connection with the partial withdrawal is a negative MVA of $2,931.00 (-$2,198.25 plus -$732.75). The amount of the net partial withdrawal paid the Owner from each Risk Control Account equals the gross partial withdrawal amount less the Surrender Charge and MVA. For the Secure Account, that equals $36,572.44 - $2,633.22 - $2,198.25 or $31,740.97. For the Growth Account, that equals $13,427.56 - $966.78 - $732.75 or $11,728.03. The total net partial withdrawal paid the Owner is $43,469.00 ($31,740.97 plus $11,728.03). The Contract Value remaining in each Risk Control Account after the partial withdrawal equals the Contract Value in the Risk Control Account at the beginning of the Contract Year plus any Credited Indexed Interest and less the gross partial withdrawal amount. For the Secure Account, that equals $75,000.00 + $2,625.00 - $36,572.44 or $41,052.56. For the Growth Account, that equals $25,000 + $3,500.00 - $13,427.56 or $15,072.44. The total Contract Value in both Risk Control Accounts after the partial withdrawal is $56,125.00 ($41,052.56 plus $15,072.44). A-3 EXAMPLE 2 - PARTIAL WITHDRAWAL WITH POSITIVE MVA ------------------------------------------------ Assume the following information at the last Contract Anniversary (9/1/2013):
------------------------------------------------------------------------------------------------------------------------- (Initial Index (Initial Index Value) x (1 + Value) x (1 + Risk Control Risk Control Initial Index Initial Index S&P 500 Index Index Interest Index Interest Account Account Allocation Rate Floor Rate Cap Value Rate Floor) Rate Cap) ------------------------------------------------------------------------------------------------------------------------- Secure 75% 0% 3.50% 1,000.00 1,000.00 1,035.00 Account ------------------------------------------------------------------------------------------------------------------------- Growth 25% -10% 14.00% 1,000.00 900.00 1,140.00 Account -------------------------------------------------------------------------------------------------------------------------
Total Contract Value = $100,000 10-Year Initial Index Period I = 10-Year Constant Maturity Treasury Rate = 3.50% K = The BofA Merrill Lynch 1-10 Year US Corporate Constrained Index Asset Swap Spread = 1.00% ------------------------------------------------------------------- Assume the following information at the time of partial withdrawal (3/1/2014): Gross partial withdrawal = $50,000.00 Unadjusted S&P 500 Index Value = 1,200.00 J = 8.5-Year Constant Maturity Treasury Rate = 3.00% L = The BofA Merrill Lynch 1-10 Year US Corporate Constrained Index Asset Swap Spread = 0.85% N = Years Remaining in Initial Index Period = 8.50 Surrender Charge Percent = 9.00% A-4 We take the following steps to determine the net partial withdrawal amount (excluding taxes) payable to the Owner from each Risk Control Account in connection with a partial withdrawal resulting in a positive MVA. First, we determine Credited Index Interest and Contract Value for each Risk Control Account at the time of the partial withdrawal. With respect to the Secure Account, because the Unadjusted Index Value is greater than the Initial Index Value multiplied by the sum of 1 + the Index Interest Rate Cap, Credited Index Interest equals the Contract Value held in the Secure Account ($75,000) multiplied by the Initial Index Rate Cap (3.50%) or $2,625.00. We then add the Credited Index Interest ($2,625.00) to the Contract Value in the Secure Account ($75,000) to determine the Contract Value in the Secure Account at the time of partial withdrawal ($77,625.00). We follow the same steps in determining Credited Index Interest and Contract Value for the Growth Account at the time of the partial withdrawal. With respect to the Growth Account, because the Unadjusted Index Value is greater than the Initial Index Value multiplied by the sum of 1 + Index Interest Rate Cap, Credited Index Interest equals the Contract Value held in the Growth Account ($25,000) multiplied by the Initial Index Rate Cap (14.00%) or $3,500.00. We then add the Credited Index Interest ($3,500.00) to the Contract Value in the Growth Account ($25,000) to determine the Contract Value in the Growth Account at the time of partial withdrawal ($28,500). Second, we determine the free annual withdrawal amount available in connection with a partial withdrawal from each Risk Control Account at the time of the partial withdrawal. We determine the free annual withdrawal amount for each Risk Control Account on a proportional basis based on the Contract Value held in each Risk Control Account. The free annual withdrawal amount is equal to 10% of the Contract Value at the beginning of the Contract Year ($100,000.00) or $10,000. We determine the portion of the free annual withdrawal amount available from the Secure Account by calculating the percentage of Contract Value held in the Secure Account. We divide the Secure Account Value ($77,625.00) by the sum of the Secure Account Value ($77,625.00) and he Growth Account Value ($28,500.00). The result is then multiplied by the free annual withdrawal amount $10,000.00) to determine the free annual withdrawal amount available in connection with a withdrawal from the Secure Account ($7,314.49). We follow the same steps in determining the free annual withdrawal amount available in connection with a partial withdrawal from the Growth Account at the time of the partial withdrawal. We determine the portion of the free annual withdrawal amount available from the Growth Account by calculating the percentage of Contract Value held in the Growth Account. We divide the Growth Account Value ($28,500.00) by the sum of the Secure Account Value ($77,625.00) and the Growth Account Value ($28,500.00). The result is then multiplied by the free annual withdrawal amount $10,000.00) to determine the free annual withdrawal amount available in connection with a withdrawal from the Growth Account ($2,685.51). Third, we calculate the amount of the partial withdrawal to be taken from each Risk Control Account. We determine the gross partial withdrawal amount for each Risk Control Account on a proportional basis based on the Contract Value held in each Risk Control Account. We determine the portion of the gross partial withdrawal to be taken from the Secure Account by multiplying the percentage of Contract Value held in the Secure Account (73.14%) by the gross partial withdrawal amount ($50,000.00) to determine the amount of the partial withdrawal to be taken from the Secure Account ($36,572.44). A-5 We follow the same steps in determining the amount of the gross partial withdrawal to be taken from the Growth Account at the time of the partial withdrawal. We determine the portion of the gross partial withdrawal to be taken from the Growth Account by multiplying the percentage of Contract Value held in the Growth Account (26.86%) by the gross partial withdrawal amount ($50,000.00) to determine the amount of the partial withdrawal to be taken from the Growth Account ($13,427.56). Fourth, we determine the amount of the gross partial withdrawal that may be subject to a Surrender Charge and MVA for each Risk Control Account. We do this by subtracting the free annual withdrawal amount available from the Risk Control Account from the gross partial withdrawal amount for the Risk Control Account. For the Secure Account, the gross partial withdrawal amount ($36,572.44) minus the portion of free annual withdrawal amount available from the Secure Account in connection with the partial withdrawal ($7,314.49) equals $29,257.95. For the Growth Account, the gross partial withdrawal amount ($13,427.56) minus the portion of free annual withdrawal amount available from the Growth Account in connection with the partial withdrawal ($2,685.51) equals $10,742.05. Fifth, we determine the amount of the Surrender Charge that would be deducted from the gross partial withdrawal amount for each Risk Control Account. We do this by multiplying the amount of the gross partial withdrawal that may be subject to a Surrender Charge by the applicable Surrender Charge percentage for each Risk Control Account. For the Secure Account, the amount of the gross partial withdrawal subject to a Surrender Charge ($29,257.95) multiplied by the Surrender Charge percentage (9%) equals $2,633.22. For the Growth Account, the amount of the gross partial withdrawal subject to a Surrender Charge ($10,742.05) multiplied by the Surrender Charge percentage (9%) equals $966.78. The total Surrender Charge deducted in connection with the partial withdrawal equals $3,600.00 ($2,633.22 plus $966.78). Sixth, we determine the MVA that would be applied to the gross partial withdrawal amount for each Risk Control Account. For each Risk Control Account, we do this by dividing the amount of the gross partial withdrawal that may be subject to an MVA by the sum of 1 plus the cumulative Index Interest Rate credited to date in the current Contract Year and multiply the result by the Market Value Adjustment Factor ("MVAF"). (The MVAF is equal to (((1 + I + K) / (1 + J + L))^N) - 1 and for this example is equal to 0.0545.) For the Secure Account, we would divide $29,257.95 by 1.035 then multiply the result by 0.0545 which equals a positive MVA of $1,539.72. For the Growth Account, we would divide $10,742.05 by 1.14 then multiply the result by 0.0545 which equals a positive MVA of $513.24. The total MVA applied in connection with the partial withdrawal is a positive MVA of $2,052.96 ($1,539.72 plus $513.24). The amount of the net partial withdrawal paid the Owner from each Risk Control Account equals the gross partial withdrawal amount less the Surrender Charge plus the MVA. For the Secure Account, that equals $36,572.44 - $2,633.22 + $1,539.72 or $35,478.94. For the Growth Account, that equals $13,427.56 - $966.78 + $513.24 or $12,974.02. The total net partial withdrawal paid the Owner is $48,452.96 ($35,478.94 plus $12,974.02). The Contract Value remaining in each Risk Control Account after the partial withdrawal equals the Contract Value in the Risk Control Account at the beginning of the Contract Year plus any Credited Indexed Interest and less the gross partial withdrawal amount. For the Secure Account, that equals $75,000.00 + $2,625.00 - $36,572.44 or $41,052.56. For the Growth Account, that equals $25,000 + $3,500.00 - $13,427.56 or $15,072.44. The total Contract Value in both Risk Control Accounts after the partial withdrawal is $56,125.00 ($41,052.56 plus $15,072.44). A-6 EXAMPLE 3 -FULL SURRENDER OF CONTRACT ON FIRST DAY OF SECOND CONTRACT YEAR WITH ------------------------------------------------------------------------------- NEGATIVE MVA ------------ Assume the following information at Contract Issue (9/1/2012):
------------------------------------------------------------------------------------------------------------------------- (Initial Index (Initial Index Value) x (1 + Value) x (1 + Risk Control Risk Control Initial Index Initial Index S&P 500 Index Index Interest Index Interest Account Account Allocation Rate Floor Rate Cap Value Rate Floor) Rate Cap) ------------------------------------------------------------------------------------------------------------------------- Secure 75% 0% 3.50% 1,000.00 1,000.00 1,035.00 Account ------------------------------------------------------------------------------------------------------------------------- Growth 25% -10% 14.00% 1,000.00 900.00 1,140.00 Account -------------------------------------------------------------------------------------------------------------------------
Purchase Payment = $100,000 10-Year Initial Index Period I = 10-Year Constant Maturity Treasury Rate = 3.50% K = The BofA Merrill Lynch 1-10 Year US Corporate Constrained Index Asset Swap Spread = 1.00% ------------------------------------------------------------------- Assume at time of first Contract Anniversary (9/1/2013): Unadjusted S&P 500 Index Value = 950.00 The Unadjusted S&P 500 Index Value on the last day of the first Contract Anniversary is equal to the Unadjusted S&P 500 Index Value on the first day of the second Contract Anniversary. J = 9-Year Constant Maturity Treasury Rate = 4.00% L = The BofA Merrill Lynch 1-10 Year US Corporate Constrained Index Asset Swap Spread = 1.50% N = Years Remaining in Initial Index Period = 9.00 Surrender Charge Percent = 9.00% A-7 We take the following steps to determine the Surrender Value (excluding taxes) payable to the Owner from each Risk Control Account in connection with a full surrender of the Contract. For purposes of this example, we assume the surrender takes place on the first day of the second Contract Year. Upon the Contract Anniversary, we calculate and apply Credited Index Interest to each Risk Control Account. The Automatic Rebalancing Program then transfers Contract Value between the Risk Control Accounts in accordance with the Owner's most recently communicated allocation instructions. First, we determine Credited Index Interest and Contract Value for each Risk Control Account on the Contract Anniversary. With respect to the Secure Account, because the Unadjusted Index Value is less than the Initial Index Value multiplied by the sum of 1 + the Index Interest Rate Floor, no Credited Index Interest would be credited to Contract Value held in the Secure Account ($75,000). With respect to the Growth Account, because the Unadjusted Index Value is greater than the Initial Index Value multiplied by the sum of 1 + Index Interest Rate Floor and the Unadjusted Index Value is less than the Initial Index Value multiplied by the sum of 1 + Index Interest Rate Cap, we would apply Credited Index Interest to Contract Value held in the Growth Account ($25,000). Because the Unadjusted Index Value is less than the Initial Index Value, we will credit negative Credited Index Interest to the Contract Value held in the Growth Account. The negative Credited Index Interest we will credit equals the Contract Value held in the Growth Account ($25,000) multiplied by the Unadjusted Index Value (950) divided by Initial Index Value (1,000) minus 1 or -$1,250.00. We then apply the negative Credited Index Interest (-$1,250.00) to the Contract Value in the Growth Account ($25,000) to determine the Contract Value in the Growth Account on the Contract Anniversary ($23,750). The Automatic Rebalancing Program then transfers Contract Value between the Risk Control Accounts as noted in the chart below: --------------------------------------------------
Before Rebalancing: Risk Control Account Account Value Percentage -------------------- ------------- ---------- Secure $75,000.00 75.95% Growth $23,750.00 24.05% ------------------------------------------------ Contract Value $98,750.00 100.00% After Rebalancing: Risk Control Account Account Value Percentage -------------------- ------------- ---------- Secure $74,062.50 75.00% (-$937.50) Growth $24,687.50 25.00% (+$937.50) Contract Value $98,750.00 100.00%
Second, we determine the free annual withdrawal amount available in connection with a full surrender from each Risk Control Account at the time of surrender. We determine the free annual withdrawal amount for each Risk Control Account on a proportional basis based on the Contract Value held in each Risk Control Account. The free annual withdrawal amount is equal to 10% of the Contract Value at the beginning of the Contract Year ($98,750.00) or $9,875.00. We determine the portion of the free annual withdrawal amount available from the Secure Account by calculating the percentage of Contract Value held in the Secure Account. We divide the Secure Account Value ($74,062.50) by the sum of the Secure Account Value A-8 ($74,062.50) and the Growth Account Value ($24,687.50). The result is then multiplied by the free annual withdrawal amount $9,875.00) to determine the free annual withdrawal amount available from the Secure Account ($7,406.25) in connection with the surrender of the Contract. We follow the same steps in determining the free annual withdrawal amount available from the Growth Account at the time of surrender. We determine the portion of the free annual withdrawal amount available from the Growth Account by calculating the percentage of Contract Value held in the Growth Account. We divide the Growth Account Value ($24,687.50) by the sum of the Secure Account Value ($74,062.50) and the Growth Account Value ($24,687.50). The result is then multiplied by the free annual withdrawal amount $9,875.00) to determine the free annual withdrawal amount available from the Growth Account ($2,468.75). Third, we determine the amount of the withdrawal that may be subject to a Surrender Charge and MVA for each Risk Control Account. We do this by subtracting the free annual withdrawal amount available from the Contract Value in the Risk Control Account. For the Secure Account, the Secure Account Value ($74,062.50) minus the portion of free annual withdrawal amount available from the Secure Account in connection with the surrender ($7,406.25) equals $66,656.25. For the Growth Account, the Growth Account Value ($24,687.50) minus the portion of free annual withdrawal amount available from the Growth Account in connection with the surrender ($2,468.75) equals $22,218.75. Fourth, we determine the amount of the Surrender Charge that would be deducted from the Contract Value in each Risk Control Account. We do this by multiplying the amount of the Contract Value that may be subject to a surrender charge by the applicable Surrender Charge percentage for each Risk Control Account. For the Secure Account, the Secure Account Value subject to a Surrender Charge ($66,656.25) multiplied by the Surrender Charge percentage (9%) equals $5,999.06. For the Growth Account, the Growth Account Value subject to a surrender charge($22,218.75) multiplied by the Surrender Charge percentage (9%) equals $1,999.69. The total Surrender Charge deducted in connection with the surrender of the Contract equals $7,998.75 ($5,999.06 plus $1,999.69). Fifth, we determine the MVA that would be applied to the Contract Value in each Risk Control Account. For each Risk Control Account, we do this by dividing the amount of the Contract Value that may be subject to an MVA by the sum of 1 plus the cumulative Index Interest Rate credited to date in the current Contract Year and multiply the result by the Market Value Adjustment Factor ("MVAF"). (The MVAF is equal to (((1 + I + K) / (1 + J + L))^N) - 1 and for this example is equal to -0.0821.) For the Secure Account, we would divide $66,656.25 by 1.00 then multiply the result by -0.0821 which equals a negative MVA of $5,475.42. For the Growth Account, we would divide $22,218.75 by 1.00 then multiply the result by -0.0821 which equals a negative MVA of $1,825.14. The total MVA applied in connection with the surrender of the Contract is a negative MVA of $7,300.56 ($5,475.42 plus $1,825.14). The net amount paid the Owner from the surrender of the Contract from each Risk Control Account equals the Contract Value in the Risk Control Account less the Surrender Charge and the MVA. For the Secure Account, that equals $74,062.50 - $5,999.06 - $5,475.42 or $62,588.02. For the Growth Account, that equals $24,687.50 - $1,999.69 - $1,825.14 or $20,862.67. The total net amount paid the Owner from the surrender of the Contract is $83,450.69 ($62,588.02 plus $20,862.67). Following the surrender of the Contract, there would be no Contract Value remaining under the Contract. A-9 MEMBERS Life Insurance Company 2000 Heritage Way Waverly, IA 50677 1-800-798-6600 Dealer Prospectus Delivery Obligations All dealers that effect transactions in these securities are required to deliver a prospectus. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses for the issuance and distribution of the Contracts, other than any underwriting discounts and commissions, are as follows: Securities and Exchange Commission Registration Fees $ 13,640 Printing and engraving* $ 40,000 Accounting fees and expenses* $ 50,000 Legal fees and expenses* $200,000 Miscellaneous* $ 46,360 -------- TOTAL EXPENSES $350,000 ========
-------------- * Estimated. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 490.202 of the Iowa Business Corporation Act (the "IBCA"), provides that a corporation's articles of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for any action taken, or failure to take action, as a director, except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on the Company or the shareholders, (3) a violation of Section 490.833 of the IBCA or (4) an intentional violation of criminal law. Further, Section 490.851 of the IBCA provides that a corporation may indemnify its directors who may be party to a proceeding against liability incurred in the proceeding by reason of such person serving in the capacity of director, if such person has acted in good faith and in a manner reasonably believed by the individual to be in the best interests of the corporation, if the director was acting in an official capacity, and in all other cases that the individual's conduct was at least not opposed to the best interests of the corporation, and in any criminal proceeding if such person had no reasonable cause to believe the individual's conduct was unlawful or the director engaged in conduct for which broader indemnification has been made permissible or obligatory under a provision of the articles of incorporation. The indemnity provisions under Section 490.851 do not apply (i) in the case of actions brought by or in the right of the corporation except for reasonable expenses incurred in connection with the proceeding if it is determined that the director has met the relevant standard of conduct set forth above or (ii) in connection with any proceedings with respect to conduct for which the director was adjudged liable on the basis that the director received a financial benefit to which the director was not entitled, whether or not involving action in the director's official capacity. In addition, Section 490.852 of the IBCA provides mandatory indemnification of reasonable expenses incurred by a director who is wholly successful in defending any action in which the director was a party because the director is or was a director of the corporation. A director who is a party to a proceeding because the person is a director may also apply for court-ordered indemnification and advance of expenses under Section 490.854 of the IBCA. Section 490.853 of the IBCA provides that a corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding because such person is a director if the director delivers the following to the corporation: (1) a written affirmation that the director has met the standard of conduct described above or that the proceeding involved conduct for which liability has been eliminated under the corporation's articles of incorporation and (2) the director's written undertaking to repay any funds advanced if the director is not entitled to mandatory indemnification under Section 490.852 of the IBCA and it is ultimately determined that the director has not met the standard of conduct described above. Under Section 490.856 of the IBCA, a corporation may indemnify and advance expenses to an officer of the corporation who is a party to a proceeding because such person is an officer, to the same extent as a director. In addition, if the person is an officer but not a director, further indemnification may be provided by the corporation's articles of incorporation or bylaws, a resolution of the board of directors or by contract, except liability for (1) a proceeding by or in the right of the corporation other than for reasonable expenses incurred in connection with the proceeding and (2) conduct that constitutes receipt by the officer of a financial benefit to which the officer is not entitled, an intentional infliction of harm on the corporation or the shareholders or an intentional violation of criminal law. Such indemnification is also available to an officer who is also a director if the basis on which the officer is made a party to a proceeding is an act taken or a failure to take action solely as an officer. Our Amended and Restated Articles of Incorporation provide that our directors will not be liable to us or our shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on the Company or the shareholders, (3) a violation of Section 490.833 of the IBCA or (4) an intentional violation of criminal law. Our Amended and Restated Articles of Incorporation also provide that we indemnify each of our directors or officers for any action taken, or any failure to take any action, as a director or officer except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on the Company or the shareholders, (3) a violation of Section 490.833 of the IBCA or (4) an intentional violation of criminal law. Additionally, the Company is required to exercise all of its permissive powers as often as necessary to indemnify and advance expenses to its directors and officers to the fullest extent permitted by law. Our Bylaws also provide indemnification to our directors on the same terms as the indemnification provided in our Amended and Restated Articles of Incorporation. Our Bylaws also provide for advances of expenses to our directors and officers. The indemnification provisions of our Bylaws are not exclusive of any other right which any person seeking indemnification may have or acquire under any statute, our Amended and Restated of Incorporation or any agreement, vote of stockholders or disinterested directors or otherwise. Section 490.857 of the IBCA provides that a corporation may purchase and maintain insurance on behalf of a person who is a director or officer of a corporation, or who, while a director or officer of a corporation, serves at the corporation's request as a director, officer, partner, trustee, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust, employee benefit plan or other entity, against liability asserted against or incurred by that person in that capacity or arising from that person's status as a director or officer, whether or not the corporation would have the power to indemnify or advance expenses to that person against the same liability under the IBCA. As permitted by and in accordance with Section 490.857 of the IBCA, we maintain insurance coverage for our officers and directors as well as insurance coverage to reimburse us for potential costs for indemnification of directors and officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES None. ITEM 16. EXHIBITS. (1) (i) Distribution Agreement (filed herewith) (ii) Selling Agreement (filed herewith) (3) (i) Articles of Incorporation of MEMBERS Life Insurance Company (Incorporated herein by reference to the initial filing of the Registration Statement on Form S-1, filed February 6, 2013 (File No. 333-186477)) (ii) Bylaws of MEMBERS Life Insurance Company (Incorporated herein by reference to the initial filing of the Registration Statement on Form S-1, filed February 6, 2013 (File No. 333-186477)) (4) (i) Forms of Contract (filed herewith) (ii) Form of Application (filed herewith) (iii) Form of Change of Annuitant Endorsement (filed herewith) (iv) Form of Roth IRA Endorsement (filed herewith) (v) Form of IRA Endorsement (filed herewith) (vi) Form of Amendment to Application Endorsement (filed herewith) (5) Legality Opinion (filed herewith) (10) Material Contracts (i) Coinsurance Agreement dated October 31, 2012 (filed herewith) (ii) Coinsurance Agreement dated January 1, 2013 (filed herewith) (iii) Cost Sharing Agreement (filed herewith) (iv) Investment Advisory Agreement (filed herewith) (v) Procurement and Disbursement and Billing and Collection Services Agreement (filed herewith) (23) (i) Consent of Ross D. Hansen (see exhibits) (ii) Consent of Deloitte & Touche LLP independent public accounting firm (filed herewith) (24) Powers of Attorney (Incorporated herein by reference to the initial filing of the Registration Statement on Form S-1, filed February 6, 2013 (File No. 333-186477)) (i) Power of Attorney (Robert N. Trunzo) (filed herewith) ITEM 17. UNDERTAKINGS. (A) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post- effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. (5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. (B) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, MEMBERS Life Insurance Company has duly caused this registration statement to be signed on its behalf by the undersigned, duly authorized, in the City of Madison, and State of Wisconsin on the 12th day of June, 2013. MEMBERS Life Insurance Company By: /s/Robert N. Trunzo --------------------------- Robert N. Trunzo, President *Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on June 12, 2013 in the capacities indicated. NAME TITLE ---- ----- /s/ * President/Director ----------------------- Robert N. Trunzo /s/ * Treasurer ----------------------- Brian J. Borakove /s/ * Director ----------------------- Stephen W. Koslow /s/ * Director ----------------------- Thomas J. Merfeld /s/ * Director ----------------------- James M. Power /s/ * Director ----------------------- Richard R. Roy * By: /s/ Ross D. Hansen ------------------ Ross D. Hansen As Attorney-in-Fact pursuant to powers of attorney EXHIBIT LIST (1) (i) Distribution Agreement (ii) Selling Agreement (4) (i) Forms of Contract (ii) Form of Application (iii) Form of Change of Annuitant Endorsement (iv) Form of Roth IRA Endorsement (v) Form of IRA Endorsement (vi) Form of Amendment to Application Endorsement (5) Legality Opinion (filed herewith) (10) Material Contracts (i) Coinsurance Agreement dated October 31, 2012 (ii) Coinsurance Agreement dated January 1, 2013 (iii) Cost Sharing Agreement (iv) Investment Advisory Agreement (v) Procurement and Disbursement and Billing and Collection Services Agreement (23) (ii) Consent of Deloitte & Touche LLP independent public accounting firm (24) (i) Power of Attorney (Robert N. Trunzo) EX-1 5 e93125_ex1i.txt EX1.I Exhibit 1(i) DISTRIBUTION AGREEMENT BETWEEN MEMBERS LIFE INSURANCE COMPANY AND CUNA BROKERAGE SERVICES, INC. FOR REGISTERED ANNUITY CONTRACTS THIS AGREEMENT ("Agreement")is made effective as of the 11th day of June, 2013 by and between MEMBERS Life Insurance Company, a stock insurance company domiciled in the State of Iowa ("MLIC") with its principal office located in Waverly, Iowa, and CUNA Brokerage Services, Inc. ("CBSI"), a registered broker-dealer domiciled in the State of Wisconsin with its principal office located in Waverly, Iowa. ARTICLE 1 APPOINTMENT 1.1 MLIC appoints CBSI to be the principal underwriter and distributor for MLIC's annuity contracts, including both variable annuity contracts and registered modified annuity contracts, which require distribution under the auspices of a registered broker-dealer. The annuity contracts to be distributed by CBSI pursuant to this Agreement are listed on Schedule B to this Agreement (together, the "Registered Annuity Products"). ARTICLE 2 DUTIES OF CBSI 2.1 REGISTRATION UNDER THE 1934 ACT -------------------------------------- CBSI is registered as a broker-dealer under the provisions of the Securities Exchange Act of 1934 (1934 Act) and has secured and will maintain authorizations, licenses, qualifications, and permits necessary to perform its obligations under this Agreement in those states requested by MLIC. 2.2 MEMBERSHIP IN THE FINANCIAL INDUSTRY REGULATORY AUTHORITY ---------------------------------------------------------------- CBSI currently holds and shall maintain a membership in the Financial Industry Regulatory Authority (FINRA). 2.3 RESPONSIBILITY FOR SECURITIES ACTIVITIES ----------------------------------------------- CBSI shall assume full responsibility for the securities activities of all persons engaged directly or indirectly in the distribution operations for the Registered Annuity Products, including but not limited to training, supervision, and control as contemplated under appropriate provisions of the 1934 Act and regulations thereunder and by the rules of FINRA. All persons directly or indirectly involved in such activities relating to the Registered Annuity Products shall be registered representatives or registered principals of CBSI as appropriate to their activities. Also, each registered representative selling the Registered Annuity Products and at least one registered principal shall be properly licensed as an insurance agent of MLIC. Further, CBSI represents and warrants that during the term of this Agreement, it will maintain and implement (a) policies and procedures designed to comply with all applicable rules of FINRA, including but not limited to rules relating to suitability of annuity recommendations, (b) a training program for its registered representatives designed to ensure that such persons gather information concerning a customer's financial status, tax status, investment objective and other relevant information prior to recommending the purchase or exchange of an annuity contract, and (c) a reasonable system of sales supervision designed to achieve compliance with the rules of FINRA. CBSI agrees to provide a report to MLIC upon request, certifying that CBSI is in compliance with items (a) through (c) above. Each such report shall be certified by a senior manager of CBSI who has responsibility for items (a) through (c). CBSI understands and acknowledges that MLIC may conduct an inspection and/or audit of CBSI on a periodic basis to ensure compliance with items (a) through (c) above, and CBSI agrees to make reasonable accommodation to MLIC to enable MLIC to inspect documents directly related to the sale and suitability of any Registered Annuity Product, which documents CBSI shall be responsible for maintaining. 2.4 APPOINTMENT OF REGISTERED PERSONS AND MAINTENANCE OF PERSONNEL RECORDS ----------------------------------------------------------------------------- CBSI shall have the authority and responsibility for the appointment and registration of those persons who will be registered representatives and registered principals. CBSI shall direct the maintenance of all personnel records of such persons. 2.5 MAINTENANCE OF NET CAPITAL --------------------------------- CBSI shall maintain required net capital at levels which will comply with maximum aggregate indebtedness provisions under the provisions of the 1934 Act, any regulation thereunder, and any FINRA rules. 2.6 REQUIRED REPORTS ----------------------- CBSI shall have the responsibility for preparation and submission of any reports or other materials required by any regulatory authority having proper jurisdiction. 2.7 LIMITATION ON AUTHORITY ------------------------------ CBSI is not authorized to give any information or to make any representations concerning the Registered Annuity Products other than the statements contained in the current registration statement filed with the Securities and Exchange Commission or such sales literature as may be authorized by MLIC. 2.8 RECEIPT OF PREMIUMS -------------------------- CBSI acknowledges and agrees that all premiums obtained within the scope of its activities relating to the Registered Annuity Products shall be held in a fiduciary capacity. ARTICLE 3 DUTIES OF MLIC 3.1 MAINTENANCE OF ACCOUNTING RECORDS ---------------------------------------- Except as set for above, MLIC shall maintain and hold, on behalf of and as agent for CBSI, those records pertaining to Registered Annuity Products required to be maintained and preserved by the 1934 Act, any regulations thereunder, and any applicable FINRA rules. All such books and records are, and shall at all times remain, the property of CBSI and shall at all times be subject to inspection by duly authorized officers, auditors, and representatives of CBSI and by the Securities and Exchange Commission, FINRA, and other regulatory authorities having proper jurisdiction. 3.2 CONFIRMATION OF TRANSACTIONS ----------------------------------- On behalf of CBSI and acting as agent for CBSI, MLIC shall confirm all transactions required to be confirmed in the form and manner required by the 1934 Act, any regulations thereunder, and any FINRA rules. 3.3 FURNISHING MATERIALS --------------------------- MLIC shall furnish to CBSI copies of prospectuses, financial statements and other documents which CBSI reasonably requests for use in connection with the solicitation, sale and distribution of the Registered Annuity Products. ARTICLE 4 COMPENSATION 4.1 As compensation for services to be performed pursuant to this Agreement, MLIC shall pay a dealer concession to and on behalf of CBSI. The amount of the dealer concession and the manner in which it will be paid is specified in Schedule A. ARTICLE 5 TERMINATION 5.1 This Agreement may be terminated at any time by either party upon written notice to the other, and to the Iowa Insurance Division, stating the date when such termination shall be effective, provided that this Agreement may not be terminated or modified by either party if the effect would be to put CBSI out of compliance with the "net-capital" requirements of the 1934 Act. IN WITNESS WHEREOF, the undersigned, as duly authorized officers, have caused this Agreement to be executed on behalf of their respective companies. MEMBERS Life Insurance Company BY: /s/ Robert N. Trunzo -------------------------------- Robert N. Trunzo, President CUNA BROKERAGE SERVICES, INC. BY: /s/ James H. Metz -------------------------------- James H. Metz, President SCHEDULE A 1. MLIC shall pay on behalf of CBSI to other broker dealers that have executed selling agreements with CBSI, from the gross premium MLIC receives from each Registered Annuity Product, as a dealer concession:
-------------------------------------- 5 YEAR 7 AND 10 YEAR -------------------------------------- Gross Dealer Concession Gross Dealer (GDC) Concession (GDC) -------------------------------------- Age Option Up front Trail Up front Trail ----------------------------------------------------------- 0 - 75 1 4.50% 0.00% 5.60% 0.00% 2 3.40% 0.25% 4.50% 0.25% ----------------------------------------------------------- 76 - 85 1 2.90% 0.00% 3.65% 0.00% 2 2.20% 0.25% 2.95% 0.25% -----------------------------------------------------------
2. MLIC, on behalf of CBSI, shall pay to registered representatives of CBSI the compensation specified in the various agreements between the parties for products sold by such registered representatives on behalf of MLIC. 3. MLIC will use the difference between the compensation paid to CBSI registered representatives as set forth in Paragraph 2 and the compensation payable to non-affiliated dealers as described in Paragraph 1 by: o Performing the services described in Article 3 of the Distribution Agreement between MLIC and CBSI for Registered Annuity Products; and o Providing overhead support related to the distribution systems specified in the Distribution and Servicing Agreements. 4. All amounts payable by MLIC hereunder shall be paid within 30 days of receipt of proof of qualified dealer concessions due. This Schedule A is approved, effective as of this 11th day of June, 2013. MEMBERS Life Insurance Company BY: /s/ Robert N. Trunzo -------------------------------- Robert N. Trunzo, President CUNA BROKERAGE SERVICES, INC. BY: /s/ James H. Metz -------------------------------- James H. Metz, President SCHEDULE B MEMBERS Market Zone Annuity EX-1 6 e93125_ex1ii.txt EX1.II Exhibit 1(ii) SELLING AND SERVICES AGREEMENT FOR REGISTERED ANNUITY PRODUCTS THIS SELLING AND SERVICES AGREEMENT (this "Agreement") is entered into as of _______, ___ (the "Effective Date") by and between MEMBERS Life Insurance Company, an Iowa insurance company ("MLIC"), CUNA Brokerage Services, Inc., a Wisconsin corporation ("CUNA Brokerage") and [name of GA/Broker-Dealer , [a/an __________________], ("General Agent" and "Broker Dealer") with an address of [insert address] WHEREAS, MLIC has the requisite authority to provide certain registered annuity contracts, some of which are securities under the Securities Act of 1933, as amended; WHEREAS, MLIC has appointed CUNA Brokerage, a registered broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and a member of the Financial Industry Regulatory Authority ("FINRA"), as the principal underwriter and distributor of its registered annuity contracts; WHEREAS, General Agent or Broker-Dealer, as the case may be, has the requisite authority to solicit, sell and service registered annuity contracts contemplated under this Agreement and Broker-Dealer is a registered broker-dealer with the SEC under the 1934 Act and a member of FINRA; and WHEREAS, MLIC and CUNA Brokerage desire to appoint and authorize, on a non-exclusive basis, General Agent and Broker-Dealer to solicit, sell and service certain registered annuity contracts (hereinafter collectively referred to as the "Products"), which are more fully described in the Products and Compensation Schedule (the "Schedule") attached hereto and incorporated herein, and to have General Agent and Broker-Dealer provide certain administrative services as described in this Agreement for purposes of soliciting, selling and servicing the Products; and General Agent and Broker-Dealer desire to accept such appointment and authorization pursuant to this Agreement. In the event General Agent and Broker-Dealer are the same entity, the term "General Agent" in this Agreement shall refer to Broker-Dealer, which shall undertake all the obligations and privileges of General Agent pursuant to this Agreement. NOW, THEREFORE, in consideration of the mutual promises made herein, the parties hereto agree as follows: 1. PURPOSE OF AGREEMENT. The principal purpose of this Agreement is to set forth a selling and service arrangement whereby MLIC and CUNA Brokerage will provide the Products and appoint and authorize, on a non-exclusive basis, General Agent and Broker-Dealer, and through General Agent's and Broker-Dealer's registered representatives ("Representatives") who are also licensed to sell insurance in appropriate jurisdictions and who are appointed by MLIC to sell the Products, accept such appointment and authorization and will solicit, sell and service the Products hereunder. Further, General Agent and Broker-Dealer will provide certain administrative services pursuant to this Agreement for the purposes of soliciting, selling and servicing the Products. 2. ROLES AND RESPONSIBILITIES OF MLIC AND CUNA BROKERAGE. ----------------------------------------------------- 2.1 THE PRODUCTS. The Products issued by MLIC are described on the Schedule. The attached Schedule may be amended from time-to-time by MLIC. Prior versions of Products are included for servicing under this Agreement for prior customers by Representatives who are now appointed as agents of MLIC through General Agent under this Agreement. Any customer records and files relating to prior versions of the Products shall be retained by the appropriate Representatives or by General Agent or Broker-Dealer and shall be subject to the confidentiality provisions of Section 5 and record maintenance provisions of Subsection 3.15 of this Agreement. Upon issuance of the Products pursuant to this Agreement, MLIC will transmit Products to General Agent or Broker-Dealer for delivery to policyholders according to procedures set up by MLIC, unless MLIC has provided otherwise. MLIC, in its sole discretion and without notice to Broker-Dealer, may suspend sales of any of the Products or may amend the Products if, in MLIC's opinion, such suspension or amendment is: (a) necessary for compliance with federal, state, or local laws, regulations, or administrative orders; or (b) necessary to prevent administrative or financial hardship to MLIC. In all other situations, MLIC shall provide reasonable notice, as practicable, to Broker-Dealer prior to suspending sales of any of the Products or amending the Products. 2.2. APPOINTMENT OF GENERAL AGENT AND AUTHORIZATION OF BROKER-DEALER. MLIC hereby appoints and CUNA Brokerage hereby authorizes General Agent and Broker-Dealer to solicit, sell and service the Products through its Representatives. General Agent and Broker-Dealer shall be responsible for any appointment or renewal fees. 2.3 PROSPECTUSES. MLIC and CUNA Brokerage, at their own expense, will provide Broker-Dealer with prospectuses and supplements thereto relating to the Products, and such other materials as MLIC or CUNA Brokerage, in its sole discretion, deems necessary or appropriate for use in connection with the issuance and sale of the Products. Upon termination of this Agreement or upon request by MLIC or CUNA Brokerage, Broker-Dealer shall promptly return all such prospectuses, supplements and other materials to MLIC or CUNA Brokerage free from any claim or retention rights by Broker-Dealer. 2.4 SALES AND PROMOTION MATERIAL. MLIC and CUNA Brokerage, at their expense and as deemed necessary at their discretion, may provide sales and promotion materials relating to the Products for use by General Agent and Broker-Dealer. Upon termination of this Agreement, General Agent and Broker-Dealer shall promptly return or destroy all such sales and promotion materials and advertising relating to the Products to MLIC or CUNA Brokerage pursuant to Subsection 7.3 hereof. 2.5 COMPENSATION. (a) MLIC shall pay "Compensation," as more fully described in the Schedule, semi-monthly to General Agent and/or Broker-Dealer based upon the Products sold by General Agent and/or Broker-Dealer during the term of this Agreement. MLIC reserves the right, upon at least thirty (30) days prior written notice to General Agent and Broker-Dealer, to change the Compensation on the Schedule. Any such change shall constitute an amendment to the Schedule and shall apply to Compensation due on applications of the Products received by MLIC after the effective date of such amendment. Notwithstanding the foregoing, in the event General Agent or Broker-Dealer or any Representative of General Agent or Broker-Dealer shall at any time induce or endeavor to induce any policyholders to relinquish the Products, except under circumstances where there is reasonable grounds for believing that a particular policy or contract is not suitable for a customer, any and all Compensation due General Agent and Broker-Dealer hereunder shall cease and terminate. Except as expressly set forth herein and the Schedule, no compensation other than that shown on the Schedule shall be paid or payable by MLIC or CUNA Brokerage to General Agent or Broker-Dealer in connection with the offer and sale of the Products. (b) General Agent and MLIC acknowledge and agree that certain Representatives, acting as agents of General Agent under this Agreement, may elect to be paid by MLIC directly for fixed annuity products described on the Schedule attached hereto. Such agents will be acting as 2 independent agents under a separate independent agent agreement executed between MLIC and said agents. 2.6 LEGAL COMPLIANCE. MLIC and CUNA Brokerage will comply in all material respects with all applicable insurance and securities laws and rules and regulations thereunder, including the rules and regulations of federal and state authorities and self-regulatory organizations that have jurisdiction over their activities described in this Agreement. 3. ROLES AND RESPONSIBILITIES OF GENERAL AGENT AND BROKER-DEALER. ------------------------------------------------------------- 3.1 INSURANCE LICENSING. At all times while performing obligations under this Agreement and at its own expense, General Agent, and General Agent's Representatives, shall be validly licensed, including fees related to license issue, transfer and termination, as an insurance agency in the states and other local jurisdictions that require such licensing or registration in connection with General Agent's fixed and variable insurance sales activities, or shall maintain a validly licensed insurance agency subsidiary in those states in which General Agent cannot obtain a corporate agent's license. 3.2 SECURITIES REGISTRATION. At all times while Broker-Dealer is performing its obligations under this Agreement, Broker-Dealer, at its own expense, shall be responsible for all fees, including registration and examination fees, necessary in order to be registered as a securities broker with the SEC and FINRA and shall generally maintain all licenses, registrations and such other qualifications as may be necessary or required by applicable federal and state laws, regulations or requirements of any self-regulating organization with respect to its activities hereunder. 3.3 REPRESENTATIVES. General Agent shall have sole responsibility for the training, supervision and compliance with applicable insurance laws and regulations relating to Representatives who are engaged directly or indirectly in soliciting, selling and servicing of the Products. All such persons shall be subject to the control of Broker-Dealer with respect to such persons' securities regulated activities in connection with the Products, including, but not limited to, training and compliance with applicable federal and state laws and regulations and compliance with any supervisory responsibilities pursuant to applicable FINRA rules. General Agent and Broker-Dealer shall be responsible for the selection of Representatives with the requisite insurance licenses and securities registration under applicable federal, state, and local laws, rules or regulations in order to engage in soliciting, selling and servicing the Products. General Agent and Broker-Dealer will cause such Representatives to be trained in the selling of the Products to ensure Representatives have thorough knowledge of the Products and the ability to make appropriate product presentations and suitability determinations in compliance with applicable law. Furthermore, General Agent and Broker-Dealer will ensure Representatives are licensed and registered representatives of General Agent or Broker-Dealer, as the case may be, and meet any other requirements or conditions of this Agreement before such Representatives engage in the solicitation of applications for the Products, and General Agent and Broker-Dealer will ensure that such Representatives maintain such licenses and registrations in accordance with applicable laws and regulations. General Agent and Broker Dealer will be responsible for all insurance and licensing fees for Representatives. Further, General Agent and Broker-Dealer will cause such Representatives to limit solicitation of applications for the Products to jurisdictions where MLIC or CUNA Brokerage has approved or authorized such solicitation. General Agent and Broker-Dealer will cause such Representatives to comply with all applicable administrative procedures of MLIC, including, without limitation, those that specifically address selling practices. Representatives' qualifications shall be certified to the satisfaction of MLIC and CUNA Brokerage, and General Agent or Broker-Dealer, as the case may be, shall notify MLIC and CUNA Brokerage if any Representative ceases to be a registered representative of Broker- 3 Dealer or ceases to maintain the proper licensing required for selling the Products and will act to terminate the sales activities of such Representative relating to the Products. 3.4 APPOINTMENT OF REPRESENTATIVES. General Agent shall assist MLIC in the appointment of Representatives under the applicable insurance laws to sell the Products. General Agent agrees to fulfill all requirements set forth in the General Letter of Recommendation, attached hereto as Exhibit A and fully incorporated herein, in conjunction with the submission of licensing/appointment papers for all applicants as insurance agents of MLIC. All such licensing/appointment papers should be submitted to MLIC or its duly appointed agent by General Agent. Notwithstanding such submission, MLIC shall have sole discretion to appoint, refuse to appoint, discontinue, or terminate the appointment of any Representative as an insurance agent of MLIC. 3.5 REPRESENTATIVES' INSURANCE COMPLIANCE. Prior to allowing Representatives to solicit, sell or service the Products, General Agent shall require Representatives to be validly insurance licensed, registered and appointed by MLIC as an agent in accordance with the jurisdictional requirements of the place where the solicitations, sales or service take place as well as the solicited person's or entity's place of residence. 3.6 COMPLIANCE WITH FINRA RULES OF CONDUCT AND FEDERAL AND STATE SECURITIES AND INSURANCE LAWS. (a) Broker-Dealer shall fully comply and shall cause Representatives to fully comply with the requirements of FINRA and of the 1934 Act and all other applicable securities and insurance federal, state or local laws, rules and regulations. Further, General Agent and Broker-Dealer will establish rules and procedures as may be necessary consistent with applicable laws and regulations to provide diligent supervision of the securities and insurance sales activities of Representatives. Upon request by MLIC or CUNA Brokerage, General Agent and Broker-Dealer shall promptly furnish any records deemed necessary to establish such diligent supervision. (b) Broker-Dealer represents and warrants that during the tern of this Agreement, it will maintain and implement: i) policies and procedures designed to comply with all applicable rules of FINRA, including but not limited to rules relating to suitability of registered annuity recommendations; ii) a training program for Representatives designed to ensure that Representatives gather information concerning a customer's financial status, tax status, investment objective and other relevant information prior to recommending the purchase or exchange of a registered annuity contract; and iii) a reasonable system of sales supervision designed to achieve compliance with FINRA rules. Upon request by MLIC, Broker-Dealer agrees to provide a report to MLIC certifying that Broker-Dealer is in compliance with the said activities listed above. Such reports shall be certified by a senior manager of Broker-Dealer who has responsibility for such activities. Broker-Dealer acknowledges and agrees that MLIC and/or CUNA Brokerage may conduct an inspection and/or audit of Broker-Dealer on a periodic basis to ensure compliance with the stated activities above, and Broker-Dealer agrees to make reasonable accommodation to MLIC to enable MLIC to inspect documents and records Broker-Dealer is responsible to maintain that are directly related to the sale and suitability of any MLIC registered annuity products. 3.7 COMPLIANCE WITH ADMINISTRATIVE PROCEDURES. General Agent and Broker-Dealer shall fully comply and shall cause Representatives to fully comply with the administrative procedures of MLIC relating to the Products and the policies and procedures adopted by MLIC relating to privacy, agent conduct and similar matters to the extent such policies and procedures are applicable to the soliciting, sale and servicing of the Products, as those administrative procedures and other 4 policies and procedures are now in effect or may be amended or established in the future by MLIC in its sole discretion and communicated to General Agent and Broker-Dealer, as appropriate. 3.8 COMPLIANCE WITH PROSPECTUSES. General Agent and Broker-Dealer shall comply with the terms of any prospectus (and supplements thereto) for a Product. Without limiting the generality of the foregoing, General Agent and Broker-Dealer shall offer the Products only at the public offering price disclosed in the prospectus. In this regard, General Agent and Broker-Dealer agree that Broker-Dealer shall be responsible for determining if, and calculating the amount of, any waiver or reduction in sales charges is applicable to any prospective purchaser of a Product and indicating such information on the application for the Product. In addition, without limiting the generality of the foregoing, General Agent and Broker-Dealer understand and acknowledge that the Products are not suitable for offer or sale in connection with any so-called "market-timing" program, plan, arrangement or service of General Agent or Broker-Dealer or any Representative. General Agent and Broker-Dealer shall not knowingly solicit, offer, or sell Products for use in connection with any so-called "market-timing" program, plan, arrangement or service and shall provide reasonable assistance to MLIC and CUNA Brokerage in preventing the Products from being used for "market-timing" activity. 3.9 DELIVERY OF PROSPECTUSES AND USE OF SALES MATERIALS. Broker- Dealer agrees to deliver prospectuses, prospectus supplements, and other sales and promotion materials for the Products to purchasers and prospective purchasers of the Products in a timely manner and in accordance with all applicable laws and regulations. General Agent and Broker-Dealer shall not use any sales and promotion materials or any advertisements that they may create relating to the Products, MLIC or CUNA Brokerage, unless MLIC or CUNA Brokerage approve such materials and advertisements in writing prior to use. However, this limitation shall not prevent General Agent and Broker-Dealer from advertising insurance products in general, provided such advertising does not reference the Products, MLIC, CUNA Brokerage, or any affiliated person of MLIC or CUNA Brokerage. 3.10 NOTICE OF REPRESENTATIVE'S NONCOMPLIANCE. In the event a Representative fails or refuses to submit to supervision of General Agent and Broker-Dealer, ceases to be a registered representative of Broker-Dealer or otherwise fails to meet the rules and standards imposed by General Agent and Broker-Dealer on Representatives, General Agent and Broker-Dealer, as the case may be, shall immediately advise MLIC and CUNA Brokerage of this fact and shall immediately notify such Representative that s/he is no longer authorized to sell the Products. General Agent or Broker-Dealer shall take whatever additional action may be necessary to terminate the selling and service activities of such Representative relating to the Products, which shall include, but not be limited to, acquiring all the customer records and files of the Representative relating to the Products. General Agent and Broker-Dealer agree to retain such customer records as required by applicable federal or state laws and regulations and to provide access to such records as MLIC or CUNA Brokerage may reasonably request. 3.11 COMPENSATION TO REPRESENTATIVES. MLIC shall pay Compensation to General Agent and Broker-Dealer pursuant to the Schedule. General Agent and Broker-Dealer will be solely responsible for any compensation payable to Representatives or any other persons associated with General Agent and Broker-Dealer relating to the Products hereunder in accordance with applicable laws and regulations. Except as necessary to meet legal requirements or subject to the provisions as set forth in Subsection 2.5(b) of this Agreement, MLIC or CUNA Brokerage will not be responsible for any compensation payable to Representatives or agents of General Agent and Broker-Dealer. 3.12 HANDLING OF APPLICATIONS. MLIC shall supply Product application forms for General Agent's and Broker-Dealer's use. All payments collected by General Agent or Broker-Dealer or 5 Representatives of General Agent and Broker-Dealer will be promptly remitted in full, along with such application forms and any other required documentation, directly to MLIC at the address indicated on such application or to such other address as MLIC designates in writing. General Agent and Broker-Dealer are responsible for reviewing all such applications for completeness and correctness, as well as compliance with suitability standards of all applicable federal state laws, rules and regulations and SEC and FINRA requirements. Payments for the Products shall be made by check, bank wire transfer or other forms of payment deemed acceptable by MLIC and allowable under applicable laws or regulations and shall be drawn to the order of "MLIC Insurance Society." General Agent and Broker-Dealer do not have any authority to deposit or endorse checks payable to MLIC without the prior written approval of MLIC. All applications are subject to acceptance or rejection by MLIC in its sole discretion. MLIC may require that any medical examination made in conjunction with an application for a Product be made by a medical examiner approved by MLIC and MLIC shall pay only those fees in connection with medical examinations that have been expressly authorized by it. All records or information obtained hereunder by General Agent or Broker-Dealer shall not be disclosed or used except as expressly authorized herein and pursuant to Section 5 hereof, and General Agent and Broker-Dealer will keep confidential such records and information, which will only be disclosed as authorized or if expressly required by federal or state regulatory authorities. General Agent and Broker-Dealer, in submitting applications for the Products, will be deemed to have warranted to MLIC and CUNA Brokerage that General Agent or Broker-Dealer, as the case may be, has made a determination of suitability based on information concerning the prospective purchaser's insurance and investment objectives, risk tolerance, need for liquidity, and financial and insurance situation and needs, or on such other factors that General Agent or Broker-Dealer deems to be appropriate under the circumstances and in compliance with applicable laws and regulations. General Agent and Broker-Dealer will not, directly or indirectly, expend or contract for the expenditure of any funds of MLIC or CUNA Brokerage and MLIC and CUNA Brokerage will not be obligated to pay any expense incurred by General Agent or Broker-Dealer in the performance of this Agreement, unless otherwise provided for in this Agreement or agreed to in advance in writing by MLIC or CUNA Brokerage. 3.13 TRANSMISSION AND OWNERSHIP OF MONEY FOR PRODUCTS. All money received by General Agent and Broker-Dealer or Representatives or agents of General Agent and Broker-Dealer in connection with the Products, whether as premium or otherwise, and whether paid by or on behalf of any policyholder, contract owner or anyone else having an interest in the Products, is the property of MLIC, shall be held in a separate account and shall be transmitted promptly in accordance with the administrative procedures of MLIC without any deduction or offset for any reason, including but not limited to, any deduction or offset for Compensation claimed by General Agent or Broker-Dealer. 3.14 DELIVERY OF PRODUCTS. Upon issuance of the Products by MLIC pursuant to this Agreement, MLIC will transmit Products to purchasers, as long as the representative or agent of General Agent and/or Broker Dealer indicates on each application that MLIC is requested to deliver said transmission to the purchaser, all in accordance with procedures established by MLIC, unless MLIC has provided otherwise. MLIC will transmit a copy of the spec page to Representatives of General Agent or Broker-Dealer upon issuance of the Products. 3.15 BOOKS, ACCOUNTS AND RECORDS. General Agent and Broker-Dealer will maintain all books, accounts, and records as required by applicable laws and regulations. The books, accounts and records of General Agent and Broker-Dealer shall be kept in good order and clearly and accurately disclose the nature and details of transactions relating to the Products and General Agent's and Broker-Dealer's activities related thereto. General Agent and Broker-Dealer shall keep confidential all information obtained pursuant to this Agreement, including, but not limited to, names of policyholders, and shall disclose such information only if MLIC or CUNA Brokerage has authorized such disclosure in writing, or if such disclosure is expressly required by applicable federal 6 or state authorities. MLIC and CUNA Brokerage shall have prompt and full access to all books, accounts and records of General Agent and Broker-Dealer pertaining to the Products. General Agent and Broker-Dealer agrees to permit MLIC and CUNA Brokerage representatives to enter into all areas of the General Agent's and Broker-Dealer's business related hereto for the purpose of conducting inspections and General Agent and Broker-Dealer shall fully cooperate with such representatives during such inspections by rendering assistance as MLIC and CUNA Brokerage may reasonably request. Upon notice from MLIC or CUNA Brokerage, and without limiting other rights of MLIC and CUNA Brokerage under this Agreement, General Agent and Broker-Dealer shall take certain steps as may be necessary to correct any deficiencies detected during such inspections. Each party hereto agrees to promptly furnish any reports and information which a party hereto may request in order to meet its reporting and record keeping obligations under the state insurance laws and the federal and state securities laws or rules of FINRA and to provide such books and records to the regulatory and administrative agencies which have jurisdiction over MLIC or CUNA Brokerage. 3.16 CUSTOMER FILE AND RECORD RETENTION. For a period of six (6) years from the termination date of this Agreement, General Agent and Broker-Dealer agree (a) to permit CUNA Brokerage or MLIC access to inspect and copy, during normal business hours, books and records, including but not limited to customer files relating to the Products under this Agreement that are specifically required to be maintained by the rules and regulations promulgated by the SEC, FINRA, or any other federal or state regulatory agency with jurisdiction over CUNA Brokerage, MLIC, Broker-Dealer or General Agent in connection with an audit or investigation, including any such files as may have been requested by such regulatory agencies ("Required Files) and (b) to maintain such Required Files in the form originally received. In addition, this information will be made available to CUNA Brokerage or MLIC in the event an individual customer complaint or class action is submitted relating to activity between customer and CUNA Brokerage or MLIC so that CUNA Brokerage or MLIC, as the case may be, may respond to such complaint. This information will be provided immediately to CUNA Brokerage or MLIC for such inspections and proof of the regulatory request and/or customer complaint. Within ninety (90) days following termination, General Agent and Broker-Dealer shall deliver to CUNA Brokerage or MLIC the following materials maintained by General Agent and Broker-Dealer or Representatives: sales and promotion material, correspondence, customer communications, including all communications relating to customer complaints, and records relating to inspections conducted by any regulatory agency or by personnel of CUNA Brokerage or MLIC. This Subsection 3.16 shall survive termination of this Agreement. 3.17 NOTIFICATION OF DISCIPLINARY PROCEEDINGS AND CUSTOMER COMPLAINTS. General Agent and Broker-Dealer shall promptly notify MLIC and CUNA Brokerage of any disciplinary proceedings or customer complaints against General Agent or Broker-Dealer, or any Representatives or agents of General Agent and Broker-Dealer relating to the Products or any threatened or filed arbitration action or civil litigation arising out of the solicitation, sale or service of the Products. General Agent and Broker-Dealer shall fully and promptly cooperate with MLIC and CUNA Brokerage in investigating and responding to any customer complaint, attorney demand, or inquiry received from state insurance departments or other regulatory agencies or legislative bodies, and in any settlement or trial of any actions arising out of the conduct of business under this Agreement. No response by General Agent or Broker-Dealer to an individual customer complaint involving a Product will be sent until it has been approved by MLIC or CUNA Brokerage. Any response by General Agent or Broker-Dealer to an individual customer complaint will be sent to MLIC and CUNA Brokerage for approval not less than five (5) business days prior to it being sent to the customer, except if a more prompt response is required, the proposed response may be communicated by telephone, electronically, via facsimile or in person. 3.18 FIDELITY BOND AND ERRORS AND OMISSIONS INSURANCE COVERAGES. General Agent/Broker-Dealer agrees that all directors, officers, employees and Representatives of General 7 Agent/Broker-Dealer shall be covered by a blanket fidelity bond/crime insurance policy issued by a reputable bonding company with a limit of not less than five hundred thousand dollars ($500,000) each occurrence for loss of money, securities or property sustained by MLIC or CUNA Brokerage resulting from theft or forgery committed by General Agent/Broker-Dealer or Representatives. General Agent/Broker-Dealer further agrees to obtain and maintain errors and omissions insurance in an amount of at least two million dollars ($2,000,000) each claim with a two million dollar ($2,000,000) annual aggregate during the term of this Agreement for General Agent/Broker-Dealer and Representatives. All said coverages above shall be maintained by General Agent/Broker-Dealer at General Agent/Broker-Dealer's expense. MLIC may require evidence that all such coverages above are in force and are satisfactory, and Broker Dealer shall give prompt written notice to MLIC of any notice of cancellation or change of the coverages. General Agent/Broker-Dealer shall be solely responsible for responding to customers and filing claims as may be necessary under this Agreement and General Agent/Broker-Dealer is responsible for any out-of-pocket expenses related to such claims. General Agent/Broker-Dealer hereby assigns to MLIC or CUNA Brokerage, as the case may be, any proceeds received from the insurance companies to the extent MLIC's or CUNA Brokerage's loss is due to activities covered by said policies. If there is any deficiency amount, whether due to a deductible or otherwise, General Agent/Broker-Dealer shall promptly pay MLIC or CUNA Brokerage such amount on demand, and General Agent/Broker-Dealer hereby indemnifies and holds MLIC and CUNA Broker harmless from any such deficiency and from the costs of collection thereof, including reasonable legal fees. 3.19 PROHIBITED ACTS. Nothing in this Agreement shall be construed as giving General Agent and Broker-Dealer the right to incur any indebtedness or make contracts on behalf of MLIC or CUNA Brokerage. General Agent and Broker-Dealer are not authorized to: discharge, waive any forfeitures under or extend the time for making payment for the Products; waive or modify any terms, conditions, or limitations of any policy or contract; pay any premium or other payment on behalf of an purchaser of the Products; or enter into any court or regulatory proceeding in the name of or on behalf of MLIC or CUNA Brokerage. General Agent and Broker-Dealer hereby authorize MLIC and CUNA Brokerage to set off liabilities of General Agent or Broker-Dealer, as the case may be, to MLIC and CUNA Brokerage against any and all amounts otherwise payable to General Agent or Broker-Dealer by MLIC or CUNA Brokerage. 4. RIGHT OF REJECTION. General Agent, Broker-Dealer, CUNA Brokerage and/or MLIC each in their sole discretion, may reject any applications or payments remitted by Representatives through the General Agent or Broker-Dealer and may refund an applicant's payments to the applicant. Likewise, MLIC and CUNA Brokerage may, at any time for any reason, reject any order from Product owner (whether transmitted by or through General Agent or Broker-Dealer or otherwise) to transfer contract value from one investment option under a Product to another. In the event such refunds are made and if General Agent or Broker-Dealer has received Compensation based on an applicant's payment that is refunded, General Agent or Broker-Dealer shall promptly repay such Compensation to MLIC. If repayment is not promptly made, MLIC may, at its sole option, deduct any amounts due to General Agent or Broker-Dealer from future Compensation otherwise payable to General Agent or Broker-Dealer. This Section 4 shall survive termination of this Agreement. 5. SHARING OF CUSTOMER INFORMATION. The parties acknowledge and agree that it may be necessary for the parties to share nonpublic personal information and other customer information ("Customer Information") with each other in order for each party to meet their obligations under this Agreement. With respect to the sharing, use and protection of Customer Information, the parties agree to the following: 5.1 CONFIDENTIALITY AND RESTRICTIONS ON REDISCLOSURE OF CUSTOMER INFORMATION. Each party agrees to hold in strict confidence Customer Information obtained from another party during the 8 term of this Agreement and any existing Customer Information received or obtained prior to this Agreement. Each party agrees not to disclose Customer Information, in any form or medium, to any affiliated or nonaffiliated person, firm or corporation except as necessary to perform services under this Agreement or as may be required by law. The parties hereto acknowledge and agree that disclosing Customer Information to effectuate, service or administer a Customer transaction shall not be considered a breach of the confidentiality obligations created hereunder. To the extent that a party contracts with a third party that obtains Customer Information in order to provide services under this Agreement, that party agrees to obtain contractual confidentiality protections to require the third party to hold Customer Information in strict confidence and not disclose it to any person unless required by law. Upon termination of this Agreement, General Agent and Broker-Dealer agree to maintain all Customer Information relating to the Products pursuant to Subsection 3.14 hereof. Each party agrees to comply with applicable privacy laws and regulations including, but not limited to, the Gramm-Leach-Bliley Act, Public Law 106-102 (1999) as set forth in 15 U.S.C.A. [SEC]6801, as amended and to comply with applicable changes in such laws and regulations as these occur and become effective. 5.2 USE OF CUSTOMER INFORMATION. Each party agrees to use Customer Information only to fulfill its obligations hereunder and not to use it for any other purpose. 5.3 OBLIGATION TO MAINTAIN SECURITY OVER CUSTOMER INFORMATION. Each party agrees to implement and maintain reasonable and customary security measures to safeguard Customer Information. Such measures shall include, but not be limited to, requiring employees who will have access to such information to agree to the confidentiality requirements of this Subsection. 5.4 CONFIDENTIALITY OBLIGATIONS SURVIVE TERMINATION OF THE AGREEMENT. The obligations of the parties set forth in this Section 5 shall survive the termination of this Agreement. 6. LIMITATIONS. Only MLIC or CUNA Brokerage, and no other party, shall have the authority on behalf of MLIC or CUNA Brokerage: (a) to make, alter, or discharge any of the Policies issued by MLIC; (b) to waive any forfeiture; (c) to grant, permit or extend the time for making any payments; (d) to guarantee earnings or rates; (e) to alter the forms which MLIC or CUNA Brokerage may prescribe or substitute other forms in place of those prescribed by MLIC or CUNA Brokerage; or (f) to enter into any proceeding in a court of law or before a regulatory agency in the name of or on behalf of MLIC or CUNA Brokerage. 7. TERM AND TERMINATION. -------------------- 7.1 TERM. This Agreement will commence on the Effective Date, and unless terminated as provided herein, will continue in force indefinitely. 7.2 TERMINATION. Each party will have the right to terminate this Agreement: (a) without cause, effective upon delivery of thirty (30) days' written notice thereof to the other party; (b) effective immediately upon delivery of written notice thereof to the other party, in the event that the other party is in breach of any material obligation herein; (c) effective immediately in the event that either CUNA Brokerage or Broker-Dealer shall cease to be registered broker-dealers under the 1934 Act and members of the FINRA; (d) effective immediately, if General Agent or Broker-Dealer or any Representative of General Agent or Broker-Dealer shall rebate or offer to rebate all or any part of a premium on any Products issued by MLIC in violation of applicable federal, state or local securities and insurance laws, rules or regulations; and (e) effective immediately if General Agent or Broker-Dealer or any Representative of General Agent or Broker-Dealer shall withhold any premium on any policy issued by MLIC. 9 7.3 EFFECT OF TERMINATION. Upon termination of this Agreement, all Compensation to the General Agent and Broker-Dealer hereunder shall cease; however, General Agent and Broker-Dealer shall continue to be liable for any chargebacks or for any other amounts advanced by or otherwise due MLIC or CUNA Brokerage hereunder. General Agent and Broker-Dealer will immediately return or destroy, as instructed by MLIC and CUNA Brokerage, all of MLIC's and CUNA Brokerage's proprietary materials, and any copies thereof, including but not limited to, information and data relating to the Products, procedures and practices, sales and promotion materials, advertising, information and materials relating to "Systems," as described hereinafter, and any sales and promotion materials created by General Agent or Broker-Dealer related to the Products, and any copies thereof; and General Agent and Broker-Dealer shall not use the same thereafter. General Agent and Broker-Dealer agree to retain all customer files and records pursuant to Subsection 3.15 hereof. 8. USE OF TECHNOLOGY. 8.1 GENERALLY. MLIC agrees to provide General Agent and Broker-Dealer access to and the right to use those technology-based systems and materials (collectively, the "Systems") that MLIC determines to be reasonably required for General Agent's or Broker-Dealer's performance of its obligations under this Agreement. Said access may be provided through software provided by MLIC directly to General Agent or Broker-Dealer and/or via the Internet. Upon delivery of any such software, MLIC shall be deemed to grant to General Agent and Broker-Dealer a non-transferable, non-exclusive, license to use the software within the scope of their responsibilities under this Agreement and for no other purpose. The access and use rights to the Systems granted hereunder shall apply only to the version of the Systems MLIC makes available to General Agent or Broker-Dealer from time to time. General Agent and Broker-Dealer shall not reproduce, display, modify or distribute the Systems or any part thereof, or use said Systems for any purpose outside the scope of General Agent's and Broker-Dealer's responsibilities under this Agreement. General Agent and Broker-Dealer shall not provide access to the Systems, nor to any software provided to General Agent and Broker-Dealer by MLIC, in whole or in part, to any third party including any consultant or contractor, without the express written permission of MLIC, obtained in each instance in advance. General Agent and Broker-Dealer shall hold in strict confidence, use only within the scope of their responsibilities under this Agreement, not provide access to any third parties, any passwords or other authentication or security procedures or devices provided to General Agent or Broker-Dealer to access and/or use the Systems. Upon termination of this Agreement, General Agent and Broker-Dealer shall return all copies of the software or other indicia of the Systems in its possession and retain nothing. Furthermore, General Agent and Broker-Dealer will ensure that Representatives under this Agreement will abide by the provisions of this Section 8. 8.2 DISCLAIMER. MLIC PROVIDES THE SYSTEMS, SOFTWARE AND ANY INFORMATION STORED OR PROCESSED ON SAID SYSTEMS AND SOFTWARE "AS IS," AND EXPRESSLY DISCLAIMS ALL WARRANTIES EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. General Agent and Broker-Dealer understand and agree that the Systems and software contain trade secrets and proprietary data of MLIC and that the Systems and software are and shall at all times remain the sole and exclusive property of MLIC. This provision shall survive termination of this Agreement. 8.3 LIMITED LIABILITY. In no event to the maximum extent permitted by law shall MLIC be liable for any special, indirect, incidental, or consequential damage (including, without limitation, damages for loss of business, profits or income) arising out access, lack of access, use or lack of use of the Systems or software, even if MLIC has been advised of the possibility of such damages. Further, in no event to the maximum extent permitted by law shall MLIC be liable to General Agent 10 or Broker-Dealer for damages of any kind or nature arising from the access, lack of access, use, or lack of use of the Systems or software to the extent said damages exceed the Compensation that MLIC has paid to General Agent and Broker-Dealer under this Agreement during the three (3) month period immediately preceding the occurrence of the claim. 9. CONFIDENTIALITY AND TRADE SECRETS. All information or materials relating to or prepared by a party to this Agreement which are obtained or reviewed in any inspection or through the course of business during the term of this Agreement, including but not limited to, MLIC's insurance policy information, coverage plan and rates and MLIC's or CUNA Brokerage's policies and procedures, practices, billing information, claims information, business relationship information, statistical data, and any other know-how and information, shall be held in strict confidence by the parties hereto. No party shall permit any third party to copy, review or use the other party's confidential or proprietary materials at any time. MLIC and CUNA Brokerage shall have sole and exclusive ownership of all right, title and interest in "Trade Secrets" and Broker-Dealer shall obtain no such rights hereunder. "Trade Secrets" shall be defined as a whole or any portion thereof of any business, sales or legal information, process, procedure, know-how that provides a party with a significant competitive advantage in the development, construction, conduct, operation, control, marketing, sale, management, administration, maintenance or servicing of insurance, or financial products. This provision shall survive the termination of this Agreement. 10. REPRESENTATIONS AND WARRANTIES 10.1 GENERAL REPRESENTATIONS AND WARRANTIES. Each party represents and warrants to the others that: (a) It is duly organized, validly existing and in good standing under the laws of the state of its organization and has all the requisite power, corporate or otherwise, to carry on its business as now being conducted and to perform its obligations as contemplated by this Agreement; (b) It has all licenses, approvals, permits and authorizations of, and registrations with, all authorities and agencies, including non-government self-regulatory bodies, required under federal, state and local laws and regulations to enabled it to perform its obligations under this Agreement; and (c) The execution, delivery and performance of this Agreement have been duly and validly authorized by all necessary "corporate" action, and this Agreement constitutes the legal, valid and binding agreement of such party, enforceable against it according to its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to creditors' rights generally and general principles of equity. 10.2 BROKER-DEALER REPRESENTATIONS AND WARRANTIES. CUNA Brokerage and Broker-Dealer each represent and warrant to the other that it is registered as a broker-dealer with SEC under the 1934 Act and is a member in good standing of FINRA. 11. MUTUAL INDEMNIFICATION. ---------------------- 11.1 GENERAL AGENT AND BROKER-DEALER INDEMNIFICATION. General Agent and Broker-Dealer, jointly and severally, will indemnify, defend and hold harmless MLIC and CUNA Brokerage and their respective affiliates, officers, directors, employees and agents from and against any claim, loss, damage, expense or liability, judgment, settlements or regulatory actions, including defense costs, reasonable attorneys' fees, penalties and fines, arising from, or in any manner relating to: (a) any breach of any covenant or obligation pursuant to this Agreement, including, but not limited to, any applicable law or regulation, or any applicable rule of any self-regulatory organization by 11 General Agent and Broker-Dealer or their Representatives and agents; (b) any criminal, fraudulent or intentionally wrongful act or omission committed by General Agent or Broker-Dealer or their Representatives and agents in connection with the performance of General Agent's or Broker-Dealer's obligations hereunder; or (c) the infringement, violation or misappropriation by General Agent or Broker-Dealer or their Representatives and agents of any party's rights with respect to any Trade Secrets, copyright, trademark, service mark, tradename or similar proprietary rights conferred by common law, state law or by any law of the United States arising out of or resulting from the performance of General Agent's or Broker-Dealer's obligations under this Agreement. 11.2 MLIC AND CUNA BROKERAGE INDEMNIFICATION. MLIC and CUNA Brokerage, jointly and severally, will indemnify, defend and hold harmless General Agent and Broker-Dealer and their respective affiliates, officers, directors, employees and agents from and against any claim, loss, damage, expense or liability, judgment, settlements or regulatory actions, including defense costs, reasonable attorneys' fees, penalties and fines, arising from, or in any manner relating to: (a) any breach of any covenant or obligation pursuant to this Agreement, including, but not limited to, any applicable law or regulation, or any applicable rule of any self-regulatory organization by MLIC or CUNA Brokerage; or (b) any criminal, fraudulent or intentionally wrongful act or omission committed by MLIC or CUNA Brokerage in connection with the performance of MLIC's or CUNA Brokerage's obligations hereunder. 11.3 SURVIVAL. This Section 11 shall survive termination of this Agreement. 12. GENERAL COMPLIANCE. The parties hereto agree to comply with the existing laws and rules or regulations of applicable local, state or federal regulatory authorities, including, but not limited to, FINRA, SEC, Financial Crimes Enforcement Network and the New York Stock Exchange, and with those which may be enacted or adopted during the term of this Agreement regulating the business conducted under this Agreement and in any jurisdiction in which the business described herein is to be transacted, and to provide information or reports relating to the respective duties and obligations hereunder pursuant to requests by any regulatory authority having jurisdiction with respect thereto. 13. ANTI-MONEY LAUNDERING COMPLIANCE PROGRAM. The parties hereto acknowledge and agree that insurance agencies and securities broker-dealers are subject to certain regulations set forth under the Bank Secrecy Act (the "BSA") and [SEC]352 of the USA PATRIOT Act (the "PATRIOT Act") related to adopting and implementing an anti-money laundering compliance program ("AML Program"). Each party hereto represents and warrants that it has effectively implemented a written AML Program, which includes at a minimum: a) incorporating policies, procedures and internal controls reasonably designed to assure compliance with BSA and the PATRIOT Act; b) designating a compliance officer responsible for day-to-day compliance with the BSA and the AML Program; c) providing education and/or training of Representatives and other appropriate personnel concerning their responsibilities under the AML Program, including training in the detection of suspicious transactions; and d) providing for independent review to monitor and maintain an adequate AML Program. The parties agree that MLIC and CUNA Brokerage have the right, upon reasonable request, to examine the description of the training provided to Representatives to ensure that the AML Program of General Agent and/or Broker-Dealer provides adequate training for Representatives. In the event General Agent and/or Broker-Dealer or Representatives become aware of circumstances related to a customer that may be suspicious, General Agent, Broker-Dealer or Representative, as the case may be, agrees to promptly notify the Anti-Money Laundering Officer at MLIC regarding such suspicious activity. Furthermore, the parties represent and warrant that each has adopted and will continue to execute a customer identification program (the "CIP") meeting the requirements under the PATRIOT Act. The parties agree that MLIC and CUNA Brokerage have the right, upon reasonable request, to examine the description of the CIP that General Agent and/or Broker-Dealer has adopted and implemented. 12 14. NOTICES. All notices, requests, demands and other communications required or permitted under this Agreement shall be given in writing and shall be deemed to be given upon receipt of any of the following delivery methods: (a) personally delivered; or (b) sent by telecopier, facsimile transmission or other electronic transmission; or (c) sent by United States certified or registered mail, postage prepaid, return receipt requested; or (d) sent by private overnight courier service. The respective addresses to be used for all notices, requests, demands or communications are as follows: MEMBERS Life Insurance Company Attn: Licensing & Contracting Department 2000 Heritage Way Waverly, IA 50677 CUNA Brokerage Services, Inc. Attn: Licensing & Contracting Department 2000 Heritage Way Waverly, IA 50677 Broker-Dealer: General Agent: 15. INDEPENDENT CONTRACTORS. The relationship between the parties hereto is an independent relationship and each party has sole responsibility and authority for the conduct of its own business. General Agent and Broker-Dealer and their Representatives and their agents are independent contractors with respect to MLIC and CUNA Brokerage. No party hereto has the right to bind the other party in any way. 16. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin. 17. WAIVER. A waiver by any party of any terms and conditions of this Agreement in any one instance shall not be deemed or construed to be a waiver of any such term or condition for the future, or of any subsequent breach thereof, nor shall it be deemed a waiver of performance of any obligation hereunder. 18. SEVERABILITY. If any portion or provision of this Agreement is held to be invalid or unenforceable, the remainder of this Agreement shall continue in full force and effect. 19. ASSIGNMENT. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective successors and assigns; and no party may assign rights or obligations under this Agreement without the prior written consent of the other party. 20. HEADINGS. The headings in this Agreement are solely for convenience of reference and shall not be given any effect in the construction or interpretation of this Agreement. 13 21. AMENDMENT. MLIC and CUNA Brokerage reserve the right to amend this Agreement at any time, and the submission of an application by General Agent or Broker-Dealer after notice of any such amendment has been sent to General Agent and Broker-Dealer shall constitute that General Agent and Broker-Dealer are in agreement to any such amendment. 22. ENTIRE AGREEMENT. This Agreement and any attachments hereto constitute the entire understanding of the parties hereto relating to the subject matter hereof and supersedes in its entirety all prior agreements between MLIC and CUNA Brokerage and General Agent or Broker-Dealer, if any, all prior and collateral agreements, understandings, statements and negotiations of the parties relating to such subject matter. 23. COUNTERPARTS. This Agreement may be executed in counterparts and all documents so executed shall constitute one agreement binding on the parties hereto. [The remainder of this page is intentionally left blank. Signatures appear on the following page.] 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. MEMBERS LIFE INSURANCE COMPANY Name: Title: By: __________________________________ CUNA BROKERAGE SERVICES, INC. Name: Title: By: __________________________________ BROKER-DEALER Name: Title: By: __________________________________ GENERAL AGENT Name: Title: By: __________________________________ NOTE: Please return two signed copies of this Agreement to: MEMBERS Life Insurance Company Attn: 2000 Heritage Way Waverly, IA 50677 Upon acceptance, one countersigned copy will be returned to General Agent/ Broker-Dealer for its files. 15 EXHIBIT A --------- SELLING AND SERVICES AGREEMENT FOR REGISTERED ANNUITY PRODUCTS GENERAL LETTER OF RECOMMENDATION -------------------------------- General Agent and Broker-Dealer hereby certify to MLIC that all the following requirements will be fulfilled in conjunction with the submission by General Agent or Broker-Dealer of licensing/appointment papers for all applicants as agents of MLIC. General Agent or Broker-Dealer will, upon request, forward proof of compliance with same to MLIC in a timely manner. 1. We have made a thorough and diligent inquiry and investigation relative to each applicant's identity, residence, business reputation, and experience and declare that each applicant is personally known to us, has been examined by us, is known to be of good moral character, has a good business reputation, is reliable, is financially responsible and is worthy of a license and appointment as an agent of MLIC. This inquiry and background investigation has included a credit and criminal check on each applicant. Based upon our investigation, we vouch and certify that each individual is trustworthy, competent and qualified to act as an agent for MLIC to hold himself/herself out in good faith to the general public. 2. We have on file appropriate state insurance department licensing forms or a Form U-4 which was completed by each applicant. We have fulfilled all the necessary investigative requirements for the registration of each applicant as a registered representative through our FINRA member firm, and each applicant is presently registered as a FINRA registered representative. The above information in our files indicates no fact or condition which would disqualify the applicant from receiving a license or appointment and all the findings of all investigative information is favorable. 3. We certify that all educational requirements have been met for the specific state each applicant is licensed in, and that all such persons have fulfilled the appropriate examination, education and training requirements. 4. We certify that each applicant will receive close and adequate supervision, and that we will make inspection when needed of any or all risks written by these applicants, to the end that the insurance interest of the public will be properly protected. 5. We will not permit any applicant to transact insurance as an agent until duly licensed therefor and appointed by MLIC. No applicants have been given a contract or furnished supplies, nor have any applicants been permitted to write, solicit business, or act as an agent in any capacity, and they will not be so permitted until the certificate of authority or license applied for is received. 16 SELLING AND SERVICES AGREEMENT FOR REGISTERED ANNUITY PRODUCTS PRODUCTS AND COMPENSATION SCHEDULE ---------------------------------- This Products and Compensation Schedule (this "Schedule") is incorporated into the Selling and Services Agreement (the "Agreement") as of the Effective Date of the Agreement. MLIC agrees to compensate General Agent and Broker-Dealer, as appropriate, under the Agreement as set forth below. Notwithstanding any provisions in the Agreement to the contrary, MLIC reserves the right to discontinue the availability of any of the Products or modify the Compensation at any time, subject to thirty (30) days written notice. Subject to the provisions of the Agreement, General Agent and Broker-Dealer shall be entitled to receive the Compensation for the Products listed in this Schedule. Capitalized terms in this Schedule and not otherwise defined herein will have the meanings set forth in the Agreement. ================================================================================ For each product sale or transaction the following rules apply: SELLING AND SERVICES AGREEMENT PRODUCTS AND COMPENSATION SCHEDULE
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(The rest of this page is intentionally left blank) 17 EX-4 7 e93125_ex4i.txt EX4.I Exhibit 4(i) [[LOGO OF CUNA MUTUAL GROUP] | CUNA MUTUAL GROUP] MEMBERS LIFE INSURANCE COMPANY [2000 Heritage Way, Waverly, Iowa 50677] Telephone: [800.798.6600] [http://www.cunamutual.com] SINGLE PREMIUM DEFERRED MODIFIED GUARANTEED INDEX ANNUITY CONTRACT NUMBER: [123456789] READ YOUR CONTRACT CAREFULLY. This is a legal contract between the owner and MEMBERS Life Insurance Company, and hereafter will be referred to as the contract. This contract is issued to the owner in consideration of the application and the purchase payment. MEMBERS Life Insurance Company will pay the benefits of this contract, subject to its terms and conditions, which will never be less than the amount required by state law. INTEREST CREDITED IS BASED ON EXTERNAL INDICES. WHILE CONTRACT VALUES MAY BE AFFECTED BY AN EXTERNAL INDEX, THIS CONTRACT DOES NOT DIRECTLY PARTICIPATE IN ANY STOCK OR EQUITY INVESTMENTS. THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT PROVISION. THE AMOUNT PAYABLE UPON FULL SURRENDER OR PARTIAL WITHDRAWAL OF THE CONTRACT VALUE MAY BE ADJUSTED UPWARD OR DOWNWARD BASED ON A MARKET VALUE ADJUSTMENT FORMULA IN ADDITION TO ANY SCHEDULED SURRENDER CHARGE. THE DEATH BENEFIT IS NOT SUBJECT TO A SURRENDER CHARGE OR THE MARKET VALUE ADJUSTMENT FORMULA. WE HOLD RESERVES FOR OUR GUARANTEES UNDER THIS CONTRACT IN A NON-UNITIZED SEPARATE ACCOUNT ESTABLISHED WITHIN THE GENERAL ACCOUNT. THE ASSETS IN THE SEPARATE ACCOUNT ARE SUBJECT TO THE LIABILITIES THAT ARISE OUT OF THE OTHER BUSINESS THAT WE CONDUCT. GENERAL ACCOUNT ASSETS ARE ALSO AVAILABLE TO MEET GUARANTEES UNDER THIS CONTRACT AS WELL AS OUR OTHER GENERAL OBLIGATIONS. SIGNED FOR MEMBERS LIFE INSURANCE COMPANY, [WAVERLY, IOWA], ON THE CONTRACT ISSUE DATE. [/s/ Robert N. Trunzo] [/s/ Steven R. Suleski] President Secretary ================================================================================ RIGHT TO EXAMINE THIS CONTRACT. IF FOR ANY REASON YOU DECIDE NOT TO KEEP THIS CONTRACT, YOU MAY RETURN IT TO US WITHIN 10 DAYS AFTER YOU RECEIVE IT. IF THIS CONTRACT IS A REPLACEMENT FOR AN EXISTING CONTRACT, YOU MAY RETURN IT TO US WITHIN 30 DAYS AFTER YOU RECEIVE IT. YOU MAY RETURN THE CONTRACT TO EITHER OUR ADMINISTRATIVE OFFICE OR TO THE AGENT WHO SOLD IT TO YOU. RETURN OF THIS CONTRACT IS EFFECTIVE WHEN POSTMARKED, PROPERLY ADDRESSED AND POSTAGE PAID. WE WILL CONSIDER THE CONTRACT VOID FROM THE BEGINNING AND WILL REFUND THE PURCHASE PAYMENT WITHIN 7 DAYS AFTER WE RECEIVE THE RETURNED CONTRACT. ================================================================================ Income Payments Starting on the Payout Date Death Benefit Payable at Death of Owner Prior to the Payout Date Non-Participating 2012-SPDMGIA ================================================================================ CONTRACT GUIDE AND INDEX ================================================================================ Data Page....................................................................... Section 1 Definitions..................................................................... Section 2 Parties to the Contract......................................................... Section 3 General Information............................................................. Section 4 Owner, Annuitant and Beneficiary................................................ Section 5 Purchase Payment and Risk Control Accounts...................................... Section 6 Automatic Rebalance Program..................................................... Section 7 Credited Index Interest......................................................... Section 8 Contract Value During The Accumulation Period................................... Section 9 Withdrawal Provision............................................................ Section 10 Nursing Home or Hospital/Terminal Illness Withdrawal Privilege.................. Section 11 Death Provisions Prior to the Payout Period..................................... Section 12 Payout Period................................................................... Section 13 Income Payments................................................................. Section 14 Death Provisions During the Payout Period....................................... Section 15 Income Option Rates............................................................. Section 16
================================================================================================================================= SECTION 1. DATA PAGE CONTRACT NUMBER: [123456789] ================================================================================================================================= OWNER(S) CONTRACT ISSUE DATE -------- ------------------- [John Doe] [June 1, 2011] ANNUITANT(S) ANNUITANT(S) ISSUE AGE(S) ------------ ------------------------- [John Doe] [35]
PURCHASE PAYMENT: [$5,000] PAYOUT PERIOD INFORMATION: ANTICIPATED PAYOUT DATE: [June 1, 2061] ANTICIPATED INCOME OPTION: [Monthly Life Income - 10 Years] LIFE INCOME RATES: [Type A] INITIAL INDEX PERIOD INFORMATION: INITIAL INDEX PERIOD: [10 Year] INITIAL INDEX PERIOD EXPIRATION DATE: [June 1, 2022] MARKET VALUE ADJUSTMENT INDEX 1: [Constant Maturity Treasury] MARKET VALUE ADJUSTMENT RATE 1 AT ISSUE: [0.00%] MARKET VALUE ADJUSTMENT INDEX 2: [Bank of America/Merrill Lynch Index for Corporates]* MARKET VALUE ADJUSTMENT RATE 2 AT ISSUE: [0.00%]
SURRENDER CHARGE SCHEDULE: --------------------------------------------------------------------------------------------------------------------------------- Contract Year 1 2 3 4 5 6 7 8 9 10 11+ --------------------------------------------------------------------------------------------------------------------------------- Surrender Charge % 9% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% ---------------------------------------------------------------------------------------------------------------------------------
RISK CONTROL ACCOUNT INFORMATION EFFECTIVE AS OF: [JUNE 1, 2011]
--------------------------------------------------------------------------------------------------------------------------------- Purchase Index Initial Index Payment Interest Interest Index [Bailout Allocation Index Rate Floor Rate Cap Value Rate] --------------------------------------------------------------------------------------------------------------------------------- [[Secure Account] [50%] [S&P 500]* [0%] [2%] [1500] [0.1%] --------------------------------------------------------------------------------------------------------------------------------- [Growth Account ]** [50%] [S&P 500]* [-10%] [12%] [1500] [0%]] ---------------------------------------------------------------------------------------------------------------------------------
[*The Bank of America/Merrill Lynch Index for Corporates is a trademark of the Bank of America and has been licensed for use by MEMBERS Life Insurance Company. This Product is not sponsored, endorsed, sold or promoted by Bank of America, and Bank of America makes no representation regarding the advisability of investing in the Product. *The Standard & Poor's 500 Composite Stock Price Index (S&P500). "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500(R)" are trademarks of the McGraw-Hill Companies, Inc. and have been licensed for use by MEMBERS Life Insurance Company. This Product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Product. The S&P500 Index does not include dividends paid by the underlying companies.] **[Growth Account] is only available before the Initial Index Period Expiration Date. ADDITIONAL BENEFITS: [Change of Annuitant Endorsement] [Bailout Endorsement Bailout Rate: See Risk Control Account Information] [Credit Enhancement Endorsement]
Credit [Contract Enhancement Year] Bonus Percentage 1 [0%] 2+ [0%]]
================================================================================================================================= SECTION 2. DEFINITIONS ================================================================================================================================= 2.1 WHAT ARE THE MOST ACCUMULATION PERIOD - The period of time that: (a) begins on the contract issue date COMMONLY USED TERMS stated on the Data Page; and (b) continues until the payout date, unless this contract is AND WHAT DO THEY MEAN? terminated. ADJUSTED INDEX VALUE - The index value adjusted for the index interest rate cap or index interest rate floor for the current contract year. ADMINISTRATIVE OFFICE - MEMBERS Life Insurance Company, [2000 Heritage Way, Waverly, Iowa 50677]. AUTOMATIC REBALANCE PROGRAM - The program ("rebalancing") to automatically transfer values between the risk control accounts in order to achieve the balance of contract value equal to the allocation percentages requested. AGE - Age as of last birthday. BUSINESS DAY - Any day both the company and the New York Stock Exchange are open for business. The company is closed on the following holidays: New Year's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The company is closed on the holiday itself if the holiday falls Monday through Friday, the day immediately preceding the holiday if the holiday falls on a Saturday, and the day immediately following if the holiday falls on a Sunday. CONTRACT ANNIVERSARY - The same day and month as the contract issue date for each year the contract remains in force. CONTRACT ISSUE DATE - The date from which contract years and contract anniversaries are determined. The contract issue date is shown on your Data Page. Your contract issue date is your initial index period start date. CONTRACT VALUE - The current value of your annuity as provided under this contract during the accumulation period. On the issue date, contract value is equal to your purchase payment. On any other day during the accumulation period, contract value is equal to the risk control accounts. CONTRACT YEAR - Any twelve-month period beginning on the contract issue date or contract anniversary and ending one day before the next contract anniversary. CREDITED INDEX INTEREST - The amount of index interest credited on each contract anniversary and at time of partial withdrawal, surrender, death and annuitization. Index interest depends, in part, on an external index. CREDITED INDEX INTEREST RATE - The rate used to determine the index interest to be applied. DUE PROOF OF DEATH - Proof of death may consist of a certified copy of the death record, a certified copy of a court decree reciting a finding of death or other similar proof. GENERAL ACCOUNT - All of the company's assets other than the assets in segregated asset accounts which are maintained as "insulated" separate accounts under applicable law. GOOD ORDER - Receipt in our administrative office of all information we require to process requests or transactions for your contract. HOSPITAL - A facility that is licensed and operated as a hospital according to the law of the jurisdiction in which it is located. INDEX - The S&P 500 Composite Stock Price or any substituted suitable alternative index. INDEX INTEREST - Interest we calculate that is based in part on the performance of an Index.
INDEX INTEREST RATE CAP - The maximum index interest rate that may apply to determine the index interest. We may change this rate at the beginning of a contract year. INDEX INTEREST RATE FLOOR - The minimum index interest rate that may apply to determine the index interest. This rate will not change during the life of your contract. INITIAL INDEX VALUE - The index value as of the beginning of the current contract year. INITIAL INDEX PERIOD - The period beginning on the contract issue date and ending on the initial index period expiration date. INITIAL INDEX PERIOD EXPIRATION DATE - The last day of the initial index period. Note this also coincides with the last day that surrender charges and a market value adjustment apply. The initial index period expiration date is shown on your Data Page. IRC - The Internal Revenue Code of 1986, as amended. MARKET VALUE ADJUSTMENT - The amount of adjustment (increased/decreased) that may be applied to any partial withdrawal or surrender value during the initial index period. This adjustment will not be applied to the free annual withdrawal amount. MARKET VALUE ADJUSTMENT INDICES - The indices used to determine the interest rates used to calculate the market value adjustment. They are shown on the Data Page. MARKET VALUE ADJUSTMENT INDEX RATE - Rate(s) used to calculate the market value adjustment. NURSING HOME - A facility that is licensed and operates as a nursing facility according to the law of the jurisdiction in which it is located. PAYOUT DATE - The date we begin making income payments to the payee from the contract. PAYOUT PERIOD - The phase the contract is in once income payments begin. PURCHASE PAYMENT - Your contract is issued in return for your purchase payment. Your purchase payment is shown on the Data Page. RISK CONTROL ACCOUNT - An investment option that is available to you to allocate your contract value. Each risk control account has a unique credited index interest rate cap and index interest rate floor. SEPARATE ACCOUNT - A non-registered separate account that we established within the general account and in which we hold reserves for our guarantees under the contract. Our other general account assets are also available to meet the guarantees under the contract and our other general obligations. The assets of the separate account are subject to the liabilities that arise out of the other business that we conduct. SURRENDER CHARGE - The charge associated with surrendering either some or all of the contract value before the end of the initial index period. SURRENDER CHARGE PERIOD - The period of time when a surrender charge and market value adjustment may be assessed on your contract value if you take a partial withdrawal or surrender this contract. The surrender charge schedule is shown on your Data Page. SURRENDER VALUE - The amount you are entitled to receive under this contract in the event this contract is terminated during the accumulation period. It is equal to your contract value, less any surrender charges and adjusted for any market value adjustment. UNADJUSTED INDEX VALUE - The index value as of the date which index interest is calculated. WRITTEN REQUEST - A signed and dated written notice in a form satisfactory to us.
================================================================================================================================= SECTION 3. PARTIES TO THE CONTRACT ================================================================================================================================= 3.1 WHO ARE THE PARTIES TO COMPANY - MEMBERS Life Insurance Company. Also referred to as "we", "our" and "us". THE CONTRACT? OWNER - The person(s) (or entities) who own(s) this contract and whose death determines the death benefit. If there are multiple owners, each owner will be a joint owner of the contract and all references to owner will mean joint owners. The owner has all rights, title and interest in this contract during the accumulation period. The owner may exercise all rights and options stated in this contract, subject to the rights of any irrevocable beneficiary. The owner is also referred to as "you" or "your". ANNUITANT (JOINT ANNUITANT) - The natural person(s) whose life (or lives) determines the income payment amount payable under the contract. BENEFICIARY - The person(s) (or entities) named on your application (unless later changed as described in Section 5.3) to receive proceeds payable due to the death of the owner. Prior to the payout date, if no beneficiary survives the owner, the proceeds will be paid to the owner's estate. PAYEE - The person(s) (or entities) who receives income payments during the payout period while the annuitant is living. The payee is the owner unless otherwise designated. A minor cannot be named the payee. ================================================================================================================================= SECTION 4. GENERAL INFORMATION ================================================================================================================================= 4.1 WHAT IS THE ENTIRE This contract form, any attached riders and/or endorsements, and a copy of the attached CONTRACT? application are the entire contract between you and us. No one except our president or secretary can change or waive any of our rights or requirements under this contract. Any change must be in writing. 4.2 WHEN DOES THIS CONTRACT This contract is incontestable from its contract issue date. The statements contained in BECOME INCONTESTABLE? the application (in the absence of fraud) are considered representations and not warranties. 4.3 WHAT IF AN ANNUITANT'S If an annuitant's date of birth has been misstated, we will adjust the income payments DATE OF BIRTH OR GENDER under this contract to be equal to the payout amount the contract value would have HAS BEEN MISSTATED? purchased based on the annuitant's correct date of birth. If an annuitant's gender has been misstated, and the Type A life income rates apply (see your Data Page and Section 16), we will adjust the income payments under this contract to be equal to the payout amount the contract value would have purchased based on the annuitant's correct gender. Any underpayment will be added to the next payment. Any overpayment will be subtracted from future payments. No interest will be credited or charged to any underpayment or overpayment adjustments. 4.4 WILL ANNUAL REPORTS BE We will send you a report, without charge, at least annually. The report will provide SENT? information about your contract and will include the contract value prior to the application of any surrender charge or market value adjustment. It will also specify the surrender charge and the market value adjustment applicable to determine the surrender value. The annual report will be mailed to you no later than two months following the effective date of the information provided.
4.5 DOES THIS CONTRACT The provisions of this contract conform with the minimum requirements of the state of CONFORM WITH STATE LAW? issue. The laws of the state of issue control over any conflicting laws of any other state in which the owner may live on or after the contract issue date. The company will amend this contract to comply with any changes in law governing the contract or the taxation of benefits under the contract.
================================================================================================================================= SECTION 5. OWNER, ANNUITANT AND BENEFICIARY ================================================================================================================================= 5.1 WHAT ARE MY RIGHTS AS The owner may exercise all rights and privileges granted by this contract. If there are AS OWNER OF THIS multiple persons named as owners, each owner will have equal ownership of the contract. CONTRACT? 5.2 ARE THERE RESTRICTIONS A non-natural person may not jointly own a contract. ON OWNERSHIP? 5.3 HOW CAN I CHANGE THE You may change the owner or beneficiary of this contract by written request at any time OWNER OR BENEFICIARY before the payout date. Unless otherwise specified by the owner, the change will take OF THIS CONTRACT? effect as of the date you signed it. We are not liable for any payment we make or action we take before receiving any such written request in our administrative office. If there are multiple owners, the written request for change must be signed by all owners. A request for change of owner or beneficiary must also be signed by any irrevocable beneficiary. 5.4 CAN I CHANGE THE You may change the annuitant at any time before the payout date. Written notice of the ANNUITANT UNDER THIS change of the annuitant must be filed with us and signed by all owners and any irrevocable CONTRACT? beneficiary. Unless otherwise specified by the owner, such change will take effect on the date of the written request but will be subject to any payment made or other action taken by us before the request was filed. The annuitant may not be changed if the owner is not a natural person. ================================================================================================================================= SECTION 6. PURCHASE PAYMENT AND RISK CONTROL ACCOUNTS ================================================================================================================================= 6.1 HOW WILL THE PURCHASE The purchase payment will be allocated to the risk control accounts you elected at PAYMENT BE ALLOCATED contract issue. TO THE RISK CONTROL ACCOUNTS? 6.2 CAN I ESTABLISH MORE Each risk control account will have its own index, index interest rate cap and index THAN ONE RISK CONTROL interest rate floor. The initial index interest rate cap and floor for each risk control ACCOUNT? accounts are shown on Your Data Page. The provisions below regarding index interest, contract value, market value adjustment, surrender charges, surrenders and withdrawals apply to each risk control account. 6.3 CAN MY RISK CONTROL You may change risk control account allocation as of any contract anniversary. Written ACCOUNT ALLOCATION requests to change risk control accounts or allocation between risk control accounts PERCENTAGES BE CHANGED? must be received no later than two business days prior to the contract anniversary to take effect. Requests received within two business days to the current year contract anniversary will be processed and made effective on the following year contract anniversary.
If a change is made to the risk control account allocation, we will send confirmation letters. After the initial index period and during a continued accumulation period, only risk control accounts with an index interest rate floor of 0% will be available. 6.4 HOW IS A WITHDRAWAL Withdrawals (including any applicable surrender charge and market value adjustment) will be ALLOCATED BETWEEN RISK made in the proportion that each risk control account value bears to the contract value at CONTROL ACCOUNTS? the time of withdrawal.
================================================================================================================================= SECTION 7. AUTOMATIC REBALANCE PROGRAM ================================================================================================================================= 7.1 WHAT IS THE AUTOMATIC The automatic rebalance program ("rebalancing") transfers values between the risk control REBALANCE PROGRAM FOR accounts based on the last allocation percentages which you specified. At issue, these RISK CONTROL ACCOUNTS? percentages are shown on your Data Page. See Section 6.3 for more information regarding changing allocation percentages among risk control accounts. Rebalancing is required unless your allocation percentage is 100% to one risk control account. Rebalancing, if required, will occur automatically on each contract anniversary. ================================================================================================================================= SECTION 8. CREDITED INDEX INTEREST ================================================================================================================================= 8.1 HOW MUCH INDEX INTEREST For each risk control account, the credited index interest rate will be used to determine WILL BE CREDITED AND the credited index interest during the accumulation period. HOW IS IT DETERMINED? For the purposes of the credited index interest rate calculation: Adjusted Index Value = If (Unadjusted Index Value) > (Initial Index Value) x (1 + Index Interest Rate Cap) Then Adjusted Index Value = (Initial Index Value) x (1 + Index Interest Rate Cap) If (Unadjusted Index Value) < (Initial Index Value) x (1 + Index Interest Rate Floor) Then Adjusted Index Value = (Initial Index Value) x (1 + Index Interest Rate Floor) Otherwise Adjusted Index Value = Unadjusted Index Value The unadjusted index value for each day is the closing value for the associated index as of the interest credited date. If the index value is not available on that day, we will use the next day for which the credited index value is available. On each day, the credited index interest rate (IIR) for each risk control account is equal to (A / B) - 1 where: A = Adjusted Index Value as of the current date B = the later of the Adjusted Index Value as of the last withdrawal, or Initial Index Value
This credited index interest rate (IIR) will be taken times the risk control account value, as defined in Section 9.1 below, as of the last index interest credited date to determine the amount of index interest applied. This process is repeated for each risk control account. 8.2 WHEN WILL INDEX INTEREST Credited index interest will be calculated and applied on each contract anniversary. BE APPLIED TO THE RISK Credited index interest will also be calculated and applied when a partial withdrawal, CONTROL ACCOUNTS? surrender, annuitization, or death proceeds are payable. 8.3 WILL THE INDEX INTEREST We may vary the index interest rate cap each contract year based on the contract year RATE FLOOR AND INDEX and the contract value. INTEREST RATE CAP CHANGE? The index interest rate floor associated with each risk control account will not change during the life of your contract 8.4 CAN AN INDEX BE CHANGED? The same index will be used for each risk control account for the duration of your contract. However, if the publication of that index is discontinued, or the calculation of that index is materially changed, we will substitute a suitable index that will be used for the entire then-current contract year and notify you of the change in advance. Any change will be approved by the insurance commissioner of the state in which the contract was issued, if required by state law. Notification will be in your annual report unless timing of any such change would cause us to send notification prior to your contract anniversary. 8.5 CAN ADDITIONAL INDICES We may offer additional risk control accounts with additional indices at our discretion. BE ADDED?
================================================================================================================================= SECTION 9. CONTRACT VALUE DURING THE ACCUMULATION PERIOD ================================================================================================================================= 9.1 WHAT IS MY CONTRACT VALUE On the contract issue date, the contract value is equal to the purchase payment. The DURING THE ACCUMULATION contract value on any other given date during the accumulation period is equal to the sum PERIOD? of the risk control account values. The contract value will be re-calculated at the time of a partial withdrawal and on each contract anniversary, as well as at the time of surrender, annuitization and upon death of the owner. Each risk control account value is calculated using the following formula: Risk Control Account Value(t)= [Risk Control Account Value effective last contract anniversary] (t-1) + Index Interest Credited throughout the current contract year (see Section 8.1) - Gross Withdrawals (defined below) Where: Risk Control Account Value(t)= risk control account value on the date of calculation Risk Control Account Value effective last contract anniversary(t-1) = risk control account value beginning of the current contract year Index Interest Credited = the resulting credited index interest amount as described in Section 8.1 Gross Withdrawals = the sum of all partial withdrawals, taken since the last contract anniversary, which includes all surrender charges and market value adjustments, if any. This process is repeated for each risk control account.
9.2 HOW DOES MY CONTRACT The contract value will be reduced by the sum of all partial withdrawals, including VALUE CHANGE UPON all surrender charges and market value adjustments, if any. A PARTIAL WITHDRAWAL? 9.3 WHAT IS THE SURRENDER The surrender value is equal to the contract value as of the date your written request VALUE? for surrender is received in our administrative office, reduced by any applicable surrender charge and adjusted (increased/decreased) for any applicable market value adjustment.
================================================================================================================================= SECTION 10. WITHDRAWAL PROVISION ================================================================================================================================= 10.1 WHAT ARE THE RULES FOR A After the first contract anniversary and before the payout date, you may make two partial PARTIAL WITHDRAWAL OF withdrawals per contract year by written request. The written consent of all owners and THE SURRENDER VALUE? irrevocable beneficiaries must be obtained prior to any partial withdrawal. Partial withdrawals will be effective as of the date we receive your written request in good order in our administrative office. Any applicable surrender charge and market value adjustment will affect the amount available for a partial withdrawal. If a partial withdrawal would cause the surrender value to be less than $2,000, we will treat your request as a full surrender. 10.2 WHAT ARE THE RULES FOR A You have the right to surrender this contract during the accumulation period by written FULL SURRENDER OF THE request. The written consent of all owners and irrevocable beneficiaries must be obtained CONTRACT? prior to a full surrender. You will be paid the surrender value as of the date we received your written request in good order in our administrative office. Upon payment of the surrender value, this contract is terminated, and we have no further obligation under this contract. We may require that this contract be returned to our administrative office prior to making payment. 10.3 WHAT AMOUNTS MAY BE The following amounts may be withdrawn without incurring a surrender charge or a market WITHDRAWN WITHOUT value adjustment: INCURRING A SURRENDER CHARGE OR MARKET VALUE a. death benefit proceeds; ADJUSTMENT? b. nursing home or hospital/terminal illness withdrawals as described in Section 11; c. your free annual withdrawal amount described below; d. amounts withdrawn after the initial index period; e. amounts withdrawn as required minimum distributions under the IRC; f. income payments during the payout period as described in Section 14. Your free annual withdrawal amount during the initial index period is a percentage of your beginning of year contract value. The free annual withdrawal amount is equal to 10% of the beginning of year contract value, beginning in year 2. There is no free annual withdrawal amount in contract year 1. If you make a partial withdrawal of less than 10% of the beginning of year contract value, the remaining free annual withdrawal amount will be applied to any subsequent partial withdrawal which occurs during the same contract year. No remaining free annual withdrawal amount will carry over to any subsequent contract year.
10.4 WHAT IS THE SURRENDER A surrender charge is imposed on amounts withdrawn in excess of the free annual withdrawal CHARGE? amount described in Section 10.3 above. The surrender charge will reduce the overall withdrawal amount. The surrender charge schedule is shown on your Data Page and is expressed as a percentage of your contract value. The surrender charge amount, if any, is calculated using the following formula: Surrender Charge Amount = W x SC% Where: W = amount of withdrawal (or portion of withdrawal) that is in excess of the free annual withdrawal amount remaining (if any) for that contract year SC% = applicable surrender charge percentage based on the contract year of the withdrawal 10.5 ARE THERE ANY Generally, the amount of any surrender or partial withdrawal will be paid to you within RESTRICTIONS ON seven days of receipt of your written request in our administrative office in good order. PAYMENTS FOR SURRENDER OR PARTIAL WITHDRAWALS? Subject to obtaining prior written approval by the state commissioner if required by state law, we reserve the right to postpone payment of any surrender or partial withdrawal for up to six (6) months after we receive your written request. In the event of postponement, we will pay interest on the proceeds if required by state law. Interest will be calculated at the effective annual rate and for the time period required under state law. 10.6 HOW IS THE MARKET VALUE The market value adjustment is not applied to the free annual withdrawal amount, only to ADJUSTMENT CALCULATED the portion of withdrawals that exceed the free annual withdrawal amount. The market ON FULL SURRENDER OR value adjustment is only applied during the initial index period and is calculated PARTIAL WITHDRAWAL DURING separately for each risk control account. The amount of withdrawal applied in the MVA THE ACCUMULATION PERIOD? formula is proportional to the risk control account value as it bears to the contract value at the time of withdrawal. On any given date it is calculated using the following formula: MVA = (W / (1+IIR*)) x (MVAF - 1) Where: W = amount of withdrawal (or portion of withdrawal) that is in excess of the free annual withdrawal amount remaining (if any) for that contract year IIR* = the resulting credited index interest rate where (A / B) - 1 where: A = Adjusted Index Value as of the current date B = Initial Index Value for current contract year MVAF = ((1 + I + K)/(1 + J + L))^N I = The market value adjustment index rate of the Market Value Adjustment Index 1 as of the contract issue date for a maturity consistent with the initial index period (shown on your Data Page). J = The market value adjustment index rate as of the withdrawal date of the Market Value Adjustment Index 1 for a maturity consistent with the remaining length of the initial index period. If there is no corresponding length of the market value adjustment index 1, then the linear interpolation of the index with maturities closest to N will be used to determine I and J.
K = The market value adjustment index rate of the Market Value Adjustment Index 2 as of the contract issue date (shown on your Data Page). L = The market value adjustment index rate of the Market Value Adjustment Index 2 as of the withdrawal date. N = The number of years (whole and partial) from the current date until the end of the initial index period. 10.7 WHAT HAPPENS IF ANY OF If the publication of any component of the market value adjustment indices is discontinued THE MARKET VALUE or if the calculation of the market value adjustment indices is changed substantially, we ADJUSTMENT INDICES ARE may substitute for the discontinued or substantially changed element subject to any DISCONTINUED? applicable regulatory approval that may be required. Before a substitute index is used, we shall notify you of the substitution. Any change we make will be on a non-discriminatory basis. 10.8 HOW WILL THE SURRENDER For each partial withdrawal and upon full surrender of the contract within the initial CHARGE AND MARKET VALUE index period, the total withdrawal/surrender amount may be reduced by the applicable ADJUSTMENT AFFECT THE surrender charge and adjusted (increased/decreased) for the market value adjustment as WITHDRAWAL AMOUNT? stated above.
================================================================================================================================= SECTION 11. NURSING HOME OR HOSPITAL/TERMINAL ILLNESS WITHDRAWAL PRIVILEGE ================================================================================================================================= NOTICE: THIS WITHDRAWAL PRIVILEGE IS NOT INTENDED TO PROVIDE LONG-TERM CARE OR NURSING HOME INSURANCE. 11.1 WHAT IS THE NURSING HOME We will waive the surrender charge and/or market value adjustment subject to providing OR HOSPITAL/TERMINAL proof that one of the following conditions has occurred: ILLNESS PRIVILEGE? a.) NURSING HOME OR HOSPITAL. The owner or annuitant has first been admitted to a licensed nursing home or hospital and has been confined to such nursing home or hospital for at least 180 consecutive days after the latter of the contract issue date or the date of change of owner or annuitant. As proof, we may require verification of confinement in the nursing home or hospital. The conditions that must be met are that: o the confinement in a Nursing Home or Hospital is recommended by a Physician who is duly licensed by the state to treat the injury or sickness causing the confinement and who is not an employee of the Nursing Home or Hospital where the annuitant or owner is confined; and o an additional free annual withdrawal amount request, accompanied by written proof of confinement and the Physician's recommendation, is received by us no later than 90 days following the date that the qualifying confinement has ended. b.) TERMINAL ILLNESS. The owner or annuitant has been determined to be terminally ill. Terminally ill means that due to illness or accident, the annuitant's life expectancy is 12 months or less. As proof, we require determination of the terminal illness. Such determination must be signed by the physician making the determination after the latter of the contract issue date or the date of change of owner or annuitant. The physician may not be a member of your immediate family.
Proof must be provided at the time of your request for surrender or partial withdrawal. Before granting the waiver, we may request a second opinion or examination of the owner or annuitant by one of our examiners. We will bear the cost of such second opinion. This privilege may be exercised only one time.
================================================================================================================================= SECTION 12. DEATH PROVISIONS PRIOR TO PAYOUT PERIOD ================================================================================================================================= Notwithstanding any provision of this Contract to the contrary, any benefits required to be paid under this Contract will be paid in a manner that satisfies the requirements of the IRC. 12.1 WHAT HAPPENS IF AN If you die during the accumulation period, your beneficiary is entitled to a death OWNER DIES DURING THE benefit. If you have a joint owner, the death benefit will be available when the first ACCUMULATION PERIOD? joint owner dies. A beneficiary must make his/her election within sixty (60) days of the date we receive due proof of death. The following death benefit options are available: OPTION A: If the sole beneficiary is the surviving spouse of the deceased owner, the surviving spouse may elect to continue the contract as the new owner. OPTION B: If the beneficiary is a natural person, payment of the death benefit may be applied under one of the Income Payout options. Payments under the Income Payout option must begin within one (1) year of the owner's death and payments may not extend beyond a period certain equal to the beneficiary's life expectancy. OPTION C: Lump sum payment of the death benefit. OPTION D: Payment of the death benefit within five (5) years of the date of the owner's death. 12.2 WHAT HAPPENS IF THE If the Annuitant dies during the accumulation period, while the owner is living, and no ANNUITANT DIES DURING joint Annuitant has been named, the owner will become the annuitant, until and unless THE ACCUMULATION PERIOD? we receive other written notice. If a joint annuitant has been named, then upon the death of an annuitant, the surviving joint annuitant will become the annuitant. If the owner is not a natural person, the annuitant may not be changed and a new annuitant may not be designated. For purposes of the Death Provisions, the annuitant will be considered the owner. See Section 12.1. 12.3 WHAT AMOUNT WILL BE The amount that will be paid as death benefit proceeds is equal to the contract value PAID AS DEATH BENEFIT? adjusted (increased/decreased) for interest credited on the date death proceeds are payable. 12.4 WHEN ARE DEATH PROCEEDS Death benefit proceeds are payable upon our receipt of due proof of the owner's death. PAYABLE? 12.5 WILL INTEREST BE PAID We will pay interest on single sum death proceeds, if required by state law. Interest, ON DEATH PROCEEDS? if any, will be calculated at the rate and for the time period required by state law.
12.6 ARE DEATH BENEFITS SUBJECT So far as permitted by law, the death benefits will not be subject to any claim of TO CLAIMS OF CREDITORS? the beneficiary's creditors.
================================================================================================================================= SECTION 13. PAYOUT PERIOD ================================================================================================================================= 13.1 WHAT IS THE PAYOUT PERIOD? The payout period is the period of time that: (a) begins on the payout date; and (b) continues until we make the last payment as provided by the income payout option chosen. On the first day of this period, the contract value will be applied to the income payout option you selected. If you do not select an income payout option we will make payments on the following basis, unless otherwise required under the IRC: a.) Life Income Option with a 10-year guaranteed period certain for contracts with one (1) annuitant; and b.) Joint & Survivor Life Income Option with a 10-year guaranteed period certain for contracts with two (2) annuitants. If there is only one (1) annuitant on the payout date and you select Option 3 (the Joint and Survivor Life Income Option described in Section 14.3) or any other available joint and survivor option, you may name a joint annuitant upon whose life expectancy, in conjunction with the annuitant's, the income payments will be based. 13.2 CAN THE ANNUITANT OR OWNER You cannot change the annuitant or owner on or after the income payment start BE CHANGED? date for any reason. ================================================================================================================================= SECTION 14. INCOME PAYMENTS ================================================================================================================================= 14.1 WHEN WILL INCOME PAYMENTS The first income payment will be paid as of the payout date. The anticipated payout date BEGIN? is shown on your Data Page. It is equal to the contract anniversary following the annuitant's 95th birthday. You may change the payout date to a date other than the anticipated payout date by written request, provided: (a) the request is made while an owner is alive; (b) the request is received at our administrative office at least 30 days prior to the anticipated payout date; and (c) the requested payout date is at least two years after the contract issue date. Such change is subject to any maximum maturity age restrictions that may be imposed by law and cannot extend past the latest payout date that is allowed under this contract. 14.2 TO WHOM ARE INCOME The owner may name the person to receive income payments. If no person is named, payment PAYMENTS MADE? will be made to the owner. 14.3 WHAT INCOME PAYOUT There are different ways to receive income payments. We call these income payout options. OPTIONS ARE AVAILABLE? Three income payout options are described below. The payout options described may not be available in all states at all times. Other income payout options may be available with our consent.
OPTION 1 - INSTALLMENT OPTION. We will pay monthly income payments for a chosen number of years, not less than 10, nor more than 30. If the annuitant dies before income payments have been made for the chosen number of years: (a) income payments will be continued for the remainder of the period to the payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 1 rates, will be paid to the payee or to the owner if there is no surviving payee. OPTION 2 - LIFE INCOME OPTION - GUARANTEED PERIOD CERTAIN. We will pay monthly income payments for as long as the annuitant lives. If the annuitant dies before all of the income payments have been made for the guaranteed period certain: (a) income payments will be continued during the remainder of the guaranteed period certain to the payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 2 rates, will be paid to the payee or to the owner if there is no surviving payee. The guaranteed period certain choices are: a.) 0 years (life income only); b.) 5 years; c.) 10 years; d.) 15 years; or e.) 20 years. OPTION 3 - JOINT AND SURVIVOR LIFE INCOME OPTION - 10 YEAR GUARANTEED PERIOD CERTAIN. We will pay monthly income payments for as long as either of the annuitants is living. If at the death of the second surviving annuitant, income payments have been made for less than 10 years: (a) income payments will be continued during the remainder of the guaranteed period certain to the payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 3 rates, will be paid to the payee or to the owner if there is no surviving payee. 14.4 WHAT ARE THE REQUIREMENTS The minimum amount which can be applied under all payout options is the greater of FOR CHOOSING AN INCOME $2,500 or the amount required to provide an initial monthly income payment of $20. PAYOUT OPTION? We may require due proof of age and gender of any annuitant on whose life an income payout option is based. 14.5 HOW WILL INCOME PAYMENT The minimum dollar amount of each income payment will be determined by dividing the VALUES BE DETERMINED? contract value applied by $1,000, and multiplying the result by the applicable option rate shown in Section 16. The amount of any income payout at the time it starts will never be less than that which would have been provided by applying the surrender value to purchase a single premium immediate annuity at the purchase rates then offered by us to the same class of annuitants.
================================================================================================================================= SECTION 15. DEATH PROVISIONS DURING THE PAYOUT PERIOD ================================================================================================================================= 15.1 IS NOTIFICATION OF DEATH We must be notified immediately of the death of an annuitant, owner or payee. Proof of REQUIRED? death will be required upon the death of an annuitant or owner. We are not responsible for any misdirected payments that result from failure to notify us of any such death.
15.2 WHAT HAPPENS WHEN THE If an annuitant dies during the payout period, remaining income payouts or death benefits, ANNUITANT DIES? if any, will be distributed as provided by the income payout option in effect. The income option payout in effect will determine whether additional income payouts or a death benefit apply. 15.3 WHAT HAPPENS WHEN THE If an owner dies after on or after the start of income payout, any remaining income payouts OWNER DIES WHO IS NOT will be distributed at least as rapidly as provided by the income payout option in effect. THE ANNUITANT?
================================================================================================================================= SECTION 16. INCOME OPTION RATES ================================================================================================================================= 16.1 WHAT RATES WILL BE USED The rates shown are used to determine the minimum payment values for monthly income TO DETERMINE PAYMENT payments. We reserve the right on a non-discriminatory basis, to offer higher than VALUES FOR OPTIONS 1 current income payment levels that may vary based on the contract year in which the THROUGH 3? payout phase begins. The amount of each monthly income payment, for purposes of calculating minimum payment values for Options 2 and 3, are based on each annuitant's gender and his/her adjusted age for Type A life income rates, and on each annuitant's adjusted age for Type B life income rates. The life income rates type for this contract is shown on the Data Page. 16.2 HOW IS THE ANNUITANT'S The annuitant's adjusted age is his/her age as of the date of the first payment minus ADJUSTED AGE FOR 5 years, then subtracted by 2 additional years for each 5 full years elapsed between OPTIONS 2 AND 1/1/2013 and the Payout Date. 3 DETERMINED? 16.3 WHAT RATES ARE USED TO OPTION 1 - INSTALLMENT OPTION RATES - FIRST PAYMENT DUE AT BEGINNING OF PERIOD. DETERMINE THE MINIMUM PAYMENT VALUES FOR NUMBER OF YEARS MONTHLY PAYMENT OPTION 1? PAYABLE FOR EACH $1,000 APPLIED ------- ----------------------- 10 8.75 15 5.98 20 4.59 25 3.76 30 3.21 These rates are based on an effective annual rate of 1.00%.
16.4 WHAT RATES ARE USED TO OPTION 2 - LIFE INCOME OPTION RATES - GUARANTEED PERIOD CERTAIN - FIRST PAYMENT DUE AT DETERMINE THE MINIMUM BEGINNING OF PERIOD. The life income rates type for this contract is shown on the Data PAYMENT VALUES FOR Page. OPTION 2?
TYPE A LIFE INCOME RATES - PER $1,000 APPLIED ------------------------------------------------------------------------------------------ Adjusted Age - Male Years ------------------------------------------------------------------------------- Certain 55 60 65 70 75 80 85 90 95 100 ------------------------------------------------------------------------------------------ 0 3.22 3.69 4.32 5.19 6.37 8.02 10.34 13.63 18.28 26.51 5 3.22 3.68 4.30 5.13 6.22 7.65 9.45 11.52 13.69 15.74 10 3.20 3.64 4.21 4.92 5.77 6.69 7.55 8.21 8.61 8.74 15 3.16 3.56 4.04 4.57 5.10 5.53 5.81 5.94 5.98 5.98 20 3.09 3.43 3.79 4.12 4.37 4.52 4.58 4.59 4.59 4.59 ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ Adjusted Age - Female Years ------------------------------------------------------------------------------- Certain 55 60 65 70 75 80 85 90 95 100 ------------------------------------------------------------------------------------------ 0 3.01 3.43 3.99 4.77 5.89 7.53 9.98 13.52 18.17 25.44 5 3.01 3.42 3.98 4.73 5.80 7.28 9.24 11.47 13.59 15.55 10 3.00 3.40 3.93 4.62 5.50 6.52 7.49 8.19 8.59 8.73 15 2.98 3.35 3.82 4.38 4.98 5.48 5.80 5.94 5.98 5.98 20 2.94 3.27 3.65 4.03 4.33 4.51 4.58 4.59 4.59 4.59 ------------------------------------------------------------------------------------------ TYPE B LIFE INCOME RATES - PER $1,000 APPLIED ------------------------------------------------------------------------------------------ Adjusted Age - Unisex Years ------------------------------------------------------------------------------- Certain 55 60 65 70 75 80 85 90 95 100 ------------------------------------------------------------------------------------------ 0 3.05 3.48 4.06 4.85 5.98 7.63 10.05 13.54 18.19 25.65 5 3.05 3.47 4.04 4.81 5.88 7.35 9.28 11.48 13.61 15.59 10 3.04 3.45 3.98 4.68 5.55 6.55 7.50 8.20 8.59 8.74 15 3.01 3.40 3.87 4.42 5.00 5.49 5.80 5.94 5.98 5.98 20 2.97 3.30 3.68 4.05 4.34 4.51 4.58 4.59 4.59 4.59 ------------------------------------------------------------------------------------------ These rates are based on the Annuity 2000 Tables with compound interest at an effective annual rate of 1.00%. Rates for years payable and guaranteed periods certain are not shown. If allowed by us, they will be calculated on an actuarially equivalent basis and will be available upon request.
16.5 WHAT RATES ARE USED TO OPTION 3 - LIFE INCOME OPTION RATES - JOINT AND SURVIVOR - 10 YEAR GUARANTEED PERIOD DETERMINE THE MINIMUM CERTAIN - FIRST PAYMENT DUE AT BEGINNING OF PERIOD. The life income rates type for PAYMENT VALUES FOR this contract is shown on the Data Page. OPTION 2?
TYPE A LIFE INCOME RATES - PER $1,000 APPLIED ------------------------------------------------------------------------------------------ Adjusted Age - Female Adjusted ------------------------------------------------------------------------------ Age - Male 55 60 65 70 75 80 85 90 95 100 ------------------------------------------------------------------------------------------ 55 2.66 2.81 2.94 3.04 3.11 3.15 3.18 3.19 3.19 3.20 60 2.77 2.98 3.18 3.35 3.47 3.56 3.60 3.63 3.64 3.64 65 2.86 3.13 3.40 3.66 3.88 4.04 4.13 4.18 4.20 4.21 70 2.92 3.24 3.59 3.97 4.31 4.59 4.77 4.87 4.91 4.92 75 2.95 3.31 3.74 4.22 4.72 5.16 5.48 5.66 5.74 5.77 80 2.98 3.36 3.83 4.40 5.05 5.68 6.18 6.49 6.63 6.68 85 2.99 3.38 3.88 4.52 5.28 6.09 6.78 7.23 7.46 7.54 90 2.99 3.39 3.91 4.58 5.42 6.35 7.20 7.78 8.09 8.20 95 3.00 3.40 3.92 4.61 5.48 6.48 7.42 8.08 8.46 8.59 100 3.00 3.40 3.93 4.61 5.50 6.52 7.49 8.18 8.58 8.72 ------------------------------------------------------------------------------------------ TYPE B LIFE INCOME RATES - PER $1,000 APPLIED ------------------------------------------------------------------------------------------ Adjusted Age - Unisex Adjusted ------------------------------------------------------------------------------ Age - Male 55 60 65 70 75 80 85 90 95 100 ------------------------------------------------------------------------------------------ 55 2.63 2.76 2.86 2.93 2.98 3.01 3.03 3.03 3.04 3.04 60 2.76 2.95 3.11 3.24 3.34 3.39 3.43 3.44 3.45 3.45 65 2.86 3.11 3.36 3.58 3.75 3.87 3.93 3.96 3.98 3.98 70 2.93 3.24 3.58 3.91 4.21 4.43 4.57 4.64 4.67 4.68 75 2.98 3.34 3.75 4.21 4.66 5.05 5.31 5.46 5.53 5.55 80 3.01 3.39 3.87 4.43 5.05 5.64 6.10 6.37 6.51 6.55 85 3.03 3.43 3.93 4.57 5.31 6.10 6.76 7.19 7.42 7.50 90 3.03 3.44 3.96 4.64 5.46 6.37 7.19 7.77 8.08 8.18 95 3.04 3.45 3.98 4.67 5.53 6.51 7.42 8.08 8.44 8.58 100 3.04 3.45 3.98 4.68 5.55 6.55 7.50 8.18 8.58 8.72 ------------------------------------------------------------------------------------------ These rates are based on the Annuity 2000 Tables with compound interest at an effective annual rate of 1.00%. Rates for years payable and guaranteed periods certain are not shown. If allowed by us, they will be calculated on an actuarially equivalent basis and will be available upon request.
SINGLE PREMIUM DEFERRED MODIFIED GUARANTEED INDEX ANNUITY Income Payments Starting on the Payout Date Death Benefit Payable at Death of Owner Prior to the Payout Date Non-Participating MEMBERS LIFE INSURANCE COMPANY [2000 HERITAGE WAY, WAVERLY, IOWA 50677] [TELEPHONE: 319.352.4090] EX-4 8 e93125_ex4ii.txt EX4.II Exhibit 4(ii) [LOGO OF CUNA MUTUAL GROUP| CUNA MUTUAL GROUP] SINGLE PREMIUM DEFERRED MODIFIED MEMBERS LIFE INSURANCE COMPANY GUARANTEED INDEX ANNUITY APPLICATION [2000 Heritage Way o Waverly, IA 50677] -------------------------------------------------------------------------------- 1 PLAN OPTIONS REQUIRED. CHECK ONE INITIAL INDEX PERIOD IN SECTION 1A. COMPLETE ALLOCATIONS IN SECTION 1B. ALLOCATIONS MUST BE IN WHOLE (1%) INCREMENTS AND TOTAL 100%. REBALANCING OF ALLOCATIONS OCCURS ON CONTRACT ANNIVERSARY. -------------------------------------------------------------------------------- [MEMBERS(R) MARKET ZONE ANNUITY] A. INITIAL INDEX PERIOD [o 5-year o 7-year o 10-year] B. RISK CONTROL ACCOUNT ALLOCATION ___% [Secure Account] ___% [Growth Account] [ALASKA AND ARIZONA: UPON WRITTEN REQUEST, WE WILL PROVIDE WITHIN A REASONABLE TIME REASONABLE FACTUAL INFORMATION REGARDING THE BENEFITS AND PROVISIONS OF THE CONTRACT TO YOU. IF FOR ANY REASON YOU DECIDE NOT TO KEEP YOUR CONTRACT, RETURN IT TO US WITHIN 30 DAYS AFTER YOU RECEIVE IT FOR A REFUND OF THE AMOUNT PAID. YOU MAY RETURN IT TO MEMBERS LIFE INSURANCE COMPANY AT THE ADDRESS SHOWN ABOVE, OR TO THE AGENT WHO SOLD IT TO YOU. FOR ALASKA RESIDENTS "WITHIN A REASONABLE TIME" MEANS WITHIN 10 DAYS OF RECEIPT OF YOUR WRITTEN REQUEST.] [STATE VARIATIONS] -------------------------------------------------------------------------------- 2 PARTIES TO THE CONTRACT REQUIRED. ALL PARTIES MUST BE AGE 85 OR YOUNGER ON CONTRACT ISSUE DATE. MUST COMPLETE SECTION 2A. OWNER WILL BE THE ANNUITANT UNLESS A DIFFERENT ANNUITANT IS NAMED IN SECTION 2B. TO NAME A JOINT OWNER, COMPLETE SECTION 2C. TO NAME MORE PARTIES TO THE CONTRACT, USE SECTION 9. -------------------------------------------------------------------------------- A. OWNER COMPLETE THIS BOX FOR A NATURAL PERSON OWNER. ---------------------------------------------------------------------------- NAME ____________________________________________ GENDER o Male o Female FIRST MI LAST DATE OF BIRTH ________ U.S. CITIZEN o Yes o No ---------------------------------------------------------------------------- COMPLETE THIS BOX FOR A TRUST OR CREDIT UNION OWNER. THIS IS ONLY ALLOWED FOR NON-QUALIFIED PLAN TYPES (EXCEPT NON-QUALIFIED BENEFICIARY). FOR A TRUST OWNER, INCLUDE A COPY OF THE TRUST DOCUMENT PAGES SHOWING TRUST NAME, TRUST DATE, TRUSTEE NAME(S), INVESTMENT AUTHORITY AND SIGNATURE(S), OR COMPLETE [FORM 1919(CML), TRUSTEE CERTIFICATION OF INSURANCE/ANNUITY POWERS]. ---------------------------------------------------------------------------- Name _______________________________________________________________________ TRUST OR CREDIT UNION DATE OF TRUST ________ PERSON AUTHORIZED TO RECEIVE CORRESPONDENCE ____ TRUSTEE(S)/AUTHORIZED OFFICER(S) ___________________________________________ ---------------------------------------------------------------------------- ALL OWNERS MUST COMPLETE THIS BOX. ---------------------------------------------------------------------------- SOCIAL SECURITY OR EMPLOYER ID NUMBER __________ DAYTIME PHONE ___________ MAILING ADDRESS ________________________________ [EMAIL __________________] CITY ___________________________________________ STATE ________ ZIP _____ ---------------------------------------------------------------------------- B. ANNUITANT (IF OTHER THAN OWNER) COMPLETE THIS BOX ONLY IF ANNUITANT IS OTHER THAN THE OWNER NAMED IN SECTION 1A. ---------------------------------------------------------------------------- NAME ____________________________________________ GENDER o Male o Female FIRST MI LAST DATE OF BIRTH ________ RELATIONSHIP TO OWNER(S) U.S. CITIZEN o Yes o No SOCIAL SECURITY NUMBER _________________________ DAYTIME PHONE ___________ MAILING ADDRESS ________________________________ [EMAIL __________________] CITY ___________________________________________ STATE ________ ZIP _____ ---------------------------------------------------------------------------- C. JOINT OWNER MUST BE A NATURAL PERSON. THIS IS ONLY ALLOWED FOR NON-QUALIFIED PLAN TYPES (EXCEPT NON-QUALIFIED BENEFICIARY). ---------------------------------------------------------------------------- NAME ____________________________________________ GENDER o Male o Female FIRST MI LAST DATE OF BIRTH ________ U.S. CITIZEN o Yes o No SOCIAL SECURITY NUMBER _________________________ DAYTIME PHONE ___________ MAILING ADDRESS ________________________________ [EMAIL __________________] CITY ___________________________________________ STATE ________ ZIP _____ ---------------------------------------------------------------------------- SPDMGIAAPP-2012 PAGE 1 DOC CODE 02 -------------------------------------------------------------------------------- 3 PLAN TYPE AND PURCHASE PAYMENT REQUIRED. COMPLETE ALL SECTIONS. MAKE ALL CHECKS PAYABLE TO MEMBERS LIFE INSURANCE COMPANY. -------------------------------------------------------------------------------- A. PURCHASE PAYMENT MINIMUM IS $5,000. MAXIMUM CANNOT EXCEED $1,000,000 WITHOUT PRIOR APPROVAL. SUBMITTED WITH APPLICATION $ ___________ ESTIMATED TOTAL AMOUNT $ ___________ BY CHECK OR DRAFT FROM ALL SOURCES B. PLAN TYPE AND PAYMENT CLASSIFICATION SELECT ONLY ONE PLAN TYPE AND COMPLETE THE ROW FOR THAT TYPE. [FOR SEP IRA, COMPLETE [FORM 5305-SEP]. FOR BENEFICIARY IRA, COMPLETE [FORMS CLS-520, CLS-521 AND CLS-381]. FOR NON-QUALIFIED BENEFICIARY, COMPLETE [FORMS CLS-522, CLS-523 AND CLS-524]. ONLY CREDIT UNION-OWNED 457 PLANS ARE ALLOWED. FOR IRAS, CURRENT AND PRIOR YEAR CONTRIBUTIONS WILL BE BASED ON SIGNED DATE OF APPLICATION.] PLAN TYPE PAYMENT CLASSIFICATION ---------------------------------------------------------------------------------------------------------------------- o Non-qualified $ ______________ $ ______________ NON-1035 1035 EXCHANGE EXCHANGE ---------------------------------------------------------------------------------------------------------------------- o Non-qualified $ ______________ Beneficiary 1035 EXCHANGE (Stretch) ---------------------------------------------------------------------------------------------------------------------- o Traditional IRA $ ______________ $ ______________ $ ______________ $ ______________ ROLLOVER TRANSFER CURRENT YEAR PRIOR YEAR CONTRIBUTION CONTRIBUTION ---------------------------------------------------------------------------------------------------------------------- o Roth IRA $ ______________ $ ______________ $ ______________ $ ______________ $ _______________ ROLLOVER TRANSFER CURRENT YEAR PRIOR YEAR ROTH CONVERSION CONTRIBUTION CONTRIBUTION ---------------------------------------------------------------------------------------------------------------------- o SEP IRA $ ______________ $ ______________ $ ______________ $ ______________ ROLLOVER TRANSFER CURRENT YEAR PRIOR YEAR CONTRIBUTION CONTRIBUTION ---------------------------------------------------------------------------------------------------------------------- o Beneficiary IRA $ ______________ $ ______________ (Stretch) ROLLOVER TRANSFER ---------------------------------------------------------------------------------------------------------------------- o 457(b) $ ______________ $ ______________ ROLLOVER TRANSFER ---------------------------------------------------------------------------------------------------------------------- o 457(f) $ ______________ $ ______________ ROLLOVER TRANSFER ----------------------------------------------------------------------------------------------------------------------
[STATE VARIATIONS] c. SOURCE OF PAYMENTS COMPLETE ONE LINE FOR EACH PAYMENT. FOR 401(K) PLAN TYPES, LIST ROTH 401(K) AMOUNTS SEPARATELY FROM REGULAR 401(K) AMOUNTS. CONTRACT WILL BE ISSUED ONLY AFTER ALL SOURCES ARE RECEIVED.
SOURCE/COMPANY NAME ESTIMATED AMOUNT EXISTING PLAN TYPE __________________________________ $ _____________________ _____________________ __________________________________ $ _____________________ _____________________ __________________________________ $ _____________________ _____________________ __________________________________ $ _____________________ _____________________ __________________________________ $ _____________________ _____________________
SPDMGIAAPP-2012 PAGE 2 DOC CODE 02 -------------------------------------------------------------------------------- 4 REPLACEMENT REQUIRED. ANSWER BOTH QUESTIONS AND COMPLETE AS APPROPRIATE. -------------------------------------------------------------------------------- o Yes o No Do you have any existing life insurance policies or annuity contracts with MEMBERS Life Insurance Company or any other company? If yes, a completed Important Notice: Replacement of Life Insurance or Annuities must accompany this application if required by your state. o Yes o No Will this contract replace, discontinue or change any existing life insurance policies or annuity contracts with MEMBERS Life Insurance Company or any other company? If yes, a completed Replacement Form must accompany this application if required by your state.
COMPANY NAME OF POLICY/CONTRACT BEING REPLACED POLICY/CONTRACT NUMBER ___________________________________________________ ___________________________ ___________________________________________________ ___________________________ ___________________________________________________ ___________________________ ___________________________________________________ ___________________________
-------------------------------------------------------------------------------- 5 BENEFICIARY REQUIRED. LIST EACH BENEFICIARY AND CHECK WHETHER PRIMARY OR CONTINGENT. DO NOT INCLUDE FRACTIONS OR PERCENTS FOR EVEN DISTRIBUTION OF PROCEEDS. IF TYPE IS NOT CHECKED, WE WILL ASSUME PRIMARY. TO LIST MORE USE A SEPARATE SIGNED AND DATED PAPER. -------------------------------------------------------------------------------- THE OWNER HAS THE RIGHT TO PREDETERMINE HOW A BENEFICIARY WILL RECEIVE THE DEATH BENEFIT BY COMPLETING [FORM 40RESTRICT, BENEFICIARY DESIGNATION WITH RESTRICTED PAYOUT OPTIONS]. FOR INDIVIDUAL BENEFICIARIES: o Primary _____________________________________________ ________________________________________ o Contingent NAME ADDRESS _________________________________ _____________________________ _____________________ RELATIONSHIP SOCIAL SECURITY NUMBER DATE OF BIRTH o Primary _____________________________________________ ________________________________________ o Contingent NAME ADDRESS _________________________________ _____________________________ _____________________ RELATIONSHIP SOCIAL SECURITY NUMBER DATE OF BIRTH o Primary _____________________________________________ ________________________________________ o Contingent NAME ADDRESS _________________________________ _____________________________ _____________________ RELATIONSHIP SOCIAL SECURITY NUMBER DATE OF BIRTH o Primary _____________________________________________ ________________________________________ o Contingent NAME ADDRESS _________________________________ _____________________________ _____________________ RELATIONSHIP SOCIAL SECURITY NUMBER DATE OF BIRTH FOR TRUST BENEFICIARIES: o Primary _____________________________________________ ________________________________________ o Contingent NAME OF TRUST ADDRESS ________________________________________________________________ _____________________ TRUSTEE NAME(S) DATE OF TRUST
SPDMGIAAPP-2012 PAGE 3 DOC CODE 02 -------------------------------------------------------------------------------- 6 ELECTRONIC AUTHORIZATION OPTIONAL. SEE [FORM CLS-56. PHONE/FAX/INTERNET AUTHORIZATION] FOR DETAILS ON WHAT TRANSACTIONS MAY BE AUTHORIZED. -------------------------------------------------------------------------------- I understand that I will automatically have phone/fax/internet authorization unless the following box is marked: o I do NOT want this authorization. I understand that the registered representative/agent/insurance producer assigned to my contract will automatically have phone/fax/internet authorization unless the following box is marked: o I do NOT want the registered representative/agent/insurance producer assigned to my contract to have this authorization. -------------------------------------------------------------------------------- 7 EMAIL CONSENT OPTIONAL. THIS CONSENT ALLOWS YOU TO RECEIVE THE PROSPECTUS AND OTHER REGULATORY DOCUMENTS ELECTRONICALLY VIA EMAIL. THIS REDUCES ENVIRONMENTAL WASTE AND THE VOLUME OF MAIL YOU RECEIVE. -------------------------------------------------------------------------------- I DO want to receive my regulatory documents, including the prospectus, statement of additional information, annual and semi-annual reports, and proxy statements via email, and I understand and agree: o This consent will be in effect until I revoke it. o While at certain times the Company may still choose to deliver paper copies, I can receive paper copies at any time by calling MEMBERS Life Insurance Company at [1.800.798.6600]. o I may be charged by a third party vendor for the access to the internet necessary to obtain the documents and/or download Adobe Reader software, but I will not be charged by MEMBERS Life Insurance Company. o I must have access to computer equipment and software that can access a website and read documents formatted for Adobe Reader. Adobe Reader software can be downloaded for no charge at www.adobe.com. You must provide a valid email address to participate in electronic delivery of your regulatory documents. You will receive an email confirmation of your consent. The consent process will be complete only when you reply to that email as instructed. OWNER EMAIL __________________________________________________________________ JOINT OWNER EMAIL (IF DIFFERENT THAN OWNER EMAIL) ____________________________ -------------------------------------------------------------------------------- 8 FRAUD WARNING REQUIRED. REFER TO WARNING FOR YOUR STATE BELOW. -------------------------------------------------------------------------------- [ALABAMA:] [Any person who knowingly presents a false or fraudulent claim for payment of a loss or benefit or who knowingly presents false information in an application for insurance is guilty of a crime and may be subject to restitution, fines or confinement in prison, or any combination thereof.] [COLORADO:] [It is unlawful to knowingly provide false, incomplete, or misleading facts or information to an insurance company for the purpose of defrauding or attempting to defraud the company. Penalties may include imprisonment, fines, denial of insurance and civil damages. Any insurance company or agent of an insurance company who knowingly provides false, incomplete, or misleading facts or information to a policyholder or claimant for the purpose of defrauding or attempting to defraud the policyholder or claimant with regard to a settlement or award payable from insurance proceeds shall be reported to the Colorado division of insurance within the department of regulatory agencies.] [DISTRICT OF COLUMBIA:] [WARNING: It is a crime to provide false or misleading information to an insurer for the purpose of defrauding the insurer or any other person. Penalties include imprisonment and/or fines. In addition, an insurer may deny insurance benefits if false information materially related to a claim was provided by the applicant.] [MAINE:] [See section 10. The fraud warning that applies to you appears directly above your signature.] [MARYLAND:] [Any person who knowingly or willfully presents a false or fraudulent claim for payment of a loss or benefit or who knowingly or willfully presents false information in an application for insurance is guilty of a crime and may be subject to fines and confinement in prison.] [NEW JERSEY:] [Any person who includes any false or misleading information on an application for an insurance policy is subject to criminal and civil penalties.] [OHIO:] [Any person who, with intent to defraud or knowing that he is facilitating a fraud against an insurer, submits an application or files a claim containing a false or deceptive statement is guilty of insurance fraud.] [PENNSYLVANIA:] [Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or a statement of claim containing any materially false information or conceals for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties.] ALL OTHER STATES: ANY PERSON WHO KNOWINGLY PRESENTS A FALSE OR FRAUDULENT CLAIM FOR PAYMENT OF A LOSS OR BENEFIT, OR KNOWINGLY PRESENTS FALSE INFORMATION IN AN APPLICATION FOR INSURANCE MAY BE GUILTY OF A CRIME AND SUBJECT TO FINES AND CONFINEMENT IN PRISON, AND DENIAL OF INSURANCE BENEFITS, DEPENDING ON STATE LAW. [STATE VARIATIONS] SPDMGIAAPP-2012 PAGE 4 DOC CODE 02 -------------------------------------------------------------------------------- 9 SPECIAL INSTRUCTIONS OPTIONAL. PLEASE PRINT CLEARLY. -------------------------------------------------------------------------------- _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ -------------------------------------------------------------------------------- 10 AGREEMENT REQUIRED. READ AND HAVE ALL PARTIES TO THE CONTRACT NAMED IN SECTION 2 SIGN BELOW. -------------------------------------------------------------------------------- o I have read the application and represent that all statements and answers, as they pertain to me, are true and complete to the best of my knowledge and belief and are the basis for any contract issued by MEMBERS Life Insurance Company; and I understand that no information will be considered to have been given to MEMBERS Life Insurance Company unless it is stated in this application. o I understand that no registered representative/agent/insurance producer is authorized to make, void, waive or change any conditions or provisions of the application or contract. o The USA Patriot Act requires all financial institutions, including insurance companies, to verify the identity of their customers. I understand that providing my name, address, date of birth and taxpayer identification number allows MEMBERS Life Insurance Company to verify my identity. This verification process may include the use of third party sources to verify the information I provided. o I understand the contract I have applied for is suitable for me based on my investment objective, financial situation and needs. In addition, if this contract will replace, change or modify an existing contract, I hereby confirm my belief that replacing my existing contract is suitable, and I have considered product features, fees and charges. o I understand that MEMBERS Life Insurance Company will have no liability until a contract is issued, delivered and accepted by me. o I understand my contract will not be issued until the index purchase date following receipt of my application by MEMBERS Life Insurance Company in good order. No interest will be credited to my purchase payment prior to the contract issue date. o I UNDERSTAND WHILE CONTRACT VALUES MAY BE AFFECTED BY AN EXTERNAL INDEX, THE CONTRACT DOES NOT DIRECTLY PARTICIPATE IN ANY STOCK OR EQUITY INVESTMENT. CONTRACT VALUES ARE NOT GUARANTEES, PROMISES OR WARRANTIES. o I understand the surrender charge schedule begins when the purchase payment is credited to my contract and runs for the number of years selected as my Initial Index Period in section 1a. o I have received a copy of the [MEMBERS(R) Market Zone Annuity] Disclosure. o I ACKNOWLEDGE RECEIPT OF A CURRENT PROSPECTUS FOR THIS ANNUITY, AND UNDERSTAND THAT BECAUSE OF THE MARKET VALUE ADJUSTMENT PROVISION OF THIS CONTRACT, THE AMOUNT I RECEIVE UPON WITHDRAWAL MAY VARY FROM THE STATED CONTRACT VALUE. o I request a Statement of Additional Information. [MAINE:] [ANY PERSON WHO KNOWINGLY PRESENTS A FALSE OR FRAUDULENT CLAIM FOR PAYMENT OF A LOSS OR BENEFIT, OR KNOWINGLY PRESENTS FALSE INFORMATION IN AN APPLICATION FOR INSURANCE MAY BE GUILTY OF A CRIME AND SUBJECT TO FINES AND CONFINEMENT IN PRISON, AND DENIAL OF INSURANCE BENEFITS, DEPENDING ON STATE LAW.] [STATE VARIATIONS] SIGNED AT: _________________ __________ SIGNED ON: __________________________ CITY STATE DATE ________________________________________ _____________________________________ SIGNATURE OF OWNER/TRUSTEE/AUTHORIZED SIGNATURE OF JOINT OWNER (IF NAMED OFFICER NAMED IN SECTION 2A IN SECTION 2C) ________________________________________ SIGNATURE OF ANNUITANT (IF OTHER THAN THE OWNER IS NAMED IN SECTION 2B) -------------------------------------------------------------------------------- 11 HOME OFFICE ONLY FOR ADMINISTRATIVE PURPOSES ONLY. NOT TO BE USED FOR ANY CHANGE THAT REQUIRES THE OWNER'S AGREEMENT IN WRITING. -------------------------------------------------------------------------------- SPDMGIAAPP-2012 PAGE 5 DOC CODE 02 -------------------------------------------------------------------------------- 12 REGISTERED REPRESENTATIVE REQUIRED. TO BE COMPLETED BY THE REGISTERED SECTION REPRESENTATIVE/AGENT/INSURANCE PRODUCER. -------------------------------------------------------------------------------- A. For replacement information, answer both questions and complete as appropriate. To the best of your knowledge: o Yes o No Does the applicant have any existing life insurance policies or annuity contracts with MEMBERS Life Insurance Company or any other company? If yes, a completed Important Notice: Replacement of Life Insurance or Annuities must accompany this application if required by the state. o Yes o No Will this contract replace, discontinue or change any existing life insurance policies or annuity contracts with MEMBERS Life Insurance Company or any other company? If yes, a completed Replacement Form must accompany this application if required by the state. If yes, I confirm: a. This replacement meets the standards for replacement sales identified in MEMBERS Life Insurance Company's Statement Regarding the Acceptability of Life and Annuity Replacement Sales. b. The following sales materials were used: ________________ If no sales materials were used, state "None." B. o Yes o No Have you reviewed the owner's identity documents in accordance with the USA Patriot Act and recorded all necessary information as follows? 1. If owner is a natural person: o Driver's License o Passport o Green Card o Other Photo ID ____________ LIST TYPE Card No. ____________________ Expiration Date ______________ Country/State of Issue ____________________ 2. If owner is a trust or credit union: County/State Where Formed _________________________________ Date Formed _________________________________ 3. If there is a joint owner: o Driver's License o Passport o Green Card o Other Photo ID ____________ LIST TYPE Card No. ____________________ Expiration Date ______________ Country/State of Issue ____________________
C. If the applicant is an active duty member of the United States Armed Forces (including active duty military reserve personnel), I certify I have completed the proper disclosure if this application was solicited and/or signed on a military base or installation. D. If sales materials were used, I certify that I have used only approved sales materials in connection with this sale and that copies of all sales materials used were left with the applicant. E. I have explained to the owner(s) how the annuity will meet their current financial needs and objectives. F. I certify that I have reviewed this application and have determined that its proposed purchase is suitable as required under law based on information provided by the owner(s), as applicable, including information that is reasonably appropriate to determine the suitability of my recommendation. G. I certify that I have also considered the liquidity needs of the owner(s), along with risk tolerance and investment time horizon; I have followed my broker/dealer's suitability guidelines in the recommendation of this annuity; and I acknowledge that this application is subject to review for suitability by my broker/dealer. H. I am FINRA-registered and state-licensed for registered annuity contracts in all required jurisdictions. I. I certify that I have truly and accurately recorded the information provided by the applicant. [J. I select the following compensation option: If no option is selected, then option 1 will apply. o 1 (T000) o 2 (T025)] I UNDERSTAND THAT WHEN I SIGN THIS APPLICATION, I AM AGREEING TO ALL THE TERMS AND CONDITIONS APPLICABLE TO ME AS A REGISTERED REPRESENTATIVE. SIGNATURE _______________________________________________________ Date _________________________________________ SIGNATURE OF REGISTERED REPRESENTATIVE REP ID __________________________________ REP NAME _________________________________________________ 5-DIGIT REP NUMBER PRINT FULL NAME REP PHONE __________________________________ REP EMAIL _________________________________________________ BEST NUMBER TO CALL PRINT EMAIL CREDIT UNION ID __________________________________ CREDIT UNION NAME _________________________________________ 8-DIGIT CU NUMBER (IF APPLICABLE) PRINT NAME OF CU (IF APPLICABLE) BROKER/DEALER ID __________________________________ BROKER/DEALER NAME _________________________________________ B/D NUMBER PRINT NAME OF B/D (IF OTHER THAN CBSI) General Agent ID __________________________________ GENERAL AGENT NAME _________________________________________ GA NUMBER (IF APPLICABLE) PRINT NAME OF GA (IF APPLICABLE)
SPDMGIAAPP-2012 PAGE 6 DOC CODE 02 EX-4 9 e93125_ex4iii.txt EX4.III Exhibit 4(iii) [LOGO OF CUNA MUTUAL GROUP] | CUNA MUTUAL GROUP Exhibit 4(iii) MEMBERS LIFE INSURANCE COMPANY 2000 Heritage Way, Waverly, Iowa 50677 Telephone: 800.798.6600 CHANGE OF ANNUITANT ENDORSEMENT
================================================================================================================================= ENDORSEMENT SECTION 1. GENERAL INFORMATION ================================================================================================================================= 1.1 WHAT IS OUR Our agreement with you includes this endorsement as a part of the contract to which it is AGREEMENT WITH YOU? attached. The provisions of the contract apply to this endorsement unless they conflict with the endorsement. If there is a conflict, the endorsement provision will apply. The effective date for this endorsement is the same as the issue date for the contract to which it is attached. We promise to provide the benefit described in this endorsement as long as the contract and this endorsement are in force and all the terms and conditions of this endorsement are met. 1.2 WHAT IS THE BENEFIT This endorsement allows you to change the annuitant at any time while the annuitant is PROVIDED BY THIS alive during the accumulation period if: ENDORSEMENT? a.) this contract is owned by a business or a trust; b.) the original annuitant under the contract is a selected manager or a highly compensated employee (as those terms are defined by Title 1 of the Employee Retirement Income Security Act, as amended); and c.) the new annuitant under the contract is also a selected manager or a highly compensated employee. 1.3 WHEN WILL THIS This endorsement will terminate on the earliest of: ENDORSEMENT TERMINATE? a.) the date death proceeds become payable; b.) the payout date (also referred to as the annuity date); or c.) the date you surrender your contract. ================================================================================================================================= ENDORSEMENT SECTION 2. ENDORSEMENT CHARGES ================================================================================================================================= 2.1 IS THERE A CHARGE FOR There is no charge for this benefit. However, if you exercise the right provided by this THIS BENEFIT? endorsement during the first two contract years, we reserve the right to charge a fee to offset expenses incurred. Any fee charged will never be greater than $150.00. ================================================================================================================================= ENDORSEMENT SECTION 3. CHANGE OF ANNUITANT ================================================================================================================================= 3.1 HOW DO YOU REQUEST A Your change of annuitant request must be made in writing on a form acceptable to us and CHANGE OF ANNUITANT? received at our administrative office. Unless otherwise specified by the owner, the change will take effect as of the date you signed it. We are not liable for any payment we make or action we take before receiving any such written request.
2012-ANNCHANGE-MLIC 3.2 WHO CAN BE NAMED You may name any manager or highly compensated employee who meets all requirements AS ANNUITANT? for issuance of a like contract, as of the contract issue date.
================================================================================================================================= ENDORSEMENT SECTION 4. EFFECT ON CONTRACT ================================================================================================================================= 4.1 HOW DOES A CHANGE Income payments (also referred to as annuity payments) will be payable under the contract IN ANNUITANT AFFECT based on the life of the annuitant named at the time of payout. YOUR CONTRACT? The death benefit will be determined based on the new annuitant's age as of the contract issue date. Income payments will be based on the new annuitant's age on the payout date. Any death benefit riders included under the contract will be terminated automatically as of the effective date of a change in annuitant.
MEMBERS Life Insurance Company /s/ Robert N. Trunzo President EX-4 10 e93125_ex4iv.txt EX4.IV Exhibit 4(iv) [LOGO OF CUNA MUTUAL GROUP] | CUNA MUTUAL GROUP Exhibit 4(iv) MEMBERS LIFE INSURANCE COMPANY ROTH IRA ENDORSEMENT TO: 2000 Heritage Way, Waverly, Iowa 50677 SINGLE PREMIUM MODIFIED Phone: 800.798.6600 GUARANTEED INDEX ANNUITY CONTRACT NO.: ______________________ ENDORSEMENT EFFECTIVE DATE: _____________ OWNER: _____________________________ CITY & STATE: ___________________________ This endorsement is made part of the contract to which it is attached. In any conflict between the terms of this endorsement and any other section of the contract, this endorsement will govern. In this endorsement, MEMBERS Life Insurance Company will be called "we," "our" or "us." The annuitant/owner will be called "you," "your" or "yours." The contract is to be qualified as a Roth Individual Retirement Annuity ("IRA") under Section [SEC]408A of the Internal Revenue Code ("Code"). In order to maintain qualified status as a Roth IRA, the following terms and conditions are required to be met. -------------------------------------------------------------------------------- ROTH INDIVIDUAL RETIREMENT ANNUITY -------------------------------------------------------------------------------- EXCLUSIVITY, NONFORFEITABLE, NONTRANSFERABLE AND NONASSIGNABLE This Roth IRA contract ("contract") is for your exclusive benefit or that of your beneficiaries. If this is an inherited IRA within the meaning of Code [SEC]408(d)(3)(C) maintained for the benefit of your designated beneficiary, references in this document to "you," "your" or "yours" are to you as the deceased. Your interest is nonforfeitable, and you must be both the owner and annuitant. A co-owner may not be designated. This contract is not transferable except to us on surrender or settlement. It may not be pledged as security for any purpose. PREMIUM A. MAXIMUM PREMIUM. The maximum premium under this contract for any tax year cannot exceed the lesser of: 1. The aggregate amount of the premiums for this contract and contributions to all other individual retirement arrangements that you have or may create subject to the following limits, which are reduced by any regular contributions made to your nonRoth IRAs for that taxable year: a. $5,000 for taxable year 2008 and years thereafter adjusted for cost-of-living increases. After 2008, the adjusted limit will be determined by the Secretary of the Treasury for cost-of-living increases under Code [SEC]219(b)(5)(D). Such adjustments will be in multiples of $500; and b. If you are age 50 or older, the limits above are increased by $1,000 for taxable year 2006 and years thereafter. 2. 100 percent of compensation. The term "compensation": 1. means wages, salaries, professional fees, or other amounts derived from or received for personal services actually rendered, including, but not limited to the following: a. commissions paid to sales personnel, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses; b. earned income, as defined in Code [SEC]401(c)(2) (reduced by the deduction the self-employed individual takes for contributions made to a self-employed retirement plan); c. any amount includible in your gross income under Code [SEC]71 with respect to a divorce or separation instrument described in subparagraph (A) of Code [SEC]71(b)(2); d. in the case of a married individual filing a joint return, the greater compensation of his or her spouse is treated as his or her own compensation, but only to the extent that such spouse's compensation is not being used for purposes of the spouse making an IRA contribution; or e. any differential wage payments as defined in [SEC]3401(h)(2). 2. does not include: a. amounts derived from or received as earnings or profits from property (including, but not limited to, interest and dividends); b. amounts not includible in gross income (determined without regard to [SEC]112); or 2012-ROTHML 1 NIRS c. any amount received as a pension or annuity or as a deferred compensation. For purposes of this definition, Code [SEC]401(c)(2) will be applied as if the term "trade or business" includes service described in Code [SEC]1402 (c)(6). The maximum premium limits do not apply to: 1. a qualified rollover contribution of a distribution from an IRA that meets the requirements of Code [SEC]408(d)(3); or 2. a recharacterization that meets the requirements of [SEC]1.408A-5 of the regulations. If you were a participant in a Code [SEC]401(k) plan of a certain employer in bankruptcy described in Code [SEC]219(b)(5)(C) you may make an additional contribution of up to $3,000 for taxable years beginning after 2006 and before 2010 only. If you make these contributions, you may not make the increased catch-up contributions if you are age 50 or older. You may also make additional contributions specifically authorized by statute - such as repayments of qualified reservist distributions, repayments of certain plan distributions made on account of a federally declared disaster and certain amounts received in connection with the Exxon Valdez litigation. A qualified rollover contribution is a rollover contribution of a distribution from an eligible retirement plan described in [SEC]402(c)(8)(B). If the distribution is from an IRA, the rollover must meet the requirements of Code [SEC]408(d)(3), except the one rollover per year rule of [SEC]408(d)(3)(B) does not apply if the distribution is from an IRA other than a Roth IRA (a "nonRoth IRA"). If the distribution is from an eligible retirement plan other than an IRA, the rollover must meet the requirements of Code [SEC]402(c), 402(e)(6), 403(a)(4), 403(b)(8), 403(b)(10), 408(d)(3) or 457(e)(16), as applicable. A qualified rollover contribution also includes the following: 1. All or part of a military death gratuity or servicemembers' group life insurance ("SGLI") payment may be contributed if the contribution is made within 1 year of receiving the gratuity or payment. Such contributions are disregarded for purposes of the one-rollover-per-year rule under [SEC]408(d)(3)(B). 2. All or part of an airline payment (as defined in [SEC]125 of the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA"), Pub. L. 110-458) received by certain airline employees may be contributed if the contribution is made within 180 days of receiving the payment. No contributions will be accepted under a SIMPLE IRA Plan established by an employer pursuant to Code [SEC]408(p). Also, no transfer or rollover of contributions made by a particular employer under its SIMPLE IRA Plan will be accepted prior to the end of the 2-year period starting with the date you first participated in that employer's SIMPLE IRA Plan. If this is an inherited Roth IRA within the meaning of [SEC]408(d)(3)(C), no contributions will be accepted. B. PREMIUM/CONTRIBUTION LIMITS
------------------------------------------------------------------------------------------------- TAX FILING STATUS FULL CONTRIBUTION PHASE-OUT RANGE NO CONTRIBUTION ------------------------------------------------------------------------------------------------- Single or Head of $95,000 or less Between $95,000 and $110,000 or more Household modified AGI* $110,000 modified AGI* modified AGI* ------------------------------------------------------------------------------------------------- Joint Return or Qualifying $150,000 or less Between $150,000 and $160,000 or more Widow(er) modified AGI* $160,000 modified AGI* modified AGI* ------------------------------------------------------------------------------------------------- Married - Separate Return $0 Between $0 and $10,000 $10,000 or more modified AGI* modified AGI* -------------------------------------------------------------------------------------------------
* AGI = adjusted gross income The maximum premium amount is further limited as follows: 1. If your modified AGI for a taxable year is in the phase-out range (determined under the table above): (a) the maximum premium for that taxable year is rounded up to the next multiple of $10; or (b) is not reduced below $200. After 2006, the dollar amounts above will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code [SEC]408A(c)(3). Such adjustments will be in multiples of $1,000. 2. As defined in Code [SEC]408A(c)(3)(C)(i), modified AGI (for a taxable year), does not include any amount included in AGI as a result of a qualified rollover contribution . 2012-ROTHML 2 NIRS 3. You may recharacterize a regular contribution to a nonRoth IRA pursuant to the rules in [SEC]1.408A-5 of the proposed regulations as a regular contribution to this Roth IRA, subject to the above limits. C. REFUND OF EXCESS CONTRIBUTIONS. If the premium received is in excess of the maximum premium, there may be a tax levied in each taxable year until the excess contribution is removed. You may avoid the tax by requesting one of the following options: 1. you may request to receive the excess contributions as a refund; or 2. you may apply the excess contributions toward any premium due for the next taxable year, if more than a single premium is allowed under your contract. Any amount greater than the next taxable year's premium will be refunded. Your request must be made in writing on or before the date described by law (including extension of time) for filing the income tax return for that taxable year. If we are made aware of a premium payment in excess of the maximum premium and you do not exercise one of these options within the period allowed, the excess contributions will be refunded. D. REFUND OF ANY OTHER PREMIUM OR DIVIDEND. Any other refund of premium or dividend will be: (1) applied, before the close of the calendar year following the year of the refund, toward the payment of future premiums or the purchase of additional benefits; or (2) paid in cash. E. PAYMENT. Payment of premium under this contract must be made in cash. DISTRIBUTIONS A. PREMATURE DISTRIBUTIONS. Any distribution will be reported to the Internal Revenue Service ("IRS") as a premature distribution, and earnings may be subject to a tax in addition to income tax unless one of the following circumstances applies: 1. the distribution is a part of a series of substantially equal periodic payments made no less frequently than annually for your life expectancy or joint life expectancies of you and your named beneficiary(ies); 2. you are over age 59 1/2; 3. the distribution occurs following your disability (within the meaning of Code [SEC]72(m)(7)); 4. the distribution to the beneficiary(ies) occurs following your death; 5. the distribution occurs: (a) to pay health insurance premiums, if you receive state or federal unemployment compensation for at least twelve (12) consecutive weeks; or (b) to pay medical bills in excess of 7 1/2% of your AGI; 6. first-time home purchase as described in Code [SEC]72(t)(8); 7. qualified higher education costs as described in Code [SEC]72(t)(7); or 8. qualified reservist distributions as described in Code [SEC]72(t)(2)(G). To the extent allowed by federal regulation, any applicable charges outlined in the contract will apply to the amount withdrawn. B. PAYMENTS TO YOU. If you are eligible to receive distributions under this contract, you may receive them as follows: 1. full surrender; 2. partial withdrawal; or 3. as an irrevocable income payout option. You will need to pay ordinary federal income tax on any nonqualified distribution of earnings. A nonqualified distribution is a distribution that occurs: (1) within five years of the year of the original contribution to the original Roth IRA; or (2) after five years if the distribution is not due to one of the following: (a) your death; (b) your disability; (c) your attainment of age 59 1/2; or (d) for the qualified expenses of a first-time home purchase. All distributions will be made in accordance with the requirement of [SEC]401(a)(9) of the Code except the requirements of [SEC]401(a)(9)(A) and (G) of the Code, and the regulations thereunder. No amount is required to be distributed prior to your death. If this is an inherited Roth IRA within the meaning of Code [SEC]408(d)(3)(C), your beneficiary will be required to receive distributions. Any applicable charges outlined in the contract will apply to the amount withdrawn to the extent allowed by federal regulation. 2012-ROTHML 3 NIRS C. PAYMENTS TO YOUR BENEFICIARY(IES). If you die prior to receiving any payments under an irrevocable income payout option, the proceeds of this contract will be segregated into portions as of the day before your death, as indicated on the applicable beneficiary form. Each beneficiary may choose to receive the proceeds as outlined under "1" or "2" below. If your spouse is the sole beneficiary, your spouse may elect to treat the Roth IRA as his or her own. If your surviving spouse makes a contribution to this contract or fails to take required distributions as a beneficiary, this contract will be deemed to be the spouse's Roth IRA. 1. If your death occurs prior to the start of receiving distributions under an irrevocable income payout option, proceeds will be distributed at least as rapidly as follows: a. in a lump sum no later than the end of the 5th year following the year of your death; or b. in life expectancy payments (only if there is a designated beneficiary): 1) for a nonspouse beneficiary, based on the beneficiary's life expectancy, starting with their age in the year following your death and reduced by one (1) annually; 2) for an inherited Roth IRA benefit that your nonspouse beneficiary completed a direct trustee-to-trustee transfer from your retirement plan into this inherited Roth IRA no later than the end of the year following your death, distributions will be made based on the beneficiary's life expectancy starting with their age in the year following your death, reduced by one annually; or 3) for your spouse as sole beneficiary, based on your spouse's life expectancy, recalculated annually, starting in the later of: i) the end of the year following your death; or ii) the year in which you would have attained age 70 1/2. If distributions start prior to the required date for i) or ii) above on an irrevocable basis (except for acceleration) under an irrevocable income payout option meeting the requirements of [SEC]1.401(a)(9)-6 of the Income Tax Regulations, then required distributions are considered to commence on the irrevocable income payout option starting date. c. If your surviving spouse, as beneficiary, dies prior to required distributions, the remaining interest will be distributed as follows: 1) by the end of the calendar year following the calendar year of your spouse's death; 2) over your spouse's designated beneficiary's life expectancy based on the beneficiary's age in the year following the death of your spouse; or 3) if there is no beneficiary named, in a lump sum no later than the 5(th) year following the year of your spouse's death. d. If your surviving spouse, as beneficiary, dies after required distributions to him or her begins, any remaining interest will continue to be distributed under the contract option chosen. 2. If your death occurs on or after distributions have begun under an irrevocable income payout option, then the distribution of the interest in the Roth IRA must satisfy the requirements of Code [SEC]408(a)(6), as modified by [SEC]408(A)(c)(5), and the regulations thereunder. This means that the entire remaining interest will be distributed at least as rapidly as under the method of distribution being used prior to your death. If your designated beneficiary holds another IRA received from you, they may take the RMDs from that IRA in accordance with Q&A-9 of [SEC]1.408-8 of the Income Tax Regulations. The "interest" in the Roth IRA includes the amount of any outstanding rollover, transfer and recharacterization under Q&As-7 and -8 of [SEC]1.408-8 of the Income Tax Regulations and the actuarial value of any other benefits provided under the Roth IRA, such as guaranteed death benefits, if required. Life expectancy, as referred to above, is determined using the Single Life Table in Q&A-1 of [SEC]1.401(a)(9)-9 of the Income Tax Regulations. Once payments have commenced over a period certain, the period certain may not be changed even if the period certain is shorter than the maximum permitted. Payments must be made at intervals of no longer than one year. Notwithstanding any provision of this Roth IRA to the contrary, the distribution of your interest in the Roth IRA will be made in accordance with the requirements of Code [SEC]408(b)(3), as modified by [SEC]408A(c)(5), and the regulations thereunder, the provisions of which are here incorporated by reference. The required payments to your beneficiary(ies) described above are waived for 2009. GENERAL PROVISIONS A. OTHER LIMITATIONS. 1. No amount of life insurance is provided under this contract. 2. Commingling of funds of this contract with any other annuity is prohibited. 3. The only values that may be held under this contract are those for your separate interest. 2012-ROTHML 4 NIRS 4. Premiums for this contract will not be invested in collectibles. B. REACTIVATION OF CONTRACT AND TERMINATION. If more than a single premium payment is required and premium payments are interrupted, the contract will be reactivated at any date prior to maturity upon payment of a premium to us. The amount required for reactivation will not be more than $50. We may choose whether to accept future payments or to terminate the contract if: 1. you have not paid premiums for two full consecutive contract years; and 2. the paid-up annuity benefit at maturity would be less than $20 per month. We may terminate the contract by paying to you, in cash, the then present value of the paid-up benefits. C. ENDORSEMENTS. The contract, including this Roth IRA endorsement, will be amended from time to time as required by changes in the Code, IRS Regulation, or published revenue rulings, and subject to regulatory approval. We will promptly furnish any endorsements required to comply with such changes. When you receive such endorsement, you will have thirty (30) days to contact us to reject the endorsement. If the thirty (30) days elapse without contact, the endorsement is deemed accepted by you. Because this contract is established with the intent to comply with federal regulation, rejection will be deemed a request to remove this endorsement and will result in a taxable event. D. REPORTING. We are required to report payments from this contract to the IRS and, in some cases, to withhold certain amounts from taxable distributions. We will furnish an annual calendar year report summarizing total contributions and distributions under this contract in that year as may be required by the IRS. We will also furnish information concerning RMDs as is prescribed by the Commissioner of Internal Revenue. E. DISCLOSURE. We will furnish a disclosure statement describing Roth IRAs when the contract is delivered or endorsed. F. ENABLING AGREEMENT. By signing the application requesting that the contract be issued as a Roth IRA, you agree to the terms of this section and request that this Roth IRA endorsement be attached to the contract. The matters you agree to and accept responsibility for in the contract (including the application and this Roth IRA endorsement) will not be our responsibility. We will not be liable for any direct or indirect damage or loss as a result of those matters unless such damage or loss is caused by our willful or negligent act or omission in violation of the contract or applicable law. This includes (without limitation) taxes suffered or incurred by you or your beneficiary(ies) when we: 1. act in accordance with or reliance upon any information furnished by you or your beneficiary(ies); or 2. are required to act without the benefit of information that you are required to provide under the provisions of the contract or by law. IF YOU HAVE A QUESTION, COMPLAINT, OR NEED INFORMATION CONCERNING YOUR CONTRACT, CALL 1-800-798-6600. MEMBERS Life Insurance Company A Stock Insurance Company /s/ Robert N. Trunzo President 2012-ROTHML 5 EX-4 11 e93125_ex4v.txt EX4.V Exhibit 4(v) [LOGO OF CUNA MUTUAL GROUP] | CUNA MUTUAL GROUP Exhibit 4(v) MEMBERS LIFE INSURANCE COMPANY IRA ENDORSEMENT TO: 2000 Heritage Way, Waverly, Iowa 50677 SINGLE PREMIUM MODIFIED Phone: 800.798.6600 GUARANTEED INDEX ANNUITY CONTRACT NO.: ______________________ ENDORSEMENT EFFECTIVE DATE: _____________ OWNER: _____________________________ CITY & STATE: ___________________________ This endorsement is made part of the contract to which it is attached. In any conflict between the terms of this endorsement and any other section of the contract, this endorsement will govern. In this endorsement, MEMBERS Life Insurance Company will be called "we," "our" or "us." The annuitant/owner will be called "you," "your" or "yours." The contract is to be qualified as an Individual Retirement Annuity ("IRA") under Section [SEC]408 of the Internal Revenue Code ("Code"). In order to maintain qualified status as an IRA, the following terms and conditions are required to be met. -------------------------------------------------------------------------------- INDIVIDUAL RETIREMENT ANNUITY -------------------------------------------------------------------------------- EXCLUSIVITY, NONFORFEITABLE, NONTRANSFERABLE AND NONASSIGNABLE This IRA contract ("contract") is for your exclusive benefit or that of your beneficiaries. If this is an inherited IRA within the meaning of Code [SEC]408(d)(3)(C) maintained for the benefit of your designated beneficiary, references in this document to "you," "your" or "yours" are to you as the deceased. Your interest is nonforfeitable, and you must be both the owner and annuitant. A co-owner may not be designated. This contract is not transferable except to us on surrender or settlement. It may not be pledged as security for any purpose. PREMIUM A. MAXIMUM PREMIUM. The maximum premium under this contract for any tax year cannot exceed the lesser of: 1. The aggregate amount of the premiums for this contract and contributions to all other individual retirement arrangements that you have or may create subject to the following limits: a. $5,000 for taxable year 2008 and years thereafter adjusted for cost-of-living increases. After 2008, the adjusted limit will be determined by the Secretary of the Treasury for cost-of-living increases under Code [SEC]219(b)(5)(D). Such adjustments will be in multiples of $500; and b. If you are age 50 or older, the limits above are increased by $1,000 for taxable year 2006 and years thereafter. 2. 100 percent of compensation. The term "compensation": 1. means wages, salaries, professional fees, or other amounts derived from or received for personal services actually rendered, including, but not limited to the following: a. commissions paid to sales personnel, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses; b. earned income, as defined in Code [SEC]401(c)(2) (reduced by the deduction the self-employed individual takes for contributions made to a self-employed retirement plan); c. any amount includible in your gross income under Code [SEC]71 with respect to a divorce or separation instrument described in subparagraph (A) of Code [SEC]71(b)(2); (or) d. any differential wage payments as defined in [SEC]3401(h)(2). 2. does not include: a. amounts derived from or received as earnings or profits from property (including, but not limited to, interest and dividends); b. amounts not includible in gross income (determined without regard to [SEC]112); or c. any amount received as a pension or annuity or as a deferred compensation. For purposes of this definition, Code [SEC]401(c)(2) will be applied as if the term "trade or business" includes service described in Code [SEC]1402 (c)(6). 3762ML 2012 1 NIRS The maximum premium limits do not apply to: 1. a transfer, direct rollover or rollover contributions as permitted by Code [SEC]402(c), 402(e)(6), 403(a)(4), 403(b)(8), 403(b)(10), 408(d)(3), or 457(e)(16); 2. a transfer distributed to you from a qualified employer plan from a former spouse under a divorce decree or written instrument incidental to such divorce; or 3. contributions made in accordance with the terms of a Simplified Employee Pension ("SEP") as described in Code [SEC]408(k). If you were a participant in a Code [SEC]401(k) plan of a certain employer in bankruptcy described in Code [SEC]219(b)(5)(C) you may make an additional contribution of up to $3,000 for taxable years beginning after 2006 and before 2010 only. If you make these contributions, you may not make the increased catch up contributions if you are age 50 or older. You may also make additional contributions specifically authorized by statute - such as repayments of qualified reservist distributions, repayments of certain plan distributions made on account of a federally declared disaster and certain amounts received in connection with the Exxon Valdez litigation. In addition, a qualified rollover contribution as defined in the Federal Aviation Administration (FAA) Modernization and Reform Act of 2012 is allowed for a qualified airline employee to transfer any portion of an airline payment amount to a traditional IRA within 180 days of receiving the payment. No contributions will be accepted under a SIMPLE IRA Plan established by an employer pursuant to Code [SEC]408(p). Also, no transfer or rollover of contributions made by a particular employer under its SIMPLE IRA Plan will be accepted prior to the end of the 2-year period starting with the date you first participated in that employer's SIMPLE IRA Plan. If this is an inherited IRA within the meaning of [SEC]408(d)(3)(C), no contributions will be accepted. B. SEP CONTRIBUTIONS. The above maximum premium limits do not apply to a contribution made in accordance with the terms of a SEP as described in Code [SEC]408(k) as amended. C. REFUND OF EXCESS CONTRIBUTIONS. If the premium received is in excess of the maximum premium, there may be a tax levied in each taxable year until the excess contribution is removed. You may avoid the tax by requesting one of the following options: 1. you may request to receive the excess contributions as a refund; or 2. you may apply the excess contributions toward any premium due for the next taxable year, if more than a single premium is allowed under your contract. Any amount greater than the next taxable year's premium will be refunded. Your request must be made in writing on or before the date described by law (including extension of time) for filing the income tax return for that taxable year. If we are made aware of a premium payment in excess of the maximum premium and you do not exercise one of these options within the period allowed, the excess contributions will be refunded. D. REFUND OF ANY OTHER PREMIUM OR DIVIDEND. Any other refund of premium or dividend will be: (1) applied, before the close of the calendar year following the year of the refund, toward the payment of future premiums or the purchase of additional benefits; or (2) paid in cash. E. PAYMENT. Payment of premium under this contract must be made in cash. DISTRIBUTIONS A. PREMATURE DISTRIBUTIONS. Any distribution will be reported to the Internal Revenue Service ("IRS") as a premature distribution and may be subject to a tax in addition to income tax unless one of the following circumstances applies: 1. the distribution is a part of a series of substantially equal periodic payments made no less frequently than annually for your life expectancy or joint life expectancies of you and your named beneficiary(ies); 2. you are over age 59 1/2; 3. the distribution occurs following your disability (within the meaning of Code [SEC]72(m)(7)); 4. the distribution to the beneficiary(ies) occurs following your death; 5. the distribution occurs: (a) to pay health insurance premiums, if you receive state or federal unemployment compensation for at least twelve (12) consecutive weeks; or (b) to pay medical bills in 3762ML 2012 2 NIRS excess of 7 1/2% of your adjusted gross income; 6. first-time home purchase as described in Code [SEC]72(t)(8); 7. qualified higher education costs as described in Code [SEC]72(t)(7); or 8. qualified reservist distributions as described in Code [SEC]72(t)(2)(G). To the extent allowed by federal regulation, any applicable charges outlined in the contract will apply to the amount withdrawn. B. PAYMENTS TO YOU. If you are eligible to receive distributions under this contract, you may receive them as follows: 1. full surrender or withdrawal; 2. partial withdrawal; or 3. as an irrevocable income payout option. C. REQUIRED MINIMUM DISTRIBUTION PAYMENTS TO YOU. Payments of your entire interest will be made to you under this contract on or before the first day of April following the calendar year you attain age 70 1/2, (your "required beginning date" for receiving required minimum distributions ("RMDs")) as follows. 1. Distribution of your interest in this contract will be made according to the requirements of Code [SEC]408(b)(3) and related regulations. This includes any outstanding rollover, transfer or recharacterization amount and the actuarial value of any other benefits provided under the IRA, such as guaranteed death benefits, if required. The following rules also apply: a. The return multiples contained in the Uniform Lifetime Table of Code [SEC]1.72-9 of the Income Tax Regulations are used to calculate life expectancy. The table uses the joint life expectancy of you and your beneficiary who is assumed to be ten years younger than you. For a spouse beneficiary who is the sole beneficiary and is more than ten years younger than you, the calculation is based on you and your spouse's age recalculated. b. If there are two or more IRA plans, minimum distribution requirements of the Code may be satisfied out of one of the IRA plans. This is possible by receiving the combined required minimum distribution ("RMD") amounts out of one IRA plan. This is the alternative method described in Notice 88-38, 1988-1 C.B. 524. 2. Distribution payments may be made in the form of an irrevocable income payout option. If distributions are made under an irrevocable income payout option, the following rules apply: a. Distribution payments are determined based on the following: (1) your life or the lives of you and your designated beneficiary; or (2) a period certain that does not extend beyond your life expectancy or the joint and last survivor expectancy of you and your beneficiary. b. Distribution payments must be made at periodic intervals of no longer than one year and must be either nonincreasing, or if they increase, increasing only as provided in Q&As-1 and -4 of [SEC]1.401(a) (9)-6 of the Income Tax Regulations. Such periodic intervals must not exceed the periods specified in [SEC]1.401(a)(9)-6 of the Income Tax Regulations. c. Any distribution must satisfy the incidental benefit requirements specified in Q&A-2 of [SEC]1.401(a) (9)-6 of the Income Tax Regulations. d. The first required payment must be the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval. The above required minimum distribution payments are waived for 2009. If you reach age 70 1/2 in 2009, you are not required to receive your first distribution by April 1, 2010, due to the special waiver. Your first required minimum distribution must be made for 2010 by December 31, 2010. If this is an inherited IRA within the meaning of [SEC]408(d)(3)(C), the above rules do not apply. D. PAYMENTS TO YOUR BENEFICIARY(IES). If you die prior to receiving any payments under an irrevocable income payout option, the proceeds of this contract will be segregated into portions as of the day before your death, as indicated on the applicable beneficiary form. Each beneficiary may choose to receive the proceeds as outlined under "1" or "2" below. If your spouse is the sole beneficiary, the proceeds may also be rolled to the spouse's own IRA; 403(b) plan; a governmental 457 plan; or other employer qualified retirement plan in which the spouse participates. If your surviving spouse makes a contribution to this contract or fails to take required distributions as a beneficiary, this contract will be deemed to be the spouse's IRA. 1. If your death occurs prior to the required beginning date for receiving RMDs, proceeds will be distributed as follows: a. in a lump sum no later than the end of the 5th year following the year of your death; or b. in life expectancy payments (only if there is a designated beneficiary): 1) for a nonspouse beneficiary, based on the beneficiary's life expectancy, starting with their age in the year following your death and reduced by one (1) annually; 3762ML 2012 3 NIRS 2) for an inherited IRA benefit that your nonspouse beneficiary completed a direct trustee-to-trustee transfer from your retirement plan into this inherited IRA no later than the end of the year following your death, distributions will be made based on the beneficiary's life expectancy starting with their age in the year following your death, reduced by one annually; or 3) for your spouse as sole beneficiary, based on your spouse's life expectancy, recalculated annually, starting in the later of: i) the end of the year following your death; or ii) the year in which you would have attained age 70 1/2. c. If your surviving spouse, as beneficiary, dies prior to the required beginning date for receiving RMDs, the remaining interest will be distributed as follows: 1) by the end of the calendar year following the calendar year of your spouse's death; 2) over your spouse's designated beneficiary's life expectancy based on the beneficiary's age in the year following the death of your spouse; or 3) if there is no beneficiary named, in a lump sum no later than the 5 year following the year of your spouse's death. d. If your surviving spouse, as beneficiary, dies after RMDs to him or her begins, any remaining interest will continue to be distributed under the contract option chosen. 2. If your death occurs on or after the required beginning date for receiving the RMDs, proceeds will be distributed no later than December 31st of the year following the year of your death as follows: a. in a lump sum; or b. in life expectancy payments: 1) for a spouse beneficiary, based on the longer of: (i) your spouse's life expectancy starting in the year following your death, and recalculated annually; or (ii) your remaining life expectancy, starting with your age at death and reduced by one (1) annually. 2) for a nonspouse beneficiary, based on the longer of: (i) your beneficiary's life expectancy starting in the year following your death and reduced by one (1) annually; or (ii) your remaining life expectancy, starting with your age at death and reduced by one (1) annually. 3) if no beneficiary is designated, based on your remaining life expectancy, starting with your age at death and reduced by one (1) annually. If your designated beneficiary holds another IRA received from you, they may take the RMDs from that IRA in accordance with Q&A-9 of [SEC]1.408-8 of the Income Tax Regulations. The "interest" in the IRA includes the amount of any outstanding rollover, transfer and recharacterization under Q&As-7 and -8 of [SEC]1.408-8 of the Income Tax Regulations and the actuarial value of any other benefits provided under the IRA, such as guaranteed death benefits, if required. Life expectancy, as referred to above, is determined using the Single Life Table in Q&A-1 of [SEC]1.401(a)(9)-9 of the Income Tax Regulations. If you die after receiving payments under an irrevocable income payout option, proceeds must generally be distributed at least as rapidly as under the method of distribution in effect as of your date of death. Distributions are considered to have begun: 1. as of your required beginning date for receiving RMDs; or 2. if, prior to the required beginning date for RMDs, payments have begun under an irrevocable income payout option acceptable under [SEC]1.401(a) (9)-6 of the Income Tax Regulations. Once payments have commenced over a period certain, the period certain may not be changed even if the period certain is shorter than the maximum permitted. The required payments to your beneficiary(ies) described above are waived for 2009. GENERAL PROVISIONS A. OTHER LIMITATIONS. 1. No amount of life insurance is provided under this contract. 2. Commingling of funds of this contract with any other annuity is prohibited. 3. The only values that may be held under this contract are those for your separate interest. 4. Premiums for this contract will not be invested in collectibles. B. REACTIVATION OF CONTRACT AND TERMINATION. If more than a single premium payment is required and premium payments are interrupted, the contract will be reactivated at any date prior to maturity upon payment of a 3762ML 2012 4 NIRS premium to us. The amount required for reactivation will not be more than $50. We may choose whether to accept future payments or to terminate the contract if: 1. you have not paid premiums for two full consecutive contract years; and 2. the paid-up annuity benefit at maturity would be less than $20 per month. We may terminate the contract by paying to you, in cash, the then present value of the paid-up benefits. C. ENDORSEMENTS. The contract including this IRA endorsement will be amended from time to time as required by changes in the Code, IRS Regulation, or published revenue rulings, and subject to regulatory approval. We will promptly furnish any endorsements required to comply with such changes. When you receive such endorsement, you will have thirty (30) days to contact us to reject the endorsement. If the thirty (30) days elapse without contact, the endorsement is deemed accepted by you. Because this contract is established with the intent to comply with federal regulation, rejection will be deemed a request to remove this endorsement and will result in a taxable event. D. REPORTING. We are required to report payments from this contract to the IRS and, in some cases, to withhold certain amounts from taxable distributions. We will furnish an annual calendar year report summarizing total contributions and distributions under this contract in that year as may be required by the IRS. We will also furnish information concerning RMDs as is prescribed by the Commissioner of Internal Revenue. E. DISCLOSURE. We will furnish a disclosure statement describing IRAs when the contract is delivered or endorsed. F. ENABLING AGREEMENT. By signing the application requesting that the contract be issued as an IRA, you agree to the terms of this section and request that this IRA endorsement be attached to the contract. The matters you agree to and accept responsibility for in the contract (including the application and this IRA endorsement) will not be our responsibility. We will not be liable for any direct or indirect damage or loss as a result of those matters unless such damage or loss is caused by our willful or negligent act or omission in violation of the contract or applicable law. This includes (without limitation) taxes suffered or incurred by you or your beneficiary(ies) when we: 1. act in accordance with or reliance upon any information furnished by you or your beneficiary(ies); or 2. are required to act without the benefit of information that you are required to provide under the provisions of the contract or by law. IF YOU HAVE A QUESTION, COMPLAINT, OR NEED INFORMATION CONCERNING YOUR CONTRACT, CALL 1-800-798-6600. MEMBERS Life Insurance Company A Stock Insurance Company /s/ Robert N. Trunzo President 3762ML 2012 5 EX-4 12 e93125_ex4vi.txt EX4.VI Exhibit 4(vi) [LOGO OF CUNA MUTUAL GROUP | CUNA MUTUAL GROUP] MEMBERS LIFE INSURANCE COMPANY [2000 Heritage Way, Waverly, Iowa 50677] Telephone: [800.798.6600] AMENDMENT TO ANNUITY APPLICATION IMPORTANT INFORMATION REGARDING YOUR CONTRACT COVERAGE OWNER: _____[John Doe] ____________ [CONTRACT NUMBER: _123456789______] [JOINT OWNER: __Jane Doe___________________] [ANNUITANT, IF OTHER THAN OWNER: _James Doe________________________] DATE OF ORIGINAL APPLICATION: _[May 15, 2011]_____________ I UNDERSTAND AND AGREE THAT THE APPLICATION [AND CONTRACT ISSUED ON THE BASIS OF THE APPLICATION] IS AMENDED AS FOLLOWS: -------------------------------------------------------------------------------- OWNER/ANNUITANT INFORMATION -------------------------------------------------------------------------------- o The gender of the above named [Owner] is [male]. o The date of birth of the above named [Owner] is [January 15, 1956]. o The [Joint Annuitant] of this contract is [Jane Doe]. -------------------------------------------------------------------------------- PRODUCT NAME -------------------------------------------------------------------------------- [The product is/was issued as a [MEMBERS(R) Market Zone Annuity]]. -------------------------------------------------------------------------------- PLAN OPTION/PLAN TYPE -------------------------------------------------------------------------------- [The plan option is/was issued as [7-year plan]]. [The purchase payment is/was allocated as follows: [50%] [Secure Account] [50%] [Growth Account] [The plan type is/was issued as a/an [Non-qualified plan]]. 2012-SPDMGIA-APPAMD -------------------------------------------------------------------------------- INCOMPLETE INFORMATION -------------------------------------------------------------------------------- I hereby verify that the answer to item [Section 2, item C] of the application is as stated below: [Joint Owner's Social Security Number is ###-##-####] ----------------------------------------------------- -------------------------------------------------------------------------------- SIGNATURES -------------------------------------------------------------------------------- This amendment is effective as of the issue date of the contract to which it is attached. I agree that the representations in this Amendment are true and complete to the best of my knowledge and belief on the date signed. Date signed: _______________________________________. (month, day and year) _________________________________________________ Signature of Owner _________________________________________________ Signature of [Joint Owner/Joint Annuitant] _________________________________________________ Signature of Annuitant (if other than Owner) MEMBERS Life Insurance Company /s/ Robert N. Trunzo President EX-5 13 e93125_ex5.txt Exhibit 5 MEMBERS LIFE INSURANCE COMPANY 2000 Heritage Way Waverly, Iowa 50677 June 12, 2013 Board of Directors MEMBERS Life Insurance Company 2000 Heritage Way Waverly, Iowa 50677 Re: MEMBERS Life Insurance Company Offering of Single Premium Deferred Annuity Contract Registration Statement on Form S-1 Dear Board of Directors: In my capacity as the Associate General Counsel of MEMBERS Life Insurance Company, an Iowa corporation (the "Company") and with reference to the Registration Statement on Form S-1 (File No. 333-186477) filed by the Company, as Registrant, with the Securities and Exchange Commission, on February 6, 2013 and amended by Pre- Effective Amendment No. 1 on June 12, 2013 (together, the "Registration Statement"), I am delivering this opinion in connection with the sale of the single premium deferred annuity contracts (the "Contracts") issued by the Company having an aggregate offering price of up to $100,000,000 in accordance with the distribution agreement dated as of June 11, 2013 between the Company and CUNA Brokerage Services, Inc. (the "Distribution Agreement") This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K promulgated under the Securities Act of 1933, as amended (the "Securities Act"). I have participated in the legal review in connection with the Registration Statement and examined such documents and such law as I have considered necessary and appropriate. I have also examined originals or copies, certified or otherwise identified to my satisfaction, of such records of the Company and such agreements, certificates and receipts of public officials, certificates of officers or other representatives of the Company and others, and such other documents as I have deemed necessary or appropriate as a basis for the opinions set forth below. In my examination, I have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as facsimile, electronic, certified or photostatic copies, and the authenticity of the originals of such copies. In making my examination of executed documents, I have assumed that the parties thereto, other than the Company, had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and the execution and delivery by such parties of such documents and the validity and binding effect thereof on such parties. As to any facts material to the opinions expressed herein that I did not independently establish or verify, I have relied upon statements and representations of officers and other representatives of the Company and others and of public officials. I am admitted to the practice of law in the State of Iowa. My opinion set forth herein is limited to the laws of the State of Iowa and United States federal law, and I am expressing no opinion as to the effect of the laws of other jurisdictions. Insofar as the opinions expressed herein relate to matters governed by laws other than those set forth in the preceding sentence, I have assumed, without having made any independent investigation, that such laws do not affect any of the opinions set forth herein. The opinions expressed herein are based on laws in effect on the date hereof, which laws are subject to change with possible retroactive effect. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, it is my opinion that: 1) The Company is duly organized and existing under the laws of the State of Iowa and has been duly authorized to issue the Contracts by the Commissioner of Insurance of the State of Iowa. 2) The Contracts registered by the above Registration Statement have been duly authorized and, when issued pursuant to the Distribution Agreement, will be validly issued, fully paid and non-assessable and binding obligations of the Company. I hereby consent to the filing of this opinion as an exhibit to the above referenced Registration Statement and to the use of my name under the caption "Legal Matters" in the prospectuses constituting part of the Registration Statement. I do not admit by giving this consent that I am included in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission. This opinion is expressed as of the date hereof unless otherwise expressly stated and I disclaim any undertaking to advise you of any subsequent change in the facts stated or assumed herein or of any subsequent changes in applicable law. Very truly yours, /s/Ross D. Hansen ------------------------------- Ross D. Hansen Associate General Counsel EX-10 14 e93125_ex10i.txt EX10.I Exhibit 10(i) COINSURANCE AGREEMENT This Coinsurance Agreement (this "Agreement"), effective as of October 31, 2012, is by and between CMFG Life Insurance Company, a stock insurance corporation organized under the laws of the State of Iowa (hereinafter referred to as the "Reinsurer"), and MEMBERS Life Insurance Company, a stock insurance corporation organized under the laws of the State of Iowa {hereinafter referred to as the "Company"). The Company and the Reinsurer mutually agree to enter into a reinsurance transaction under the terms and conditions stated herein. This Agreement is an indemnity reinsurance agreement solely between the Company and the Reinsurer, and the performance of the obligations of each party under this Agreement shall be rendered solely to the other party. In no instance, except as set forth in the insolvency provisions of this Agreement, shall anyone other than the Company or the Reinsurer have any rights under this Agreement, and the Reinsurer shali have no obligation or liability to any insured, owner, beneficiary or other third party under the policies reinsured hereunder. ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings (definitions are applicable to both the singular and the plural forms of each term defined in this Article): 1.1 "Business Day" means any day that is not a Saturday, Sunday or other day on which national banking institutions are required or permitted by law or executive order to be closed. 1.2 "Effective Date" shall have the meaning set forth in Section 2.1. 1.3 "Expense Allowance" shall have the meaning set forth in Section 4.3. 1.4 "Insurance Taxes and Charges" means all premium taxes and other insurance taxes (not including any federal, state or local tax measured by income) and guaranty fund assessments payable by the Company on account of the Reinsured Policies. 1.5 "Policy Benefits" shall mean all annuity payouts, partial surrenders, full surrenders, death claims (if applicable), and all other contractual benefits or liabilities of any kind payable under the Reinsured Policies, including, without limitation, any extracontractual liabilities related thereto. 1.6 "Premiums" means the gross consideration payable on account of the Reinsured Policies. 1.7 "Monthly Accounting Period" means the period from the Effective Date through November 30, 2012 and each calendar month thereafter. 1.8 "Quota Share Percentage" shall have the meaning set forth in Section 2.1. 1.9 "Reinsured Policies" shall mean all (i) policies and annuity contracts of any kind written or issued by the Company prior to the Effective Date and any amendments, riders or endorsements attached thereto and any reinstatements thereof, and (ii) all Supplementary Contracts. 1.10 "Reserves" means, as of any date, all reserves, deposit fund liabilities and any other liabilities whatsoever for or under the Reinsured Policies calculated consistent with the reserve requirements, statutory accounting rules, and actuarial principles applicable to the Company and/or the Reinsurer. 1.11 "Settlement Amount" means the net amount due and payable to either party with respect to any Monthly Accounting Period as set forth in Section 6.1. 1.12 "Supplementary Contracts" means all supplementary contracts, whether with or without life contingencies, issued by the Company in exchange for a Reinsured Policy, whether prior to or after the Effective Date. ARTICLE II COVERAGE 2.1 Coverage. Upon the terms and subject to the conditions of this Agreement, as of 11:59 p.m., Central Time, on October 31, 2012 (the "Effective Date"), the Company shall cede to the Reinsurer, and the Reinsurer shall assume from the Company, all liabilities (including any prior-year loss reserve development) under the Reinsured Policies on a ninety-five percent (95%) coinsurance basis (the "Quota Share Percentage"). The liability of the Reinsurer hereunder with respect to the Reinsured Policies shall begin simultaneously and automatically with that of the Company, but not prior to the Effective Date. 2.2 Conditions. All coinsurance for which the Reinsurer is liable hereunder shall be subject to the same rates, terms, conditions, waivers, modifications, alterations, cancellations, limitations and restrictions as are contained in or otherwise apply to the Reinsured Policies, except as otherwise provided in this Agreement. Whenever a change is made in the status, plan, amount or other material feature of a Reinsured Policy, the Reinsurer will provide adjusted reinsurance coverage in accordance with the provisions of this Agreement. 2.3 New Business. This Agreement excludes all new policies or contracts written or issued by the Company after the Effective Date (the "New Business"). For the avoidance of doubt, all of the Company's New Business will be reinsured by the Reinsurer on a one hundred percent (100%) coinsurance basis pursuant to that certain Coinsurance Agreement, to become effective as of January 1, 2013, by and between the Company and the Reinsurer, which agreement shall provide coverage for all covered liabilities with respect to New Business. The Company will not write any new business between the Effective Date and January 1, 2013. ARTICLE III GENERAL PROVISIONS 3.1 Inspection. Either party or its designated representative may, upon reasonable advance notice and during normal business hours at the offices of the Company or the Reinsurer, as the case may be, conduct reasonable inspections of the books and records of the other party reasonably relating to the Reinsured Policies or this Agreement for such period as this Agreement remains in effect and as long thereafter as the Company or the Reinsurer, as the case may be, has any outstanding obligation under this Agreement. 2 3.2 Setoff and Recoupment. Any debts or credits incurred or arising on or after the Effective Date in favor of or against either the Company or the Reinsurer with respect to this Agreement are deemed mutual debts or credits, as the case may be, and shall be set off, and only the net balance shall be allowed or paid; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of applicable law. 3.3 Compliance with Applicable Laws. The Company and the Reinsurer shall maintain all licenses, obtain all regulatory approvals and comply with all applicable laws and regulatory requirements necessary to perform their respective obligations under this Agreement. ARTICLE IV PAYMENTS 4.1 Premiums. On the Effective Date, and as consideration for the coinsurance of the Reinsured Policies provided under this Agreement, the Company shall pay the Reinsurer an amount equal to the Quota Share Percentage of the estimated Reserves as of the Effective Date, which payment shall be made in the form of cash, securities or other assets acceptable to the Reinsurer. Within thirty (30) days following the Effective Date, the Company and Reinsurer shall calculate the actual Reserves as of the Effective Date based on data available after the Effective Date and, based upon such calculation, make any corresponding true-up payment to the appropriate party. In addition to the foregoing, the Company shall pay the Reinsurer the Quota Share Percentage of all Premiums payable on account of the Reinsured Policies on and after the Effective Date as such Premiums are due and received. Premiums received by the Company and payable to the Reinsurer shall be reflected in the Monthly Accounting Reports prepared by the Company and included in the calculation of the applicable Settlement Amount pursuant to Section 6.1. 4.2 Policy Benefits. The Reinsurer shall pay its Quota Share Percentage of all Policy Benefits paid by the Company during the current Monthly Accounting Period. Policy Benefits payable to the Company shall be reflected in the Monthly Accounting Reports prepared by the Company and included in the calculation of the applicable Settlement Amount pursuant to Section 6.1. 4.3 Expense Allowance. As reimbursement for expenses and costs incurred by the Company on and after the Effective Date on account of the Reinsured Policies, including but not limited to (i) commissions, (ii) acquisition expenses, (iii) expenses incurred in the provision of policyholder and benefit payment services, and (iv) Insurance Taxes and Charges, the Reinsurer shall pay to the Company a monthly expense allowance in an amount equal to the Quota Share Percentage of the actual allocated expenses and costs incurred by the Company with respect to the Reinsured Policies for the monthly period at issue (the "Expense Allowance"). The Expense Allowance shall be reflected in the Monthly Accounting Reports prepared by the Company and included in the calculation of the applicable Settlement Amount pursuant to Section 6.1. 4.4 Payments, Unless otherwise stated, all payments pursuant to this Agreement shall be made in U.S. Dollars and immediately available funds. 3 ARTICLE V ADMINISTRATION 5.1 Policy Administration. The Company shall provide all required, necessary and appropriate claims, administrative and other services with respect to the Reinsured Policies. The Company shall use reasonable care in its administration and claims practices with respect to the Reinsured Policies and in administering and performing its duties under this Agreement and such practices, administration and performance shall (a) conform with applicable law; (b) not be fraudulent; and (c) be no less favorable than those used by the Company with respect to other policies of the Company not reinsured by the Reinsurer. 5.2 Record Keeping. The Company shall maintain appropriate books and records relating to the Reinsured Policies in accordance with industry standards of insurance record keeping. In the event of the termination of this Agreement and upon the request of the Company, any records in the possession of the Reinsurer related to the Reinsured Policies shall be duplicated and forwarded to the Company. The Company shall establish and maintain an adequate system of internal controls and procedures for financial reporting relating to the Reinsured Policies and shall make such documentation available for examination and inspection by the Reinsurer upon request. ARTICLE VI ACCOUNTING AND SETTLEMENT 6.1 Monthly Accounting Reports. Within thirty (30) calendar days following the end of each Monthly Accounting Period, the Company shall provide the Reinsurer with a monthly report which shall list each of the payment obligations pursuant to Article IV for such Monthly Accounting Period and such other information regarding the Reinsured Policies as may be mutually agreed upon by the parties (the "Monthly Accounting Reports"). In addition to the Monthly Accounting Reports, the Company shall provide the Reinsurer with any additional information related to this Agreement or the Reinsured Policies as is reasonably necessary for the Reinsurer to satisfy any financial reporting or disclosure requirements or to comply with any applicable laws. Each Monthly Account Report will include a calculation of the Settlement Amount for that Monthly Accounting Period. The term "Settlement Amount" for any Monthly Accounting Period shall mean an amount equal to the difference between (i) Premiums payable pursuant to Section 4.1, less (ii) Policy Benefits payable pursuant to Section 4.2, less (in) the Expense Allowance payable pursuant to Section 4,3. 6.2 Settlements. If the Settlement Amount prepared by the Company shows a net balance payable to the Reinsurer, the Company shall remit such balance to the Reinsurer within ten (10) Business Days following delivery of the Monthly Accounting Report. If the Settlement Amount shows a net balance payable to the Company, the Reinsurer shall remit such balance to the Company within ten (10) Business Days following receipt of the Monthly Accounting Report. 6.3 Reconciliation. Each party shall have the right to review and dispute individual components of the transactions reflected in the Monthly Accounting Reports, and 4 to request adjustments, as appropriate. Any amount due either party in connection with any adjustment shall be paid within ten (10) Business Days following the parties' resolution of such adjustment. ARTICLE VII TERM AND TERMINATION 7.1 Term. The coinsurance provided under this Agreement shall remain continuously in force for so long as the Company shall remain liable on the Reinsured Policies or until terminated by either party by written notice given to the other party at least twelve (12) months in advance of the termination date, a copy of which shall be provided to the Iowa Insurance Division. 7.2 Runoff Coverage. If this Agreement is terminated, the coinsurance hereunder shall continue to apply to benefits and/or claims under all Reinsured Policies (including any lapsed, surrendered, reinstated, renewed or matured Reinsured Policy) until the Company's obligations under the Reinsured Policies ceases. The parties hereto expressly covenant and agree that, in the event of termination of this Agreement, they will cooperate with each other in the handling of all such runoff insurance business until the Company's obligations under the Reinsured Policies ceases. All costs and expenses associated with the handling of such runoff business shall be borne solely by the Reinsurer. 7.3 Recapture. The Policies are not eligible for recapture by the Company except upon the mutual agreement of the Company and the Reinsurer. ARTICLE VIII INSOLVENCY 8.1 Insolvency of Ceding Company. In the event of insolvency and the appointment of a conservator, liquidator, or statutory successor of the Company, the reinsurance hereunder shall be payable directly to the conservator, rehabilitator, liquidator, receiver or statutory successor of the Company on the basis of claims allowed against the Company by any court of competent jurisdiction or by any conservator, rehabilitator, liquidator, receiver or statutory successor of the Company having authority to allow such claims, without diminution because of that insolvency, or because the conservator, rehabilitator, liquidator, receiver or statutory successor of the Company has failed to pay all or a portion of any claims. Payments by the Reinsurer, as set forth herein, shall be made directly to the Company or to its conservator, rehabilitator, liquidator, receiver or statutory successor, except where this Agreement specifically provides another payee of such reinsurance in the event of the insolvency of the Company. The conservator, rehabilitator, liquidator, receiver or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy reinsured, within a reasonable time after such claim is filed and the Reinsurer may investigate and interpose, at its own expense, in any proceeding where such claim is to be adjudicated, any defense or defenses that the Reinsurer may deem available to the Company or to its conservator, rehabilitator, liquidator, receiver or statutory successor. 5 ARTICLE IX DISPUTE RESOLUTION 9.1 Dispute Resolution. If a dispute, controversy, or claim arises out of or relates to this Agreement, or an alleged breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association ("AAA") under its Commercial Mediation Rules, before resorting to arbitration. If the matter has not been resolved pursuant to mediation within thirty (30) calendar days of the commencement of such mediation (which period may be extended by mutual agreement in writing), then any unresolved dispute, controversy, or claim arising out of or relating to this Agreement, its termination or non-renewal, or any breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the AAA, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration shall be conducted by a sole arbitrator or, at the election of either party, before a panel of three arbitrators. Selection of the arbitrator(s) shall be in accordance with the Commercial Arbitration Rules of the AAA. The arbitrator(s) shall allow each party to conduct limited relevant discovery. The arbitrator(s) shall have no authority to award punitive damages or any damages not measured by the prevailing party's actual damages, and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions of this Agreement and applicable state and federal laws. All fees and expenses of arbitration shall be borne by the parties equally. However, each party shall bear the expense of its own counsel, experts, witnesses, and preparation and presentation of the arbitration matter. Any such arbitration shall be conducted in Madison, Wisconsin. ARTICLE X DAC TAX 10.1 Party. The term "party" will refer to either contracting company as appropriate. 10.2 Other Terms. The terms "Net Positive Consideration", "Specified Policy Acquisition Expenses" and "General Deductions Limitation" used in this Article are defined by reference to Regulation Section 1.848-2 and Code Section 848. 10.3 DAC Tax Election. The parties to this Agreement make the election set forth below pursuant to Section 1.848-2(g) (8) of the income Tax Regulations issued under Section 848 of the Internal Revenue Code of 1986, as amended (the "Code"). This election shall be effective for taxable year 2012 and for all subsequent taxable years for which this Agreement remains in effect. (a) The party with the Net Positive Consideration for this Agreement for each taxable year will capitalize Specified Policy Acquisition Expenses with respect to this Agreement without regard to the General Deductions Limitation of Code Section 848(c)(1). (b) Both parties agree to exchange information pertaining to the amount of net consideration under this Agreement each year, or as otherwise required by the Internal Revenue Service, to ensure consistency. (c) The Company will submit a schedule to the Reinsurer by May 1 of each year with its calculation of the net consideration for the preceding 6 calendar year. This schedule will be accompanied by a statement signed by an officer of the Company attesting to the calculation contained in said schedule. The Reinsurer may contest such calculation by providing an alternative calculation to the Company in writing within thirty (30) calendar days of the Reinsurer's receipt of the Company's calculation. (d) If the Reinsurer contests the Company's calculation, the parties will act in good faith to reach an agreement as to the correct amount within thirty (30) calendar days of the date that the Company receives the Reinsurer's alternative calculation. If the parties reach an agreement on the net consideration calculation, each party will report the agreed upon amount in its income tax return for the preceding calendar year. If the parties are unable to reach an agreement on the amount of net consideration, then the dispute shall be resolved pursuant to Article IX of this Agreement. If Reinsurer does not contest the Company's calculation the parties will utilize the calculation provided by the Company for reporting purposes in their respective income tax returns for the preceding year. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1 Headings. Headings used herein are not a part of this Agreement or related documents and shall not affect the terms hereof. 11.2 Notices. All notices and communications hereunder shall be in writing and shall become effective when received. Any written notice shall be sent by either certified or registered mail, return receipt requested, overnight delivery service (providing for delivery receipt), electronic facsimile transmission, or delivered by hand. All notices or communications under this Agreement shall be addressed as follows: If to the Company: MEMBERS Life Insurance Company 5910 Mineral Point Rd. Madison, Wl 53705 Attention: Treasurer If to the Reinsurer: CMFG Life Insurance Company 5910 Mineral Point Rd. Madison, Wl 53075 Attention: Treasurer 11.3 Successors and Assigns. This Agreement and related documents cannot be assigned by either party without the prior written consent of the other and the prior approval of the Iowa Insurance Division. The provisions of this Agreement and related documents shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns as permitted herein. 11.4 Execution in Counterparts. This Agreement may be executed by the parties hereto in any number of counterparts, and by each of the parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 7 11.5 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the business being reinsured hereunder and there are no understandings between the parties other than those expressed in this Agreement. Any change or modification to this Agreement shall be null and void unless made by amendment to this Agreement and signed by both parties hereto. 11.6 Regulatory Approval of Amendments. When and if, under applicable laws or regulations, the approval of any amendment to this Agreement or related documents by one or more federal, state or local regulatory authorities is required, the amendment shall not take effect unless and until all such necessary approvals have been received by the Company. 11.7 Governing Law. This Agreement and related documents shall be governed by and construed in accordance with the laws of the State of Iowa. 11.8 Severability. In the event any section or provision of this Agreement or related documents is found to be void and unenforceable by a court of competent jurisdiction, the remaining sections and provisions of this Agreement or related documents shall nevertheless be binding upon the parties with the same force and effect as though the void or unenforceable part had not been severed or deleted. [Remainder of page left intentionally blank] 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representative. MEMBERS LIFE INSURANCE COMPANY By: /s/ Robert N. Trunzo -------------------- Name Robert N. Trunzo Title: President Date: November 12, 2012 CMFG LIFE INSURANCE COMPANY By: /s/ Thomas J. Merfeld --------------------- Name: Thomas J. Merfeld Title: SVP, Chief Risk Officer Date: November 12, 2012 9 EX-10 15 e93125_ex10ii.txt EX10.II Exhibit 10(ii) COINSURANCE AGREEMENT This Coinsurance Agreement (this "Agreement"), effective as of January 1, 2013, is by and between CMFG Life Insurance Company, a stock insurance corporation organized under the laws of the State of Iowa (hereinafter referred to as the "Reinsurer"), and MEMBERS Life Insurance Company, a stock insurance corporation organized under the laws of the State of Iowa (hereinafter referred to as the "Company"). The Company and the Reinsurer mutually agree to enter into a reinsurance transaction under the terms and conditions stated herein. This Agreement is an indemnity reinsurance agreement solely between the Company and the Reinsurer, and the performance of the obligations of each party under this Agreement shall be rendered solely to the other party. In no instance, except as set forth in the insolvency provisions of this Agreement, shall anyone other than the Company or the Reinsurer have any rights under this Agreement, and the Reinsurer shall have no obligation or liability to any insured, owner, beneficiary or other third party under the policies reinsured hereunder. ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings (definitions are applicable to both the singular and the plural forms of each term defined in this Article): 1.1 "Business Day" means any day that is not a Saturday, Sunday or other day on which national banking institutions are required or permitted by law or executive order to be closed. 1.2 "Effective Date" shall have the meaning set forth in Section 2.1. 1.3 "Expense Allowance" shall have the meaning set forth in Section 4.3. 1.4 "Insurance Taxes and Charges" means all premium taxes and other insurance taxes (not including any federal, state or local tax measured by income) and guaranty fund assessments payable by the Company on account of the Reinsured Policies. 1.5 "Policy Benefits" shall mean all annuity payouts, partial surrenders, full surrenders, death claims (if applicable), and all other contractual benefits or liabilities of any kind payable under the Reinsured Policies, including, without limitation, any extracontractual liabilities related thereto. 1.6 "Premiums" means the gross consideration payable on account of the Reinsured Policies. 1.7 "Monthly Accounting Period" means the period from the Effective Date through January 31, 2013 and each calendar month thereafter. 1.8 "Quota Share Percentage" shall have the meaning set forth in Section 2.1. 1.9 "Reinsured Policies" shall mean all (i) policies and annuity contracts, including any amendments, riders or endorsements attached thereto and any reinstatements 1.10 thereof, and (ii) all Supplementary Contracts, in each case issued, written or exchanged by the Company on or following the Effective Date and through the date of termination of this Agreement. 1.11 "Reserves" means, as of any date, all reserves, deposit fund liabilities and any other liabilities whatsoever for or under the Reinsured Policies calculated consistent with the reserve requirements, statutory accounting rules, and actuarial principles applicable to the Company and/or the Reinsurer. 1.12 "Settlement Amount" means the net amount due and payable to either party with respect to any Monthly Accounting Period as set forth in Section 6.1. 1.13 "Supplementary Contracts" means all supplementary contracts, whether with or without life contingencies, issued by the Company in exchange for a Reinsured Policy. ARTICLE II COVERAGE 2.1 Coverage. Upon the terms and subject to the conditions of this Agreement, as of 12:Ol a.m., Central Time, on January 1, 2013 (the "Effective Date"), the Company shall cede to the Reinsurer, and the Reinsurer shall assume from the Company, all liabilities under the Reinsured Policies on a one hundred percent (100%) coinsurance basis (the "Quota Share Percentage"). The liability of the Reinsurer hereunder with respect to the Reinsured Policies shall begin simultaneously and automatically with that of the Company, but not prior to the Effective Date. 2.2 Conditions. All coinsurance for which the Reinsurer is liable hereunder shall be subject to the same rates, terms, conditions, waivers, modifications, alterations, cancellations, limitations and restrictions as are contained in or otherwise apply to the Reinsured Policies, except as otherwise provided in this Agreement. Whenever a change is made in the status, plan, amount or other material feature of a Reinsured Policy, the Reinsurer will provide adjusted reinsurance coverage in accordance with the provisions of this Agreement. 2.3 In-Force Business. This Agreement excludes all policies or contracts written or issued by the Company prior to the Effective Date (the "In- Force Business"). For the avoidance of doubt, all of the Company's In-Force Business is reinsured by the Reinsurer on a ninety-five percent (95%) coinsurance basis pursuant to that certain Coinsurance Agreement, dated [October 31, 2012], by and between the Company and the Reinsurer, which agreement shall provide coverage for any prior-year loss reserve development with respect to the In-Force Business. ARTICLE III GENERAL PROVISIONS 3.1 Inspection. Either party or its designated representative may, upon reasonable advance notice and during normal business hours at the offices of the Company or the Reinsurer, as the case may be, conduct reasonable inspections of the books and records of the other party reasonably relating to the Reinsured Policies or this Agreement for such period as this Agreement remains in effect and as long 2 thereafter as the Company or the Reinsurer, as the case may be, has any outstanding obligation under this Agreement. 3.2 Setoff and Recoupment. Any debts or credits incurred or arising on or after the Effective Date in favor of or against either the Company or the Reinsurer with respect to this Agreement are deemed mutual debts or credits, as the case may be, and shall be set off, and only the net balance shall be allowed or paid; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of applicable law. 3.3 Compliance with Applicable Laws. The Company and the Reinsurer shall maintain all licenses, obtain all regulatory approvals and comply with all applicable laws and regulatory requirements necessary to perform their respective obligations under this Agreement. ARTICLE IV PAYMENTS 4.1 Premiums. The Company shall pay the Reinsurer the Quota Share Percentage of all Premiums payable on account of the Reinsured Policies as such Premiums are due and received. Premiums received by the Company and payable to the Reinsurer shall be reflected in the Monthly Accounting Reports prepared by the Company and included in the calculation of the applicable Settlement Amount pursuant to Section 6.1. 4.2 Policy Benefits. The Reinsurer shall pay its Quota Share Percentage of all Policy Benefits paid by the Company during the current Monthly Accounting Period. Policy Benefits payable to the Company shall be reflected in the Monthly Accounting Reports prepared by the Company and included in the calculation of the applicable Settlement Amount pursuant to Section 6.1. 4.3 Expense Allowance. As reimbursement for expenses and costs incurred by the Company in the sale and administration of the Reinsured Policies, including but not limited to (i) commissions, (ii) acquisition expenses, (iii) expenses incurred in the provision of policyholder and benefit payment services, and (iv) Insurance Taxes and Charges, the Reinsurer shall pay to the Company a monthly expense allowance in an amount equal to the Quota Share Percentage of the actual allocated expenses and costs incurred by the Company with respect to the Reinsured Policies for the monthly period at issue (the "Expense Allowance"). The Expense Allowance shall be reflected in the Monthly Accounting Reports prepared by the Company and included in the calculation of the applicable Settlement Amount pursuant to Section 6.1. 4.4 Payments. All payments pursuant to this Agreement shall be made in U.S. Dollars and immediately available funds. 3 ARTICLE V ADMINISTRATION 5.1 Policy Administration. The Company shall provide all required, necessary and appropriate claims, administrative and other services with respect to the Reinsured Policies. The Company shall use reasonable care in its underwriting, administration and claims practices with respect to the Reinsured Policies and in administering and performing its duties under this Agreement and such practices, administration and performance shall (a) conform with applicable law; (b) not be fraudulent; and (c) be no less favorable than those used by the Company with respect to other policies of the Company not reinsured by the Reinsurer. 5.2 Record Keeping. The Company shall maintain appropriate books and records relating to the Reinsured Policies in accordance with industry standards of insurance record keeping. In the event of the termination of this Agreement and upon the request of the Company, any records in the possession of the Reinsurer related to the Reinsured Policies shall be duplicated and forwarded to the Company. The Company shall establish and maintain an adequate system of internal controls and procedures for financial reporting relating to the Reinsured Policies and shall make such documentation available for examination and inspection by the Reinsurer upon request. ARTICLE VI ACCOUNTING AND SETTLEMENT 6.1 Monthly Accounting Reports. Within thirty (30) calendar days following the end of each Monthly Accounting Period, the Company shall provide the Reinsurer with a monthly report which shall list each of the payment obligations pursuant to Article IV for such Monthly Accounting Period and such other information regarding the Reinsured Policies as may be mutually agreed upon by the parties (the "Monthly Accounting Reports"). In addition to the Monthly Accounting Reports, the Company shall provide the Reinsurer with any additional information related to this Agreement or the Reinsured Policies as is reasonably necessary for the Reinsurer to satisfy any financial reporting or disclosure requirements or to comply with any applicable laws. Each Monthly Account Report will include a calculation of the Settlement Amount for that Monthly Accounting Period. The term "Settlement Amount" for any Monthly Accounting Period shall mean an amount equal to the difference between (i) Premiums payable pursuant to Section 4.1, less (ii) Policy Benefits payable pursuant to Section 4.2, less (iii) the Expense Allowance payable pursuant to Section 4.3. 6.2 Settlements. If the Settlement Amount prepared by the Company shows a net balance payable to the Reinsurer, the Company shall remit such balance to the Reinsurer within ten (10) Business Days following delivery of the Monthly Accounting Report. If the Settlement Amount shows a net balance payable to the Company, the Reinsurer shall remit such balance to the Company within ten (10) Business Days following receipt of the Monthly Accounting Report. 6.3 Reconciliation. Each party shall have the right to review and dispute individual components of the transactions reflected in the Monthly Accounting Reports, and to request adjustments, as appropriate. Any amount due either party in 4 connection with any adjustment shall be paid within ten (10) Business Days following the parties' resolution of such adjustment. ARTICLE VII TERM AND TERMINATION 7.1 Term. The coinsurance provided under this Agreement shall remain continuously in force for so long as the Company shall remain liable on the Reinsured Policies or until terminated by either party by written notice given to the other party at least twelve (12) months in advance of the termination date, a copy of which shall be provided to the Iowa Insurance Division. 7.2 Runoff Coverage. If this Agreement is terminated, the coinsurance hereunder shall continue to apply to benefits and/or claims under all Reinsured Policies (including any lapsed, surrendered, reinstated, renewed or matured Reinsured Policy) until the Company's obligations under the Reinsured Policies ceases. The parties hereto expressly covenant and agree that, in the event of termination of this Agreement, they will cooperate with each other in the handling of all such run-off insurance business until the Company's obligations under the Reinsured Policies ceases. All costs and expenses associated with the handling of such run-off business shall be borne solely by the Reinsurer. For the avoidance of doubt, in the event this Agreement is terminated, the coinsurance hereunder shall not apply to any life insurance policies or annuity contracts, or binders, contracts, certificates, riders, endorsements, supplemental benefits, or other agreements related or attaching to such insurance policies or contracts, that were first issued or assumed by the Company on or after the effective date of any termination of this Agreement. 7.3 Recapture. The Policies are not eligible for recapture by the Company except upon the mutual agreement of the Company and the Reinsurer. ARTICLE VIII INSOLVENCY 8.1 Insolvency of Ceding Company. In the event of insolvency and the appointment of a conservator, liquidator, or statutory successor of the Company, the reinsurance hereunder shall be payable directly to the conservator, rehabilitator, liquidator, receiver or statutory successor of the Company on the basis of claims allowed against the Company by any court of competent jurisdiction or by any conservator, rehabilitator, liquidator, receiver or statutory successor of the Company having authority to allow such claims, without diminution because of that insolvency, or because the conservator, rehabilitator, liquidator, receiver or statutory successor of the Company has failed to pay all or a portion of any claims. Payments by the Reinsurer, as set forth herein, shall be made directly to the Company or to its conservator, rehabilitator, liquidator, receiver or statutory successor, except where this Agreement specifically provides another payee of such reinsurance in the event of the insolvency of the Company. The conservator, rehabilitator, liquidator, receiver or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy reinsured, within a reasonable time after such claim is filed and the Reinsurer may investigate and interpose, at its own expense, in any proceeding where such claim is to be adjudicated, any defense or defenses that the Reinsurer may deem 5 available to the Company or to its conservator, rehabilitator, liquidator, receiver or statutory successor. ARTICLE IX DISPUTE RESOLUTION 9.1 Dispute Resolution. If a dispute, controversy, or claim arises out of or relates to this Agreement, or an alleged breach thereof, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association ("AAA") under its Commercial Mediation Rules, before resorting to arbitration. If the matter has not been resolved pursuant to mediation within thirty (30) calendar days of the commencement of such mediation (which period may be extended by mutual agreement in writing), then any unresolved dispute, controversy, or claim arising out of or relating to this Agreement, its termination or non-renewal, or any breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the AAA, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration shall be conducted by a sole arbitrator or, at the election of either party, before a panel of three arbitrators. Selection of the arbitrator(s) shall be in accordance with the Commercial Arbitration Rules of the AAA. The arbitrator(s) shall allow each party to conduct limited relevant discovery. The arbitrator(s) shall have no authority to award punitive damages or any damages not measured by the prevailing party's actual damages, and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions of this Agreement and applicable state and federal laws. All fees and expenses of arbitration shall be borne by the parties equally. However, each party shall bear the expense of its own counsel, experts, witnesses, and preparation and presentation of the arbitration matter. Any such arbitration shall be conducted in Madison, Wisconsin. ARTICLE X DAC TAX 10.1 Party. The term "party" will refer to either contracting company as appropriate. 10.2 Other Terms. The terms "Net Positive Consideration", "Specified Policy Acquisition Expenses" and "General Deductions Limitation" used in this Article are defined by reference to Regulation Section 1.848-2 and Code Section 848. 10.3 DAC Tax Election. The parties to this Agreement make the election set forth below pursuant to Section 1.848-2(g) (8) of the Income Tax Regulations issued under Section 848 of the Internal Revenue Code of 1986, as amended (the "Code"). This election shall be effective for taxable year 2013 and for all subsequent taxable years for which this Agreement remains in effect. (a) The party with the Net Positive Consideration for this Agreement for each taxable year will capitalize Specified Policy Acquisition Expenses with respect to this Agreement without regard to the General Deductions Limitation of CodeSection 848(c)(1). 6 (b) Both parties agree to exchange information pertaining to the amount of net consideration under this Agreement each year, or as otherwise required by the Internal Revenue Service, to ensure consistency. (c) The Company will submit a schedule to the Reinsurer by May 1 of each year with its calculation of the net consideration for the preceding calendar year. This schedule will be accompanied by a statement signed by an officer of the Company attesting to the calculation contained in said schedule. The Reinsurer may contest such calculation by providing an alternative calculation to the Company in writing within thirty (30) calendar days of the Reinsurer's receipt of the Company's calculation. (d) If the Reinsurer contests the Company's calculation, the parties will act in good faith to reach an agreement as to the correct amount within thirty (30) calendar days of the date that the Company receives the Reinsurer's alternative calculation. If the parties reach an agreement on the net consideration calculation, each party will report the agreed upon amount in its income tax return for the preceding calendar year. If the parties are unable to reach an agreement on the amount of net consideration, then the dispute shall be resolved pursuant to Article IX of this Agreement. If Reinsurer does not contest the Company's calculation the parties will utilize the calculation provided by the Company for reporting purposes in their respective income tax returns for the preceding year. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1 Headings. Headings used herein are not a part of this Agreement or related documents and shall not affect the terms hereof. 11.2 Notices. All notices and communications hereunder shall be in writing and shall become effective when received. Any written notice shall be sent by either certified or registered mail, return receipt requested, overnight delivery service (providing for delivery receipt), electronic facsimile transmission, or delivered by hand. All notices or communications under this Agreement shall be addressed as follows: If to the Company: MEMBERS Life Insurance Company 5910 Mineral Point Rd. Madison, Wl 53705 Attention: Treasurer If to the Reinsurer: CMFG Life Insurance Company 5910 Mineral Point Rd. Madison, Wl 53705 Attention: Treasurer 11.3 Successors and Assigns. This Agreement and related documents cannot be assigned by either party without the prior written consent of the other and the prior approval of the Iowa Insurance Division. The provisions of this Agreement and related documents shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns as permitted herein. 7 11.4 Execution in Counterparts. This Agreement may be executed by the parties hereto in any number of counterparts, and by each of the parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 11.5 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the business being reinsured hereunder and there are no understandings between the parties other than those expressed in this Agreement. Any change or modification to this Agreement shall be null and void unless made by amendment to this Agreement and signed by both parties hereto. 11.6 Regulatory Approval of Amendments. When and if, under applicable laws or regulations, the approval of any amendment to this Agreement or related documents by one or more federal, state or local regulatory authorities is required, the amendment shall not take effect unless and until all such necessary approvals have been received by the Company. 11.7 Governing Law. This Agreement and related documents shall be governed by and construed in accordance with the laws of the State of Iowa. 11.8 Severability. In the event any section or provision of this Agreement or related documents is found to be void and unenforceable by a court of competent jurisdiction, the remaining sections and provisions of this Agreement or related documents shall nevertheless be binding upon the parties with the same force and effect as though the void or unenforceable part had not been severed or deleted. [Remainder of page left intentionally blank] 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representative. MEMBERS LIFE INSURANCE COMPANY By: /s/ Robert N. Trunzo ------------------------ Name: Robert N. Trunzo Title: President Date: November l2, 2012 CMFG LIFE INSURANCE COMPANY By: /s/ Thomas J. Merfeld ------------------------ Name: Thomas J. Merfeld Title: SVP, Chief Risk Officer Date: November 12, 2012 9 EX-10 16 e93125_ex10iii.txt EX10.III Exhibit 10(iii) AMENDMENT TO COST SHARING AGREEMENT (PARENT TO SUBSIDIARIES) THIS AMENDMENT ("Amendment"), effective as of February 1, 2012 (the "Effective Date"), amends Cost Sharing Agreement (Subsidiaries to Parent) effective January 1, 2008 (the "Agreement"), by and between CUNA Mutual Insurance Society, now known as, CMFG LIFE INSURANCE COMPANY ("Parent") and its subsidiaries, and is entered into by Parent, Subsidiaries, CUNA Mutual Holding Company ("CM Holding") and CUNA Mutual Financial Group, Inc.("CM Financial"). WHEREAS, this Amendment is fully incorporated into the Agreement; capitalized terms used in this Amendment, and not otherwise defined herein, will have the meanings set forth in the Agreement; and WHEREAS, Parent was reorganized into a mutual holding company structure in which CM Holding and its direct wholly-owned subsidiary, CM Financial were formed and Parent and Subsidiaries became the direct and indirect wholly-owned subsidiaries of CM Financial; and WHEREAS, CM Financial and CM Holding wish to become parties to the Agreement; NOW, THEREFORE, in consideration of the responsibilities respectively assumed by the parties under the terms and conditions of the Agreement, the parties hereto intending to be legally bound hereby agree that the provisions of this Addendum shall control the terms and conditions of the Agreement to the extent set forth herein: 1. CM Holding and CM Financial each agree to become a party to the Agreement, each as a Subsidiary (as defined in the Agreement), and accept all applicable terms and conditions of the Agreement, and shall be bound by all of the obligations and entitled to the rights of a Subsidiary thereunder. All other terms and conditions of the Agreement not materially affected by this Amendment shall remain in full force and effect. [SIGNATURE PAGE FOLLOWS] (C) CUNA Mutual Group. All Rights CUNA Mutual Group Confidential Reserved. -1- Information IN WITNESS WHEREOF, the parties have caused this Amendment to the Cost Sharing Agreement (Parent to Subsidiaries) to be executed by their duly-authorized representatives on the Effective Date set forth above. CMFG LIFE INSURANCE COMPANY CUNA MUTUAL HOLDING COMPANY By: /s/ Chris Copeland By: /s/ Alastair Shore -------------------------- -------------------------- Print Name: Chris Copeland Print Name: Alastair Shore -------------- -------------- Title: VP, Corporate Treasurer Title: EVP, Chief Financial Officer ----------------------- ---------------------------- CUNA MUTUAL FINANCIAL GROUP, INC. By: /s/ Andrew Michie -------------------------- Print Name: Andrew Michie ------------- Title: SVP, Chief Accounting Officer ----------------------------- (C) CUNA Mutual Group. All Rights CUNA Mutual Group Confidential Reserved. -2- Information COST SHARING AGREEMENT (PARENT TO SUBSIDIARIES) THIS COST SHARING AGREEMENT (this "Agreement") is effective as of January 1, 2008 (the "Effective Date"), and replaces all previous Cost Sharing Agreements and Addendums, as amended and restated, between CUNA MUTUAL INSURANCE SOCIETY ("Parent") on behalf of itself and its subsidiaries not specifically a party to this Agreement and the following subsidiaries: CUMIS SPECIALTY INSURANCE COMPANY, INC., CUMIS INSURANCE SOCIETY, INC., MEMBERS LIFE INSURANCE COMPANY and CUNA MUTUAL GROUP HOLDINGS EUROPE, LTD. ("Hold Co" which shall, for purposes of this Agreement, include all current European subsidiaries of Hold Co and any future subsidiaries added to the European holding company structure). Hold Co makes and enters into this Agreement on its own behalf and on behalf of its subsidiaries and affiliates including, but not limited to, CUNA Mutual Group Services (Ireland) Limited. All of the aforementioned subsidiaries, as well as the subsidiaries not specifically a party to this Agreement, shall individually be referred to herein as a "Subsidiary" and collectively be referred to herein as the "Subsidiaries." The Parent and Subsidiaries may sometimes be collectively referred to in this Agreement as the "Parties." The Parties acknowledge that this Agreement is based on the following: A. Parent is a leader in providing insurance and services to credit unions around the world. B. Parent has been providing market access and personnel services to the Subsidiaries for years on the terms substantially similar to those set forth in this Agreement and the Parties desire to enter into this Agreement to renew their arrangements. NOW, THEREFORE, for good and valuable consideration, including the mutual covenants contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows: 1. OFFICE AND PERSONNEL SERVICES. Parent shall provide each Subsidiary with any service that Parent is performing for itself or is otherwise willing to perform for a Subsidiary, as requested or as necessary, for the operation of the Subsidiary including employee services, mail services, cafeteria services, office space, supplies and equipment. 2. MARKET SERVICES. Parent shall perform various market development and enhancement services for the benefit of itself and the Subsidiaries as Parent deems desirable or necessary. 3. COMPENSATION FOR SERVICES. Parent shall monthly allocate all costs, including overhead and employee support type costs, incurred in connection with its performance of services pursuant to this Agreement among itself and the Subsidiaries based upon a mutually agreed upon allocation method taking into account any appropriate time allocations, item allocations, number of employees, special studies and any other basis, Each Subsidiary shall pay Parent for its share of Parent's costs no more than forty-five (45) days after the end of the month in which such costs are incurred. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their authorized representatives. CUNA MUTUAL INSURANCE SOCIETY CUNA MUTUAL GROUP HOLDINGS EUROPE, LTD. CUMIS INSURANCE SOCIETY, INC. MEMBERS LIFE INSURANCE COMPANY CUMIS SPECIALTY INSURANCE COMPANY, INC. By: /s/ Steven P. Kuhn By: /s/ Michael R. Celichowski ----------------------------------- ----------------------------------- Steven P. Kuhn, Assistant Treasurer Michael R. Celichowski, Director Date: 5/28/08 Date: 5/22/2008 --------------------------------- --------------------------------- (C) CUNA Mutual Group. All Rights CUNA Mutual Group Confidential Reserved. Information EX-10 17 e93125_ex10iv.txt EX10.IV Exhibit 10(iv) AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT Between CUNA MUTUAL HOLDING COMPANY et. al. and MEMBERS CAPITAL ADVISORS, INC. This Agreement is made as of the Effective Date by and between CUNA Mutual Holding Company, a mutual insurance holding company domiciled in the state of Iowa, and those other entities CUNA Mutual Holding Company either controls (directly or indirectly) or sponsors, all as listed in Section 2 on the attached Schedule of Covered Entities, as may be amended from time to time {collectively the "Company"), and MEMBERS Capital Advisors, Inc. ("Adviser"), a duly licensed registered investment adviser domiciled in the state of Iowa with its principal office located in Madison, Wisconsin. If any Company acquires or organizes another entity that has assets intended to be invested by the Adviser, then such entity shall join in and be bound as a Company by this Agreement. The obligations the Adviser owes to the Company herein are owed to the Company and to each entity listed in Section 2 on the attached Schedule of Covered Entities. The authority conferred by this appointment is deemed to be conferred and may be exercised as fully as though it had been specifically made and individually and separately conferred by each of the entities listed in Section 2 on the attached Schedule of Covered Entities. The schedule may be amended from time to time by written endorsement executed by the parties. 1. ADVISER'S APPOINTMENT The Employee Benefits Administration Committee ("EBPAC") is the plan administrator and named fiduciary of the CUNA Mutual Pension Plan for Non-Represented Employees and the CUNA Mutual Pension Plan for Represented Employees (collectively referred to as the "Retirement Plans"). Pursuant to the terms of the Retirement Plans and EBPAC's Charter, EBPAC hereby delegates to the Adviser responsibility to provide to the Company investment manager services on behalf of the funds ("Trust Funds") held by State Street Bank, or its successor ("State Street") as trustee of the Retirement Plans. This delegation of authority is subject to all the terms, conditions, and provisions of the Retirement Plans and the Trust Agreements with State Street. The Retirement Plans shall not be obligated to pay any fees to the Adviser. The Adviser acknowledges that it will be a fiduciary of the Retirement Plans. With respect to all invested assets other than those in the Trust Funds described above (the "Invested Assets"), the Company hereby appoints the Adviser to act as its principal investment adviser and investment portfolio manager for the purpose of managing the investment and reinvestment of the Company's invested assets, which for this purpose shall include al! the invested assets of the entities listed in Section 2 on the attached Schedule of Covered Entities. With regard to the Invested Assets, the Adviser is hereby authorized to delegate some or all of its investment adviser duties hereunder to one or more subadvisors pursuant to a written agreement (a "Subadvisory Agreement") with terms that have been approved by the CUNA Mutual Holding Company Board or Investment Capital Committee ("ICC") and/or the Company's Board or other designated body, as applicable, under which the subadvisor shall furnish the services specified therein to the Adviser. Notwithstanding any delegation of authority, the Adviser will continue to have primary responsibility for all investment advisory services furnished pursuant to a Subadvisory Agreement. The Adviser hereby accepts the delegation of authority with respect to the Trust Funds and the appointment as principal investment adviser and investment portfolio manager with respect to the Invested Assets, subject to the terms and conditions herein provided. II. ADVISER'S DUTIES The Adviser agrees to provide continuous professional investment management for the invested assets of the Company and the Trust Funds. The Adviser shall provide an investment program which complies with and is at all times subject to the written policies, directives, and guidelines established from time to time by the Company's Board of Directors, ICC, EBPAC or any other authorized investment oversight body of the Company, as applicable. The Company shall keep the Adviser informed of changes or modifications to the Company's investment objectives and investment restrictions. The investment program shall also comply with all applicable state and federal laws, rules, and regulations. In carrying out this investment program, the Adviser shall perform the following functions at such times and with such frequency as may be reasonably required by the Company and EBPAC: (a) Make investment decisions and be responsible for investment and reinvestment of the investment portfoiio; (b) Perform research, statistical analysis, and continuous supervision of each investment portfolio; (c) Provide to the Company and EBPAC the data and information concerning investment activity required to enable the Company to prepare and file all necessary statutory statements, tax returns, and any other reports or returns of a regulatory nature which must be prepared or filed from time to time on behalf of the Company; (d) Monitor systems and procedures for proper functioning of all investment activities to ensure compliance with the requirements of applicable federal and state regulatory law, rules and regulations; and (e) Render to the Company and EBPAC any periodic and special reports reasonably requested. 111. DEALING WITH UNDERWRITERS AND BROKER-DEALERS OF SECURITIES When acquiring or disposing of securities on behalf of the Company and the Trust Funds, the Adviser shall place purchase and sale orders with those underwriters, dealers and banks which the Adviser determines can execute the order as expeditiously as possible at the best obtainable price. However, the Adviser is authorized to allocate orders to underwriters, dealers, and banks providing research services or providing portfolio security value quotations or other services without having to demonstrate that such services are of direct or indirect benefit to the Company, so long as the Adviser complies with Section 28(e) of the Securities Exchange Act of 1934 in doing so. IV. ADVISER'S COMPENSATION With respect to the Trust Funds described in Section I, the Trust Funds shall pay no fees to the Adviser. With respect to the Invested Assets described in Section I, the Company shall pay investment advisory fees to the Adviser as compensation for investment advisory services. Fees shall be calculated and paid in accordance with the attached Schedule of Fees which may be amended from time to time by written endorsement executed by the parties. The Adviser shall be solely responsible for paying fees under any Subadvisory Agreement. V. OTHER CLIENTS The Adviser represents that it does not have any responsibilities for other clients which conflict with or involve conflict of interest with its obligations under this Agreement and that it will not assume any such responsibilities while this Agreement is in force. No client relationship or activity on behalf of any client shall be deemed to involve a conflict of interest if such client relationship or activity has been fully and fairly disclosed in writing to the Company and approved by the Chief Ethics & Compliance Officer of the Company or his/her designee, and to the administrator of the plans invested in the Trust Funds, and approved by the administrator of the Retirement Plans, It is understood and agreed that the Adviser may act as adviser to other insurance companies, to investment management companies, institutional funds, 2 mutual funds, separate accounts, and other clients. The Company agrees that the Adviser may give advice and take action with respect to other clients which may differ from advice given or the timing or nature of action taken with respect to the Company. It is understood that the Adviser has a duty to allocate investment opportunities over time on a basis that is fair and equitable to each client. It is understood that the services provided to the Company are not exclusive and that individuals who perform services on behalf of the Adviser may not devote their full time to performance of duties under this Agreement. VI. INVESTMENT RECORDS The Adviser agrees that all records which it maintains for the Company and Trust Funds shall be the property of the Company and Trust Funds, respectively, and that the Adviser will surrender promptly to duly designated officers any records when requested to do so by appropriate Company officers or by the administrator of the Retirement Plans. The Adviser further agrees to deliver to the Company and EBPAC, respectively, or preserve for the period prescribed by any applicable insurance or Blue Sky laws or regulations of the Securities and Exchange Commission, all records required to be maintained pursuant to such laws or regulations. The Adviser further agrees that it will protect the confidentiality of all records and accounts it maintains on behalf of the Company and EBPAC, respectively. All accounts and records maintained by the Adviser shall be made available to the accountants or auditors of the Company and EBPAC, respectively, during regular business hours at the Adviser's offices within five (5} days of Adviser's receipt of prior written notice. In addition, the Adviser will provide any materials reasonably related to the investment advisory services provided hereunder reasonably requested by the appropriate officers of the Company, EBPAC, or required by any state or federal governmental agency having jurisdiction. VII. LAWS GOVERNING PERFORMANCE The services provided hereunder shall be performed in accordance with the legal requirements of the State of Wisconsin and the State of Iowa, insofar as they apply, and the requirements of the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, and the Employee Retirement Income Security Act of 1974, insofar as these acts apply. VIII. STANDARD OF CARE AND INDEMNIFICATION The standard of care imposed on the Adviser by this Agreement is to act with the same care, skill, prudence, and diligence under the circumstances prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Adviser shall use its best efforts in providing investment services and shall have no responsibility for errors of judgment or other action taken or omitted in good faith performance of its duties; however, the Adviser shall indemnify and hold the Company harmless from all losses or damages arising from any acts or omissions due to gross negligence, willful misfeasance, bad faith, or reckless disregard of its duties. IX. TERM OF AGREEMENT This Agreement shall not be assigned by either party without the consent of the other party, and any unilateral attempt on the part of the Adviser to assign this Agreement shall result in the automatic termination of this Agreement. Unless sooner terminated by agreement of the parties, the Agreement shall continue for a period of one year from the Effective Date, and thereafter, shall continue automatically for periods of one year. With respect to the Trust Funds described in Section I, the delegation of authority may be terminated at any time by notice in writing. With respect to all other invested assets described in Section I, this Agreement may be terminated without penalty by either party after the 60th day foliowing the date upon which written notice is received by the party being notified. In the event this Agreement is terminated, the parties will promptly notify the Iowa Insurance Commissioner of any such termination. No amendment to the Agreement may be enforced until reduced to writing and executed on behalf of the parties; and without the prior written consent of the Iowa Insurance Commissioner. 3 X. MISCELLANEOUS This Agreement supercedes any and all agreements previously made by the parties relating to the subject matter hereof, and there are no understandings or agreements other than those incorporated in this Agreement. The parties agree that the Addendum dated September 1, 2009, a copy of which is attached hereto, shall remain in full force and effect and any reference to the Principal Agreement in such Addendum shall be deemed a reference to this Agreement, as amended from time to time. XI. EFFECTIVE DATE This Agreement will be effective on January 31, 2012 (the "Effective Date"). XII. APPLICABLE LAW This Agreement shall be governed by the laws of the state of lowa. 4 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers. CUNA MUTUAL HOLDING COMPANY By: /s/ Jeff Post ------------------------------------------------ Jeff Post, President and Chief Executive Officer CUNA MUTUAL FINANCIAL GROUP, INC. By: /s/ Jeff Post ------------------------------------------------ Jeff Post, President and Chief Executive Officer CMFG LIFE INSURANCE COMPANY By: /s/ Jeff Post ------------------------------------------------ Jeff Post, President and Chief Executive Officer CUMIS INSURANCE SOCIETY, INC. By: /s/ Jeff Post ------------------------------------------------ Jeff Post, President CUNA MUTUAL INVESTMENT CORPORATION By: /s/ Jeff Post ------------------------------------------------ Jeff Post, President MEMBERS LIFE INSURANCE COMPANY By: /s/ Robert N. Trunzo ------------------------------------------------ Robert N. Trunzo, President CUNA MUTUAL INSURANCE AGENCY, INC. By: /s/ John H. Wallace ------------------------------------------------ John H. Wallace, President CUNA BROKERAGE SERVICES, INC. By: /s/ James H. Metz ------------------------------------------------ James H. Metz, President CUNA SPECIALTY INSURANCE COMPANY, INC. By: /s/ James M. Power ------------------------------------------------ James M. Power, President CUMIS BERMUDA LIMITED By: /s/ Thomas J. Merfeld ------------------------------------------------ Thomas J. Merfeld, President EMPLOYEE BENEFITS PLAN ADMINISTRATION COMMITTEE By: /s/ Thomas J. Merfeld ------------------------------------------------ Thomas J. Merfeld, Chair MEMBERS Capital Advisors, Inc. By: /s/ David P. Marks ------------------------------------------------ David P. Marks, President 5 SCHEDULE OF COVERED ENTITIES {Attached to the Investment Advisory Agreement between CUNA Mutual Holding Company et. al. and MEMBERS Capital Advisors, Inc.) Covered Entities included within the scope of this Agreement are as follows: 1. The funds of the CUNA Mutual Pension Plan for Non-Represented Employees and CUNA Mutual Pension Plan for Represented Employees covering the entities that are defined as an "Employer" under the provisions of the Retirement Plans approved by EBPAC, as modified from time to time. 2. The invested assets of the following entities with respect to the appointment as principal Investment Adviser described in Section I of the Investment Advisory Agreement: CUNA Mutual Holding Company CUNA Mutual Financial Group, Inc. CMFG Life Insurance Company CUNA Mutual investment Corporation MEMBERS Life insurance Company CUMIS Insurance Society, Inc. CUNA Mutual Insurance Agency, Inc. CUNA Brokerage Services, Inc. CUMIS Specialty Insurance Company, Inc. Separate accounts maintained by CMFG Life Insurance Company* CUMIS Bermuda Limited *To the extent that federal and state regulations require the services of a registered investment adviser for separate accounts which invest in underlying mutual funds. 6 SCHEDULE OF FEES (Attached to the Investment Advisory Agreement between CUNA Mutual Holding Company et. al. and MEMBERS Capital Advisors, Inc.) 1. The monthly fee payable to the Adviser shall be determined in accordance with the Company's internal cost allocation process which complies with SSAP 70, has settlement terms in compliance with SSAP 96, and shall be payable within 30 days of receipt of invoice. 2. This Schedule of Fees will remain in effect until amended by the parties in writing. 7 EX-10 18 e93125_ex10v.txt EX10.V Exhibit 10(v) PROCUREMENT AND DISBURSEMENT AND BILLING AND COLLECTION SERVICES AGREEMENT THIS PROCUREMENT AND DISBURSEMENT AND BILLING AND COLLECTION SERVICES AGREEMENT (this "Agreement") replaces all previous Procurement and Disbursement Services Agreements, AND Billing and Collection Services Agreements, both agreements as amended and restated, between CUNA Mutual Insurance Society ("CUNA Mutual") and its affiliates and subsidiaries, and is made the 20th day of December, 2007 (the "Effective Date"), by and between CUNA Mutual and those of its affiliates and subsidiaries identified on Exhibit A, attached hereto and incorporated herein, as the same may be amended from time to time to reflect the addition or deletion of such affiliates and subsidiaries (collectively, "Company"), subsequent to the execution of this Agreement. The parties acknowledge that this Agreement is based on the following: A. CUNA Mutual is an Iowa mutual life insurance corporation that provides life and health products to credit unions and their members. B. CUNA Mutual and Company have agreed that CUNA Mutual will perform certain services as set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, including the mutual covenants contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: 1. SERVICES. On the terms specified in this Agreement, CUNA Mutual may provide from time to time, some or all of the following services (the "Services") to Company: (A) PROCUREMENT. CUNA Mutual will provide procurement services as more fully described on Exhibit B. (B) DISBURSEMENT. CUNA Mutual will provide disbursement services as more fully described on Exhibit C. (C) BILLING AND COLLECTION. CUNA Mutual will provide billing and collection services as more fully described on Exhibit D. 2. TERM; TERMINATION. This Agreement shall commence on the Effective Date and shall continue for an indefinite period until terminated by either party upon 30 days notice. Upon termination of any service, CUNA Mutual agrees to assist Company as necessary in transferring the responsibility for the service to Company or such other party designated by Company. 3. SERVICING FEE. Company will pay CUNA Mutual fifteen days after the end of the quarter, during the term of this Agreement, a servicing fee equal to the cost of providing the Services rendered. The servicing fee will be based upon a mutually agreed upon allocation method taking into account any appropriate time allocations, item allocations, number of employees, special studies and any other basis. Company shall authorize CUNA Mutual to make automatic payment from an account of Company to an account of CUNA Mutual. Notwithstanding the foregoing, should any party cease to he a party to this Agreement for any reason, all amounts due to CUNA Mutual shall be immediately due and payable. 4. SERVICE STANDARD. In performing the Services, CUNA Mutual shall exercise due care and shall provide the services, as described in Exhibits B, C and D, in an efficient and timely manner and in accordance with all applicable federal, state and other laws and regulations. More specifically, as to the disbursement services, CUNA Mutual shall process requests for disbursements and make payments on behalf of Company in accordance with payees' requests and scheduled payment terms. Within two business days after receipt of notice that a disbursement payment has cleared Company's financial institution, CUNA Mutual will electronically transfer a like disbursement amount from the account of Company to an account of CUNA Mutual to reimburse CUNA Mutual for such disbursement. On a quarterly basis, CUNA Mutual will compute and reimburse CUNA Mutual any interest earned in Company's account related to the aforementioned two business day transfer. More specifically, as to the billing and collection services, CUNA Mutual shall electronically transfer the funds received to Company's specified account on a daily basis. An automated process is used for intercompany settlement wherein cash posting on day one is identified on day two, at which time electronic funds transfers are initiated for next-day settlement on day three. 5. INDEMNIFICATION. Each party (the "Indemnitor") will indemnify the other party (the "Indemnitee") and the Indemnitee's directors, shareholders, officers, agents and employees and hold each of them harmless from and against any losses, damages, judgments and other costs, fees and expenses, including reasonable attorneys' fees, resulting from any breach by the Indemnitor of this Agreement or from the gross negligence, fraud or willful misconduct of employees and permissible contractors and agents of the Indemnitor. 6. OWNERSHIP OF RECORDS; ACCESS TO RECORDS. (A) OWNERSHIP OF RECORDS. All business records and reports, studies, documents and other information generated pursuant to or relating to this Agreement or the Services performed hereunder (the "Records") are and shall remain the property of Company. (B) ACCESS TO RECORDS. CUNA Mutual will make available to Company, its agents, attorneys and accountants, at all times during normal business hours, all Records owened by Company under subsection (a). CUNA Mutal shall promptly respond to any questions from Company with respect to such Records and shall confer with Company at all reasonable times, upon request, concerning this Agreement and the operation of Company. 7. CONFIDENTIALITY. The parties each agree that all confidential or proprietary information, whether or not marked as such, of a party communicated to and by each other relating to this Agreement shall be deemed to be confidential business information and shall be maintained in strict confidence to be used only during the term of this Agreement and only for the purposes contemplated by this Agreement. 8. ASSIGNMENT. Neither party may assign this Agreement or assign any rights or delegate any duties hereunder without the express written consent of the other party, which consent shall not be unreasonably withheld, except that CUNA Mutual may, without prior approvel, assign this Agreement to any wholly-owned subsidiary. The assignment of this Agreement shall not release the assignor from any of its duties or obligations under this Agreement. 9. DELAYS AND WAIVERS. The failure of any party to insist in any one or more instances upon the performance of any of the terms, covenants or conditions of this Agreement shall not be construed as a waiver or relinquishment of the future performance of any other term, covenant or condition, but the defaulting party's obligation with respect to future performance of any other terms shall continue in full force and effect. The failure of any party to take any action permitted by this Agreement 2 to be taken by it shall not be construed as a waiver or relinquishment of its right thereafter to take such action. 10. NOTICES. Any notice required or permitted under this Agreement shall be in writing and shall be given by personal delivery or certified mail, return receipt requested, addressed as follows: If to CUNA Mutual: CUNA Mutual Insurance Society Attn: Jeff Post 5910 Mineral Point Road Madison, WI53705-4456 If to Company: (Company Name) Attn: President 5910 Mineral Point Road Madison, WI53705-4456 Except as may be specifically provided otherwise, all notices shall be effective, in the case of personal delivery, upon receipt and, in the case of mailing, upon deposit in the United States mail. 11. PARTIES BOUND. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. 12. ENTIRE UNDERSTANDING. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous representations, understandings or agreements between the parties with respect to such subject matter. 13. GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the internal law of the State of Wisconsin. 14. HEADINGS; REFERENCES. The headings used in this Agreement are for convenience only and shall not constitute a part of this Agreement. Unless the context clearly requires otherwise, all references to "Sections11" and other subdivisions are to the sections and subdivisions of this Agreement. 15. SEVERABILITY. If any provision of this Agreement shall under any circumstances be deemed invalid or inoperative, this Agreement shall be construed with the invalid or inoperative provision deleted and the rights and obligations construed and enforced accordingly. 16. REMEDIES. Except as otherwise stated, the rights and remedies specified in this Agreement are cumulative and not exclusive of any other rights or remedies that either party may have and may be exercised concurrently therewith. 17. NO ASSUMPTION OF LIABILITIES; NO AUTHORITY TO BIND. Neither party shall, by reason of entering into and performing this Agreement, assume or become liable for any of the existing or future liabilities or debts of the other party. Nothing in this Agreement shall be construed to constitute either party as a partner of the other party. Except as may be expressly permitted in writing by the other, no party shall have any right, power or authority to bind the other party, transact any business in the name of the other party or on its behalf, or make any promises or representations on behalf of the other party. 3 18. EXECUTION IN COUNTERPART AND AMENDMENT. The parties acknowledge that this Agreement may be executed in counterpart and that present or future affiliates or subsidiaries of CUNA Mutual not a party to this Agreement may become parties by executing a counterpart signature page acknowledging such entity's(ies') agreement to all terms and conditions of this Agreement. Further, by signing this Agreement, the parties agree to become party to any amendments to this Agreement limited solely to incorporating changes made to the names of the parties to this Agreement or removing any party that is no longer an affiliate of CUNA Mutual. Notwithstanding the foregoing, the terms of this Agreement may not be amended, modified, released or discharged, in whole or in part, except by a written instrument signed by the parties hereto, or their respective successors or assigns. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first written above. CUNA MUTUAL INSURANCE SOCIETY CUMIS INSURANCE SOCIETY, INC. MEMBERS LIFE INSURANCE COMPANY CUNA MUTUAL INSURANCE AGENCY, INC. CUNA MUTUAL INVESTMENT CORPORATION CMIA WISCONSIN, INC. LEAGUE INSURANCE AGENCY, INC. MEMBER PROTECTION INSURANCE PLANS, INC. By: /s/ Jeffey D. Holley ---------------------------- Jeffrey D. Holley, Treasurer CUMIS SPECIALTY INSURANCE COMPANY, INC. CUNA MUTUAL BUSINESS SERVICES, INC. CUNA MUTUAL CASUALTY INSURANCE AGENCY OF MISSISSIPPI, INC. By: /s/ Jeffrey D. Holley ----------------------------------------- Jeffrey D. Holley, Director and Treasurer CUNA MUTUAL GROUP FOUNDATION, INC. By: /s/ Jeffrey D. Holley ---------------------------- Jeffrey D. Holley, President CMG MORTGAGE INSURANCE COMPANY CMG MORTGAGE ASSURANCE COMPANY CMG MORTGAGE REINSURANCE COMPANY By: /s/ Mark K. Willson ------------------------------------ Mark K. Willson, Assistant Secretary 4 CUNA BROKERAGE SERVICES, INC. By: /s/ Steven R. Suleski --------------------------------- Steven R. Suleski, Vice President CUNA MUTUAL GENERAL AGENCY OF TEXAS, INC. STEWART ASSOCIATES INCORPORATED By: /s/ Tracy K. Lien ------------------------ Tracy K. Lien, Secretary CUNA MUTUAL INSURANCE SOCIETY POLITICAL ACTION COMMITTEE By: /s/ Rick L. Mabry ---------------------------------- Rick L. Mabry, Assistant Treasurer FILENE RESEARCH INSTITUTE, INC. LENDING CALL CENTER SERVICES, LLC CM CUSO LIMITED PARTNERSHIP By: /s/ Debra A. Roe --------------------------------- Debra A. Roe, Assistant Treasurer INTERNATIONAL COMMONS, INC. By: /s/ Debra A. Roe ----------------------- Debra A. Roe, Treasurer LENDERS PROTECTION, LLC By: /s/ John A. Chosy ------------------------ John A. Chosy, Secretary MEMBERS CAPITAL ADVISORS, INC. By: /s/ Mary E. Hoffmann ---------------------------------------- Mary E. Hoffmann, Director and Treasurer 5 MEMBERS DEVELOPMENT COMPANY, LLC By: /s/ Jeffery L. Kline ----------------------------------------- Jeffery L. Kline, Chief Executive Officer MEMBERS FINANCIAL SERVICES, INC. By: /s/ Christine E. Poppe ------------------------------------- Christine E. Poppe, Licensing Officer CMG STUDENT LENDING SERVICES, LLC (Executed on its behalf by its parent company, CUNA Mutual Investment Corporation) By: /s/ Steven P. Kuhn ------------------------------------- Steven P. Kuhn, Vice President, CUNA Mutul Investment Corporation 6 EXHIBIT A AFFILIATES AND SUBSIDIARIES OF CUNA MUTUAL INSURANCE SOCIETY CUMIS Insurance Society, Inc. MEMBERS Life Insurance Company CUNA Mutual Insurance Agency, Inc. CMG Mortgage Insurance Company CMG Mortgage Assurance Company CMG Mortgage Reinsurance Company CUNA Mutual Investment Corporation CM CUSO Limited Partnership CMIA Wisconsin, Inc. CUMIS Specialty Insurance Company, Inc. CUNA Brokerage Services, Inc. CUNA Mutual Business Services, Inc. CUNA Mutual General Agency of Texas, Inc. CUNA Mutual Group Foundation, Inc. CUNA Mutual Insurance Society Political Action Committee International Commons, Inc. League Insurance Agency, Inc. Lenders Protection, LLC Lending Call Center Services, LLC Member Protection Insurance Plans, Inc. MEMBERS Capital Advisors, Inc. MEMBERS Development Company, LLC MEMBERS Financial Services, Inc. Stewart Associates Incorporated CMG Student Lending Services, LLC 7 EXHIBIT B PROCUREMENT SERVICES The procurement services shall include the following: o Origination and maintenance of Company-wide procurement policy and procedure. o Input and direction for set-up and continued upgrades of software for procurement and receiving. o Training in use of procurement system and interpretation of policy and procedure. o Central processing of all requests for purchase and conversion to purchase orders. o Coordinate efforts to standardize purchased items to the extent possible and combine purchases to provide maximum value for Company. o Negotiate purchase agreements and pricing on behalf of Company and obtain the most advantageous total cost available. o Conduct lease/purchase analysis and determine most economical means to finance acquisition of assets for Company. o Direction and control of receiving process, o Coordinate maintenance of Master Item File and Master Catalogs for all items purchased by Company. This includes part numbers, sales tax applicability, vendor/item relationships, pricing, unit measure, catalog category, etc. o Coordinate maintenance of Master Vendor File to include correct name, address, remit address, payment terms, 1099 reporting status, etc. o Provide for record of all purchase requests and completed purchase orders to meet legal requirements for retention. o Maintain procurement disaster recovery program for Company. 8 EXHIBIT C DISBURSEMENT SERVICES The disbursement services shall include the following: o Processing and validation of all disbursement requests for general operating expenditures, including business travel expense requests and non-payroll payments to employees. Security and audit validation of all disbursements. o Receive and process various disbursement requests produced in an electronic medium or paper request from Company's various administrative systems.- Company's administrative systems and service areas have completed their standard processes of reviewing and authorizing the payment to be made to their customers/policyholders prior to the transmission to the Disbursement area to process the payment. o Provide a Company specific check stock including Company's name, address and logo. Incorporate security features in check stock to prevent fraud. Print process will secure all check stock, signature and account information. Printing, mailing and distribution of disbursement checks based on Company's specifications to: insert and mail, or return the check and documentation to an appropriate unit/individual/ representative of Company, Print all supporting documentation provided by Company's various Administrative Systems provided electronically to be sent out with the paper check payment. o Provide the ability to combine disbursements into a single payment based on Company's specification. Also, provide the ability to age and utilize various payment discounts prior to issuance of the payment. o Maintain a disbursement service disaster recovery program for Company. o Provide for Emergency Policy Servicing Operations for Company to establish an emergency customer service to issue immediate policyholder payments to remote sites (i,e., earthquake, tornado, Oklahoma Disaster), o Provide the ability to process disbursements through Electronic Funds Transfer (EFT) in the form of a wire transfer, ACH (Automated Clearing House) or U.S. Central Corporate Credit Union transfer. Provide paper advice for EFT payments if requested by Company. Electronic funds transfer payment processing for tax payments. Provide the ability to process international drafts and cables as requested by authorized Company representatives. Also, provide the ability to process and initiate disbursement requests for certified or cashier checks. o Maintain vendor payment and voucher disbursement record archived history information for up to seven years. Provide an on-line payment and voucher inquiry capability to Company's various client service areas. Provide cleared check images upon request for items up to seven years old. o Provide detailed accrual and cash journal entries for Company's General Ledger Monthly Accounting of all expenses processed. 9 o Electronically transfer funds from a Company specified account to cover the disbursements presented for payment that were issued by Company. If a disbursement is not presented for payment within 365 days of the date of the disbursement, funds will be electronically transferred from Company specified account to the CUNA Mutual common paymaster account. o Daily account reconciliation will validate that only authorized disbursements receive payment. Daily and. monthly reconciliation of the disbursement accounts and outstanding payable listing. o Provide an 800 telephone number for financial institutions to confirm and validate paper disbursement checks. o For disbursements processed through the CUNA Mutual common paymaster account, in compliance with the unclaimed, property laws of each state: provide notices from CUNA Mutual Group to persons who are owed the property; file a combined unclaimed property report with each state; and transfer the combined property to the appropriate state. o Issue void, stop payment and reissue of disbursement requests. A Common Paymaster Process Overview further details the disbursement services processes and is attached hereto as Schedule 1 to Exhibit C and incorporated herein, as the same may be amended from time to time to reflect updated processes. 10 EXHIBIT D BILLING AND COLLECTION SERVICES The billing and collection services shall include the following: o Processing of all billing notices in electronic, tape, diskette, cartridge and paper mediums. o Provide the ability to combine Company's billings for multiple products into a single bill based on the Company's specifications. o Examine and provide, if feasible, the ability to combine the billings of various participating companies into a single bill. o Printing, mailing and distribution of billing notices based on the Company's specifications to: print, insert and mail the billing notices and any inserts to an appropriate customer or company representative. o Provide an 800 telephone number for customers to confirm and validate billing and payment status. o Maintain customer billing and payment history information. o Warehouse billing and collection files to query for status requests and reporting. o Processing and validation of payments received in electronic and paper mediums. o Provide the ability to process payments through the Electronic Funds Transfer (EFT) in the form of a Wire Transfer, ACH (Automated Clearing House) or U.S, Central Corporate Credit Union Transfer. o Provide paper advice of the billing notice for EFT payments if requested by the customer. o Resolution of unvalidated payments within 24 hours. o Daily electronic transfer of funds received to Company's designated account. o Electronically transfer funds between products or companies if received in the wrong deposit. o Automated feed to the General Ledger of all due and received premiums. o Daily and monthly reconciliation of the deposit accounts and outstanding bills. o Maintain a billing and collection service disaster recovery program for the Company. o Provide mainframe and software capabilities that are year 2000 compliant. 11 SCHEDULE 1 TO EXHIBIT C - DISBURSEMENT SERVICES COMMON PAYMASTER PROCESS OVERVIEW I. A disbursement request is received for payment. Samples of disbursement requests are: o Company has acquired a good or service from a supplier. The supplier sends an invoice to Company for payment: electric, telephone, equipment, postage, etc. o Company receives notification of a claim to be paid for a current policy. The claim is processed through the claim administrative process, and the payment amount is determined. o Company has received an overpayment of premium or cancellation of a policy. The amount for payment is determined to be reimbursed to the policyholder. o Company needs to submit a payment to renew a license, pay for a conference registration, payment of taxes, etc., and a manual disbursement request is created. II. The disbursement request is submitted to the Disbursement Services Team for processing. The documents can be mailed, faxed, e-mailed or batch fed from a Policyholder Administrative System. III. The source documents (disbursement requests) are imaged into a work list. The Disbursement Services Team will enter the disbursement request information into a voucher on the Accounts Payable System (AP System). A Policyholder Administrative System's batch feed is an automated method of receiving voucher information for payments into the AP System without manual intervention. IV. The following basic information is entered into a "voucher": Payee, amount, invoice number, invoice date and description. Additional information such as claim number, agreement number, purchase order and receipt number are entered as required. Entry includes the requester and accounting for the disbursement. The accounting will include; Company number, department, and general ledger account number. The disbursement can be coded to the appropriate Company incurring the expense. When the accounting is not provided on the source document, the AP System will route the voucher to the requester to enter the accounting information. The voucher is saved and a unique voucher number is assigned to each transaction. The source document image is linked to the voucher. The AP System will edit for required fields, accounting data elements and duplicate payments in the voucher save process. 12 V. The AP System also has a disbursement authorization workflow program. This program will match the voucher amount with the requester's authorization level. If the amount is over the requester's authorization level, the transaction will be saved as a "Pending Authorization" transaction. The AP System will route the voucher to the appropriate individual for approval. Once the approval is met, the voucher will be saved as an "Approved Transaction." VI. When the voucher is 'approved* the nightly processing cycle will generate the accounting accrual transactions. This accounting will create the inter unit payable and receivable accounting, expense accounting and accounts payable accrual for each Company. VII. Based on the scheduled payment terms of the voucher, the voucher will be picked up in the appropriate "pay cycle" to produce the payment. When the payment is issued the AP System will generate the appropriate accounting to credit the cash or bank account and debit the accounts payable accrual account. The payment is sent to the payee, either as a paper check or an electronic funds transfer. The AP System generates a "positive pay file" for each check issued that is transmitted to the financial institution the check is issued against. VIII. The payment is presented for payment and clears the appropriate financial institution. On the payment clearing date the financial institutions or the electronic settlement system sends to CUNA Mutual Group a cleared payment file. The file(s) are loaded into the AP System and reconciled or matched against the payments issued. The payment is marked as 'cleared' with the cleared date associated to the payment. These payments are no longer considered outstanding. The AP System generates a cleared payment report by each Company. Company was identified when the voucher was originated. IX. CUNA Mutual Group Corporate Treasury Department will initiate the funds transfer from the various Companies to the Common Paymaster Accounts. The transfer is based on the AP System payment clearing report for each Company. This transfer will occur on the next business day after the payment cleared. This funds transfer will also generate accounting entries to clear the inter unit payable and receivable accounting entries and to reflect the withdrawal and deposit of funds to the appropriate cash or bank account. X. On a monthly basis the inter unit payable, inter unit receivable, and accounts payable accrual accounts are reconciled. The reconciliation validates that the general ledger for all Companies are in balance with the AP system. XI. On a quarterly basis, an AP System Report will be generated to determine the daily clearings to calculate the interest income payment due to Common Paymaster for the one day delay in reimbursement for payments clearing. 13 The report will calculate the amount of disbursements by Company for each day. The report will also take into account all non-business days (weekends, holidays) for the calculation of the reimbursement of interest. The interest rate will be determined based on the average for the quarter of the daily interest rate of a short term investment, e.g, a money market account, which will be an account generally used by all Companies in a short-term investment portfolio. This information will be received from the CUNA Mutual Group Investment Accounting Department on a monthly basis. The interest calculation is as follows: Short Term Investment Total Disbursements Cleared X Interest Rate % = Interest Due --------------------------- --------------- # of days in Quarter 365 days Note: The payments cleared on Friday, would also be counted as cleared for Saturday and Sunday. The payments cleared the day prior to a holiday would bo counted for the holiday. The interest payment will be made during the month following each calendar quarter. Every year end (December 31st), the interest payment accrual will be booked to the general ledger for each Company. Example; in 2005 $981,150,000 disbursements cleared the Common Paymaster which would have generated an $82,040 interest payment, based on a 3% interest rate. XII. When a payment is outstanding 365 days (1 year), the payment is transferred to the Unclaimed Property System. The AP System marks the check payment as being sent to tho Unclaimed Property System. These items transfer ownership to the Common Paymaster Company. Funds transfers are paid from the issuing companies to the Common Paymaster. This funds transfer will also generate accounting entries to clear the inter unit payable and receivable accounting entries and reflect the withdrawal and deposit of funds to the appropriate cash or bank account. The unclaimed property liability is recorded on the Common Paymaster Company's General Ledger. In accordance with state regulatory requirements, the funds will be forwarded to the appropriate state unclaimed property office. 14 EX-23 19 e93125_ex23ii.txt EX23.II Exhibit 23(ii) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the use in this Pre-Effective Amendment No. 1 to Registration Statement No. 333-186477 of our report dated April 3, 2013, relating to the financial statements of MEMBERS Life Insurance Company appearing in the Prospectus, which is a part of such Registration Statement. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois June 12, 2013 EX-24 20 e93125_ex24i.txt EX24.I Exhibit 24(i) MEMBERS LIFE INSURANCE COMPANY POWER OF ATTORNEY ROBERT N. TRUNZO DIRECTOR KNOW ALL MEN BY THESE PRESENT, that I, Robert N. Trunzo, Director of MEMBERS Life Insurance Company, an Iowa company (the "Company"), do hereby appoint Faye A. Patzner, Mike Anderson, Ross D. Hansen or Kevin S. Thompson, and each of them severally, as my attorney-in-fact and agent, for me and in my name, place and stead to prepare, review, execute, deliver and file any instrument or document to be filed as part of or in connection with or in any way related to the Registration Statements and any and all amendments thereto, filed by said Company under the Securities Act of 1933, as amended (the "1933 Act") and/or the Investment Company Act of 1940, as amended, in connection with: MEMBERS MARKET ZONE ANNUITY FILE NO. -------------------------------------------------------------------------------- PRODUCT NAME 1933 ACT FILE NUMBER -------------------------------------------------------------------------------- MEMBERS Market Zone Annuity 333- -------------------------------------------------------------------------------- and have the full power and authority to do or cause to be done in my name, place and stead each and every act and thing necessary or appropriate in order to effectuate the same, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or any of them, may do or cause to be done by virtue hereof. Each said attorney-in-fact shall have power to act hereunder with or without the others. IN WITNESS WHEREOF, this 19 day of November, 2012 /s/ Robert N. Trunzo ------------------------------ Robert N. Trunzo COVER 21 filename21.txt CUNA BROKERAGE SERVICES, INC. Ross D. Hansen Secretary Phone: 608.665.7416 Fax: 608.236.7548 E-mail: ross.hansen@cunamutual.com June 12, 2013 VIA ELECTRONIC TRANSMISSION --------------------------- U.S Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: MEMBERS Life Insurance Company Single Premium Deferred Annuity Contract ---------------------------------------- Registration Statement on Form S-1 (File No. 333-186477) -------------------------------------------------------- Commissioners: Pursuant to Rule 461 under the Securities Act of 1933, CUNA Brokerage Services, Inc. requests that the effective date of Pre-Effective Amendment No. 1 to the Registration Statement filed on Form S-1, File No. 333-186477, be accelerated to June 26, 2013, or as soon thereafter as reasonably practicable. CUNA BROKERAGE SERVICES, INC. By: /s/ Ross D. Hansen ------------------------- Ross D. Hansen, Secretary CORRESP 22 filename22.txt [SUTHERLAND ASBILL & BRENNAN LLP] THOMAS E. BISSET DIRECT LINE: 202.383.0118 E-mail: thomas.bisset@sutherland.com June 12, 2013 VIA EDGAR --------- Commissioners U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: MEMBERS LIFE INSURANCE COMPANY REGISTRATION STATEMENT ON FORM S-1 FILE NO. 333-186477 ---------------------------------- Commissioners: On behalf of MEMBERS Life Insurance Company (the "Company"), we are transmitting for filing under the Securities Act of 1933, as amended (the "1933 Act") a copy of Pre-Effective Amendment No. 1 to the above-referenced Form S-1 Registration Statement (the "Amendment") for certain single premium deferred annuity contracts (the "Contracts"). The Amendment incorporates changes made in response to comments raised by the staff (the "Staff") of the Securities and Exchange Commission (the "Commission") in a letter to Counsel for the Company dated April 5, 2013, and includes information necessary to complete the registration statement, such as financial statements and the remainder of the required exhibits. The Amendment also reflects clarifying or stylistic changes. Acceleration requests from the Company and the principal underwriter also accompany the filing. The following paragraphs provide the Company's response to the comments set forth in the Staff's letter dated April 5, 2013. For the Staff's convenience, each of the comments is set forth in full below, followed by the response. 1. GENERAL COMMENTS/COVER: ---------------------- a. Please note that certain information required by Form S-1 is missing or to be provided by amendment. Please confirm that all missing information, including exhibits and financial information, required by Form S-1 (including Regulation S-K) is provided in a pre-effective amendment. We will review the information after the pre-effective amendment is filed on EDGAR and may have additional comments at that time. Please note that this may affect the timing of our review and any request for acceleration. Commissioners June 12, 2013 Page 2 RESPONSE: -------- The Company acknowledges the Staff's comment and confirms that it has included all missing information required by Form S-1 and Regulation S-K in the Amendment as requested by the Staff. b. The operation of the Contract, including the Risk Control Accounts, is not entirely clear. Please revise the prospectus for clarity and adhere to the plain English principles described in Rule 421 of Regulation C. RESPONSE: -------- The Company clarified the disclosure related to the operation of the Contract, including the Risk Control Accounts as requested by the Staff. The Company also modified prospectus disclosure consistent with plain English principles. c. Please clarify supplementally whether there are any types of guarantees or support agreements with third parties to support any of the company's guarantees under the Contract or whether the company will be solely responsible for payment of Contract benefits. RESPONSE: -------- The Company advises the Staff that there are no guarantee or credit support agreements with third parties to support any of the Company's guarantees under the Contract. However, the Company further advises the Staff that it has entered into two coinsurance agreements with its parent, CMFG Life Insurance Company ("CMFG Life"), under which CMFG Life agreed to reinsure the Company's liabilities under the Contracts on a coinsurance basis (each, an "Agreement"). CMFG Life's obligations under the Agreements run solely to the Company and no other party. Each Agreement is described in the prospectus and the Company filed a copy of each Agreement as an exhibit to the Amendment. d. In addition to the glossary at the front of the prospectus, please confirm that all defined terms are defined the first time they are used in the prospectus. RESPONSE: -------- As discussed with the Staff in a phone call with Counsel to the Company on May 14, 2013 (the "May Conference Call"), the Company acknowledges the Staff's comment and confirms that all defined terms in the prospectus have been defined in the glossary at the front of the prospectus. e. Please confirm that all defined terms are consistently capitalized in the prospectus. Some terms (e.g., Credited Index Interest Rate at pp. 1 and 14) are sometimes capitalized, and sometimes not. Commissioners June 12, 2013 Page 3 RESPONSE: -------- The Company has revised the prospectus to capitalize all defined terms consistently as requested and confirms that all defined terms are consistently capitalized in the prospectus included in the Amendment. f. Please specify that the annuity offered is single or joint on the outside front cover page and in the "highlights" section of the prospectus. RESPONSE: -------- The Company advises the Staff that the outside front cover page and the "highlights" section indicate that the annuity offered is a "single premium deferred annuity contract." The Company has revised both the outside front cover page as well as the "highlights" section to add the phrase "individual or joint owned" to the description of the annuity. g. Please provide the dealer prospectus delivery obligations legend on the outside back cover of the prospectus, as required by Item 502(b) of Regulation S-K. RESPONSE: -------- As discussed with the Staff in the May Conference Call, the dealer prospectus delivery obligations legend required on the outside back cover of the prospectus by Item 502(b) of Regulation S-K contemplates offerings of securities that are undertaken on a firm commitment basis and for which a secondary market exists or will exist for the securities. In that regard, the prospectus delivery obligations legend required by Item 502(b) does not appear applicable to the offering of the Contracts since the Contracts will be offered on a continuous basis to the public by broker-dealer firms on a best efforts basis and no secondary market will be established for the Contracts. Notwithstanding the apparent inapplicability of the Item 502(b) legend to the offering of the Contracts, in response to the Staff comment the Company has added a legend to the outside back cover of the prospectus noting that broker-dealer firms that offer the Contracts are required to deliver a prospectus for the Contract. h. Please clarify the "certain entities" for which the Contract is designed, as stated in the first paragraph on the outside cover page. RESPONSE: -------- The Company has clarified the meaning of the language "certain entities" in the first paragraph on the outside front cover page as requested by the Staff. i. In the second paragraph of the outside cover page, please clarify the types of guarantees that apply to the amount allocated to each Risk Control Account (as stated on p. 11 under "Setting the Index Interest Rate Cap"). In addition, please include a bolded statement that these guarantees are subject to the Company's financial strength and claims-paying ability. Please Commissioners June 12, 2013 Page 4 include similar disclosure, and a similar bolded statement, in the first paragraph of the "Risk Control Accounts" section at p. 11 of the prospectus. RESPONSE: -------- The Company has clarified the types of guarantees that apply to amounts allocated to each Risk Control Account in the second paragraph of the outside front cover page. The Company has also added a bolded statement that such guarantees are subject to the Company's financial strength and claims-paying ability on the outside front cover page. In addition, the Company has included similar disclosure and a similar bolded statement in the first paragraph of the "Risk Control Accounts" section on page 12 of the prospectus as requested by the Staff. j. The third paragraph of the outside cover page states that "Not all Risk Control Accounts may be available in all markets where we offer the Contract." As the Contract includes only two Risk Control Accounts, please clarify in the disclosure whether this means that the Contract may include only one Risk Control Account, or whether additional Risk Control Accounts may be added in the future. RESPONSE: -------- The Company has revised the disclosure in the third paragraph of the outside front cover page to indicate that the Company may offer additional Risk Control Accounts in the future. 2. GLOSSARY (PAGES 1-2): -------------------- a. "Contract Value" and "Credited Index Interest." In these definitions, please clarify that the Credited Index Interest impacts the Contract Value, as stated under "Index Interest Crediting Risk" at pp. 5-6 of the prospectus. RESPONSE: -------- The Company has revised the definitions of "Contract Value" and "Credited Index Interest" on page 1 of the prospectus as requested by the Staff. b. "Adjusted Index Value." Please clarify what the term "index value" means. If it refers to the "Initial Index Value," please so state. RESPONSE: -------- The Company has clarified the definition of "Adjusted Index Value" on page 1 of the prospectus as requested by the Staff. c. "General Account." Please clarify what the term "'insulated' separate accounts" means. If this refers to "Separate Accounts," as defined in this section, please so state. Commissioners June 12, 2013 Page 5 RESPONSE: -------- The Company clarified the definition of "General Account" on page 2 of the prospectus as requested by the Staff. d. "Good Order." Please clarify what notice, if any, investors may receive of any change in the requirements for what constitutes "good order." RESPONSE: -------- In response to the Staff comment, the Company clarified the definition of "Good Order" on page 2 of the prospectus to note that the Company will provide advance written notice to Owners if the Company changes the requirements for what constitutes "good order." The notice would identify any new requirements for what constitutes good order and would be sent at least 10 days in advance of such change taking place. e. "Index." Please clarify what may constitute a "suitable alternative index" for the S&P 500 Composite Stock Price Index. Please also include similar disclosure at p. 13 of the prospectus under "Addition or Substitution of an Index." RESPONSE: -------- The Company added disclosure on page 16 of the prospectus under the "Addition or Substitution of an Index" section identifying what constitutes a suitable alternative index for the S&P 500 Composite Stock Price Index as requested by the Staff. The Company also added a cross-reference to such disclosure in the definition of "Index" on page 2 of the prospectus. f. "Index Interest Rate Floor." Please specify the Index Interest Rate Floors that apply to the Secure Account and the Growth Account, as stated in the "highlights" and "Risk Control Accounts" sections of the prospectus. RESPONSE: -------- The Company revised the definition of "Index Interest Rate Floor" on page 2 of the prospectus as requested by the Staff. g. "Initial Index Period." For clarity, please consider using the term "Surrender Charge Period" rather than "Initial Index Period" to describe this period, as the two are identical. Alternatively, please clarify that this period is the same as the Surrender Charge Period. In addition, please include a cross-reference to the discussion of the Surrender Charge on pp. 15-16 of the prospectus, and include corresponding disclosure in the definition of "Surrender Charge Period." Commissioners June 12, 2013 Page 6 RESPONSE: -------- The Company revised the definition of "Initial Index Period" on page 2 of the prospectus to note that the Initial Index Period is the same as the Surrender Charge Period. In addition, the Company included a cross-reference to the discussion of the Surrender Charge on pages 19-20 of the prospectus as well as corresponding disclosure in the definition of "Surrender Charge Period" on page 3 of the prospectus as requested by the Staff. h. "Market Value Adjustment." Please clarify that "MVA" refers to "Market Value Adjustment." RESPONSE: -------- The Company clarified the definition of "Market Value Adjustment" on page 2 of the prospectus as requested by the Staff. i. "Separate Account." Please clarify that the Separate Account is not registered under the Investment Company Act of 1940. In addition, we note that the prospectus states, at p. 11 ("Risk Control Accounts") that the assets of the separate account "are subject to the claims of our general creditors." Therefore, please explain supplementally the legal basis for stating that the assets equal to the reserves and contract liabilities with respect to the separate account would not be chargeable with liabilities arising out of any other business of the Company. RESPONSE: -------- As requested by the Staff, the Company clarified in the definition of "Separate Account" on page 3 of the prospectus to note that the Separate Account is not registered under the Investment Company Act of 1940. In addition, the Company established the Separate Account under Section 508A.1 of the Iowa Code as a legally insulated non-unitized separate account. As such, assets held in the Separate Account equal to the reserves and other contract liabilities under the Contract are not chargeable with liabilities arising out of any other business of the Company. The Company removed the disclosure under the "Risk Control Accounts" section noted in the Staff comment. 3. HIGHLIGHTS (PP. 3-7) -------------------- a. Allocation Options: i. Please disclose the minimum Index Interest Rate Caps for the Secure Account and the Growth Account, as the prospectus should reflect all material rights and obligations of all Contract owners who purchase this product. Please also include similar disclosure in the "Risk Control Accounts" section of the prospectus at pp. 11-13 of the prospectus. Commissioners June 12, 2013 Page 7 RESPONSE: -------- The Company added disclosure on page 5 of the prospectus noting that the minimum Index Interest Rate Cap for both the Secure Account and the Growth Account is 0.50% as requested by the Staff. The Company added similar disclosure on page 14 in the "Risk Control Accounts" section of the prospectus. ii. Please supplementally explain the legal basis for disclosing current Index Interest Rate Caps in Contracts rather than in the prospectus. RESPONSE: -------- The Company will disclose current Index Interest Rate Caps in Contracts rather than the prospectus because Index Interest Rate Caps may change as frequently as bi-weekly and cannot be determined until the Contract is entered into by the Owner and the Company. Once the Contract is entered into by the Owner and the Company and the Index Interest Rate Cap is established, the Index Interest Rate Cap is guaranteed for a year. The Company will issue a notice to the Owner prior to the end of each Contract Year identifying the new Index Interest Rate Caps for the coming Contract Year. The Company notes that this proposed approach is the same approach followed by other insurance companies in disclosing current index interest rate caps to owners of equity indexed annuity contracts as described in the registration statements for such contracts, which registration statements were made effective by the Staff. See e.g., Pre-Effective Amendment No. 2 to Form S-1 Registration Statement for Eagle Life Insurance Company (File No. 333-160345); Pre-Effective Amendment No. 1 to Form S-3 Registration Statement for AXA Equitable Life Insurance Company (File No. 333-186796); and Pre-Effective Amendment No. 1 to Form S-3 Registration Statement for Allstate Life Insurance Company (File No. 333-178570). The Company notes that the proposed approach is also consistent with the approach followed by insurance company sponsors of combination variable and fixed deferred annuity contracts that make available fixed interest rate allocation options that guarantee a minimum rate of interest for the life of the contract and allow for crediting discretionary interest above the minimum guaranteed rate for specified periods. See, e.g., Post-Effective Amendment No. 61 to Form N-4 Registration Statement for Separate Account No. 49 of AXA Equitable Life Insurance Company (File No. 333-64749); Pre-Effective Amendment No. 2 to Form N-4 Registration Statement for Separate Account A (of Pacific Life Insurance Company) (File No. 333-185328); and Post-Effective Amendment No. 6 to Form N-4 Registration Statement of Separate Account VA-2L (of Transamerica Life Insurance Company) (File No. 333-153773). iii. Please clarify, if true, that Purchase Payments can be allocated to either of the two Risk Control Accounts without restriction. If there are such restrictions, please specify what they are. RESPONSE: -------- The Company has clarified the disclosure to indicate that the Purchase Payment may be allocated to either or both of the two Risk Control Accounts by the Owner subject to the allocation being a whole percentage of the Purchase Payment and the total allocation equaling 100% of the Purchase Commissioners June 12, 2013 Page 8 Payment as noted in the "highlights-Allocation Options" section on pages 4 and 5 of the prospectus. iv. In the second paragraph, please clarify what the default allocation would be if the Contract Owner fails to specify an allocation. Please include similar disclosure under "Rebalancing/Reallocation" at p. 4 and "automatic rebalance program" at p. 9 of the prospectus. RESPONSE: -------- The Company clarified the subject disclosure to indicate that Purchase Payments must be allocated to either or both of the Risk Control Accounts by the Owner prior to issuance of the Contract on pages 4 and 5 of the prospectus as requested by the Staff. In addition, the Company added clarifying disclosure under the "Rebalancing/Reallocation" section on page 5 and the "automatic rebalance program" section on page 11 of the prospectus. v. Please disclose prominently (through bolded language or otherwise) that the Company reserves the right to eliminate or substitute a Risk Control Account, as stated in the Risk Factors. Please include similar prominent disclosure in the "Risk Control Accounts" section. RESPONSE: -------- The Company has determined not to reserve the right to eliminate or substitute a Risk Control Account and therefore has not added the disclosure requested by the Staff. b. Right to Examine: Please clarify what happens to any investments allocated by Contract Owners who subsequently reject the Contract under a right to examine provision. (That is, will negative/ positive investment performance be reflected in the amount refunded to Contract Owners?) Please also clarify if such a rejection may be subject to any charges, such as MVA or the Surrender Charge. RESPONSE: -------- The Company clarified the disclosure under the "Right to Examine" section on page 5 of the prospectus by noting that upon the Owner's rejection of the Contract during the right to examine period, the Contract will terminate and the Company will refund to the Contract Owner the Purchase Payment or the Contract Value, which would reflect interest, positive or negative, based on changes in the Index if required under state law. If the Contract is an IRA under the Internal Revenue Code, the Company will refund the Purchase Payment. Refunds are not subject to a Surrender Charge or MVA and will be paid within seven days of the Company's receipt of the returned Contract. Commissioners June 12, 2013 Page 9 c. Rebalancing/Reallocation: i. The prospectus states that a Contract Owner may request a change to allocation instructions "at any time." However, since that change will not take effect until the next Contract Anniversary, this statement is potentially misleading. Please clarify, if accurate, that changes to allocations may only be made once a year. Please also revise the disclosure under "automatic rebalance program" at p. 9 accordingly. RESPONSE: -------- The Company has made conforming changes to the disclosure in the second paragraph under the "Rebalancing/Reallocation" section on page 5 of the prospectus and the second paragraph under the "automatic rebalance program" section on page 11 of the prospectus noting that an Owner may change their allocation of Contract Value between the Risk Control Accounts only once each Contract Year. d. Withdrawal Options: In the second bullet, please clarify that you cannot make a withdrawal during the first Contract Year. RESPONSE: -------- The Company modified the disclosure under the "Withdrawal Options" section on page 6 of the prospectus to reflect that up to two withdrawals from Contract Value may be made each Contract Year beginning in Contract Year 2 prior to the Payout Date, but that withdrawals are not permitted in Contract Year 1. e. Surrender Charge: i. For clarity, please place the discussion of this charge and the hardship waivers under a separate heading (for example, "Contract Fees and Charges"). RESPONSE: -------- The Company has complied with the Staff comment. ii. Please include a brief discussion of the Change of Annuitant Endorsement Charge (described at p. 16) in this overview. RESPONSE: -------- The Company has included a brief discussion of the Change of Annuitant Endorsement Charge on page 6 of the prospectus as requested by the Staff. f. Market Value Adjustment (MVA): Please clarify that you may lose a portion of your principal due to an MVA. See p. 14. Commissioners June 12, 2013 Page 10 RESPONSE: -------- The Company has added the disclosure under the "Market Value Adjustment (MVA)" section on page 6 of the prospectus as requested by the Staff. g. Hardship Waiver: i. The prospectus states at p. 4 that the MVA will be "waived" in the event of a hardship waiver, which seems to imply that the MVA would not decrease the amount of the withdrawal. However, at p. 17, under "Waiver of Surrender Charges," the prospectus states that an MVA is not "applied" to any partial withdrawal that qualifies for such a hardship waiver, which seems to indicate that the MVA would neither decrease nor increase the amount of the withdrawal. Please clarify which statement is more accurate. In addition, please clarify whether an MVA would be applied to a surrender that qualifies for a hardship waiver. If so, please also specify whether the MVA could increase, as well as decrease, the amount of this withdrawal. RESPONSE: -------- The Company clarified the disclosure on pages 6 and 21 of the prospectus to reflect that the Company will not deduct a Surrender Charge or apply an MVA to any partial withdrawal or surrender where the Owner or Annuitant qualifies for a hardship waiver. h. Surrender Charge and MVA: i. Please clarify how the Surrender Charge and MVA are applied if a partial withdrawal or surrender is made before an applicable Contract Anniversary. Please also include similar disclosure in the MVA and "fees and charges" section of the prospectus (pp. 14-15; 15-17). RESPONSE: -------- The Company clarified the disclosure on pages 6 and 21 of the prospectus as requested by the Staff. The Company also added to the "Surrender Charge" sections on pages 6 and 21 of the prospectus a cross reference to the examples in appendix a which examples describe the calculation of a partial withdrawal, one with a negative MVA and one with a positive MVA. i. Benefits of Your Contract: i. Tax Deferral: Please clarify this section as the Contract may be offered on a Roth basis. RESPONSE: -------- The Company clarified the disclosure under the "Benefits of Your Contract - Tax Deferral" section on page 7 of the prospectus as requested by the Staff. Commissioners June 12, 2013 Page 11 ii. Please clarify if amounts withdrawn before a Contract Anniversary reflect any Credited Index Interest earned prior to that time. RESPONSE: -------- The Company added the following statement under the "Benefits of Your Contract - Tax Deferral" section on page 7 of the prospectus in response to the Staff comment: "We will apply any Credited Indexed Interest earned at the time of a partial withdrawal or surrender." iii. In the "Free Annual Withdrawals' discussion, please clarify that the free withdrawals are subject to a limit of two partial withdrawals per Contract Year, as stated on pp. 4, 6 and 17 of the prospectus. RESPONSE: -------- In response to the Staff comment, the Company added disclosure to the "Benefits of Your Contract-Free Annual Withdrawals after First Contract Year" section on page 7 of the prospectus noting that an Owner may take a maximum of two free annual withdrawals each Contract Year after the first Contract Year during the Initial Index Period. 4. RISK FACTORS (PP 5-7): --------------------- a. General: For clarity, please group the final four bullet points in this section under a separate subheading, as they are not "risk factors." RESPONSE: -------- In response to the Staff comment, the Company removed the final four bullet points under the "Risk Factors" section on pages 8 and 9 of the prospectus and placed three of the bullet points under a new section entitled "Other Important Information You Should Know" on pages 8 and 9 of the prospectus. b. Please include market risk as a risk of investing in the Contract. RESPONSE: -------- The Company added a section addressing market risk on page 8 of the prospectus as requested by the Staff. c. Liquidity Risk: i. The last three sentences of this discussion (beginning, "There is a risk that interest rates will increase ...") appear to describe risks other than liquidity risk. Please review and revise as necessary (for example, by separating the discussion into appropriate risk categories). Commissioners June 12, 2013 Page 12 RESPONSE: -------- The Company revised the disclosure related to the liquidity risk on pages 7 and 8 of the prospectus as requested by the Staff. ii. Please include language that you may delay payments for up to six months. RESPONSE: -------- The Company added the disclosure requested by the Staff to the discussion of liquidity risk on pages 7 and 8 of the prospectus. d. Risk That We May Eliminate or Substitute a Risk Control Account: i. Since this discussion concerns both Accounts and Index substitution/elimination, please include the phrase "or Index" in the heading of this discussion. RESPONSE: -------- As noted in response to Staff comment 3.a.v., the Company has determined not to reserve the right to eliminate or substitute a Risk Control Account. In that regard, the Company revised the subject heading to read "Risk That We May Eliminate or Substitute an Index." ii. The first paragraph of this discussion appears to give the Company board rights to substitute another index for the Index. However, the second paragraph indicates that the Company will only substitute an index under certain stated circumstances. Please resolve this apparent inconsistency. RESPONSE: -------- The Company clarified the subject disclosure on page 8 of the prospectus as requested by the Staff. iii. The second paragraph of this section states that "the same index will be used for each Risk Control Account for the duration of your Contract." However, the section on "Addition or Substitution of an Index" (p. 13) states that there is "no guarantee that the Index will be available during the entire time you own your Contract." Please resolve this apparent inconsistency. RESPONSE: -------- The Company removed the disclosure providing that "the same index will be used for each Risk Control Account for the duration of your Contract" from the prospectus. iv. The disclosure regarding the circumstances under which the Company may substitute an index appears to conflict with the section on "Addition or Substitution of an Index." In Commissioners June 12, 2013 Page 13 that Section, the prospectus states that the Index may be substituted or eliminated if the Company is "unable to utilize" the Index. Please resolve this apparent inconsistency. RESPONSE: -------- The Company has reconciled the subject disclosure on pages 8 and 16 of the prospectus as requested by the Staff. v. Please more fully explain the effect on Contract Owners of an index change. RESPONSE: -------- In response to the Staff comment, the Company added disclosure noting that if an Owner does not want to allocate Contract Value to a Risk Control Account after an index change the Owner may surrender the Contract but may be subject to a Surrender Charge and MVA, which may result in a loss of principal and Credited Index Interest. vi. Please more fully explain the circumstances under which the Company may eliminate or substitute a Risk Control Account. In addition, please specify the type of notice (written or oral), if any, that Contract Owners would receive prior to the effective date of the substitution of an Account. RESPONSE: -------- The Company has determined that it will not eliminate or substitute Risk Control Accounts under the Contract and therefore removed all references from the prospectus that the Company may eliminate or substitute a Risk Control Account. vii. With respect to notification of an index change, please specify whether such notice will be in writing. RESPONSE: -------- Disclosure addressing written notification of an index change requested by the Staff has been included on pages 8 and 16 of the prospectus. e. Creditor and Solvency Risk: Please bold the second sentence in this section. RESPONSE: -------- The Company has complied with the Staff comment. Commissioners June 12, 2013 Page 14 5. AUTOMATIC REBALANCE PROGRAM (PP. 9-13) -------------------------------------- a. For clarity, please consider placing the discussion relating to "Contract Value" and "Risk Control Accounts" under a separate heading, as they cover topics unrelated to the automatic rebalance program. RESPONSE: -------- The Company has placed the discussions relating to "Contract Value" and "Risk Control Accounts" under separate headings on pages 11 and 12 of the prospectus as recommended by the Staff. b. Please clarify that this program is only in effect during the Initial Index Period. RESPONSE: -------- The Company added disclosure on page 11 of the prospectus to clarify that the automatic rebalance program is only in effect during the Initial Index Period. c. Credited Index Interest: Please disclose whether Contract Owners may obtain the current Credited Index Interest applicable to their Contract Value and, if so, how (e.g., toll-free telephone number; website; etc.). RESPONSE: -------- The Company added the disclosure requested by the Staff under the "risk control accounts - Credited Index Interest" section on page 13 of the prospectus. d. Risk Control Accounts: Please clarify what is meant by a "non- unitized separate account." RESPONSE: -------- In response to the Staff comment, the Company removed the term "non-unitized" from the prospectus since in the Company's opinion that term would not likely be informative for the majority of Owners. In addition, the Company modified the definition of "Separate Account" on page 3 of the prospectus to note that the investment return on assets held in the Separate Account would not determine Credited Index Interest. e. Growth Account/Index Interest Rate Floor for the Growth Account: The disclosure points the reader to "appendix a" for an example, but then provides several examples below. Please revise the prospectus accordingly. RESPONSE: -------- The Company removed the reference to appendix a in response to the Staff comment. Commissioners June 12, 2013 Page 15 f. Addition or Substitution of an Index: i. The disclosure that the Index may be terminated when "we are unable to utilize the Index" should be clarified. In addition, as noted above, please resolve the apparent conflict between this disclosure and similar disclosure in the discussion of "Risk Factors." RESPONSE: -------- As noted in response to prior Staff comment 4.d.iv., the Company reconciled the subject disclosure on pages 5, 8 and 16 of the prospectus. The Company also clarified the disclosure regarding the termination of the Index. ii. As the Contract offers a single Index and no fixed investment option, please explain where an investor's money would be held should the Index be terminated. RESPONSE: -------- In the unlikely event that the Company terminates the Index, the Company would undertake to ensure that a suitable alternative index is made available under the Contract upon termination of the Index and Contract Value would continue to be allocated to the Risk Control Accounts. If a suitable alternative index is not available at that time, Contract Value would also continue to be allocated to the Risk Control Accounts until a suitable alternative index becomes available. Changes in the value of the Index following termination would not be taken into account in determining any Credited Indexed Interest during such interim period. The Company has added disclosure in this regard under the "Risk Control Accounts" section on page 12 of the prospectus. 6. MARKET VALUE ADJUSTMENT (PP. 14-15): ------------------------------------ a. The prospectus states that "[y]ou may lose a portion of your principal due to an MVA." Please clarify if this is true for the Secure Account. RESPONSE: -------- In response to the Staff comment, the Company added disclosure to page 16 of the prospectus noting that the application of the MVA may result in a loss of principal regardless of the Risk Control Account to which a Contract Owner allocated Contract Value. b. Purpose of the MVA: Please explain more fully how the MVA works. In particular, please clarify, if accurate, that the "fixed income investment and other investments" referred to in this section are the investments in the Risk Control Accounts. RESPONSE: -------- In response to the Staff comment, the Company added disclosure on page 17 of the prospectus noting that fixed income investments and other investments are used to support the guarantees under the Contract. The Company notes that each Risk Control Account is an index interest Commissioners June 12, 2013 Page 16 crediting option with Index Interest Rate Caps and Index Interest Rate Floors that the Company uses to determine Credited Index Interest. The Risk Control Accounts do not hold fixed income investments or other investments. c. MVA Formula: Please provide a plain English description of the MVA Formula including the factors that might increase or decrease the MVA. RESPONSE: -------- In response to the Staff comment, the Company added a description of the MVA feature in plain English addressing, among other things, economic indicators, such as the Constant Maturity Treasury rate, BofA Merrill Lynch 1-10 Year US Corporate Constrained Index, Asset Swap Spreads, as well as other factors set forth in the MVA formula and their effect on the MVA. The Company also retained the MVA Formula in the prospectus. The formulaic presentation of the MVA feature is consistent with the disclosure of mva formulas in other prospectuses for fixed interest annuity contracts and equity indexed contracts included in registration statements made effective by the Staff. d. Market Value Adjustments Indices (p. 15, second full paragraph): i. Please define this term here or in the glossary. RESPONSE: -------- In response to the Staff comment, the Company defined the term Market Value Adjustment Indices in the glossary on page 2 of the prospectus. ii. In the discussion of Market Value Adjustment Indices, please explain what "regulatory approval" you are referring to. RESPONSE: -------- In response to the Staff comment, the Company modified the subject disclosure to note that such approval would be sought from the insurance department of the Owner's state of residence. 7. FEES AND CHARGES/SURRENDER CHARGE (PP. 15-16): Please make it clear why an investor would choose one Initial Index Period over another. RESPONSE: -------- In response to the Staff comment, the Company added disclosure under the "fees and charges-Surrender Charge" section on page 19 of the prospectus noting that the Initial Index Period should be chosen based on an Owner's specific investment, liquidity and retirement planning needs. The disclosure notes that in general the Index Interest Rate Cap for either the Secure Account or the Growth Account would increase with the duration of the Initial Index Period. In addition, the disclosure notes that, in general, the Index Interest Rate Cap for the Growth Account would exceed the Index Interest Rate Cap for the Secure Account where the Growth Account and Secure Commissioners June 12, 2013 Page 17 Account have the same duration and that the Growth Account is only available during the Initial Index Period. 8. ACCESS TO YOUR MONEY (PP. 17-18): Please clarify if the Index Rate Floor or the Interest Rate Cap is pro-rated if the death of a Contract Owner occurs in the middle of a Contract Year (both during the Initial Index Period and after the Initial Index Period). RESPONSE: -------- The Company added disclosure in response to the Staff comment under the "Waiver of Surrender Charges" section on page 21 of the prospectus noting that the Company does not pro-rate Credited Index Interest, the Index Interest Rate Floor or the Index Interest Rate Cap in the event of the death of the Owner during or after the Initial Index Period. 9. DEATH BENEFIT - DEATH OF THE OWNER (p. 19): Please clarify if the Index Rate Floor or the Interest Rate Cap is pro-rated if the death of a Contract Owner occurs in the middle of a Contract Year. RESPONSE: -------- The Company added disclosure in response to the Staff comment under the "Death of the Owner" section on page 22 of the prospectus noting that the Company does not pro-rate Credited Index Interest, the Index Interest Rate Floor or the Index Interest Rate Cap in the event of the death of the Owner during or after the Initial Index Period. 10. INCOME PAYMENTS - TERMS OF INCOME PAYMENTS (P. 20): Please make it clear that the payments are based on fixed interest rates. RESPONSE: -------- In response to the Staff comment, the Company has added disclosure to the "income payments - the Payout Period, Terms of Income Payments" section of the prospectus noting that income payments under the Income Payment Options are based upon fixed rates of interest. 11. INCOME PAYMENT OPTIONS (P. 21): ------------------------------ a. Please specify what the default payment option would be if the Contract Owner fails to select an option. RESPONSE: -------- The Company identified the default Income Payment Option on page 25 of the prospectus as requested by the Staff. Commissioners June 12, 2013 Page 18 b. EGC Scaled Disclosure: Please explain supplementally the extent to which the financial and other disclosure in this prospectus (including, for example, executive compensation disclosure) has been reduced from that required under Form S-1 as a result of the Company's status as an EGC under the JOBS Act. RESPONSE: -------- As noted in a phone message for Ms. Deborah Skeens, Senior Counsel, Insured Investments Office, SEC's Division of Investment Management, from outside counsel for the Company, on April 30, 2013, the Company respectfully advised the Staff that it is no longer seeking treatment as an "emerging growth company" under the JOBS Act and has included in the prospectus all financial and other disclosure as required under Regulation S-K. Notwithstanding the Company's decision not to pursue emerging growth company treatment, the Company still believes that it qualifies as an emerging growth company under the JOBS Act and is eligible for treatment as such. However, solely out of concern that continued dialogue and correspondence with the Staff regarding the Company's eligibility for emerging growth company treatment could jeopardize the proposed effective date of the Amendment and the proposed start date for the commencement of distribution activities for the Contract, the Company decided not to pursue treatment as an emerging growth company. 12. CORPORATE HISTORY OF THE COMPANY (P. 28): The prospectus discloses the assets of MEMBERS Life Insurance Company and its subsidiaries. It does not appear that MEMBERS Life Insurance Company has any subsidiaries. Please revise or advise. RESPONSE: -------- The Company revised the disclosure on page 32 of the prospectus to remove the reference to "and our subsidiaries." 13. IMPORTANT INFORMATION ABOUT THE INDEX (P. 51): Please provide a description of the Index, including that the performance of the Index does not reflect dividends. Please also include a brief description of the Index in the highlights section of the prospectus. RESPONSE: -------- The Company added the disclosure requested by the Staff on pages 4 and 58 of the prospectus. 14. TANDY REPRESENTATIONS: We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing reviewed by the staff to be certain that they have provided all information investors require for an informed decision. Since the registrant and its management are in possession of all facts relating to the registrant's disclosure, they are responsible for the accuracy and adequacy of the disclosure they have made. Notwithstanding our comments, in the event the registrant requests acceleration of the effective date of the pending registration statement, it should furnish a letter, at the time of such request, acknowledging that Commissioners June 12, 2013 Page 19 o should the Commission or the staff, acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing; o the registrant is responsible for the adequacy and accuracy of the disclosure in the filing; o the staff's comments, the registrant's changes to the disclosure in response to the staff's comments or the action of the Commission or the staff, acting pursuant to delegated authority, in declaring the filling effective, does not relieve registrant from this responsibility; and o the registrant may not assert this action or the staff's comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. In addition, please be advised that the Division of Enforcement has access to all information you provide to the staff of the Division of Investment Management in connection with our review of your filing or in response to our comments on your filing. We will consider a written request for acceleration of the effective date of the registration statement as a confirmation of the fact that those requesting acceleration are aware of their respective responsibilities. We will act on the request and, pursuant to delegated authority, grant acceleration of the effective date. RESPONSE: -------- In response to the Staff comment, the Company acknowledges that o should the Commission or the Staff, acting pursuant to delegated authority, declare the Amendment effective, it does not foreclose the Commission from taking any action with respect to the Amendment; o the Company is responsible for the adequacy and accuracy of the disclosure in the Amendment; o the Staff's comments, the Company's changes to the disclosure as reflected in the Amendment in response to the Staff's comments or the action of the Commission or the Staff, acting pursuant to delegated authority, in declaring the Amendment effective, does not relieve the Company from responsibility for the adequacy and accuracy of the disclosure in the Amendment; and o the Company may not assert the Staff's action or the Staff's comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. * * * * * Commissioners June 12, 2013 Page 20 We believe that the Amendment is complete and responds to all Staff comments. We respectfully request that the Staff review these materials as soon as possible. As noted above, requests for acceleration from the Company and from the principal underwriter accompany the Amendment and request acceleration of the effective date of the Amendment to June 26, 2013 or as soon as practicable thereafter. If you have any questions regarding this letter or the enclosed Amendment, please contact the undersigned at 202.383.0118. We greatly appreciate the Staff's efforts in assisting the Company with this filing. Sincerely /s/ Thomas E. Bisset -------------------- Thomas E. Bisset Enclosures cc: Deborah Skeens Kevin Thompson Ross Hansen Steve Roth Stephani Hildebrandt Naseem Nixon COVER 23 filename23.txt MEMBERS LIFE INSURANCE COMPANY Ross D. Hansen Associate General Counsel Office of General Counsel Phone: 608.665.7416 Fax: 608.236.7548 E-mail: ross.hansen@cunamutual.com June 12, 2013 VIA ELECTRONIC TRANSMISSION --------------------------- U.S Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: MEMBERS Life Insurance Company Single Premium Deferred Annuity Contract ---------------------------------------- Registration Statement on Form S-1 (File No. 333-186477) -------------------------------------------------------- Commissioners: Pursuant to Rule 461 under the Securities Act of 1933, MEMBERS Life Insurance Company requests that the effective date of Pre-Effective Amendment No. 1 to the Registration Statement filed on Form S-1, File No. 333-186477, be accelerated to June 26, 2013, or as soon thereafter as reasonably practicable. By: MEMBERS LIFE INSURANCE COMPANY By: /s/ Ross D. Hansen ------------------ Ross D. Hansen, Associate General Counsel