As filed with the Securities and Exchange Commission on March 31, 2017 |
Registration No. 333-210491 |
SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, D.C. 20549 |
POST-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 registrants 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 o | Accelerated filer o | ||
Non-accelerated filer x | Smaller reporting company o |
Calculation of Registration Fee
Title
of each class of securities to be registered |
Amount
to be registered |
Proposed
maximum offering price per unit |
Proposed
maximum aggregate offering price |
Amount
of registration fee |
Single
Premium Deferred Annuity Contract |
* | * | $1 billion | $ 100,700.00** |
*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.
**Previously paid.
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® Zone Annuity
Issued by:
MEMBERS
Life Insurance Company
2000 Heritage Way
Waverly, Iowa 50677
Telephone number: 800-798-5500
Offered Through: CUNA Brokerage Services, Inc.
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 Companys 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.
<R>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 59½. Accordingly, you should carefully consider your income and liquidity needs before purchasing a Contract. It is also possible that you will not earn any interest in the Risk Control Accounts. Additional information about these risks appears under highlights on page 4, access to your money on page 23, and federal income tax matters on page 29.
Please note that you could lose significantly more than 10% of your investment in the Contract. For example, if you invested $10,000 in the Contract and allocated your investment to the Growth Account and the Index then declined by 10% or more in each of three consecutive years, your investment in the Contract at the end of the third year would be equal to $7,290. If you surrendered the Contract at the end of that third year, you would pay a Surrender Charge equal to 8% of your investment or $525 which would leave you with $6,765. That amount would be reduced further if a negative MVA applied. In addition, if you were age 59½ or younger at the time of surrender, a ten percent tax penalty of $677 would apply and would reduce the amount you would have from the Contract to $6,088. This example, however, does not take into account your ability to allocate some or all of your initial investment to the Secure Account which has a floor that protects amounts allocated to that Account
from declines in the Index. The example also does not take into account your ability to transfer some or all of your investment to the Secure Account after the first and second year.
<R>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.
<R>TABLE OF CONTENTS
<R>GLOSSARY | 1 | |
HIGHLIGHTS | 4 | |
How Your Contract Works |
4 | |
Contract Charges |
6 | |
Change of Annuitant Endorsement Charge |
7 | |
Benefits of Your Contract |
7 | |
Risk Factors |
8 | |
Other Important Information You Should Know |
9 | |
GETTING STARTED THE ACCUMULATION PERIOD | 10 | |
Purchasing a Contract |
10 | |
Tax-Free Section 1035 Exchanges |
10 | |
Owner |
11 | |
Divorce |
11 | |
Beneficiary |
11 | |
Right to Examine |
11 | |
ALLOCATING YOUR PURCHASE PAYMENT | 11 | |
AUTOMATIC REBALANCE PROGRAM | 12 | |
CONTRACT VALUE | 12 | |
RISK CONTROL ACCOUNTS | 13 | |
MARKET VALUE ADJUSTMENT | 18 | |
SURRENDER VALUE | 21 | |
FEES AND CHARGES | 21 | |
Surrender Charge |
21 | |
Change of Annuitant Endorsement Charge |
22 | |
Other Information |
22 | |
ACCESS TO YOUR MONEY | 23 | |
Partial Withdrawals |
23 | |
Free annual withdrawal amount. |
23 | |
Waiver of Surrender Charges. |
23 | |
Nursing Home or Hospital Waiver |
23 | |
Terminal Illness Waiver. |
24 | |
Surrenders |
24 | |
Partial Withdrawal and Surrender Restrictions |
24 | |
Right to Defer Payments |
24 | |
Bailout Provision |
25 | |
DEATH BENEFIT | 25 | |
Death of the Owner |
25 | |
Death of Annuitant While the Owner is Living |
26 | |
Death Benefit Payment Options |
26 | |
Death of Owner or Annuitant After the Payout Date |
26 | |
Abandoned Property Requirements |
27 | |
INCOME PAYMENTS THE PAYOUT PERIOD | 27 | |
Payout Date |
27 |
i
Terms of Income Payments |
27 | |
INCOME PAYMENT OPTIONS | 28 | |
Election of an Income Payment Option |
28 | |
Options |
28 | |
FEDERAL INCOME TAX MATTERS | 29 | |
Tax Status of the Contracts |
29 | |
Taxation of Non-Qualified Contracts |
29 | |
Taxation of Qualified Contracts |
31 | |
Federal Estate Taxes, Gift and Generation-Skipping Transfer Taxes |
32 | |
Medicare Tax |
32 | |
Same-Sex Spouses |
32 | |
Annuity Purchases By Nonresident Aliens and Foreign Corporations |
32 | |
Possible Tax Law Changes |
33 | |
OTHER INFORMATION | 33 | |
Distribution |
33 | |
Cyber Security |
34 | |
Authority to Change |
34 | |
Incontestability |
34 | |
Misstatement of Age or Gender |
34 | |
Conformity with Applicable Laws |
34 | |
Reports to Owners |
35 | |
Change of Address |
35 | |
Inquiries |
35 | |
CORPORATE HISTORY OF THE COMPANY | 35 | |
Financial Information |
36 | |
Investments |
36 | |
Reinsurance |
36 | |
Policy Liability and Accruals |
36 | |
POTENTIAL RISK FACTORS THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS | 37 | |
SELECTED FINANCIAL DATA | 41 | |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 43 | |
Cautionary Statement Regarding Forward-Looking Information |
43 | |
Overview |
43 | |
Critical Accounting Policies |
45 | |
Financial Condition |
52 | |
MANAGEMENT | 56 | |
Directors and Executive Officers |
56 | |
FINANCIAL STATEMENTS | 65 | |
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.
</R>ii
glossary |
<R> 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. </R> |
<R> 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. </R> |
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: 1-800-798-5500. |
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. |
Bailout
Provision If the Index Interest Rate Cap for your Risk Control Account
is set below the bailout rate prominently displayed on your contract data page attached
to the front of the cover page of the Contract, the Bailout Provision allows you
to make a withdrawal of some or all of the Contract Value attributable to that Risk
Control Account without a Surrender Charge and without any MVA 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 Owners estate. |
<R> Business Day Any day both the Company and the New York Stock Exchange are open for business. In 2017, the Company is closed on the following holidays: New Years 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. Effective January 1, 2018, the Company will be closed on the following holidays: New Years Day, Martin Luther King, Jr. Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. We are 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. </R> |
<R> Company MEMBERS Life Insurance Company; also referred to as we, our and us. </R> |
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 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 contract 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. |
<R> 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. </R> |
1
Credited
Index Interest Rate The rate used to determine the index interest
to be applied to Contract Value. |
<R> 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. </R> |
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 decree reciting a finding of death; c) any other proof
satisfactory to us. |
General
Account All of the Companys 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. |
<R> Initial Index Value The index value as of the beginning of the current Contract Year. </R> |
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. |
<R> Issue Date The date on which we issue the Contract. We will only issue the Contract on the 10th and 25th of each month, unless the day falls on a non-business day. See Business Day definition for more details. </R> |
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. |
2
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. |
<R> 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. </R> |
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 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 the Contract or make a
partial withdrawal of Contract Value during the Initial Index Period. |
<R> Surrender Charge Period The number of Contract Years beginning on the date a Purchase Payment is credited to the Contract 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. </R> |
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, if permitted under
our current administrative procedures. |
3
highlights |
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 1-800-798-5500 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. For Contracts sold in the state
of California, neither Risk Control Account is available after the Initial Index
Period. After the Initial Index Period, the Owner must select either an Income Payment
Option or a lump sum payment of Contract Value.
4
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 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.
Please note that at any time the Index Interest Rate Cap for your Risk Control Account is less than the bailout rate specified on your contract data page, we may, at our discretion, restrict transfer into that Risk Control Account. (See access to your money Bailout Provision for more details.)
The Index Interest Rate Floor is the minimum
index interest rate that we may use to determine Credited Index Interest. 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 is the maximum index interest
rate that we may use to determine Credited Index Interest. 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 1.0%.
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 1.0%.
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.
<R>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.
5
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.
Please note that at any time the Index Interest Rate Cap for your Risk Control Account is less than the bailout rate specified on your contract data page, we may, at our discretion, restrict transfers into that Risk Control Account and may not reallocate your Contract Value between Risk Control Accounts under the Automatic Rebalance Program. See access to your money Bailout Provision for more details.
Withdrawal Options
The Contract offers the following liquidity features during the Accumulation
Period:
| 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. One time withdrawals will be
permitted in the first Contract year for purposes of meeting requirements set forth
by the Internal Revenue Code. The free annual withdrawal amount may be larger for
certain Qualified Contracts to satisfy minimum distribution requirements set forth
in the Internal Revenue Code. |
|
| 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, with the exception to allow for requirements set forth by the
Internal Revenue Code. 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. |
|
| 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
<R>6
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:
| Confinement
to a Nursing Home or Hospital for at least 180 consecutive days; or |
|
| 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.
Bailout Provision
We will set a bailout rate for each Risk Control Account. The bailout rate will be
prominently displayed on your contract data page attached to the front of the cover
page of the Contract and will not change during the Initial Index Period. If the
Index Interest Rate Cap for your Risk Control Account is set below the bailout rate
for that Risk Control Account, the Bailout Provision allows you to make a withdrawal
of some or all of the Contract Value attributable to that Risk Control Account during
the Initial Index Period without incurring any Surrender Charge and without the
application of any MVA during the 30-day period following a Contract Anniversary.
However, if you are age 59½ or younger at the time of such withdrawal, a 10% tax
penalty may apply. At any time the Index Interest Rate Cap for your Risk Control
Account is less than the bailout rate specified on your contract data page, we may,
at our discretion, restrict transfers into that Risk Control Account. See access
to your money Bailout Provision for more details.
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.
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.
| 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. |
|
|
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 |
7
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. |
||
|
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). |
|
|
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.
|
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. In addition, you assume the risk that the Index Interest
Rate Cap, the maximum index interest rate that we may use to determine Credited
Index Interest and which is set annually, can be reduced to as little as 1.0%. |
|
Please
note that in an increasing interest rate environment, the MVA could reduce the amount
received to less than the protection provided by the Index Interest Rate Floor. |
||
|
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 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. |
|
|
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. |
8
|
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. |
||
Note: When
you purchase the Contract, you are not buying shares in a securities index or shares
of stock. |
||
|
Risk Control Account Transfer Restriction At any time
the Index Interest Rate Cap for your Risk Control Account is less than the bailout
rate specified on your contract data page, we may, at our discretion, restrict transfers
into that Risk Control Account. In that event, you may not be able to reallocate
your Contract Value between the Secure Account and the Growth Account. See access
to your money Bailout Provision for more details. |
|
<R> | ||
|
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 Managements Discussion and Analysis of Financial Condition
and Results of Operations. |
|
</R> | ||
Other
Important Information You Should Know |
||
|
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. |
|
|
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. |
|
|
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. |
9
getting started the Accumulation Period |
<R>
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.
</R>
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 Companys 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 Owners 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
<R>10
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 Annuitants 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 Owners 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 for you to return your Contract.
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.
11
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.
Please note that at any time the Index Interest Rate Cap for your Risk Control Account is less than the bailout rate specified on your contract data page, we may, at our discretion, restrict transfers into that Risk Control Account and may not reallocate your Contract Value between Risk Control Accounts under the Automatic Rebalance Program. (See access to your money Bailout Provision for more details.)
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.
12
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 Companys 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:
| Your Risk
Control Account Value as of the last Contract Anniversary; plus |
|
| Any Credited
Index Interest applied to Risk Control Account Value during the current Contract
Year; minus |
|
| 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.
13
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 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:
| Index Interest
Rate Cap, which is the maximum rate that we will use in the calculation of Credited
Index Interest; and |
|
| Index Interest
Rate Floor, which is the minimum interest rate that we will use in the calculation
of Credited Index Interest. |
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 taken in the current Contract Year. If no partial withdrawals have been taken in the current Contract Year, this will be equal to 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 (800.798.5500) or by viewing on-line at http://eservice.cunamutual.com.
Adjusted Index Value. The Adjusted Index Value depends 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 Adjusted Index Value is calculated each time Credited Index Interest is calculated. This can be as frequently as daily and occurs on each Contract Anniversary or on any date when a partial withdrawal, surrender, Death Benefit or annuitization is processed. 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 Rate 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.
14
For example, assume the following: | |||
| Initial Index Value = 1,000 | ||
| Index Interest Rate Cap = 15% | ||
| Index Interest Rate Floor = -10% | ||
At the time Credited Index Interest is calculated, the Adjusted Index Value will be: | |||
| 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. | ||
| 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. | ||
| 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. |
The Adjusted Index Value will never exceed the Initial Index Value multiplied by (1 + Index Interest Rate Cap) and will never be lower than the Initial Index Value multiplied by (1 + Index Interest Rate Floor).
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 at least fifteen days prior to the start of that Contract Year. The notice will also describe your right to transfer Contract Value between the Secure Account and the Growth Account and your right to exercise the Bailout Provision, if applicable. 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 1.0%.
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.
15
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 at least fifteen days prior to the start of that Contract Year. The notice will also describe your right to transfer Contract Value between the Secure Account and the Growth Account and your right to exercise the Bailout Provision, if applicable. 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 1.0%.
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.
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.
<R>Assume the following information: | |||
Prior Contract Anniversary: |
9/30/2015 | ||
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: |
9/30/2016 | ||
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.
16
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.
<R>Assume the following information: | |||
Prior Contract Anniversary: |
9/30/2015 | ||
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: |
9/30/2016 | ||
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.
<R>Assume the following information: | |||
Prior Contract Anniversary: |
9/30/2015 | ||
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: |
9/30/2016 | ||
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.
The Company retains the right to change the current Index Interest Rate Cap for both the Secure and Growth Accounts at its discretion, subject to the minimum Index Interest Rate Cap of 1.0%. The Company would consider the following factors when determining whether to make such a change:
17
| significant
changes in derivative, equity and/or fixed income instrument valuations; |
|
| increases
in hedging costs that have a material impact on the Companys ability to offer
the Contract; |
|
| derivative
market changes that materially impact availability and structure of hedging instruments; |
|
| significant
negative fixed income instrument default experience realized by the Company; |
|
| meaningful
changes in Company and/or Contract cost structure due to regulatory or other business
management concerns; and |
|
| material
unanticipated Owner experience. |
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:
| 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; |
|
| 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 |
|
| 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.
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. |
<R>
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.
In general, if interest rate levels 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. Similarly, in general, if interest rate levels 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. The MVA reflects in part the difference between the effective
yield of the Constant Maturity Treasury rate, a rate representing the average yield
of various Treasury securities, 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
</R>
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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, a rate representative of investment grade corporate debt credit spreads in the U.S., 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. We will increase the amount you will be paid from a partial withdrawal by the amount of any positive MVA, and in the case of a surrender of the Contract, we will increase your Surrender Value by the amount of any positive MVA. Conversely, we will decrease the amount you will be paid from a partial withdrawal by the amount of any negative MVA, and in the case of a surrender of the Contract, we will decrease your Surrender Value by the amount of any negative MVA.
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 Company uses both the Constant Maturity Treasury rate and BofA Merrill Lynch 1-10 Year US Corporate Constrained Index Asset Swap Spread in determining any MVA since together both indices represent a broad mix of investments whose values may be affected by changes in market interest rates.
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.
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:
<R>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; |
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4. | withdrawals
under the Bailout Provision; |
|
5. | partial
withdrawals taken as required minimum distributions under the Internal Revenue Code
that are withdrawn under a systematic withdrawal program we provide; |
|
6. | partial
withdrawals or a surrender after the Initial Index Period; and |
|
7. | 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 Constant Maturity Treasury Rates 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 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.
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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 surrender the Contract during the Accumulation Period or make a partial withdrawal 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 5-Year Period: |
If You Choose the 7-Year Period: |
If You Choose the 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.
An Initial Index Period
should be chosen based on an Owners 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.
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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 not assess the Surrender Charge on:
<R>free annual
withdrawal amounts; |
||
Death Benefit
proceeds; |
||
partial
withdrawals that qualify for the Nursing Home or Hospital waiver or terminal illness
waiver, described in this Prospectus; |
||
withdrawals
under the Bailout Provision; |
||
partial
withdrawals taken as required minimum distributions under the Internal Revenue Code
that are withdrawn under a systematic withdrawal program we provide; |
||
partial
withdrawals or a surrender after the Initial Index Period; and |
||
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.
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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. If a Written Request in Good Order is received by 3:00 Central Standard Time, it will be processed that day. If a Written Request in Good Order is received after 3:00 Central Standard Time, it will be processed on the next Business Day. 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 59½, 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.
<R>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.
| 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 |
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o | an additional
free annual withdrawal amount request, accompanied by written proof of confinement
and the Physicians recommendation, is received by us no later than 90 days
following the date that the qualifying confinement has ended. |
||
|
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 Annuitants
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. If a Written Request in Good Order is received by 3:00 Central Standard Time, it will be processed that day. If a Written Request in Good Order is received after 3:00 Central Standard Time, it will be processed on the next Business Day.
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 59½, 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.
<R>
Right to Defer Payments
</R>
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.
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Bailout Provision
We will set a single bailout rate for all Risk control Accounts under the Secure Account option and single bailout rate for all Risk Control Accounts under the Growth Account option. The bailout rates will be prominently displayed on your contract data page attached to the front of the cover page of the Contract and will not change during the Initial Index Period. The Bailout Provision allows you to make a withdrawal of the Contract Value attributable to a Risk Control Account without incurring any Surrender Charge and without the application of any MVA. Specifically, if the Index Interest Rate Cap for your Risk Control Account is set below the bailout rate for that Risk Control Account, the Bailout Provision allows you to make a withdrawal of some or all of the Contract Value attributable to that Risk Control Account during the Initial Index Period without incurring any Surrender Charge and without the application of any MVA during the 30-day period following the Contract Anniversary. We must receive your Written Request for a withdrawal of Contract Value under the Bailout Provision in Good Order during the 30-day period following the Contract Anniversary. With respect to such withdrawal, your Contract Value will be reduced by the amount of the withdrawal. At any time the Index Interest Rate Cap for your Risk Control Account is less than the bailout rate specified on your contract data page, we may, at our discretion, restrict transfer into that Risk Control Account.
Withdrawals taken under the Bailout Provision may have tax consequences. The tax treatment of a withdrawal under the Bailout Provision depends on whether the Contract is a Non-Qualified Contract or a Qualified Contract. Generally, for a withdrawal from a Non-Qualified Contract, 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 immediately before the distribution over the Owners investment in the Contract. If the Contract is a Qualified Contract, a portion of the withdrawal is taxable as ordinary income, based on the ratio of the investment in the contract to the individuals total account balance or accrued benefit under the retirement plan. If taken prior to age 59½, a withdrawal from either a Non-Qualified or a Qualified Contract may be subject to an additional 10% federal tax penalty. See discussion of Withdrawals and Penalty Tax on Certain Withdrawals under Federal Income Tax Matters.
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:
| Due Proof
of Death of the Owner while the Contract is in force; |
|
| our claim
form from each Beneficiary, properly completed; and |
|
| 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. If we receive Due Proof of Death by 3:00 Central Standard Time, we will determine the amount of the Death Benefit as of that day. If we receive Due Proof of Death after 3:00 Central Standard Time, we will determine the amount of the Death Benefit as of the next Business Day.
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.
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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 under a Non-Qualified Contract:
|
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 Owners death. |
||
|
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: |
| Receive the
Death Benefit in one lump sum following our receipt of Due Proof of Death; |
|||
| 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 Owners death and must not extend beyond a period certain equal to the
Beneficiarys life expectancy; or |
|||
| Receive the
Death Benefit within five years of the date of the Owners 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. Other minimum distribution rules apply to Qualified Contracts.
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.
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.
26
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 Annuitants 95th birthday. If there are Joint Annuitants, we will set the Payout Date based on the age of the oldest Joint Annuitant. For Contracts sold in the state of California, the Payout Date begins one month after the Contract Anniversary of the Initial Index Period. Please refer to the data page of your Contract for details.
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 Annuitants 95th 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.
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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.
<R>28
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 moneygenerally 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.
<R>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
<R>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 Owners 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
29
treatment of MVAs and you may want to discuss the potential tax consequences of an MVA with your tax 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 Owners 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 individuals 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:
| made on or after the taxpayer reaches age 59½; | |
| made on or after the death of an Owner; | |
| attributable to the taxpayers becoming disabled; or | |
| 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 contracts 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 recipients 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 Owners income when a taxable distribution occurs.
<R>30
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 individuals gross income for the year. The contributions may be deductible in whole or in part, depending on the individuals 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 59½, unless an exception applies. Distributions that are rolled over to an IRA within 60 days are not immediately taxable, however only one such rollover is permitted each year. Beginning in 2015, an individual can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs that are owned. The limit will apply by aggregating all of an individuals IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. This limit does not apply to direct trustee-to-trustee transfers or conversation to Roth IRAs.
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 59½ (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. Distributions that are rolled over to an IRA within 60 days are not immediately taxable, however only one such rollover is permitted each year. Beginning in 2015, an individual can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs that are owned. The limit will apply by aggregating all of an individuals IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. This limit does not apply to direct trustee-to-trustee transfers or conversions to Roth IRAs.
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 Owners federal income tax liability. The withholding rate varies according to the type of distribution and the Owners tax status. The Owner will be provided the opportunity to elect not have tax withheld from distributions.
31
Eligible rollover distributions from section 401(a), 403(b), 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.
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 decedents 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.
<R>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
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.
Same-Sex Spouses
<R>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 purchasers 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.
32
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 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 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 CBSI 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 CBSI
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 CBSI qualify for such benefits.
</R>
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.
<R>
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 Companys 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
</R>
33
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-Dealers 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.
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.
Cyber Security
<R>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 Annuitants 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 Annuitants 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 charge any interest to any underpayment or overpayment.
<R>
Conformity with Applicable Laws
</R>
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.
34
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.
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 Companys 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 in connection with the concurrent merger of MEMBERS Life Insurance Company (Texas) into the Company. We re-domiciled from Wisconsin to Iowa on May 3, 2007. On February 17, 2012, we amended and restated our Articles of Incorporation to change 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. Currently, we have no employees.
35
You may write us at 2000 Heritage Way, Waverly, Iowa 50677-9202 or call us at 1-800-798-5500.
<R>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
<R><R>
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.
</R>
36
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 was slow with long-term high unemployment rates and lower average household income levels. 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 have had positive effects, any future economic downturn or market disruption could negatively impact our ability to invest our funds.
<R> | our investment portfolio could incur other-than-temporary impairments; | |
| 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 |
|
| 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. |
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. It may also impair our ability to retain customers which could increase surrenders and impact profitability and financial strength.
37
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 (and combinations thereof) 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 CMFG Life and our ability to attract and retain additional executives and employees. The loss of key CMFG Life employees or our 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.
38
We are subject to the NAICs 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 and grants new joint regulatory authority to the SEC and the U.S. Commodity Futures Trading Commission (CFTC) over OTC derivatives. While the SEC and CFTC continue to promulgate rules required by the Dodd-Frank Act, most rules have been finalized and, as a result, certain of the Companys derivatives operations are subject to, among other things, new recordkeeping, reporting and documentation requirements and new clearing requirements for certain swap transactions (currently, certain interest rate swaps and index-based credit default swaps; cleared swaps require the posting of margin to a clearinghouse via a futures commission merchant and, in some case, to the futures commission merchant as well).
<R>Other regulatory requirements may indirectly impact us. For example, non-U.S. counterparties of the Company may also be subject to non-U.S. regulation of their derivatives transactions with the Company. In addition, counterparties regulated by the Prudential Regulators are subject to liquidity, leverage and capital requirements that impact their derivatives transactions with the Company. Collectively, these new requirements have increased the direct and indirect costs of our derivatives activities and may further increase them in the future.
<R>39
The Dodd-Frank Act established a new federal council of financial regulators, the Financial Stability Oversight Council (Council), which is charged with identifying risks to the financial stability of the U.S. financial markets, promoting market discipline, and responding to emerging threats to the stability of the U.S. financial markets. The Council is empowered to make recommendations to primary financial regulatory agencies regarding the application of new or heightened standards and safeguards for financial activities or practices, and certain participation in such activities, that threaten the stability of the U.S. financial markets. In addition, the Council is authorized to determine whether an insurance company is systematically significant and to recommend that it should be subject to enhanced prudential standards and to supervision by the Board of Governors of the Federal Reserve System. In April 2012, the Council approved its final rule for designating non-bank financial companies as systemically important financial institutions (SIFI). Under the final rule, the Companys assets, liabilities and operations do not currently satisfy the financial thresholds that serve as the first step of the three-stage process to designate a non-bank financial company as a SIFI. Despite not being a SIFI, the Company could potentially be subject to the orderly liquidation authority of the Federal Deposit Insurance Corporation (FDIC), in accordance with Title II of the Dodd-Frank Act. Title II of the Dodd-Frank Act provides that the FDIC, under certain circumstances, may be appointed receiver of a covered financial company, which could include an insurance company, for purposes of liquidating such company. This would apply to insurance companies in a limited context, where the relevant state insurance regulator has failed to act within 60 days after a determination has been made to subject the insurance company to the FDICs orderly liquidation authority, and resolution by the FDIC would be in accordance with state insurance law.
<R>40
<R>
Changes in federal income taxation laws
may affect sales of our products and profitability.
</R>
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.
<R>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 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 |
41
For the year ended December 31, | |||||||||||||||||||||
Results of Operations Data: | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Revenues | |||||||||||||||||||||
Life and health premiums, net |
$ | (21 | ) | $ | (1,175 | ) | $ | 127 | $ | 139 | $ | (20,459 | ) | ||||||||
Contract charges, net |
- | 18 | 24 | 46 | 460 | ||||||||||||||||
Net investment income |
376 | 366 | 278 | 176 | 1,928 | ||||||||||||||||
Net realized gains on investments |
- | 117 | - | - | 4,319 | ||||||||||||||||
Other income |
3,415 | 5,336 | - | 293 | - | ||||||||||||||||
Total revenues | 3,770 | 4,662 | 429 | 654 | (13,752 | ) | |||||||||||||||
Benefits and expenses | |||||||||||||||||||||
Life and health insurance claims |
|||||||||||||||||||||
and benefits, net |
(1 | ) | (1,204 | ) | 112 | 179 | (20,028 | ) | |||||||||||||
Interest credited to policyholder |
|||||||||||||||||||||
account balances, net |
- | 4 | 8 | 9 | 158 | ||||||||||||||||
Operating and other expenses |
1,049 | 1,633 | 137 | 86 | 1,087 | ||||||||||||||||
Total benefits and expenses | 1,048 | 433 | 257 | 274 | (18,783 | ) | |||||||||||||||
Income before income taxes | 2,722 | 4,229 | 172 | 380 | 5,031 | ||||||||||||||||
Income tax expense | 887 | 1,449 | 11 | 249 | 1,679 | ||||||||||||||||
Net income | $ | 1,835 | $ | 2,780 | $ | 161 | $ | 131 | $ | 3,352 | |||||||||||
Balance Sheet Data | December 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Assets | |||||||||||||||||||||
Total investments |
$ | 10,539 | $ | 12,351 | $ | 13,313 | $ | 6,681 | $ | 8,691 | |||||||||||
Cash and cash equivalents |
18,732 | 17,093 | 5,602 | 11,105 | 4,926 | ||||||||||||||||
Reinsurance recoverable |
23,687 | 24,628 | 25,199 | 25,525 | 26,391 | ||||||||||||||||
Assets on deposits |
1,619,113 | 947,595 | 349,937 | 89,313 | - | ||||||||||||||||
Separate account assets |
20,221 | - | - | - | - | ||||||||||||||||
Other assets |
14,138 | 6,144 | 5,330 | 5,958 | 7,397 | ||||||||||||||||
Total assets |
$ | 1,706,430 | 1,007,811 | 399,381 | 138,582 | 47,405 | |||||||||||||||
Liabilities and stockholders equity | |||||||||||||||||||||
Claim and policy benefit reserves |
21,506 | 21,537 | 22,368 | 23,196 | 24,112 | ||||||||||||||||
Policyholder account balances |
1,622,448 | 951,068 | 353,549 | 93,047 | 3,797 | ||||||||||||||||
Separate account liabilities |
20,221 | - | - | - | - | ||||||||||||||||
Other liabilities |
18,970 | 13,658 | 4,249 | 3,238 | 372 | ||||||||||||||||
Total liabilities |
1,683,145 | 986,263 | 380,166 | 119,481 | 28,281 | ||||||||||||||||
Total stockholders equity |
23,285 | 21,548 | 19,215 | 19,101 | 19,124 | ||||||||||||||||
Total liabilities and stockholders equity |
$ | 1,706,430 | $ | 1,007,811 | $ | 399,381 | $ | 138,582 | $ | 47,405 | |||||||||||
42
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Cautionary Statement Regarding Forward-Looking Information
<R> | 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; |
||
| customer response
to new products and marketing initiatives; |
||
| changes in
the Federal income tax laws and regulations which may affect the relative income
tax advantages of our products; |
||
| increasing
competition in the sale of annuities; |
||
| 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 |
||
| the risk factors
or uncertainties disclosed 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
<R>43
<R>
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 2016, approximately 63%, 23% and 6% of the premiums paid under
insurance policies issued by the Company were generated in Michigan, Texas and California,
respectively. In 2015, approximately 63%, 23% and 5% of the premiums paid under
insurance policies issued by the Company were generated in Michigan, Texas and California,
respectively. In 2014, approximately 63%, 22% and 5% of the premiums paid under
insurance policies issued by the Company were generated in Michigan, Texas and California,
respectively. No other state accounts for more than 5% of the premiums paid under
the Companys policies for any year in the three years ended December 31, 2016,
2015 and 2014. In 2016, approximately 8% of annuity contract sales which include
MEMBERS® Zone Annuity and MEMBERS® Horizon Variable Annuity
were generated in Texas, 7% were in California and Indiana, 6% were in Michigan,
Iowa, Wisconsin and Pennsylvania and 5% were in Washington. In 2015, approximately
8% of annuity contract sales were generated in Michigan and California, 7% were
in Texas, 6% were in Indiana and 5% were in Iowa, Wisconsin, Pennsylvania, Florida
and Washington. In 2014, approximately 12% of annuity contract sales were generated
in Michigan, 8% were in Texas, Iowa and Rhode Island, 7% were in Wisconsin, 6% were
in Indiana and Pennsylvania and 5% were in Florida. No other state accounts for
more than 5% of annuity contract sales for any year in the three years ended December
31, 2016, 2015 and 2014. As of December 31, 2016 and 2015, we had more than $1,706
million and $1,007 million in assets and we had more than $95 million and $110 million
of life insurance in force, respectively.
</R>
<R>
In August, 2013, the Company began issuing
a single premium deferred index annuity Contract under the name MEMBERS® Zone Annuity. In July 2016, the Company began issuing a flexible premium
variable and index-linked deferred annuity contract under the name MEMBERS® Horizon Variable Annuity. These annuity contracts account for
all the new sales of the Company. The Company also services existing closed blocks
of individual and group life policies. We distribute the annuity contracts through
multiple face-to-face distribution channels, including:
</R>
| Managed Agents: employees
of CMFG Life who sell insurance and investment products to members of credit unions
that have contracted with the Company and its affiliates to provide these services; |
||
| 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 Companys affiliated broker dealer, CBSI; and |
||
| 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. |
44
allocations of expenses are reasonable and that the results of the Companys 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.
<R>
Critical Accounting Policies
</R>
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 the difference could be material. Investment valuations, embedded derivatives, 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 stockholders 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:
| 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. |
||
| 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. |
||
| Level 3: One
or more significant inputs are unobservable and reflect the Companys 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 Companys 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 Companys 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.
45
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.
<R>
Our assets
and liabilities which are measured at fair value on a recurring basis as of December
31, 2016, are presented below based on the fair value hierarchy levels.
</R>
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||
Cash equivalents | $ | 14,415 | $ | - | $ | - | $ | 14,415 | ||||||
Debt securities: | ||||||||||||||
U.S. government and agencies |
- | 8,430 | - | 8,430 | ||||||||||
Mortgage-backed securities: |
||||||||||||||
Residential mortgage-backed |
- | 2,109 | - | 2,109 | ||||||||||
Total debt securities |
- | 10,539 | - | 10,539 | ||||||||||
Derivatives embedded in assets on deposit |
- | - | 246,405 | 246,405 | ||||||||||
Separate account assets |
- | 20,221 | - | 20,221 | ||||||||||
Total assets |
$ | 14,415 | $ | 30,760 | $ | 246,405 | $ | 291,580 | ||||||
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 246,405 | $ | 246,405 | ||||||
Total liabilities |
$ | - | $ | - | $ | 246,405 | $ | 246,405 | ||||||
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||
Cash equivalents | $ | 16,080 | $ | - | $ | - | $ | 16,080 | ||||||
Debt securities: | ||||||||||||||
U.S. government and agencies |
- | 9,813 | - | 9,813 | ||||||||||
Mortgage-backed securities: |
||||||||||||||
Residential mortgage-backed |
- | 2,538 | - | 2,538 | ||||||||||
Total debt securities |
- | 12,351 | - | 12,351 | ||||||||||
Derivatives embedded in assets on deposit |
- | - | 122,043 | 122,043 | ||||||||||
Total assets |
$ | 16,080 | $ | 12,351 | $ | 122,043 | $ | 150,474 | ||||||
46
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 122,043 | $ | 122,043 | ||||||
Total liabilities |
$ | - | $ | - | $ | 122,043 | $ | 122,043 | ||||||
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 Companys cost, the Company monitors the security for OTTI. The determination of OTTI requires significant judgment on the part of the Company and depends on several factors, including:
| the existence
of any plans to sell the investment security; |
|
| the extent
to which fair value is less than book value; |
|
| the underlying
reason for the decline in fair value (credit concerns, interest rates, etc.); |
|
| the financial
condition and near term prospects of the issuer/borrower, including the ability
to meet contractual obligations, relevant industry trends and conditions; |
|
| the Companys intent and ability to retain the investment for a period of time sufficient
to allow for an anticipated recovery in fair value; |
|
| the Companys ability to recover all amounts due according to the contractual terms of
the agreements; and |
|
| the Companys 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 Companys 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 issuers business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered at least its original cost basis.
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.
47
Changes in the fair value of the embedded derivative in assets on deposit offset changes in the fair value of the embedded derivative in policyholder account balances; both of these changes are included in net realized investment gains. Accretion of the interest on assets on deposit offsets accretion of the interest on the host contract; both of these activities are included in interest credited on policyholder account balances.
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 (loss) 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 along with certain ceded policyholder account balances which include mortality risk. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies.
<R><R>
The Company entered into a second agreement
with CMFG Life as described in the Overview of this Managements Discussion
and Analysis to cede 100% of its MEMBERS® Zone Annuity investment
Contracts. Accordingly, the agreement is accounted for using the deposit method
of accounting.
</R>
<R>
The Company entered into a third agreement
with CMFG Life as described in the Overview of this Managements Discussion
and Analysis to cede 100% of its MEMBERS® Horizon Variable Annuity
investment contracts. Accordingly, the agreement will be accounted for using the
deposit method of accounting.
</R>
48
Contract holders are able to invest in investment funds managed for their benefit. All of the separate account assets are invested in unit investment trusts that are registered with the SEC as of December 31, 2016.
Separate account assets are legally segregated and may only be used to settle separate account liabilities. Separate account assets are carried at fair value, which is based on daily quoted net asset values at which the Company could transact on behalf of the contract holder. Separate account liabilities are equal to the separate account assets and represent contract holders claims to the related assets. Contract holder deposits to and withdrawals from the separate accounts are recorded directly to the separate account assets and liabilities and are not included in the Companys statements of operations and comprehensive income (loss).
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 but not yet paid and unreported incurred claims. Estimates for future payments on incurred claims 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.
<R><R>
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
</R>
49
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. 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 federal income tax return of CM Holding, the Companys ultimate parent. The Company has entered into a tax sharing agreement with CM Holding and its subsidiaries. The agreement provides for the allocation of tax expenses based on each subsidiarys 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
<R>50
In 2012, the Company entered into a Coinsurance Agreement with CMFG Life to cede 95% of its business inforce as of October 31, 2012. On September 30, 2015, the Company amended its Coinsurance Agreement with CMFG Life and now cedes 100% of its insurance policies in force to CMFG Life. In 2013, it entered into a second agreement with CMFG Life to cede 100% of the business related to the MEMBERS® Zone Annuity Contract. On November 1, 2015, the Company entered into a Coinsurance and Modified Coinsurance Agreement with CMFG Life to ceded 100% of the business related to the MEMBERS® Horizon Variable Annuity contract. See Note 7 of the Notes to the Financial Statements appearing elsewhere in this Prospectus for information on the 2012, 2013 and 2015 agreements.
Results of Operations for the Years ended December 31, 2016, 2015 and 2014.
Total revenues, which consisted mainly of
premiums, net realized investment gains, investment income and other income, were
$3,770, $4,662 and $429 for the years ended December 31, 2016, 2015 and 2014, respectively.
The decrease in total revenues in 2016 is primarily related to a decrease in other
income from a litigation settlement received on structured security investments
that had previously been sold in comparison to 2015. The increase in total revenues
in 2015 compared to 2014 is reflective of an increase in other income from a litigation
settlement received on structured security investments that had previously been
sold, partially offset by the 2015 amendment to the 2012 reinsurance agreement.
Premium revenue was ($21), ($1,175) and $127 for the years ended December 31, 2016,
2015 and 2014, respectively, and consists of life and health direct and ceded written
renewal premium. Effective September 30, 2015, all premiums are 100% ceded to CMFG
Life. The negative premium revenue in 2015 is reflective of the reinsurance agreement
amendment executed in 2015 pursuant to which the Company ceded $1,297 of earned
premiums. Total net investment income was $376, $366 and $278 for the years ended
December 31, 2016, 2015 and 2014, respectively, which represents an average yield
earned of 1.2%, 1.6% and 1.4% for the same periods, respectively. There were no
sales of investments in 2016 or 2014 that resulted in a realized gain or loss. Net
realized investment gains were $117 for the year ended December 31, 2015 due to
the sale of investments.
51
Financial Condition
<R>
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 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.
</R>
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.
December 31, | |||||||||||||||
2016 | % | 2015 | % | ||||||||||||
U.S. government and agencies | $ | 8,430 | 80.0 | % | $ | 9,813 | 79.5 | % | |||||||
Mortgage-backed securities: | |||||||||||||||
Residential mortgage-backed |
2,109 | 20.0 | 2,538 | 20.5 | |||||||||||
Total debt securities | $ | 10,539 | 100.0 | % | $ | 12,351 | 100.0 | % | |||||||
52
Amortized Cost | Estimated Fair Value | |||||||
Due after one year through five years | $ | 310 | $ | 315 | ||||
Due after ten years | 8,753 | 8,115 | ||||||
Mortgage-backed securities: | ||||||||
Residential mortgage-backed |
1,974 | 2,109 | ||||||
Total debt securities | $ | 11,037 | $ | 10,539 | ||||
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 stockholders equity, thereby exposing stockholders equity to volatility for changes in the reported fair value of securities classified as available for sale.
<R><R>
Liquidity and Capital Resources
While the reinsurance transactions have a minimal impact on our stockholders equity, they substantially diminish our net liabilities and greatly decrease the amount of capital and liquidity needed within the Company.
<R>53
Investing activities provided $1,628 and $331 of net cash flow for the years ended December 31, 2016 and 2015, respectively, and used $6,779 for the year ended December 31, 2014. The Companys main investing activities include the purchase and sale of debt securities. The Company sold $1,628 of debt securities in 2016 and the Company sold $8,987 and purchased $8,760 of debt securities in 2015, contributing to the net increase of cash from investing activities. The Company purchased $7,535 of debt securities in 2014, contributing to the net use of cash from investing activities.
The Companys financing activities provided $52 and $173 of net cash flow for the years ended December 31, 2016 and 2015, respectively, and used $51 of net cash flow for financing activities for the year ended December 31, 2014. The Companys main financing activities include the collection of deposits and payment of withdrawals from policyholders accounts. The Company had increased deposits on policyholder accounts in 2016 compared to 2015; however, effective for all of 2016, 100% of the insurance business was ceded to CMFG Life which resulted in a decrease in the cash provided by financing activities. The Company had increased deposits on policyholder accounts in 2015 from 2014 leading to the increase in cash provided in financing activities in 2015.
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.
<R>Statutory Financial Data and Dividend Restrictions
<R>54
Contractual Obligations
<R>Going forward, we may enter into financing transactions, lease agreements, or other commitments in the normal course of our business.
<R>
Estimated Future Claim and Benefit Payments |
|||||
Due in one year or less | $ | 90,872 | |||
Due after one year through three years | 248,037 | ||||
Due after three years through five years | 510,513 | ||||
Due after five years | 1,038,382 | ||||
Total estimated payments | $ | 1,887,804 | |||
Quantitative and Qualitative Disclosures about Market Risk
<R>55
Management |
Directors and Executive Officers
Our directors and executive officers are as follows:
<R>Name | Age | Position | ||||||
David L. Sweitzer | 53 | President and Director | ||||||
Steven R. Suleski | 63 | Secretary and Director | ||||||
Brian J. Borakove | 38 | Treasurer | ||||||
Michael F. Anderson | 49 | Director | ||||||
Michael T. Defnet | 56 | Director | ||||||
Jason A. Pisarik | 44 | Director |
All executive officers and directors are elected annually.
56
Steven R. Suleski has been a director of the Company since December 15, 2015, and has served as our Secretary and Senior Vice President since February 1, 2012. He has served as Associate General Counsel at CMFG Life from May 1999 to January 2014. He serves as Chief Governance Officer effective January, 2014 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.
Michael F. Anderson has been a director of the Company since December 15, 2015. He has also served as the Senior Vice President, Chief Legal Officer for CMFG Life where he is responsible for all legal matters across CMFG Lifes business entities since 2011. He has served as Managing Associate General Counsel from 2008 to 2009, promoted to Vice President in 2009 and in 2011 promoted to Senior Vice President. Before joining the Company, Mr. Anderson spent 15 years in private practice, most recently as a partner in the New York office of Morgan, Lewis & Bockius.
Michael T. Defnet has been a director of the Company since December 15, 2015 and Senior Vice President of Sales & Marketing for CMFG Life. Mr. Defnet previously served as Senior Vice President of Sales Distribution Support and various positions in CMFG Lifes Sales Department for 25 years. He brings more than 25 years of progressive experience in sales and marketing leadership, sales operations and sales strategy.
Jason A. Pisarik has been director of the Company since December 15, 2015 and has served as Senior Vice President and Chief Accounting Officer for CMFG Life since 2012. Prior to joining CMFG Life in 2012, Mr. Pisarik was Vice President for Aviva USA, an insurance company, from 2010 to 2012. Prior to Aviva USA, Mr. Pisarik held many leadership roles at KPMG, LLP, an accounting and consulting firm from 1994 to 2009.
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 arms 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
57
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:
| 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; |
||
| any person
who is known to be the beneficial owner of more than 5% of any class of our voting
securities; |
||
| any immediate
family member of any of the foregoing persons; or |
||
| 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:
| Counsel (either
inside or outside) will assess whether the proposed transaction is a related person
transaction for purposes of this policy. |
||
| 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). |
||
| 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 directors 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. |
||
| 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 Directors 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 Companys 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.
58
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.
<R>As consideration for the reinsurance provided under these agreements, as of October 1, 2015 we transfer all of our revenues to CMFG Life. Specifically, CMFG Life receives 100% of all premiums and other amounts received on account of our existing business and new business. 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 years ended December 31, 2016, 2015 and 2014, we ceded $2,190, $3,559 and $2,486, respectively, of premium. See Note 7 to the Financial Statements appearing elsewhere in this Prospectus.
The Company has hired MEMBERS Capital Advisors, Inc. (MCA) to provide investment advisory services with respect to the Companys General Account assets. MCA, which is 100% owned by CMIC, manages substantially all of the Companys invested assets in accordance with policies, directives and guidelines established by the Company.
Committees of the Board of Directors
<R>
Compensation Committee Interlocks and
Insider Participation
59
Executive Compensation
We share personnel with our parent company, CMFG Life, pursuant to a Cost Sharing, Procurement, Disbursement, Billing and Collection Agreement between CMFG Life and us. Our operational needs are met by CMFG Life and certain of its affiliates pursuant to the CUNA Mutual Group Cost Sharing, Procurement, Disbursement, Billing and Collection 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 dollar amounts in this Executive Compensation are not in thousands.
In order to help you understand our compensation-related costs, we have set forth below a discussion of CMFG Lifes 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.
<R>In August 2013, the Company began issuing a single premium deferred index annuity contract under the name MEMBERS® Zone Annuity. This Contract accounts for all the new sales of the Company since July, 2016. The Company has two annuity contract forms for sale. The Company also serves existing blocks of individual and group life policies and began marketing the Contract in August, 2013. The amount of compensation allocated to the Company for Mr. Trunzo, prior President and Director of the Company, in 2015 and 2014 was $72,412 and $43,000, respectively. The amount of compensation allocated to the Company for Mr. Borakove for 2016, 2015 and 2014 was $4,799, $4,398 and $2,600, respectively. The amount of compensation allocated to the Company for Mr. Bosco in 2016 and 2015 was $8,239 and $4,884, respectively. The amount of compensation allocated to the Company for Mr. Sweitzer in 2016 was $8,122. This represents an allocation of gross wages and Corporate Success Sharing Plan (CSSP) payment.
60
The estimated costs of the CSSP and other incentive programs and benefits that have been allocated to the Company for the President for 2017 is $8,297. These allocations increased as management has been required to devote more time to the operations of the Company.
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 based upon CM Holding and/or its subsidiaries meeting certain financial objectives but differs from the CSSP plan because the payments are not based upon individual performance but on whether or not the predetermined corporate objectives are met.
<R>Change in Control, Separation and Retirement Arrangements. CMFG Life has a written employment contract with Mr. Trunzo, former President and Director of the Company. 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 Elective Deferred Compensation Arrangements. CMFG Life permits eligible employees to defer on an elective basis a specified portion of their LTIP. Any such deferrals must be made pursuant to a non-qualified deferred compensation plan between the officer and CMFG Life. The deemed 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 officer who has elected to make such deferrals upon his or her death, disability or separation from service.
Other Compensation Including Other Non-Qualified Deferred Compensation Arrangements. CMFG Life has a qualified 401(k) plan for all eligible employees. CMFG Life matches 100% of employee contributions to the plan up to 5% of the employees 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.
In addition to the 401(k) plan, all employees of CMFG Life participate in a qualified Defined Benefit Pension Plan. There is a non-qualified plan for some of the named executives that provides benefits that would otherwise be paid into the qualified Defined Benefit Pension Plan but for Internal Revenue Code limitations. CMFG Life offers a package of insurance benefits to all employees including health, dental, long-term disability and life insurance. Several of the named executive officers receive perquisites including personal liability insurance, use of Company owned aircraft, travel to Company conventions for themselves and their spouse, tax benefits and tax preparation fees.
61
Compensation Summary
<R>Name and principal position |
Year |
Salary ($) |
Bonus ($) |
Total**** ($) |
(a) | (b) | (c) | (d) | (j) |
Robert N. Trunzo, President and Director* |
2014 2015 |
$8,000 $14,036 |
$35,000 $58,376 |
$43,000 $72,412 |
M. Jeffrey Bosco, President and Director** |
2015 2016 |
$2,718 $3,671 |
$2,166 $4,568 |
$4,884 $8,239 |
David L. Sweitzer, President and Director*** |
2016 | $4,393 | $3,729 | $8,122 |
Brian J. Borakove, Treasurer**** |
2014 2015 2016 |
$1,600 $2,802 $2,644 |
$1,000 $1,595 $2,154 |
$2,600 $4,397 $4,798 |
* Mr. Trunzo resigned as President and Director of the Company effective December 1, 2015. |
** Mr. Bosco was appointed President effective December 1, 2015. Mr. Bosco resigned as President and Director of the Company effective October 31, 2016. |
*** Mr. Sweitzer was appointed President and Director effective October 31, 2016. |
**** Includes compensation paid by CMFG Life that was allocated to the Company for service rendered by Messrs. Sweitzer and Borakove. |
Director Compensation
<R>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 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 Companys 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.
62
Important Information about the Index
The Contract 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 Contract, nor makes any representation or warranty, express or implied, to the owners of Contract or any member of the public regarding the Contract or the advisability of investing in the Contract, particularly the ability of the (Indices) to track performance of any market or strategy. BofA Merrill Lynchs only relationship to MEMBERS Life Insurance Company (Licensee) is the licensing of certain trademarks and trade names and indices or components thereof. The Indices are determined, composed and calculated by BofA Merrill Lynch without regard to the Licensee or the Contract or its holders. BofA Merrill Lynch has no obligation to take the needs of the Licensee or the holders of the Product into consideration in determining, composing or calculating the Indices. BofA Merrill Lynch is not responsible for and has not participated in the determination of the timing of, prices of, or quantities of the Contract to be issued or in the determination or calculation of the equation by which the Product is to be priced, sold, purchased, or redeemed. BofA Merrill Lynch has no obligation or liability in connection with the administration, marketing, or trading of the Contract.
BOFA MERRILL LYNCH DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDICES OR ANY DATA INCLUDED THEREIN AND BOFA MERRILL LYNCH SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, UNAVAILABILITY, OR INTERRUPTIONS THEREIN. BOFA MERRILL LYNCH MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, HOLDERS OF THE PRODUCT OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDICES OR ANY DATA INCLUDED THEREIN. BOFA MERRILL LYNCH 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 INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL BOFA MERRILL LYNCH HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL, CONSEQUENTIAL DAMAGES, OR LOST PROFITS, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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 Contract is not sponsored, endorsed, sold or promoted by Standard & Poors, 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 Contract 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&Ps 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 Contract. S&P has no obligation to take the needs of the Company or the owners of the Contract 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 Contract or in determination or calculation of the equation by which the Contract is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Contract.
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 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
63
FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<R>
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.
</R>
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.
64
financial statements |
65
MEMBERS Life Insurance Company
Financial Statements as of December 31,
2016 and 2015 and for each of the Three Years in the Period Ended December 31, 2016
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, 2016 and 2015 | 2 | |
Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 2014 | 3 | |
Statements of Stockholders Equity for the Years Ended December 31, 2016, 2015 and 2014 | 4 | |
Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 | 5 | |
Notes to Financial Statements | ||
Note 1Nature of Business |
6 | |
Note 2Summary of Significant Accounting Policies |
6 | |
Note 3Investments, Debt Securities |
13 | |
Note 3Investments, Net Investment Income |
14 | |
Note 3Investments, Net Realized Investment Gains |
14 | |
Note 3Investments, Other-Than-Temporary Investment Impairments |
15 | |
Note 3Investments, Net Unrealized Investment Gains |
16 | |
Note 3Investments, Embedded Derivatives |
16 | |
Note 3Investments, Assets Designated /Securities on Deposit |
17 | |
Note 4Fair Value |
18 | |
Note 5Income Tax |
26 | |
Note 6Related Party Transactions |
28 | |
Note 7Reinsurance |
29 | |
Note 8Statutory Financial Data and Dividend Restrictions |
32 | |
Note 9Accumulated Other Comprehensive Income (Loss) |
33 | |
Note 10Business Segment Information |
34 | |
Note 11Commitments and Contingencies |
37 | |
Note 12Subsequent Events |
37 |
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, 2016 and 2015, and the related statements of operations and comprehensive income (loss), stockholders equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Companys 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 Companys 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, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, results of the Company may not be indicative of those of a stand-alone entity, as the Company is a member of a controlled group of affiliated companies.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 3, 2017
MEMBERS Life Insurance Company |
Balance Sheets |
December 31, 2016 and 2015 |
($ in 000s) |
Assets | 2016 | 2015 | ||||||
Investments | ||||||||
Debt securities, available for sale, at fair value |
||||||||
(amortized cost 2016 - $11,037; 2015 - $12,698) |
$ | 10,539 | $ | 12,351 | ||||
Total investments | 10,539 | 12,351 | ||||||
Cash and cash equivalents |
18,732 | 17,093 | ||||||
Accrued investment income |
116 | 134 | ||||||
Reinsurance recoverable from affiliate |
23,687 | 24,628 | ||||||
Assets on deposit |
1,619,113 | 947,595 | ||||||
Premiums receivable, net |
15 | 26 | ||||||
Net deferred tax asset |
495 | 682 | ||||||
Receivable from affiliate |
11,460 | 4,518 | ||||||
Other assets and receivables |
415 | 268 | ||||||
Federal income taxes recoverable from affiliate |
1,637 | 516 | ||||||
Separate account assets |
20,221 | - | ||||||
Total assets | $ | 1,706,430 | $ | 1,007,811 | ||||
Liabilities and Stockholders Equity | ||||||||
Liabilities | ||||||||
Claim and policy benefit reserves - life and health |
$ | 21,506 | $ | 21,537 | ||||
Policyholder account balances |
1,622,448 | 951,068 | ||||||
Unearned premiums |
- | 1 | ||||||
Payables to affiliates |
6,196 | 2,480 | ||||||
Accounts payable and other liabilities |
12,774 | 11,177 | ||||||
Separate account liabilities |
20,221 | - | ||||||
Total liabilities | 1,683,145 | 986,263 | ||||||
Commitments and contingencies (Note 11) | ||||||||
Stockholders equity | ||||||||
Common stock, $5 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 loss, net of |
||||||||
tax expense (benefit) (2016 - ($175); 2015 - ($122)) |
(323 | ) | (225 | ) | ||||
Retained earnings |
8,108 | 6,273 | ||||||
Total stockholders equity | 23,285 | 21,548 | ||||||
Total liabilities and stockholders equity | $ | 1,706,430 | $ | 1,007,811 | ||||
See accompanying notes to financial statements. | 2 |
MEMBERS Life Insurance Company |
Statements of Operations and Comprehensive Income (Loss) |
Years Ended December 31, 2016, 2015 and 2014 |
($ in 000s) |
2016 | 2015 | 2014 | |||||||||||
Revenues | |||||||||||||
Life and health premiums, net |
$ | (21 | ) | $ | (1,175 | ) | $ | 127 | |||||
Contract charges, net |
- | 18 | 24 | ||||||||||
Net investment income |
376 | 366 | 278 | ||||||||||
Net realized investment gains |
- | 117 | - | ||||||||||
Other income |
3,415 | 5,336 | - | ||||||||||
Total revenues | 3,770 | 4,662 | 429 | ||||||||||
Benefits and expenses | |||||||||||||
Life and health insurance claims and benefits, net |
(1 | ) | (1,204 | ) | 112 | ||||||||
Interest credited to policyholder account balances, net |
- | 4 | 8 | ||||||||||
Operating and other expenses (Note 6) |
1,049 | 1,633 | 137 | ||||||||||
Total benefits and expenses | 1,048 | 433 | 257 | ||||||||||
Income before income taxes | 2,722 | 4,229 | 172 | ||||||||||
Income tax expense |
887 | 1,449 | 11 | ||||||||||
Net income | 1,835 | 2,780 | 161 | ||||||||||
Change in unrealized gains (losses), net of tax expense |
|||||||||||||
(benefit) (2016 - ($53); 2015 - ($235); 2014 - ($25)) |
(98 | ) | (437 | ) | (47 | ) | |||||||
Reclassification adjustment for (gains) |
|||||||||||||
included in net income, net of tax (benefit) - |
|||||||||||||
(2015 - ($5)) |
- | (10 | ) | - | |||||||||
Other comprehensive loss | (98 | ) | (447 | ) | (47 | ) | |||||||
Total comprehensive income | $ | 1,737 | $ | 2,333 | $ | 114 | |||||||
See accompanying notes to financial statements. | 3 |
MEMBERS Life Insurance Company |
Statements of Stockholders Equity |
Years Ended December 31, 2016, 2015 and 2014 |
($ in 000s) |
Accumulated | ||||||||||||||||||||
Additional | other | Total | ||||||||||||||||||
Common | paid in | comprehensive | Retained | stockholders | ||||||||||||||||
stock | capital | income (loss) | earnings | equity | ||||||||||||||||
Balance, January 1, 2014 | $ | 5,000 | $ | 10,500 | $ | 269 | $ | 3,332 | $ | 19,101 | ||||||||||
Net income |
- | - | - | 161 | 161 | |||||||||||||||
Other comprehensive (loss) |
- | - | (47 | ) | - | (47 | ) | |||||||||||||
Balance, December 31, 2014 | 5,000 | 10,500 | 222 | 3,493 | 19,215 | |||||||||||||||
Net income |
- | - | - | 2,780 | 2,780 | |||||||||||||||
Other comprehensive (loss) |
- | - | (447 | ) | - | (447 | ) | |||||||||||||
Balance, December 31, 2015 | 5,000 | 10,500 | (225 | ) | 6,273 | 21,548 | ||||||||||||||
Net income |
- | - | - | 1,835 | 1,835 | |||||||||||||||
Other comprehensive (loss) |
- | - | (98 | ) | - | (98 | ) | |||||||||||||
Balance, December 31, 2016 | $ | 5,000 | $ | 10,500 | $ | (323 | ) | $ | 8,108 | $ | 23,285 | |||||||||
See accompanying notes to financial statements. | 4 |
MEMBERS Life Insurance Company |
Statements of Cash Flows |
Years Ended December 31, 2016, 2015 and 2014 |
($ in 000s) |
2016 | 2015 | 2014 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income |
$ | 1,835 | $ | 2,780 | $ | 161 | ||||||
Adjustments to reconcile net income |
||||||||||||
to net cash provided by (used in) operating activities: |
||||||||||||
Policyholder charges on investment type contracts |
- | (18 | ) | (24 | ) | |||||||
Net realized investment gains |
- | (117 | ) | - | ||||||||
Interest credited to policyholder account balances |
- | 4 | 8 | |||||||||
Deferred income taxes |
240 | (2 | ) | 197 | ||||||||
Amortization of bond premium and discount |
33 | 61 | 75 | |||||||||
Amortization and write off of deferred charges |
23 | 26 | 26 | |||||||||
Changes in other assets and liabilities |
||||||||||||
Accrued investment income |
18 | (54 | ) | (16 | ) | |||||||
Reinsurance recoverable |
752 | 273 | 326 | |||||||||
Premiums receivable |
11 | 2 | 4 | |||||||||
Receivable from affiliate and other assets |
(6,423 | ) | (1,828 | ) | 356 | |||||||
Federal income taxes recoverable from affiliate |
(1,121 | ) | 1,281 | 87 | ||||||||
Insurance reserves |
(720 | ) | (831 | ) | (828 | ) | ||||||
Unearned premiums |
(1 | ) | (2 | ) | - | |||||||
Payables to affiliates and other liabilities |
5,312 | 9,412 | 955 | |||||||||
Net cash provided by (used in) operating activities | (41 | ) | 10,987 | 1,327 | ||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of debt securities |
- | (8,760 | ) | (7,535 | ) | |||||||
Proceeds on sale or maturity of debt securities |
1,628 | 8,987 | 750 | |||||||||
Net amounts received on policy loans |
- | 104 | 6 | |||||||||
Net cash provided by (used in) investing activities | 1,628 | 331 | (6,779 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Policyholder account deposits |
634,345 | 596,817 | 252,273 | |||||||||
Policyholder account withdrawals |
(31,206 | ) | (12,250 | ) | (3,581 | ) | ||||||
Assets on deposit - deposits |
(634,039 | ) | (596,492 | ) | (252,273 | ) | ||||||
Assets on deposit - withdrawals |
30,951 | 12,098 | 3,531 | |||||||||
Change in bank overdrafts |
1 | - | (1 | ) | ||||||||
Net cash provided by (used in) financing activities | 52 | 173 | (51 | ) | ||||||||
Change in cash and cash equivalents | 1,639 | 11,491 | (5,503 | ) | ||||||||
Cash and cash equivalents at beginning of year | 17,093 | 5,602 | 11,105 | |||||||||
Cash and cash equivalents at end of year | $ | 18,732 | $ | 17,093 | $ | 5,602 | ||||||
Supplemental disclosure of cash information: | ||||||||||||
Cash received (paid) during the year for income taxes |
$ | (1,768 | ) | $ | (170 | ) | $ | 273 | ||||
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. The Companys ultimate parent is CUNA Mutual Holding Company (CMHC), a mutual insurance holding company organized under the laws of Iowa. MLIC began selling flexible premium deferred variable annuity contracts in 2016 and single premium deferred annuity contracts in 2013. Both products are sold to credit union members through the face-to-face distribution channel. Prior to 2013, MLIC did not actively market new business; it primarily serviced existing blocks of individual and group life policies. See Note 7, Reinsurance, for information on the Companys reinsurance and ceding agreements.
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. The following table identifies states with premiums greater than 5% of total direct premium and states with deposits on annuity contracts greater than 5% of total deposits:
Deposits on | ||||||||||||||||||||||||
Direct Life and Health Premium | Annuity Contracts | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||
Michigan | 63 | % | 63 | % | 63 | % | 6 | % | 8 | % | 12 | % | ||||||||||||
Texas | 23 | 23 | 22 | 8 | 7 | 8 | ||||||||||||||||||
California | 6 | 5 | 5 | 7 | 8 | * | ||||||||||||||||||
Indiana | * | * | * | 7 | 6 | 6 | ||||||||||||||||||
Iowa | * | * | * | 6 | 5 | 8 | ||||||||||||||||||
Wisconsin | * | * | * | 6 | 5 | 7 | ||||||||||||||||||
Pennsylvania | * | * | * | 6 | 5 | 6 | ||||||||||||||||||
Washington | * | * | * | 5 | 5 | * | ||||||||||||||||||
Florida | * | * | * | * | 5 | 5 | ||||||||||||||||||
Rhode Island | * | * | * | * | * | 8 | ||||||||||||||||||
*Less than 5%. |
No other state represents more than 5% of the Companys premiums or deposits for any year in the three years ended December 31, 2016.
CMFG Life provides significant services required in the conduct of the Companys operations. Management believes allocations of expenses are reasonable, but the results of the Companys 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).
6 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
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, embedded derivatives, deferred tax asset valuation reserves, and claim and policy benefit reserves are most affected by the use of estimates and assumptions.
Segment Reporting
The Company is currently managed as two reportable business segments, (1) life and health and (2) annuities. The Companys life and health segment includes individual and group life policies that the Company no longer actively markets. The annuities segment includes its single premium deferred annuity contracts and flexible premium deferred variable annuity contracts which the Company began selling in 2013 and 2016, respectively. See Note 7, Reinsurance, for information on the Companys reinsurance and ceding agreements, which impact the financial statement presentation of these segments.
Investments
Debt securities: Investments in debt securities are classified as available for sale and are carried at fair value. 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 Companys anticipated 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 components. 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 net realized investment gains, with the remainder of the loss amount recognized in other comprehensive loss. If the Company intends to sell or it is more likely than not that the Company will be required to sell before anticipated recovery in value, 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 issuers business and industry sector, credit ratings, and the intent and ability of the Company to hold the investment until the fair value has recovered at least its cost basis.
Unrealized gains and losses on investments in debt securities, net of deferred federal income taxes, are included in accumulated other comprehensive income (loss) as a separate component of stockholders equity.
Policy loans: The Company allocated $1,628 and $1,882 of policy loans to CMFG Life as of December 31, 2016 and 2015, respectively, as payment related to the 2012 reinsurance agreement and the 2015 amendment (See Note 7). As a result of the 2015 amendment, all policy loans are allocated to CMFG Life.
7 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Net investment income: 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.
Net realized gains and losses: Realized gains and losses on the sale of investments are determined on a specific identification basis and are recorded on the trade date.
Derivative Financial Instruments
The Company issues single premium deferred annuity and flexible premium deferred variable annuity contracts that contain embedded derivatives. Derivatives embedded within non-derivative host contracts are separated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument. Such embedded derivatives are recorded at fair value, and they are reported as part of assets on deposit and policyholder account balances in the balance sheets, with the change in the value being recorded in net realized investment gains. See Note 3, Investments-Embedded Derivatives for additional information.
Changes in the fair value of the embedded derivative in assets on deposit offset changes in the fair value of the embedded derivative in policyholder account balances; both of these changes are included in net realized investment gains and are ceded as part of the ceding and reinsurance agreements. Accretion of the interest on assets on deposit offsets accretion of the interest on the host contract; both of these amounts are included in interest credited on policyholder account balances and are ceded as part of the ceding and reinsurance agreements.
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 Companys statement of cash flows.
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.
Policies not subject to significant mortality or longevity risk, such as the Companys single premium deferred annuity and flexible premium deferred variable annuity contracts, are considered investment contracts. Amounts collected on these products, with the exception of the variable annuity component of the flexible
8 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
premium deferred variable annuity, are recorded as increases in policyholder account balances. The variable annuity component of the flexible premium deferred variable annuity meets criteria for separate account reporting and therefore is recorded in separate account assets and liabilities. Revenues from investment contracts principally consist of net investment income and contract charges such as expense and surrender charges. Expenses for investment contracts consist of interest credited to contracts, benefits incurred in excess of related policyholder account balances and policy maintenance costs. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues and expenses are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement.
Other Income / Operating and Other Expenses
Other income in 2016 and 2015 includes the legal settlements received on structured security investments that had previously been sold. Operating and other expenses in 2016 and 2015 include legal expenses related to the settlements received.
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, 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 life insurance policies, all DAC has been fully amortized as of December 31, 2016 and 2015 and there was no amortization expense in 2016, 2015 or 2014.
Acquisition costs on the Companys single premium deferred annuity and flexible premium deferred variable annuity contracts are reimbursed through a ceding commission by CMFG Life, which assumes all deferrable costs as part of its agreement to assume 100% of this business from the Company. See Note 7, Reinsurance for additional information on this agreement.
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 but not yet paid and unreported incurred claims. Estimates for future payments on incurred claims 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
9 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
acquisition costs or an increase in the liability for future benefits. There was no premium deficiency in 2016, 2015 or 2014.
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. The average credited rate was 4.5% in 2016, 2015 and 2014. The future minimum guaranteed interest rate during the life of the contracts is 4.5%.
The single premium deferred annuities and risk control accounts of the flexible premium deferred variable annuities are included in policyholder account balances. These products have two risk control accounts, referred to as the Secure and Growth Accounts; the Secure Account has a yearly credited interest rate floor of 0% and the yearly Growth Account floor is -10%. The Secure and Growth Accounts both have credited interest rate caps that vary based on the issuance date of the contract. Interest is credited at the end of each contract year during the selected index term based on the allocation between risk control accounts and the performance of an external index (reference index) during that contract year. For the single premium deferred annuity, the Company offers one reference index, which is the S&P 500 Index. For the flexible premium deferred variable annuity, the Company offers two reference indices, which are the S&P 500 Index and the MSCI EAFE Index. Policyholders are able to allocate funds in both the Secure and Growth Accounts for the available indices. At the end of the initial index term, only the Secure Account is available as an option to the policyholder. The average annualized credited rate for the single premium deferred annuity was 1.63%, 1.65% and 1.10% in 2016, 2015 and 2014, respectively. The average annualized credited rate for the risk control accounts of the flexible premium deferred variable annuity was 1.12% in 2016.
Accounts Payable and Other Liabilities
The Company issues the single premium deferred annuity contracts on the 10th and 25th of each month. The Company recognizes a liability on contracts for which it has received cash, but has not issued a contract.
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 (loss) 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 along with certain ceded policyholder account balances, which include mortality risk. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies.
10 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Assets on Deposit
Assets on deposit represent the amount of policyholder account balances related to the single premium deferred annuity and risk control accounts of the flexible premium deferred variable annuity contracts (investment-type contracts) that are ceded to CMFG Life. These investment-type contracts are accounted for on a basis consistent with the accounting for the underlying contracts. Since the related product is an investment-type contract, the Company accounts for the reinsurance of these contracts using the deposit method of accounting consistent with the terms of the ceding agreement. The related contract charges and interest credited to policyholder account balances in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded under the agreement. See Note 7 for a further discussion of the ceding agreement.
Separate Accounts
Separate accounts represent customer accounts related to the variable annuity component of the flexible premium deferred variable annuity contracts issued by the Company, where investment income and investment gains and losses accrue directly to the contract holders who bear the investment risk.
Contract holders are able to invest in investment funds managed for their benefit. All of the separate account assets are invested in unit investment trusts that are registered with the Securities and Exchange Commission as of December 31, 2016.
Separate account assets are legally segregated and may only be used to settle separate account liabilities. Separate account assets are carried at fair value, which is based on daily quoted net asset values at which the Company could transact on behalf of the contract holder. Separate account liabilities are equal to the separate account assets and represent contract holders claims to the related assets. Contract holder deposits to and withdrawals from the separate accounts are recorded directly to the separate account assets and liabilities and are not included in the Companys statements of operations and comprehensive income (loss).
Charges made by the Company to the contract holders balances include fees for maintenance, administration, cost of insurance, and surrenders of contracts prior to the contractually specified dates. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement.
11 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
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. 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 within net deferred tax assets or liabilities or federal income taxes recoverable or payable.
Accounting Standards Updates Pending Adoption
In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new revenue recognition standard, Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). The new standard will supersede nearly all existing revenue recognition guidance by establishing a five step, principles-based process; however, it will not impact the accounting for insurance contracts, leases, financial instruments, and guarantees. For those contracts that are impacted by the new guidance, ASU 2014-09 will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In July 2015, the FASB approved the deferral of ASU 2014-09 for one year, and it is effective for annual and interim reporting periods beginning in 2018 for public business entities and 2019 for others. Early adoption in 2017 will be permitted. Because the Company does not have revenue in the scope of ASU 2014-09, adoption of the new standard will have no impact.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities (ASU 2016-01), effective in 2018. The new standard will require equity investments to be measured at fair value, consistent with the current presentation, with changes in fair value recognized in net income rather than in other comprehensive income (loss). ASU 2016-01 includes other provisions which will not have a significant impact on the Company.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses of Financial Instruments (ASU 2016-13) with an effective date in 2020 for public business entities and 2021 for others. The new standard changes the impairment model for many financial instruments measured at amortized cost. Further, impairment losses on available-for-sale debt securities will be recorded as an allowance, rather than a reduction in the amortized cost of the securities. The Company is currently evaluating the impact of ASU 2016-13 on its financial statements.
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MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ 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 December 31, 2016 are as follows:
Amortized | Gross Unrealized | Estimated | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
U.S. government and agencies | $ | 9,063 | $ | 5 | $ | (638 | ) | $ | 8,430 | |||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backed |
1,974 | 135 | - | 2,109 | ||||||||||||
Total debt securities | $ | 11,037 | $ | 140 | $ | (638 | ) | $ | 10,539 | |||||||
The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2015 are as follows: | ||||||||||||||||
Amortized | Gross Unrealized | Estimated | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
U.S. government and agencies | $ | 10,333 | $ | 26 | $ | (546 | ) | $ | 9,813 | |||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backed |
2,365 | 173 | - | 2,538 | ||||||||||||
Total debt securities | $ | 12,698 | $ | 199 | $ | (546 | ) | $ | 12,351 | |||||||
No investments were non-income producing in 2016 or 2015.
13 |
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, 2016, 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 after one year through five years | $ | 310 | $ | 315 | ||||||||
Due after ten years | 8,753 | 8,115 | ||||||||||
Mortgage-backed securities: | ||||||||||||
Residential mortgage-backed |
1,974 | 2,109 | ||||||||||
Total debt securities | $ | 11,037 | $ | 10,539 | ||||||||
Net Investment Income | ||||||||||||
Sources of investment income for the years ended December 31 are summarized as follows: | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Gross investment income: | ||||||||||||
Debt securities |
$ | 363 | $ | 389 | $ | 304 | ||||||
Policy loans |
- | 5 | 8 | |||||||||
Cash and cash equivalents |
53 | - | - | |||||||||
Total gross investment income | 416 | 394 | 312 | |||||||||
Investment expenses |
(40 | ) | (28 | ) | (34 | ) | ||||||
Net investment income | $ | 376 | $ | 366 | $ | 278 | ||||||
Net Realized Investment Gains | ||||||||||||
Net realized investment gains or the years ended December 31 are summarized as follows: | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Debt securities | ||||||||||||
Gross gains on sales |
$ | - | $ | 117 | $ | - | ||||||
Net realized investment gains | $ | - | $ | 117 | $ | - | ||||||
14 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
There were no sales or transfers of debt securities in 2016 or 2014 that resulted in a realized investment gain or loss. Proceeds from the sale of debt securities were $8,389 in 2015.
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 Companys cost, the Company monitors the security for OTTI. The determination of OTTI requires significant judgment on the part of the Company and depends on several factors, including, but not limited to:
| The existence of any plans to sell the investment security. | ||
| The extent to which fair value is less than book value. | ||
| The underlying reason for the decline in fair value (credit concerns, interest rates, etc.). | ||
| The financial condition and near term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions. | ||
| The Companys intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery in fair value. | ||
| The Companys ability to recover all amounts due according to the contractual terms of the agreements. | ||
| The Companys 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 Companys anticipated 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 loss. 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 issuers business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered at least its cost basis.
15 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
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 and ability 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, 2016, 2015 and 2014 and recorded no OTTI. 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 develops. Consistent with the Companys practices, OTTI will be recorded as appropriate and as determined by the Companys regular monitoring procedures of additional facts.
Net Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses) included in accumulated other comprehensive income (loss)at December 31 were as follows:
2016 | 2015 | 2014 | ||||||||||
Debt securities | $ | (498 | ) | $ | (347 | ) | $ | 340 | ||||
Deferred income taxes | 175 | 122 | (118 | ) | ||||||||
Net unrealized investment gains (losses) | $ | (323 | ) | $ | (225 | ) | $ | 222 | ||||
At December 31, 2016, the Company owned one debt security with a fair value of $8,115 in an unrealized loss position of $638 for less than twelve months. At December 31, 2015, the Company owned one debt security with a fair value of $8,210 in an unrealized loss position of $546 for less than twelve months. At December 31, 2014 the Company owned one debt security with a fair value of $7,526 in an unrealized loss position of $4 for less than twelve months.
Embedded Derivatives
The Company issues single premium deferred annuity and flexible premium deferred variable annuity contracts that contain embedded derivatives. Such embedded derivatives are separated from their host contracts and recorded at fair value. The fair value of the embedded derivatives, which are reported as part of assets on deposit and policyholder account balances in the balance sheets, were an asset of $246,405 and a liability of $246,405 as of December 31, 2016 and an asset of
16 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
$122,043 and a liability of $122,043 as of December 31, 2015. The increase in fair value related to embedded derivatives from the date of deposit was $49,225, $3,591and $9,581for the years ended December 31, 2016, 2015 and 2014, respectively. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, this expense is ceded and does not impact the statement of operations and comprehensive income (loss).
Assets Designated/Securities on Deposit
Iowa law requires that assets equal to a life insurers 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, 2016 and 2015, debt securities and cash with a carrying value of $8,876 and $10,618, 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 $1,713 and $1,732 were on deposit with other regulatory jurisdictions as of December 31, 2016 and 2015, respectively.
17 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ 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:
| 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. | ||
| 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. | ||
| Level 3: One or more significant inputs are unobservable and reflect the Companys 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 Companys 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 Companys 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
18 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
occurred. Therefore, for all transfers into Level 3, all realized gains and losses and all changes in unrealized gains and losses in the fourth quarter are not reflected in the Level 3 rollforward table.
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 the Companys assets and liabilities are appropriately valued.
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 Companys 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 Companys 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 levels during the years ended December 31, 2016 and 2015.
19 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Fair Value Measurement Recurring Basis
The following table summarizes the Companys assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2016.
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Cash equivalents1 | $ | 14,415 | $ | - | $ | - | $ | 14,415 | ||||
Debt securities: | ||||||||||||
U.S. government and agencies |
- | 8,430 | - | 8,430 | ||||||||
Mortgage-backed securities: |
||||||||||||
Residential mortgage-backed |
- | 2,109 | - | 2,109 | ||||||||
Total debt securities |
- | 10,539 | - | 10,539 | ||||||||
Derivatives embedded in assets on deposit | - | - | 246,405 | 246,405 | ||||||||
Separate account assets | - | 20,221 | - | 20,221 | ||||||||
Total assets |
$ | 14,415 | $ | 30,760 | $ | 246,405 | $ | 291,580 | ||||
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 246,405 | $ | 246,405 | ||||
Total liabilities |
$ | - | $ | - | $ | 246,405 | $ | 246,405 | ||||
1Excludes cash of $4,317 that is not subject to fair value accounting.
20 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
The following table summarizes the Companys assets that are measured at fair value on a recurring basis as of December 31, 2015.
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Cash equivalents1 | $ | 16,080 | $ | - | $ | - | $ | 16,080 | ||||
Debt securities: | ||||||||||||
U.S. government and agencies |
- | 9,813 | - | 9,813 | ||||||||
Mortgage-backed securities: |
||||||||||||
Residential mortgage-backed |
- | 2,538 | - | 2,538 | ||||||||
Total debt securities |
- | 12,351 | - | 12,351 | ||||||||
Derivatives embedded in assets on deposit | - | - | 122,043 | 122,043 | ||||||||
Total assets |
$ | 16,080 | $ | 12,351 | $ | 122,043 | $ | 150,474 | ||||
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 122,043 | $ | 122,043 | ||||
Total liabilities |
$ | - | $ | - | $ | 122,043 | $ | 122,043 | ||||
The Company had no assets or liabilities that required a fair value adjustment on a non-recurring basis as of December 31, 2016 or 2015.
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
Cash equivalents: Consists of money market funds; valuation is based on the closing price as of the balance sheet date.
Level 2 Measurements
For the majority of assets classified as Level 2 investments, the Company values the assets using third-party pricing sources, which generally rely on quoted prices for similar assets in markets that are active and observable market data.
21 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
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.
Separate account assets: Consists of mutual funds and unit investment trusts in which the contract holder could redeem its investment at net asset value per share at the measurement date with the investee.
Level 3 Measurements
Derivatives embedded in assets on deposit and annuity contracts: The Company offers single premium deferred annuity and flexible premium deferred variable annuity contracts with certain caps and floors which represent a minimum and maximum amount that could be credited to a contract during that contract year based on the performance of an external index. These embedded derivatives are measured at fair value separately from the host deposit asset and annuity contract.
In estimating the fair value of the embedded derivative, the Company attributes a present value to the embedded derivative equal to the discounted sum of the excess cash flows of the index related fund value over the minimum fund value. The current year portion of the embedded derivative is adjusted for known market conditions. The discount factor at which the embedded derivative is valued contains an adjustment for the Companys own credit and risk margins for unobservable non-capital market inputs. The Companys own credit adjustment is determined taking into consideration publicly available information relating to the Companys debt as well as its claims paying ability.
These derivatives may be more costly than expected in volatile or declining equity markets. Changes in market conditions include, but are not limited to, changes in interest rates, equity indices, default rates and market volatility. Changes in fair value may be impacted by changes in the Companys own credit standing. Lastly, changes in actuarial assumptions regarding policyholder behavior (such as full or partial withdrawals varying from expectations) and risk margins related to non-capital market inputs may result in significant fluctuations in the fair value of the derivatives. See Embedded Derivatives within Note 3, Investments for the impact to net income.
22 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
The following table presents information about significant unobservable inputs used in Level 3 embedded derivative liabilities and related assets on deposit measured at fair value developed by internal models as of December 31, 2016 and 2015:
Predominant | Significant | Range of Values - Unobservable Input | ||||
Valuation Method | Unobservable Input | 2016 | 2015 | |||
Single premium deferred annuities | ||||||
Discounted cash flow |
Lapse rates | 2% to 4% with an excess lapse rate at the end of the index period of 95%. | 2% to 4% with an excess lapse rate at the end of the index period of 95%. | |||
Companys own credit and risk margin | 105 - 181 basis points added on to discount rate | 82 - 137 basis points added on to discount rate | ||||
Flexible premium deferred variable annuities | ||||||
Discounted cash flow |
Lapse rates | 2% to 10% with an | ||||
excess lapse rate at | ||||||
the end of the index | N/A | |||||
period of 80% to 95%. | ||||||
Companys own credit and risk margin | 105 - 181 basis points added on to discount rate | N/A | ||||
23 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Changes in Fair Value Measurement
The following table sets forth the values of assets and liabilities classified as Level 3 within the fair value hierarchy at December 31, 2016.
Total Realized/Unrealized Gain (Loss) Included in: |
||||||||||||||||
Balance January 1, 2016 |
Purchases | Maturities | Earnings1 |
Balance December 31, 2016 |
||||||||||||
Derivatives embedded | ||||||||||||||||
in assets on deposit |
$ | 122,043 | $ | 78,090 | $ | (2,953 | ) | $ | 49,225 | $ | 246,405 | |||||
Total assets | $ | 122,043 | $ | 78,090 | $ | (2,953 | ) | $ | 49,225 | $ | 246,405 | |||||
Derivatives embedded | ||||||||||||||||
in annuity contracts |
$ | 122,043 | $ | 78,090 | $ | (2,953 | ) | $ | 49,225 | $ | 246,405 | |||||
Total liabilities | $ | 122,043 | $ | 78,090 | $ | (2,953 | ) | $ | 49,225 | $ | 246,405 | |||||
1 Included in net income is realized gains and losses associated with embedded derivatives.
The following table sets forth the values of assets and liabilities classified as Level 3 within the fair value hierarchy at December 31, 2015.
Total Realized/Unrealized Gain (Loss) Included in: |
||||||||||||||||
Balance January 1, 2015 |
Purchases | Maturities | Earnings1 |
Balance December 31, 2015 |
||||||||||||
Derivatives embedded | ||||||||||||||||
in assets on deposit |
$ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Total assets | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Derivatives embedded | ||||||||||||||||
in annuity contracts |
$ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Total liabilities | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
1 Included in net income is realized gains and losses associated with embedded derivatives.
24 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
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:
Level 1 Measurements
Cash: The carrying amount for this instrument approximates its fair value due to its short term nature and is based on observable inputs.
Level 2 Measurements
Assets on deposit and Investment-type contracts: Assets on deposit and investment-type contracts include single premium deferred annuity and the risk control accounts of the flexible premium deferred variable annuity contracts, excluding the related embedded derivative. In most cases, the fair values are determined by discounting expected liability cash flows and required profit margins using the year-end swap curve plus a spread equivalent to a cost of funds for insurance companies based on observable inputs.
Separate account liabilities: Separate account liabilities represent the account value owed to the contract holder, which is equal to the segregated assets carried at fair value.
The carrying amounts and estimated fair values of the Companys financial instruments which are not measured at fair value on a recurring basis at December 31 are as follows:
Carrying Amount |
2016 Estimated Fair Value |
Level |
Carrying Amount |
2015 Estimated Fair Value |
Level | |||||||||||||
Financial instruments | ||||||||||||||||||
recorded as assets: |
||||||||||||||||||
Cash |
$ | 4,317 | $ | 4,317 | 1 | $ | 1,013 | $ | 1,013 | 1 | ||||||||
Assets on deposit |
1,372,708 | 1,227,484 | 2 | 825,552 | 699,721 | 2 | ||||||||||||
Financial instruments | ||||||||||||||||||
recorded as liabilities: |
||||||||||||||||||
Investment-type contracts |
1,372,708 | 1,227,484 | 2 | 825,552 | 699,721 | 2 | ||||||||||||
Separate account liabilities |
20,221 | 20,221 | 2 | - | - | n/a | ||||||||||||
25 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Note 5: Income Tax
The Company is included in the consolidated federal income tax return filed by CMHC, the Companys ultimate parent. 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 subsidiarys 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 from affiliate reported on the balance sheet are due from CMFG Life.
Income Tax Expense
Income tax expense for the years ended December 31 is as follows:
2016 | 2015 | 2014 | |||||||||
Current tax expense (benefit) | $ | 647 | $ | 1,451 | $ | (186 | ) | ||||
Deferred tax expense (benefit) | 240 | (2 | ) | 197 | |||||||
Total income tax expense | $ | 887 | $ | 1,449 | $ | 11 | |||||
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: |
2016 | 2015 | 2014 | ||||||||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||
Tax expense computed at | ||||||||||||||||||||||||
federal corporate tax rate |
$ | 953 | 35.0 | % | $ | 1,480 | 35.0 | % | $ | 60 | 35.0 | % | ||||||||||||
Income tax expense (benefit) | ||||||||||||||||||||||||
related to prior years |
(53 | ) | (2.0 | ) | (31 | ) | (0.7 | ) | (41 | ) | (23.9 | ) | ||||||||||||
Dividends-received deduction | (11 | ) | (0.4 | ) | - | - | - | - | ||||||||||||||||
Other | (2 | ) | (0.1 | ) | - | - | (8 | ) | (4.7 | ) | ||||||||||||||
Total income tax expense | $ | 887 | 32.5 | % | $ | 1,449 | 34.3 | % | $ | 11 | 6.4 | % | ||||||||||||
26 |
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 Companys deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows:
2016 | 2015 | |||||
Deferred tax assets | ||||||
Policy liabilities and reserves |
$ | 29 | $ | 36 | ||
Unrealized investment losses |
175 | 122 | ||||
Investments |
- | 168 | ||||
Accrued expenses |
291 | 94 | ||||
Deferred policy acquisition costs |
391 | 309 | ||||
Other |
4 | 1 | ||||
Gross deferred tax assets | 890 | 730 | ||||
Deferred tax liabilities | ||||||
Investments |
355 | - | ||||
Deferred reinsurance expense |
39 | 47 | ||||
Other |
1 | 1 | ||||
Gross deferred tax liabilities | 395 | 48 | ||||
Net deferred tax asset | $ | 495 | $ | 682 | ||
Valuation Allowance
The Company considered the need for a valuation allowance with respect to its gross deferred tax assets as of December 31, 2016 and 2015, and based on that evaluation, the Company has determined it is more likely than not all deferred tax assets as of December 31, 2016 and 2015 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:
2016 | 2015 | ||||||
Balance at January 1 | $ | 1 | $ | 1 | |||
Reductions for prior years tax positions |
(1 | ) | - | ||||
Balance at December 31 | $ | - | $ | 1 | |||
27 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
There were no unrecognized tax benefits as of December 31, 2016 and 2015 that, if recognized, would affect the effective tax rate in future periods. Management does not anticipate a material change to the Companys uncertain tax positions during 2017.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense in the statements of comprehensive income (loss). The Company did not recognize any additions or reductions in interest and penalties for the years ended December 31, 2016, 2015 or 2014. The Company had accrued $7 and $7 for the payment of interest and penalties at December 31, 2016 and 2015, respectively.
The Company is included in income tax returns filed 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 2008. The Internal Revenue Service statute of limitations for tax years 2008 and 2009 are expected to close in late 2017. In 2017, the Company received approval from the Joint Committee on Taxation related to its federal income tax examinations for tax years 2008 and 2009.
Other Tax Items
As of December 31, 2016 and 2015, 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. Amounts due from transactions with affiliates are generally settled monthly. The Company reimbursed CMFG Life $15,349, $8,447 and $5,641 for these expenses in 2016, 2015 and 2014, respectively; which are included in operating and other expenses.
Amounts receivable/payable from/to affiliates are shown in the following table:
2016 | 2015 | |||||
Receivable from: | ||||||
CMFG Life |
$ | 11,460 | $ | 4,518 | ||
Total |
$ | 11,460 | $ | 4,518 | ||
Payable to: | ||||||
CUNA Brokerage Services, Inc. |
$ | 6,177 | $ | 2,478 | ||
Other |
19 | 2 | ||||
Total |
$ | 6,196 | $ | 2,480 | ||
28 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Amounts receivable from CMFG Life at December 31, 2016 and 2015 are primarily for a policyholders purchase of an annuity when a CMFG Life policyholder has surrendered their policy for the purchase of a single premium deferred annuity or flexible premium deferred variable annuity and for the cession of death claims related to the Companys single premium deferred annuity or flexible premium deferred variable annuity.
The Company hires MEMBERS Capital Advisors, Inc. (MCA) for investment advisory services. MCA, which is 100% owned by CMIC, manages substantially all of the Companys invested assets in accordance with policies, directives and guidelines established by the Company. The Company recorded MCA investment management fees totaling $28, $28 and $34 for the years ended December 31, 2016, 2015 and 2014, respectively, which are included as a reduction to net investment income.
The Company utilizes CUNA Brokerage Services, Inc., which is 100% owned by CMIC, to distribute its single premium deferred annuity and flexible premium deferred variable annuity and recorded commission expense for this service of $24,900, $23,072 and $10,853 in 2016, 2015 and 2014, respectively, which is included in operating and other expenses. This expense is entirely offset by commission income the Company receives from CMFG Life as part of the 2013 and 2015 reinsurance agreements.
See Note 7 regarding reinsurance and other agreements entered into by the Company and CMFG Life.
Note 7: Reinsurance
The Company entered into a reinsurance agreement with its affiliate, CMFG Life, on a coinsurance and modified coinsurance basis. The agreement was effective November 1, 2015 to cede 100% of its investment-type contracts for its flexible premium deferred variable annuity, which are accounted for using the deposit method of accounting. MLIC began selling its flexible premium deferred variable annuity in 2016. The Company had $43,734 of assets on deposit for these contracts as of December 31, 2016. The Company had related liabilities of $43,734 as of December 31, 2016, which are included in policyholder account balances in the balance sheets. The Company had separate account assets and liabilities for these contracts of $20,221 and $20,221, respectively, as of December 31, 2016. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $6,302 and $1,027 for the years ended December 31, 2016 and 2015, respectively.
The Company entered into an agreement with its affiliate, CMFG Life, effective January 1, 2013 to cede 100% of its investment-type contracts for its single premium deferred annuity, which are accounted for using the deposit method of accounting. The Company had $1,575,379 and $947,595 of assets on deposit for these contracts as of December 31, 2016 and 2015, respectively. The Company had related liabilities of $1,575,379 and $947,595, respectively which are included in policyholder account balances in the balance sheets. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $37,961, $34,236 and $14,861 for the years ended December 31, 2016, 2015 and 2014, respectively.
On October 31, 2012, the Company ceded 95% of its insurance policies in force pursuant to a reinsurance agreement with CMFG Life and the Company was reimbursed
29 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
for 95% of expenses incurred in the provision of policyholder and benefit payment services, and insurance taxes and charges on a go forward basis under this contract. On September 30, 2015, the Company amended its reinsurance agreement with CMFG Life and now cedes 100% of its insurance policies in force to CMFG Life and is reimbursed 100% for expenses incurred in the provision of policyholder and benefit payments services, and insurance taxes and charges going forward. The Company received commissions of $894, $1,567 and $1,021 for the years ended December 31, 2016, 2015 and 2014, respectively. As a result of the amendment to this agreement the Company ceded $1,297 of earned premiums and $1,244 of benefits as of September 30, 2015.
MLIC did not have any other reinsurance agreements at December 31, 2016 or 2015 and the entire reinsurance recoverable balance of $23,687 and $24,628, respectively, was due from CMFG Life. The recoverable balances are not collateralized and the Company retains the risk of loss in the event CMFG Life is unable to meet its obligations assumed under the reinsurance agreements. MLIC believes the risk of non-collection is remote due to CMFG Lifes stable A ratings from A.M. Best Company and S&P Global Ratings and A2 rating from Moodys Investors Service.
30 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
The effects of reinsurance on contract charges, interest credited to policyholder accounts, premiums and on claims, benefits, and losses incurred for the years ended December 31 are as follows:
2016 | 2015 | 2014 | ||||||||||
Face amount of policies in force | $ | 95,577 | $ | 110,827 | $ | 123,223 | ||||||
Premiums: | ||||||||||||
Direct - written |
$ | 2,168 | $ | 2,384 | $ | 2,613 | ||||||
Direct - change in unearned |
1 | - | - | |||||||||
Direct - earned |
2,169 | 2,384 | 2,613 | |||||||||
Ceded to affiliate - written |
(2,172 | ) | (3,559 | ) | (2,482 | ) | ||||||
Ceded to affiliate - change in unearned |
(18 | ) | - | (4 | ) | |||||||
Ceded to affiliate - earned |
(2,190 | ) | (3,559 | ) | (2,486 | ) | ||||||
Premiums - written, net | (4 | ) | (1,175 | ) | 131 | |||||||
Premiums - change in unearned, net | (17 | ) | - | (4 | ) | |||||||
Premiums, net | $ | (21 | ) | $ | (1,175 | ) | $ | 127 | ||||
Contract charges: | ||||||||||||
Direct |
$ | 1,303 | $ | 742 | $ | 472 | ||||||
Ceded to affiliate |
(1,303 | ) | (724 | ) | (448 | ) | ||||||
Contract charges, net | $ | - | $ | 18 | $ | 24 | ||||||
Claims, benefits and losses incurred: | ||||||||||||
Direct |
$ | 1,761 | $ | 1,784 | $ | 1,883 | ||||||
Ceded to affiliate |
(1,762 | ) | (2,988 | ) | (1,771 | ) | ||||||
Claims, benefits and losses, net | $ | (1 | ) | $ | (1,204 | ) | $ | 112 | ||||
Interest credited to policyholder account balances: | ||||||||||||
Direct |
$ | 20,519 | $ | 9,833 | $ | 2,457 | ||||||
Ceded to affiliate |
(20,519 | ) | (9,829 | ) | (2,449 | ) | ||||||
Interest credited to policyholder account balances, net | $ | - | $ | 4 | $ | 8 | ||||||
31 |
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 did not use any permitted practices in 2016, 2015 or 2014. 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 | |||||||||||||||
Capital and Surplus | Net Income (Loss) | |||||||||||||||
2016 | 2015 | 2016 | 2015 | 2014 | ||||||||||||
MLIC | $ | 23,205 | $ | 21,111 | $ | 1,051 | $ | 1,112 | $ | (1,792 | ) | |||||
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 subsidiarys state of domicile (Insurance Department). Extraordinary dividends, as defined by state statutes, must be approved by the Insurance Department. Based on Iowa statutory regulations, the Company could pay dividends up to $2,321 during 2017, without prior approval of the Insurance Department.
Risk-based capital (RBC) requirements promulgated by the National Association of Insurance Commissioners (NAIC) require U.S. insurers to maintain minimum capitalization levels that are determined based on formulas incorporating credit risk, insurance risk, interest rate risk, and general business risk. The adequacy of the Companys actual capital is evaluated by a comparison to the RBC results, as determined by the formula. At December 31, 2016 and 2015, the Companys adjusted capital exceeded the RBC minimum requirements as required by the NAIC.
32 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Note 9: Accumulated Other Comprehensive Income (Loss)
The components of accumulated comprehensive income (loss), net of tax, are as follows:
Unrealized Investment Gains (Loss) |
Accumulated Other Comprehensive Income (Loss) |
|||||||
Balance, January 1, 2014 | $ | 269 | $ | 269 | ||||
Change in unrealized holding gains (losses), |
||||||||
net of tax - ($25) |
(47 | ) | (47 | ) | ||||
Balance, December 31, 2014 | 222 | 222 | ||||||
Change in unrealized holding gains (losses), |
||||||||
net of tax - ($240) |
(447 | ) | (447 | ) | ||||
Balance, December 31, 2015 | (225 | ) | (225 | ) | ||||
Change in unrealized holding gains (losses), |
||||||||
net of tax - ($53) |
(98 | ) | (98 | ) | ||||
Balance, December 31, 2016 | $ | (323 | ) | $ | (323 | ) | ||
Reclassification Adjustments
Accumulated other comprehensive income (losses) includes amounts related to unrealized investment gains (losses) which were reclassified to net income. Reclassifications from accumulated other comprehensive income (losses) for the years ended December 31 are included in the following table:
2016 | 2015 | 2014 | |||||||
Reclassifications from accumulated other comprehensive income (losses) | |||||||||
Unrealized gains on available-for-sale |
|||||||||
securities included in net realized investment losses |
$ | - | $ | 15 | $ | - | |||
Total reclassifications from accumulated | |||||||||
other comprehensive income (losses) |
- | 15 | - | ||||||
Tax expense |
- | 5 | - | ||||||
Net reclassification from accumulated | |||||||||
other comprehensive income (losses) |
$ | - | $ | 10 | $ | - | |||
33 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Note 10: Business Segment Information
The following table sets forth financial information regarding the Companys two reportable business segments for the year ended December 31, 2016.
Year ended or as of December 31, 2016 |
Life and Health |
Annuities | Total | |||||||||
Revenues | ||||||||||||
Life and health premiums, net |
$ | (21 | ) | $ | - | $ | (21 | ) | ||||
Contract charges |
- | - | - | |||||||||
Net investment income |
376 | - | 376 | |||||||||
Net realized investment gains |
- | - | - | |||||||||
Other income |
3,415 | - | 3,415 | |||||||||
Total revenues | 3,770 | - | 3,770 | |||||||||
Benefits and expenses | ||||||||||||
Life and health insurance claims and benefits, net |
(1 | ) | - | (1 | ) | |||||||
Interest credited to policyholder account balances |
- | - | - | |||||||||
Operating and other expenses |
1,033 | 16 | 1,049 | |||||||||
Total benefits and expenses | 1,032 | 16 | 1,048 | |||||||||
Income before income taxes | 2,738 | (16 | ) | 2,722 | ||||||||
Income tax expense (benefit) |
892 | (5 | ) | 887 | ||||||||
Net income | 1,846 | (11 | ) | 1,835 | ||||||||
Change in unrealized (losses), net of tax (benefit) |
(98 | ) | - | (98 | ) | |||||||
Other comprehensive (loss) | (98 | ) | - | (98 | ) | |||||||
Total comprehensive income (loss) | $ | 1,748 | $ | (11 | ) | $ | 1,737 | |||||
Reinsurance recoverable from affiliate | $ | 23,687 | $ | - | $ | 23,687 | ||||||
Assets on deposit | - | 1,619,113 | 1,619,113 | |||||||||
Claim and policy benefit reserves - life and health | 20,344 | 1,162 | 21,506 | |||||||||
Policyholder account balances | 3,335 | 1,619,113 | 1,622,448 | |||||||||
34 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
The following table sets forth financial information regarding the Companys two reportable business segments for the year ended December 31, 2015.
Year ended or as of December 31, 2015 |
Life and Health |
Annuities | Total | ||||||||
Revenues | |||||||||||
Life and health premiums, net |
$ | (1,175 | ) | $ | - | $ | (1,175 | ) | |||
Contract charges |
18 | - | 18 | ||||||||
Net investment income |
366 | - | 366 | ||||||||
Net realized investment gains |
117 | - | 117 | ||||||||
Other income |
5,336 | - | 5,336 | ||||||||
Total revenues | 4,662 | - | 4,662 | ||||||||
Benefits and expenses | |||||||||||
Life and health insurance claims and benefits, net |
(1,204 | ) | - | (1,204 | ) | ||||||
Interest credited to policyholder account balances |
4 | - | 4 | ||||||||
Operating and other expenses |
1,633 | - | 1,633 | ||||||||
Total benefits and expenses | 433 | - | 433 | ||||||||
Income before income taxes | 4,229 | - | 4,229 | ||||||||
Income tax expense |
1,449 | - | 1,449 | ||||||||
Net income | 2,780 | - | 2,780 | ||||||||
Change in unrealized (losses), net of tax (benefit) |
(447 | ) | - | (447 | ) | ||||||
Other comprehensive (loss) | (447 | ) | - | (447 | ) | ||||||
Total comprehensive income | $ | 2,333 | $ | - | $ | 2,333 | |||||
Reinsurance recoverable from affiliate | $ | 24,628 | $ | - | $ | 24,628 | |||||
Assets on deposit | - | 947,595 | 947,595 | ||||||||
Claim and policy benefit reserves - life and health | 21,077 | 460 | 21,537 | ||||||||
Policyholder account balances | 3,473 | 947,595 | 951,068 | ||||||||
35 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
The following table sets forth financial information regarding the Companys two reportable business segments for the year ended December 31, 2014.
Year ended or as of December 31, 2014 |
Life and Health |
Annuities | Total | |||||||||
Revenues | ||||||||||||
Life and health premiums, net |
$ | 127 | $ | - | $ | 127 | ||||||
Contract charges |
24 | - | 24 | |||||||||
Net investment income |
278 | - | 278 | |||||||||
Total revenues | 429 | - | 429 | |||||||||
Benefits and expenses | ||||||||||||
Life and health insurance claims and benefits, net |
112 | - | 112 | |||||||||
Interest credited to policyholder account balances |
8 | - | 8 | |||||||||
Operating and other expenses |
137 | - | 137 | |||||||||
Total benefits and expenses | 257 | - | 257 | |||||||||
Income before income taxes | 172 | - | 172 | |||||||||
Income tax expense |
11 | - | 11 | |||||||||
Net income | 161 | - | 161 | |||||||||
Change in unrealized (losses), net of tax (benefit) |
(47 | ) | - | (47 | ) | |||||||
Other comprehensive (loss) | (47 | ) | - | (47 | ) | |||||||
Total comprehensive income | $ | 114 | $ | - | $ | 114 | ||||||
36 |
MEMBERS Life Insurance Company |
Notes to Financial Statements |
($ in 000s) |
Note 11: Commitments and Contingencies
Insurance Guaranty Funds
The Company is liable for guaranty fund assessments related to certain unaffiliated insurance companies that have become insolvent during 2016 and prior years. The Company includes a provision for all known assessments that will be levied as well as an estimate of amounts that it believes will be assessed in the future relating to past insolvencies. The Company has established a liability of $667 and $270 at December 31, 2016 and 2015, respectively, for guaranty fund assessments. The Company also estimates the amount recoverable from future premium tax payments related to these assessments and has not established an asset as of December 31, 2016 and 2015 since it does not believe any amount will be recoverable. Recoveries of assessments from premium taxes are generally made over a five-year period.
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 Companys 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 12: Subsequent Events
The Company evaluated subsequent events through 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.
37 |
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)
<R>
Risk Control
Account |
Risk Control
Account Allocation |
Initial
Index Rate Floor |
Initial
Index Rate Cap |
S&P
500 Index Value |
(Initial
Index Value) x (1 + Index Interest Rate Floor) |
(Initial
Index Value) x (1 + Index Interest Rate Cap) |
Secure Account |
75% | 0% | 3.50% | 1,000.00 | 1,000.00 | 1,035.00 |
Growth Account |
25% | -10% | 14.00% | 1,000.00 | 900.00 | 1,140.00 |
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% |
<R> Assume the following information at the time of partial withdrawal (3/1/2017): </R> |
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 ($25,000.00) 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 ($25,000.00) to determine the Contract
Value in the Growth Account at the time of partial withdrawal ($28,500.00). |
|
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 $10,000.00. 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 ($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). |
|
<R> 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. </R> |
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 |
A-3
$75,000.00
+ $2,625.00 - $36,572.44 or $41,052.56. For the Growth Account, that equals $25,000.00
+ $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). |
Example 2 Partial Withdrawal with Positive MVA
<R>Risk Control
Account |
Risk Control
Account Allocation |
Initial
Index Rate Floor |
Initial
Index Rate Cap |
S&P
500 Index Value |
(Initial
Index Value) x (1 + Index Interest Rate Floor) |
(Initial
Index Value) x (1 + Index Interest Rate Cap) |
Secure Account |
75% | 0% | 3.50% | 1,000.00 | 1,000.00 | 1,035.00 |
Growth Account |
25% | -10% | 14.00% | 1,000.00 | 900.00 | 1,140.00 |
Total Contract Value = $100,000.00 |
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 (3/1/2017): </R> |
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 ($25,000.00) to determine the Contract
Value in the Growth Account at the time of partial withdrawal ($28,500.00). |
|
<R> 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 $10,000.00. 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 ($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). </R> |
|
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 |
A-5
(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). |
|
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). |
A-6
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-7
Example 3 Full Surrender of Contract on First Day of Second Contract Year with Negative MVA
<R>Risk Control
Account |
Risk Control
Account Allocation |
Initial
Index Rate Floor |
Initial
Index Rate Cap |
S&P
500 Index Value |
(Initial
Index Value) x (1 + Index Interest Rate Floor) |
(Initial
Index Value) x (1 + Index Interest Rate Cap) |
Secure Account |
75% | 0% | 3.50% | 1,000.00 | 1,000.00 | 1,035.00 |
Growth Account |
25% | -10% | 14.00% | 1,000.00 | 900.00 | 1,140.00 |
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 (9/1/2016): </R> |
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-8
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 Owners 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). |
|
<R> 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% | |||||
</R> |
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-9
<R> ($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. </R> |
|
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). |
|
<R> 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). </R> |
|
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-10
MEMBERS Life Insurance Company |
2000 Heritage Way |
Waverly, IA 50677 |
1-800-798-5500 |
Dealer Prospectus Delivery Obligations |
<R> All dealers that effect transactions in these securities are required to deliver a Prospectus. </R> |
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 | $ | 100,700 | |
Printing and engraving | $ | 116,023 | |
Accounting fees and expenses | $ | 102,822 | |
Legal fees and expenses | $ | 22,000 | |
Miscellaneous | $ | 7,000 | |
TOTAL EXPENSES | $ | 348,545 |
* Estimated. |
Item 14. Indemnification of Directors
and Officers.
Section 490.202 of the Iowa Business Corporation Act (the IBCA), provides that a corporations 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 individuals 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 individuals 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 directors 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 corporations articles of incorporation and (2) the directors 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 corporations 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 corporations 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 persons 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 dated June 11, 2013. Incorporated herein by reference to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1, filed June 12, 2013.
(File No. 333-186477) |
|
(ii) |
Selling Agreement. Incorporated herein by reference to Pre-Effective Amendment No.
1 to the Registration Statement on Form S-1, filed June 12, 2013. (File No. 333-186477) |
||
(iii) |
Distribution Agreement dated September 9, 2013. Incorporated herein by reference
to the initial filing of the Registration Statement on Form S-1, filed November
27, 2013. (File No. 333-192603) |
||
(iv) |
Amended and Restated Distribution Agreement dated as of January 7, 2016. Incorporated
herein by reference to the initial filing of the Registration Statement on Form
N-4, filed January 29, 2016. (File No. 333-207276) |
||
(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) |
||
(iii) |
Amended and Restated Bylaws. Incorporated herein by reference to the initial filing
of the Registration Statement on Form N-4, filed January 29, 2016. (File No. 333-207276) |
||
(4) | (i) |
Forms of Contract. Incorporated herein by reference to Pre-Effective Amendment No.
1 to the Registration Statement on Form S-1, filed June 12, 2013. (File No. 333-186477) |
|
(ii) |
Form of Application. Incorporated herein by reference to Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-1, filed June 12, 2013. (File No.
333-186477) |
||
(iii) |
Form of Change of Annuitant Endorsement. Incorporated herein by reference to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1, filed June 12, 2013.
(File No. 333-186477) |
||
(iv) |
Form of Roth IRA Endorsement. Incorporated herein by reference to Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-1, filed June 12, 2013. (File No.
333-186477) |
||
(v) |
Form of IRA Endorsement. Incorporated herein by reference to Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-1, filed June 12, 2013. (File No.
333-186477) |
||
(vi) |
Form of Amendment to Application Endorsement. Incorporated herein by reference to
Pre- Effective Amendment No. 1 to the Registration Statement on Form S-1, filed
June 12, 2013. (File No. 333-186477) |
||
(vii) |
Bailout Provision Rider. Incorporated herein by reference to Pre-Effective Amendment
No. 2 to the Registration Statement on Form S-1, filed August 2, 2013. (File No.
333-186477) |
||
(5) | Legality Opinion. (filed herewith) | ||
(10) | Material Contracts | ||
(i) |
Coinsurance Agreement dated October 31, 2012. Incorporated herein by reference to
Pre- Effective Amendment No. 1 to the Registration Statement on Form S-1, filed
June 12, 2013. (File No. 333-186477) |
||
(ii) |
Coinsurance Agreement dated January 1, 2013. Incorporated herein by reference to
Pre- Effective Amendment No. 1 to the Registration Statement on Form S-1, filed
June 12, 2013. (File No. 333-186477) |
||
(a) | First Amendment to Coinsurance Agreement dated January 1, 2014. Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registration Statement on Form S-1, filed April 4, 2014. (File No. 333-192603) | ||
(iii) |
Cost Sharing Agreement. Incorporated herein by reference to Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-1, filed June 12, 2013. (File No.
333-186477) |
||
(a) | Expense Sharing Agreement dated December 31, 2013. Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registration Statement on Form S-1, filed April 4, 2014. (File No. 333-192603) |
(b) | Amended and Restated Expense Sharing Agreement dated January 1, 2015. Incorporated herein by reference to the initial filing of the Registration Statement on Form S-1, filed March 25, 2015. (File No. 333-202984). | ||
(iv) |
Investment Advisory Agreement. Incorporated herein by reference to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1, filed June 12, 2013.
(File No. 333-186477) |
||
(a) Amendment to Investment Advisory Agreement dated January 15, 2014. Incorporated
herein by reference to Post-Effective Amendment No. 1 to the Registration Statement
on Form S-1, filed April 4, 2014. (File No. 333-192603) |
|||
(b) Amended and Restated Investment Advisory Agreement dated January 1, 2015. Incorporated
herein by reference to the initial filing of the Registration Statement on Form
S-1, filed March 25, 2015. (File No. 333-202984). |
|||
(v) |
Procurement and Disbursement and Billing and Collection Services Agreement. Incorporated
herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement
on Form S-1, filed June 12, 2013. (File No. 333-186477) |
||
(a) Amendment to Procurement and Disbursement and Billing and Collection Services
Agreement. Incorporated herein by reference to Post-Effective Amendment No. 1 to
the Registration Statement on Form S-1, filed April 4, 2014. (File No. 333-192603) |
|||
(vi) |
CUNA Mutual Group Cost Sharing, Procurement, Disbursement, Billing and Collection
Agreement dated January 1, 2015. Incorporated herein by reference to the initial
filing of the Registration Statement on Form S-1, filed March 25, 2015. (File No.
333-202984). |
||
(vii) |
Amended and Restated Expense Sharing Agreement dated January 1, 2015. Incorporated
herein by reference to Post-Effective Amendment. No 1 to the Registration Statement
on Form N-4, filed March 31, 2017. (File No. 333-207276). |
||
(23) | (i) |
Consent of Ross D. Hansen. (See exhibit 5) |
|
(ii) |
Consent of Deloitte & Touche LLP independent registered public accounting firm.
(filed herewith) |
||
(24) | Powers of Attorney. (filed herewith) |
101.INS | XBRL Instance Document. (filed herewith) |
101.SCH | XBRL Taxonomy Extension Schema (filed herewith) |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase (filed herewith) |
101.DEF | XBRL Taxonomy Definition Linkbase (filed herewith) |
101.LAB | XBRL Taxonomy Extension Label Linkbase (filed herewith) |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase (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 31 day of March, 2017.
MEMBERS Life Insurance Company |
||
By: | /s/David L. Sweitzer | |
David L. Sweitzer, President |
*Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on March 31, 2017 in the capacities indicated.
Name | Title | Date | ||
* | ||||
President/Director | March 31, 2017 | |||
David L. Sweitzer | ||||
* | ||||
Treasurer | March 31, 2017 | |||
Brian J. Borakove | ||||
* | ||||
Director | March 31, 2017 | |||
Michael F. Anderson | ||||
* | ||||
Director | March 31, 2017 | |||
Michael T. Defnet | ||||
* | ||||
Director | March 31, 2017 | |||
Jason A. Pisarik | ||||
* | ||||
Director | March 31, 2017 | |||
Steven R. Suleski |
* By: | /s/Ross D. Hansen | As Attorney-in-Fact | ||
Ross D. Hansen | pursuant to | |||
powers of attorney | ||||
Exhibit List
(5) | Legality Opinion. |
(23)(ii) | Consent of Deloitte & Touche LLP independent registered public accounting firm. |
(24) | Powers of Attorney. |
101.INS | XBRL Instance Document. |
101.SCH | XBRL Taxonomy Extension Schema |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | XBRL Taxonomy Definition Linkbase |
101.LAB | XBRL Taxonomy Extension Label Linkbase |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
MEMBERS Life Insurance
Company
2000 Heritage Way
Waverly, Iowa 50677
March 31, 2017
Board of Directors
MEMBERS Life Insurance
Company
2000 Heritage Way
Waverly, Iowa 50677
Re: | MEMBERS Life Insurance Company Offering of Single Premium Deferred Index 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 filed by the Company, as Registrant, with the Securities and Exchange Commission, on March 30, 2016, and amended by Post-Effective 1 on March 31, 2017 (together the Registration Statement), I am delivering this opinion in connection with the sale of the single premium deferred index annuity contracts (the Contracts) issued by the Company having an aggregate offering price of up to $1,000,000,000 in accordance with the distribution agreement dated as of January 7, 2016 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.
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.
25782368.1
2) The Contracts registered by the above referenced 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 |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Post-EffectiveAmendment No. 1 to Registration Statement No. 333-210491 of our report dated March 3, 2017, relating to the financial statements of MEMBERS Life Insurance Company(which report expresses an unqualified opinion and includes an emphasis-of-matter paragraph relating to MEMBERS Life Insurance Company being a member of a controlled group of affiliated companies and as such its results may not be indicative of those of a stand-alone entity), appearing in the Prospectus, which is a part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 31, 2017
MLIC Form S-1 |
MEMBERS LIFE INSURANCE COMPANY |
Power of Attorney |
David L. Sweitzer |
President/Director |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Tim Kovac or Ross D. Hansen, and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any other regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing appropriate or necessary to be done in order to effectuate the same, as fully to all intents and purposes as he himself might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
MEMBERS Zone Annuity
Product Name | 1933 Act File Number |
MEMBERS Zone Annuity | 333-210491 |
IN WITNESS WHEREOF, this 31 day of March, 2017 | ||
/s/David L. Sweitzer | ||
David L. Sweitzer |
MLIC Form S-1 |
MEMBERS LIFE INSURANCE COMPANY |
Power of Attorney |
Michael F. Anderson |
Director |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Tim Kovac or Ross D. Hansen, and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any other regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing appropriate or necessary to be done in order to effectuate the same, as fully to all intents and purposes as he himself might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
MEMBERS Zone Annuity
Product Name | 1933 Act File Number |
MEMBERS Zone Annuity | 333-210491 |
IN WITNESS WHEREOF, this 31 day of March, 2017 | ||
/s/Michael F. Anderson | ||
Michael F. Anderson |
MLIC Form S-1 |
MEMBERS LIFE INSURANCE COMPANY |
Power of Attorney |
Michael T. Defnet |
Director |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Tim Kovac or Ross D. Hansen, and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any other regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing appropriate or necessary to be done in order to effectuate the same, as fully to all intents and purposes as he himself might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
MEMBERS Zone Annuity
Product Name | 1933 Act File Number |
MEMBERS Zone Annuity | 333-210491 |
IN WITNESS WHEREOF, this 31 day of March, 2017 | ||
/s/Michael T. Defnet | ||
Michael T. Defnet |
MLIC Form S-1 |
MEMBERS LIFE INSURANCE COMPANY |
Power of Attorney |
Jason A. Pisarik |
Director |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Tim Kovac or Ross D. Hansen, and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any other regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing appropriate or necessary to be done in order to effectuate the same, as fully to all intents and purposes as he himself might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
MEMBERS Zone Annuity
Product Name | 1933 Act File Number |
MEMBERS Zone Annuity | 333-210491 |
IN WITNESS WHEREOF, this 31 day of March, 2017 | ||
/s/Jason A. Pisarik | ||
Jason A. Pisarik |
MLIC Form S-1 |
MEMBERS LIFE INSURANCE COMPANY |
Power of Attorney |
Brian J. Borakove |
Treasurer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Tim Kovac or Ross D. Hansen, and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any other regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing appropriate or necessary to be done in order to effectuate the same, as fully to all intents and purposes as he himself might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
MEMBERS Zone Annuity
Product Name | 1933 Act File Number |
MEMBERS Zone Annuity | 333-210491 |
IN WITNESS WHEREOF, this 31 day of March, 2017 | ||
/s/Brian J. Borakove | ||
Brian J. Borakove |
MLIC Form S-1 |
MEMBERS LIFE INSURANCE COMPANY |
Power of Attorney |
Steven R. Suleski |
Secretary/Director |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Tim Kovac or Ross D. Hansen, and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement under the Securities Act of 1933, as amended, and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any other regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing appropriate or necessary to be done in order to effectuate the same, as fully to all intents and purposes as he himself might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
MEMBERS Zone Annuity
Product Name | 1933 Act File Number |
MEMBERS Zone Annuity | 333-210491 |
IN WITNESS WHEREOF, this 31 day of March, 2017 | ||
/s/Steven R. Suleski | ||
Steven R. Suleski |
Document and Entity Information |
12 Months Ended |
---|---|
Dec. 31, 2016 | |
Details | |
Registrant Name | MEMBERS Life Insurance Co |
Registrant CIK | 0001562577 |
SEC Form | S-1 |
Period End date | Dec. 31, 2016 |
Fiscal Year End | --12-31 |
Trading Symbol | mlic |
Filer Category | Non-accelerated Filer |
Current with reporting | Yes |
Voluntary filer | No |
Well-known Seasoned Issuer | No |
Amendment Flag | false |
Document Fiscal Year Focus | 2016 |
Document Fiscal Period Focus | FY |
Balance Sheets - Parenthetical - USD ($) $ in Thousands |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Details | ||
Available-for-sale Debt Securities, Amortized Cost Basis | $ 11,037 | $ 12,698 |
Common Stock, Par or Stated Value Per Share | $ 5 | $ 5 |
Common Stock, Shares Authorized | 1,000 | 1,000 |
Common Stock, Shares, Issued | 1,000 | 1,000 |
Common Stock, Shares, Outstanding | 1,000 | 1,000 |
Tax expense (benefit) in Accumulated Other Comprehensive Income | $ (175) | $ (122) |
Statements of Operations and Comprehensive Income (Loss) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Revenues | |||
Life and health premiums, net | $ (21) | $ (1,175) | $ 127 |
Contract charges | 18 | 24 | |
Net investment income | 376 | 366 | 278 |
Net realized investment gains | 117 | ||
Other income | 3,415 | 5,336 | |
Total revenues | 3,770 | 4,662 | 429 |
Benefits and expenses | |||
Life and health insurance claims and benefits, net | (1) | (1,204) | 112 |
Interest credited to policyholder account balances | 4 | 8 | |
Operating and other expenses | 1,049 | 1,633 | 137 |
Total benefits and expenses | 1,048 | 433 | 257 |
Income (loss) before income taxes | 2,722 | 4,229 | 172 |
Income tax expense (benefit) | 887 | 1,449 | 11 |
Net Income (Loss) | 1,835 | 2,780 | 161 |
Change in unrealized gains (losses), net of tax expense (benefit) | (98) | (437) | (47) |
Reclassification adjustment for (gains) included in net income, net of tax expense (benefit) | (10) | ||
Other Comprehensive Income (Loss) | (98) | (447) | (47) |
Total Comprehensive Income (Loss) | $ 1,737 | $ 2,333 | $ 114 |
Statements of Operations and Comprehensive Income (Loss) - Parenthetical - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Details | |||
Tax expense (benefit) portion of change in unrealized gains (losses) | $ (53) | $ (235) | $ (25) |
Tax Expense (Benefit), Portion of reclassification adjustment for gains | $ (5) |
Statements of Stockholders' Equity - USD ($) $ in Thousands |
Common Stock |
Additional Paid-in Capital |
AOCI Attributable to Parent |
Retained Earnings |
Total |
---|---|---|---|---|---|
Balance at Dec. 31, 2013 | $ 5,000 | $ 10,500 | $ 269 | $ 3,332 | $ 19,101 |
Net Income (Loss) | 161 | 161 | |||
Other Comprehensive Income (Loss) | (47) | (47) | |||
Balance at Dec. 31, 2014 | 5,000 | 10,500 | 222 | 3,493 | 19,215 |
Net Income (Loss) | 2,780 | 2,780 | |||
Other Comprehensive Income (Loss) | (447) | (447) | |||
Balance at Dec. 31, 2015 | 5,000 | 10,500 | (225) | 6,273 | 21,548 |
Net Income (Loss) | 1,835 | 1,835 | |||
Other Comprehensive Income (Loss) | (98) | (98) | |||
Balance at Dec. 31, 2016 | $ 5,000 | $ 10,500 | $ (323) | $ 8,108 | $ 23,285 |
Statements of Cash Flows - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Cash flows from operating activities: | |||
Net Income (Loss) | $ 1,835 | $ 2,780 | $ 161 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||
Policyholder charges on investment type contracts | (18) | (24) | |
Net realized investment gains | (117) | ||
Interest credited to policyholder account balances | 4 | 8 | |
Deferred income taxes | 240 | (2) | 197 |
Amortization of bond premium and discount | 33 | 61 | 75 |
Amortization and write off of deferred charges | 23 | 26 | 26 |
Increase (Decrease) in Operating Assets | |||
Increase (Decrease) in Accrued investment income | 18 | (54) | (16) |
Increase (Decrease) in Reinsurance recoverable | 752 | 273 | 326 |
Increase (Decrease) in Premiums receivable | 11 | 2 | 4 |
Increase (Decrease) in Other assets and receivables | (6,423) | (1,828) | 356 |
Increase (Decrease) in Federal income taxes recoverable from affiliate | (1,121) | 1,281 | 87 |
Increase (Decrease) in Insurance reserves | (720) | (831) | (828) |
Increase (Decrease) in Unearned premiums | (1) | (2) | |
Increase (Decrease) in other liabilities | 5,312 | 9,412 | 955 |
Net cash provided by operating activities | (41) | 10,987 | 1,327 |
Cash flows from investing activities: | |||
Purchases of Debt Securities | (8,760) | (7,535) | |
Proceeds from sale or maturity of Debt Securities | 1,628 | 8,987 | 750 |
Net payments received on policy loans | 104 | 6 | |
Net cash provided by (used in) investing activities | 1,628 | 331 | (6,779) |
Cash flows from financing activities: | |||
Policyholder account deposits | 634,345 | 596,817 | 252,273 |
Policyholder account withdrawals | (31,206) | (12,250) | (3,581) |
Assets on deposit - deposits | (634,039) | (596,492) | (252,273) |
Assets on deposit - withdrawals | 30,951 | 12,098 | 3,531 |
Change in bank overdrafts | 1 | (1) | |
Net cash provided by (used in) financing activities | 52 | 173 | (51) |
Change in cash and cash equivalents | 1,639 | 11,491 | (5,503) |
Cash and cash equivalents at beginning of period | 17,093 | 5,602 | 11,105 |
Cash and cash equivalents at end of period | 18,732 | 17,093 | 5,602 |
Supplemental disclosure of cash information: | |||
Cash received (paid) during the period for income taxes | $ (1,768) | $ (170) | $ 273 |
Nature of Business |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Business | 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. The Companys ultimate parent is CUNA Mutual Holding Company (CMHC), a mutual insurance holding company organized under the laws of Iowa. MLIC began selling flexible premium deferred variable annuity contracts in 2016 and single premium deferred annuity contracts in 2013. Both products are sold to credit union members through the face-to-face distribution channel. Prior to 2013, MLIC did not actively market new business; it primarily serviced existing blocks of individual and group life policies. See Note 7, Reinsurance, for information on the Companys reinsurance and ceding agreements.
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. The following table identifies states with premiums greater than 5% of total direct premium and states with deposits on annuity contracts greater than 5% of total deposits:
*Less than 5%.
No other state represents more than 5% of the Companys premiums or deposits for any year in the three years ended December 31, 2016.
CMFG Life provides significant services required in the conduct of the Companys operations. Management believes allocations of expenses are reasonable, but the results of the Companys operations may have materially differed from the results reflected in the accompanying financial statements if the Company did not have this relationship. |
Summary of Significant Accounting Policies |
12 Months Ended |
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Dec. 31, 2016 | |
Notes | |
Summary of Significant Accounting Policies | 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, embedded derivatives, deferred tax asset valuation reserves, and claim and policy benefit reserves are most affected by the use of estimates and assumptions.
Segment Reporting
The Company is currently managed as two reportable business segments, (1) life and health and (2) annuities. The Companys life and health segment includes individual and group life policies that the Company no longer actively markets. The annuities segment includes its single premium deferred annuity contracts and flexible premium deferred variable annuity contracts which the Company began selling in 2013 and 2016, respectively. See Note 7, Reinsurance, for information on the Companys reinsurance and ceding agreements, which impact the financial statement presentation of these segments.
Investments
Debt securities: Investments in debt securities are classified as available for sale and are carried at fair value. 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 anticipated 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 components. 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 net realized investment gains, with the remainder of the loss amount recognized in other comprehensive loss. If the Company intends to sell or it is more likely than not that the Company will be required to sell before anticipated recovery in value, 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 issuers business and industry sector, credit ratings, and the intent and ability of the Company to hold the investment until the fair value has recovered at least its cost basis.
Unrealized gains and losses on investments in debt securities, net of deferred federal income taxes, are included in accumulated other comprehensive income (loss) as a separate component of stockholders equity.
Policy loans: The Company allocated $1,628 and $1,882 of policy loans to CMFG Life as of December 31, 2016 and 2015, respectively, as payment related to the 2012 reinsurance agreement and the 2015 amendment (See Note 7). As a result of the 2015 amendment, all policy loans are allocated to CMFG Life.
Net investment income: 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.
Net realized gains and losses: Realized gains and losses on the sale of investments are determined on a specific identification basis and are recorded on the trade date.
Derivative Financial Instruments
The Company issues single premium deferred annuity and flexible premium deferred variable annuity contracts that contain embedded derivatives. Derivatives embedded within non-derivative host contracts are separated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument. Such embedded derivatives are recorded at fair value, and they are reported as part of assets on deposit and policyholder account balances in the balance sheets, with the change in the value being recorded in net realized investment gains. See Note 3, Investments-Embedded Derivatives for additional information.
Changes in the fair value of the embedded derivative in assets on deposit offset changes in the fair value of the embedded derivative in policyholder account balances; both of these changes are included in net realized investment gains and are ceded as part of the ceding and reinsurance agreements. Accretion of the interest on assets on deposit offsets accretion of the interest on the host contract; both of these amounts are included in interest credited on policyholder account balances and are ceded as part of the ceding and reinsurance agreements.
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 Companys statement of cash flows.
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.
Policies not subject to significant mortality or longevity risk, such as the Companys single premium deferred annuity and flexible premium deferred variable annuity contracts, are considered investment contracts. Amounts collected on these products, with the exception of the variable annuity component of the flexible premium deferred variable annuity, are recorded as increases in policyholder account balances. The variable annuity component of the flexible premium deferred variable annuity meets criteria for separate account reporting and therefore is recorded in separate account assets and liabilities. Revenues from investment contracts principally consist of net investment income and contract charges such as expense and surrender charges. Expenses for investment contracts consist of interest credited to contracts, benefits incurred in excess of related policyholder account balances and policy maintenance costs. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues and expenses are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement.
Other Income / Operating and Other Expenses
Other income in 2016 and 2015 includes the legal settlements received on structured security investments that had previously been sold. Operating and other expenses in 2016 and 2015 include legal expenses related to the settlements received.
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, 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 life insurance policies, all DAC has been fully amortized as of December 31, 2016 and 2015 and there was no amortization expense in 2016, 2015 or 2014.
Acquisition costs on the Companys single premium deferred annuity and flexible premium deferred variable annuity contracts are reimbursed through a ceding commission by CMFG Life, which assumes all deferrable costs as part of its agreement to assume 100% of this business from the Company. See Note 7, Reinsurance for additional information on this agreement.
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 but not yet paid and unreported incurred claims. Estimates for future payments on incurred claims 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 the liability for future benefits. There was no premium deficiency in 2016, 2015 or 2014.
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. The average credited rate was 4.5% in 2016, 2015 and 2014. The future minimum guaranteed interest rate during the life of the contracts is 4.5%.
The single premium deferred annuities and risk control accounts of the flexible premium deferred variable annuities are included in policyholder account balances. These products have two risk control accounts, referred to as the Secure and Growth Accounts; the Secure Account has a yearly credited interest rate floor of 0% and the yearly Growth Account floor is -10%. The Secure and Growth Accounts both have credited interest rate caps that vary based on the issuance date of the contract. Interest is credited at the end of each contract year during the selected index term based on the allocation between risk control accounts and the performance of an external index (reference index) during that contract year. For the single premium deferred annuity, the Company offers one reference index, which is the S&P 500 Index. For the flexible premium deferred variable annuity, the Company offers two reference indices, which are the S&P 500 Index and the MSCI EAFE Index. Policyholders are able to allocate funds in both the Secure and Growth Accounts for the available indices. At the end of the initial index term, only the Secure Account is available as an option to the policyholder. The average annualized credited rate for the single premium deferred annuity was 1.63%, 1.65% and 1.10% in 2016, 2015 and 2014, respectively. The average annualized credited rate for the risk control accounts of the flexible premium deferred variable annuity was 1.12% in 2016.
Accounts Payable and Other Liabilities
The Company issues the single premium deferred annuity contracts on the 10th and 25th of each month. The Company recognizes a liability on contracts for which it has received cash, but has not issued a contract.
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 (loss) 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 along with certain ceded policyholder account balances, which include mortality risk. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies.
Assets on Deposit
Assets on deposit represent the amount of policyholder account balances related to the single premium deferred annuity and risk control accounts of the flexible premium deferred variable annuity contracts (investment-type contracts) that are ceded to CMFG Life. These investment-type contracts are accounted for on a basis consistent with the accounting for the underlying contracts. Since the related product is an investment-type contract, the Company accounts for the reinsurance of these contracts using the deposit method of accounting consistent with the terms of the ceding agreement. The related contract charges and interest credited to policyholder account balances in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded under the agreement. See Note 7 for a further discussion of the ceding agreement.
Separate Accounts
Separate accounts represent customer accounts related to the variable annuity component of the flexible premium deferred variable annuity contracts issued by the Company, where investment income and investment gains and losses accrue directly to the contract holders who bear the investment risk.
Contract holders are able to invest in investment funds managed for their benefit. All of the separate account assets are invested in unit investment trusts that are registered with the Securities and Exchange Commission as of December 31, 2016.
Separate account assets are legally segregated and may only be used to settle separate account liabilities. Separate account assets are carried at fair value, which is based on daily quoted net asset values at which the Company could transact on behalf of the contract holder. Separate account liabilities are equal to the separate account assets and represent contract holders claims to the related assets. Contract holder deposits to and withdrawals from the separate accounts are recorded directly to the separate account assets and liabilities and are not included in the Companys statements of operations and comprehensive income (loss).
Charges made by the Company to the contract holders balances include fees for maintenance, administration, cost of insurance, and surrenders of contracts prior to the contractually specified dates. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement.
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. 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 within net deferred tax assets or liabilities or federal income taxes recoverable or payable.
Accounting Standards Updates Pending Adoption
In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new revenue recognition standard, Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). The new standard will supersede nearly all existing revenue recognition guidance by establishing a five step, principles-based process; however, it will not impact the accounting for insurance contracts, leases, financial instruments, and guarantees. For those contracts that are impacted by the new guidance, ASU 2014-09 will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In July 2015, the FASB approved the deferral of ASU 2014-09 for one year, and it is effective for annual and interim reporting periods beginning in 2018 for public business entities and 2019 for others. Early adoption in 2017 will be permitted. Because the Company does not have revenue in the scope of ASU 2014-09, adoption of the new standard will have no impact.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities (ASU 2016-01), effective in 2018. The new standard will require equity investments to be measured at fair value, consistent with the current presentation, with changes in fair value recognized in net income rather than in other comprehensive income (loss). ASU 2016-01 includes other provisions which will not have a significant impact on the Company.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses of Financial Instruments (ASU 2016-13) with an effective date in 2020 for public business entities and 2021 for others. The new standard changes the impairment model for many financial instruments measured at amortized cost. Further, impairment losses on available-for-sale debt securities will be recorded as an allowance, rather than a reduction in the amortized cost of the securities. The Company is currently evaluating the impact of ASU 2016-13 on its financial statements. |
Investments |
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Investments | Note 3: Investments
Note 3Investments, Debt Securities
Debt Securities
The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2016 are as follows:
The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2015 are as follows:
No investments were non-income producing in 2016 or 2015.
The amortized cost and estimated fair values of investments in debt securities at December 31, 2016, 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.
Net Investment Income
Sources of investment income for the years ended December 31 are summarized as follows:
Net Realized Investment Gains
Net realized investment gains for the years ended December 31 are summarized as follows:
There were no sales or transfers of debt securities in 2016 or 2014 that resulted in a realized investment gain or loss. Proceeds from the sale of debt securities were $8,389 in 2015.
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 Companys cost, the Company monitors the security for OTTI. The determination of OTTI requires significant judgment on the part of the Company and depends on several factors, including, but not limited to:
· The existence of any plans to sell the investment security. · The extent to which fair value is less than book value. · The underlying reason for the decline in fair value (credit concerns, interest rates, etc.). · The financial condition and near term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions. · The Companys intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery in fair value. · The Companys ability to recover all amounts due according to the contractual terms of the agreements. · The Companys 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 anticipated 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 loss. 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 issuers business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered at least its cost basis.
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 and ability 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, 2016, 2015 and 2014 and recorded no OTTI. 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 develops. Consistent with the Companys practices, OTTI will be recorded as appropriate and as determined by the Companys regular monitoring procedures of additional facts.
Net Unrealized Investment Gains (Losses)
Note 3Investments, Net unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses) included in accumulated other comprehensive income (loss) at December 31 were as follows:
At December 31, 2016, the Company owned one debt security with a fair value of $8,115 in an unrealized loss position of $638 for less than twelve months. At December 31, 2015, the Company owned one debt security with a fair value of $8,210 in an unrealized loss position of $546 for less than twelve months. At December 31, 2014 the Company owned one debt security with a fair value of $7,526 in an unrealized loss position of $4 for less than twelve months.
Embedded Derivatives
The Company issues single premium deferred annuity and flexible premium deferred variable annuity contracts that contain embedded derivatives. Such embedded derivatives are separated from their host contracts and recorded at fair value. The fair value of the embedded derivatives, which are reported as part of assets on deposit and policyholder account balances in the balance sheets, were an asset of $246,405 and a liability of $246,405 as of December 31, 2016 and an asset of $122,043 and a liability of $122,043 as of December 31, 2015. The increase in fair value related to embedded derivatives from the date of deposit was $49,225, $3,591 and $9,581 for the years ended December 31, 2016, 2015 and 2014, respectively. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, this expense is ceded and does not impact the statement of operations and comprehensive income (loss).
Assets Designated/Securities on Deposit
Note 3Investments, Assets Designated
Iowa law requires that assets equal to a life insurers 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, 2016 and 2015, debt securities and cash with a carrying value of $8,876 and $10,618, 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 $1,713 and $1,732 were on deposit with other regulatory jurisdictions as of December 31, 2016 and 2015, respectively. |
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Fair Value | 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:
· 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.
· 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.
· Level 3: One or more significant inputs are unobservable and reflect the Companys 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 Companys 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 Companys 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. Therefore, for all transfers into Level 3, all realized gains and losses and all changes in unrealized gains and losses in the fourth quarter are not reflected in the Level 3 rollforward table.
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 the Companys assets and liabilities are appropriately valued. 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 Companys 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 Companys 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 levels during the years ended December 31, 2016 and 2015.
Fair Value Measurement Recurring Basis
The following table summarizes the Companys assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2016.
1Excludes cash of $4,317 that is not subject to fair value accounting.
The following table summarizes the Companys assets that are measured at fair value on a recurring basis as of December 31, 2015.
1Excludes cash of $1,013 that is not subject to fair value accounting.
The Company had no assets or liabilities that required a fair value adjustment on a non-recurring basis as of December 31, 2016 or 2015.
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
Cash equivalents: Consists of money market funds; valuation is based on the closing price as of the balance sheet date.
Level 2 Measurements
For the majority of assets classified as Level 2 investments, the Company values the assets using third-party pricing sources, which generally rely on quoted prices for similar assets in markets that are active and observable market data.
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.
Separate account assets: Consists of mutual funds and unit investment trusts in which the contract holder could redeem its investment at net asset value per share at the measurement date with the investee.
Level 3 Measurements
Derivatives embedded in assets on deposit and annuity contracts: The Company offers single premium deferred annuity and flexible premium deferred variable annuity contracts with certain caps and floors which represent a minimum and maximum amount that could be credited to a contract during that contract year based on the performance of an external index. These embedded derivatives are measured at fair value separately from the host deposit asset and annuity contract.
In estimating the fair value of the embedded derivative, the Company attributes a present value to the embedded derivative equal to the discounted sum of the excess cash flows of the index related fund value over the minimum fund value. The current year portion of the embedded derivative is adjusted for known market conditions. The discount factor at which the embedded derivative is valued contains an adjustment for the Companys own credit and risk margins for unobservable non-capital market inputs. The Companys own credit adjustment is determined taking into consideration publicly available information relating to the Companys debt as well as its claims paying ability.
These derivatives may be more costly than expected in volatile or declining equity markets. Changes in market conditions include, but are not limited to, changes in interest rates, equity indices, default rates and market volatility. Changes in fair value may be impacted by changes in the Companys own credit standing. Lastly, changes in actuarial assumptions regarding policyholder behavior (such as full or partial withdrawals varying from expectations) and risk margins related to non-capital market inputs may result in significant fluctuations in the fair value of the derivatives. See Embedded Derivatives within Note 3, Investments for the impact to net income.
The following table presents information about significant unobservable inputs used in Level 3 embedded derivative liabilities and related assets on deposit measured at fair value developed by internal models as of December 31, 2016 and 2015:
Changes in Fair Value Measurement
The following table sets forth the values of assets and liabilities classified as Level 3 within the fair value hierarchy at December 31, 2016.
1 Included in net income is realized gains and losses associated with embedded derivatives.
The following table sets forth the values of assets and liabilities classified as Level 3 within the fair value hierarchy at December 31, 2015.
1 Included in net income is realized gains and losses associated with embedded derivatives.
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:
Level 1 Measurements
Cash: The carrying amount for this instrument approximates its fair value due to its short term nature and is based on observable inputs.
Level 2 Measurements
Assets on deposit and Investment-type contracts: Assets on deposit and investment-type contracts include single premium deferred annuity and the risk control accounts of the flexible premium deferred variable annuity contracts, excluding the related embedded derivative. In most cases, the fair values are determined by discounting expected liability cash flows and required profit margins using the year-end swap curve plus a spread equivalent to a cost of funds for insurance companies based on observable inputs.
Separate account liabilities: Separate account liabilities represent the account value owed to the contract holder, which is equal to the segregated assets carried at fair value.
The carrying amounts and estimated fair values of the Companys financial instruments which are not measured at fair value on a recurring basis at December 31 are as follows:
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Income Tax |
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Income Tax | Note 5: Income Tax
The Company is included in the consolidated federal income tax return filed by CMHC, the Companys ultimate parent. 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 subsidiarys 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 from affiliate reported on the balance sheet are due from CMFG Life.
Income Tax Expense
Income tax expense for the years ended December 31 is as follows:
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:
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 Companys deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows:
Valuation Allowance
The Company considered the need for a valuation allowance with respect to its gross deferred tax assets as of December 31, 2016 and 2015, and based on that evaluation, the Company has determined it is more likely than not all deferred tax assets as of December 31, 2016 and 2015 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:
There were no unrecognized tax benefits as of December 31, 2016 and 2015 that, if recognized, would affect the effective tax rate in future periods. Management does not anticipate a material change to the Companys uncertain tax positions during 2017.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense in the statements of comprehensive income (loss). The Company did not recognize any additions or reductions in interest and penalties for the years ended December 31, 2016, 2015 or 2014. The Company had accrued $7 and $7 for the payment of interest and penalties at December 31, 2016 and 2015, respectively.
The Company is included in income tax returns filed 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 2008. The Internal Revenue Service statute of limitations for tax years 2008 and 2009 are expected to close in late 2017. In 2017, the Company received approval from the Joint Committee on Taxation related to its federal income tax examinations for tax years 2008 and 2009.
Other Tax Items
As of December 31, 2016 and 2015, the Company did not have any capital loss, operating loss or credit carryforwards. |
Related Party Transactions |
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Related Party Transactions | 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. Amounts due from transactions with affiliates are generally settled monthly. The Company reimbursed CMFG Life $15,349, $8,447 and $5,641 for these expenses in 2016, 2015 and 2014, respectively; which are included in operating and other expenses.
Amounts receivable/payable from/to affiliates are shown in the following table:
Amounts receivable from CMFG Life at December 31, 2016 and 2015 are primarily for a policyholders purchase of an annuity when a CMFG Life policyholder has surrendered their policy for the purchase of a single premium deferred annuity or flexible premium deferred variable annuity and for the cession of death claims related to the Companys single premium deferred annuity or flexible premium deferred variable annuity.
The Company hires MEMBERS Capital Advisors, Inc. (MCA) for investment advisory services. MCA, which is 100% owned by CMIC, manages substantially all of the Companys invested assets in accordance with policies, directives and guidelines established by the Company. The Company recorded MCA investment management fees totaling $28, $28 and $34 for the years ended December 31, 2016, 2015 and 2014, respectively, which are included as a reduction to net investment income.
The Company utilizes CUNA Brokerage Services, Inc., which is 100% owned by CMIC, to distribute its single premium deferred annuity and flexible premium deferred variable annuity and recorded commission expense for this service of $24,900, $23,072 and $10,853 in 2016, 2015 and 2014, respectively, which is included in operating and other expenses. This expense is entirely offset by commission income the Company receives from CMFG Life as part of the 2013 and 2015 reinsurance agreements.
See Note 7 regarding reinsurance and other agreements entered into by the Company and CMFG Life. |
Reinsurance |
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Reinsurance | Note 7: Reinsurance
The Company entered into a reinsurance agreement with its affiliate, CMFG Life, on a coinsurance and modified coinsurance basis. The agreement was effective November 1, 2015 to cede 100% of its investment-type contracts for its flexible premium deferred variable annuity, which are accounted for using the deposit method of accounting. MLIC began selling its flexible premium deferred variable annuity in 2016. The Company had $43,734 of assets on deposit for these contracts as of December 31, 2016. The Company had related liabilities of $43,734 as of December 31, 2016, which are included in policyholder account balances in the balance sheets. The Company had separate account assets and liabilities for these contracts of $20,221 and $20,221, respectively, as of December 31, 2016. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $6,302 and $1,027 for the years ended December 31, 2016 and 2015, respectively.
The Company entered into an agreement with its affiliate, CMFG Life, effective January 1, 2013 to cede 100% of its investment-type contracts for its single premium deferred annuity, which are accounted for using the deposit method of accounting. The Company had $1,575,379 and $947,595 of assets on deposit for these contracts as of December 31, 2016 and 2015, respectively. The Company had related liabilities of $1,575,379 and $947,595, respectively which are included in policyholder account balances in the balance sheets. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $37,961, $34,236 and $14,861 for the years ended December 31, 2016, 2015 and 2014, respectively.
On October 31, 2012, the Company ceded 95% of its insurance policies in force pursuant to a reinsurance agreement with CMFG Life and the Company was 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 under this contract. On September 30, 2015, the Company amended its reinsurance agreement with CMFG Life and now cedes 100% of its insurance policies in force to CMFG Life and is reimbursed 100% for expenses incurred in the provision of policyholder and benefit payments services, and insurance taxes and charges going forward. The Company received commissions of $894, $1,567 and $1,021 for the years ended December 31, 2016, 2015 and 2014, respectively. As a result of the amendment to this agreement the Company ceded $1,297 of earned premiums and $1,244 of benefits as of September 30, 2015.
MLIC did not have any other reinsurance agreements at December 31, 2016 or 2015 and the entire reinsurance recoverable balance of $23,687 and $24,628, respectively, was due from CMFG Life. The recoverable balances are not collateralized and the Company retains the risk of loss in the event CMFG Life is unable to meet its obligations assumed under the reinsurance agreements. MLIC believes the risk of non-collection is remote due to CMFG Lifes stable A ratings from A.M. Best Company and S&P Global Ratings and A2 rating from Moodys Investors Service.
The effects of reinsurance on contract charges, interest credited to policyholder accounts, premiums and on claims, benefits, and losses incurred for the years ended December 31 are as follows:
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Statutory Financial Data and Dividend Restrictions |
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Statutory Financial Data and Dividend Restrictions | 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 did not use any permitted practices in 2016, 2015 or 2014. Certain statutory basis financial information for MLIC is presented in the table below as of and for the years ended December 31.
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 subsidiarys state of domicile (Insurance Department). Extraordinary dividends, as defined by state statutes, must be approved by the Insurance Department. Based on Iowa statutory regulations, the Company could pay dividends up to $2,321 during 2017, without prior approval of the Insurance Department.
Risk-based capital (RBC) requirements promulgated by the National Association of Insurance Commissioners (NAIC) 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. The adequacy of the Companys actual capital is evaluated by a comparison to the RBC results, as determined by the formula. At December 31, 2016 and 2015, the Companys adjusted capital exceeded the RBC minimum requirements as required by the NAIC. |
Accumulated Other Comprehensive Income |
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Accumulated Other Comprehensive Income | Note 9: Accumulated Other Comprehensive Income (Loss)
The components of accumulated comprehensive income (loss), net of tax, are as follows:
Reclassification Adjustments
Accumulated other comprehensive income (losses) includes amounts related to unrealized investment gains (losses) which were reclassified to net income. Reclassifications from accumulated other comprehensive income (losses) for the years ended December 31 are included in the following table:
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Business Segment Information |
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Business Segment Information | Note 10: Business Segment Information
The following table sets forth financial information regarding the Companys two reportable business segments for the year ended December 31, 2016.
The following table sets forth financial information regarding the Companys two reportable business segments for the year ended December 31, 2015.
The following table sets forth financial information regarding the Companys two reportable business segments for the year ended December 31, 2014.
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Commitments and Contingencies |
12 Months Ended |
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Dec. 31, 2016 | |
Notes | |
Commitments and Contingencies | Note 11: Commitments and Contingencies
Insurance Guaranty Funds
The Company is liable for guaranty fund assessments related to certain unaffiliated insurance companies that have become insolvent during 2016 and prior years. The Company includes a provision for all known assessments that will be levied as well as an estimate of amounts that it believes will be assessed in the future relating to past insolvencies. The Company has established a liability of $667 and $270 at December 31, 2016 and 2015, respectively, for guaranty fund assessments. The Company also estimates the amount recoverable from future premium tax payments related to these assessments and has not established an asset as of December 31, 2016 and 2015 since it does not believe any amount will be recoverable. Recoveries of assessments from premium taxes are generally made over a five-year period.
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. |
Subsequent Events |
12 Months Ended |
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Dec. 31, 2016 | |
Notes | |
Subsequent Events | Note 12: Subsequent Events
The Company evaluated subsequent events through 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. |
Summary of Significant Accounting Policies: Basis of Presentation (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Basis of Presentation | Basis of Presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). |
Summary of Significant Accounting Policies: Use of Estimates (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Use of Estimates | 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, embedded derivatives, deferred tax asset valuation reserves, and claim and policy benefit reserves are most affected by the use of estimates and assumptions. |
Summary of Significant Accounting Policies: Segment Reporting (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Segment Reporting | Segment Reporting
The Company is currently managed as two reportable business segments, (1) life and health and (2) annuities. The Companys life and health segment includes individual and group life policies that the Company no longer actively markets. The annuities segment includes its single premium deferred annuity contracts and flexible premium deferred variable annuity contracts which the Company began selling in 2013 and 2016, respectively. See Note 7, Reinsurance, for information on the Companys reinsurance and ceding agreements, which impact the financial statement presentation of these segments. |
Summary of Significant Accounting Policies: Investments (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Investments | Investments
Debt securities: Investments in debt securities are classified as available for sale and are carried at fair value. 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 anticipated 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 components. 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 net realized investment gains, with the remainder of the loss amount recognized in other comprehensive loss. If the Company intends to sell or it is more likely than not that the Company will be required to sell before anticipated recovery in value, 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 issuers business and industry sector, credit ratings, and the intent and ability of the Company to hold the investment until the fair value has recovered at least its cost basis.
Unrealized gains and losses on investments in debt securities, net of deferred federal income taxes, are included in accumulated other comprehensive income (loss) as a separate component of stockholders equity.
Policy loans: The Company allocated $1,628 and $1,882 of policy loans to CMFG Life as of December 31, 2016 and 2015, respectively, as payment related to the 2012 reinsurance agreement and the 2015 amendment (See Note 7). As a result of the 2015 amendment, all policy loans are allocated to CMFG Life.
Net investment income: 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.
Net realized gains and losses: Realized gains and losses on the sale of investments are determined on a specific identification basis and are recorded on the trade date. |
Summary of Significant Accounting Policies: Derivative Financial Instruments (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Derivative Financial Instruments | Derivative Financial Instruments
The Company issues single premium deferred annuity and flexible premium deferred variable annuity contracts that contain embedded derivatives. Derivatives embedded within non-derivative host contracts are separated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument. Such embedded derivatives are recorded at fair value, and they are reported as part of assets on deposit and policyholder account balances in the balance sheets, with the change in the value being recorded in net realized investment gains. See Note 3, Investments-Embedded Derivatives for additional information.
Changes in the fair value of the embedded derivative in assets on deposit offset changes in the fair value of the embedded derivative in policyholder account balances; both of these changes are included in net realized investment gains and are ceded as part of the ceding and reinsurance agreements. Accretion of the interest on assets on deposit offsets accretion of the interest on the host contract; both of these amounts are included in interest credited on policyholder account balances and are ceded as part of the ceding and reinsurance agreements. |
Summary of Significant Accounting Policies: Cash and Cash Equivalents (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Cash and Cash Equivalents | 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 Companys statement of cash flows. |
Summary of Significant Accounting Policies: Recognition of Insurance Revenue and Related Benefits (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Recognition of Insurance Revenue and Related Benefits | 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.
Policies not subject to significant mortality or longevity risk, such as the Companys single premium deferred annuity and flexible premium deferred variable annuity contracts, are considered investment contracts. Amounts collected on these products, with the exception of the variable annuity component of the flexible premium deferred variable annuity, are recorded as increases in policyholder account balances. The variable annuity component of the flexible premium deferred variable annuity meets criteria for separate account reporting and therefore is recorded in separate account assets and liabilities. Revenues from investment contracts principally consist of net investment income and contract charges such as expense and surrender charges. Expenses for investment contracts consist of interest credited to contracts, benefits incurred in excess of related policyholder account balances and policy maintenance costs. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues and expenses are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement. |
Summary of Significant Accounting Policies: Other Income / Operating and Other Expenses (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Other Income / Operating and Other Expenses | Other Income / Operating and Other Expenses
Other income in 2016 and 2015 includes the legal settlements received on structured security investments that had previously been sold. Operating and other expenses in 2016 and 2015 include legal expenses related to the settlements received. |
Summary of Significant Accounting Policies: Deferred Policy Acquisition Costs (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Deferred Policy Acquisition Costs | 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, 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 life insurance policies, all DAC has been fully amortized as of December 31, 2016 and 2015 and there was no amortization expense in 2016, 2015 or 2014.
Acquisition costs on the Companys single premium deferred annuity and flexible premium deferred variable annuity contracts are reimbursed through a ceding commission by CMFG Life, which assumes all deferrable costs as part of its agreement to assume 100% of this business from the Company. See Note 7, Reinsurance for additional information on this agreement. |
Summary of Significant Accounting Policies: Insurance Reserves (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Insurance Reserves | 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 but not yet paid and unreported incurred claims. Estimates for future payments on incurred claims 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 the liability for future benefits. There was no premium deficiency in 2016, 2015 or 2014. |
Summary of Significant Accounting Policies: Policyholder Account Balances (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Policyholder Account Balances | 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. The average credited rate was 4.5% in 2016, 2015 and 2014. The future minimum guaranteed interest rate during the life of the contracts is 4.5%.
The single premium deferred annuities and risk control accounts of the flexible premium deferred variable annuities are included in policyholder account balances. These products have two risk control accounts, referred to as the Secure and Growth Accounts; the Secure Account has a yearly credited interest rate floor of 0% and the yearly Growth Account floor is -10%. The Secure and Growth Accounts both have credited interest rate caps that vary based on the issuance date of the contract. Interest is credited at the end of each contract year during the selected index term based on the allocation between risk control accounts and the performance of an external index (reference index) during that contract year. For the single premium deferred annuity, the Company offers one reference index, which is the S&P 500 Index. For the flexible premium deferred variable annuity, the Company offers two reference indices, which are the S&P 500 Index and the MSCI EAFE Index. Policyholders are able to allocate funds in both the Secure and Growth Accounts for the available indices. At the end of the initial index term, only the Secure Account is available as an option to the policyholder. The average annualized credited rate for the single premium deferred annuity was 1.63%, 1.65% and 1.10% in 2016, 2015 and 2014, respectively. The average annualized credited rate for the risk control accounts of the flexible premium deferred variable annuity was 1.12% in 2016. |
Summary of Significant Accounting Policies: Accounts Payable and Other Liabilities (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Accounts Payable and Other Liabilities | Accounts Payable and Other Liabilities
The Company issues the single premium deferred annuity contracts on the 10th and 25th of each month. The Company recognizes a liability on contracts for which it has received cash, but has not issued a contract. |
Summary of Significant Accounting Policies: Reinsurance (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Reinsurance | 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 (loss) 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 along with certain ceded policyholder account balances, which include mortality risk. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies. |
Summary of Significant Accounting Policies: Assets On Deposit (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Assets On Deposit | Assets on Deposit
Assets on deposit represent the amount of policyholder account balances related to the single premium deferred annuity and risk control accounts of the flexible premium deferred variable annuity contracts (investment-type contracts) that are ceded to CMFG Life. These investment-type contracts are accounted for on a basis consistent with the accounting for the underlying contracts. Since the related product is an investment-type contract, the Company accounts for the reinsurance of these contracts using the deposit method of accounting consistent with the terms of the ceding agreement. The related contract charges and interest credited to policyholder account balances in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded under the agreement. See Note 7 for a further discussion of the ceding agreement. |
Summary of Significant Accounting Policies: Income Taxes (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Income Taxes |
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. 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 within net deferred tax assets or liabilities or federal income taxes recoverable or payable. |
Summary of Significant Accounting Policies: Accounting Standards Updates Pending Adoption (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Policies | |
Accounting Standards Updates Pending Adoption | Accounting Standards Updates Pending Adoption
In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new revenue recognition standard, Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). The new standard will supersede nearly all existing revenue recognition guidance by establishing a five step, principles-based process; however, it will not impact the accounting for insurance contracts, leases, financial instruments, and guarantees. For those contracts that are impacted by the new guidance, ASU 2014-09 will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In July 2015, the FASB approved the deferral of ASU 2014-09 for one year, and it is effective for annual and interim reporting periods beginning in 2018 for public business entities and 2019 for others. Early adoption in 2017 will be permitted. Because the Company does not have revenue in the scope of ASU 2014-09, adoption of the new standard will have no impact.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities (ASU 2016-01), effective in 2018. The new standard will require equity investments to be measured at fair value, consistent with the current presentation, with changes in fair value recognized in net income rather than in other comprehensive income (loss). ASU 2016-01 includes other provisions which will not have a significant impact on the Company.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses of Financial Instruments (ASU 2016-13) with an effective date in 2020 for public business entities and 2021 for others. The new standard changes the impairment model for many financial instruments measured at amortized cost. Further, impairment losses on available-for-sale debt securities will be recorded as an allowance, rather than a reduction in the amortized cost of the securities. The Company is currently evaluating the impact of ASU 2016-13 on its financial statements. |
Nature of Business: Schedule of states with premiums greater than 5% of total direct premium and with deposits on annuity contracts greater than 5% of total deposits (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of states with premiums greater than 5% of total direct premium and with deposits on annuity contracts greater than 5% of total deposits |
*Less than 5%. |
Investments: Investments in Debt Securities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments in Debt Securities |
The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2015 are as follows:
|
Investments: Investments Classified by Contractual Maturity Date (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||
Investments Classified by Contractual Maturity Date |
|
Investments: Investment Income (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||
Investment Income |
|
Investments: Realized Gain (Loss) on Investments (Tables) |
12 Months Ended | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||
Realized Gain (Loss) on Investments |
|
Investments: Unrealized Gain (Loss) on Investments (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||
Unrealized Gain (Loss) on Investments |
|
Fair Value: Fair Value Assets measured on a Recurring Basis (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Assets measured on a Recurring Basis |
1Excludes cash of $4,317 that is not subject to fair value accounting.
The following table summarizes the Companys assets that are measured at fair value on a recurring basis as of December 31, 2015.
1Excludes cash of $1,013 that is not subject to fair value accounting. |
Fair Value: Schedule of changes in assets and liabilities classified as Level 3 (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in assets and liabilities classified as Level 3 |
1 Included in net income is realized gains and losses associated with embedded derivatives.
The following table sets forth the values of assets and liabilities classified as Level 3 within the fair value hierarchy at December 31, 2015.
1 Included in net income is realized gains and losses associated with embedded derivatives. |
Fair Value: Carrying amounts and estimated fair values of the Company's financial instruments which are not measured at fair value on a recurring basis (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying amounts and estimated fair values of the Company's financial instruments which are not measured at fair value on a recurring basis |
|
Income Tax: Schedule of Components of Income Tax Expense (Benefit) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||
Schedule of Components of Income Tax Expense (Benefit) |
|
Income Tax: Schedule of Effective Income Tax Rate Reconciliation (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Effective Income Tax Rate Reconciliation |
|
Income Tax: Schedule of Deferred Tax Assets and Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Deferred Tax Assets and Liabilities |
|
Income Tax: Schedule of Unrecognized Tax Benefits Roll Forward (Tables) |
12 Months Ended | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | ||||||||||||||||||||||
Tables/Schedules | ||||||||||||||||||||||
Schedule of Unrecognized Tax Benefits Roll Forward |
|
Related Party Transactions: Schedule of Related Party Transactions (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | ||||||||||||||||||||||||||||||||||||||||
Schedule of Related Party Transactions |
|
Reinsurance: Effects of Reinsurance (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Effects of Reinsurance |
|
Statutory Financial Data and Dividend Restrictions: Schedule of certain statutory basis financial information (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||
Schedule of certain statutory basis financial information |
|
Accumulated Other Comprehensive Income: Schedule of Accumulated Other Comprehensive Income (Loss) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) |
|
Accumulated Other Comprehensive Income: Reclassification out of Accumulated Other Comprehensive Income (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification out of Accumulated Other Comprehensive Income |
|
Business Segment Information: Schedule of Segment Reporting Information, by Segment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment |
The following table sets forth financial information regarding the Companys two reportable business segments for the year ended December 31, 2015.
The following table sets forth financial information regarding the Companys two reportable business segments for the year ended December 31, 2014.
|
Nature of Business: Schedule of states with premiums greater than 5% of total direct premium and with deposits on annuity contracts greater than 5% of total deposits (Details) |
12 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|||||||
MICHIGAN | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | 63.00% | 63.00% | 63.00% | ||||||
Deposits on Annuity Contracts greater than 5% of total deposits | 6.00% | 8.00% | 12.00% | ||||||
TEXAS | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | 23.00% | 23.00% | 22.00% | ||||||
Deposits on Annuity Contracts greater than 5% of total deposits | 8.00% | 7.00% | 8.00% | ||||||
CALIFORNIA | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | 6.00% | 5.00% | 5.00% | ||||||
Deposits on Annuity Contracts greater than 5% of total deposits | 7.00% | 8.00% | 0.00% | [1] | |||||
INDIANA | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | [1] | 0.00% | 0.00% | 0.00% | |||||
Deposits on Annuity Contracts greater than 5% of total deposits | 7.00% | 6.00% | 6.00% | ||||||
IOWA | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | [1] | 0.00% | 0.00% | 0.00% | |||||
Deposits on Annuity Contracts greater than 5% of total deposits | 6.00% | 5.00% | 8.00% | ||||||
WISCONSIN | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | [1] | 0.00% | 0.00% | 0.00% | |||||
Deposits on Annuity Contracts greater than 5% of total deposits | 6.00% | 5.00% | 7.00% | ||||||
PENNSYLVANIA | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | [1] | 0.00% | 0.00% | 0.00% | |||||
Deposits on Annuity Contracts greater than 5% of total deposits | 6.00% | 5.00% | 6.00% | ||||||
WASHINGTON | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | [1] | 0.00% | 0.00% | 0.00% | |||||
Deposits on Annuity Contracts greater than 5% of total deposits | 5.00% | 5.00% | 0.00% | ||||||
FLORIDA | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | [1] | 0.00% | 0.00% | 0.00% | |||||
Deposits on Annuity Contracts greater than 5% of total deposits | 0.00% | [1] | 5.00% | 5.00% | |||||
RHODE ISLAND | |||||||||
Direct Life and Health Premiums greater than 5% of total direct premiums | [1] | 0.00% | 0.00% | 0.00% | |||||
Deposits on Annuity Contracts greater than 5% of total deposits | 0.00% | [1] | 0.00% | [1] | 8.00% | ||||
|
Summary of Significant Accounting Policies: Policyholder Account Balances (Details) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Details | |||
Average credited interest rate | 4.50% | 4.50% | 4.50% |
Future minimum guaranteed interest rate | 4.50% |
Summary of Significant Accounting Policies (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Details | ||
Separate Accounts | Separate Accounts
Separate accounts represent customer accounts related to the variable annuity component of the flexible premium deferred variable annuity contracts issued by the Company, where investment income and investment gains and losses accrue directly to the contract holders who bear the investment risk.
Contract holders are able to invest in investment funds managed for their benefit. All of the separate account assets are invested in unit investment trusts that are registered with the Securities and Exchange Commission as of December 31, 2016.
Separate account assets are legally segregated and may only be used to settle separate account liabilities. Separate account assets are carried at fair value, which is based on daily quoted net asset values at which the Company could transact on behalf of the contract holder. Separate account liabilities are equal to the separate account assets and represent contract holders claims to the related assets. Contract holder deposits to and withdrawals from the separate accounts are recorded directly to the separate account assets and liabilities and are not included in the Companys statements of operations and comprehensive income (loss).
Charges made by the Company to the contract holders balances include fees for maintenance, administration, cost of insurance, and surrenders of contracts prior to the contractually specified dates. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement. |
no |
Investments: Investments in Debt Securities (Details) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Available-for-sale Debt Securities, Amortized Cost Basis | $ 11,037 | $ 12,698 |
Debt securities, available for sale, at fair value | 10,539 | 12,351 |
US Government Agencies Debt Securities | ||
Available-for-sale Debt Securities, Amortized Cost Basis | 9,063 | 10,333 |
Available-for-sale Debt Securities Gross Unrealized Gain | 5 | 26 |
Available-for-sale Debt Securities, Gross Unrealized Loss | (638) | (546) |
Debt securities, available for sale, at fair value | 8,430 | 9,813 |
Residential Mortgage Backed Securities | ||
Available-for-sale Debt Securities, Amortized Cost Basis | 1,974 | 2,365 |
Available-for-sale Debt Securities Gross Unrealized Gain | 135 | 173 |
Debt securities, available for sale, at fair value | 2,109 | 2,538 |
Debt Securities | ||
Available-for-sale Debt Securities, Amortized Cost Basis | 11,037 | 12,698 |
Available-for-sale Debt Securities Gross Unrealized Gain | 140 | 199 |
Available-for-sale Debt Securities, Gross Unrealized Loss | (638) | (546) |
Debt securities, available for sale, at fair value | $ 10,539 | $ 12,351 |
Investments: Investments Classified by Contractual Maturity Date (Details) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Available-for-sale Debt Securities, Amortized Cost Basis | $ 11,037 | $ 12,698 |
Debt securities, available for sale, at fair value | 10,539 | 12,351 |
Residential Mortgage Backed Securities | ||
Available-for-sale Debt Securities, Amortized Cost Basis | 1,974 | 2,365 |
Debt securities, available for sale, at fair value | 2,109 | 2,538 |
Debt Securities | ||
Available-for-sale Debt Securities, Amortized Cost Basis | 11,037 | 12,698 |
Debt securities, available for sale, at fair value | 10,539 | $ 12,351 |
Due after one year through five years | ||
Available-for-sale Debt Securities, Amortized Cost Basis | 310 | |
Debt securities, available for sale, at fair value | 315 | |
Due after ten years | ||
Available-for-sale Debt Securities, Amortized Cost Basis | 8,753 | |
Debt securities, available for sale, at fair value | $ 8,115 |
Investments: Investment Income (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Gross Investment Income, Operating | $ 416 | $ 394 | $ 312 |
Investment Income, Investment Expense | (40) | (28) | (34) |
Net Investment Income | 376 | 366 | 278 |
Debt Securities | |||
Gross Investment Income, Operating | $ 363 | 389 | 304 |
Policy loans | |||
Gross Investment Income, Operating | $ 5 | $ 8 |
Investments: Realized Gain (Loss) on Investments (Details) $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Details | |
Debt Securities, Gross gains on sales | $ 117 |
Debt Securities, Net realized investment gains | $ 117 |
Investments (Details) - USD ($) |
12 Months Ended | |||||
---|---|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Details | ||||||
Proceeds from sale of debt securities | $ 0 | $ 8,389 | $ 0 | |||
Fair value of debt security in unrealized loss position | $ 8,115 | $ 8,210 | $ 7,526 | 8,115 | 8,210 | 7,526 |
Gross unrealized losses | 638 | 546 | $ 4 | |||
Embedded Derivatives, Assets | 246,405 | 122,043 | 246,405 | 122,043 | ||
Embedded Derivatives, Liabilities | 246,405 | 122,043 | 246,405 | 122,043 | ||
Embedded Derivatives, Increase (Decrease) in fair value | 49,225 | 3,591 | $ 9,581 | |||
Securities on deposit with regulatory jurisdictions | $ 1,713 | $ 1,732 | $ 1,713 | $ 1,732 |
Investments: Unrealized Gain (Loss) on Investments (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|---|
Net unrealized investment gains included in AOCI | $ (323) | $ (225) | $ 222 |
Debt Securities | |||
Net unrealized investment gains included in AOCI | (498) | (347) | 340 |
DeferredIncomeTaxesMember | |||
Net unrealized investment gains included in AOCI | $ 175 | $ 122 | $ (118) |
Fair Value (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Details | ||
Separate Accounts | Separate Accounts
Separate accounts represent customer accounts related to the variable annuity component of the flexible premium deferred variable annuity contracts issued by the Company, where investment income and investment gains and losses accrue directly to the contract holders who bear the investment risk.
Contract holders are able to invest in investment funds managed for their benefit. All of the separate account assets are invested in unit investment trusts that are registered with the Securities and Exchange Commission as of December 31, 2016.
Separate account assets are legally segregated and may only be used to settle separate account liabilities. Separate account assets are carried at fair value, which is based on daily quoted net asset values at which the Company could transact on behalf of the contract holder. Separate account liabilities are equal to the separate account assets and represent contract holders claims to the related assets. Contract holder deposits to and withdrawals from the separate accounts are recorded directly to the separate account assets and liabilities and are not included in the Companys statements of operations and comprehensive income (loss).
Charges made by the Company to the contract holders balances include fees for maintenance, administration, cost of insurance, and surrenders of contracts prior to the contractually specified dates. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement. |
no |
Fair Value, Equity, Level 1 to Level 2 Transfers, Amount | $ 0 | $ 0 |
Fair Value, Equity, Level 2 to Level 1 Transfers, Amount | 0 | 0 |
Fair Value, Liabilities, Level 1 to Level 2 Transfers, Amount | 0 | 0 |
Fair Value, Liabilities, Level 2 to Level 1 Transfers, Amount | 0 | $ 0 |
Fair Value, Assets, Level 1 to Level 2 Transfers, Amount | 0 | |
Fair Value, Assets, Level 2 to Level 1 Transfers, Amount | $ 0 |
Fair Value: Fair Value Assets measured on a Recurring Basis (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
||||||
---|---|---|---|---|---|---|---|---|
Assets, Fair Value Disclosure | $ 291,580 | $ 150,474 | ||||||
Financial and Nonfinancial Liabilities, Fair Value Disclosure | 246,405 | 122,043 | ||||||
Cash and Cash Equivalents | ||||||||
Assets, Fair Value Disclosure | 14,415 | [1] | 16,080 | [2] | ||||
US Government Agencies Debt Securities | ||||||||
Assets, Fair Value Disclosure | 8,430 | 9,813 | ||||||
Residential Mortgage Backed Securities | ||||||||
Assets, Fair Value Disclosure | 2,109 | 2,538 | ||||||
Debt Securities | ||||||||
Assets, Fair Value Disclosure | 10,539 | 12,351 | ||||||
Derivative | ||||||||
Assets, Fair Value Disclosure | 246,405 | 122,043 | ||||||
Financial and Nonfinancial Liabilities, Fair Value Disclosure | 246,405 | 122,043 | ||||||
Separate Account Assets | ||||||||
Assets, Fair Value Disclosure | 20,221 | |||||||
Fair Value, Inputs, Level 1 | ||||||||
Assets, Fair Value Disclosure | 14,415 | 16,080 | ||||||
Fair Value, Inputs, Level 1 | Cash and Cash Equivalents | ||||||||
Assets, Fair Value Disclosure | 14,415 | [1] | 16,080 | [2] | ||||
Fair Value, Inputs, Level 2 | ||||||||
Assets, Fair Value Disclosure | 30,760 | 12,351 | ||||||
Fair Value, Inputs, Level 2 | US Government Agencies Debt Securities | ||||||||
Assets, Fair Value Disclosure | 8,430 | 9,813 | ||||||
Fair Value, Inputs, Level 2 | Residential Mortgage Backed Securities | ||||||||
Assets, Fair Value Disclosure | 2,109 | 2,538 | ||||||
Fair Value, Inputs, Level 2 | Debt Securities | ||||||||
Assets, Fair Value Disclosure | 10,539 | 12,351 | ||||||
Fair Value, Inputs, Level 2 | Separate Account Assets | ||||||||
Assets, Fair Value Disclosure | 20,221 | |||||||
Fair Value, Inputs, Level 3 | ||||||||
Assets, Fair Value Disclosure | 246,405 | 122,043 | ||||||
Financial and Nonfinancial Liabilities, Fair Value Disclosure | 246,405 | 122,043 | ||||||
Fair Value, Inputs, Level 3 | Derivative | ||||||||
Assets, Fair Value Disclosure | 246,405 | 122,043 | ||||||
Financial and Nonfinancial Liabilities, Fair Value Disclosure | $ 246,405 | $ 122,043 | ||||||
|
Fair Value: Schedule of changes in assets and liabilities classified as Level 3 (Details) - USD ($) |
12 Months Ended | ||||
---|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
||||
Assets classified as level 3 | $ 122,043 | $ 45,503 | |||
Assets classified as level 3, Purchases | 78,090 | 73,631 | |||
Assets classified as level 3, Maturities | (2,953) | (682) | |||
Assets classified as level 3, Earnings | [1] | 49,225 | 3,591 | ||
Assets classified as level 3 | 246,405 | 122,043 | |||
Liabilities classified as level 3 | 122,043 | 45,503 | |||
Liabilities classified as level 3, Purchases | 78,090 | 73,631 | |||
Liabilities classified as level 3, Earnings | [1] | 49,225 | 3,591 | ||
Liabilities classified as level 3 | 246,405 | 122,043 | |||
Derivative | |||||
Assets classified as level 3 | 122,043 | 45,503 | |||
Assets classified as level 3, Purchases | 78,090 | 73,631 | |||
Assets classified as level 3, Maturities | (2,953) | (682) | |||
Assets classified as level 3, Earnings | [1] | 49,225 | 3,591 | ||
Assets classified as level 3 | 122,043 | ||||
Liabilities classified as level 3 | 122,043 | 45,503 | |||
Liabilities classified as level 3, Purchases | 78,090 | 73,631 | |||
Liabilities classified as level 3, Earnings | [1] | 49,225 | 3,591 | ||
Liabilities classified as level 3 | $ 246,405 | $ 122,043 | |||
|
Fair Value: Carrying amounts and estimated fair values of the Company's financial instruments which are not measured at fair value on a recurring basis (Details) |
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
---|---|---|
Separate Account Assets | ||
Financial instruments recorded as liabilities, Carrying Amount | $ 20,221 | |
Financial instruments recorded as liabilities, Estimated Fair Value | $ 20,221 | |
Financial instruments recorded as liabilities, Level | 2 | |
Investment Contracts | ||
Financial instruments recorded as liabilities, Carrying Amount | $ 1,372,708 | $ 825,552 |
Financial instruments recorded as liabilities, Estimated Fair Value | $ 1,227,484 | $ 699,721 |
Financial instruments recorded as liabilities, Level | 2 | 2 |
Cash | ||
Financial instruments recorded as assets, Carrying Amount | $ 4,317 | $ 1,013 |
Financial instruments recorded as assets, Estimated Fair Value | $ 4,317 | $ 1,013 |
Financial instruments recorded as assets, Level | 1 | 1 |
Assets on deposit | ||
Financial instruments recorded as assets, Carrying Amount | $ 1,372,708 | $ 825,552 |
Financial instruments recorded as assets, Estimated Fair Value | $ 1,227,484 | $ 699,721 |
Financial instruments recorded as assets, Level | 2 | 2 |
Income Tax: Schedule of Components of Income Tax Expense (Benefit) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Details | |||
Current Income Tax Expense (Benefit) | $ 647 | $ 1,451 | $ (186) |
Deferred Income Tax Expense (Benefit) | 240 | (2) | 197 |
Income tax expense (benefit) | $ 887 | $ 1,449 | $ 11 |
Income Tax: Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Deferred Tax Assets, Gross | ||
Deferred Tax Assets, Policy Liabilities and Reserves | $ 29 | $ 36 |
Deferred Tax Assets, Unrealized Losses on Available-for-Sale Securities, Gross | 175 | 122 |
Deferred Tax Assets, Investments | 168 | |
Deferred Tax Assets, Tax Deferred Expense | 291 | 94 |
Deferred Tax Assets, Tax Deferred Expense, Reserves and Accruals, Policyholder Liabilities | 391 | 309 |
Deferred Tax Assets, Other | 4 | 1 |
Deferred Tax Assets, Gross | 890 | 730 |
Deferred Tax Liabilities, Gross | ||
Deferred Tax Liabilities, Investments | 355 | |
Deferred Tax Liabilities, Deferred Insurance Expense | 39 | 47 |
Deferred Tax Liabilities, Other | 1 | 1 |
Deferred Tax Liabilities, Gross | 395 | 48 |
Net deferred tax asset | $ 495 | $ 682 |
Income Tax: Schedule of Unrecognized Tax Benefits Roll Forward (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Details | ||
Unrecognized Tax Benefits, Beginning Balance | $ 1 | $ 1 |
Unrecognized Tax Benefits, Decrease Resulting from Prior Period Tax Positions | (1) | 0 |
Unrecognized Tax Benefits, Ending Balance | $ 0 | $ 1 |
Income Tax (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Details | ||
Accruals for payment of interest and penalties | $ 7 | $ 7 |
Deferred Tax Assets, Capital Loss Carryforwards | 0 | 0 |
Operating Loss Carryforwards | 0 | 0 |
Tax Credit Carryforward, Amount | $ 0 | $ 0 |
Related Party Transactions (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Details | |||
Shared Expenses remibursed | $ 15,349 | $ 8,447 | $ 5,641 |
Related Party Transactions: Schedule of Related Party Transactions (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Due from Related Parties, Current | $ 11,460 | $ 4,518 |
Due to Related Parties, Current | 6,196 | 2,480 |
CMFG Life Insurance Company | ||
Due from Related Parties, Current | 11,460 | 4,518 |
CUNA Brokerage Services, Inc | ||
Due to Related Parties, Current | 6,177 | 2,478 |
Other Related Parties | ||
Due to Related Parties, Current | $ 19 | $ 2 |
Reinsurance (Details) - USD ($) $ in Thousands |
12 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Details | ||||
Ceded Premiums Earned | $ 1,297 | $ (2,190) | $ (3,559) | $ (2,486) |
Policyholder Benefits and Claims Incurred, Ceded | $ 1,244 | $ (1,762) | $ (2,988) | $ (1,771) |
Reinsurance: Effects of Reinsurance (Details) - USD ($) $ in Thousands |
12 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Details | ||||
Face amount of policies in force | $ 95,577 | $ 110,827 | $ 123,223 | |
Premiums Written and Earned | ||||
Direct Premiums Written | 2,168 | 2,384 | 2,613 | |
Direct Premiums Unearned | 1 | |||
Direct Premiums Earned | 2,169 | 2,384 | 2,613 | |
Ceded Premiums Written | (2,172) | (3,559) | (2,482) | |
Ceded Premiums Unearned | (18) | (4) | ||
Ceded Premiums Earned | $ 1,297 | (2,190) | (3,559) | (2,486) |
Premiums written, net | (4) | (1,175) | 131 | |
Change in unearned premiums, net | (17) | (4) | ||
Premiums, Net | (21) | (1,175) | 127 | |
Contract revenue direct | 1,303 | 742 | 472 | |
Contract revenue ceded to affiliate | (1,303) | (724) | (448) | |
Contract charges | 18 | 24 | ||
Policyholder Benefits and Claims Incurred, Net | ||||
Policyholder Benefits and Claims Incurred, Direct | 1,761 | 1,784 | 1,883 | |
Policyholder Benefits and Claims Incurred, Ceded | $ 1,244 | (1,762) | (2,988) | (1,771) |
Policyholder Benefits and Claims Incurred, Net | (1) | (1,204) | 112 | |
Interest credited to policyholder account balances ceded to affiliate | 20,519 | 9,833 | 2,457 | |
Interest credited to policyholder account balances, ceded to affiliate | $ (20,519) | (9,829) | (2,449) | |
Interest credited to policyholder account balances | $ 4 | $ 8 |
Accumulated Other Comprehensive Income: Schedule of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands |
12 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
||||||||||
Details | ||||||||||||
Unrealized Investment Gain (Loss), Balance | $ (225) | $ 222 | $ 269 | |||||||||
Accumulated Other Comprehensive Income, net of tax | (225) | 222 | 269 | |||||||||
Unrealized Gain (Loss) on Investments | (98) | [1] | (447) | [2] | (47) | [3] | ||||||
Change in unrealized holding gains | (98) | [1] | (447) | [2] | (47) | [3] | ||||||
Unrealized Investment Gain (Loss), Balance | (323) | (225) | 222 | |||||||||
Accumulated Other Comprehensive Income, net of tax | $ (323) | $ (225) | $ 222 | |||||||||
|
Accumulated Other Comprehensive Income: Reclassification out of Accumulated Other Comprehensive Income (Details) $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Details | |
Accumulated Other Comprehensive Income Reclassification for unrealized net gains on available-for-sale securities | $ 15 |
Reclassification from Accumulated Other Comprehensive Income, Current Period, before Tax | 15 |
Reclassifications from accumulated other comprehensive income, tax expense (benefit) | 5 |
Reclassification adjustment for (gains) included in net income, net of tax expense (benefit) | $ 10 |
Business Segment Information: Schedule of Segment Reporting Information, by Segment (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Revenues | |||
Life and health premiums, net | $ (21) | $ (1,175) | $ 127 |
Contract charges | 18 | 24 | |
Net investment income | 376 | 366 | 278 |
Debt Securities, Net realized investment gains | 117 | ||
Other Income | 3,415 | 5,336 | |
Total revenues | 3,770 | 4,662 | 429 |
Benefits and expenses | |||
Life and health insurance claims and benefits, net | (1) | (1,204) | 112 |
Interest credited to policyholder account balances | 4 | 8 | |
Operating and other expenses | 1,049 | 1,633 | 137 |
Total benefits and expenses | 1,048 | 433 | 257 |
Income (loss) before income taxes | 2,722 | 4,229 | 172 |
Income tax expense (benefit) | 887 | 1,449 | 11 |
Net Income (Loss) | 1,835 | 2,780 | 161 |
Change in unrealized gains (losses), net of tax (benefit) | (98) | (447) | (47) |
Other Comprehensive Income (Loss) | (98) | (447) | (47) |
Total Comprehensive Income (Loss) | 1,737 | 2,333 | 114 |
Reinsurance recoverable from affiliate | 23,687 | 24,628 | |
Assets on deposit | 1,619,113 | 947,595 | |
Claim and policy benefit reserves - life and health | 21,506 | 21,537 | |
Policyholder account balances | 1,622,448 | 951,068 | |
Life and Health | |||
Revenues | |||
Life and health premiums, net | (21) | (1,175) | 127 |
Contract charges | 18 | 24 | |
Net investment income | 376 | 366 | 278 |
Debt Securities, Net realized investment gains | 117 | ||
Other Income | 3,415 | 5,336 | |
Total revenues | 3,770 | 4,662 | 429 |
Benefits and expenses | |||
Life and health insurance claims and benefits, net | (1) | (1,204) | 112 |
Interest credited to policyholder account balances | 4 | 8 | |
Operating and other expenses | 1,033 | 1,633 | 137 |
Total benefits and expenses | 1,032 | 433 | 257 |
Income (loss) before income taxes | 2,738 | 4,229 | 172 |
Income tax expense (benefit) | 892 | 1,449 | 11 |
Net Income (Loss) | 1,846 | 2,780 | 161 |
Change in unrealized gains (losses), net of tax (benefit) | (98) | (447) | (47) |
Other Comprehensive Income (Loss) | (98) | (447) | (47) |
Total Comprehensive Income (Loss) | 1,748 | 2,333 | $ 114 |
Reinsurance recoverable from affiliate | 23,687 | 24,628 | |
Claim and policy benefit reserves - life and health | 20,344 | 21,077 | |
Policyholder account balances | 3,335 | 3,473 | |
Annuities | |||
Benefits and expenses | |||
Operating and other expenses | 16 | ||
Total benefits and expenses | 16 | ||
Income (loss) before income taxes | (16) | ||
Income tax expense (benefit) | (5) | ||
Net Income (Loss) | (11) | ||
Total Comprehensive Income (Loss) | (11) | ||
Assets on deposit | 1,619,113 | 947,595 | |
Claim and policy benefit reserves - life and health | 1,162 | 460 | |
Policyholder account balances | $ 1,619,113 | $ 947,595 |
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