Index Rate Floor The minimum
annual Index Rate of Return the Company will use in calculating interest credited
to Risk Control Account Value for the life of the Contract. The Index Rate Floor
does not reflect deduction of the Contract Fee or the GLWB Rider Fee.
Index Rate of Return The change
in the Index for the current Contract Year, adjusted for the Index Rate Cap or Index
Rate Floor.
Initial Index Value The value
for the reference Index as of the start of a Contract Year.
Interest Rate The fixed rate
of interest credited to the Declared Rate Account. The Interest Rate is available
two weeks in advance of the Allocation Option Start Date and will not change for
the duration of the Allocation Option Period (six years). We may change this rate
on any Allocation Option Start Date.
Internal Revenue Code (IRC) The Internal Revenue Code of 1986, as amended.
Irrevocable Beneficiary A
Beneficiary who must consent to being changed or removed as a Beneficiary.
Market Value Adjustment The
amount of an adjustment (increase or decrease) that may be applied to a full surrender
or partial withdrawal, also referred to as the MVA.
Minimum Interest Rate The
minimum rate of interest we will credit Contract Value held in the Declared Rate
Account.
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 (Joint Owner) The person(s)
(or entity) who owns the Contract and, in the case of a person(s), whose death determines
the Death Benefit. The Owner is also the person(s) (or entity) who receives income
payments during the Payout Period while the Annuitant is living. If there are multiple
Owners, each Owner will be a Joint Owner of the Contract and all references to Owner
will mean Joint Owners. The Owner has all rights, title and interest in the Contract.
The Owner may exercise all rights and options stated in the Contract, subject to
the rights of any Irrevocable Beneficiary or assignee. The Owner is also referred
to as you or your.
Payout Date The date the first
income payment is paid from the Contract to the Owner.
Payout Period The phase the
Contract is in once income payments begin.
Pro Rata A method of allocating,
withdrawing or transferring values across all Allocation Options that is proportional
to the Contract Value in each Allocation Option.
Proof of Death Proof of Death
may consist of a certified copy of the death record, a certified copy of a court
decree reciting a finding of death or other similar proof.
Purchase Payment The initial
payment that we require to issue the Contract. We do not allow any additional Purchase
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 that is qualified for special treatment under the Internal Revenue
Code.
Required Minimum Distributions. The
Required Minimum Distribution (RMD) defined by the IRC for this Contract and as
determined by us.
Risk Control Account An interest
crediting option to which you may allocate your Contract Value. We credit interest
under each Risk Control Account based in part on the performance of a reference
Index, subject to an Index Rate Cap and Index Rate Floor. There are two types of
Risk Control Accounts, the Secure Account and the Growth Account. There are multiple
Risk Control Accounts within the Risk Control Separate Account.
Risk Control Account Daily Contract Fee
The Contract Fee divided by the number of days in the Contract Year and
then multiplied by the Accumulation Credit Factor for the Risk Control Account at
the start of a Contract Year.
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Risk Control Account Value
The amount of Contract Value in a Risk Control Account.
Risk Control Separate Account
The MEMBERS Life Risk Control Separate Account (the Risk Control Separate
Account). An insulated 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 Risk Control Accounts. Our other General Account assets are also available
to meet those and other guarantees under the Contract and our other general obligations.
The Risk Control Separate Account is not registered under the Investment Company
Act of 1940.
SEC The U.S. Securities and
Exchange Commission.
Spouse The person to whom
you are legally married. The term Spouse includes the person with whom you have
entered into a legally-sanctioned marriage that grants you the rights, responsibilities,
and obligations married couples have in accordance with applicable state laws. Individuals
who do not meet the definition of Spouse may have adverse tax consequences when
exercising provisions under this Contract and any attached endorsements or riders.
Additionally, individuals in other arrangements that are not recognized as marriage
under the relevant state law will not be treated as married or as Spouses as defined
in this Contract for federal tax purposes. Consult with a tax advisor for more information
on this subject and before exercising benefits under the Contract and any attached
endorsements or riders.
Surrender Charge The charge
associated with surrendering either some or all of the Contract Value.
Surrender Charge Period The
period of time during which we may assess a Surrender Charge upon the surrender
of the Contract or withdrawal of Contract Value from the Contract. The Surrender
Charge Period begins on the Contract Issue Date and continues for a period of six
years.
Surrender Value The amount
you are entitled to receive if you elect to surrender the Contract during the Accumulation
Period.
Terminally Ill, Terminal Illness
A life expectancy of 12 months or less due to any illness or accident.
U.S. GAAP The generally accepted
accounting principles used in the United States.
Valuation Period The period
beginning at the close of one Business Day and continuing to the close of the next
succeeding Business Day.
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The following is a summary of the key features
of the Contract. This summary does not include all the information you should consider
before purchasing a Contract. You should carefully read the entire Prospectus, which
contains more detailed information concerning the Contract and the Company before
making an investment decision.
How Your Contract Works
Overview. Your
Contract is an individual or joint owned, single premium deferred modified guaranteed
index annuity contract. There are two periods to your Contract: An Accumulation
Period and a Payout Period. Your Contract can help you save for retirement by allowing
your Contract Value to earn interest from the Risk Control Accounts and/or Declared
Rate Account on a tax-deferred basis and by providing the opportunity for guaranteed
lifetime payments. You generally will not pay taxes on your Earnings until you withdraw
them.
During the Accumulation Period of your Contract,
you allocate your Contract Value between the Allocation Options. There are two types
of Allocation Options: a Declared Rate Account and Risk Control Accounts. Each of
these options is described below.
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The portion
of your Contract Value allocated to the Declared Rate Account is credited interest
daily. The applicable daily interest rate is the rate that, when compounded, equals
the Interest Rate. The initial Interest Rate is available at least two weeks in
advance of the Contract Issue Date and will be provided by your financial professional
or by calling the Company at 1-800-798-5500. The rate is shown on your Contract
Data Page. |
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The portion
of Contract Value allocated to a Risk Control Account is credited with interest,
if any, based in part on the investment performance of an external Index (currently
the S&P 500 Index, the Russell 2000 Index, or the MSCI EAFE Index), subject
to an Index Rate Cap and Index Rate 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 Russell 2000 Index is a stock market index that
measures performance of the 2,000 smallest companies in the Russell 3000 Index,
which is made up of 3,000 of the largest US-traded stocks. The MSCI EAFE Index is
a stock market index which is designed to measure the equity market performance
of developed markets outside of the U.S. and Canada. The Indices can go up or down
based on the stock prices of the companies that comprise the applicable Index. None
of the Indices include dividends paid on the stocks comprising the Index and therefore
do not reflect the full investment performance of the underlying stocks. We set
the Index Rate Caps prior to the Contract Issue Date and prior to each Contract
Anniversary for the subsequent Contract Year. The initial Index Rate Cap is available
at least two weeks in advance of the Contract Issue Date and will be provided by
your financial professional or by calling the Company at 1-800-798-5500. The rate
is shown on your Contract Data Page. We will forward advance written notice to you
of any change in the Index Rate Cap at least two weeks prior to the Contract Anniversary.
The Index Rate Floor associated with each Risk Control Account will not change during
the life of your Contract. The Index Rate of Return is determined on each Contract
Anniversary and is measured over the Contract Year. Index interest is calculated
on each Contract Anniversary. Because index interest is calculated at a single point
in time you may experience negative or flat performance even though the Index experienced
gains through some, or most, of the Contract Year. |
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Subject to certain conditions, the Guaranteed
Lifetime Withdrawal Benefit (GLWB) provides GLWB Payments based on a percentage
of your GLWB Benefit Base for the life of a Covered Person(s) as described in more
detail in the Guaranteed Lifetime Withdrawal Benefit section of this
Prospectus. A fee is deducted from your Contract for the GLWB. The GLWB Payments
are guaranteed regardless of investment performance and will continue even if the
Contract Value is reduced to zero from GLWB Payments. All withdrawals other than
GLWB Payments are Excess Withdrawals that reduce the Death Benefit, GLWB Benefit
Base, and GLWB Payment, perhaps significantly, and could terminate the Contract.
GLWB Payments must start on a Contract Anniversary and can begin on or after
the first Contract Anniversary, as early as Age 50 of the Covered Person (or younger
Covered Person if there are two Covered Persons), or as late as the anticipated
Payout Date shown on your Contract Data Page. Once GLWB Payments begin you must
take the full GLWB Payment amount unless the Guaranteed Lifetime Withdrawal Benefit
is terminated.
The Accumulation Period begins on the Contract
Issue Date and continues until the Payout Date. Upon reaching the Payout Date, we
will begin income payments unless the Contract is surrendered.
Please call your financial professional
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 Purchase Payment of at least $10,000.
The Company does not allow additional Purchase Payments after the initial Purchase
Payment. A Purchase Payment that equals or exceeds $1 million requires our prior
approval. Multiple Contracts owned by the same individual where the sum of the Purchase
Payments equals or exceeds $1 million also require our prior approval.
Allocation Options.
There are two Allocation Levels for your Contract, among which you
may allocate your Purchase Payment and Contract Value: Level A (Allocation Option
Level), and Level R (Risk Control Account Level), each is described below.
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At Level
A, the allocation is split between the available Allocation Options which include
the Declared Rate Account and Risk Control Accounts that use one of the following
reference Indices, the S&P 500 Index, the Russell 2000 Index, and the MSCI
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At Level
R, the allocation only applies to Risk Control Accounts, and the allocation is split
among Secure and Growth Risk Control Accounts with the same reference Index. |
You must specify the percentage of your
Purchase Payment to be allocated to each applicable Allocation Level on the Contract
Issue Date. The amount you direct to each level must be in whole percentages from
0% to 100% of the Purchase Payment and your total allocation must equal 100%. If
you do not indicate your allocations on the application, our Administrative Office
will attempt to contact your financial professional and/or you for clarification.
We will not issue the Contract without your allocation instructions.
In the event you select a Risk Control Account
option, please note that any time the Index Rate Cap for your Risk Control Account
is less than the rate specified in the Bailout Provision (as shown on your Contract
Data Page), we may, at our discretion, restrict allocations into that Risk Control
Account. See Access to Your Money Bailout Provision in this Prospectus
for more details.
In addition, as it relates to the Risk Control
Accounts, the Index Rate Floor is the minimum Index Rate of Return used as part
of the Accumulation Credit Factor calculation for determining the value of a Risk
Control Account, prior to the deduction of the Contract Fee and GLWB Rider Fee.
The Index Rate Floor will not change during the life of your Contract. The Secure
Account has an Index Rate Floor of 0% and the Growth Account has an Index Rate Floor
of -10%. For the Secure Account, this means that any negative investment performance
of the Index would not reduce your Contract Value at the end of a Contract Year;
and for the Growth Account, this means that any negative investment performance
of the Index would not reduce your Contract Value at the end of a Contract Year
by more than 10% even if such negative investment
7
performance is worse
than -10%. However, as noted on the cover page of this Prospectus, you could lose
more than 10% of your investment in a Risk Control Account due to the application
of the Contract Fee, the GLWB Rider Fee, Surrender Charges, a negative Market Value
Adjustment, and federal income tax penalties.
Moreover, the Index Rate Cap is the maximum
Index Rate of Return used as part of the Accumulation Credit Factor calculation
for determining the value of a Risk Control Account, prior to the deduction of the
Contract Fee and GLWB Rider Fee. The portion of the Purchase Payment allocated to
a Risk Control Account on the Contract Issue Date will be subject to the Index Rate
Caps in effect on the Contract Issue Date.
On the first Contract Anniversary and any
subsequent Contract Anniversary, we will declare an Index Rate Cap which we guarantee
for the next Contract Year. We will notify you of any such change to the Index Rate
Cap at least two weeks prior to the Contract Anniversary. The Index Rate Caps will
always be positive and will range between 1% and 75%. In return for accepting some
risk of loss to your Contract Value allocated to the Growth Accounts, the Index
Rate Caps declared for the Growth Account will be higher than the Index Rate Cap
declared for the Secure Account for the same period and reference Index, which allows
the potential for a higher positive increase in Contract Value for the Growth Account.
The same Index will be used for each Risk
Control Account for the duration of the Allocation Option Period. However, if the
publication of an Index is discontinued, or calculation of the Index is materially
changed, we will substitute a suitable Index that will be used for the remainder
of the Allocation Option Period and will notify you of the change in advance. If
we substitute an Index, the performance of the new Index may differ from the original
Index, which may, in turn, affect the index interest credited and your Contract
Value.
We may offer additional Risk Control
Accounts with the same or additional Indices at our discretion. We may also discontinue
a Risk Control Account, effective as of an Allocation Option Maturity Date. In any
case, we will notify you of the addition or discontinuation of a Risk Control Account.
Such a change will be subject to any applicable regulatory approval that may be
required.
The portion of the Purchase Payment allocated
to the Declared Rate Account on the Contract Issue Date will be credited with the
Interest Rate in effect on the Contract Issue Date. On the first Allocation Option
Maturity Date and any subsequent Allocation Option Maturity Date, we will declare
an Interest Rate which we guarantee for the new Allocation Option Period of six
years. We will notify you of any such change to the Interest Rate at least two weeks
prior to the Allocation Option Maturity Date. The Interest Rate will never be less
than the Minimum Interest Rate on the Contract Issue Date.
Allocation Option Maturity Date. On
the Allocation Option Maturity Date, you may reallocate your Contract Value in that
Allocation Option among the Allocation Options currently available by submitting
new Allocation Instructions by Authorized Request. No Market Value Adjustment or
Surrender Charge will apply. You may also make a withdrawal from the Allocation
Option on the Allocation Option Maturity Date without a Market Value Adjustment
or Surrender Charge, but the withdrawal would be an Excess Withdrawal that could
significantly reduce the Death Benefit, GLWB Benefit Base and GLWB Payment. Withdrawals
may also be subject to federal income tax and a 10% penalty tax. If we do not receive
an Authorized Request prior to the Allocation Option Maturity Date to change allocation
instructions or to make a withdrawal, your Contract Value in the maturing Allocation
Option will rebalance based on your most recent allocation instructions and start a new six-year Allocations Option
Period.
Withdrawals on the Allocation Option
Maturity Date other than GLWB Payments are considered Excess Withdrawals and may
impact your GLWB Benefit Base, GLWB Payment, and Death Benefit.
Rebalancing / Reallocation.
We will automatically rebalance your Contract Value between Allocation
Options to return your Contract Values to the Allocation Levels on file with us
on each Contract Anniversary. Any new allocation change request
will supersede any prior allocation instructions. You can also reallocate on each
Contract Anniversary and on the Allocation Option Maturity Date by submitting new
allocation instructions by Authorized Request.
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Withdrawal Options.
All withdrawals other than GLWB Payments are Excess Withdrawals that
reduce the Death Benefit, GLWB Benefit Base, and GLWB Payment, perhaps significantly,
and could terminate the Contract. This Contract may not be suitable for you
if you intend to take partial withdrawals. However, the Contract offers the
following liquidity features during the Accumulation Period.
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Annual
Free Withdrawal Amount Each Contract Year, you may withdraw up to 10%
of your Contract Value determined as of the beginning of the Contract Year without
incurring a Surrender Charge or Market Value Adjustment. Any unused Annual Free
Withdrawal Amount will not carry over to any subsequent Contract Year. |
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Partial
withdrawal option You may make partial withdrawals during the Accumulation
Period by Authorized Request. Partial withdrawals will be processed Pro Rata from
your Contract Value in all Allocation Options. Any applicable Surrender Charge and
Market Value Adjustment will affect the amount available for a partial withdrawal.
A partial withdrawal other than a GLWB Payment is considered an Excess Withdrawal
and may reduce your Death Benefit, GLWB Benefit Base, and GLWB Payment by more than
the amount of the partial withdrawal. If a partial withdrawal other than a GLWB
Payment would cause the Surrender Value to be less than $2,000, we will treat your
request as a full surrender. Before processing the full surrender, we will attempt
to contact you or your financial professional to provide the opportunity for you
to take a lower amount to maintain a Surrender Value of at least $2,000. If we are
unable to contact you within one Business Day after receiving your request, we will
process the full surrender. |
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Full
surrender option You may surrender your Contract during the Accumulation
Period by Authorized Request. Upon full surrender, a Surrender Charge and Market
Value Adjustment may apply. |
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GLWB
Payments GLWB Payments are considered withdrawals. The full GLWB
Payment must be taken each year, but is not subject to a Surrender Charge or Market
Value Adjustment. Each GLWB Payment will reduce the Death Benefit, Surrender Value,
Contract Value, and the Annual Free Withdrawal Amount by the amount of the GLWB
Payment. |
Withdrawals and surrenders are subject to
income taxes, and if taken before the owner is age 59½, tax penalties may apply.
See Federal Income Tax Matters on page 48 and Access to Your Money on page 31 for more details.
Surrender Charge.
The Surrender Charge Period begins on the Contract Issue Date and continues
for a period of six years. The maximum Surrender Charge is 9% of Contract Value
withdrawn (See Fees and Expenses on page 14).
Market Value Adjustment.
The Market Value Adjustment applies to withdrawals and upon full
surrender of Contract Value and is calculated separately for each Allocation Option.
The Market Value Adjustment can increase or decrease your amount withdrawn or the
Surrender Value, depending on how economic indicators have changed since your Allocation
Option Start Date. See Market Value Adjustment for more details. You
may lose a portion of your principal and previously credited interest due to the
Market Value Adjustment. The Market Value Adjustment is not assessed upon the following:
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Surrenders
or withdrawals under the Nursing Home or Hospital waiver or Terminal Illness waiver; |
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Required
Minimum Distributions that are withdrawn under an automatic withdrawal program provided
by the Company; |
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The Annual
Free Withdrawal Amount; |
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Withdrawals on an Allocation Option Maturity Date; |
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Death Benefit
proceeds; |
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GLWB Payments; |
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Contract
Value applied to an Income Payout Option; |
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Transfers
and allocation changes as part of automatic rebalancing; and |
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Withdrawals
under the Bailout Provision. |
Bailout Provision.
We will set a single Bailout Rate for all Risk Control Accounts under the
Secure Account option and a single Bailout Rate for all Risk Control Accounts under
the Growth Account option. The Bailout Rate for Risk Control Accounts under the
Secure Account option will range from 1.5% to 10% while the Bailout Rate for Risk
Control Accounts under the Growth Account option will range from 2.0% to 25%. The
Bailout Rates will be prominently displayed on your Contract Data Page and will
not change during the life of your Contract.
If the Index Rate Cap for a Risk Control
Account is set below the Bailout Rate for that Risk Control Account, you may withdraw
the Risk Control Account Value from that Risk Control Account during the 30-day
period following the Contract Anniversary by Authorized Request. A Market Value
Adjustment and Surrender Charge will not apply to such withdrawal. A withdrawal
under the Bailout Provision will reduce the Death Benefit, perhaps by more than
the amount of withdrawal, will be subject to federal income tax, and may be subject
to a 10% penalty tax. Your Authorized Request to withdrawal Risk Account Control
Account Value must be received in Good Order during this 30-day period. If the request
is not received during this 30-day period or the request is not in Good Order, no
withdrawal will occur. The initial Index Rate Cap for a Risk Control Account will
not be set below the Bailout Rate at the time a Contract is issued, If the Bailout
Rate equals the Index Rate Cap for your Risk Control Account, you will not be eligible
to withdraw your Risk Control Account Value under the Bailout Provision. For example,
if the Bailout Rate for the Secure Account is set at 1.50% and the Index Rate Cap
for the Secure Account is set at 1.50%, you would not be eligible to withdraw under
the Bailout Provision.
At any time, the Index 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 allocations into that Risk Control Account.
Allocation instructions that include allocations to a Risk Control Account that
is not available will be considered not in Good Order and new instructions will
be required. See Access to Your Money Bailout Provision for more
details.
Income Options.
You have several income options to choose from during the Payout Period.
Death Benefit.
The Death Benefit during the Accumulation Period is equal to the greater of
Contract Value or the Purchase Payment adjusted for withdrawals as of the date the
Death Benefit is payable. We do not apply a Surrender Charge or Market Value Adjustment
in determining the Death Benefit payable.
Right to Examine.
You may cancel your Contract and receive either your Purchase Payment or your
Contract Value depending upon applicable state law (See Right to Examine on page 18).
Contract Charges
An investment in the Contract involves certain
fees and expenses, including the Contract Fee, Surrender Charges, and the GLWB Rider
Fee. The Contract Fee is equal to 0.75% of the Accumulation Credit Factor for the
Risk Control Account at the start of a Contract Year. The Contract Fee does not
apply to the Declared Rate Account Allocation Option. The GLWB Rider Fee is equal
to 0.50% of the average daily GLWB Benefit Base for the prior Contract Year. The
GLWB Rider Fee is deducted Pro Rata from the Contract Value of each Allocation Option
on the Contract Anniversary. For a full description of all such fees and expenses,
please see the section of this Prospectus entitled Fees and Expenses.
Guaranteed Lifetime Withdrawal Benefit
The Guaranteed Lifetime Withdrawal Benefit
is automatically included with your Contract and provides GLWB Payments for the
lifetime of the Covered Person(s), subject to certain conditions. The Covered Person(s)
can be based on the single life or joint life option you select on the Contract
Issue Date. A Covered Person(s) may be you, your Spouse, or the Annuitant, depending
upon who owns the Contract. See the Getting Started The Accumulation
Period section for more details. There are restrictions on
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who can become
a Covered Person. Also, joint life GLWB Payments are not available for non-natural
owners. Please refer to the Getting Started The Accumulation Period section in this Prospectus for more information regarding these restrictions.
All withdrawals other than GLWB Payments
are Excess Withdrawals that reduce the Death Benefit, GLWB Benefit Base, and GLWB
Payment, perhaps significantly, and could terminate the Contract.
GLWB Payments begin on a Contract Anniversary.
Once GLWB Payments begin, the full payment amount of the GLWB Payment must be taken
each year. The GLWB Payment is calculated on the GLWB Payment Start Date. The GLWB
Payments are guaranteed regardless of investment performance and will continue even
if Contract Value is reduced to zero. Withdrawals taken before the GLWB Payment
Start Date, including RMDs and withdrawals taken after the GLWB Payment Start Date
that exceed the GLWB Payment amount, will reduce the GLWB Benefit Base and the GLWB
Payment, perhaps significantly, and could terminate the Contract. GLWB Payments
continue during the life of the Covered Person(s) unless the Guaranteed Lifetime
Withdrawal Benefit Rider is terminated. Please see the Guaranteed Lifetime
Withdrawal Benefit section of this Prospectus for information on when the
Guaranteed Lifetime Withdrawal Benefit terminates. We assess a fee for the Guaranteed
Lifetime Withdrawal Benefit as discussed in the Fees and Expenses section
of the Prospectus. The Death Benefit is still payable after GLWB Payments begin
but will be reduced by the GLWB Payments.
The annual GLWB Payment is equal to the
GLWB Percentage multiplied by the GLWB Benefit Base. The GLWB Percentage is determined
on the GLWB Payment Start Date and is equal to the Base Withdrawal Percentage plus
the Annual Increase Percentage multiplied by the number of completed Contract Years
from the Contract Issue Date until the GLWB Payment Start Date for a maximum of
10 years.
The Base Withdrawal Percentage and Annual
Increase Percentage are determined based on your election of either single life
or joint life option rates using the Age of the younger Covered Person(s) on the
Contract Issue Date. The Base Withdrawal Percentage and Annual Increase Percentage
are stated in the GLWB Supplement which accompanies this Prospectus. GLWB Payments
may begin as late as the anticipated Payout Date shown on your Contract Data Page.
GLWB Payments are subject to federal income tax and could be subject to a penalty
tax if elected prior to age 59½.
The GLWB Benefit Base is initially equal
to the Purchase Payment but will be reset each Contract Anniversary or on any day
an Excess Withdrawal is taken. On each Contract Anniversary, unless the Guaranteed
Lifetime Withdrawal Benefit Rider is terminated, if the current Contract Value is
greater than the current GLWB Benefit Base, the GLWB Benefit Base will be reset
to equal the current Contract Value. The GLWB Benefit Base will be reduced by Excess
Withdrawals.
Once established, the GLWB Benefit Base
and GLWB Payment can only decrease if you take an Excess Withdrawal. If an Excess
Withdrawal causes the Surrender Value to be less than $2,000, your Contract will
terminate and GLWB Payments will cease. Before processing the full surrender,
we will attempt to contact you or your financial professional to provide the opportunity
for you to take a lessor withdrawal to maintain a Surrender Value of at least $2,000.
If we are unable to contact you within one Business Day after receiving your request,
we will process the full surrender.
Risk Factors
Your Contract 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 Rate of Return Risk.
If you are invested in a Risk Control Account and the relevant Index
declines, it may or may not reduce your Risk Control Account Value. This depends
on the Risk Control Account to which you allocated your Contact Value. Nevertheless,
you always assume the investment risk that no index interest will be credited and
therefore the Index Rate of Return will not increase your Accumulation Credit Factor
(and, ultimately, your Risk Control Account Value). You also bear the risk that
sustained declines in the relevant Index may cause the Index Rate of Return to not
increase your Accumulation Credit
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Factor (and, ultimately, your Risk Control Account
Value) for a prolonged period. If your Risk Control Account Value is allocated to
the Growth Account, you also assume the risk of a negative Index Rate of Return
(crediting negative index interest), which means your Accumulation Credit Factor
and, ultimately, the Risk Control Account Value allocated to the Growth Account,
will decline. In addition, you assume the risk that the Index Rate Cap can be reduced
to as little as 1.0%.
Please note that in an increasing interest
rate environment, the Market Value Adjustment could reduce the amount received to
less than the protection provided by the Index Rate Floor. Ownership of a Contract
does not provide ownership rights of the securities that are constituents of the
Index.
Liquidity Risk. We designed your Contract to be a long-term investment that you may use
to help save for retirement and provide lifetime income. Your Contract is not designed
to be a short-term investment. While you are permitted to take partial withdrawals
from the Contract or fully surrender the Contract during the Accumulation Period
by Authorized Request, such withdrawals may be subject to a Surrender Charge and
Market Value Adjustment and may impact your Guaranteed Lifetime Withdrawal Benefit
and Death Benefit. 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.
Loss of Principal Risk. Investment in the Risk Control Growth Account could result in a
loss of principal and previously credited interest. Although investment losses in
the Growth Account are subject to an Index Rate Floor of -10%, losses of as much
as -10% in one year and possibly greater than -10% over multiple years could result
in a loss of previously credited interest and a loss of principal. Withdrawals and
surrenders could also result in a loss of previously credited interest or principal
even if performance has been positive because of Surrender Charges and the Market
Value Adjustment. The Contract Fee and GLWB Rider Fee could also result in a loss
of previously credited interest or principal.
Market Risk.
The historical performance of an Index relating to a Risk Control Account should
not be taken as an indication of the future performance of the Index. The performance
of an 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 by various circumstances that can influence the performance
of securities in a particular market segment.
Guaranteed Lifetime Withdrawal
Benefit Feature Risk. The Contract is designed for persons
who seek to make annual lifetime withdrawals. A person should not purchase the Contract
seeking a short-term investment or in maximizing long-term accumulation. Purchasers
should consult with a financial representative to determine if the GLWB is suitable
for them based upon their financial needs and risk tolerance.
You should carefully consider when to begin
taking GLWB Payments. If GLWB Payments are elected earlier, GLWB Payments will be
lower and the Contract will have less time to accumulate value. However, earlier
GLWB Payments could result in receiving payments for a longer period of time. If
GLWB Payments are delayed, the Contract will have more time to accumulate value
which could result in higher payments and might result in a higher Death Benefit.
The Contract may not be suitable if you intend to take withdrawals or RMDs before
the GLWB Payment Start Date. Excess Withdrawals could significantly reduce the Death
Benefit, GLWB Benefit Base and GLWB Payments. Excess Withdrawals could also terminate the Contract and would include
any applicable Surrender Charge and Market Value Adjustment. GLWB Payments will
reduce the Death Benefit, Surrender Value, Contract Value and the Annual Free Withdrawal
Amount by the amount of the GLWB Payment.
The GLWB Payment is taken out of the Owners Contract Value unless the Contract Value is reduced to zero. The probability
of the Owner outliving their Contract Value and receiving the GLWB Payment from
the Companys general account may be minimal. The GLWB Payments are subject
to federal income tax and may be subject to a penalty tax if elected prior to age
59½. Any amounts paid by the Company in excess of the Contract Value are subject
to the Companys financial strength and claims paying ability.
The GLWB Rider Fee will be assessed whether
or not the Owner receives GLWB Payments.
12
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. A change in the
Index will not change the Index Rate Cap or Index Rate Floor for your Contract at
the time of the change. 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. A surrender
of the Contract may also be subject to taxes and tax penalties.
If an Index is substituted in the middle
of a Contract Year, we will calculate index interest up to the date the first Index
terminates. Index interest will then be calculated from the date the new Index is
used until the Contract Anniversary and the two index interest amounts will be added
together to determine the credited index interest for the Contract Year.
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.
Risk Control Account Allocation
Restriction. At any time, the Index 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 allocations into that Risk Control Account. See Access
to Your Money Bailout Provision for more details.
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.
Other Important Information You Should
Know
No Ownership Rights
You have no ownership rights in the underlying stocks comprising the
reference Indexes. Purchasing the Contract is not equivalent to investing in the
underlying stocks comprising the Indexes. As the Owner of the Contract, you will
not have any ownership interest or rights in the underlying stocks comprising the
Indexes, such as voting rights, dividend payments, or other distributions. The Index
does not reflect dividends paid on the stocks comprising the Index, and, therefore,
the calculation of the performance of the Index under the Contract
does not reflect the full investment performance of the underlying securities.
No Affiliation with Index or
Underlying Stocks We are not affiliated with the sponsors
of the Indexes or the underlying stocks comprising the Indexes. Consequently, the
Indexes and the issuers of the underlying stocks comprising the Indexes 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.
13
The following information describes the
fees and expenses you will pay when buying, owning, and surrendering the Contract.
Surrender Charge(1) (as a
percentage of Contract Value withdrawn)
Contract
Year |
|
Surrender
Charge Percentage |
|
1 |
|
9% |
|
2 |
|
9% |
|
3 |
|
8% |
|
4 |
|
7% |
|
5 |
|
6% |
|
6 |
|
5% |
|
7+ |
|
0% |
|
Contract Annual Expenses |
|
|
|
|
|
|
|
|
|
Contract Fee
(assessed as a percentage of the Accumulation Credit Factor for the Risk Control
Account at the start of a Contract Year)(2) |
|
0.75% |
|
|
|
|
|
GLWB Rider
Fee (assessed as a percentage of the GLWB Benefit Base)(3) |
|
0.50% |
|
|
|
|
Other Expenses |
|
|
|
|
|
Premium Tax(4) (as a percentage of the Purchase Payment) |
|
N/A |
(1)We deduct
a Surrender Charge from each withdrawal and surrender during the Surrender Charge
Period that exceeds the Annual Free Withdrawal Amount. We do not assess a Surrender
Charge on withdrawals and surrenders made under the Nursing Home or Hospital Waiver
or Terminal Illness Waiver. |
(2)We assess
the Contract Fee against Contract Value held in the Risk Control Accounts. The Contract
Fee assessed against Contract Value held in the Risk Control Accounts is equal on
an annual basis to the annual Contract Fee percentage multiplied by the Accumulation
Credit Factor for each Risk Control Account at the start of the Contract Year. The
Contract Fee reduces the Accumulation Credit Factor for each Risk Control Account
in which you are invested, thereby reducing the amount of interest credited, if
any, to Contract Value in the Risk Control Accounts. We do not assess a Contract
Fee against Contract Value held in the Declared Rate Account. |
(3)The GLWB Rider
Fee is equal on an annual basis to the GLWB Rider Fee percentage multiplied by the
average daily value of the GLWB Benefit Base for the prior Contract Year. The GLWB
Rider Fee will be deducted Pro Rata from the Contract Value in all Allocation Options
on the Contract Anniversary. We will not assess the GLWB Rider Fee if the Guaranteed
Lifetime Withdrawal Benefit terminates. |
(4)Premium tax
is not currently deducted, but we reserve the right to in the future. State premium
taxes currently range from 0% to 3.5% of the Purchase Payment. |
Surrender Charge
We deduct a Surrender Charge from each withdrawal
or surrender during the Surrender Charge Period that exceeds the Annual Free Withdrawal
Amount. The Surrender Charge schedule is expressed as a percentage of the Contract
Value withdrawn or surrendered as shown in the Surrender Charge table. The Surrender
Charge is assessed before calculation of the Market Value Adjustment.
The Surrender
Charge, if any, is calculated using the following formula:
|
Surrender
Charge amount = W x SC%, where |
14
|
W = amount
of withdrawal that is in excess of the Annual Free Withdrawal Amount remaining for
that Contract Year |
|
|
|
SC% = applicable
Surrender Charge percentage based on the Contract Year in which the withdrawal occurs. |
For an example of how we calculate the Surrender
Charge, see Appendix A to this Prospectus.
We will not assess the Surrender Charge
on:
|
|
|
Withdrawals
under the Nursing Home or Hospital waiver or Terminal Illness waiver; |
|
|
|
Required Minimum
Distributions that are withdrawn under the automatic withdrawal program provided
by the Company; |
|
|
|
Your Annual
Free Withdrawal Amount; |
|
|
|
Death Benefit
proceeds; |
|
|
|
Amounts withdrawn
after the Surrender Charge Period; |
|
|
|
Contract Value
applied to an Income Payout Option; |
|
|
|
GLWB Payments; |
|
|
|
Withdrawals
taken under the Bailout Provision; |
|
|
|
Transfers
and allocation changes as part of automatic rebalancing; and |
|
|
|
Withdrawals on an Allocation Option Maturity Date. |
Surrender Charges offset promotion, distribution
expenses, and investment risks born by the Company. To the extent Surrender Charges
are insufficient to cover these risks and expenses, the Company will pay for the
costs that it incurs out of the Contract Fees it collects and from its General Account.
For information on the Annual Free Withdrawal
Amount and Surrender Charge waivers, see Access to Your Money.
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 Index Rate Floors for the Risk Control Accounts,
the Interest Rate for the Declared Rate Account, the surrender rights available
under the Contract, the Guaranteed Lifetime Withdrawal Benefit, the Death Benefit
and the income payments. 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.
|
GETTING
STARTED THE ACCUMULATION PERIOD |
|
The Prospectus describes all material rights,
benefits and obligations under the Contract. All material state variations in the
Contract are described in Appendix B to this Prospectus and in your Contract. Please
review Appendix B for any variations from standard Contract provisions that may
apply to your Contract based on the state in which your Contract was issued. Your
financial professional can provide you with more information about those state variations.
Purchasing a Contract
We offer the Contract to individuals, certain
retirement plans, and other entities. To purchase a Contract, you and the Annuitant
must be at least Age 21 and no older than Age 85.
We sell the Contract through financial professionals
who are also agents of the Company. To start the purchase process, you must submit
an application to your
15
financial professional. The Purchase Payment must either
be paid at the Companys Administrative Office or delivered to your financial
professional. Your financial professional 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
in Good Order, we will begin the process of issuing the Contract on the next Contract
Issue Date available. The selling firms determination of whether the Contract
is suitable for you may delay our receipt of your application. Any such delays will
affect when we issue your Contract. If the application for a Contract is properly
completed and is accompanied by all the information necessary to process it, including
payment of the Purchase Payment, the Purchase Payment will be allocated to the Allocation
Options you choose on the next available Contract Issue Date.
IMPORTANT: You may use the Contract with
certain tax qualified retirement plans (IRA). 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 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, GLWB Payments, income
payments, and Death Benefit payments, until instructions are received from the appropriate
government regulator.
Tax-Free Section 1035 Exchanges
You can generally exchange one annuity contract
for another in a tax-free exchange under Section 1035 of the Internal
Revenue Code. Before making an exchange, you should compare both contracts carefully.
Remember that if you exchange another contract for the one described in this Prospectus,
you might have to pay a Surrender Charge or negative Market Value Adjustment on
the existing contract. If the exchange does not qualify for Section 1035 tax treatment,
you may have to pay federal income tax, including a possible penalty tax, on your
old contract. There will be a new Surrender Charge Period for this Contract and
other charges may be higher (or lower) and the benefits may be different. There
may be delays in our processing of the exchange. You should not exchange another
contract for this one unless you determine, after knowing all the facts that the
exchange is in your best interest. In general, the person selling you this Contract
will earn a commission from us.
Owner
The Owner is the person(s) (or entity) who
own(s) the Contract and, in the case of a natural person(s), whose death determines
whether the Death Benefit is payable. While the Owner is living, the Owner is also
the person(s) (or entity) who receives income payments during the Payout Period
while the Annuitant is also living. If there are multiple Owners, each Owner will
have equal ownership of the Contract and all references to Owner will mean Joint
Owners. Joint Owners are only allowed if the Owner and Joint Owner are Spouses.
Additionally, Joint Owners are only allowed for non-qualified annuities.
The Owner names the Annuitant or Joint Annuitants.
If the Owner is not a natural person, a Joint Owner and Joint Annuitant cannot be
named. All rights under the Contract may be exercised by the Owner, subject to the
rights of any other Owner. Assignment of the Contract by the Owner is not permitted
unless the state in which the Contract is issued requires us to provide the Owner
the right to assign the Contract, as identified in Appendix B to this Prospectus.
In that case, the Owner must provide us with advance Written Notice of the assignment
and the assignment is subject to our approval, unless those requirements are inconsistent
with the law of the state in which the Contract is issued.
16
The Owner may request to change the Owner
at any time before the Payout Date. If a Joint Owner is changed (or is named), the
Joint Owner must be the Owners Spouse. If an Owner is added or changed, the
amount that will be paid upon the death of the new Owner will be impacted as described
in the Death Benefit section in this Prospectus. The Guaranteed Lifetime
Withdrawal Benefit may also be impacted as described in the Guaranteed Lifetime
Withdrawal Benefit section in this Prospectus. Any change of Owner must be
made by Authorized Request and is subject to our acceptance. We reserve the right
to refuse such change on a non-discriminatory basis. Unless otherwise specified
by the Owner, such change, if accepted by us, will take effect as of the date the
Authorized Request was signed. We are not liable for any payment we make or action
we take before we receive the Authorized Request.
If an Owner who is a natural person dies
during the Accumulation Period, your Beneficiary is entitled to a Death Benefit.
If you have a Joint Owner, the Death Benefit will be available when the first Joint
Owner dies. If there is a surviving Owner and he or she is the Spouse of the deceased,
the surviving Spouse will be treated as the sole primary Beneficiary, and any other
designated Beneficiary will be treated as a contingent Beneficiary.
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.
Annuitant
The Annuitant is the natural person(s) whose
life (or lives) determines the income payment amount payable under the Contract.
If the Owner is a natural person, the Owner may change the Annuitant at any time
provided it is at least 30 days before the Payout Date by Authorized Request. Unless
otherwise specified by the Owner, such change will take effect as of the date the
Authorized Request was signed. We are not liable for any payment we make or action
we take before we receive the Authorized Request. If you change the Annuitant, the
Payout Date will not change. If the Owner is not a natural person, the Annuitant
cannot be changed. The Annuitant does not have any rights under the Contract.
Covered Person
The Covered Person(s) is the natural person(s)
whose Age and lifetime we base GLWB Payments on for the Guaranteed Lifetime Withdrawal
Benefit. The Covered Person(s) must be selected on the Contract Issue Date.
If there is a sole Owner of the Contract: |
|
|
|
|
|
|
|
The Owner
can be a Covered Person. |
|
|
|
If the Owner
and the sole primary Beneficiary are Spouses, the sole primary Beneficiary can also
be a Covered Person. |
|
|
|
If you select
single life GLWB Payments, the Owner must be designated as the Covered Person. |
|
|
|
|
If there are Joint Owners: |
|
|
|
|
|
|
|
Both Owners
can be Covered Persons. |
|
|
|
The Owners
must be Spouses. |
|
|
|
If you select
single life GLWB Payments, either Owner can be designated as the Covered Person. |
17
If the Owner is not a natural person: |
|
|
|
The Annuitant
must be designated as the Covered Person. |
|
|
|
A joint Annuitant
is not permissible. |
|
|
|
Joint GLWB
Payments cannot be selected. |
If one Covered Person is selected, you have
elected single life option rates. If two Covered Persons are selected, you have
elected joint life option rates. After the Contract Issue Date, you cannot request
to add, remove or replace a Covered Person, even if you add or change an Owner,
Annuitant, or Beneficiary except as described in this Prospectus.
If a Covered Person is no longer an Owner,
Joint Owner, Annuitant, or Beneficiary as required, we will remove that person from
the Guaranteed Lifetime Withdrawal Benefit and they will no longer be a Covered
Person. Once we remove a Covered Person from the Guaranteed Lifetime Withdrawal
Benefit, the Covered Person cannot be reinstated.
If at any time joint Covered Persons are
no longer Spouses, you must send us notice of the divorce by Authorized Request.
Upon receipt of such notice, we will remove one former Spouse from the Contract
as a Covered Person as indicated by the divorce or settlement decree, as applicable.
If a Covered Person is removed and one Covered
Person still remains, the following will occur:
|
|
|
If the Covered
Person was removed before the GLWB Payment Start Date, joint GLWB Payments will
not be available and single life option rates will be used. |
|
|
|
|
|
|
|
If the Owner
is a natural person and joint GLWB Payments have already started, we will continue
to pay joint GLWB Payments to the Owner as long as the remaining Covered Person
is living. |
If a Covered Person is removed and there
is no other Covered Person remaining, the Guaranteed Lifetime Withdrawal Benefit
will terminate and GLWB Payments will cease.
Beneficiary
The Beneficiary is the person(s) (or entity)
named by you to receive the proceeds payable upon your death. If there are Joint
Owners and an Owner dies before the Payout Date, the surviving Spouse Owner will
be treated as the sole primary Beneficiary and any other designated Beneficiary
will be treated as a contingent Beneficiary. Prior to the Payout Date, if no Beneficiary
survives the Owner, the proceeds will be paid to the Owners estate. If there
is more than one Beneficiary, each Beneficiary will receive an equal share of the
Death Benefit, unless otherwise specified by the Owner. If there are Joint Owners
and we are unable to determine that one of the Joint Owners predeceased the other,
we will treat the Joint Owners as having died simultaneously. In
that case, one-half of the Death Benefit will be payable to each Joint Owners
estate.
You may change the Beneficiary by an Authorized
Request sent to us, or you may name one or more Beneficiaries. A change of Beneficiary
will take effect on the date the Authorized Request was signed. If there are Joint
Owners, each Owner must sign the Authorized Request. In addition, any Irrevocable
Beneficiary or assignee must sign the Authorized Request. We are not liable for
any payment we make or action we take before we receive the Authorized Request.
Use care when naming Beneficiaries. If you
have any questions concerning the criteria you should use when choosing Beneficiaries,
consult your financial professional.
Right to Examine
You may cancel your Contract and return
it to your financial professional 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 less withdrawals or your Contract Value, depending on the state in which your
Contract was issued.
18
If the Contract Value exceeds your Purchase Payment you will
receive the Contract Value regardless of where the Contract was issued. If the Purchase
Payment exceeds the Contract Value, the refund will be your Contract Value unless
the state in which the Contract was issued requires that the Purchase Payment less
withdrawals be returned. If your Contract is an IRA, we will refund the greater
of your Purchase Payment less withdrawals or your Contract Value. Generally, you
must return your Contract within 10 days of receipt (30 days if it is a replacement
contract), but some states may permit a different period for you to return your
Contract. Refunds will not be subject to a Surrender Charge or Market Value Adjustment
and will be paid within seven days following the date of cancellation. State variations
are described in Appendix B to this Prospectus.
|
ALLOCATING
YOUR PURCHASE PAYMENT |
|
Purchase Payment
If the application for a Contract is in
Good Order, which includes our receipt of the Purchase Payment, we will issue the
Contract on the next available Contract Issue Date. Contract Issue Dates offered
by the Company are currently the 10th and 25th of each month
unless those days fall on a non-Business Day. In that case, we issue the Contract
on the next Business Day with an effective Contract Issue Date of the 10th
or 25th.
The minimum initial Purchase Payment for
a Non-Qualified or Qualified Contract is $10,000. The Company does not allow additional
Purchase Payments after the initial Purchase Payment. A Purchase Payment that equals
or exceeds $1 million requires our prior approval. Multiple Contracts owned by the
same individual where the sum of the Purchase Payments equals or exceeds $1 million
also require our prior approval.
Purchase Payment and Allocation
There are two Allocation Levels available
under the Contract, among which you may allocate your Purchase Payment and Contract
Value: Level A (Allocation Option Level), and Level R (Risk Control Account Level).
|
|
|
At Level A,
the allocation is split between the available Allocation Options which include the
Declared Rate Account and Risk Control Accounts that use one of the following reference
Indices, the S&P 500 Index, the Russell 2000 Index, and the MSCI EAFE Index; |
|
|
|
At Level R,
the allocation only applies to Risk Control Accounts, and the allocation is split
among Secure and Growth Risk Control Accounts with the same reference Index. |
You must specify the percentage of your
Purchase Payment to be allocated to each Allocation Level on the Contract Issue
Date. The amount you direct to an Allocation Level must be in whole percentages
from 0% to 100% of the Purchase Payment and your total allocation must equal 100%
at each Allocation Level.
The Purchase Payment will be allocated on
the Contract Issue Date to the Allocation Options (according to the allocation instructions
on file with us for Level A and Level R).
Transactions that are scheduled to occur
on a day that the Accumulation Credit Factor for a Risk Control Account is not available
will be processed on the next Business Day at the Accumulation Credit Factor for
the Risk Control Account next determined.
Reallocating Your Contract Value - Automatic
Rebalancing
During the Accumulation Period, we will
automatically rebalance your Contract Value between Level A (Allocation Option Level)
and Level R (Risk Control Account Level) based on your most recent allocation instructions
that we have on file on each Contract Anniversary. Allocation instructions can be
updated at any time and will be effective on the next Contract Anniversary if received
at least one Business Day prior to the Contract Anniversary. You may reallocate
your Contract Value among
19
Allocation Options on each Contract Anniversary and on
the Allocation Option Maturity Date by submitting new Allocation Instructions by
Authorized Request. We will reallocate Contract Value as part of Automatic Rebalancing.
Allocations can be made to any available Allocation Option and will only start a new six year term on the Allocation Option Maturity Date. Any new allocation change request will supersede any
prior allocation change requests made. Owners cannot discontinue the automatic rebalancing
of Contract Value on Contract Anniversaries.
For example, assume Level A allocations
are 80% to Risk Control Accounts that use the S&P 500 Index as a reference
Index and 20% to the Declared Rate Account. Assume Level R allocations for the S&P 500 Index are 40% to the Secure Account and 60% to the Growth Account. If
on the Contract Anniversary the total Contract Value is $100,000, then after rebalancing,
$80,000 will be allocated to Risk Control Accounts that use the S&P 500 Index
(80% x $100,000) and $20,000 will be allocated to the Declared Rate Account (20%
x $100,000). Then, within Risk Control Accounts that use the S&P 500 Index,
$32,000 will be allocated to the Secure Account (40% x $80,000) and $48,000 will
be allocated to the Growth Account (60% x $80,000).
Your Authorized Request to change your allocation
instructions must be received at least one Business Day prior to the Contract Anniversary
to take effect as of that date. If we do not receive such request at least one Business
Day prior to the Contract Anniversary, your change in allocation instructions will
not be effective until the next Contract Anniversary. The Market Value Adjustment
and Surrender Charge do not apply to reallocations and Automatic Rebalancing.
Please note that at any time the Index Rate
Cap for your Risk Control Account is less than the rate specified in the Bailout
Provision (as shown on the Contract Data Page), we may, at our discretion, restrict
allocations into that Risk Control Account under the automatic rebalancing program.
See Access to Your Money Bailout Provision for more details.
Allocation Option Maturity Date
On the Allocation Option Maturity Date for
an Allocation Option, you may reallocate your Contract Value in that Allocation
Option among the Allocation Options currently available by submitting new allocation
instructions by Authorized Request. Your Authorized Request to change your allocation
instructions must be received at least one Business Day prior to the Allocation
Option Maturity Date to take effect as of that date. No surrender charge or Market
Value Adjustment will apply. You may also make a withdrawal from the Allocation
Option on the Allocation Option Maturity Date without a Market Value Adjustment
or Surrender Charge, but the withdrawal would be an Excess Withdrawal that could
significantly reduce the Death Benefit, GLWB Benefit Base, and GLWB
Payment. Withdrawals also may be subject to federal income tax and a 10% penalty
tax. If we do not receive an Authorized Request prior to the Allocation Option Maturity
Date to change allocation instructions or to make a withdrawal, your Contract Value
in the maturing Allocation Options will rebalance based on your most recent allocation
instructions and start a new six-year Allocation Option Period.
If the Payout Date occurs prior to an Allocation
Options Allocation Option Maturity Date, we will begin income payments under
the Contract as of the Payout Date. Index interest will be calculated up to the
Payout Date. See Income Payout Options in this Prospectus for more details.
On the Contract Issue Date, your Contract
Value equals the Purchase Payment. After the Contract Issue Date, during the Accumulation
Period, your Contract Value will equal the total Risk Control Account Value plus
the total Declared Rate Account Value.
20
|
DECLARED RATE ACCOUNT OPTION |
|
The Declared Rate Separate Account is
a non-registered Separate Account in which we hold reserves for our guarantees attributable
to annuity contracts that offer declared rate accounts. The assets in the Declared
Rate Separate Account are equal to the reserves and other liabilities of the contracts
supported by the Declared Rate Separate Account and are not chargeable with liabilities
arising out of any other business that we conduct. We have the right to transfer
to our General Account any assets of the Declared Rate Separate Account that are
in excess of such reserves and other Contract liabilities. Our General Account assets
are also available to meet the guarantees under the Contract, including the Declared
Rate Separate Account, as well as our other general obligations. The guarantees
in this Contract are subject to the Companys financial strength and claims-paying
ability.
You may allocate all or a portion of your
Purchase Payment and Contract Value to the Declared Rate Account. Contract Value
allocated to the Declared Rate Account becomes part of the Declared Rate Account
Value and is credited with interest at the end of each business day. The applicable
daily interest credited, when compounded, equals the Interest Rate. The Interest
Rate is available two weeks in advance of the Allocation Option Start Date and will
not change for the duration of the Allocation Option Period. We may declare a new
Interest Rate for the Allocation Option Start Date for each subsequent Allocation
Option Period of six years. We will notify you of such change prior to the Allocation
Option Start Date. The Interest Rate declared will never be less than the Minimum
Interest Rate. The Minimum Interest Rate will not change during the life of the
Contract. The guaranteed Minimum Interest Rate is shown on your Contract Data Page.
We do not assess a Contract Fee against
Contract Value held in the Declared Rate Account. The GLWB Rider Fee and any other
fees will be assessed Pro Rata.
Declared Rate Account Value
The Contract Value for the Declared Rate
Account Allocation Option is equal to:
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|
The amount
initially allocated to the Declared Rate Account plus the interest subsequently
credited to that amount; less |
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Any withdrawals
(including any Surrender Charge and negative Market Value Adjustment); less |
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A transfer
as part of automatic rebalancing; less |
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The Pro Rata
portion of any applicable fees or charges under the Contract; plus |
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Any positive
Market Value Adjustment from a withdrawal. |
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RISK CONTROL
ACCOUNT OPTION |
|
The Risk Control Separate Account is a non-registered
Separate Account in which we hold reserves for our guarantees attributable to annuity
contracts that offer risk control accounts. The assets in the Risk Control Separate
Account are equal to the reserves and other liabilities of the contracts supported
by the Risk Control Separate Account and are not chargeable with liabilities arising
out of any other business that we conduct. We have the right to transfer to our
General Account any assets of the Risk Control Separate Account that are in excess
of such reserves and other Contract liabilities. Our General Account assets are
also available to meet the guarantees under the Contract, including the Risk Control
Separate Account, as well as our other general obligations. The guarantees in this
Contract are subject to the Companys financial strength and claims-paying
ability.
You may allocate all or a portion of your
Purchase Payment and Contract Value to the Risk Control Accounts we make available.
The portion of the Contract Value allocated to a Risk Control Account becomes part
of the Risk Control Account Value and is credited with interest based in part on
the investment performance of external indices. Currently, we offer two types of
Risk Control Accounts: a Secure Account
21
and a Growth Account. We hold reserves in
the Risk Control Separate Account for amounts allocated to the Risk Control Accounts
in support of the guarantees associated with the Index Rate Floor and Index Rate
Cap. Your Risk Control Account Value reflects, in part, the performance of the reference
Index, subject to the applicable Index Rate Cap and Index Rate Floor. When funds
are withdrawn from a Risk Control Account prior to the Contract Anniversary for
a surrender, partial withdrawal, GLWB Payment, annuitization or payment of the Death
Benefit, index interest is calculated up to the date of withdrawal as described
below.
The performance of each Index associated
with the Risk Control Accounts does not include dividends paid on the stocks comprising
the Index, and therefore, the performance of the Index does not reflect the full
performance of those underlying securities. The Index Rate of Return is determined
on each Contract Anniversary and is measured over the Contract Year. Because index
interest is calculated on a single point in time you may experience negative or
flat performance even though the Index experienced gains through some, or most,
of the Contract Year.
Risk Control Account Value
Your Contract Value allocated to the Risk
Control Accounts for any Valuation Period is equal to the sum of your Risk Control
Account Value in each Risk Control Account. The Risk Control Account Value for each
Risk Control Account is equal to:
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|
|
The number
of that Risk Control Accounts Accumulation Credits credited to you; multiplied
by |
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The Accumulation
Credit Factor for that Risk Control Account at the end of the Valuation Period for
which the determination is being made. |
Accumulation Credit Factors. The Accumulation Credit
Factor for each Risk Control Account is arbitrarily set initially at $10 as of each
Allocation Option Start Date. Thereafter, the Accumulation Credit Factor for the
Risk Control Account at the end of each Valuation Period is determined by multiplying
(a) by (b) and subtracting (c) (i.e., a x b c), where:
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(a) |
= |
The Accumulation
Credit Factor for the Risk Control Account at the start of the Contract Year; and |
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(b) |
= |
The Index
Rate of Return (defined below); and |
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(c) |
= |
The Risk
Control Account Daily Contract Fee (defined below) multiplied by the number of days
that have passed since the last Contract Anniversary. |
The Index Rate of Return for each Risk Control
Account on any Business Day is equal to the change in the Index for the current
Contract Year, adjusted for the Index Rate Cap or Index Rate Floor. Specifically,
it is calculated as (A / B), where:
|
A |
= |
Adjusted
Index Value (defined below) as of the current Business Day; and |
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B |
= |
The Initial
Index Value as of the start of the current Contract Year. If an Allocation Option
Start Date or Contract Anniversary does not fall on a Business Day, the Initial
Index Value for the next Business Day will be used. |
We use the Index Rate of Return to determine
the interest we credit, if any, to the Risk Control Account Value.
The Adjusted Index Value is
the Closing Index Value adjusted for the Index Rate Cap or Index Rate Floor for
the current Contract Year. The Adjusted Index Value is calculated each time the
Index Rate of Return is calculated. This can be as frequently as daily and occurs
on each Contract Anniversary or on any date when a partial withdrawal, GLWB Payment,
surrender, Death Benefit or annuitization is processed. The
22
Closing Index Value
is the closing value of an Index as of a Business Day. 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. The Adjusted
Index Value for each Risk Control Account is calculated as follows:
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If the
Closing Index Value is greater than the Initial Index Value multiplied by (1 + Index
Rate Cap), then the Adjusted Index Value will equal the Initial Index Value multiplied
by (1 + Index Rate Cap). |
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If the
Closing Index Value is less than the Initial Index Value multiplied by (1 + Index
Rate Floor), then the Adjusted Index Value will equal the Initial Index Value multiplied
by (1 + Index Rate Floor). |
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If the
Closing Index Value is less than the Initial Index Value multiplied by (1 + Index
Rate Cap) but more than the Initial Index Value multiplied by (1 + Index Rate Floor),
then the Adjusted Index Value will equal the Closing Index Value. |
For example, assume the following:
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Initial
Index Value = 2,000 |
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Index Rate
Cap = 15% |
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Index Rate
Floor = -10% |
At the time the Index Rate of Return is
calculated, the Adjusted Index Value will be:
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|
Scenario 1: Closing Index Value is greater than Initial Index Value multiplied by
(1 + Index Rate Cap) |
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|
o |
Closing
Index Value = 2,400 |
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|
o |
2,400 is
greater than 2,300 (2,000 x (1 + 0.15)) so the Adjusted Index Value is equal to
2,300. |
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Scenario 2: Closing Index Value is less than Initial Index Value multiplied by (1
+ Index Rate Floor) |
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|
o |
Closing
Index Value = 1,700 |
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|
o |
1,700 is
less than 1,800 (2,000 x (1 0.10)) so the Adjusted Index Value is equal to
1,800. |
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|
Scenario 3: Closing Index Value is less than Initial Index Value multiplied by (1
+ Index Rate Cap) but more than Initial Index Value multiplied by (1 + Index Rate
Floor) |
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|
o |
Closing
Index Value = 2,200 |
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|
o |
2,200 is
less than 2,300 (2,000 x (1 + 0.15)) and greater than 1,800 (2,000 x (1 0.10))
so the Adjusted Index Value is equal to 2,200. |
The Adjusted Index Value will never exceed
the Initial Index Value multiplied by (1 + Index Rate Cap) and will never be lower
than the Initial Index Value multiplied by (1 + Index Rate Floor).
The Risk Control Account Daily Contract
Fee is calculated as (a) the Contract Fee divided by (b) the number of days in the
Contract Year multiplied by (c) the Accumulation Credit Factor for the Risk Control
Account at the start of the Contract Year (i.e. a / b x c).
For example, assume the following:
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Contract
Fee = 0.75% |
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Number
of days in the Contract Year = 365 |
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Accumulation
Credit Factor for the Risk Control Account at the start of the Contract Year = 10.00 |
Then, the Risk Control Account Daily Contract
Fee = 0.75% / 365 x 10.00 = 0.000205479.
23
Accumulation Credits.
In order to establish a Risk Control Account, the Purchase Payment
or Contract Value transferred to the Risk Control Accounts is converted into Accumulation
Credits. The number of Accumulation Credits credited to each Risk Control Account
is determined by dividing the dollar amount directed to each Risk Control Account
by the Accumulation Credit Factor as of the end of the Valuation Period for which
the Purchase Payment or Contract Value transfer is received.
We will redeem Accumulation
Credits from a Risk Control Account upon (i) partial withdrawal or full surrender
(including any applicable Surrender Charge and negative Market Value Adjustment);
(ii) a transfer from the Risk Control Account as part of automatic rebalancing;
(iii) payment of the Death Benefit; (iv) the Payout Date; (v) the deduction of the
GLWB Rider Fee; (vi) GLWB Payments; and, (vii) upon transfer or reallocation on
the Allocation Option Maturity Date. We redeem Accumulation Credits as of the end
of the Valuation Period in which we receive your request for surrender or partial
withdrawal or your Beneficiarys request for payment of the Death Benefit in
Good Order unless you or your Beneficiary specify a later date.
Setting the Index Rate Cap and
the Index Rate Floor for the Secure Account and the Growth Account.
We consider various factors in determining the Index Rate Caps and Index
Rate Floors, including investment returns, 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 Rate Cap and the
Index Rate Floor at our sole discretion. We set the Index Rate Cap on each Contract
Anniversary for the subsequent Contract Year and guarantee the Index Rate Cap for
the duration of the Contract Year. We guarantee the Index Rate Floor for the life
of your Contract. We will forward advance written notice to Owners of any change
in the Index Rate Cap for the subsequent Contract Year at least two weeks prior
to Contract Anniversary. This notice will describe the Owners right to update
allocation instructions to transfer Contract Value between Allocation Options as
part of automatic rebalancing and the right to exercise the Bailout Provision, if
applicable. The Index Rate Cap will always be positive and will be subject to a
guaranteed minimum of 1% and a maximum of 75%.
The Index Rate Floor is the minimum Index
Rate of Return used as part of the Accumulation Credit Factor calculation for determining
the value of a Risk Control Account prior to deduction of the Contract Fee and prior to deduction of the GLWB Rider Fee.
This rate will not change during the life of your Contract. The Secure Account has
an Index Rate Floor of 0%, and the Growth Account has an Index Rate Floor of -10%.
Although negative investment performance is limited by the Index Rate Floor, you
could lose more than 10% due to the Contract Fee, the GWLB Rider Fee, Surrender
Charges, a negative Market Value Adjustment, and federal income tax penalties.
Examples. The following three examples illustrate how investment performance of the reference
Index of the Secure and Growth Account is applied in crediting interest to the Risk
Control Accounts through the Accumulation Credit Factor based on different levels
of Index performance. The change in the value of the Accumulation Credit Factor
reflects the application of the Index Rate of Return and a reduction for the Contract
Fee. No withdrawals are assumed to occur under these examples and all values are
determined on Contract Anniversaries. The examples assume the Index Rate Caps remain
unchanged since Contract issue. The examples
illustrate hypothetical circumstances solely for the purpose of demonstrating Risk
Control Account calculations and are not intended as estimates of future performance
of the Index.
Example 1: This example illustrates how
interest would be credited based on the return of the Index and subject to the Index
Rate Cap and Index Rate Floor. In this example, the return on the Index is greater
than the Index Rate Cap and Index Rate Floor.
Assume the following information:
As of the Allocation Option Start Date: |
|
|
Allocation Option Start Date: 10/10/2017 |
|
|
Initial Index Value: 1,000 |
|
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Contract Fee: 0.75% |
24
|
|
GLWB Rider Fee: 0.50% |
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S&P 500 Secure Account |
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|
|
o |
Account
Value: $75,000 |
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|
|
o |
Accumulation
Credit Factor: $10 |
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|
o |
Accumulation
Credits: 7,500 |
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|
o |
Index Rate
Floor: 0.00% |
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|
o |
Index Rate
Cap: 6.00% |
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S&P 500 Growth Account |
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|
o |
Account
Value: $25,000 |
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|
o |
Accumulation
Credit Factor: $10 |
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|
o |
Accumulation
Credits: 2,500 |
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|
o |
Index Rate
Floor: -10.00% |
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|
|
o |
Index Rate
Cap: 15.00% |
As of the Contract Anniversary: |
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|
Contract
Anniversary: 10/10/2018 |
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Closing
Index Value: 1,200 |
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|
Days in
Contract Year: 365 |
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Average
daily value of the GLWB Benefit Base for the prior Contract Year: $100,000 |
Step 1: Calculate the Adjusted
Index Value
The Initial Index Value is 1,000 and the Closing Index Value is 1,200.
The Closing Index Value is greater than the Initial Index Value multiplied by the
result of 1 plus the Index Rate Cap for both the Secure and Growth Accounts. Therefore,
the Adjusted Index Value equals the Initial Index Value multiplied by the result
of 1 plus the Index Rate Cap. For the Secure Account, this is calculated as 1,000
multiplied by the result of 1 plus 0.06 which equals 1,060. For the Growth Account,
this is calculated as 1,000 multiplied by the result of 1 plus 0.15 which equals
1,150.
Step 2: Calculate the Index Rate
of Return
The Index Rate of Return is equal to the Adjusted Index Value divided
by the Initial Index Value. For the Secure Account, this is calculated as 1,060
divided by 1,000 which equals 1.06 (6% increase from Initial Index Value). For the
Growth Account, this is calculated as 1,150 divided by 1,000 which equals 1.15 (15%
increase from Initial Index Value).
Step 3: Calculate the Risk Control
Account Daily Contract Fee
The Risk Control Account Daily Contract Fee is equal
to the Contract Fee divided by the number of days in the Contract Year multiplied
by the Accumulation Credit Factor at the start of the Contract Year. For both the
Secure and Growth Accounts, this is equal to 0.75% divided by 365 multiplied by
$10 which equals $0.000205479.
Step 4: Calculate the Accumulation
Credit Factor
The Accumulation Credit Factor is equal to the Accumulation Credit
Factor at the start of the Contract Year multiplied by the Index Rate of Return
less the result of the Risk Control Account Daily Contract Fee multiplied by the
number of days that have passed since the last Contract Anniversary. For the Secure
Account, this is equal to $10 multiplied by 1.06 less the result of $0.000205479
multiplied by 365 which equals $10.53. For the Growth Account, this is equal to
$10 multiplied by 1.15 less the result of $0.000205479 multiplied by 365 which equals
$11.43.
Step 5: Calculate the Risk Control
Account Value.
The Risk Control Account Value is equal to the number of Accumulation
Credits multiplied by the ending Accumulation Credit Factor. For the Secure Account,
this is equal to 7,500 multiplied by $10.53 which equals $78,937.50. For the Growth
Account, this is equal to 2,500 multiplied by $11.43 which equals $25,562.50. This
is an increase of $3,937.50 for the Secure Account ($78,937.50 $75,000 =
$3,937.50) and an increase of $3,562.50 for the Growth Account ($25,562.50
$25,000 = $3,562.50). After the $500 GLWB Rider Fee is deducted Pro Rata from each
account, the Secure Account increased $3,570.35 and the Growth Account increased
$3,429.65.
25
Example 2: This example illustrates how
interest would be credited based on the return of the Index and subject to the Index
Rate Cap and Index Rate Floor. In this example, the return on the Index is less
than the Index Rate Cap and greater than the Index Rate Floor.
Assume the following information:
As of the Allocation Option Start Date: |
|
|
Allocation Option Start Date: 10/10/2017 |
|
|
Initial Index Value: 1,000 |
|
|
Contract Fee: 0.75% |
|
|
GLWB Rider Fee: 0.50% |
|
|
S&P 500 Secure Account |
|
|
|
o |
Account
Value: $75,000 |
|
|
|
o |
Accumulation
Credit Factor: $10 |
|
|
|
o |
Accumulation
Credits: 7,500 |
|
|
|
o |
Index Rate
Floor: 0.00% |
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|
o |
Index Rate
Cap: 6.00% |
|
|
S&P 500 Growth Account |
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|
|
o |
Account
Value: $25,000 |
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|
|
o |
Accumulation
Credit Factor: $10 |
|
|
|
o |
Accumulation
Credits: 2,500 |
|
|
|
o |
Index Rate
Floor: -10.00% |
|
|
|
o |
Index Rate
Cap: 15.00% |
As of the Contract Anniversary: |
|
|
Contract
Anniversary: 10/10/2018 |
|
|
Closing
Index Value: 1,030 |
|
|
Days in
Contract Year: 365 |
|
|
Average
daily value of the GLWB Benefit Base for the prior Contract Year: $100,000 |
Step 1: Calculate the Adjusted Index
Value
The Initial Index Value is 1,000 and the Closing Index Value is 1,030.
The Closing Index Value is less than the Initial Index Value multiplied by the result
of 1 plus the Index Rate Cap, but it is more than the Initial Index Value multiplied
by the result of 1 plus the Index Rate Floor for both the Secure and Growth Accounts.
Therefore, the Adjusted Index Value equals the Closing Index Value which is 1,030.
Step 2: Calculate the Index Rate
of Return
The Index Rate of Return is equal to the Adjusted Index Value divided
by the Initial Index Value. For the Secure Account, this is calculated as 1,030
divided by 1,000 which equals 1.03 (3% increase from Initial Index Value). For the
Growth Account, this is calculated as 1,030 divided by 1,000 which equals 1.03 (3%
increase from Initial Index Value).
Step 3: Calculate the Risk Control
Account Daily Contract Fee
The Risk Control Account Daily Contract Fee is equal
to the Contract Fee divided by the number of days in the Contract Year multiplied
by the Accumulation Credit Factor at the start of the Contract Year. For both the
Secure and Growth Accounts, this is equal to 0.75% divided by 365 multiplied by
$10 which equals $0.000205479.
Step 4: Calculate the Accumulation
Credit Factor
The Accumulation Credit Factor is equal to the Accumulation Credit
Factor at the start of the Contract Year multiplied by the Index Rate of Return
less the result of the Risk Control Account Daily Contract Fee multiplied by the
number of days that have passed since the last Contract Anniversary. For the Secure
Account, this is equal to $10 multiplied by 1.03 less the result of $0.000205479
multiplied by 365 which equals $10.225. For the Growth Account, this is equal to
$10 multiplied by 1.03 less the result of $0.000205479 multiplied by 365 which equals
$10.225.
26
Step 5: Calculate the Risk Control
Account Value.
The Risk Control Account Value is equal to the number of Accumulation
Credits multiplied by the ending Accumulation Credit Factor. For the Secure Account,
this is equal to 7,500 multiplied by $10.225 which equals $76,687.50. For the Growth
Account, this is equal to 2,500 multiplied by $10.225 which equals $25,562.50. This
is an increase of $1,687.50 for the Secure Account ($76,687.50 $75,000 =
$1,687.50) and an increase of $562.50 for the Growth Account ($25,562.50
$25,000 = $562.50). After the $500 GLWB Rider Fee is deducted Pro Rata from each
account, the Secure Account increased $1,312.50 and the Growth Account increased
$437.50.
Example 3: This example illustrates how
interest would be credited based on the return of the Index and subject to the Index
Rate Cap and Index Rate Floor. In this example, the return on the Index is less
than the Index Rate Floor.
Assume the following information:
As of the Allocation Option Start Date: |
|
|
Allocation Option Start Date: 10/10/2017 |
|
|
Initial Index Value: 1,000 |
|
|
Contract Fee: 0.75% |
|
|
GLWB Rider Fee: 0.50% |
|
|
S&P 500 Secure Account |
|
|
|
o |
Account
Value: $75,000 |
|
|
|
o |
Accumulation
Credit Factor: $10 |
|
|
|
o |
Accumulation
Credits: 7,500 |
|
|
|
o |
Index Rate
Floor: 0.00% |
|
|
|
o |
Index Rate
Cap: 6.00% |
|
|
S&P 500 Growth Account |
|
|
|
o |
Account
Value: $25,000 |
|
|
|
o |
Accumulation
Credit Factor: $10 |
|
|
|
o |
Accumulation
Credits: 2,500 |
|
|
|
o |
Index Rate
Floor: -10.00% |
|
|
|
o |
Index Rate
Cap: 15.00% |
As of the Contract Anniversary: |
|
|
Contract
Anniversary: 10/10/2018 |
|
|
Closing
Index Value: 850 |
|
|
Days in
Contract Year: 365 |
|
|
Average
daily value of the GLWB Benefit Base for the prior Contract Year: $100,000 |
Step 1: Calculate the Adjusted Index
Value
The Initial Index Value is 1,000 and the Closing Index Value is 850. The
Closing Index Value is less than the Initial Index Value multiplied by the result
of 1 plus the Index Rate Floor for both the Secure and Growth Accounts. Therefore,
the Adjusted Index Value equals the Initial Index Value multiplied by the result
of 1 plus the Index Rate Floor. For the Secure Account, this is calculated as 1,000
multiplied by the result of 1 plus 0.00 which equals 1,000. For the Growth Account,
this is calculated as 1,000 multiplied by the result of 1 plus -0.10 which equals
900.
Step 2: Calculate the Index Rate
of Return
The Index Rate of Return is equal to the Adjusted Index Value divided
by the Initial Index Value. For the Secure Account, this is calculated as 1,000
divided by 1,000 which equals 1.00 (0% increase from the Initial Index Value). For
the Growth Account, this is calculated as 1,000 divided by 900 which equals 0.90
(10% decrease from Initial Index Value).
27
Step 3: Calculate the Risk Control
Account Daily Contract Fee
The Risk Control Account Daily Contract Fee is equal
to the Contract Fee divided by the number of days in the Contract Year multiplied
by the Accumulation Credit Factor at the start of the Contract Year. For both the
Secure and Growth Accounts, this is equal to 0.75% divided by 365 multiplied by
$10 which equals $0.000205479.
Step 4: Calculate the Accumulation
Credit Factor
The Accumulation Credit Factor is equal to the Accumulation Credit
Factor at the start of the Contract Year multiplied by the Index Rate of Return
less the result of the Risk Control Account Daily Contract Fee multiplied by the
number of days that have passed since the last Contract Anniversary. For the Secure
Account, this is equal to $10 multiplied by 1.00 less the result of $0.000205479
multiplied by 365 which equals $9.925. For the Growth Account, this is equal to
$10 multiplied by 0.90 less the result of $0.000205479 multiplied by 365 which equals
$8.925.
Step 5: Calculate the Risk Control
Account Value.
The Risk Control Account Value is equal to the number of Accumulation
Credits multiplied by the ending Accumulation Credit Factor. For the Secure Account,
this is equal to 7,500 multiplied by $9.925 which equals $74,437.50. For the Growth
Account, this is equal to 2,500 multiplied by $8.925 which equals $22,312.50. This
is a decrease of $562.50 for the Secure Account ($74,437.60 $75,000 = -$562.50)
and a decrease of $2,687.50 for the Growth Account ($22,312.50 $25,000 =
-$2,687.50). After the $500 GLWB Rider Fee is deducted Pro Rata from each account,
the Secure Account decreased $947.19 and the Growth Account decreased $2,802.81.
Addition or Substitution of
an Index. The same Index will be used for each Risk Control Account
for the duration of the Allocation Option Period. However, 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 that Index is materially
changed, we may substitute a suitable Index that will be used for the remainder
of the Allocation Option Period. We reserve the right to add or substitute the
Index. If we substitute an Index, the performance of the new Index may differ from
the original Index. This, in turn, may affect the interest credited to the Risk
Control Account and the interest you earn under the Contract. We will not substitute
an Index until that Index has been approved by the insurance department in your
state.
In the unlikely event that we substitute
the Index, we will attempt to add a suitable alternative index that is substantially
similar to the Index being replaced on the same day that we remove the Index. If
a change in an Index is made during a Contract Year, Index interest will be calculated
from the Contract Anniversary until the date that the Index ceased to be available
and that index interest will be added to or subtracted from the index interest calculated
for the substitute Index from the date of substitution until the next Contract Anniversary.
If we are unable to substitute a new Index at the same time as an Index ceases to
be available there may be a brief interval between the date on which we remove the
Index and add a suitable alternative index as a replacement. In this situation,
your Contract Value will continue to be allocated to the Risk Control Accounts.
However, any credit to 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, GLWB Payment, surrender or annuitize the Contract,
or die during the interim period, we will apply 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.
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 your annual report unless earlier
written notice is necessary.
The Market Value Adjustment is calculated
separately for withdrawals from the Risk Control Accounts and Declared Rate Account.
The following transactions may occur or amounts may be withdrawn without incurring
a Market Value Adjustment:
28
|
|
Surrenders
or withdrawals under the Nursing Home or Hospital waiver or Terminal Illness withdrawal
waiver; |
|
|
Required
Minimum Distributions that are withdrawn under an automatic withdrawal program provided
by the Company; |
|
|
The Annual
Free Withdrawal Amount; |
|
|
Withdrawals on an Allocation Option Maturity Date; |
|
|
Death Benefit
proceeds; |
|
|
GLWB Payments; |
|
|
Contract
Value applied to an Income Payout Option; |
|
|
Transfers
and allocation changes as part of automatic rebalancing; and |
|
|
Withdrawals
made under the Bailout Provision. |
If you surrender your Contract or take a
partial withdrawal during the Accumulation Period, we will apply the Market Value
Adjustment to the amount being surrendered. No withdrawals or surrenders can be
taken once income payments begin. Therefore, no Market Value Adjustment will apply after the end of the Accumulation Period.
IMPORTANT: The Market Value Adjustment
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 and previously
credited interest due to the Market Value Adjustment regardless of the Allocation
Options to which you allocated Contract Value. You directly bear the investment
risk associated with a Market Value Adjustment. You should carefully consider your
income needs before purchasing the Contract.
Purpose of the Market Value Adjustment
The Market Value Adjustment is an adjustment
that may be made to the amount you receive if you surrender the Contract or take
a partial withdrawal from the Risk Control Accounts or Declared Rate Account during the Accumulation Period.
Withdrawals from maturing Allocation Options on the Allocation Option Maturity Date
will not be assessed a Market Value Adjustment. In general, if interest rate levels
have increased at the time of surrender or partial withdrawal over their levels
at the Allocation Option Start Date, the Market Value Adjustment will be negative.
Conversely, in general, if interest rate levels have decreased at the time of surrender
or partial withdrawal over their levels at the Allocation Option Start Date, the
Market Value Adjustment will be positive.
The Market Value Adjustment reflects, in
part, the difference in yield of the Constant Maturity Treasury rate for a period
consistent with the Allocation Option Period beginning on the Allocation Option
Start Date and the yield of the Constant Maturity Treasury rate for a period starting
on the date of surrender or partial withdrawal and ending on the Allocation Option
Maturity Date. The Constant Maturity Treasury rate is a rate representing the average
yield of various Treasury securities. The calculation also reflects in part the
difference between the effective yield of the ICE BofAML Index 1-10 Year U.S. Corporate
Constrained Index, Asset Swap Spread (the ICE BofAML Index), a rate
representative of investment grade corporate debt credit spreads in the U.S., on
the Allocation Option Start Date and the effective yield of the ICE BofAML Index
at the time of surrender or partial withdrawal. The greater the difference in those
yields, respectively, the greater the effect the Market Value Adjustment will have.
In general, if the Constant Maturity Treasury rate and ICE BofAML Index have increased
at the time of surrender or partial withdrawal over their levels at the Allocation
Option Start Date, the Market Value Adjustment 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 ICE BofAML Index have decreased at the
time of surrender or partial withdrawal over their levels at the Allocation Option
Start Date, the Market Value Adjustment will be positive and will increase the Surrender
Value or amount you receive from a partial withdrawal.
29
The Company uses both the Constant Maturity
Treasury rate and ICE BofAML Index in determining any Market Value Adjustment since
together both indices represent a broad mix of investments whose values may be affected
by changes in market interest rates.
We will increase the amount you will be
paid from a partial withdrawal by the amount of any positive Market Value Adjustment,
and in the case of a surrender of the Contract, we will increase your Surrender
Value by the amount of any positive Market Value Adjustment. Conversely, we will
decrease the amount you will be paid from a partial withdrawal by the amount of
any negative Market Value Adjustment, and in the case of a surrender of the Contract,
we will decrease your Surrender Value by the amount of any negative Market Value
Adjustment.
The Market Value Adjustment 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 Allocation Option Start
Date to the time of a surrender or partial withdrawal.
Market Value Adjustment Formula
A withdrawal may be adjusted (increased
or decreased) by the Market Value Adjustment. The Market Value Adjustment is calculated
separately for each Allocation Option. On any given Business Day, it is calculated
using the following formula:
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MVA = W x (MVAF 1) |
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Where W = amount of withdrawal that is in excess of the Annual Free Withdrawal Amount
for that Contract Year. |
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MVAF = ((1 + I + K)/(1 + J + L))^N |
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I |
= |
The Constant
Maturity Treasury rate as of the Allocation Option Start Date for a maturity consistent
with the Allocation Option Period of six years. |
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J |
= |
The Constant
Maturity Treasury rate as of the date of withdrawal for a maturity consistent with
the remaining number of years (whole and partial) in the Allocation Option Period
of six years. |
|
K |
= |
The ICE
BofAML Index as of the Allocation Option Start Date. |
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L |
= |
The ICE
BofAML Index as of the date of withdrawal. |
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N |
= |
The number
of years (whole and partial) from the date of withdrawal until the Allocation Option
Maturity Date. |
We determine I based on the Allocation Option
Period. For example, for an Allocation Option Period of six years, I corresponds
to the 6-year Constant Maturity Treasury rate on the Allocation Option Start Date.
We determine J when you take a partial withdrawal or surrender. For example, for
an Allocation Option Period of six years, if you surrender the Contract two years
into the Allocation Option Period, J would correspond to the Constant Maturity Treasury
rate consistent with the time remaining in the Allocation Option Period of four
years (4 = 6 - 2). For I and J where there is no Constant Maturity Treasury rate
declared, we will use linear interpolation of the Constant Maturity Rates Index
with maturities closest to I and J to determine I and J.
The value of K and L on any Business Day
will be equal to the closing value of the ICE BofAML Index on the previous Business
Day.
30
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 a Market Value Adjustment
index, we will notify you in writing of the substitution.
For examples of how we calculate Market
Value Adjustments, see Appendix A to this Prospectus.
If you surrender the Contract, you will
receive the Surrender Value, as of the Business Day we received your Authorized
Request in Good Order. The Surrender Value is equal to your Contract Value at the
end of the Valuation Period in which we receive your Authorized Request, less any
applicable Contract Fee, GLWB Rider Fee, and Surrender Charge, and adjusted for
any applicable Market Value Adjustment.
Upon payment of the Surrender Value, the
Contract is terminated, and we have no further obligation under the Contract or
Guaranteed Lifetime Withdrawal Benefit. We may require that the Contract be returned
to our Administrative Office prior to making payment. The Surrender Value will not
be less than the amount required by applicable state law. We will pay you the amount
you request in connection with a full surrender by withdrawing Contract Value in
the Declared Rate Account and redeeming Accumulation Credits from the Risk Control
Accounts, if applicable.
Partial Withdrawals
All withdrawals other than GLWB Payments
are Excess Withdrawals and will proportionally reduce the Death Benefit and GLWB
Benefit Base by the ratio of the withdrawal to the Contract Value immediately prior
to the withdrawal. This means the Death Benefit and GLWB Benefit Base may decrease
by more than the amount of the withdrawal, and that decrease could be significant.
This will also decrease the GLWB Payment. Partial withdrawals could terminate the
Contract.
At any time during the Accumulation Period
you may make partial withdrawals by Authorized Request in Good Order. The minimum
partial withdrawal amount is $100. Withdrawals will be processed Pro Rata from the
Contract Value in all Allocation Options. Any applicable Surrender Charge and Market
Value Adjustment will affect the amount available for a partial withdrawal. We will
pay you the amount you request in connection with a partial withdrawal by reducing
Contract Value in the Declared Rate Account and redeeming Accumulation Credits from
the appropriate Risk Control Accounts, if applicable.
Partial withdrawals for less than $25,000
are permitted by telephone and in writing. The written consent of all Owners must
be obtained before we will process the partial withdrawal. If an Authorized Request
in Good Order is received by 4:00 P.M. Eastern Time, it will be processed that day.
If an Authorized Request in Good Order is received after 4:00 P.M. Eastern Time,
it will be processed on the next Business Day. If a partial withdrawal other than
a GLWB Payment 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. Before processing the full surrender, we will attempt to contact you or
your financial professional to provide the opportunity for you to take a lower amount
to maintain a Surrender Value of at least $2,000. If we are unable to contact you
within one Business Day after receiving your request, we will process the full surrender.
Partial withdrawals may be subject to Surrender
Charges and a Market Value Adjustment. See Fees and Expenses 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.
31
Annual Free Withdrawal Amount.
Your Annual Free Withdrawal Amount is equal to 10% of the Contract
Value at the beginning of the Contract Year and represents the amount that can be
withdrawn without incurring a Surrender Charge or Market Value Adjustment in a Contract
Year. Any unused Annual Free Withdrawal Amount will not carry over to any subsequent
Contract Year. GLWB Payments will reduce the Annual Free Withdrawal Amount but will
not be subject to a Surrender Charge or Market Value Adjustment.
The Annual Free Withdrawal Amount is subtracted
from surrenders for purposes of calculating the Surrender Charge and Market Value
Adjustment.
Systematic Withdrawals. Reoccurring withdrawals are referred to as systematic withdrawals.
GLWB Payments and Required Minimum Distributions are the only systematic withdrawals
permitted under the Contract. If elected at the time of the application or requested
at any other time by Authorized Request in Good Order, you may elect to receive
periodic partial withdrawals under our systematic withdrawal plan. Under the systematic
withdrawal plan, we will make partial withdrawals (on a monthly, quarterly, semi-annual,
or annual basis), as specified by you. Systematic Withdrawals other than GLWB Payments
must be at least $100 each. Systematic withdrawals may be requested on the following
basis:
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Total systematic
withdrawals for the calendar year equal to your annual Required Minimum Distribution;
or |
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Total systematic
withdrawals for the Contract Year equal to your annual GLWB Payment. |
Required Minimum Distribution systematic
withdrawals can be terminated by Authorized Request in Good Order. GLWB Payments
cannot be terminated.
Systematic withdrawals will be deducted
on a Pro Rata basis from all your Allocation Options. No Surrender Charge or Market
Value Adjustment will be deducted for systematic withdrawals.
If Required Minimum Distributions are
taken prior to the GLWB Payment Start Date, they will be treated as Excess Withdrawals
and will reduce the GLWB Benefit Base and Death Benefit, perhaps by more than the
amount of the withdrawal. GLWB Payments are treated as partial withdrawals and
will reduce the Death Benefit by the amount of the GLWB Payment. If the Required
Minimum Distribution is greater than the GLWB Payment, an amount equal to the Required
Minimum Distribution can be taken after the GLWB Payment Start Date and will not
be treated as an Excess Withdrawal.
Waiver of Surrender Charges. We will waive the Surrender Charge and Market Value Adjustment in
the case of a partial withdrawal or surrender where the Owner or Annuitant qualifies
for the Nursing Home or Hospital 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. Each waiver may be exercised only one time.
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|
Nursing
Home or Hospital Waiver. We will not deduct a Surrender Charge or assess
a Market Value Adjustment 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 the Owner or
Annuitant. We require verification of confinement to the Nursing Home or Hospital,
and such verification must be signed by the administrator of the facility. |
32
|
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|
Terminal
Illness Waiver. We will not deduct a Surrender Charge or apply a Market
Value Adjustment in the case of a partial withdrawal or surrender where any Owner
or Annuitant has a life expectancy of 12 months or less due to illness or accident.
As proof, we require a determination of the Terminal Illness. Such determination
must be signed by the licensed 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. |
The laws of your state may limit the availability
of the Surrender Charge and Market Value Adjustment waivers and may also change
certain terms and/or benefits under the waivers. You should consult Appendix B to
this Prospectus for further details on these variations. Also, even if you do not
pay a Surrender Charge and Market Value Adjustment 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.
Surrenders
You may surrender your Contract for the
Surrender Value at any time during the Accumulation Period by Authorized Request.
If an Authorized Request in Good Order is received before 4:00 P.M. Eastern Time
on a Business Day, it will be processed that day. If an Authorized Request in Good
Order is received at or after 4:00 P.M. Eastern Time on a Business Day or on a non-Business
Day, it will be processed on the next Business Day.
To surrender your Contract, you must make
an Authorized Request in Good Order to our Administrative Office. The consent of
all Owners must be obtained before the Contract is surrendered.
Surrender Charges and a Market Value Adjustment
may apply to your Contract surrender. A Pro Rata portion of the GLWB Rider Fee will
be deducted upon surrender. 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.
Right to Defer Payments
We reserve the right to postpone payment
for up to six months after we receive your Authorized Request in Good Order, subject
to obtaining prior written approval by the state insurance commissioner if required
by the law of the state in which we issued the Contract. In the event we postpone
payment, we will pay interest on the proceeds if required by state law, calculated
at the effective annual rate and for the time period required under state law.
Bailout Provision
We will set a single Bailout Rate for all
Risk Control Accounts under the Secure Account option and a 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 and will not change during
the life of your Contract.
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 Market Value Adjustment.
Specifically, if the Index 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 without incurring any Surrender Charge and without the application
of any Market Value Adjustment during the 30-day period following the Contract Anniversary.
If the Index Rate Cap is equal to or more than the Bailout Rate, you cannot withdraw
Risk Control Account Values under the Bailout Provision.
You will receive at least two weeks
advance notice of new Index Rate Caps prior to each Contract Anniversary. The notice
of new Index Rate Caps will also inform you if the Bailout Provision has been triggered
for any Risk Control Account. We must receive your Authorized 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 and the withdrawal also reduces
your Death Benefit, perhaps by more than the amount of the withdrawal. If the Bailout
Provision has been triggered for a Risk Control Account and we do not receive instructions
to withdraw those funds within this 30-day period or the request is not in Good
Order, the funds will remain in that Risk Control Account
and withdrawals or surrenders for the remainder of the Contract Year may be subject
to a Market Value Adjustment and Surrender Charge.
33
When the Index 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 allocations into that Risk Control Account. Allocation
instructions that include allocations to a Risk Control Account that is not available
will be considered not in Good Order and new instructions will be required.
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, the withdrawal is taxable as ordinary income.
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.
|
GUARANTEED
LIFETIME WITHDRAWAL BENEFIT |
|
The Contract automatically includes the
Guaranteed Lifetime Withdrawal Benefit. Subject to certain conditions, the Guaranteed
Lifetime Withdrawal Benefit provides for GLWB Payments to be made each year for
the life of the Covered Person(s) in the form of partial withdrawals without reducing
the value of GLWB Payments in future years. The GLWB Payment is the guaranteed lifetime
withdrawal amount. The GLWB Payment is guaranteed regardless of investment performance
and will continue even if the Contract Value is reduced to zero from GLWB Payments.
All withdrawals other than GLWB Payments are Excess Withdrawals that reduce the
Death Benefit, GLWB Benefit Base, and GLWB Payment, perhaps significantly, and could
terminate the Contract.
If you do not begin GLWB Payments before
all Covered Person(s) die or are removed from the Contract, the Guaranteed Lifetime
Withdrawal Benefit terminates, and you will not receive any payments under the Guaranteed
Lifetime Withdrawal Benefit.
GLWB Payments can begin on the first Contract
Anniversary or the Contract Anniversary following the 50th birthday of
the youngest Covered Person, whichever is later. If you begin GLWB Payments before
age 59½ the GLWB Payments may be subject to a 10% additional federal tax.
The GLWB Payment Start Date must be on a Contract Anniversary. Requests to start
receiving the GLWB Payment as of a Contract Anniversary must be received at least
one Business Day prior to the desired GLWB Payment Start Date.
The GLWB Payment is calculated on the GLWB
Payment Start Date. The GLWB Payment equals the GLWB Percentage multiplied by the
GLWB Benefit Base. The GLWB Percentage is a combination of the Base Withdrawal Percentage,
determined on the Contract Issue Date based on the Age of the younger Covered Person,
and the Annual Increase Percentage. The GLWB Benefit Base is initially equal to the Purchase Payment but will be reset on each Contract Anniversary to equal the current Contract Value if the current Contract Value is greater than the GLWB Benefit Base and will be reduced by Excess Withdrawals. See GLWB Payments for more details
on how the GLWB Payment, including the GLWB Percentage and GLWB Benefit Base, is
determined.
34
The full GLWB Payment must be taken each
year after the GLWB Payment Start Date. The Owner elects how to receive the GLWB
Payments, either as monthly, quarterly, semi-annual, or annual payments. If the
scheduled payment date does not fall on a Business Day, we will make the payment
on the next Business Day.
GLWB Payments continue during the life of
the Covered Person(s) unless the Guaranteed Lifetime Withdrawal Benefit is terminated.
Under the single life option, GLWB Payments will cease on the date of death of the
Covered Person. Under the joint life option, GLWB Payments will continue until the
date of death of the second Covered Person if the surviving Spouse continues the
Contract upon the death of Owner.
We may require proof that the Covered Person(s)
is living upon the date of any GLWB Payment while the Guaranteed Lifetime Withdrawal
Benefit is in effect.
GLWB Feature Risk
Guaranteed Lifetime Withdrawal
Benefit Feature Risk. The Contract is designed for persons
who seek to make annual lifetime withdrawals. A person should not purchase the Contract
seeking a short-term investment or in maximizing long-term accumulation. Purchasers
should consult with a financial representative to determine if the GLWB is suitable
for them based upon their financial needs and risk tolerance.
You should carefully consider when to begin
taking GLWB Payments. If GLWB Payments are elected earlier, GLWB Payments will be
lower and the Contract will have less time to accumulate value. However, earlier
GLWB Payments could result in receiving payments for a longer period of time. If
GLWB Payments are delayed, the Contract will have more time to accumulate value
which could result in higher payments and might result in a higher Death Benefit.
The Contract may not be suitable if you intend to take withdrawals or RMDs before
the GLWB Payment Start Date. Excess Withdrawals could significantly reduce the Death
Benefit, GLWB Benefit Base and GLWB Payments. Excess Withdrawals could also terminate
the Contract and would include any applicable Surrender Charge and Market Value
Adjustment. GLWB Payments will reduce the Death Benefit, Surrender Value, Contract
Value and the Annual Free Withdrawal Amount by the amount of the GLWB Payment.
The GLWB Payment is taken out of the Owners Contract Value unless the Contract Value is reduced to zero. The probability
of the Owner outliving their Contract Value and receiving the GLWB Payment from
the Companys general account may be minimal. The GLWB Payments are subject
to federal income tax and may be subject to a penalty tax if elected prior to age
59½. Any amounts paid by the Company in excess of the Contract Value are subject
to the Companys financial strength and claims paying ability.
The GLWB Rider Fee will be assessed whether
or not the Owner receives GLWB Payments.
GLWB Rider Fee
The GLWB Rider Fee is shown in the Fees
and Expenses section. The GLWB Rider Fee will be deducted Pro Rata from the
Contract Value in all Allocation Options on the Contract Anniversary. The GLWB Rider
Fee will be deducted prior to any other transactions on the Contract Anniversary.
No Surrender Charge or Market Value Adjustment will be applied as a result of the
deduction of the GLWB Rider Fee.
The GLWB Rider Fee will terminate on the
earliest of:
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The date
the Contract Value is equal to zero; and |
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The date
the Guaranteed Lifetime Withdrawal Benefit terminates. |
The GLWB Rider Fee is calculated as a percentage
of the average daily value of the GLWB Benefit Base for the prior Contract Year.
The average daily value of the GLWB Benefit Base will equal the GLWB Benefit Base
as of the start of the Contract Year unless an Excess Withdrawal is taken. Because
Excess Withdrawals reduce
35
the GLWB Benefit Base, the reduced GLWB Benefit Base will
be used in the average daily value calculation in the event of an Excess Withdrawal.
In that case, the average daily value of the GLWB Benefit Base will equal to the
sum of each GLWB Benefit Base for the prior Contract Year multiplied by the number
of days it applied and divided by the number of days in the Contract Year.
The portion of the GLWB Rider Fee that is
accrued but not yet deducted will be deducted upon surrender and termination of
the Guaranteed Lifetime Withdrawal Benefit.
The GLWB Rider Fee is assessed even if GLWB
Payments are never made.
Termination of the Guaranteed Lifetime
Withdrawal Benefit
The Guaranteed Lifetime Withdrawal Benefit
will terminate and all rights under the Guaranteed Lifetime Withdrawal Benefit will
terminate upon the date any of the follow occur:
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The death
of all Covered Persons; |
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Payment of
a Death Benefit; |
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All Covered
Persons are removed from the Contract; |
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The Contract
is surrendered or otherwise terminated; or |
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The Contract
Value is applied to an Income Payout Option. |
On the date the Guaranteed Lifetime Withdrawal
Benefit terminates we will deduct any GLWB Rider Fee that was accrued but not yet
deducted as the final GLWB Rider Fee.
If a GLWB Payment or investment performance
causes the Contract Value to be reduced to zero, GLWB Payments will not terminate.
Changes to the Covered Person(s)
After the Contract Issue Date, you cannot
add, remove or replace a Covered Person, even if you add or change an Owner, Annuitant,
or Beneficiary except as described in this Prospectus. If a Covered Person is no
longer an Owner, Joint Owner, Annuitant, or Beneficiary as required above, we will
remove that person from the Contract and they will no longer be a Covered Person.
Once we remove a Covered Person, the Covered Person cannot be reinstated. If at
any time joint Covered Persons are no longer Spouses, you must send us notice of
the divorce by Authorized Request. Upon receiving such notice, we will remove one
former Spouse from the Contract as a Covered Person as indicated by the divorce
or settlement decree, as applicable. If the Contract Owner is not a natural person,
the Annuitant is the Covered Person.
If a Covered Person is removed and there
is a remaining Covered Person, the following will occur:
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If the
Covered Person was removed before the GLWB Payment Start Date, joint GLWB Payments
will not be available |
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If joint
GLWB Payments have already started, we will continue to pay joint GLWB Payments
to the Owner as long as the remaining Covered Person is living. |
If a Covered Person is removed and there
is no Covered Person remaining, the Guaranteed Lifetime Withdrawal Benefit will
terminate and GLWB Payments will cease.
GLWB Payments
The GLWB Payment is the guaranteed lifetime
withdrawal amount. The annual GLWB Payment is equal to the GLWB Percentage multiplied
by the GLWB Benefit Base. The GLWB Payment will only decrease if you take an Excess
Withdrawal.
36
The GLWB Benefit Base and therefore the
GLWB Payment is recalculated on each Contract Anniversary and on any date an Excess
Withdrawal is taken.
GLWB Percentage:
The GLWB Percentage is determined on the GLWB Payment Start Date and will not
change. It is calculated using the following formula:
|
GLWB Percentage
= B + I x Y, where |
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B= The Base
Withdrawal Percentage. |
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I = The Annual
Increase Percentage. |
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Y = The number
of completed Contract Years from the Contract Issue Date until the GLWB Payment
Start Date, subject to the maximum of 10 years. |
The Base Withdrawal Percentage and Annual
Increase Percentage are determined based on your election of single life or joint
life option rates using the Age of the younger Covered Person(s) on the Contract
Issue Date.
We establish the Base Withdrawal Percentage
and Annual Increase Percentage on the Contract Issue Date and will not change them
for the life of the Contract. The Base Withdrawal Percentage and the Annual Increase
Percentage are stated in the GLWB Supplement which accompanies this Prospectus.
GLWB Benefit Base:
The GLWB Benefit Base is initially equal to the Purchase Payment but will
be reset each Contract Anniversary or on any day an Excess Withdrawal is taken.
On each Contract Anniversary, unless the Guaranteed Lifetime Withdrawal Benefit
is terminated, if the current Contract Value is greater than the current GLWB Benefit
Base, the GLWB Benefit Base will be reset to equal the current Contract Value. The
GLWB Benefit Base is used only to determine the GLWB Payment and GLWB Rider Fee.
The GLWB Benefit Base is not available for surrender or withdrawal.
The GLWB Benefit Base will be impacted by
Excess Withdrawals as described later in this section.
Example of the GLWB Payment Calculation:
Assume the following: |
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There is one
Covered Person. |
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On the Contract
Issue Date, the Covered Person is Age 55. |
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The Base Withdrawal
Percentage is equal to 3.0% for the single life option for a 55-year-old. |
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The Annual
Increase Percentage is 0.40% for the single life option for a 55-year-old. |
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The Contract
Issue Date is 7/25/2019. |
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The GLWB Payment
Start Date is 7/25/2026. |
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The GLWB Benefit
Base is $250,000. |
The GLWB Percentage equals the Base Withdrawal
Percentage of 3.0% plus the Annual Increase Percentage of 0.40% multiplied by the
number of completed Contract Years from the Contract Issue Date until the GLWB Payment
Start Date, subject to the maximum of 10 years. The number of Completed Contract
Years is 7, which is less than the maximum of 10, so 7 will be used in the calculation.
Therefore, the GLWB Percentage = 3.0% + 0.40% x 7 = 5.8%.
The annual GLWB Payment is equal to the
GLWB Percentage of 5.8% multiplied by the GLWB Benefit Base of $250,000. Therefore,
the annual GLWB Payment = 5.8% x $250,000 = $14,500.
Treatment of GLWB Payment Withdrawals
GLWB Payments are treated as a withdrawal
from the Contract Value and are taken Pro Rata from the
37
Allocation Options at the
time of the withdrawal. GLWB Payments reduce the Contract Value, the Surrender Value,
and the Death Benefit by the amount of the GLWB Payment on a dollar for dollar basis.
GLWB Payments do not reduce the GLWB Benefit Base.
While the Guaranteed Lifetime Withdrawal
Benefit is in effect, the Contract will not terminate if a GLWB Payment causes the
Surrender Value to be less than $2,000.
GLWB Payments are not subject to Surrender
Charge or Market Value Adjustment. The GLWB Payment will count toward the Annual
Free Withdrawal Amount. We deduct each GLWB Payment and any additional RMD payment
proportionally from each Allocation Option.
If a GLWB Payment or investment performance
causes the Contract Value to be zero, we will continue to pay the GLWB Payments
until the death of all Covered Persons and the frequency of the GLWB Payments will
remain the same as what was previously elected. In that event, the Allocation Options
will no longer be available for investment.
If the date of birth of the Covered Person(s)
is misstated, the GLWB Payment will be adjusted based on the correct date of birth
of the Covered Person(s). Any underpayment will be added to the next payment. Any
overpayment will be subtracted from future payments. No interest will be credited
or charged to any underpayment or overpayment adjustments.
Impact of Excess Withdrawals on the GLWB Payment
All withdrawals other than GLWB Payments
are Excess Withdrawals that reduce the Death Benefit, GLWB Benefit Base, and GLWB
Payment, perhaps significantly, and could terminate the Contract.
An Excess Withdrawal is the portion of a
withdrawal that, when added to other withdrawals during the current Contract Year,
is greater than the total GLWB Payment for the current Contract Year. Excess Withdrawals
will proportionally reduce the GLWB Benefit Base and the Death Benefit by the ratio
of the Excess Withdrawal to the Contract Value immediately prior to the Excess Withdrawal.
This means the Death Benefit and GLWB Benefit Base may decrease by more than the
amount of the Excess Withdrawal, and that decrease could be significant. This will
also decrease the GLWB Payment proportionally. Excess Withdrawals could terminate
the Contract. Excess Withdrawals include withdrawals and RMDs prior to the GLWB
Payment Start Date and deductions for any applicable Surrender Charge and Market
Value Adjustment. Excess Withdrawals do not include amounts we withdraw for the
GLWB Rider Fee.
Any portion of a withdrawal taken after
the GLWB Payment Start Date that is not an Excess Withdrawal will be treated as
a GLWB Payment. If a withdrawal is made after the GLWB Payment Start Date, the remaining
GLWB Payment for the current Contract Year will be adjusted to reflect the withdrawal.
If the withdrawal when added to the amount of all withdrawals during the current
Contract Year (including GLWB Payments) is greater than the GLWB Payment for the
current Contract Year, no further GLWB Payments will be made during that Contract
Year. Otherwise, the remaining GLWB Payment for the current Contract Year is equal
to the GLWB Payment reduced by the amount of all withdrawals during the current
Contract Year (including prior GLWB Payments).
If an Excess Withdrawal reduces the Surrender
Value to less than $2,000, the Guaranteed Lifetime Withdrawal Benefit will terminate
and GLWB Payments will cease.
Examples of GLWB Benefit Base
Calculation after an Excess Withdrawal:
Example 1. This example assumes the Contract
Value is greater than the GLWB Benefit Base at the time of the withdrawal.
Assume the following information: |
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The GLWB Benefit
Base prior to the withdrawal is $100,000. |
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The total
withdrawal is $20,000. |
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The GLWB Percentage
is 5.00% and the GLWB Payment is $5,000. |
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The Excess
Withdrawal (including Surrender Charges and Market Value Adjustments) is $15,000. |
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The Contract
Value at the time of the withdrawal is $110,000. |
Step 1: Calculate the ratio of the
withdrawal to the Contract Value immediately prior to the withdrawal:
Ratio =
Excess Withdrawal / (Contract Value immediately prior to the Excess Withdrawal)
= $15,000 / $110,000 = 0.136364
Step 2: Calculate the reduction to
GLWB Benefit Base:
Reduction to the GLWB Benefit Base = Ratio
x GLWB Benefit Base prior to the withdrawal = 0.136364 x $100,000 = $13,636.40
Step 3: Calculate the GLWB Benefit
Base adjusted for Excess Withdrawals:
GLWB Benefit Base adjusted for Excess Withdrawals
= GLWB Benefit Base prior to withdrawal Reduction to GLWB Benefit Base =
$100,000 - $13,636.40 = $86,363.60. The new GLWB Payment would be GLWB Benefit Base
x GLWB Percentage = $86,363.60 x 5.00% = $4,318.18.
Example 2. This example assumes the Contract
Value is less than the GLWB Benefit Base at the time of the withdrawal.
Assume the following information |
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The GLWB Benefit
Base prior to the withdrawal is $100,000. |
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The total
withdrawal is $20,000. |
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The GLWB Percentage
is 5.00% and the GLWB Payment is $5,000. |
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The Excess
Withdrawal (including Surrender Charges and Market Value Adjustments) is $15,000. |
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The Contract
Value at the time of the withdrawal is $60,000. |
Step 1: Calculate the ratio of the
withdrawal to the Contract Value immediately prior to the withdrawal:
Ratio =
Excess Withdrawal / (Contract Value immediately prior to the Excess Withdrawal)
= $15,000 / $60,000 = 0.25
Step 2: Calculate the reduction to
GLWB Benefit Base:
Reduction to the GLWB Benefit Base = Ratio x GLWB Benefit
Base prior to the withdrawal = 0.25 x $100,000 = $25,000.
Step 3: Calculate the GLWB Benefit
Base adjusted for Excess Withdrawals:
GLWB Benefit Base adjusted for Excess Withdrawals
= GLWB Benefit Base prior to withdrawal Reduction to GLWB Benefit Base =
$100,000 25,000 = $75,000. The new GLWB Payment would be GLWB Benefit Base
x GLWB Percentage = $75,000 x 5.00% = $3,750.
As illustrated in Example 2, the GLWB Benefit
Base calculation may result in a reduction in the GLWB Benefit Base that is significantly
larger than the withdrawal amount.
GLWB Supplement Information
The Base Withdrawal Percentage and Annual
Increase Percentage are stated in the GLWB Supplement you receive when you purchase
your Contract and are in effect when your Contract is issued. We cannot change these
terms for your Contract once they are established.
You should not purchase this Contract without
first obtaining the applicable GLWB Supplement. Please contact us at 1-800-798-5500,
or contact your financial professional, to obtain the current GLWB Supplement. We
will also file any changes to the GLWB Supplement on EDGAR at www.sec.gov under
file number 333-228894. No new GLWB Supplement that supersedes a prior GLWB Supplement
will become effective unless written notice of effectiveness of the new GLWB Supplement
is given at least seven calendar days in advance. In the future, we will include
historical GLWB Supplement values in an appendix to this Prospectus.
39
Required Minimum Distribution Withdrawals
If the Contract is an Individual Retirement
Annuity (IRA), GLWB Payments may be used to satisfy your Required Minimum Distribution
(RMD) requirements. A withdrawal taken to satisfy RMD requirements prior to the
GLWB Payment Start Date will be treated as an Excess Withdrawal and will reduce
the GLWB Benefit Base and GLWB Payment and could terminate the Contract. You should
not begin RMDs before the GLWB Payment Start Date. If an Excess Withdrawal is taken,
any further RMDs taken during the Contract Year will be treated as Excess Withdrawals.
If the RMD associated with the Contract
exceeds the GLWB Payment, and you increase the GLWB Payment to meet your RMD requirements,
the additional funds withdrawn to satisfy RMD requirements after the GLWB Payment
Start Date will not be treated as an Excess Withdrawal and Surrender Charges and
Market Value Adjustments will not apply. The additional funds taken to satisfy an
RMD requirement will not reduce the GLWB Benefit Base or future GLWB Payments.
The RMD requirement for the Contract is
calculated by the Company based on the calendar year taken. The portion of the withdrawal
that is treated as an RMD may not be greater than the RMD of the current calendar
year less any amount previously withdrawn. For calendar years after the Contract
Value is reduced to zero, the GLWB Payments will be treated as the RMD payments
with respect to the Contract.
Spousal Continuation of the Guaranteed
Lifetime Withdrawal Benefit
If the sole primary Beneficiary is the surviving
Spouse of the deceased Owner, the surviving Spouse may elect to continue the Contract
as the new Owner. This benefit may only be exercised one time. If the Spouse elects
to continue the Contract as the new Owner, the Guaranteed Lifetime Withdrawal Benefit
will remain in effect if the surviving Spouse is a Covered Person. If this condition
is not met, the Guaranteed Lifetime Withdrawal Benefit will terminate, and we will
no longer assess the GLWB Rider Fee.
If the surviving Spouse elects to continue
the Contract and the Guaranteed Lifetime Withdrawal Benefit remains in effect, the
following will occur:
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If the
spousal continuation election is before the GLWB Payment Start Date, joint GLWB
Payments will not be available to the surviving Spouse. |
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If the
spousal continuation election is after the GLWB Payment Start Date, we will continue
to pay joint GLWB Payments to the surviving Spouse as long as the surviving Spouse
is living. |
Spousal continuation of a Contract does
not impact the GLWB Benefit Base or potential annual GLWB Benefit Base increases
on future Contract Anniversaries.
Death of the Owner during the Accumulation
Period
If the Owner dies during the Accumulation
Period (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:
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Proof of
Death of the Owner while the Contract is in force; |
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Our claim
form from each Beneficiary, properly completed; and |
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Any other
documents we require. |
If you die during the Accumulation Period,
your Beneficiary is entitled to a Death Benefit. If you have a Joint Owner, the
Death Benefit will be available when the first Joint Owner dies.
40
If there is a surviving Owner and that Owner
is the Spouse of the deceased Owner, the surviving Spouse will be treated as the
sole primary Beneficiary, and any other designated Beneficiary will be treated as
a contingent Beneficiary. The surviving Spouse may elect to continue the Contract
as the new Owner and the Guaranteed Lifetime Withdrawal Benefit will remain in effect
if the surviving Spouse is a Covered Person. See Guaranteed Lifetime Withdrawal
Benefit Spousal Continuation of the Guaranteed Lifetime Withdrawal Benefit and Death Benefit Spousal Continuation for more details.
The following Death Benefit options are
available:
Option A: If
the sole primary Beneficiary is the surviving Spouse of the deceased Owner, the
surviving Spouse may elect to continue the Contract as the new Owner. An individual
who does not meet the definition of Spouse may not be able to continue the Contract
for that persons lifetime. The individual must receive the proceeds of the
Contract and any attached endorsements or riders within the time period specified
in section 72(s) of the IRC.
Option B: If
the Beneficiary is a natural person, the Death Benefit proceeds will be applied
in accordance with IRC section 72(s) under one of the Income Payout Options. The
income payments must be made for the Beneficiarys life or a period not extending
beyond the Beneficiarys life expectancy. Payments must commence within one
year of the date of the Owners death.
Option C: A
Beneficiary may elect to receive, at any time, the Death Benefit proceeds in a single
lump sum not to extend beyond five years from the date of the Owners death.
Unless Option A or B is elected within 60
days of the date we receive Proof of Death or within one year of the date of the
Owners Death, whichever is earlier, the entire interest in the Contract will
be paid under Option C. Until payment of the Death Benefit proceeds, the proceeds
remain in the Contract. Death Benefit proceeds will be distributed 5 years from
the Owners death or earlier if requested by the Beneficiary. Interest, if
any, will be paid on the Death Benefit proceeds under Option C as required by applicable
state law.
If there are multiple Beneficiaries, each
Beneficiary will be able to elect to receive his or her share of the benefits under
either Option B or Option C within 60 days of the date we receive Proof of Death
or within one year of the Owners death, whichever is earlier. If a Beneficiary
does not make such an election during that period, their share of the Death Benefit
proceeds will be paid under Option C. Until payment of the Death Benefit proceeds,
the proceeds remain in the Contract. Death Benefit proceeds will be distributed
5 years from the Owners death or earlier if requested by the Beneficiary.
Interest, if any, will be paid on the Death Benefit proceeds under Option C as required
by applicable state law.
Death of the Annuitant during the Accumulation
Period
If an Annuitant dies during the Accumulation Period and there is a surviving Owner
who is a natural person, the following will occur: |
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If there
is a surviving Joint Annuitant, the surviving Joint Annuitant will become the Annuitant. |
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If there
is no Joint Annuitant, the Owner(s) will become the Annuitant(s). |
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If an Annuitant dies during the Accumulation Period and the Owner is not a natural
person, the following will occur: |
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If any
Annuitant dies during the Accumulation Period, the death of any Annuitant will be
treated as the death of the Owner and Death Benefit proceeds must be distributed
as required by IRC Section 72(s). Beneficiaries may receive these distributions
over time, as allowed by the IRC, by electing Option B. |
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Unless
Option B is elected within 60 days of the date we receive Proof of Death or within
one year of the date of the Owners Death, whichever is earlier, Death Benefit
proceeds will be paid in accordance with Option C. |
41
Death Benefit Proceeds
Death Benefit proceeds are payable upon
our receipt of Proof of Death (Owners death or Annuitants death if the
Owner is not a natural person), and proof of each Beneficiarys interest, which
includes required documentation and proper instructions from each Beneficiary. If
we receive Proof of Death before 4:00 P.M. Eastern Time, we will determine the amount
of the Death Benefit as of that day. If we receive Proof of Death at or after 4:00
P.M. Eastern Time, we will determine the amount of the Death Benefit as of the next Business Day. The
Death Benefit proceeds will be paid within 7 days after our receipt of Proof of
Death and proof of each Beneficiarys interest.
The Death Benefit during the Accumulation
Period is equal to the current Contract Value on the date Death Benefit proceeds
are payable or the Purchase Payment adjusted for withdrawals, whichever is greater.
The Death Benefit terminates on the earlier of the termination of the Contract or
when the entire Contract is applied to an Income Payout Option. GLWB Payments will
reduce the Death Benefit by the amount of the GLWB Payment. All other withdrawals
will proportionally reduce the Death Benefit by the ratio of the withdrawal to the
Contract Value immediately prior to the withdrawal, which can result in decreasing
the Death Benefit by more than the amount of the withdrawal and that decrease can
be significant. Withdrawals include deductions for any applicable Surrender
Charge and Market Value Adjustment. Withdrawals not only affect the Death Benefit
but can affect GLWB Payments if it is considered an Excess Withdrawal.
Examples of Death Benefit after
a Withdrawal:
Example 1. This example assumes the Contract
Value is greater than the Purchase Payment at the time of the withdrawal.
Assume the following information: |
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Purchase
Payment = $100,000 |
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Withdrawal
(including Surrender Charges and Market Value Adjustments) = $20,000; no other withdrawals
have been taken |
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Contract
Value at the time of withdrawal = $115,000 |
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Step 1: Calculate the Death Benefit that would be payable immediately prior to
the withdrawal: |
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Death Benefit
payable immediately prior to the withdrawal = The greater of Purchase Payment and
Contract Value |
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Death Benefit
payable immediately prior to the withdrawal = The greater of $100,000 and $115,000
= $115,000 |
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Step 2: Calculate ratio of the withdrawal to the Contract Value immediately prior
to the withdrawal: |
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Ratio =
Withdrawal / (Contract Value immediately prior to the withdrawal) |
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Ratio = $20,000
/ $115,000 = 0.173913 |
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Step 3: Calculate reduction to Purchase Payment: |
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Reduction
to Purchase Payment = Ratio x (Purchase Payment prior to withdrawal) |
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Reduction
to Purchase Payment = 0.173913 x $100,000 = $17,391.30 |
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Step 4: Calculate Purchase Payment adjusted for withdrawals: |
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Purchase
Payment adjusted for withdrawals = Purchase Payment prior to withdrawal Reduction
to Purchase Payment |
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Purchase
Payment adjusted for withdrawals = $100,000 $17,391.30 = $82,608.70 |
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Step 5: Calculate the Contract Value after the withdrawal: |
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Contract
Value immediately after the withdrawal = Contract Value at the time of the withdrawal
withdrawal |
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Contract
Value immediately after the withdrawal = $115,000 $20,000 = $95,000 |
42
Step 6: Calculate the Death Benefit that would be payable immediately after the
withdrawal |
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Death Benefit
payable immediately after the withdrawal = The greater of Purchase Payment adjusted
for withdrawals and Contract Value immediately after the withdrawal |
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Death Benefit
payable immediately after the withdrawal = The greater of $82,608.70 and $95,000 = $95,000
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The withdrawal of $20,000 reduced the Death Benefit payable by $20,000 (i.e. $115,000 - $95,000) |
Example 2. This example assumes the Contract Value is less than the Purchase Payment
at the time of the withdrawal. |
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Assume the following information: |
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Purchase
Payment = $100,000 |
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Withdrawal
(including Surrender Charges and Market Value Adjustments) = $20,000; no other withdrawals
have been taken |
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Contract
Value at the time of withdrawal = $60,000 |
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Step 1: Calculate the Death Benefit that would be payable immediately prior to
the withdrawal: |
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Death Benefit
payable immediately prior to the withdrawal = The greater of Purchase Payment and
Contract Value |
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Death Benefit
payable immediately prior to the withdrawal = The greater of $100,000 and $60,000
= $100,000 |
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Step 2: Calculate ratio of the withdrawal to the Contract Value immediately prior
to the withdrawal: |
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Ratio =
Withdrawal / (Contract Value immediately prior to the withdrawal) |
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Ratio = $20,000
/ $60,000 = 0.3333333 |
Step 3: Calculate reduction to Purchase Payment: |
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Reduction
to Purchase Payment = Ratio x (Purchase Payment prior to withdrawal) |
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Reduction
to Purchase Payment = 0.3333333 x $100,000 = $33,333.33 |
Step 4: Calculate Purchase Payment adjusted for withdrawals: |
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Purchase
Payment adjusted for withdrawals = Purchase Payment prior to withdrawal Reduction
to Purchase Payment |
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Purchase
Payment adjusted for withdrawals = $100,000 $33,333.33 = $66,666.67 |
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Step 5: Calculate the Contract Value after the withdrawal: |
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Contract
Value immediately after the withdrawal = Contract Value at the time of the withdrawal
withdrawal |
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Contract
Value immediately after the withdrawal = $60,000 $20,000 = $40,000 |
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Step 6: Calculate the Death Benefit that would be payable immediately after the
withdrawal |
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Death Benefit
payable immediately after the withdrawal = The greater of Purchase Payment adjusted
for withdrawals and Contract Value immediately after the withdrawal |
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Death Benefit
payable immediately after the withdrawal = The greater of $66,666.67 and $40,000 = $66,666.67 |
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The withdrawal
of $20,000 reduced the Death Benefit payable by $33,333.33 (i.e. $100,000 - $66,666.67) |
As illustrated in Example 2, the Death Benefit
calculation may result in a reduction in the Death Benefit that is significantly
larger than the withdrawal amount.
A Surrender Charge and Market Value Adjustment
will not apply to Death Benefit proceeds. The Death Benefit amount will not be less
than the amount required by state law in which the Contract was delivered
43
We will pay interest on lump sum Death Benefit
proceeds if required by state law. Interest, if any, will be calculated at the rate
and for the time period required by state law.
So far as permitted by law, the Death Benefit
proceeds will not be subject to any claim of the Beneficiarys creditors.
If an Owner is added or changed, except
in the case of spousal continuation, the amount that will be paid upon the death
of the new Owner is equal to the Contract Value on the date Death Benefit proceeds
are payable. There is no impact on the Death Benefit if an Owner is removed.
Spousal Continuation
If the sole primary Beneficiary is the surviving
Spouse of the deceased Owner, the surviving Spouse may elect to continue the Contract
as the new Owner. This benefit may only be exercised one time.
Effective on the continuation date, we will
set the Contract Value equal to the Death Benefit proceeds that would have been
payable to the Spouse as the designated Beneficiary. This value is known as the
spousal continuation amount. The date we receive notification that the surviving
Spouse has elected to continue the Contract as the new Owner in Good Order is known
as the continuation date.
Any addition to the Contract Value as a
result of the Death Benefit proceeds will not be considered a Purchase Payment and
will be allocated to the Contract Value on a Pro Rata basis.
On or after the continuation date, the amount
that will be paid as Death Benefit proceeds is equal to the greater of:
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The current
Contract Value on the date the Death Benefit proceeds are payable; or |
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The spousal
continuation amount adjusted for withdrawals since the continuation date. |
Withdrawals other than GLWB Payments will
proportionally reduce the spousal continuation amount by the ratio of the withdrawal
to the Contract Value immediately prior to the withdrawal. GLWB Payments will reduce
the spousal continuation amount by the amount of the GLWB Payment. Withdrawals include
deductions for any applicable Surrender Charge and Market Value Adjustment.
A Surrender Charge and Market Value Adjustment
will not apply to Death Benefit proceeds. The Death Benefit proceeds will not be
less than the amount required by state law in which the Contract was delivered.
See the Guaranteed Lifetime Withdrawal
Benefit section in this Prospectus for the impact of spousal continuation
on the Covered Person(s) and the Guaranteed Lifetime Withdrawal Benefit.
Death of Owner or Annuitant After the
Payout Date
We must be notified immediately of the death
of an Annuitant or Owner. Proof of Death will be required upon the death of an Annuitant
or Owner. We are not responsible for any misdirected payments that result from the
failure to notify us of any such death.
If an Annuitant dies during the Payout Period,
remaining income payments or Death Benefit proceeds, if any, will be distributed
as provided by the Income Payout Option in effect. The Income Payout Option in effect
will determine whether additional income payments or a Death Benefit apply.
If an Owner dies during the Payout Period,
any remaining income payments will be distributed at least as rapidly as provided
by the Income Payout Option in effect.
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Interest on Death Benefit Proceeds
Interest will be paid on lump sum Death
Benefit proceeds if required by state law. Interest, if any, will be calculated
at the rate and for the time period required by state law.
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.
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INCOME
PAYMENTS THE PAYOUT PERIOD |
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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.
You may change the Payout Date by sending
an Authorized 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; (iii) the requested
Payout Date is at least two years after the Contract Issue Date; and (iv) the requested
Payout Date is no later than the anticipated Payout Date as shown on your Contract
Data Page. Any such change is subject to any maximum maturity Age restrictions
that may be imposed by law.
Payout Period
The Payout Period is the period of time
that begins on the Payout Date and continues until we make the last payment as provided
by the Income Payout Option chosen. On the first day of the Payout Period, the Contract
Value will be applied to the Income Payout Option you selected unless the GLWB Benefit is in effect and the GLWB Payment would be higher. See Income Payout Options on page 46. A Surrender Charge and Market Value Adjustment will not apply to proceeds applied
to an Income Payout Option. You cannot change the Annuitant or Owner on or after
the Payout Date for any reason.
Terms of Income Payments
We use fixed rates of interest to determine
the amount of fixed income payments payable under the Income Payout Options. Fixed
income payments are periodic payments from us to the Owner, the amount of which
is fixed and guaranteed by us. The amount of each payment depends on the form and
duration of the Income Payout Option chosen, the Age of the Annuitant, the gender
of the Annuitant (if applicable), the amount applied to purchase the income payments
and the applicable income purchase rates in the Contract. The income purchase rates
in the Contract are based on a minimum guaranteed interest rate of 1%. We may, in
our discretion and on a non-discriminatory basis, make income payments in an amount
based on a higher interest rate. Once income payments begin, you cannot change the
terms or method of those payments. We do not apply a Surrender Charge or Market
Value Adjustment to income payments.
45
We will make the first income payment on
the Payout Date. We may require proof of age and gender (if the Income Payout Option
rate is based on gender) 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 Payout Option. We may require proof from time
to time that this condition has been met.
If the Guaranteed Lifetime Withdrawal Benefit
has not been terminated, income payments will be equal to the greater of the GLWB
Payment or the income payment under the Income Payout Option elected. If the income
payment is equal to the GLWB Payment, the Covered Person(s) becomes the Annuitant(s).
Upon the death of all Annuitants, we will pay the Beneficiary an amount equal to
the Contract Value immediately prior to the commencement of the Payout Period less the total of the
income payments paid. If the income payment is equal to the income payment under
the Income Payout Option elected, upon the death of all Annuitants, we will pay
the Beneficiary as described in Income Payout Options below.
The amount applied to an Income Payout Option
is equal to the Contract Value immediately prior to the commencement of the Payout Period less the amount of any premium taxes paid.
Election of an Income Payout Option
You and/or the Beneficiary may elect to
receive one of the Income Payout Options described under Options below.
The Income Payout 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 Payout Option
must be made by Authorized Request. The election is irrevocable after the payments
commence. The Owner may not assign or transfer any future payments under any option.
We will make income payments monthly, quarterly,
semiannually, or annually for the Installment Option. Life Income and Joint and
Survivor Life Income options allow monthly income payments. We will also furnish
the amount of such payments on request.
You may change your Income Payout Option
any time before payments begin on the Payout Date.
Income Payout Options
We offer the following Income Payout Options
described below. The frequency and duration of income payments will affect the amount
you receive with each payment. In general, if income payments are expected to be
made over a longer period of time, the amount of each income payment will be less
than the amount of each income payment if income payments are expected to be made
over a shorter period of time. Similarly, more frequent income payments will result
in the amount of each income payment being lower than if income payments were made
less frequently for the same period of time.
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, remaining guaranteed income payments will be treated
as the death benefit and will be distributed in one of the following two ways: a.)
income payments will be continued for the remainder of the period to the Owner;
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 Owner.
Option 2 Life Income Option
Guaranteed Period Certain. We will pay monthly income payments for as long as
the Annuitant lives. If the Annuitant dies before all of the income payments have
been made for the guaranteed period certain, remaining guaranteed income payments
will be treated as the death benefit and will be distributed in one of the following
two ways: a.) income payments will be continued during the remainder of the guaranteed
period certain to the Owner; or b.) the present value of the remaining income
46
payments,
computed at the interest rate used to create the Option 2 rates, will be paid to
the Owner. If a Guaranteed Period of 0 years is selected and the Annuitant dies
before the first income payment is made, no income payments will be made and the
Death Benefit described in the DEATH BENEFIT - Death Benefit Proceeds on page 42 of this Prospectus will be paid.
The Guaranteed Period Certain choices are:
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0 years (life
income only); |
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5 years; |
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10 years; |
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15 years;
or |
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20 years. |
Option 3 Joint and Survivor Life
Income Option 10-Year Guaranteed Period Certain. We will pay monthly
income payments for as long as either of the Annuitants is living. If at the death
of the second surviving Annuitant, income payments have been made for less than
10 years, remaining guaranteed income payments will be treated as the death benefit
and will be distributed in one of the following two ways: a.) income payments will
be continued during the remainder of the guaranteed period certain to the Owner;
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 Owner.
Income payment(s) will be made to the Beneficiary
if there is no surviving Owner. If there is no surviving Owner or Beneficiary, income
payment(s) will be made to the Owners estate.
If you do not select an Income Payout Option,
we will make monthly payments on the following basis, (unless the Internal Revenue
Code (IRC) requires that we pay in some other manner in order for the Contract to qualify as an annuity or to comply with Section 401(a)(9) of the IRC,
in which case we will comply with those requirements):
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If the Guaranteed Lifetime Withdrawal Benefit has not been terminated, the Covered
Person(s) becomes the Annuitant(s). Income payments will be equal to the greater
of (a) and (b): |
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(a) GLWB Payment;
or (b) The Contract
Value applied to the Life Income Option with 10-Year Guaranteed Period Certain for
Contracts with one Annuitant or the Joint and Survivor Life Income Option with 10-
Year Guaranteed Period Certain for Contracts with two Annuitants, as described in
Income Payout Options 2 and 3 above. |
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If the income payment is equal to (a), upon the death of all Annuitants, we will
pay the Beneficiary an amount equal to the Contract Value immediately prior to the
commencement of the Payout Period less the total of the income payments paid. If the income payment
is equal to (b), upon the death of all Annuitants, we will pay the Beneficiary as
described in Income Payout Options 2 and 3 above. |
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If the Guaranteed Lifetime Withdrawal Benefit is terminated, income payments will
be equal to the Contract Value applied to the Life Income Option with 10-Year Guaranteed
Period Certain for Contracts with one Annuitant or the Joint and Survivor Life Income
Option with 10-Year Guaranteed Period Certain for Contracts with two Annuitants,
as described in Income Payout Options 2 and 3 above. |
The minimum amount which can be applied
under all income payout options is the greater of $2,500 or the amount required
to provide an initial monthly income payment of $20. We do not allow partial annuitization.
We may require due proof of age and gender of any Annuitant on whose life an income
payout option is based.
The Income Payout Options described above
may not be offered in all states. Any state variations are described in Appendix
B to this Prospectus. Further, we may offer other Income Payout Options. More than
one option may be elected. If your Contract is a Qualified Contract, not all options
may satisfy Required Minimum Distribution rules. You should consult a tax advisor.
47
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FEDERAL
INCOME TAX MATTERS |
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The following discussion is general in nature
and is not intended as tax advice. Each person concerned should consult a competent
tax adviser. No attempt is made to consider any applicable state or other income
tax laws, any state and local estate or inheritance tax, or other tax consequences
of ownership or receipt of distributions under a Contract.
When you invest in an annuity contract,
you usually do not pay taxes on your investment gains until you withdraw the money
generally for retirement purposes. If you invest in an annuity as part of an
individual retirement plan, pension plan or employer-sponsored retirement program,
your contract is called a Qualified Contract. If your annuity is independent of
any formal retirement or pension plan, it is termed a Non-Qualified Contract. The
tax rules applicable to Qualified Contracts vary according to the type of retirement
plan and the terms and conditions of the plan. See Non-Natural Person
below for a discussion of Non-Qualified Contracts owned by persons such as corporations
and trusts that are not natural persons.
Tax Status of the Contracts
Tax law imposes several requirements that
annuities must satisfy in order to receive the tax treatment normally accorded to
annuity contracts.
Required Distributions. In order to be treated as an annuity contract for Federal income
tax purposes, Section 72(s) of the Internal Revenue Code requires any Non-Qualified
Contract to contain certain provisions specifying how your interest in the Contract
will be distributed in the event of the death of an Owner of the Contract. Specifically,
Section 72(s) requires that (i) if any Owner dies on or after the annuity starting
date, but prior to the time the entire interest in the Contract has been distributed,
the entire interest in the Contract will be distributed at least as rapidly as under
the method of distribution being used as of the date of such Owners death;
and (ii) if any Owner dies prior to the annuity starting date, the entire interest
in the Contract will be distributed within five years after the date of such Owners death unless distributions are made over life or life expectancy, beginning
within one year of the death of the Owner. However, if the designated Beneficiary
is the surviving spouse of the deceased Owner, the Contract may be continued with
the surviving spouse as the new Owner.
The Non-Qualified Contracts contain provisions
that are intended to comply with these Internal Revenue Code requirements, although
no regulations interpreting these requirements have yet been issued. We intend to
review such provisions and modify them if necessary to assure that they comply with
the applicable requirements when such requirements are clarified by regulation or
otherwise.
Other rules may apply to Qualified Contracts.
Taxation of Non-Qualified Contracts
Non-Natural Person. If a non-natural person (e.g., a corporation or a trust) owns a Non-Qualified
Contract, the taxpayer generally must include in income any increase in the excess
of the account value over the investment in the Contract (generally, the Purchase
Payment or other consideration paid for the Contract) during the taxable year. There
are some exceptions to this rule and a prospective Owner that is not a natural person
should discuss these with a tax adviser.
The following discussion generally applies
to Contracts owned by natural persons.
Withdrawals. When a withdrawal from a Non-Qualified Contract occurs, the amount received
will be treated as ordinary income subject to tax up to an amount equal to the excess
(if any) of the Contract Value, without adjustment for any applicable Surrender
Charge, immediately before the distribution over the Owners investment in
the Contract (generally, the Purchase Payment 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 Market Value Adjustment that results
48
from a withdrawal. There is, however, no definitive guidance on the proper tax treatment
of Market Value Adjustments and you may want to discuss the potential tax consequences
of a Market Value Adjustment 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. GLWB Payments,
even after the Contract Value is zero, are subject to the same tax provisions as
withdrawals, including a penalty tax if elected prior to age 59½. GLWB Payments
are fully taxable as income after the investment in the Contract (generally, the
Purchase Payment or other consideration paid for the Contract) is fully recovered.
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
and 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:
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made on
or after the taxpayer reaches age 59½; |
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made on
or after the death of an Owner; |
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attributable
to the taxpayers becoming disabled; or |
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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. Additional 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.
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.
Further Information. We believe that the Contracts will qualify as annuity contracts
for Federal income tax purposes and the above discussion is based on that assumption.
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
49
result if you do not
ensure that contributions, distributions and other transactions with respect to
the Contract comply with the law. This Contract is available as a qualified contract
as follows.
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 (i) before age 59½ (subject
to certain exceptions), or (ii) 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.
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.
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.
50
Under certain circumstances, the Internal
Revenue Code may impose a generation skipping transfer (GST) tax when all or part of an annuity contract is transferred to, or a Death Benefit
is paid to, an individual two or more generations younger than the Owner. Regulations
issued under the Internal Revenue Code may require us to deduct the tax from your
Contract, or from any applicable payment, and pay it directly to the IRS. For 2019,
the federal estate tax, gift tax and GST tax exemptions and maximum rates are $11,400,000
($22,800,000 for a married couple) and 40%, respectively.
The potential application of these taxes
underscores the importance of seeking guidance from a qualified adviser to help
ensure that your estate plan adequately addresses your needs and those of your beneficiaries
under all possible scenarios.
Medicare Tax
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
The Contract provides that upon your death,
a surviving Spouse may have certain continuation rights that he or she may elect
to exercise for the Contracts Death Benefit and any joint-life coverage under
an optional living benefit. All Contract provisions relating to spousal continuation
are available only to a person who meets the definition of spouse under
federal law. The U.S. Supreme Court has held that same-sex marriages must be permitted
under state law and that marriages recognized under state law will be recognized
for federal law purposes. Domestic partnerships and civil unions that are not recognized
as legal marriages under state law, however, will not be treated as marriages under
federal law. Consult a tax adviser for more information on this subject.
Annuity Purchases by Nonresident Aliens
and Foreign Corporations
The discussion above provides general information
regarding U.S. federal income tax consequences to annuity purchasers that are U.S.
citizens or residents. Purchasers that are not U.S. citizens or residents will generally
be subject to U.S. federal withholding tax on taxable distributions from annuity
contracts at a 30% rate unless a lower treaty rate applies. In addition, such purchasers
may be subject to state and/or municipal taxes and taxes that may be imposed by
the 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.
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 the Contract and do not intend the above discussion as tax advice.
51
Important Information about the Indices
S&P 500 Index. 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 Contract 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 the 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 Contract 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 THE COMPANY, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The S&P 500 Index is a stock market
index based on the market capitalizations of 500 leading companies publicly traded
in the U.S. stock market, as determined by Standard & Poors. The S&P 500
Index can go up or down based on the stock prices of the 500 companies that comprise
the Index. The S&P 500 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.
The S&P 500 Index is a trademark of
Standard & Poors or its affiliates and has been licensed for use by the Company.
Russell 2000 Index.
The Contract is not sponsored, endorsed, sold or promoted by Frank
Russell Group (Russell). Russell 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 Contract particularly
or the ability of the Russell 2000 Index to track general stock market performance.
Russell only relationship to the Company is in the licensing of certain trademarks
and trade names of Russell and Russell 2000 Index which is determined, composed
and calculated by Russell without regard to the Company or the Contract. Russell
has no obligation to take the needs of the Company or the Owners of the Contract
into consideration in determining, composing or calculating the Russell 2000 Index.
Russell is not responsible for and has not participated in the determination of
the prices and amount of the Contract 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. Russell has no obligation or liability in connection
with the administration, marketing or trading of the Contract.
RUSSELL DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE RUSSELL 2000 INDEX OR ANY DATA INCLUDED THEREIN,
AND RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED
BY THE COMPANY, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE MSCI INDEX OR ANY DATA INCLUDED THEREIN. MSCI MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
52
FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE MSCI EAFE INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Russell 2000® is a stock market index
that measures performance of the 2,000 smallest companies in the Russell 3000®
Index, which is made up of 3,000 of the largest U.S. stocks. The Russell 2000®
Index is constructed to provide a comprehensive and unbiased small-cap barometer
and is completely reconstituted annually to ensure larger stocks do not affect the
performance and characteristics of the true small-cap index.
MSCI EAFE Index. The Contract is not sponsored, endorsed, sold or promoted by Morgan Stanley
Capital International Inc. (MSCI). MSCI 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 Contract particularly
or the ability of the MSCI EAFE Index to track general stock market performance.
MSCIs only relationship to the Company is in the licensing of certain trademarks
and trade names of MSCI and of the MSCI EAFE Index which is determined, composed
and calculated by MSCI without regard to the Company or the Contract. MSCI has no
obligation to take the needs of the Company or the Owners of the Contract into consideration
in determining, composing or calculating the MSCI EAFE Index. MSCI is not responsible
for and has not participated in the determination of the prices and amount of the
Contract 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.
MSCI has no obligation or liability in connection with the administration, marketing
or trading of the Contract.
MSCI DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE MSCI EAFE INDEX OR ANY DATA INCLUDED THEREIN AND MSCI SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. MSCI MAKES
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, OWNERS
OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE MSCI INDEX OR
ANY DATA INCLUDED THEREIN. MSCI 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 MSCI EAFE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The MSCI EAFE Index is an equity index which
captures large and mid cap representation across developed markets countries around
the world, excluding the U.S. and Canada. With 912 constituents, the MSCI EAFE Index
covers approximately 85% of the free float-adjusted market capitalization in each
country.
The MSCI EAFE Index is a trademark of MSCI
or its affiliates and has been licensed for use by the Company.
Distribution of the Contract
We offer the Contract on a continuous basis.
We have entered into a distribution agreement with our affiliate, CBSI, for the
distribution of the Contract. MEMBERS Life Insurance Company and CBSI are both wholly-owned
subsidiaries of CUNA Mutual Investment Corporation. The principal business address
of CBSI is 2000 Heritage Way, Waverly, IA 50677. Contracts are sold by licensed
insurance agents (the Selling Agents) in those states where the Contract may be
lawfully sold. Such Selling Agents will be registered representatives of CBSI or
other affiliated and unaffiliated broker-dealer firms (the Selling Broker-Dealers)
registered under the Securities Exchange Act of 1934, as amended (the 1934
Act),
53
who are members of the Financial Industry Regulatory Authority, Inc.
(FINRA) and who have entered into the Companys selling agreements
with us and the principal underwriter, CBSI.
We pay CBSI 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 CBSI
and 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.
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 also pay asset-based commission (sometimes called trail commissions) in addition
to the Purchase Payment-based commission. We may pay or allow other promotional
incentives or payments in the form of cash or other compensation to the extent permitted
by FINRA rules and other applicable laws and regulations.
We also pay compensation to wholesaling
broker-dealers or other firms or intermediaries, including payments to affiliates
of ours, in return for wholesaling services such as providing marketing and sales
support, product training and administrative services to the Selling Agents of the
Selling Broker-Dealers. These allowances may be based on a percentage of the Purchase
Payment.
In addition to the compensation described
above, we may make additional cash payments, in certain circumstances referred to
as override compensation 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 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 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 recover commissions
and other compensation, marketing, administrative and other expenses and costs of
Contract benefits through the fees and charges imposed under the Contract.
Business Disruption and Cyber-Security
Risks
We rely heavily on interconnected computer
systems and digital data to conduct our variable and index-linked product business
activities. Because our variable and index-linked product business is highly dependent
upon the effective operation of our computer systems and those of our business partners,
our business is vulnerable to disruptions from utility outages, and susceptible
to operational and information
54
security risks resulting from information systems
failure (e.g., hardware and software malfunctions), and cyber-attacks. These risks
include, among other things, the theft, misuse, corruption and destruction of data
maintained online or digitally, interference with or denial of service, attacks
on websites and other operational disruption and unauthorized release of confidential
Owner information. Such systems failures and cyber-attacks affecting us, CBSI and
intermediaries may adversely affect us and your Contract Value. For instance, systems failures and
cyber-attacks may interfere with our processing of Contract transactions, including
the processing of orders, impact our ability to calculate Contract Value, cause
the release and possible destruction of confidential customer or business information,
impede order processing, subject us and/or CBSI and intermediaries to regulatory
fines and financial losses and/or cause reputational damage. There can be no assurance
that we, CBSI or intermediaries will avoid losses affecting your Contract due to
cyber-attacks or information security breaches in the future.
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. You will be notified of
any such change, as required by law.
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 or Covered Person(s)
date of birth is misstated, we will adjust the income Payments or GLWB Payments
under the Contract to be equal to the payout amount the Contract Value would have
purchased based on the individuals correct date of birth. If an Annuitants
gender has been misstated, and the life income rate type is based on gender, we
will adjust the income payments under the Contract to be equal to the payout amount
the Contract Value would have purchased based on the Annuitants correct 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.
Conformity with Applicable Laws
The provisions of the Contract conform to
the minimum requirements of the state in which the Contract is delivered (i.e.,
the state of issue). The laws of the state of issue control any conflicting
laws of any other state in which the Owner may live on or after the Contract Issue
Date. If any provision of your Contract is determined not to provide the minimum
benefits required by the state in which the Contract is issued, such provision will
be deemed to be amended to conform or comply with such laws or regulations. Further,
the Company will amend the Contract to comply with any changes in law governing
the Contract or the taxation of benefits under the Contract.
Reports to Owners
At least annually, we will mail a report
to you at your last known address of record, a report that will state the beginning
and end dates for the current report period; your Contract Value at the beginning
and end of the current report period; the amounts that have been credited and debited
to your Contract Value during the current report period, identified by the type
of activity the amount represents; the Surrender Value at the end of the current
report period; 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.
55
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 |
|
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.
CMFG Life is a stock insurance company organized
on May 20, 1935 and domiciled in Iowa. CMFG Life is one of the worlds largest
direct underwriters of credit life and disability insurance and is a major provider
of qualified pension products to credit unions. Further, CMFG Life and its affiliated
companies currently offer deferred and immediate annuities, individual term and
permanent life insurance, and accident and health insurance. In 2012, CMFG Life
was reorganized as a wholly-owned subsidiary of CUNA Mutual Financial Group, Inc.,
which is a wholly-owned subsidiary of CUNA Mutual Holding Company, a mutual holding
company organized under the laws of the State of Iowa.
In August 2013, the Company began issuing
an Index-Linked Annuity Contract under the name MEMBERS® Zone
Annuity. In July 2016, the Company began issuing a flexible premium variable
and index-linked annuity contract under MEMBERS® Horizon
Variable Annuity. In December 2018, the Company began issuing a flexible premium
variable and index-linked annuity contract under MEMBERS®
Horizon II Flexible Premium Deferred Variable and Index Linked Annuity.
These annuity contracts account for all the new product sales of the Company. The
Company also serves previously existing blocks of individual and group life policies.
CMFG Life provides significant services
required in the conduct of the Companys operations. We have entered into a
Cost Sharing, Procurement, Disbursement, Billing and Collection Agreement for the
administration of our business pursuant to which CMFG Life performs certain administrative
functions related to agent licensing, payment of commissions, actuarial services,
annuity policy issuance and service, accounting and financial compliance, market
conduct, general and informational services and marketing as well as share certain
resources and personnel with us; and pursuant to which CMFG Life provides us with
certain procurement, disbursement, billing and collection services.
You may write us at 2000 Heritage Way, Waverly,
Iowa 50677-9202, or call us at 1-800-798-5500.
We share office space with our indirect
parent, CMFG Life. CMFG Life occupies office space in Madison, Wisconsin and Waverly,
Iowa that is owned by CMFG Life. Expenses associated with the facilities are allocated
to us through the Amended and Restated Expense Sharing Agreement that we entered
into with CMFG Life on January 1, 2015.
56
Financial Information
Our financial statements have been prepared
in accordance with U.S. GAAP.
Investments
Our investment portfolio consists primarily
of fixed income securities.
Reinsurance
We reinsure our life insurance exposure
with an affiliated insurance company under a traditional indemnity reinsurance arrangement.
We entered into a Coinsurance Agreement with CMFG Life in 2012. Under this agreement,
we agreed to cede 95% of all insurance in force as of October 31, 2012 to CMFG Life.
On September 30, 2015, we amended the Coinsurance Agreement with CMFG Life and now
cede 100% of our insurance policies in force to CMFG Life. In 2013, we entered into
a second agreement to cede 100% of the business related to MEMBERS® Zone Annuity contracts to CMFG Life. On November 1, 2015, we entered into a Coinsurance
and Modified Coinsurance Agreement with CMFG Life to cede 100% of the business related
to MEMBERS® Horizon Flexible Premium Deferred Variable and Index Linked
Annuity contracts. On October 15, 2018, we amended the Coinsurance and Modified
Coinsurance Agreement with CMFG Life to cede 100% of the business related to MEMBERS® Horizon II Flexible Premium Deferred Variable and Index Linked Annuity
contracts. We filed a new Coinsurance Agreement to cede 100% of the business related to CUNA Mutual Group Zone Income Annuity Contracts for approval with the State of Iowa in July, 2019. These agreements do not relieve us of our obligations to our policyholders
under contracts covered by these agreements. However, they do transfer all of the
Companys underwriting profits and losses to CMFG Life and require CMFG Life
to indemnify the Company for all of its liabilities.
Policy Liabilities and Accruals
The applicable accounting standards and
state insurance laws under which we operate require that we record policy liabilities
to meet the future obligations associated with all of our outstanding policies.
|
POTENTIAL
RISK FACTORS THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS |
|
Although economic conditions both domestically
and globally have continued to improve since the financial crisis in 2008, we remain
vulnerable to market uncertainty and continued financial instability of national,
state and local governments. Continued difficult conditions in the global capital
markets and economy could deteriorate in the near future and affect our financial
position and our level of earnings from our operations.
Markets in the United States and elsewhere
experienced extreme volatility and disruption since the second half of 2007, due
in part to the financial stresses affecting the liquidity of the banking system
and the financial markets. This volatility and disruption reached unprecedented
levels in late 2008 and early 2009. The United States entered a severe recession
and recovery 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.
Specifically, if market conditions deteriorate
in 2019 or beyond:
|
|
|
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 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 |
57
|
|
|
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 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 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.
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 with mutual fund
products, traditional bank 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,
services provided to distribution channels and policyholders, ratings, reputation
and distribution compensation.
Our ability to compete will depend in part
on the performance of our products. We will not be able to accumulate and retain
assets under management for our products if our products 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
58
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 executives could disrupt
our operations.
Our success depends in part on the continued
service of key executives within our Company and CMFG Lifes ability to attract
and retain additional executives and employees. The loss of key executives or CMFG
Lifes inability to recruit and retain additional qualified personnel could
cause disruption in our business and prevent us from fully implementing our business
strategies, which could materially and adversely affect our business, growth and
profitability.
Changes in state and federal regulation
may affect our profitability.
We are subject to regulation under applicable
insurance statutes, including insurance holding company statutes, in the various
states in which we transact business. Insurance regulation is intended to provide
safeguards for policyholders rather than to protect shareholders of insurance companies
or their holding companies. As increased scrutiny has been placed upon the insurance
regulatory framework, a number of state legislatures have considered or enacted
legislative proposals that alter, and in many cases increase, state authority to
regulate insurance companies and holding company systems.
Regulators oversee matters relating to trade
practices, policy forms, claims practices, guaranty funds, types and amounts of
investments, reserve adequacy, insurer solvency, minimum amounts of capital and
surplus, transactions with related parties, changes in control and payment of dividends.
State insurance regulators and the NAIC
continually reexamine existing laws and regulations and may impose changes in the
future.
We are subject to the 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, anti-discrimination regulation,
financial services regulation, securities regulation and federal taxation, can significantly
affect the insurance business. In addition, legislation has been enacted that could
result in the federal government assuming some role in the regulation of the insurance
industry.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank) enacted in July 2010 made sweeping changes
to the regulation of financial services entities, products and markets. The Dodd-Frank
Act directed existing and newly-created government agencies and bodies to perform
studies and promulgate a multitude of regulations implementing the law, a process
that has substantially advanced but is not yet complete. While a number of studies
and much of the rule-making process has already been completed, there continues
to be uncertainty regarding the results of ongoing studies and the ultimate requirements
of regulations that have not yet been adopted. Although the current presidential administration
has indicated a desire to revise or reverse some of its provisions, the fate of
these proposals is unclear, and we cannot predict with certainty how the Dodd-Frank
Act will continue to affect the financial markets generally, or impact our business,
ratings, results of operations, financial condition or liquidity.
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 United
States Securities and Exchange Commission (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
59
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).
In addition, in the latter part of 2015,
U.S. federal banking regulators and the CFTC adopted regulations that will require
swap dealers, security-based swap dealers, major swap participants and major security-based
swap participants (Swap Entities) to post margin to, and collect margin
from, their OTC swap counterparties (the Margin Rules). Pursuant to
the Margin Rules, the Company is required to exchange variation margin with its
derivatives counterparties that are Swap Entities and it may be required to exchange
initial margin with such counterparties beginning in September 2020.
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 (which consist of the Office
of the Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the FDIC, the Farm Credit Administration, and the Federal Housing Finance
Agency) 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.
The Dodd-Frank Act also established a Federal
Insurance Office (FIO) under the U.S. Treasury Department. Although
the Federal Insurance Office was not granted general supervisory authority over
the insurance industry, it is authorized to, among other things, (1) monitor all
aspects of the insurance industry and of lines of business other than certain health
insurance, certain long-term care insurance and crop insurance and (2) recommend
changes to the state system of insurance regulation to the U.S. Congress. The FIO
was required to issue several reports to Congress on the insurance industry, most
notably, (i) a report on how to modernize and improve the system of insurance
regulation in the United States, and (ii) a report on the breadth and
scope of the global reinsurance market and the critical role such market plays in
supporting insurance in the United States. The FIO has completed such reports
and it remains to be seen whether either of the FIOs reports will affect the
manner in which insurance and reinsurance are regulated in the U.S. and, thereby,
the Companys business.
The Dodd-Frank Act also established the
Financial Stability Oversight Council (the FSOC), 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 FSOC 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 FSOC 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 FSOC 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. While recent developments suggest
that it is unlikely that FSOC will be designating additional non-bank financial
companies as systematically significant, there can be no assurance of that unless
and until FSOCs authority to do so has been rescinded.
Separate from any SIFI designation, 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
60
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. The uncertainty about regulatory requirements could influence the
Companys product line or other business decisions with respect to some product
lines.
Additionally, Dodd-Frank created the Consumer
Financial Protection Bureau (CFPB), an independent division of the Department
of Treasury with jurisdiction over credit, savings, payment, and other consumer
financial products and services, but excluding investment products already regulated
by the SEC or the CFTC. The CFPB has supervisory authority over certain non-banks
whose activities or products it determines pose risks to consumers.
In addition to promulgating rules that could
impose compliance obligations on the Company, the CFPB continues to bring enforcement
actions involving a growing number of issues, including actions brought jointly
with state Attorneys General, which could directly or indirectly affect the Company.
Additionally, the CFPB is exploring the possibility of helping Americans manage
their retirement savings and is considering the extent of its authority in that
area. The Company is unable at this time to predict the impact of the CFPBs
activities on the Company.
Although the full impact of the Dodd-Frank
Act cannot be determined until all of the various studies mandated by the law are
conducted and all implementing regulations are adopted, many of the legislations requirements could have profound and/or adverse consequences for the financial
services industry, including for the Company. The Dodd-Frank Act could make it more
expensive for the Company to conduct business, require the Company to make changes
to its business model, or satisfy increased capital requirements. Additionally,
there is substantial uncertainty as to whether aspects of the Dodd-Frank Act or
regulatory bodies established thereunder will be impacted by regulatory or legislative
changes made by the Trump administration or Congress.
Regulation of Broker-Dealers and Sales
of Insurance Products
The sales of our insurance products could
also be adversely affected to the extent that some or all of the firms that distribute
our products face heightened regulatory scrutiny, increased regulation and potentially
heightened litigation risks that cause them to de-emphasize sales of the types of
products issued by us.
For example, on June 5, 2019, the SEC adopted
Regulation Best Interest, or commonly referred to as Regulation BI,
to provide for an enhanced standard of conduct for all broker-dealers, when providing
personalized investment advice about securities to retail customers. Regulation
BI requires a broker-dealer (or an associated person of a broker-dealer), when recommending
a securities transaction or an investment strategy involving securities, to act
in the retail customers best interest and not place its (his or her) own interests
ahead of the retail customer. Regulation BI also prohibits sales incentives based
on sales of specific securities or specific types of securities within a limited
period of time, whether paid in cash or non-cash form. The scheduled compliance
date for Regulation BI is June 30, 2020.
As of the date of this Prospectus, we anticipate
that Regulation BI will cause broker-dealers to consider the impact of the Regulation
on the offer and sales of SEC registered insurance products on their platforms for
retail customers. The full impact of Regulation BI on our business, consolidated
results of operations and financial condition can only be measured after broker-dealers
that offer our products have adopted and implemented policies and procedures in
response to the Regulation. Therefore, as of the date of this Prospectus, we cannot
predict what impact, if any, Regulation BI may have on our business, consolidated
results of operations and financial condition in the future.
There is also a possibility that the various
states may develop rules raising the standard of care owed by insurance agents to
their customers that may be in harmony or conflict with the Regulation BI or other
requirements. For example, the NAIC annuity suitability working group is working
on a proposal to add an enhanced standard to the NAICs Suitability in Annuity
Transactions Model Regulation. As a result, as this or similar changes are adopted
by our state insurance regulator(s) and made applicable to us or the firms that
distribute our products, they could have an adverse impact on our business. Whether
the proposed amendments to the NAICs Suitability in Annuity Transactions Model
Regulation or other similar proposals, will be adopted is uncertain.
61
Changes in federal income taxation laws
may affect sales of our products and profitability.
The annuity products that we market generally
provide the policyholder with certain federal income tax advantages. For example,
federal income taxation on any increases in non-qualified annuity contract values
(i.e., the inside build-up) is deferred until it is received by the policyholder.
With other savings and investments, such as certificates of deposit and taxable
bonds, the increase in value is generally taxed each year as it is earned.
From time to time, various tax law changes
have been proposed that could have an adverse effect on our business, including
the elimination of all or a portion of the income tax advantages for annuities.
If legislation were enacted to eliminate the tax deferral for annuities, such a
change may have an adverse effect on our ability to sell non-qualified annuities.
Non-qualified annuities are annuities that are not sold to a qualified retirement
plan.
Distributions from non-qualified annuity
policies have been considered investment income for purposes of the Medicare tax
on investment income contained in the Health Care and Education Reconciliation Act
of 2010. As a result, in certain circumstances, a 3.8% tax (Medicare Tax) may
be applied to some or all of the taxable portion of distributions from non-qualified
annuities to individuals whose income exceeds certain threshold amounts. This new
tax may have an adverse effect on our ability to sell non-qualified annuities to
individuals whose income exceeds these threshold amounts and could accelerate withdrawals
due to this additional tax. The constitutionality of the Health Care and Education
Reconciliation Act of 2010 is currently the subject of multiple litigation actions
initiated by various state attorneys general, and the Act is also the subject of
several proposals in the U.S. Congress for amendment and/or repeal. The outcome
of such litigation and legislative action as it relates to the 3.8% Medicare Tax
is unknown at this time.
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, 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.
The following selected financial data is
derived from the Companys financial statements and should be read in conjunction
with the discussion under Managements Discussion and Analysis of Financial
Condition and Results of Operations. The results of operations data for the years
ended December 31, 2018, 2017 and 2016 and for the three and six months ended June
30, 2019 and 2018 and the balance sheet data as of December 31, 2018 and 2017 and
June 30, 2019 should be read in conjunction with our financial statements and related
notes appearing elsewhere in this Prospectus. The results for the past periods are
not necessarily indicative of results that may be achieved in future periods. The
Company entered into reinsurance agreements in 2019, 2015, 2013 and 2012 which impact
the Companys financial results and presentations. See Note 7 of the Notes
to Financial Statements appearing elsewhere in this Prospectus for additional information
on these agreements.
62
|
|
|
For the year ended December 31, |
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
(Dollars in thousands) |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health premiums, net |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(21 |
) |
|
$ |
(1,175 |
) |
|
$ |
127 |
|
Contract
charges, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18 |
|
|
|
24 |
|
Net
investment income |
|
|
762 |
|
|
|
517 |
|
|
|
376 |
|
|
|
366 |
|
|
|
278 |
|
Net
realized investment gains (losses) |
|
|
(17 |
) |
|
|
- |
|
|
|
- |
|
|
|
117 |
|
|
|
- |
|
Other
income |
|
|
18 |
|
|
|
3,996 |
|
|
|
3,415 |
|
|
|
5,336 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
763 |
|
|
|
4,513 |
|
|
|
3,770 |
|
|
|
4,662 |
|
|
|
429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
benefits, net |
|
|
- |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
(1,204 |
) |
|
|
112 |
|
Interest
credited to policyholder account
balances, net |
|
|
(15 |
) |
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
8 |
|
Operating
and other expenses |
|
|
151 |
|
|
|
1,709 |
|
|
|
1,049 |
|
|
|
1,633 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
136 |
|
|
|
1,711 |
|
|
|
1,048 |
|
|
|
433 |
|
|
|
257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes |
|
|
627 |
|
|
|
2,802 |
|
|
|
2,722 |
|
|
|
4,229 |
|
|
|
172 |
|
Income tax
expense (benefit) |
|
|
(182 |
) |
|
|
723 |
|
|
|
887 |
|
|
|
1,449 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
809 |
|
|
$ |
2,079 |
|
|
$ |
1,835 |
|
|
$ |
2,780 |
|
|
$ |
161 |
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
For the year ended December 31, |
|
|
|
Balance
Sheet Data |
|
2019 |
|
2018 |
|
2017 |
|
2016 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities, available for sale, at fair value |
|
$ |
30,571 |
|
|
$ |
29,569 |
|
|
$ |
10,667 |
|
|
$ |
10,539 |
|
|
$ |
12,351 |
|
|
$ |
13,313 |
Cash
and cash equivalents |
|
|
31,982 |
|
|
|
24,912 |
|
|
|
18,440 |
|
|
|
18,732 |
|
|
|
17,093 |
|
|
|
5,602 |
Reinsurance
recoverable from affiliate |
|
|
24,200 |
|
|
|
24,034 |
|
|
|
23,973 |
|
|
|
23,687 |
|
|
|
24,628 |
|
|
|
25,199 |
Assets
on deposit |
|
|
3,707,034 |
|
|
|
3,138,096 |
|
|
|
2,453,033 |
|
|
|
1,619,113 |
|
|
|
947,595 |
|
|
|
349,937 |
Other
assets |
|
|
3,572 |
|
|
|
9,427 |
|
|
|
11,299 |
|
|
|
14,138 |
|
|
|
6,144 |
|
|
|
5,330 |
Separate
account assets |
|
|
137,135 |
|
|
|
103,205 |
|
|
|
69,005 |
|
|
|
20,221 |
|
|
|
- |
|
|
|
- |
|
Total
assets |
$ |
|
3,934,858 |
|
|
$ |
3,329,243 |
|
|
$ |
2,586,417 |
|
|
$ |
1,706,430 |
|
|
$ |
1,007,811 |
|
|
$ |
399,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claim and
policy benefit reserves
life and health |
|
$ |
23,726 |
|
|
$ |
26,836 |
|
|
$ |
23,052 |
|
|
$ |
21,506 |
|
|
$ |
21,537 |
|
|
$ |
22,368 |
Policyholder
account balances |
|
|
3,712,117 |
|
|
|
3,142,077 |
|
|
|
2,456,634 |
|
|
|
1,622,448 |
|
|
|
951,068 |
|
|
|
353,549 |
Other liabilities |
|
|
20,178 |
|
|
|
17,205 |
|
|
|
19,028 |
|
|
|
18,970 |
|
|
|
13,658 |
|
|
|
4,249 |
Separate account
liabilities |
|
|
137,135 |
|
|
|
103,205 |
|
|
|
69,005 |
|
|
|
20,221 |
|
|
|
- |
|
|
|
- |
|
Total liabilities |
|
|
3,893,156 |
|
|
|
3,289,323 |
|
|
|
2,567,719 |
|
|
|
1,683,145 |
|
|
|
986,263 |
|
|
|
380,166 |
Total stockholders equity |
|
|
41,702 |
|
|
|
39,920 |
|
|
|
18,698 |
|
|
|
23,285 |
|
|
|
21,548 |
|
|
|
19,215 |
|
Total liabilities
and stockholders equity |
|
$ |
3,934,858 |
|
|
$ |
3,329,243 |
|
|
$ |
2,586,417 |
|
|
$ |
1,706,430 |
|
|
$ |
1,007,811 |
|
|
$ |
399,381 |
|
63
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
For the three months ended |
|
For the six months ended |
|
|
June 30, |
|
June 30, |
|
|
|
Results
of Operation Data |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income |
|
$ |
433 |
|
|
$ |
170 |
|
|
$ |
839 |
|
|
$ |
310 |
|
Net
realized investment gains |
|
|
17 |
|
|
|
- |
|
|
|
17 |
|
|
|
- |
|
Other
income |
|
|
7 |
|
|
|
4 |
|
|
|
13 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
457 |
|
|
|
174 |
|
|
|
869 |
|
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
claims
and benefits, net |
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Interest
credited to policyholder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
account
balances, net |
|
|
20 |
|
|
|
(5 |
) |
|
|
34 |
|
|
|
(15 |
) |
Operating
and other expenses |
|
|
80 |
|
|
|
30 |
|
|
|
126 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
100 |
|
|
|
26 |
|
|
|
160 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes |
|
|
357 |
|
|
|
148 |
|
|
|
709 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense (benefit) |
|
|
(22 |
) |
|
|
(13 |
) |
|
|
35 |
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
379 |
|
|
$ |
161 |
|
|
$ |
674 |
|
|
$ |
362 |
|
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
|
Managements Discussion and Analysis
of Financial Condition and Results of Operations reviews our financial condition
at December 31, 2018, December 31, 2017 and June 30, 2019; our results of operations
for the years ended December 31, 2018 and 2017 and for the three and six months
ended June 30, 2019 and 2018; and where appropriate, factors that may affect future
financial performance. A discussion on the Results of Operations for the year ended
December 31, 2016 is included in the MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS section in the prospectus to the Form S-1 as filed on April 18, 2019 (SEC File No.
333-222172). This discussion should be read in conjunction with our financial statements
and notes thereto appearing elsewhere in this Prospectus. The dollar amounts disclosed
in this Managements Discussion and Analysis of Financial Condition and Results
of Operations are in thousands.
Cautionary Statement Regarding Forward-Looking
Information
All statements, trend analyses and other
information contained in this Prospectus and elsewhere (such as in press releases,
presentations by us, our immediate parent CMIC, or CM Holding, our management or
oral statements) relative to markets for our products and trends in our operations
or financial results, as well as other statements including words such as anticipate,
believe, plan, estimate, expect, intend, and other similar expressions,
constitute forward-looking statements. We caution that these statements may vary
from actual results and the differences between these statements and actual results
can be material. Accordingly, we cannot assure you that actual results will not
differ materially from those expressed or implied by the forward-looking statements.
Factors that could contribute to these differences include, among other things:
64
|
|
|
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 that 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 section entitled Potential Risk
Factors That May Affect Our Business and Our Future Results.
Overview
We are a wholly-owned indirect subsidiary
of CMFG Life and a direct wholly-owned subsidiary of CMIC. Our ultimate parent is
CM Holding, a mutual insurance holding company organized under the laws of Iowa.
On May 3, 2007, the Company re-domiciled from Wisconsin to Iowa. 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 as authorized by the laws of the State of Iowa.
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. 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. Results associated with the deposits on annuity contracts
include MEMBERS® Zone Annuity, MEMBERS® Horizon Flexible
Premium Deferred Variable and Index Linked Annuity and MEMBERS® Horizon
II Flexible Premium Deferred Variable and Index Linked Annuity.
|
|
|
Direct Life and Health Premium |
|
Deposits on Annuity Contracts |
|
|
|
2019^
|
|
2018 |
|
2017 |
|
2016 |
|
2019^
|
|
2018 |
|
2017 |
|
2016 |
|
Michigan |
|
61% |
|
62% |
|
62% |
|
63% |
|
7% |
|
7% |
|
9% |
|
6% |
Texas |
|
25 |
|
24 |
|
24 |
|
23 |
|
5 |
|
* |
|
5 |
|
8 |
California |
|
5 |
|
5 |
|
5 |
|
6 |
|
5 |
|
* |
|
6 |
|
7 |
Pennsylvania |
|
* |
|
* |
|
* |
|
* |
|
7 |
|
8 |
|
8 |
|
6 |
Iowa |
|
* |
|
* |
|
* |
|
* |
|
5 |
|
6 |
|
7 |
|
6 |
Indiana |
|
* |
|
* |
|
* |
|
* |
|
5 |
|
5 |
|
6 |
|
7 |
Wisconsin |
|
* |
|
* |
|
* |
|
* |
|
6 |
|
5 |
|
6 |
|
6 |
Washington |
|
* |
|
* |
|
* |
|
* |
|
* |
|
* |
|
* |
|
5 |
Florida |
|
* |
|
* |
|
* |
|
* |
|
5 |
|
6 |
|
* |
|
* |
|
^For the six months ended June 30, 2019. |
*Less than 5% |
65
Other than Michigan, Texas and California, no other state represents more than 5% of
the Companys premiums or deposits for any year in the three years ended December
31, 2018 or in the six months ended June 30, 2019.
As of June 30, 2019 and December 31, 2018,
the Company had more than $3,935 million and $3,329 million in assets and more than
$77 million and $80 million of life insurance in force, respectively.
The Company services existing closed blocks
of individual and group life policies. 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 Flexible Premium Deferred Variable and Index
Linked Annuity. In December 2018, the Company began issuing a flexible premium
deferred variable and index-linked annuity contract under the name MEMBERS® Horizon II Flexible Premium Deferred Variable and Index Linked Annuity. The Contract described in this Prospectus is first being offered as of the
date of this Prospectus. When it becomes available, the Company will have four annuity
contract forms for sale. These four annuity contracts account for all the new sales
of the Company. We distribute the annuity contracts through multiple face-to-face
distribution channels, including:
|
|
|
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 annuity products
that are made available for distribution through this channel. |
We entered into a Coinsurance Agreement
with CMFG Life in 2012. Under this agreement, we agreed to cede 95% of all insurance
in force as of October 31, 2012 to CMFG Life. On September 30, 2015, we amended
the Coinsurance Agreement with CMFG Life and now cede 100% of our insurance policies
in force to CMFG Life. In 2013, we entered into a second agreement to cede 100%
of the business related to MEMBERS® Zone Annuity contracts to CMFG
Life. On November 1, 2015, we entered into a Coinsurance and Modified Coinsurance
Agreement with CMFG Life to cede 100% of the business related to MEMBERS®
Horizon Flexible Premium Deferred Variable and Index Linked Annuity contracts.
On October 15, 2018, we amended the Coinsurance and Modified Coinsurance Agreement
with CMFG Life to cede 100% of the business related to MEMBERS® Horizon
II Flexible Premium Deferred Variable and Index Linked Annuity contracts. We filed a new Coinsurance Agreement to cede 100% of the business related to CUNA Mutual Group Zone Income Annuity Contracts for approval with the State of Iowa in July, 2019. This agreement is pending
regulatory review as of the date of these unaudited
condensed financial statements.
These agreements
do not relieve us of our obligations to our policyholders under contracts covered
by these agreements. However, they do transfer all of the Companys underwriting
profits and losses to CMFG Life and require CMFG Life to indemnify the Company for
all of its liabilities. As a result, the Company believes its profitability from
insurance operations going forward will be minimal.
CMFG Life provides significant services
required in the conduct of the Companys operations pursuant to a Cost Sharing,
Procurement, Disbursement and Billing and Collection Agreement. CMFG Life allocates
expenses to us on the basis of estimated time spent by employees of CMFG Life on
Company matters and the use of operational resources. Management believes the allocations
of expenses are reasonable and that the results of the 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.
66
Critical Accounting Policies
The 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 U.S.
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.
Investments - Investments in debt securities are classified as available-for-sale
and are carried at fair value. Unrealized gains and losses on investments in debt
securities, net of federal income taxes, are included in accumulated other comprehensive
income (loss) 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. 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 Company has no Level 3 investments with unrealized gains
or losses included in other comprehensive income (loss).
Our assets and liabilities, which are measured
at fair value on a recurring basis as of June 30, 2019, are presented below based
on the fair value hierarchy levels.
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets,
at Fair Value |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
30,628 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
30,628 |
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and agencies |
|
|
- |
|
|
|
9,013 |
|
|
|
- |
|
|
|
9,013 |
Domestic
corporate securities |
|
|
- |
|
|
|
17,211 |
|
|
|
- |
|
|
|
17,211 |
Residential
mortgage-backed securities |
|
|
- |
|
|
|
252 |
|
|
|
- |
|
|
|
252 |
Foreign
corporate securities |
|
|
- |
|
|
|
4,095 |
|
|
|
|
|
|
|
4,095 |
|
Total
debt securities |
|
|
- |
|
|
|
30,571 |
|
|
|
- |
|
|
|
30,571 |
Residential
mortgage-backed securities |
|
|
- |
|
|
|
- |
|
|
|
748,164 |
|
|
|
748,164 |
Separate
account assets |
|
|
- |
|
|
|
137,135 |
|
|
|
- |
|
|
|
137,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
30,628 |
|
|
$ |
167,706 |
|
|
$ |
748,164 |
|
|
|
946,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
at Fair Value |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in annuity contracts |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
748,164 |
|
|
$ |
748,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
748,164 |
|
|
$ |
748,164 |
|
Our assets and liabilities, which are measured
at fair value on a recurring basis as of December 31, 2018, are presented below based
on the fair value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets,
at Fair Value |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
21,630 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
21,630 |
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and agencies |
|
|
- |
|
|
|
8,223 |
|
|
|
- |
|
|
|
8,223 |
Domestic
corporate securities |
|
|
- |
|
|
|
16,655 |
|
|
|
- |
|
|
|
16,655 |
Residential
mortgage-backed securities |
|
|
- |
|
|
|
653 |
|
|
|
- |
|
|
|
653 |
Foreign
corporate securities |
|
|
- |
|
|
|
4,038 |
|
|
|
- |
|
|
|
4,038 |
|
Total
debt securities |
|
|
- |
|
|
|
29,569 |
|
|
|
- |
|
|
|
29,569 |
Derivatives
embedded in assets deposit |
|
|
- |
|
|
|
- |
|
|
|
524,178 |
|
|
|
524,178 |
Separate
account assets |
|
|
- |
|
|
|
103,205 |
|
|
|
- |
|
|
|
103,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
21,630 |
|
|
$ |
132,774 |
|
|
$ |
524,178 |
|
|
$ |
678,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
at Fair Value |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in annuity contracts |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
524,178 |
|
|
$ |
524,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
- |
|
|
|
- |
|
|
|
524,178 |
|
|
|
524,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
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 (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 original cost basis.
For securitized debt securities, the Company
considers factors including residential property changes in value that vary by property
type and location and average cumulative collateral loss rates that vary by vintage
year. These assumptions require the use of significant management judgment and include
the probability of issuer 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.
69
Management has completed a review for other-than-temporarily
impaired securities at June 30, 2019 and 2018 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.
Assets on Deposit
- Assets on deposit represent the amount of policyholder account balances
related to reinsurance of the single premium deferred index annuity and risk control
accounts of the flexible premium deferred variable and index linked annuity contracts.
Assets on deposit are accounted for on a basis consistent with accounting for the
underlying investment type contracts; therefore, the Company accounts for the reinsurance
of these contracts using the deposit method of accounting consistent with the terms
of the reinsurance agreement with CMFG Life. 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 of the Notes to the Financial Statements appearing elsewhere in this Prospectus
for a further discussion of the ceding agreement.
Derivative Financial Instruments
- The Company issues single premium deferred index annuity
and flexible premium deferred variable and index linked 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 losses.
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 and are ceded
as part of the ceding and reinsurance agreements.
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.
The Company entered into a Coinsurance Agreement
with CMFG Life, as described previously in the Overview of this Managements
Discussion and Analysis of Financial Condition and Results of Operations. As consideration
for the reinsurance provided under this agreement, the Company transfers all of
its revenues to CMFG Life. Specifically, CMFG Life receives 100% of all premiums
and insurance claims and benefits received on account of our existing business.
The Company entered into a second agreement
with CMFG Life, as described previously in the Overview of this Managements
Discussion and Analysis of Financial Condition and Results of Operations, to cede
100% of its MEMBERS® Zone Annuity investment-type Contracts, which
are accounted for using the deposit method of accounting.
The Company entered into a third agreement
with CMFG Life, as described previously in the Overview of this Managements
Discussion and Analysis of Financial Condition and Results of Operations, to cede
100% of its MEMBERS® Horizon Variable Annuity investment-type
Contracts and its MEMBERS® Horizon II Flexible Premium Deferred
Variable and Index Linked Annuity Contracts, which are both accounted for using
the deposit method of accounting.
70
The Company has filed for approval with the State of Iowa a fourth agreement
with CMFG Life, as described previously in the Overview of this Managements
Discussion and Analysis of Financial Condition and Results of Operations, to cede
100% of its CUNA Mutual Group Zone Income Annuity Contracts offered in this Prospectus,
which will be accounted for using the deposit method of accounting.
Separate Accounts
- Separate accounts represent customer accounts related to the variable
annuity component of the flexible premium deferred variable and index linked 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 SEC as of June 30, 2019 and
December 31, 2018 and 2017.
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 agreements with CMFG Life to cede 100% of this business,
these revenues are ceded and do not impact the statements of operations and comprehensive
income (loss). See Note 7 of the Notes to Financial Statements appearing elsewhere
in this Prospectus for additional information on these agreements.
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 and index linked annuity contracts, are considered
investment-type Contracts. Amounts collected on these products, with the exception
of the variable annuity component of the flexible premium deferred variable and
index linked annuity, are recorded as increases in policyholder account balances.
The variable annuity component of the flexible premium deferred variable and index
linked annuity meets criteria for separate account reporting and therefore is recorded
in separate account assets and liabilities. Revenues from investment-type Contracts
principally consist of net investment income and contract charges such as expense
and Surrender Charges. Expenses for investment-type 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.
Claim and Policy Benefit Reserves
- Life and Health - 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.
71
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.
Additionally, the liability for future policy
benefits may not be deficient in the aggregate to trigger a premium deficiency,
but the pattern of earnings may be such that profits are expected to be recognized
in early years followed by losses in later years. In those situations, the liability
for future benefits will be increased to offset losses that would be recognized
in later years. The Company recorded a liability of $138 in 2018 for the profits
that are expected to be followed by losses in the future. There was no change in
the liability recorded as of June 30, 2019.
The Company entered into four agreements
with CMFG Life, as described previously in the Overview of this Managements
Discussion and Analysis of Financial Condition and Results of Operations to mitigate
the Companys risks. These agreements do not relieve the Company of its obligations
to our policyholders under contracts covered by these agreements. However, they
do transfer all of the Companys underwriting profits and losses to CMFG Life
and require CMFG Life to indemnify the Company for all of its liabilities.
Policyholder Account Balances
- The single premium deferred index annuities and risk control
accounts of the flexible premium deferred variable and index linked 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
an annual credited interest rate floor of 0% and the annual Growth Account floor
is -10%. The Secure and Growth Accounts both have credited interest rate caps that
vary based on Contract Issue Date. 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 during that Contract Year. Each
risk control account has a reference index. For the single premium deferred index
annuity, the Company offers one reference index, which is the S&P 500 Index.
For the flexible premium deferred variable and index linked 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 will be available as an option to the policyholder. The average annualized
credited rate for the single premium deferred index annuity was 1.50%, 1.44% and
1.63% for the years ended December 31, 2018, 2017 and 2016, respectively. The average
annualized credited rate for the risk control accounts of the flexible premium deferred
variable and index linked annuity was 1.20%, 1,59% and 1.12% for the years ended
December 31, 2018, 2017 and 2016, respectively. The average annualized credited
rate for the single premium deferred annuity was 1.35% and 1.38% for the three and
six months ended June 30, 2019, respectively, and 1.41% and 1.40% for the three
and six months ended June 30, 2018, respectively. The average annualized credited
rate for the risk control accounts of the flexible premium deferred variable annuity
was 1.39% and 1.46% for the three and six months ended June 30, 2019, respectively,
and 1.91% and 1.82% for the three and six months ended June 30, 2018, respectively.
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 of interest applied to the account values was 4.5% for each
of the three and six months ended June 30, 2019 and 2018 and in each of the years
ending December 31, 2018, 2017 and 2016. The minimum guaranteed rate of interest
that must be credited to such account values for the life of those contracts is 4.5%.
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
72
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.
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
The Company provides life and health insurance
throughout the United States servicing its existing blocks of individual and group
life policies, and began marketing the MEMBERS® Zone Annuity contract
in 2013, the MEMBERS® Horizon Flexible Premium Deferred Variable and
Index Linked Annuity contract in 2016 and the MEMBERS® Horizon II Flexible
Premium Deferred Variable and Index Linked Annuity contract in 2018 and the Contract
offered by this Prospectus as of the date of this Prospectus. The Company is managed
as two reportable business segments, (1) life and health, and (2) annuities. See
Note 9 of the Notes to the Financial Statements appearing elsewhere in this Prospectus
for information related to the two business segments.
The Company began distributing the MEMBERS® Zone Annuity, an individual or joint owned, single premium deferred
index annuity contract, in 2013 which became the Companys second reportable
business segment. The Company began distributing the MEMBERS® Horizon
Flexible Premium Deferred Variable and Index Linked Annuity Contract, an individual
or joint owned, flexible premium deferred variable and index linked annuity contract
in 2016 and the MEMBERS® Horizon II Flexible Premium Deferred Variable
and Index Linked Annuity contract, an individual or joint owned, flexible premium
deferred variable and index linked annuity contract in 2018. The results of the
Companys annuities segment, which includes the MEMBERS® Zone
Annuity and the MEMBERS® Horizon Flexible Premium Deferred Variable
and Index Linked Annuity contracts, are ceded 100% to CMFG Life under the 2013 and
2015 ceding agreements and accordingly does not impact the results of operations.
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 cede 100%
of the business related to the MEMBERS® Horizon Flexible Premium Deferred
Variable and Index Linked Annuity Contract. On October 15, 2018, the Company amended
its Coinsurance and Modified Coinsurance Agreement with CMFG Life to cede 100% of
the business related to MEMBERS® Horizon II Flexible Premium Deferred
Variable and Index Linked Annuity Contracts. We filed a new Coinsurance Agreement to cede 100% of the business related to CUNA Mutual Group Zone Income Annuity Contracts for approval with the State of Iowa in July, 2019. This agreement is pending
regulatory review as of the date of these unaudited
condensed financial statements. See Note 7 of the Notes to the Unaudited Condensed
Financial Statements appearing elsewhere in the Prospectus for information on the
2012, 2013, 2015 and 2019 agreements.
73
Results of Operations for the Years ended
December 31, 2018 and 2017
Total revenues, which consisted mainly of
net premiums, net realized investment gains, investment income and other income,
were $763 and $4,513 for the years ended December 31, 2018 and 2017, respectively.
The decrease in total revenues in 2018 as compared to 2017 was primarily due to
a decrease in other income from a litigation settlement received on structured security
investments that had previously been sold. Effective September 30, 2015, all premiums
are 100% ceded to CMFG Life, resulting in no net premium in 2018 or 2017 due to
the reinsurance agreements. Total net investment income was $762 and $517 for the
years ended December 31, 2018 and 2017, respectively, which represents an average
yield earned of 1.8% and 1.8% for the same periods, respectively. In 2018, the Company
had net realized losses on sales of securities of $17. There were no sales of investments
in 2017 that resulted in a realized gain or loss.
Total benefits and expenses were $136 and
$1,711 for the years ended December 31, 2018 and 2017, respectively. The decrease
in benefits and expenses in 2018 as compared to 2017 was primarily due to decreased
legal expenses related to the settlement received in 2017 on structured security
investments that had previously been sold. All benefits are ceded to CMFG Life,
resulting in no net benefits in 2018. Operating expenses totaled $151 and $1,709
for the years ended December 31, 2018 and 2017, respectively. CMFG Life provides
significant services required in the conduct of the Companys operations. Operating
expenses incurred by the Company that are specifically identifiable are borne by
the Company; other operating expenses are allocated from CMFG Life on the basis
of estimated time and usage studies. Operating expenses are primarily related to
and include employee costs such as wages and benefits, legal expenses and other
operating expenses such as rent, insurance and utilities. The decrease in operating
expenses in 2018 as compared to 2017 was primarily due to a decrease in legal fees
related to a litigation settlement received on structured security investments that
had previously been sold.
Income tax expense is recorded at 21% for
the year ended December 31, 2018 and 35% for the year ended December 31, 2017 and
is offset by prior year tax expense or benefits primarily related to interest on
accrued refunds, resulting in an effective tax rate of (29.0%) and 25.8% for the
years ended December 31, 2018 and 2017, respectively.
Net income was $809 and $2,079 for the years
ended December 31, 2018 and 2017, respectively. The decrease in 2018 net income
as compared to 2017 was primarily due to a litigation settlement received in 2017
related to structured security investments that had previously been sold.
Results of Operations for the Three Months
ended June 30, 2019 and 2018
Total revenues, which consisted mainly of
investment income and other income, were $457 and $174 for the three months ended
June 30, 2019 and 2018, respectively. The increase in total revenues for the three
months ended June 30, 2019 as compared to 2018 was primarily due to improved interest
rates on the Companys investment in cash equivalents and increased cash equivalent
balances. There was no net premium for the three months ended June 30, 2019 and
2018 due to the reinsurance agreements the Company is party to. Total net investment
income was $433 and $170 for the three months ended June 30, 2019 and 2018, respectively,
which represents an average yield earned of 2.9% and 2.2%, respectively. The increase
is due to improved interest rates on the Companys investment in cash equivalents.
The Company sold one security that resulted in a net realized investment gain of
$17 for the three months ended June 30, 2019. There were no sales of investments
for the three months ended June 30, 2019 or 2018 that resulted in a realized gain
or loss.
Total benefits and expenses were $100 and
$26 for the six months ended June 30, 2019 and 2018, respectively. The increase
in benefits and expenses for the six months ended June 30, 2019 as compared to
2018 was primarily due to the net impact of transfers of annuity deposits and withdrawals
to/from the separate account, which supports the Companys MEMBERS® Horizon products. Life and health benefits were $1 for the three months ended
June 30, 2018. There were no life and health benefits for the three months ended
June 30, 2019 due to the Companys reinsurance agreements. Operating
expenses totaled $80 and $30 for the three months ended June 30, 2019 and 2018,
respectively. CMFG Life provides
74
significant services required in the conduct of
the Companys operations. Operating expenses incurred by the Company that are
specifically identifiable are borne by the Company; other operating expenses are
allocated from CMFG Life on the basis of estimated time and usage studies. Operating
expenses are primarily related to and include employee costs such as wages and benefits,
legal expenses and other operating expenses such as rent, insurance and utilities.
The increase in operating expenses for the six months ended June 30, 2019 as compared
to 2018 was primarily due to the net impact of transfers of annuity deposits and
withdrawals to/from the separate account, which supports the Companys MEMBERS® Horizon products.
Income tax expense is recorded at 21% for
the three months ended June 30, 2019 and 2018; both periods are offset by prior
year tax expense or benefits primarily related to interest on accrued refunds, resulting
in an effective tax rate of (6.1%) and (8.2%) for the three months ended June 30,
2019 and 2018, respectively.
Net income was $379 and $161 for the three
months ended June 30, 2019 and 2018, respectively. The increase in net income for
the three months ended 2019 as compared to 2018 is primarily due to an increase in interest
rates on cash equivalents.
Results of Operations for the Six Months
ended June 30, 2019 and 2018
Total revenues, which consisted mainly of
investment income and other income, were $869 and $317 for the six months ended
June 30, 2019 and 2018, respectively. The increase in total revenues for the six
months ended June 30, 2019 as compared to 2018 was primarily due to improved rates
on the Companys investment in cash equivalents and increased cash equivalent
balances. Total net investment income was $839 and $310 for the six months ended
June 30, 2019 and 2018, respectively, which represents an average yield earned of
5.3% and 2.2%, respectively. The Company sold one security that resulted in a net
realized investment gain of $17 for the six months ended June 30, 2019. There were
no sales of investments that resulted in a net realized investment gain or loss
for the six months ended June 30, 2018.
Total benefits and expenses were $160 and
$41 for the six months ended June 30, 2019 and 2018, respectively. The increase
in benefits and expenses for the six months ended June 30, 2019 as compared to 2018
was primarily due to the net impact of transfers of annuity deposits and withdrawals.
Life and health benefits were $1 for the six months ended June 30, 2018. There were
no life and health benefits for the six months ended June 30, 2019 due to the Companys reinsurance
agreements. Operating expenses totaled $126 and $55 for
the six months ended June 30, 2019 and 2018, respectively. CMFG Life provides significant
services required in the conduct of the Companys operations. Operating expenses
incurred by the Company that are specifically identifiable are borne by the Company;
other operating expenses are allocated from CMFG Life on the basis of estimated
time and usage studies. Operating expenses are primarily related to and include
employee costs such as wages and benefits, legal expenses and other operating expenses
such as rent, insurance and utilities. The increase in operating expenses for the
six months ended June 30, 2019 as compared to 2018 was primarily due to the net impact of transfers
of annuity deposits and withdrawals to the separate account.
Income tax expense is recorded at 21% for
the six months ended June 30, 2019 and 2018; both periods are offset by prior year
tax expense or benefits primarily related to interest on accrued refunds, resulting
in an effective tax rate of 4.9% and (30.8%) for the six months ended June 30, 2019
and 2018, respectively.
Net income was $674 and $362 for the six months ended
June 30, 2019 and 2018; respectively. The increase in net
income for the six months ended June 30, 2019 as compared to 2018 is
primarily due to improved interest rates on the Companys
investment in cash equivalents.
Tax Reform -
The Tax Act made changes to the U.S. tax code, including, but not limited to reducing
the U.S. federal corporate tax rate to 21% effective January 1, 2018.
The Company completed its initial evaluation
of the impacts of the Tax Act and recorded a net tax expense of $49 for the year
ended December 31, 2017 due to the remeasurement of deferred tax assets and liabilities.
The Companys accounting for the impacts
of the Tax Act was complete as of December 31, 2018 with no material changes to
the amount recorded at December 31, 2017.
75
Financial Condition
The Companys 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.
The Companys investment in debt securities consists of residential mortgage-backed
securities, U.S. Treasury securities, domestic corporate securities and foreign
corporate securities. While the investments are categorized as available-for-sale,
the Company generally holds our bond portfolio to maturity.
Insurance statutes regulate the type of
investments that the Company is 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, the Company generally seeks
to invest in U.S. government and government-sponsored agency securities and debt
securities rated investment grade by established nationally recognized rating organizations
or in securities of comparable investment quality, if not rated.
The Companys investment portfolio
is comprised solely of debt securities at June 30, 2019 and December 31, 2018. The
table below presents our total debt securities by type at June 30, 2019 and December
31, 2018.
|
|
|
June 30, |
|
December 31, |
|
|
|
|
2019 |
|
|
% |
|
|
2018 |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
and agencies |
|
$ |
9,013 |
|
|
|
29.5 |
% |
|
$ |
8,223 |
|
|
|
27.8 |
% |
Domestic corporate
securities |
|
|
17,211 |
|
|
|
56.3 |
|
|
|
16,655 |
|
|
|
56.3 |
|
Residential
mortgage-backed securities: |
|
|
252 |
|
|
|
0.8 |
|
|
|
653 |
|
|
|
2.2 |
|
Foreign corporate
securities |
|
|
4,095 |
|
|
|
13.4 |
|
|
|
4,038 |
|
|
|
13.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
$ |
30,571 |
|
|
|
100.0 |
% |
|
$ |
29,569 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of debt securities by contractual maturity
are shown below at June 30, 2019. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
|
|
|
|
|
|
|
|
|
Due in one
year or less |
|
|
$ |
3,006 |
|
|
$ |
3,045 |
Due after
one year through ten years |
|
|
|
17,470 |
|
|
|
18,259 |
Due after
ten years |
|
|
|
8,742 |
|
|
|
9,014 |
Residential
mortgage-backed securities |
|
|
|
237 |
|
|
|
253 |
|
Total debt
securities |
|
|
$ |
29,455 |
|
|
$ |
30,571 |
|
The Company has classified its 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.
At June 30, 2019, the Company did not own
any debt securities in an unrealized loss position. At December 31, 2018, the Company
owned one debt security with a fair value of $8,223 in an unrealized loss position
of $521 for more than twelve months; and two debt securities with a fair value of
$1,986 in an unrealized loss position of $12 for less than twelve months.
76
Liquidity and Capital Resources
We reinsure our life insurance exposure with an affiliated insurance company under a traditional indemnity reinsurance arrangement. We entered into a Coinsurance Agreement with CMFG Life in 2012. Under this agreement, we agreed to cede 95% of all insurance in force as of October 31, 2012 to CMFG Life. On September 30, 2015, we amended the Coinsurance Agreement with CMFG Life and now cede 100% of our insurance policies in force to CMFG Life. In 2013, we entered into a second agreement to cede 100% of the business related to MEMBERS® Zone Annuity contracts to CMFG Life. On November 1, 2015,
the Company entered into a Coinsurance and Modified Coinsurance Agreement with CMFG
Life to cede 100% of the business related to MEMBERS® Horizon Flexible
Premium Deferred Variable and Index Linked Annuity contracts. On October 15, 2018,
the Company amended its Coinsurance and Modified Coinsurance Agreement with CMFG
Life to cede 100% of the business related to MEMBERS® Horizon II Flexible
Premium Deferred Variable and Index Linked Annuity contracts. We filed a new Coinsurance Agreement to cede 100% of the business related to CUNA Mutual Group Zone Income Annuity Contracts for approval with the State of Iowa in July, 2019. This
agreement is pending regulatory review as of the date of
these unaudited condensed financial statements. These agreements do not relieve us of our obligations to our
policyholders under contracts covered by these agreements. However, they do transfer
all of the Companys underwriting profits and losses to CMFG Life and require
CMFG Life to indemnify the Company for all of its liabilities.
As consideration for the reinsurance provided
under these agreements, and as of November 1, 2015, the Company transfers 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.
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.
Operating activities provided $4,538 and
$5,773 of net operating cash flow for the years ended December 31, 2018 and 2017,
respectively. The Companys primary use of funds includes the payment of benefits
and related operating expenses as well as settlements related to the reinsurance
agreements with CMFG Life. The Company issues the single premium deferred index
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. The decrease in operating cash flow in 2018, as compared
to 2017, was primarily due to a change in the timing of settlements of intercompany
expenses in 2018. The Companys sources of funds include renewal premiums,
sales of investment contracts and investment income.
Investing activities provided $1,268 and
$367 of net cash flow for the years ended December 31, 2018 and 2017, respectively.
The Companys main investing activities include the purchase and sale or maturity of debt securities. The Company
had maturities on debt securities which provided cash of $1,268 and $367 in 2018
and 2017, respectively, contributing to the net increase of cash from investing
activities.
The Companys financing activities
provided $666 and used $6,432 of net cash flow for the years ended December 31,
2018 and 2017, respectively. The Companys main financing activities include
the collection of deposits and payment of withdrawals from policyholders accounts.
The increase in financing activities in 2018 was due to the Companys increased
deposits on policyholder accounts in 2018 as compared to 2017.
Operating activities provided $5,442 and
$2,066 of net operating cash flow for the six months ended June 30, 2019 and 2018,
respectively. The Companys primary use of funds includes the payment of benefits
and related operating expenses as well as settlements related to the reinsurance
agreements with CMFG Life. The Company issues the single premium deferred index
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
77
a contract. The increase in operating cash flow in 2019 as compared to
2018 was primarily due to an increase in cash received for contracts not yet issued.
In 2019, the Companys sources of funds include renewal premiums, sales of
investment contracts and investment income.
Investing activities provided $415 and $92
of net cash flow for the six months ended June 30, 2019 and 2018, respectively.
The Companys main investing activities include the purchase and sale or maturity
of debt securities. The Company had maturities on debt securities which provided
cash of $415 and $92 in 2019 and 2018, respectively, contributing to the net increase
of cash from investing activities.
The Companys financing activities
provided $1,213 and $454 of net cash flow for the six months ended June 30, 2019
and 2018, respectively. The Companys main financing activities include the
collection of deposits and payment of withdrawals from policyholders accounts.
The increase in financing activities in 2019 was due to the Companys increased
deposits on policyholder accounts in 2019 as compared to 2018.
Liquidity requirements are met primarily
through quarterly settlements under the coinsurance and modified coinsurance agreements
with CMFG Life. The Company anticipates receiving adequate cash flow from these
settlements and investment income to meet its obligations. However, a primary liquidity
concern going forward is the risk of an extraordinary level of early policyholder
withdrawals. The Company includes provisions within its policies, such as Surrender
Charges, that help limit and discourage early withdrawals.
The Company believes that cash flows generated
from sources above will be sufficient to satisfy the near term liquidity requirements
of its operations, including reasonable foreseeable contingencies. However, the
Company cannot predict future experience regarding benefits and surrenders since
benefit and surrender levels are influenced by such factors as the interest rate
environment, the Companys claims paying ability and the Companys financial
credit ratings.
Most annuity deposits the Company will receive
going forward will be invested in high quality investments, those identified by
the Company as investment grade, to fund future commitments. The Company believes
that the settlement it receives under the reinsurance agreements with CMFG Life,
the diversity of its investment portfolio and a concentration of investments in
high quality securities should provide sufficient liquidity to meet foreseeable
cash requirements. Although there is no present need or intent to dispose of our
investments, the Company could readily liquidate portions of our investments, if
such a need arose. Sales of available-for-sale securities in an unrealized loss
position are subject to other-than-temporary impairment considerations including
our intent to sell.
Statutory Financial Data and Dividend
Restrictions
The Company is a life and health insurer
domiciled in Iowa. The Company files statutory basis financial statements with regulatory
authorities. Our statutory capital and surplus was $40,257 and $39,447 as of June 30, 2019 and December 31, 2018, respectively.
Our statutory basis net income was $419, $1,914 and $1,051 for the years ended December
31, 2018, 2017 and 2016, respectively. Our statutory basis net income was $423 and
$98 for the three months ended June 30, 2019 and 2018, respectively. Our statutory
basis net income was $574 and $259 for the six months ended June 30, 2019 and 2018,
respectively.
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 of up to $3,294 during 2019 without prior approval of the Iowa
Insurance Department.
Risk-based capital requirements promulgated
by the 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. At December 31, 2018 and 2017, the Companys adjusted capital exceeded the minimum capitalization requirements.
78
Contractual Obligations
In December 2007, the Company entered into
a Procurement and Disbursement and Billing and Collection Services Agreement with
CMFG Life and certain other affiliated companies whereby CMFG Life has agreed to
provide certain of our operational requirements. In January 2008, the Company entered
into a Cost Sharing, Procurement, Disbursement, Billing and Collection Agreement
with CMFG Life and certain other affiliated companies. Pursuant to this agreement,
CMFG Life has agreed to provide the Company with certain office and market services
and personnel services. On January 1, 2015, the Company entered into a Cost Sharing,
Procurement, Disbursement, Billing and Collection Agreement which replaced all prior
agreements. Additionally, the Company is allocated a certain portion of the total
compensation of each of our executive officers and directors, based on various factors,
the primary being the estimated time allocated to providing services to the Company.
In exchange for providing these administrative functions and use of shared resources
and personnel, the Company reimburses CMFG Life for the cost of providing such administrative
functions, resources and personnel. The Company reimbursed CMFG Life $30,131, $20,808
and $15,349 for these expenses for the years ended December 31, 2018, 2017 and 2016,
respectively. The Company reimbursed CMFG Life $8,758 and $7,376 for the three months
ended June 30, 2019 and 2018, respectively. The Company reimbursed CMFG Life $17,659
and $14,347 for the six months ended June 30, 2019 and 2018, respectively.
For detailed discussion of the management
services agreement, the investment advisory agreement and the coinsurance agreements,
see Management Transactions with Related Persons, Promoters and Certain
Control Persons.
In the future, we may enter into financing
transactions, lease agreements, or other commitments in the normal course of our
business.
The Company has the following future minimum
estimated claim and benefit payments that are 100% reinsured as of June 30, 2019.
|
|
|
Estimated Future Claim |
|
|
and Benefit Payments |
|
|
|
|
|
Due in one
year or less |
|
$ |
1,277 |
Due after
one year through three years |
|
|
6,729 |
Due after
three years through five years |
|
|
3,703 |
Due after
five years |
|
|
22,985 |
|
|
|
|
|
Total estimated
payments |
|
$ |
34,694 |
|
Quantitative and Qualitative Disclosures
about Market Risk and Cyber Security
We have exposure to market risk through
both our insurance operations and investment activities, although a significant
portion of this risk is reinsured by CMFG Life pursuant to the coinsurance and modified
coinsurance agreements discussed above. In addition, many of the measures described
herein to offset these market risks are taken by CMFG Life because it holds all
assets related to our insurance business as a result of the coinsurance agreements.
Interest rate risk is our primary market
risk exposure. Substantial and sustained increases and decreases in market interest
rates will affect the profitability of our annuity products and the fair value of
our investments. Most of the interest rate risk is absorbed by CMFG Life under the
coinsurance and modified coinsurance agreements. The profitability of most of our
annuity products will depend on the spreads between interest yield on investments
and rates credited on the annuity products. We have the ability to adjust crediting
rates (caps, participation rates or asset fee rates for indexed annuities) on substantially
all
79
of our annuity products at least annually (subject to minimum guaranteed values).
In addition, substantially all of our annuity products have surrender and withdrawal
penalty provisions designed to encourage persistency and to help ensure targeted
spreads are earned. However, competitive factors, including the impact of the level
of surrenders and withdrawals, may limit our ability to adjust or maintain crediting
rates at levels necessary to avoid narrowing of spreads under certain market conditions.
A major component of our interest rate risk
management program is structuring the General Account investment portfolio with
cash flow characteristics consistent with the cash flow characteristics of our annuity
products. We use computer models to simulate cash flows expected from our existing
business under various interest rate scenarios. These simulations enable us to measure
the potential gain or loss in fair value of our interest rate-sensitive financial
instruments, to evaluate the adequacy of expected cash flows from our assets to
meet the expected cash requirements of our annuity products and to determine if
it is necessary to lengthen or shorten the average life and duration of our investment
portfolio. The duration of a security is the time weighted present value of the
securitys expected cash flows and is used to measure a securitys sensitivity
to changes in interest rates. When the durations of assets and liabilities are similar,
exposure to interest rate risk is minimized because a change in value of assets
should be largely offset by a change in the value of liabilities. As of December
31, 2018, the Companys fixed debt securities investment portfolio consisted
of U.S. government and agency securities, domestic corporate securities, residential
mortgage-backed securities and foreign corporate securities with fair values of
$8,223, $16,655, $653 and $4,038, respectively, and has an average duration of 16
years.
Our business is highly dependent upon the
effective operation of our computer systems and those of our business partners,
so that our business is potentially susceptible to operational and information security
risks resulting from a cyber-attack. These risks include, among other things, the
theft, misuse, corruption and destruction of data maintained online or digitally,
denial of service on websites and other operational disruption and unauthorized
release of confidential customer information. Cyber-attacks affecting the Company
may adversely affect us and your Contract Value. For instance, cyber-attacks may
interfere with our processing of Contract transactions, cause the release and possible
destruction of confidential Owner or business information, impede order processing,
subject the Company to regulatory fines and financial losses and/or cause reputational
damage. There can be no assurance that we will avoid losses affecting your Contract
due to cyber-attacks or information security breaches in the future.
Directors and Executive Officers
Our directors and executive officers are
as follows:
|
|
|
|
|
Name |
|
Age |
|
Position
|
|
|
|
|
|
|
|
|
|
|
David L. Sweitzer |
|
55 |
|
President
and Director |
Paul D. Barbato |
|
42 |
|
Secretary
and Director |
Brian J. Borakove |
|
40 |
|
Treasurer |
Michael F.
Anderson |
|
51 |
|
Director |
Michael T.
Defnet |
|
59 |
|
Director |
Williams Karls |
|
48 |
|
Director |
All executive officers and directors are
elected annually.
David L.
Sweitzer has served as President and as director of the Company since October
31, 2016. He also serves as the Senior Vice President of Wealth Management for CMFG
Life where he leads overall business strategy and product management for CBSI and
CMFG Lifes and affiliates family of annuity
80
products. Mr. Sweitzer has held
various positions in CMFG Life for 26 years. He brings more than 26 years of progressive
experience in sales and marketing, sales operations and sales strategy.
Paul D.
Barbato has served as Secretary and as director of the Company since December
28, 2018. As of January 7, 2019, he also serves as Vice President, Associate General
Counsel for CMFG Life. Mr. Barbato re-joined CMFG Life in May 2017 after spending
two years as corporate counsel with Epic Systems Corporation (March 2015-May 2017).
He originally joined CMFG Life in January 2009 as a Lead Counsel and later held
roles as Associate General Counsel and Director of Corporate Governance. Before
joining CMFG Life, Mr. Barbato spent two years at Michael Best & Friedrich,
LLP, in Madison, Wisconsin, where he was an Associate Attorney.
Brian J.
Borakove has served as our Treasurer since November 9, 2012 and Vice President,
Corporate Treasurer since November 19, 2012 at CMFG Life. He served as Director
of Investment Finance from 2007 to 2011 and was promoted to Associate Treasurer
in 2011. Prior to joining CMFG Life, he was a Senior Manager, Investment Finance
at Liberty Mutual Insurance in Boston, Massachusetts from 2005 to 2007. Prior to
joining Liberty Mutual Insurance, Mr. Borakove served as a Senior Analyst, Treasury
at FM Global in Johnston, Rhode Island from 2003-2005. Mr. Borakove held various
positions at State Street Bank in Boston, Massachusetts from 2001-2003.
Michael
F. Anderson has been a director of the Company since December 15, 2015. He also
serves as the Senior Vice President, Chief Legal Officer for CMFG Life where he
has been responsible for all legal matters across CMFG Lifes business entities
since 2011. He served as Managing Associate General Counsel from 2008 to 2009, was
promoted to Vice President in 2009 and in 2011 was 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.
William Karls has been
director of the Company since August 4, 2017 and has served as Controller for CMFG
Life since 2012. Prior to joining CMFG Life in 2004, Mr. Karls was a Senior Manager
with Strohm Ballweg, LLP, which provides audit and consulting services to insurance
companies.
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
written procedures for the review, approval or ratification of related person transactions.
For purposes of the related person transaction policy, a related person transaction
is a transaction, arrangement, or relationship (or any series of similar transactions,
arrangements, or relationships) in which (i) we were, are or will be a participant,
(ii) the amount of the transaction, arrangement or relationship exceeds $120,000,
and (iii) in which a related person had, has or will have a direct or indirect material
interest in the transaction.
81
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 will 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 will 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 Board of Directors 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.
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.
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, we entered into a second coinsurance agreement to
cede 100% of all insurance issued on and after January 1, 2013 to CMFG Life. On
November 1, 2015, we entered into a Coinsurance and Modified Coinsurance Agreement
with CMFG Life to cede 100% of the business related to the Contract, and other investment
type contracts similar to the Contract. These agreements do not relieve us of our
obligations to our policyholders under contracts covered by
82
these agreements. However, they do transfer nearly all of the Companys underwriting profits and losses
to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its
liabilities. We filed a new Coinsurance Agreement to cede 100% of the business related to CUNA Mutual Group Zone Income Annuity Contracts for approval with the State of Iowa in July, 2019.
On January 1, 2015, the Company entered
into a Cost Sharing, Procurement, Disbursement, Billing and Collection Agreement
with CMFG Life and certain other affiliated companies and on that same day, January
1, 2015, the Company entered into an Amended and Restated Expense Sharing Agreement
with CMFG Life. See Contractual Obligations for more information about
each of these agreements.
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
Our Board of Directors of the Company has
not established any committees. The Board relies upon the committees of the CM Holding
to oversee actions over the subsidiary companies. For example, the CM Holding Audit
Committee will assist with oversight of the Companys external auditors, performance
of internal audit functions and legal and regulatory compliance requirements.
Compensation Committee Interlocks and
Insider Participation
Our Board of Directors has not established
a compensation committee. None of our current executive officers serves on the board
of directors or compensation committee (or other committee serving an equivalent
function) of any other entity whose executive officers served on our Board of Directors.
Mr. Sweitzer is on the Board of Directors for CBSI whose Board of Directors include
Messrs. Anderson, Defnet, Karls and Barbato, the other Directors of the Company.
Executive Compensation. We do not have any employees but rather are provided personnel, including
our named executive officers, by our parent company, CMFG Life, pursuant to the
Amended and Restated Expense Sharing Agreement between CMFG Life and us. As a result,
we do not determine or pay any compensation to our named executive officers or additional
personnel provided by CMFG Life for our operations. CMFG Life determines and pays
the salaries, bonuses and other wages earned by our named executive officers and by additional
personnel provided to us by CMFG Life. CMFG Life also determines whether and to
what extent our named executive officers and additional personnel from CMFG Life
may participate in any with employee benefit plans. We do not have employment agreements
with our named executive officers and do not provide pension or retirement benefits,
perquisites or other personal benefits to our named executive officers. We do not
have arrangements to make payments to our named executive officers upon their termination
or in the event of a change in control of the Company. See Contractual Obligations for more information about the Amended and Restated Expense Sharing Agreement
between CMFG Life and us.
Director Compensation
The directors of the Company are also officers
of CMFG Life. The Companys directors receive no compensation for their service
as directors of the Company but are compensated by CMFG Life for their services
as officers of CMFG Life. Accordingly, no costs were allocated to the Company for
services of following persons in their role as current directors: Michael F. Anderson,
Michael T. Defnet, William Karls, Paul D. Barbato and David L. Sweitzer.
83
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, nor the Companys ability to meet its obligations under the
Contracts.
* * *
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.
84
85
MEMBERS Life Insurance Company
Unaudited Condensed Financial Statements
As of June 30, 2019 and December 31, 2018
And for the Three and Six Months
Ended June 30, 2019 and 2018
|
MEMBERS
Life Insurance Company |
Condensed
Balance Sheets, Unaudited |
June 30, 2019
and December 31, 2018 |
($ in 000s) |
|
|
|
|
June 30, |
|
December 31, |
|
Assets
|
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
Debt
securities, available for sale, at fair value |
|
|
|
|
|
|
|
(amortized
cost 2019- $29,455; 2018 - $29,856) |
|
$ |
30,571 |
|
$ |
29,569 |
|
|
Total investments
|
|
|
30,571 |
|
|
29,569 |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
31,982 |
|
|
24,912 |
|
Accrued
investment income |
|
|
364 |
|
|
304 |
|
Reinsurance
recoverable from affiliate |
|
|
24,200 |
|
|
24,034 |
|
Assets
on deposit |
|
|
3,707,034 |
|
|
3,138,096 |
|
Premiums
receivable, net |
|
|
11 |
|
|
13 |
|
Net
deferred tax asset |
|
|
122 |
|
|
375 |
|
Receivable
from affiliate |
|
|
- |
|
|
5,027 |
|
Other
assets and receivables |
|
|
202 |
|
|
819 |
|
Federal
income taxes recoverable from affiliate |
|
|
3,237 |
|
|
2,889 |
|
Separate
account assets |
|
|
137,135 |
|
|
103,205 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
3,934,858 |
|
$ |
3,329,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Claim
and policy benefit reserves - life and health |
|
$ |
23,726 |
|
$ |
26,836 |
|
Policyholder
account balances |
|
|
3,712,117 |
|
|
3,142,077 |
|
Payables
to affiliates |
|
|
3,561 |
|
|
3,006 |
|
Accounts
payable and other liabilities |
|
|
16,617 |
|
|
14,199 |
|
Separate
account liabilities |
|
|
137,135 |
|
|
103,205 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,893,156 |
|
|
3,289,323 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
31,153 |
|
|
31,153 |
|
Accumulated
other comprehensive income (loss), net of |
|
|
|
|
|
|
|
tax
expense (benefit) (2019 - $234; 2018 - ($61)) |
|
|
882 |
|
|
(226 |
) |
Retained
earnings |
|
|
4,667 |
|
|
3,993 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
41,702 |
|
|
39,920 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders equity |
|
$ |
3,934,858 |
|
$ |
3,329,243 |
|
|
|
See accompanying
notes to unaudited condensed financial statements. |
2 |
|
MEMBERS
Life Insurance Company |
Condensed
Statements of Operations and Comprehensive Income (Loss), Unaudited |
Three and
Six Months Ended June 30, 2019 and 2018 |
($ in 000s) |
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income |
|
$ |
433 |
|
|
$ |
170 |
|
|
$ |
839 |
|
|
$ |
310 |
|
Net
realized investment gains |
|
|
17 |
|
|
|
- |
|
|
|
17 |
|
|
|
- |
|
Other
income |
|
|
7 |
|
|
|
4 |
|
|
|
13 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
457 |
|
|
|
174 |
|
|
|
869 |
|
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims and benefits, net |
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Interest
credited to policyholder account balances, net |
|
|
20 |
|
|
|
(5 |
) |
|
|
34 |
|
|
|
(15 |
) |
Operating
and other expenses |
|
|
80 |
|
|
|
30 |
|
|
|
126 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
100 |
|
|
|
26 |
|
|
|
160 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes |
|
|
357 |
|
|
|
148 |
|
|
|
709 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) |
|
|
(22 |
) |
|
|
(13 |
) |
|
|
35 |
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
379 |
|
|
|
161 |
|
|
|
674 |
|
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains (losses), net of tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(benefit)
(2019 - $153, $295; 2018 - ($10), ($88)) |
|
|
575 |
|
|
|
(37 |
) |
|
|
1,108 |
|
|
|
(332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss) |
|
|
575 |
|
|
|
(37 |
) |
|
|
1,108 |
|
|
|
(332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
$ |
954 |
|
|
$ |
124 |
|
|
$ |
1,782 |
|
|
$ |
30 |
|
|
|
See accompanying
notes to unaudited condensed financial statements. |
3 |
|
MEMBERS
Life Insurance Company |
Condensed
Statements of Stockholders Equity, Unaudited |
For the Three and Six
Months Ended June 30, 2019 and 2018 |
($ in 000s) |
|
|
|
|
Common stock |
|
Additional paid in capital |
|
Accumulated other comprehensive income (loss) |
|
Retained earnings |
|
Total stockholders equity |
|
Balance, December 31, 2017 |
|
$ |
5,000 |
|
$ |
10,500 |
|
$ |
11 |
|
|
$ |
3,187 |
|
|
$ |
18,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
- |
|
|
- |
|
|
- |
|
|
|
201 |
|
|
|
201 |
|
Other
comprehensive (loss) |
|
|
- |
|
|
- |
|
|
(295 |
) |
|
|
- |
|
|
|
(295 |
) |
Cumulative
effect of reclassification |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
stranded tax effects |
|
|
- |
|
|
- |
|
|
3 |
|
|
|
(3 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2018 |
|
|
5,000 |
|
|
10,500 |
|
|
(281 |
) |
|
|
3,385 |
|
|
|
18,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
- |
|
|
- |
|
|
- |
|
|
|
161 |
|
|
|
161 |
|
Other
comprehensive (loss) |
|
|
- |
|
|
- |
|
|
(37 |
) |
|
|
- |
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2018 |
|
$ |
5,000 |
|
$ |
10,500 |
|
$ |
(318 |
) |
|
$ |
3,546 |
|
|
$ |
18,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
Additional paid in capital |
|
Accumulated other comprehensive income (loss) |
|
Retained earnings |
|
Total stockholders equity |
|
Balance,
December 31, 2018 |
|
$ |
5,000 |
|
$ |
31,153 |
|
$ |
(226 |
) |
|
$ |
3,993 |
|
|
$ |
39,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
- |
|
|
- |
|
|
- |
|
|
|
295 |
|
|
|
295 |
|
Other
comprehensive income |
|
|
- |
|
|
- |
|
|
533 |
|
|
|
- |
|
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2019 |
|
|
5,000 |
|
|
31,153 |
|
|
307 |
|
|
|
4,288 |
|
|
|
40,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
- |
|
|
- |
|
|
- |
|
|
|
379 |
|
|
|
379 |
|
Other
comprehensive income |
|
|
- |
|
|
- |
|
|
575 |
|
|
|
- |
|
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2019 |
|
$ |
5,000 |
|
$ |
31,153 |
|
$ |
882 |
|
|
$ |
4,667 |
|
|
$ |
41,702 |
|
|
|
See accompanying
notes to unaudited condensed financial statements. |
|
|
4 |
|
MEMBERS
Life Insurance Company |
Condensed
Statements of Cash Flows, Unaudited |
For the Six
Months Ended June 30, 2019 and 2018 |
($ in 000s) |
|
|
|
|
June 30, |
|
June 30, |
|
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
Cash flows
from operating activities: |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
674 |
|
|
$ |
362 |
|
Adjustments
to reconcile net income |
|
|
|
|
|
|
|
|
to
net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Deferred
income taxes |
|
|
(42 |
) |
|
|
(21 |
) |
Amortization
of bond premium and discount |
|
|
3 |
|
|
|
10 |
|
Amortization
and write off of deferred charges |
|
|
7 |
|
|
|
8 |
|
Interest
credited to policyholder account balances |
|
|
34 |
|
|
|
- |
|
Net
realized investment gain |
|
|
(17 |
) |
|
|
- |
|
Changes
in other assets and liabilities |
|
|
|
|
|
|
|
|
Accrued
investment income |
|
|
(60 |
) |
|
|
2 |
|
Reinsurance
recoverable from affiliate |
|
|
(309 |
) |
|
|
312 |
|
Premiums
receivable |
|
|
1 |
|
|
|
(1 |
) |
Receivable
from affiliate and other assets |
|
|
1,945 |
|
|
|
314 |
|
Federal
income taxes recoverable from affiliate |
|
|
(348 |
) |
|
|
(504 |
) |
Claim
and policy benefit reserves - life and health |
|
|
582 |
|
|
|
177 |
|
Payables
to affiliates and other liabilites |
|
|
2,972 |
|
|
|
1,407 |
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by operating activities |
|
|
5,442 |
|
|
|
2,066 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities: |
|
|
|
|
|
|
|
|
Proceeds
on sale or maturity of debt securities |
|
|
415 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by investing activities |
|
|
415 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from financing activities: |
|
|
|
|
|
|
|
|
Policyholder
account deposits |
|
|
430,955 |
|
|
|
356,411 |
|
Policyholder
account withdrawals |
|
|
(59,816 |
) |
|
|
(40,201 |
) |
Assets
on deposit - deposits |
|
|
(429,530 |
) |
|
|
(355,730 |
) |
Assets
on deposit - withdrawals |
|
|
59,604 |
|
|
|
39,973 |
|
Change
in bank overdrafts |
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by financing activities |
|
|
1,213 |
|
|
|
454 |
|
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents |
|
|
7,070 |
|
|
|
2,612 |
|
Cash and
cash equivalents at beginning of year |
|
|
24,912 |
|
|
|
18,440 |
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents at end of period |
|
$ |
31,982 |
|
|
$ |
21,052 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash information: |
|
|
|
|
|
|
|
|
Net
cash paid to affiliate for income taxes |
|
$ |
425 |
|
|
$ |
440 |
|
|
|
See accompanying
notes to unaudited condensed financial statements. |
|
|
5 |
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Note 1: Nature of Business
MEMBERS Life Insurance Company (MLIC or the Company) is a life and health insurance stock company organized
under the laws of Iowa and a wholly-owned subsidiary of CUNA Mutual Investment Corporation
(CMIC). CMIC is organized under the laws of Wisconsin and is a wholly-owned
subsidiary of CMFG Life Insurance Company (CMFG Life), an Iowa life
insurance company. CMFG Life and its affiliated companies primarily sell insurance
and other products to credit unions and their members. 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 and index linked annuity contracts in 2016 and single premium deferred
index annuity contracts in 2013. Both products are sold to consumers, including
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 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.
As discussed in Note 6, 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).
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.
The accompanying unaudited condensed financial statements
contain all adjustments (consisting of only normal recurring items, unless otherwise
disclosed) necessary for a fair statement of the financial position as of June 30,
2019 and December 31, 2018, the results of operations, cash flows, changes in comprehensive
income and equity for the six months ended June 30, 2019 and 2018, and the results
of operations, changes in comprehensive income and equity for the three
months ended June 30, 2019 and 2018. These financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and disclosures normally included in the
annual financial statement prepared in accordance with GAAP have been condensed
or omitted pursuant to such rules and regulations However, the Company believes
that the disclosures included herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements and notes should
be read in conjunction with the audited financial statements and the notes thereto
for the year ended December 31, 2018. These results are not necessarily indicative
of the results to be expected for the full year.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
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 index annuity contracts and flexible premium deferred variable
and index linked annuity contracts. See Note 7, Reinsurance, for information on
the Companys reinsurance 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 income (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
$1,348 and $1,367 of policy loans to CMFG Life as of June 30, 2019 and December
31, 2018, respectively, as payment pursuant to a life reinsurance agreement with
CMFG Life (See Note 7).
Net investment income: Interest income
related to mortgage-backed and other structured securities is recognized on an accrual
basis using a constant effective yield method, based on anticipated prepayments
and the estimated economic life of the securities. When estimates of prepayments
change, the effective yield is recalculated to reflect actual payments to date and
anticipated future payments and such adjustments are reflected in net investment
income. Prepayment assumptions for loan-backed bonds and structured securities are
based on industry averages or internal estimates. Interest income related to non-structured
securities is recognized on an accrual basis using a constant effective yield method.
Discounts and premiums on debt securities are amortized over the estimated lives
of the respective securities on an effective yield basis.
Net realized gains and losses: Realized
gains and losses on the sale of investments are determined on a specific identification
basis and are recorded on the trade date.
Assets on Deposit
Assets on deposit represent the amount of
policyholder account balances related to reinsurance of the single premium deferred
index annuity and risk control accounts of the flexible premium deferred variable
and index linked annuity contracts (investment-type contracts) that are ceded to
CMFG Life. Assets on deposit are accounted for on a basis consistent with accounting
for the underlying investment-type contracts; therefore, the Company accounts for
the reinsurance of these contracts using the deposit method of accounting consistent
with the terms of the reinsurance agreement with CMFG Life. The related contract
charges and interest credited to
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
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 agreements.
Derivative Financial Instruments
The Company issues single premium deferred
index annuity and flexible premium deferred variable and index linked 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.
Variable Interest Entities
A variable interest entity (VIE)
is a legal entity that does not have sufficient equity at risk to finance its activities
without additional subordinated financial support or is structured such that equity
investors lack the ability to make significant decisions relating to the entitys operations through voting rights or do not substantively participate in the
gains and losses of the entity. Consolidation of a VIE by its primary beneficiary
is not based on majority voting interest, but is based on a review of the VIEs
capital structure, contractual relationships and terms, nature of the VIEs
operations and purpose, nature of the VIEs interests issued and the Companys involvement with the entity. When assessing the need to consolidate a VIE,
the Company evaluates the design of the VIE as well as the related exposure to the
variable interest holders.
The primary beneficiary is the entity that
has both the power to direct the activities of the VIE that most significantly affect
the entitys economic performance and the obligation to absorb losses or the
right to receive benefits that could be potentially significant to the VIE. While
also considering these factors, the consolidation conclusion depends on the breadth
of the Companys decision-making ability and the Companys ability to
influence activities that significantly affect the economic performance of the VIE.
Unconsolidated VIEs: The Company
invests in residential mortgage-backed securities which are classified as VIEs for
which the Company is not the primary beneficiary, and, therefore, these VIEs were
not consolidated on the Companys balance sheets. The Company invests in these
securities with the primary purpose of earning capital appreciation. The maximum
exposure to loss relating to these securities is equal to the carrying amount of
the security. The values of these investments are disclosed in the Debt Securities
section of Note 3.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
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 index annuity
and flexible premium deferred variable and index linked annuity contracts, are considered
investment-type contracts. Amounts collected on these products, with the exception
of the variable annuity component of the flexible premium deferred variable and
index linked annuity, are recorded as increases in policyholder account balances.
The variable annuity component of the flexible premium deferred variable and index
linked annuity meets criteria for separate account reporting and therefore is recorded
in separate account assets and liabilities. Revenues from investment-type contracts
principally consist of net investment income and contract charges such as expense
and surrender charges. Expenses for investment-type 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.
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 life insurance policies, all
DAC has been fully amortized as of June 30, 2019 and December 31, 2018 and there
was no amortization expense in the three or six months ended June 30, 2019 or 2018.
Acquisition costs on the Companys
single premium deferred index annuity and flexible premium deferred variable and
index linked 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 these agreements.
Claim and Policy Benefits Reserves
Life and Health
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 recognized for the three or six months
ended June 30, 2019 or 2018.
Additionally, the liability for future policy
benefits may not be deficient in the aggregate to trigger a premium deficiency,
but the pattern of earnings may be such that profits are expected to be recognized
in early years followed by losses in later years. In those situations, the liability
for future benefits will be increased to offset losses that would be recognized
in later years. The Company recorded a liability of $138 as of June 30, 2019 and
December 31, 2018, respectively, for the profits that are expected to be followed
by losses in the future.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Policyholder Account Balances
The single premium deferred index annuities
and risk control accounts of the flexible premium variable and index linked deferred
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 index annuity,
the Company offers one reference index, which is the S&P 500 Index. For the
flexible premium deferred variable and index linked 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 index annuity was 1.35% and 1.38% for the three
and six months ended June 30, 2019, respectively, and 1.41% and 1.40% for the three
and six months ended June 30, 2018, respectively. The average annualized credited
rate for the risk control accounts of the flexible premium deferred variable and
index linked annuity was 1.39% and 1.46% for the three and six months ended June
30, 2019, respectively, and 1.91% and 1.82% for the three and six months ended June
30, 2018, respectively.
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% for the
three and six months ended June 30, 2019 and 4.5% for the three and six months ended
June 30, 2018. The future minimum guaranteed interest rate during the life of the
contracts is 4.5%.
Accounts Payable and Other Liabilities
The Company issues the single premium deferred
index 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.
Separate Accounts
Separate accounts represent customer accounts
related to the variable annuity component of the flexible premium deferred variable
and index linked 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 SEC as of June 30, 2019.
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
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
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 June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 2023 for others.
The guidance for credit losses was further amended by ASU No. 2019-04 and 2019-05.
The new standard replaces the existing incurred loss recognition model with an expected
credit loss recognition model. The objective of the expected credit loss model is
for the Company to recognize its estimate of expected credit losses for affected
financial assets in a valuation allowance deducted from the amortized cost basis
of the related financial assets that results in presenting the net carrying value
of the financial assets at the amount expected to be collected. The Company must
consider all available relevant information when estimating expected credit losses,
including details about past events, current conditions, and reasonable and supportable
forecasts over the contractual life of an asset. Financial assets may be evaluated
individually or on a pooled basis when they share similar risk characteristics.
The measurement of credit losses for available-for-sale debt securities measured
at fair value is not affected, except that credit losses recognized are limited
to the amount by which fair value is below amortized cost and the carrying value
adjustment is recognized through an allowance and not as a direct write-down. Upon
adoption, the Company does not expect the impact of ASU 2016-13 to be material.
In August 2018, the FASB adopted ASU No.
2018-12,Targeted Improvements to the Accounting for Long-Duration Contracts
(ASU 2018-12) with an effective date of 2021 for SEC filers and 2022 for non-SEC filers and non-public business entities. The new standard makes significant changes to accounting
requirements for long-duration insurance contracts, including long-term care, traditional
and limited payment life insurance, and annuities. The significant provisions are
shown below.
|
|
Under current
guidance, the liability for future policy benefits for long-duration products is
established based on assumptions set at issue which are not changed unless there
is a premium deficiency. Under |
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
|
|
ASU 2018-12,
these assumptions, which include mortality, morbidity, persistency, expenses, and
the discount rate, must be reviewed for changes at least annually. When assumptions
other than the discount rate are changed, the liability is recomputed and a cumulative
catch-up adjustment is recorded in the current year income statement. The discount
rate, which is based on the yield of an upper-medium-grade fixed income instrument,
must be updated each reporting period; changes in the liability resulting from the
discount rate are recorded in other comprehensive income. |
|
|
The liability
for future policy benefits can no longer include a provision for adverse deviation. |
|
|
Because
liability assumptions are updated periodically, the test for premium deficiency
is no longer required for nonparticipating traditional and limited payment contracts. |
|
|
ASU 2018-12
introduces the concept of market risk benefits for product features such as guaranteed
minimum death or income benefits, which must be accounted for at fair value. |
|
|
Deferred
acquisition costs will generally be amortized to expense on a constant level basis,
either individually or on a grouped contract basis consistent with the related reserves,
over the expected term of the contracts. Amortization based on estimated gross profits
or gross margins will be eliminated. The deferred policy acquisition costs asset
does not need to be tested for impairment, no interest is accreted, and shadow adjustments
are no longer required. |
|
|
Insurers
must provide disclosures that allow financial statement users to understand the
amount, timing, and uncertainty of future cash flows arising from the insurance
liabilities. |
The Company is currently evaluating the
potential impact of ASU 2018-12.
In July 2019, the FASB proposed to change the effective date of this guidance to 2022 for SEC filers and 2024 non-SEC filers and non-public business entities.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Note 3: Investments
Debt Securities
The amortized cost, gross unrealized gains
and losses, and estimated fair values, as reported on the balance sheet, of debt
securities at June 30, 2019 are as follows:
|
|
|
|
Amortized |
|
Gross Unrealized |
|
Estimated |
|
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
and agencies |
|
$ |
8,741 |
|
|
$ |
272 |
|
|
$ |
- |
|
|
$ |
9,013 |
|
Domestic corporate
securities |
|
|
16,479 |
|
|
|
732 |
|
|
|
- |
|
|
|
17,211 |
|
Residential
mortgage-backed securities |
|
|
237 |
|
|
|
15 |
|
|
|
- |
|
|
|
252 |
|
Foreign corporate
securities |
|
|
3,998 |
|
|
|
97 |
|
|
|
- |
|
|
|
4,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
$ |
29,455 |
|
|
$ |
1,116 |
|
|
$ |
- |
|
|
$ |
30,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, gross unrealized gains and losses, and estimated fair values,
as reported on the balance sheet, of debt securities at December 31, 2018 are as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross Unrealized |
|
Estimated |
|
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
and agencies |
|
$ |
8,744 |
|
|
$ |
- |
|
|
$ |
(521 |
) |
|
$ |
8,223 |
|
Domestic corporate
securities |
|
|
16,476 |
|
|
|
188 |
|
|
|
(9 |
) |
|
|
16,655 |
|
Residential
mortgage-backed securities |
|
|
639 |
|
|
|
14 |
|
|
|
- |
|
|
|
653 |
|
Foreign corporate
securities |
|
|
3,997 |
|
|
|
44 |
|
|
|
(3 |
) |
|
|
4,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
$ |
29,856 |
|
|
$ |
246 |
|
|
$ |
(533 |
) |
|
$ |
29,569 |
|
|
No investments were non-income producing
during the three and six months ended June 30, 2019 or 2018.
The amortized cost and estimated fair values
of investments in debt securities at June 30, 2019, 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
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
for prepayment on residential mortgage-backed
securities, such securities have not been displayed in the table below by contractual
maturity.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Estimated |
|
|
|
Cost |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
3,006 |
|
$ |
3,045 |
|
Due after
one year through ten years |
|
|
17,470 |
|
|
18,259 |
|
Due after
ten years |
|
|
8,742 |
|
|
9,014 |
|
Residential
mortgage-backed securities |
|
|
237 |
|
|
253 |
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
$ |
29,455 |
|
$ |
30,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income |
|
|
|
|
|
|
|
|
Sources of investment income for the three and six months ended June 30 are summarized as follows: |
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
$ |
256 |
|
|
$ |
76 |
|
|
$ |
513 |
|
|
$ |
154 |
|
Cash
and cash equivalents |
|
|
189 |
|
|
|
99 |
|
|
|
351 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross
investment income |
|
|
445 |
|
|
|
175 |
|
|
|
864 |
|
|
|
320 |
|
Investment
expenses |
|
|
(12 |
) |
|
|
(5 |
) |
|
|
(25 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income |
|
$ |
433 |
|
|
$ |
170 |
|
|
$ |
839 |
|
|
$ |
310 |
|
|
Net Realized Investment Gains
Proceeds from the sale of debt securities
were $338 for the three and six months ended June 30, 2019 that resulted in a realized
investment gain of $17. There were no sales or transfers of debt securities for
the three and six months ended June 30, 2018 that resulted in a realized investment
gain or loss.
Other-Than-Temporary Investment
Impairments
Investment securities are reviewed for OTTI
on an ongoing basis. The Company creates a watchlist of securities based largely
on the fair value of an investment security relative to its cost basis. When the
fair value drops below the Companys cost, the Company monitors the security
for OTTI. The determination of OTTI requires significant judgment on the part of
the Company and depends on several factors, including, but not limited to:
|
|
The existence
of any plans to sell the investment security. |
|
|
The extent
to which fair value is less than book value. |
|
|
The underlying
reason for the decline in fair value (credit concerns, interest rates, etc.). |
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
|
|
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 income (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 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 June 30, 2019 and 2018 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.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Net Unrealized Investment Gains
(Losses)
The components of net unrealized investment
gains (losses) included in accumulated other comprehensive income (loss) at June
30, 2019 and December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
$ |
1,116 |
|
|
$ |
(287 |
) |
Deferred income
taxes |
|
|
(234 |
) |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized
investment gains (losses) |
|
$ |
882 |
|
|
$ |
(226 |
) |
|
At June 30, 2019, the Company did not own
any debt securities in an unrealized loss position. At December 31, 2018, the Company
owned one debt security with a fair value of $8,223 in an unrealized loss position
of $521 for more than twelve months; and two debt securities with a fair value of
$1,986 in an unrealized loss position of $12 for less than 12 months.
Embedded Derivatives
The Company issues single premium deferred
index annuity and flexible premium deferred variable and index linked 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 $748,164 and a liability of $748,164
as of June 30, 2019 and an asset of $524,178 and a liability of $524,178 as of December
31, 2018. The increase (decrease) in fair value related to embedded derivatives
from the date of deposit was $34,023, and $171,918 for the three and six months
ended June 30, 2019 and $31,554 and $10,510 for the three and six months ended June
30, 2018. Because the Company has entered into an agreement with CMFG Life to cede
100% of this business, these amounts are ceded and do not impact the unaudited condensed statement of
operations and comprehensive income (loss).
Note 4: Fair Value
The Company
uses fair value measurements to record fair value of certain assets and liabilities
and to estimate fair value of financial instruments not recorded at fair value but
required to be disclosed at fair value. Certain financial instruments, such as insurance
policy liabilities (other than investment-type contracts), are excluded from the
fair value disclosure requirements.
Valuation Hierarchy
Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value hierarchy prioritizes the
inputs to valuation techniques used to measure fair value of assets and liabilities
into three broad levels. The Company has categorized its financial instruments,
based on the degree of subjectivity inherent in the valuation technique, as follows:
|
|
Level 1: Inputs
are directly observable and represent quoted prices for identical assets or liabilities
in active markets the Company has the ability to access at the measurement date. |
|
|
|
|
|
Level 2: All
significant inputs are observable, either directly or indirectly, other than quoted
prices included in Level 1, for the asset or liability. This includes: (i) quoted
prices for similar instruments in active markets, (ii) quoted prices for identical
or similar instruments in markets that are not active, (iii) inputs other than quoted
prices that are observable for the instruments and (iv) inputs that are derived
principally from or corroborated by observable market data by correlation or other
means. |
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
|
|
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. 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. The Company
has no Level 3 investments with unrealized gains or losses included in other comprehensive
income.
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.
Transfers Between Levels
There were no transfers between levels during
the three and six months ended June 30, 2019 and 2018.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ 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 June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets,
at Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents1 |
|
$ |
30,628 |
|
$ |
- |
|
$ |
- |
|
$ |
30,628 |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and agencies |
|
|
- |
|
|
9,013 |
|
|
- |
|
|
9,013 |
|
Domestic
corporate securities |
|
|
- |
|
|
17,211 |
|
|
- |
|
|
17,211 |
|
Residential
mortgage-backed securities |
|
|
- |
|
|
252 |
|
|
- |
|
|
252 |
|
Foreign
corporate securities |
|
|
- |
|
|
4,095 |
|
|
- |
|
|
4,095 |
|
|
Total
debt securities |
|
|
- |
|
|
30,571 |
|
|
- |
|
|
30,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in assets on deposit |
|
|
- |
|
|
- |
|
|
748,164 |
|
|
748,164 |
|
Separate account
assets |
|
|
- |
|
|
137,135 |
|
|
- |
|
|
137,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
30,628 |
|
$ |
167,706 |
|
$ |
748,164 |
|
$ |
946,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
at Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in annuity contracts |
|
$ |
- |
|
$ |
- |
|
$ |
748,164 |
|
$ |
748,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
$ |
- |
|
$ |
- |
|
$ |
748,164 |
|
$ |
748,164 |
|
|
1 |
Excludes
cash of $1,354 that is not subject to fair value accounting. |
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
The following table summarizes the Companys assets that are measured at fair value on a recurring basis as of December
31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets,
at Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
1 |
|
$ |
21,630 |
|
$ |
- |
|
$ |
- |
|
$ |
21,630 |
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and agencies |
|
|
- |
|
|
8,223 |
|
|
- |
|
|
8,223 |
Domestic
corporate securities |
|
|
- |
|
|
16,655 |
|
|
- |
|
|
16,655 |
Residential
mortgage-backed securities |
|
|
- |
|
|
653 |
|
|
- |
|
|
653 |
Foreign
corporate securities |
|
|
- |
|
|
4,038 |
|
|
- |
|
|
4,038 |
|
Total
debt securities |
|
|
- |
|
|
29,569 |
|
|
- |
|
|
29,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in assets on deposit |
|
|
- |
|
|
- |
|
|
524,178 |
|
|
524,178 |
Separate account
assets |
|
|
- |
|
|
103,205 |
|
|
- |
|
|
103,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
21,630 |
|
$ |
132,774 |
|
$ |
524,178 |
|
$ |
678,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
at Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in annuity contracts |
|
$ |
- |
|
$ |
- |
|
$ |
524,178 |
|
$ |
524,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
$ |
- |
|
$ |
- |
|
$ |
524,178 |
|
$ |
524,178 |
|
1 |
Excludes
cash of $3,282 that is not subject to fair value accounting. |
The Company had no assets or liabilities
that required a fair value adjustment on a non-recurring basis as of June 30, 2019
or December 31, 2018.
Determination of Fair Values
The Company determines the estimated fair
value of its investments using primarily the market approach and the income approach.
The use of quoted prices and matrix pricing or similar techniques are examples of
market approaches, while the use of discounted cash flow methodologies is an example
of the income approach.
A summary of valuation techniques for classes
of financial assets and liabilities by fair value hierarchy level are as follows:
Level 1 Measurements
Cash equivalents: Consists of money
market funds; valuation is based on the closing price as of the balance sheet date.
Level 2 Measurements
For assets classified as Level 2 investments,
the Company values the assets using third-party pricing sources, which generally
rely on quoted prices for similar assets in markets that are active and observable
market data.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ 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.
Domestic corporate securities: Valued
based on observable inputs such as the U.S. Treasury yield curve, market indicated
spreads by security rating and quoted prices for identical assets in markets that
are not active and/or similar assets in markets that are active.
Residential mortgage-backed securities:
Valuation is principally based on observable inputs including quoted prices
for similar assets in markets that are active and observable market data.
Foreign corporate securities: Valued
based on observable inputs such as the applicable, country-specific market yield
curve, market indicated spreads by security rating and quoted prices for identical
assets in markets that are not active and/or similar assets in markets that are
active.
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 index annuity
and flexible premium deferred variable and index linked 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.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ 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 June 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Range of Values and |
Predominant
|
|
Significant
|
|
Weighted Average - Unobservable Input |
Valuation
Method |
|
Unobservable
Input |
|
June
30, 2019 |
|
December
31, 2018 |
|
|
|
|
|
|
|
|
Single premium deferred index annuities |
|
Discounted cash flow |
|
Lapse rates |
|
Range of 2%
to 4% with an excess lapse rate at the end of index period of 50% or 95%. Weighted
average is 4.8% |
|
Range of 2%
to 4% with an excess lapse rate at the end of index period of 50% or 95%. Weighted
average is 3.7% |
|
|
|
|
|
|
|
|
|
|
|
|
Companys
own credit and risk margin |
|
Range of 85
- 101 basis points added on to discount rate. Weighted average is 94 basis points |
|
Range of 51
- 113 basis points added on to discount rate. Weighted average is 80 basis points |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flexible premium deferred variable and index linked annuities |
|
Discounted
cash flow |
|
Lapse rates |
|
Range of 2%
to 10% with an excess lapse rate at the end of index period of 5% to 20%. Weighted
average is 2.6% |
|
Range of 2%
to 10% with an excess lapse rate at the of index period of 5% to 20%. Weighted average
is 2.6% |
|
|
|
|
|
|
|
|
|
|
|
|
Companys
own credit and risk margin |
|
Range of 85
- 101 basis points added on to discount rate. Weighted average is 94 basis points |
|
Range of 51
- 113 basis points added on to discount rate. Weighted average is 80 basis points |
|
|
|
|
|
|
|
|
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Changes in Level 3 Fair Value
Measurement
The following table sets forth the values
of assets and liabilities classified as Level 3 within the fair value hierarchy
at June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
January 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
2019 |
|
Purchases |
|
Maturities |
|
Earnings1 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
assets on deposit |
|
$ |
524,178 |
|
|
$ |
59,504 |
|
|
$ |
(7,438 |
) |
|
$ |
171,920 |
|
|
$ |
748,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
524,178 |
|
|
$ |
59,504 |
|
|
$ |
(7,438 |
) |
|
$ |
171,920 |
|
|
$ |
748,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
annuity contracts |
|
$ |
524,178 |
|
|
$ |
59,504 |
|
|
$ |
(7,438 |
) |
|
$ |
171,920 |
|
|
$ |
748,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
524,178 |
|
|
$ |
59,504 |
|
|
$ |
(7,438 |
) |
|
$ |
171,920 |
|
|
$ |
748,164 |
|
|
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, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
January 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2018 |
|
Purchases |
|
Maturities |
|
Earnings1 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
assets on deposit |
|
$ |
471,192 |
|
|
$ |
109,477 |
|
|
$ |
(11,390 |
) |
|
$ |
(45,101 |
) |
|
$ |
524,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
471,192 |
|
|
$ |
109,477 |
|
|
$ |
(11,390 |
) |
|
$ |
(45,101 |
) |
|
$ |
524,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
annuity contracts |
|
$ |
471,192 |
|
|
$ |
109,477 |
|
|
$ |
(11,390 |
) |
|
$ |
(45,101 |
) |
|
$ |
524,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
471,192 |
|
|
$ |
109,477 |
|
|
$ |
(11,390 |
) |
|
$ |
(45,101 |
) |
|
$ |
524,178 |
|
|
1
Included in net income is realized gains and losses associated with embedded derivatives.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ 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 June 30, 2019 and December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
Carrying |
|
Estimated |
|
|
|
|
Carrying |
|
Estimated |
|
|
|
|
|
|
Amount |
|
Fair Value |
|
Level |
|
Amount |
|
Fair Value |
|
Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recorded
as assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
1,354 |
|
$ |
1,354 |
|
|
1 |
|
$ |
3,282 |
|
$ |
3,282 |
|
|
1 |
|
Assets
on deposit |
|
|
2,958,870 |
|
|
2,732,670 |
|
|
2 |
|
|
2,613,918 |
|
|
2,303,358 |
|
|
2 |
|
Financial
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recorded
as liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-type
contracts |
|
|
2,958,870 |
|
|
2,732,670 |
|
|
2 |
|
|
2,613,918 |
|
|
2,303,358 |
|
|
2 |
|
Separate
account liabilities |
|
|
137,135 |
|
|
137,135 |
|
|
2 |
|
|
103,205 |
|
|
103,205 |
|
|
2 |
|
|
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.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
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 21% for 2019
and 2018 to income before income taxes due to the items listed in the following
reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
Amount |
|
Rate |
|
Amount |
|
Rate |
|
Amount |
|
Rate |
|
Amount |
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
computed at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
federal
corporate tax rate |
|
$ |
75 |
|
|
|
21.0 |
% |
|
$ |
31 |
|
|
|
21.0 |
% |
|
$ |
149 |
|
|
|
21.0 |
% |
|
$ |
58 |
|
|
|
21.0 |
% |
Income tax
expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
to prior years |
|
|
(79 |
) |
|
|
(22.1 |
) |
|
|
(34 |
) |
|
|
(23.1 |
) |
|
|
(79 |
) |
|
|
(11.1 |
) |
|
|
(125 |
) |
|
|
(45.4 |
) |
Dividends-received
deduction |
|
|
(15 |
) |
|
|
(4.1 |
) |
|
|
(8 |
) |
|
|
(5.5 |
) |
|
|
(29 |
) |
|
|
(4.2 |
) |
|
|
(16 |
) |
|
|
(5.9 |
) |
Other |
|
|
(3 |
) |
|
|
(0.9 |
) |
|
|
(2 |
) |
|
|
(0.6 |
) |
|
|
(6 |
) |
|
|
(0.8 |
) |
|
|
(3 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
tax expense (benefit) |
|
$ |
(22 |
) |
|
|
(6.1 |
%) |
|
$ |
(13 |
) |
|
|
(8.2 |
%) |
|
$ |
35 |
|
|
|
4.9 |
% |
|
$ |
(86 |
) |
|
|
(30.9 |
%) |
|
Tax Reform
The Tax Cuts and Job Acts (the Tax
Act) made changes to the U.S. tax code, including, but not limited to, reducing
the U.S. federal corporate tax rate to 21% effective January 1, 2018.
The Company completed its initial evaluation
of the impacts of the Tax Act and recorded a net tax expense of $49 for the year
ended December 31, 2017 due to the remeasurement of deferred tax assets and liabilities.
The Companys accounting for the impact
of the Tax Act was completed in 2018 with no material changes to the amount recorded
at December 31, 2017.
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 $8,758 and $17,659 for these expenses
for the three and six months ended June 30, 2019, respectively and $7,376 and $14,347
for the three and six months ended June 30, 2018, respectively; which are included
in operating and other expenses.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Amounts receivable/payable from/to affiliates
are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
Receivable
from: |
|
|
|
|
|
|
|
CMFG
Life |
|
$ |
- |
|
$ |
5,001 |
|
Other |
|
|
- |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
- |
|
$ |
5,027 |
|
|
|
|
|
|
|
|
|
|
Payable to: |
|
|
|
|
|
|
|
CUNA
Brokerage Services, Inc. |
|
$ |
2,676 |
|
$ |
2,948 |
|
CMFG
Life |
|
|
740 |
|
|
- |
|
Other |
|
|
145 |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,561 |
|
$ |
3,006 |
|
|
Amounts receivable from CMFG Life at December
31, 2018 are primarily for a policyholders purchase of an MLIC annuity when
a CMFG Life policyholder has surrendered their policy for the purchase of a single
premium deferred index annuity or flexible premium deferred variable and index linked
annuity and for the cession of death claims related to the Companys single
premium deferred index annuity or flexible premium variable index linked deferred
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 $13 and $25 for the three and six
months ended June 30, 2019. The Company recorded MCA investment management fees
totaling $4 and $9 for the three and six months ended June 30, 2018. The MCA investment
management fees 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 index
annuity and flexible premium deferred variable and index linked annuity. The recorded
commission expense for this service was $8,559 and $15,925 for the three and six
months ended June 30, 2019 and $7,491 and $14,360 for the three and six months ended
June 30, 2018, respectively, These commission expenses are 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 basis to
cede 100% of its investment-type contracts for its single premium deferred modified
guaranteed index annuity contract, which are accounted for using the deposit method
of accounting. The agreement is pending regulatory review as of the date of these unaudited condensed financial statements. The Company does not have any assets on deposit and related liabilities
or separate account assets and liabilities for the contracts as of June 30, 2019
and December 31, 2018, respectively. The Company receives a commission equal to
100% of its actual expenses incurred for this business, which was $220 and $410
for the three and six months ended June 30, 2019. There were no expenses incurred
for the three and six months ended June 30, 2018.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
The Company entered into a reinsurance agreement
with its affiliate, CMFG Life, on a coinsurance and modified coinsurance basis to
cede 100% of its investment-type contracts for its flexible premium deferred variable
and index linked annuity, which are accounted for using the deposit method of accounting.
On October 15, 2018, the Company amended its reinsurance agreement with CMFG Life
to include a new flexible premium deferred variable and index linked annuity offering
by the Company and will continue to cede 100% of its investment-type contracts for
its flexible premium variable and index linked deferred annuities. The Company had
$460,458 and $337,755 of assets on deposit for these contracts as of June 30, 2019
and December 31, 2018, respectively. The Company had related liabilities of $460,458
and $337,755 as of June 30, 2019 and December 31, 2018, respectively, which are
included in policyholder account balances in the balance sheets. The Company had
separate account assets and liabilities for these contracts of $137,135 and $137,135
and $103,205 and $103,205, respectively, as of June 30, 2019 and December 31, 2018.
The Company receives a commission equal to 100% of its actual expenses incurred
for this business, which was $5,906 and $11,092 for the three and six months ended
June 30, 2019 and $4,738 and $8,407 for the three and six months ended June 30,
2018, respectively.
The Company entered into another agreement
with its affiliate, CMFG Life, to cede 100% of its investment-type contracts for
its single premium deferred index annuity, which are accounted for using the deposit
method of accounting. The Company had $3,246,576 and $2,800,341 of assets on deposit
for these contracts as of June 30, 2019 and December 31, 2018, respectively. The
Company had related liabilities of $3,246,576 and $2,800,341, 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 $14,284 and $27,611 for the three and six months ended June 30, 2019 and
$12,296 and $23,775 for the three and six months ended June 30, 2018, respectively.
The Company 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.
MLIC did not have any other reinsurance
agreements at June 30, 2019 or December 31, 2018 and the entire reinsurance recoverable
balance of $24,200 and $24,034, respectively, was due from CMFG Life. The recoverable
balances are not collateralized and the Company retains the risk of loss in the
event CMFG Life is unable to meet its obligations assumed under the reinsurance
agreements. MLIC believes the risk of non-collection is remote due to CMFG Lifes stable financial strength ratings of A from A.M. Best Company and S&P
Global Ratings and A2 rating from Moodys Investors Service.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
The effects of reinsurance on contract charges,
interest credited to policyholder accounts, premiums and on claims, benefits, and
losses incurred for the three months and six months ended June 30 are as follows:
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
- written |
|
$ |
670 |
|
|
$ |
1,125 |
|
|
$ |
2,128 |
|
|
$ |
1,737 |
|
Direct
- change in unearned |
|
|
7 |
|
|
|
14 |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
Direct
- earned |
|
|
677 |
|
|
|
1,139 |
|
|
|
2,125 |
|
|
|
1,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded
to affiliate - written |
|
|
(670 |
) |
|
|
(1,125 |
) |
|
|
(2,128 |
) |
|
|
(1,737 |
) |
Ceded
to affiliate - change in unearned |
|
|
(7 |
) |
|
|
(14 |
) |
|
|
3 |
|
|
|
3 |
|
|
Ceded
to affiliate - earned |
|
|
(677 |
) |
|
|
(1,139 |
) |
|
|
(2,125 |
) |
|
|
(1,734 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums -
written, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Premiums -
change in unearned, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums,
net |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
$ |
2,656 |
|
|
$ |
1,856 |
|
|
$ |
5,097 |
|
|
$ |
3,334 |
|
Ceded
to affiliate |
|
|
(2,656 |
) |
|
|
(1,856 |
) |
|
|
(5,097 |
) |
|
|
(3,334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract charges,
net |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims, benefits
and losses incurred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
$ |
(100 |
) |
|
$ |
788 |
|
|
$ |
1,783 |
|
|
$ |
1,432 |
|
Ceded
to affiliate |
|
|
100 |
|
|
|
(787 |
) |
|
|
(1,783 |
) |
|
|
(1,431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims, benefits
and losses, net |
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited
to policyholder account balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
$ |
13,878 |
|
|
$ |
10,401 |
|
|
$ |
26,826 |
|
|
$ |
19,838 |
|
Ceded
to affiliate |
|
|
(13,858 |
) |
|
|
(10,406 |
) |
|
|
(26,792 |
) |
|
|
(19,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited
to policyholder account balances, net |
|
$ |
20 |
|
|
$ |
(5 |
) |
|
$ |
34 |
|
|
$ |
(15 |
) |
|
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Note 8: Accumulated Other Comprehensive
Income (Loss)
The components of accumulated other comprehensive
income (loss), net of tax, for the three and six months ended June 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Unrealized |
|
Other |
|
|
Investment |
|
Comprehensive |
|
|
Gains (Loss) |
|
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2018 |
|
|
(281 |
) |
|
|
(281 |
) |
Change
in unrealized holding (losses), |
|
|
|
|
|
|
|
|
net
of tax (benefit) - ($10) |
|
|
(37 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2018 |
|
$ |
(318 |
) |
|
$ |
(318 |
) |
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2019 |
|
|
307 |
|
|
|
307 |
|
Change
in unrealized holding gains, |
|
|
|
|
|
|
|
|
net
of tax expense - $153 |
|
|
575 |
|
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2019 |
|
$ |
882 |
|
|
$ |
882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Unrealized |
|
Other |
|
|
Investment |
|
Comprehensive |
|
|
Gains (Loss) |
|
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2017 |
|
$ |
11 |
|
|
$ |
11 |
|
Change in unrealized holding (losses), |
|
|
|
|
|
|
|
|
net
of tax (benefit) - ($88) |
|
|
(332 |
) |
|
|
(332 |
) |
Cumulative effect of reclassification for stranded tax effects |
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2018 |
|
$ |
(318 |
) |
|
$ |
(318 |
) |
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018 |
|
$ |
(226 |
) |
|
$ |
(226 |
) |
Change
in unrealized holding gains, |
|
|
|
|
|
|
|
|
net
of tax expense - $295 |
|
|
1,108 |
|
|
|
1,108 |
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2019 |
|
$ |
882 |
|
|
$ |
882 |
|
|
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 (loss)
for the three and six months ended June 30, 2019 was ($8), net of deferred taxes
of $2. There were no reclassification adjustments for the three or six months ended
June 30, 2018.
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Note 9: Business Segment Information
The following table sets forth financial
information regarding the Companys two reportable business segments for the
three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and |
|
|
|
|
|
|
|
|
|
Three months
ended or as of June 30, 2019 |
|
|
Health |
|
|
Annuities |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income |
|
$ |
433 |
|
|
$ |
- |
|
|
$ |
433 |
|
Net
realized investment gains |
|
|
17 |
|
|
|
- |
|
|
|
17 |
|
Other
income |
|
|
7 |
|
|
|
- |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
457 |
|
|
|
- |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims and benefits, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
credited to policyholder account balances |
|
|
- |
|
|
|
20 |
|
|
|
20 |
|
Operating
and other expenses |
|
|
80 |
|
|
|
- |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
80 |
|
|
|
20 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
377 |
|
|
|
(20 |
) |
|
|
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (benefit) |
|
|
(18 |
) |
|
|
(4 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
|
395 |
|
|
|
(16 |
) |
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains, net of tax expense |
|
|
575 |
|
|
|
- |
|
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income |
|
|
575 |
|
|
|
- |
|
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income (loss) |
|
$ |
970 |
|
|
$ |
(16 |
) |
|
$ |
954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
recoverable from affiliate |
|
$ |
24,200 |
|
|
$ |
- |
|
|
$ |
24,200 |
|
Assets
on deposit |
|
|
- |
|
|
|
3,707,034 |
|
|
|
3,707,034 |
|
Claim and
policy benefit reserves - life and health |
|
|
18,101 |
|
|
|
5,625 |
|
|
|
23,726 |
|
Policyholder
account balances |
|
|
2,893 |
|
|
|
3,709,224 |
|
|
|
3,712,117 |
|
Separate
account assets and liabilities |
|
|
- |
|
|
|
137,135 |
|
|
|
137,135 |
|
|
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
The following table sets forth financial
information regarding the Companys two reportable business segments for the
six months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and |
|
|
|
|
|
|
|
|
|
Six months
ended or as of June 30, 2019 |
|
|
Health |
|
|
Annuities |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income |
|
$ |
839 |
|
|
$ |
- |
|
|
$ |
839 |
|
Net
realized investment gains |
|
|
17 |
|
|
|
- |
|
|
|
17 |
|
Other
income |
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
869 |
|
|
|
- |
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims and benefits, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
credited to policyholder account balances |
|
|
- |
|
|
|
34 |
|
|
|
34 |
|
Operating
and other expenses |
|
|
126 |
|
|
|
- |
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
126 |
|
|
|
34 |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
743 |
|
|
|
(34 |
) |
|
|
709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) |
|
|
42 |
|
|
|
(7 |
) |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
|
701 |
|
|
|
(27 |
) |
|
|
674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains, net of tax expense |
|
|
1,108 |
|
|
|
- |
|
|
|
1,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income |
|
|
1,108 |
|
|
|
- |
|
|
|
1,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income (loss) |
|
$ |
1,809 |
|
|
$ |
(27 |
) |
|
$ |
1,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
recoverable from affiliate |
|
$ |
24,200 |
|
|
$ |
- |
|
|
$ |
24,200 |
|
Assets
on deposit |
|
|
- |
|
|
|
3,707,034 |
|
|
|
3,707,034 |
|
Claim and
policy benefit reserves - life and health |
|
|
18,101 |
|
|
|
5,625 |
|
|
|
23,726 |
|
Policyholder
account balances |
|
|
2,893 |
|
|
|
3,709,224 |
|
|
|
3,712,117 |
|
Separate
account asset and liabilities |
|
|
- |
|
|
|
137,135 |
|
|
|
137,135 |
|
|
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
The following table sets forth financial
information regarding the Companys two reportable business segments for the
three months ended June 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and |
|
|
|
|
|
|
|
|
|
Three months
ended or as of June 30, 2018 |
|
|
Health |
|
|
Annuities |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income |
|
$ |
170 |
|
|
$ |
- |
|
|
$ |
170 |
|
Other
income |
|
|
4 |
|
|
|
- |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
174 |
|
|
|
- |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims and benefits, net |
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Interest
credited to policyholder account balances, net |
|
|
- |
|
|
|
(5 |
) |
|
|
(5 |
) |
Operating
and other expenses |
|
|
30 |
|
|
|
- |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
31 |
|
|
|
(5 |
) |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes |
|
|
143 |
|
|
|
5 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) |
|
|
(14 |
) |
|
|
1 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
157 |
|
|
|
4 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized (losses), net of tax (benefit) |
|
|
(37 |
) |
|
|
- |
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
(loss) |
|
|
(37 |
) |
|
|
- |
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
$ |
120 |
|
|
$ |
4 |
|
|
$ |
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
recoverable from affiliate |
|
$ |
23,514 |
|
|
$ |
- |
|
|
$ |
23,514 |
|
Assets
on deposit |
|
|
- |
|
|
|
2,797,693 |
|
|
|
2,797,693 |
|
Claim and
policy benefit reserves - life and health |
|
|
18,824 |
|
|
|
5,783 |
|
|
|
24,607 |
|
Policyholder
account balances |
|
|
3,906 |
|
|
|
2,797,693 |
|
|
|
2,801,599 |
|
Separate
account assets and liabilities |
|
|
- |
|
|
|
91,086 |
|
|
|
91,086 |
|
|
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
The following table sets forth financial
information regarding the Companys two reportable business segments for the
six months ended June 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and |
|
|
|
|
|
|
|
|
|
Six months
ended or as of June 30, 2018 |
|
|
Health |
|
|
Annuities |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income |
|
$ |
310 |
|
|
$ |
- |
|
|
$ |
310 |
|
Other
income |
|
|
7 |
|
|
|
- |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
317 |
|
|
|
- |
|
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims and benefits, net |
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
Interest
credited to policyholder account balances, net |
|
|
- |
|
|
|
(15 |
) |
|
|
(15 |
) |
Operating
and other expenses |
|
|
55 |
|
|
|
- |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
56 |
|
|
|
(15 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes |
|
|
261 |
|
|
|
15 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) |
|
|
(89 |
) |
|
|
3 |
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
350 |
|
|
|
12 |
|
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized (losses), net of tax |
|
|
(332 |
) |
|
|
- |
|
|
|
(332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
(loss) |
|
|
(332 |
) |
|
|
- |
|
|
|
(332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
$ |
18 |
|
|
$ |
12 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
recoverable from affiliate |
|
$ |
23,514 |
|
|
$ |
- |
|
|
$ |
23,514 |
|
Assets
on deposit |
|
|
- |
|
|
|
2,797,693 |
|
|
|
2,797,693 |
|
Claim and
policy benefit reserves - life and health |
|
|
18,824 |
|
|
|
5,783 |
|
|
|
24,607 |
|
Policyholder
account balances |
|
|
3,906 |
|
|
|
2,797,693 |
|
|
|
2,801,599 |
|
Separate
account assets and liabilities |
|
|
- |
|
|
|
91,086 |
|
|
|
91,086 |
|
|
|
MEMBERS
Life Insurance Company |
Notes to Condensed
Financial Statements, Unaudited |
($ in 000s) |
|
|
Note 10: Commitments and Contingencies
Legal Matters
Like other members of the insurance industry,
the Company is occasionally a party to 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 11: Subsequent Events
The Company evaluated subsequent events
through the date the financial statements were issued. During this period, there
were no subsequent events that required adjustment to or disclosure in the accompanying
financial statements.
MEMBERS Life Insurance Company
Financial Statements as of December 31,
2018 and 2017
and for each of the Three Years in the Period Ended December 31,
2018
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 |
|
2 |
|
|
|
Statements
of Operations and Comprehensive Income (Loss) |
|
3 |
|
|
|
Statements
of Stockholders Equity |
|
4 |
|
|
|
Statements
of Cash Flows |
|
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 |
|
14 |
|
|
|
Note
3Investments, Net Unrealized Investment Gains (Losses) |
|
16 |
|
|
|
Note
3Investments, Embedded Derivatives |
|
16 |
|
|
|
Note
3Investments, Assets Designated /Securities on Deposit |
|
16 |
|
|
|
Note
4Fair Value |
|
17 |
|
|
|
Note
5Income Tax |
|
23 |
|
|
|
Note
6Related Party Transactions |
|
26 |
|
|
|
Note
7Reinsurance |
|
27 |
|
|
|
Note
8Statutory Financial Data and Dividend Restrictions |
|
29 |
|
|
|
Note
9Accumulated Other Comprehensive Income (Loss) |
|
30 |
|
|
|
Note
10Business Segment Information |
|
31 |
|
|
|
Note
11Commitments and Contingencies |
|
34 |
|
|
|
Note
12Subsequent Events |
|
34 |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholder
of
MEMBERS Life Insurance Company
Opinion on the Financial Statements
We have audited the accompanying balance
sheets of MEMBERS Life Insurance Company (the Company) as of December 31, 2018
and 2017, 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, 2018, and the related notes (collectively referred to as the
financial statements). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31,
2018 and 2017, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2018, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on
the Companys financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting 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.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Emphasis of a Matter
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.
Our opinion is not modified with respect to this matter.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 4, 2019
We have served as the Companys auditor
since 2012.
|
MEMBERS Life
Insurance Company |
Balance Sheets
|
December 31,
2018 and 2017 |
($ in 000s)
|
|
|
Assets
|
|
2018 |
|
|
2017 |
|
Investments
|
|
|
|
|
|
|
|
Debt
securities, available for sale, at fair value |
|
|
|
|
|
|
|
(amortized
cost 2018- $29,856; 2017 - $10,650) |
|
$ |
29,569
|
|
|
$ |
10,667
|
|
Total investments
|
|
|
29,569
|
|
|
|
10,667
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
24,912
|
|
|
|
18,440
|
Accrued
investment income |
|
|
304
|
|
|
|
113
|
Reinsurance
recoverable from affiliate |
|
|
24,034
|
|
|
|
23,973
|
Assets
on deposit |
|
|
3,138,096
|
|
|
|
2,453,033
|
Premiums
receivable, net |
|
|
13
|
|
|
|
12
|
Net
deferred tax asset |
|
|
375
|
|
|
|
74
|
Receivable
from affiliate |
|
|
5,027
|
|
|
|
8,492
|
Other
assets and receivables |
|
|
819
|
|
|
|
137
|
Federal
income taxes recoverable from affiliate |
|
|
2,889
|
|
|
|
2,471
|
Separate
account assets |
|
|
103,205
|
|
|
|
69,005
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,329,243
|
|
|
$ |
2,586,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders Equity |
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Claim
and policy benefit reserves - life and health |
|
$
|
26,836
|
|
|
$ |
23,052
|
Policyholder
account balances |
|
|
3,142,077
|
|
|
|
2,456,634
|
Payables
to affiliates |
|
|
3,006
|
|
|
|
2,771
|
Accounts
payable and other liabilities |
|
|
14,199
|
|
|
|
16,257
|
Separate
account liabilities |
|
|
103,205
|
|
|
|
69,005
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,289,323
|
|
|
|
2,567,719
|
|
|
|
|
|
|
|
|
|
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 |
|
|
31,153
|
|
|
|
10,500
|
Accumulated
other comprehensive income (loss), net of |
|
|
|
|
|
|
|
tax
expense (benefit) (2018 - ($61); 2017 - $6) |
|
|
(226
|
) |
|
|
11
|
Retained
earnings |
|
|
3,993
|
|
|
|
3,187
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
39,920
|
|
|
|
18,698
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders equity |
|
$
|
3,329,243
|
|
|
$ |
2,586,417
|
|
|
See accompanying
notes to financial statements. |
|
2
|
|
MEMBERS Life
Insurance Company |
Statements
of Operations and Comprehensive Income (Loss) |
Years Ended
December 31, 2018, 2017 and 2016 |
($ in 000s)
|
|
|
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health premiums, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
(21
|
) |
Net
investment income |
|
|
762
|
|
|
|
517
|
|
|
|
376
|
|
Net
realized investment (losses) |
|
|
(17
|
) |
|
|
|
|
|
|
|
|
Other
income |
|
|
18
|
|
|
|
3,996
|
|
|
|
3,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
763
|
|
|
|
4,513
|
|
|
|
3,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims and benefits, net |
|
|
|
|
|
|
2
|
|
|
|
(1
|
) |
Interest
credited to policyholder account balances, net |
|
|
(15
|
) |
|
|
|
|
|
|
|
|
Operating
and other expenses |
|
|
151
|
|
|
|
1,709
|
|
|
|
1,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
136
|
|
|
|
1,711
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes |
|
|
627
|
|
|
|
2,802
|
|
|
|
2,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) |
|
|
(182
|
) |
|
|
723
|
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
809
|
|
|
|
2,079
|
|
|
|
1,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains (losses), net of tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
(benefit)
(2018 - ($50); 2017 - $181; 2016 - ($53)) |
|
|
(188
|
) |
|
|
334
|
|
|
|
(98
|
) |
Reclassification
adjustment for (gains) |
|
|
|
|
|
|
|
|
|
|
|
|
included
in net income, net of tax (benefit) (2018 - ($14)) |
|
|
(52
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss) |
|
|
(240
|
) |
|
|
334
|
|
|
|
(98
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
$ |
569
|
|
|
$ |
2,413
|
|
|
$ |
1,737
|
|
|
|
See accompanying
notes to financial statements. |
|
3
|
|
MEMBERS Life
Insurance Company |
Statements of Stockholders Equity |
Years Ended
December 31, 2018, 2017 and 2016 |
($ in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
other |
|
|
|
|
|
|
|
|
Total |
|
|
|
Common |
|
|
|
paid in |
|
|
|
comprehensive |
|
|
|
Retained |
|
|
|
stockholders |
|
|
|
stock |
|
|
|
capital |
|
|
|
income (loss) |
|
|
|
earnings |
|
|
|
equity |
|
|
Balance,
January 1, 2016 |
|
$ |
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,079
|
|
|
|
|
2,079
|
|
Other
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
334
|
|
Dividend
to parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,000
|
) |
|
|
|
(7,000
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2017 |
|
|
5,000
|
|
|
|
|
10,500
|
|
|
|
|
11
|
|
|
|
|
3,187
|
|
|
|
|
18,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
809
|
|
|
|
|
809
|
|
Other
comprehensive (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
(240
|
) |
|
|
|
|
|
|
|
|
(240
|
) |
Capital
contribution |
|
|
|
|
|
|
|
20,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,653
|
|
Cumulative
effect of reclassification |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
stranded tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
(3
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018 |
|
$ |
5,000
|
|
|
|
$ |
31,153
|
|
|
|
$ |
(226
|
) |
|
|
$ |
3,993
|
|
|
|
$ |
39,920
|
|
|
|
See accompanying
notes to financial statements. |
|
4
|
|
MEMBERS Life
Insurance Company |
Statements
of Cash Flows |
Years Ended
December 31, 2018, 2017 and 2016 |
($ in 000s)
|
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
$ |
809
|
|
|
|
$ |
2,079
|
|
|
|
$ |
1,835
|
|
Adjustments
to reconcile net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized investment losses |
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Interest
credited to policyholder account balances |
|
|
(15
|
) |
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes |
|
|
(262
|
) |
|
|
|
241
|
|
|
|
|
240
|
|
Amortization
of bond premium and discount |
|
|
15
|
|
|
|
|
19
|
|
|
|
|
33
|
|
Amortization
and write off of deferred charges |
|
|
16
|
|
|
|
|
20
|
|
|
|
|
23
|
|
Changes
in other assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
investment income |
|
|
(20
|
) |
|
|
|
3
|
|
|
|
|
18
|
|
Reinsurance
recoverable from affiliate |
|
|
(333
|
) |
|
|
|
(590
|
) |
|
|
|
752
|
|
Premiums
receivable |
|
|
(1
|
) |
|
|
|
3
|
|
|
|
|
11
|
|
Receivable
from affiliate and other assets |
|
|
2,767
|
|
|
|
|
3,228
|
|
|
|
|
(6,423
|
) |
Federal
income taxes recoverable from affiliate |
|
|
(418
|
) |
|
|
|
(835
|
) |
|
|
|
(1,121
|
) |
Claim
and policy benefit reserves - life and health |
|
|
3,784
|
|
|
|
|
1,546
|
|
|
|
|
(720
|
) |
Payables
to affiliates and other liabilities |
|
|
(1,821
|
) |
|
|
|
59
|
|
|
|
|
5,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) operating activities |
|
|
4,538
|
|
|
|
|
5,773
|
|
|
|
|
(41
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
on sale or maturity of debt securities |
|
|
1,268
|
|
|
|
|
367
|
|
|
|
|
1,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by investing activities |
|
|
1,268
|
|
|
|
|
367
|
|
|
|
|
1,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
to parent |
|
|
|
|
|
|
|
(7,000
|
) |
|
|
|
|
|
Policyholder
account deposits |
|
|
781,815
|
|
|
|
|
719,883
|
|
|
|
|
634,345
|
|
Policyholder
account withdrawals |
|
|
(88,266
|
) |
|
|
|
(50,481
|
) |
|
|
|
(31,206
|
) |
Assets
on deposit - deposits |
|
|
(780,777
|
) |
|
|
|
(718,797
|
) |
|
|
|
(634,039
|
) |
Assets
on deposit - withdrawals |
|
|
87,895
|
|
|
|
|
49,964
|
|
|
|
|
30,951
|
|
Change
in bank overdrafts |
|
|
(1
|
) |
|
|
|
(1
|
) |
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) financing activities |
|
|
666
|
|
|
|
|
(6,432
|
) |
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents |
|
|
6,472
|
|
|
|
|
(292
|
) |
|
|
|
1,639
|
|
Cash and
cash equivalents at beginning of year |
|
|
18,440
|
|
|
|
|
18,732
|
|
|
|
|
17,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents at end of year |
|
$ |
24,912
|
|
|
|
$ |
18,440
|
|
|
|
$ |
18,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash paid to affiliate for income taxes |
|
$ |
498
|
|
|
|
$ |
1,316
|
|
|
|
$ |
1,768
|
|
Non
cash receipt of securities as capital contribution from parent |
|
|
20,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 variable and index linked deferred annuity contracts in 2016 and single
premium deferred index annuity contracts in 2013. Both products are sold to consumers, including 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 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 |
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2016 |
|
Michigan
|
|
|
62
|
% |
|
|
|
62
|
% |
|
|
|
63
|
% |
|
|
|
7
|
% |
|
|
|
9
|
% |
|
|
|
6
|
% |
Texas
|
|
|
24
|
|
|
|
|
24
|
|
|
|
|
23
|
|
|
|
|
*
|
|
|
|
|
5
|
|
|
|
|
8
|
|
California
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
*
|
|
|
|
|
6
|
|
|
|
|
7
|
|
Pennsylvania
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
8
|
|
|
|
|
8
|
|
|
|
|
6
|
|
Iowa
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
6
|
|
|
|
|
7
|
|
|
|
|
6
|
|
Florida
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
6
|
|
|
|
|
*
|
|
|
|
|
*
|
|
Indiana
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
7
|
|
Wisconsin
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
6
|
|
Washington
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
|
5
|
|
|
*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, 2018.
As discussed in Note 6, 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).
|
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 index annuity contracts and flexible premium variable and index
linked deferred annuity contracts. See Note 7, Reinsurance, for information on the
Companys reinsurance 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
$1,367 and $1,540 of policy loans to CMFG Life as of December 31, 2018 and 2017,
respectively, as payment pursuant to a life reinsurance agreement with CMFG Life
(See Note 7). As a result of the 2015 amendment, all policy loans are allocated
to CMFG Life.
Net investment income: Interest income
related to mortgage-backed and other structured securities is recognized on an accrual
basis using a constant effective yield method, based on anticipated prepayments
and the estimated economic life of the securities. When estimates of prepayments
change, the effective yield is recalculated to reflect actual payments to date and
anticipated future payments and such adjustments are reflected in net investment
income. Prepayment assumptions for loan-backed bonds and structured securities are
based on industry averages or internal estimates. Interest income related to non-structured
securities is recognized on an accrual basis using a constant effective yield method.
Discounts and premiums on debt securities are amortized over the estimated lives
of the respective securities on an effective yield basis.
Net realized gains and losses: Realized
gains and losses on the sale of investments are determined on a specific identification
basis and are recorded on the trade date.
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
Assets on Deposit
Assets on deposit represent the amount of
policyholder account balances related to reinsurance of the single premium deferred
index annuity and risk control accounts of the flexible premium variable and index
linked deferred annuity contracts (investment-type contracts) that are ceded to
CMFG Life. Assets on deposit are accounted for on a basis consistent with accounting
for the underlying investment type contracts; therefore, the Company accounts for
the reinsurance of these contracts using the deposit method of accounting consistent
with the terms of the reinsurance agreement with CMFG Life. 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.
Derivative Financial Instruments
The Company issues single premium deferred
index annuity and flexible premium variable and index linked deferred 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 (losses). 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.
Variable Interest Entities
A variable interest entity (VIE)
is a legal entity that does not have sufficient equity at risk to finance its activities
without additional subordinated financial support or is structured such that equity
investors lack the ability to make significant decisions relating to the entitys operations through voting rights or do not substantively participate in the
gains and losses of the entity. Consolidation of a VIE by its primary beneficiary
is not based on majority voting interest, but is based on a review of the VIEs
capital structure, contractual relationships and terms, nature of the VIEs
operations and purpose, nature of the VIEs interests issued and the Companys involvement with the entity. When assessing the need to consolidate a VIE,
the Company evaluates the design of the VIE as well as the related exposure to the
variable interest holders.
The primary beneficiary is the entity that
has both the power to direct the activities of the VIE that most significantly affect
the entitys economic performance and the obligation to absorb losses or the
right to receive benefits that could be potentially significant to the VIE. While
also considering these factors, the consolidation conclusion depends on the breadth
of the Companys decision-making ability and the Companys ability to
influence activities that significantly affect the economic performance of the VIE.
Unconsolidated VIEs: The Company
invests in residential mortgage-backed securities which are classified as VIEs for
which the Company is not the primary beneficiary, and, therefore, these VIEs were
not consolidated on
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
the Companys balance sheets. The Company
invests in these securities with the primary purpose of earning capital appreciation.
The maximum exposure to loss relating to these securities is equal to the carrying
amount of the security. The values of these investments are disclosed in the Debt
Securities section of Note 3.
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 index annuity
and flexible premium variable and index linked deferred annuity contracts, are considered
investment-type contracts. Amounts collected on these products, with the exception
of the variable annuity component of the flexible premium variable and index linked
deferred annuity, are recorded as increases in policyholder account balances. The
variable annuity component of the flexible premium variable and index linked deferred
annuity meets criteria for separate account reporting and therefore is recorded
in separate account assets and liabilities. Revenues from investment-type contracts
principally consist of net investment income and contract charges such as expense
and surrender charges. Expenses for investment-type 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 2018 represents advisory
fees based on a percentage of assets under management. Other income in 2017 and
2016 includes legal settlements received on structured security investments that
had previously been sold. Operating and other expenses in 2017 and 2016 include
legal expenses related to settlements received. There were no legal settlements
in 2018.
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 life insurance policies, all
DAC has been fully amortized as of December 31, 2018 and 2017 and there was no amortization
expense in 2018, 2017 or 2016.
Acquisition costs on the Companys
single premium deferred index annuity and flexible premium variable and index linked
deferred 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.
Claim and Policy Benefits Reserves Life and Health
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.
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
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 2018, 2017 or 2016.
Additionally, the liability for future policy
benefits may not be deficient in the aggregate to trigger a premium deficiency,
but the pattern of earnings may be such that profits are expected to be recognized
in early years followed by losses in later years. In those situations, the liability
for future benefits will be increased to offset losses that would be recognized
in later years. The Company recorded a liability of $138 as of December 31, 2018
for the profits that are expected to be followed by losses in the future. There
was no liability recorded for the year ended December 31, 2017.
Policyholder Account Balances
The single premium deferred index annuities
and risk control accounts of the flexible premium variable and index linked deferred
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 index annuity,
the Company offers one reference index, which is the S&P 500 Index. For the
flexible premium variable and index linked deferred 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 index annuity was 1.50%, 1.44% and 1.63% in
2018, 2017 and 2016, respectively. The average annualized credited rate for the
risk control accounts of the flexible premium variable and index linked deferred
annuity was 1.20%, 1.59% and 1.12% in 2018, 2017 and 2016, respectively.
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 2018,
2017 and 2016. The future minimum guaranteed interest rate during the life of the
contracts is 4.5%.
Accounts Payable and Other Liabilities
The Company issues the single premium deferred
index 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.
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
Separate Accounts
Separate accounts represent customer accounts
related to the variable annuity component of the flexible premium variable and index
linked deferred 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
(SEC) as of December 31, 2018.
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-forloss
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.
As a result of the comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act (the Tax Act), which was enacted
by the U.S. federal government on December 22, 2017, the Company remeasured its
deferred tax assets and liabilities as of December 22, 2017 and included the results
of remeasurement in its December 31, 2017 financial results. The impact of the remeasurement
and further discussion on the Tax Act are disclosed in the Tax Reform section of
Note 5, Income Tax.
Recently Adopted Accounting
Standard Updates
In February 2018, the Financial Accounting
Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2018-02, Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income (ASU 2018-02), effective in 2018. The
Company elected to adopt ASU 2018-02 in 2018. The new guidance
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
permits reclassification from accumulated
other comprehensive income (AOCI) to retained earnings for stranded
tax effects as defined in ASU 2018-02. Stranded tax effects occur when a change
in enacted tax rates is recorded in income from continuing operations, even in situations
in which the related income tax effects were originally recognized in AOCI, rather
than in income from continuing operations. Companies may elect to make the reclassification
only as it relates to the U.S. federal income tax rate cut made by the Tax Act.
The Companys election reduced retained earnings and increased AOCI by $3 but
did not change total stockholders equity or net income.
In August 2018, the FASB issued ASU No.
2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair
Value Measurement (ASU 2018-13), effective in 2020, with early adoption
permitted. The Company elected to adopt ASU 2018-13 in 2018. Items removed from
Note 4, Fair Value, include the amount of and reasons for transfers between Level
1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between
levels, and the valuation process for Level 3 fair value measurements. New disclosures
added include the changes in unrealized gains and losses included in other comprehensive
income for recurring Level 3 fair value measurements held at the end of the reporting
period and the range and weighted average of significant unobservable inputs used
to develop Level 3 fair value measurements.
Accounting Standards Updates
Pending Adoption
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 replaces the existing incurred loss recognition model with
an expected credit loss recognition model. The objective of the expected credit
loss model is for the Company to recognize its estimate of expected credit losses
for affected financial assets in a valuation allowance deducted from the amortized
cost basis of the related financial assets that results in presenting the net carrying
value of the financial assets at the amount expected to be collected. The Company
must consider all available relevant information when estimating expected credit
losses, including details about past events, current conditions, and reasonable
and supportable forecasts over the contractual life of an asset. Financial assets
may be evaluated individually or on a pooled basis when they share similar risk
characteristics. The measurement of credit losses for available-for-sale debt securities
measured at fair value is not affected, except that credit losses recognized are
limited to the amount by which fair value is below amortized cost and the carrying
value adjustment is recognized through an allowance and not as a direct write-down.
Upon adoption, the Company does not expect the impact of ASU 2016-13 to be material.
In August 2018, the FASB adopted ASU No.
2018-12, Targeted Improvements to the Accounting for Long- Duration Contracts
(ASU 2018-12) with an effective date in 2021 for public business
entities and 2022 for other entities. The new standard makes significant changes
to accounting requirements for long-duration insurance contracts, including long-term
care, traditional and limited payment life insurance, and annuities. The significant
provisions are shown below.
|
|
|
Under current
guidance, the liability for future policy benefits for long-duration products is
established based on assumptions set at issue which are not changed unless there
is a premium deficiency. Under ASU 2018-12, these assumptions, which include mortality,
morbidity, persistency, expenses, and the discount rate, must be reviewed for changes
at least annually. When assumptions other than the discount rate are changed, the
liability is recomputed and a cumulative catch-up adjustment is recorded in the
current year income statement. The discount rate, which is based on the yield of
an upper-medium-grade fixed income instrument, must be updated each reporting period;
changes in the liability resulting from the discount rate are recorded in other
comprehensive income. |
|
|
|
The liability
for future policy benefits can no longer include a provision for adverse deviation.
|
|
|
|
Because
liability assumptions are updated periodically, the test for premium deficiency
is no longer required for nonparticipating traditional and limited payment contracts.
|
|
|
|
ASU 2018-12
introduces the concept of market risk benefits for product features such as guaranteed
minimum death or income benefits, which must be accounted for at fair value.
|
|
|
|
Deferred
acquisition costs will generally be amortized to expense on a constant level basis,
either individually or on a grouped contract basis consistent with the related
reserves, over the expected term of the contracts. Amortization based on estimated
gross profits or gross margins will be eliminated. The |
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
|
|
|
deferred
policy acquisition costs asset does not need to be tested for impairment, no interest
is accreted, and shadow adjustments are no longer required. |
|
|
|
Insurers
must provide disclosures that allow financial statement users to understand the
amount, timing, and uncertainty of future cash flows arising from the insurance
liabilities. |
The Company is currently evaluating the
potential impact of ASU 2018-12.
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, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
|
Gross Unrealized |
|
|
|
Estimated |
|
|
Cost |
|
|
|
Gains |
|
|
|
|
Losses |
|
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
and agencies |
|
$ |
8,744
|
|
|
|
$ |
|
|
|
|
|
$ |
(521
|
) |
|
|
$ |
8,223
|
Domestic corporate
securities |
|
|
16,476
|
|
|
|
|
188
|
|
|
|
|
|
(9
|
) |
|
|
|
16,655
|
Residential
mortgage-backed securities |
|
|
639
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
653
|
Foreign corporate
securities |
|
|
3,997
|
|
|
|
|
44
|
|
|
|
|
|
(3
|
) |
|
|
|
4,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
$ |
29,856
|
|
|
|
$ |
246
|
|
|
|
|
$ |
(533
|
) |
|
|
$ |
29,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, gross unrealized gains and losses, and estimated fair values,
as reported on the balance sheet, of debt securities at December 31, 2017 are as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
|
Gross Unrealized |
|
|
|
Estimated |
|
|
Cost |
|
|
|
Gains |
|
|
|
|
Losses |
|
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
and agencies |
|
$ |
9,052
|
|
|
|
$ |
5
|
|
|
|
|
$ |
(103
|
) |
|
|
$ |
8,954
|
Residential
mortgage-backed securities |
|
|
1,598
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
1,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
$ |
10,650
|
|
|
|
$ |
120
|
|
|
|
|
$ |
(103
|
) |
|
|
$ |
10,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No investments were non-income producing in 2018 or 2017. |
|
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, 2018, 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 residential
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 ten years |
|
$ |
20,473
|
|
|
|
$ |
20,693
|
Due after
ten years |
|
|
8,744
|
|
|
|
|
8,223
|
Residential
mortgage-backed securities |
|
|
639
|
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
$ |
29,856
|
|
|
|
$ |
29,569
|
|
Net Investment Income
Sources of investment income for the years
ended December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
$ |
368
|
|
|
|
$ |
321
|
|
|
|
$ |
363
|
|
Cash
and cash equivalents |
|
|
452
|
|
|
|
|
217
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross
investment income |
|
|
820
|
|
|
|
|
538
|
|
|
|
|
416
|
|
Investment
expenses |
|
|
(58
|
) |
|
|
|
(21
|
) |
|
|
|
(40
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income |
|
$ |
762
|
|
|
|
$ |
517
|
|
|
|
$ |
376
|
|
|
Net Realized Investment Gains
Proceeds from the sale of debt securities
were $651 in 2018. There were no sales or transfers of debt securities in 2017 and
2016 that resulted in a realized investment gain or loss.
Other-Than-Temporary Investment
Impairments
Investment securities are reviewed for OTTI
on an ongoing basis. The Company creates a watchlist of securities based largely
on the fair value of an investment security relative to its cost basis. When the
fair value drops below the Companys cost, the Company monitors the security
for OTTI. The determination of OTTI requires significant judgment on the part of
the Company and depends on several factors, including, but not limited to:
|
|
|
The existence
of any plans to sell the investment security. |
|
|
|
|
|
|
|
The extent
to which fair value is less than book value. |
|
|
|
|
|
|
|
The underlying
reason for the decline in fair value (credit concerns, interest rates, etc.).
|
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
|
|
|
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 income (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 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, 2018, 2017 and 2016 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.
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$ |
(287
|
) |
|
|
$ |
17
|
|
|
|
$ |
(498
|
) |
Deferred income
taxes |
|
|
61
|
|
|
|
|
(6
|
) |
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized
investment gains (losses) |
|
$ |
(226
|
) |
|
|
$ |
11
|
|
|
|
$ |
(323
|
) |
|
At December 31, 2018, the Company owned
three debt securities with a fair value of $10,209 in an unrealized investment loss
position. Of these, one with a fair value of $8,223 have been in an unrealized loss
position for twelve or more months. The $521 unrealized loss for debt securities
with a loss period 12 months or greater represents an 6.0% price impairment. The
remaining two securities have a fair value of $1,986 and have been in an unrealized
loss for under 12 months. The $12 unrealized loss for debt securities with a loss
period less than 12 months represents an 0.6% price impairment. The total fair value
of debt securities, which reflect an unrealized loss at December 31, 2018 and which
are rated investment grade, is $10,209 or 100.0% of the total fair value of all
debt securities which reflect an unrealized loss at December 31, 2018. For these
purposes investment grade is defined by the Company to be securities rated BBB or
greater.
Embedded Derivatives
The Company issues single premium deferred
index annuity and flexible premium variable and index linked deferred 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 $524,178 and a liability of $524,178
as of December 31, 2018 and an asset of $471,192 and a liability of $471,192 as
of December 31, 2017. The increase (decrease) in fair value related to embedded
derivatives from the date of deposit was ($45,101), $136,078 and $49,225 for the
years ended December 31, 2018, 2017 and 2016, respectively. Because the Company
has entered into an agreement with CMFG Life to cede 100% of this business, these
amounts are ceded and do 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, 2018 and 2017, debt securities and cash with a carrying value of $27,621 and
$8,694, 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 $1,998 and $2,024 were on
deposit with other regulatory jurisdictions as of December 31, 2018 and 2017, respectively.
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ 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. 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. The Company
has no Level 3 investments with unrealized gains or losses included in other comprehensive
income (loss).
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.
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
Transfers Between Levels
There were no transfers between levels during
the years ended December 31, 2018 and 2017.
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, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets,
at Fair Value |
|
Level 1 |
|
|
|
Level 2 |
|
|
|
|
Level 3 |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents1 |
|
$ |
21,630
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
$ |
21,630
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and agencies |
|
|
|
|
|
|
|
8,223
|
|
|
|
|
|
|
|
|
|
|
8,223
|
Domestic
corporate securities |
|
|
|
|
|
|
|
16,655
|
|
|
|
|
|
|
|
|
|
|
16,655
|
Residential
mortgage-backed securities |
|
|
|
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
653
|
Foreign
corporate securities |
|
|
|
|
|
|
|
4,038
|
|
|
|
|
|
|
|
|
|
|
4,038
|
|
Total
debt securities |
|
|
|
|
|
|
|
29,569
|
|
|
|
|
|
|
|
|
|
|
29,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in assets on deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
524,178
|
|
|
|
|
524,178
|
Separate account
assets |
|
|
|
|
|
|
|
103,205
|
|
|
|
|
|
|
|
|
|
|
103,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
21,630
|
|
|
|
$ |
132,774
|
|
|
|
|
$ |
524,178
|
|
|
|
$ |
678,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
at Fair Value |
|
Level 1
|
|
|
|
Level 2
|
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in annuity contracts |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
$ |
524,178
|
|
|
|
$ |
524,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
$ |
524,178
|
|
|
|
$ |
524,178
|
|
1Excludes cash of $3,282 that is not subject to fair value accounting.
|
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
The following table summarizes the Companys assets that are measured at fair value on a recurring basis as of December
31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets,
at Fair Value |
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents1 |
|
$ |
16,607
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
16,607
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and agencies |
|
|
|
|
|
|
|
8,954
|
|
|
|
|
|
|
|
|
|
8,954
|
Residential
mortgage-backed securities |
|
|
|
|
|
|
|
1,713
|
|
|
|
|
|
|
|
|
|
1,713
|
|
Total
debt securities |
|
|
|
|
|
|
|
10,667
|
|
|
|
|
|
|
|
|
|
10,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in assets on deposit |
|
|
|
|
|
|
|
|
|
|
|
|
471,192
|
|
|
|
|
471,192
|
Separate account
assets |
|
|
|
|
|
|
|
69,005
|
|
|
|
|
|
|
|
|
|
69,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
16,607
|
|
|
|
$ |
79,672
|
|
|
|
$ |
471,192
|
|
|
|
$ |
567,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
at Fair Value |
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded in annuity contracts |
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
471,192
|
|
|
|
$ |
471,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
471,192
|
|
|
|
$ |
471,192
|
|
1Excludes cash of $1,833 that is not subject to fair value accounting.
|
The Company had no assets or liabilities
that required a fair value adjustment on a non-recurring basis as of December 31,
2018 or 2017.
Determination of Fair Values
The Company determines the estimated fair
value of its investments using primarily the market approach and the income approach.
The use of quoted prices and matrix pricing or similar techniques are examples of
market approaches, while the use of discounted cash flow methodologies is an example
of the income approach.
A summary of valuation techniques for classes
of financial assets and liabilities by fair value hierarchy level are as follows:
Level 1 Measurements
Cash equivalents: Consists of money
market funds; valuation is based on the closing price as of the balance sheet date.
Level 2 Measurements
For assets classified as Level 2 investments,
the Company values the assets using third-party pricing sources, which generally
rely on quoted prices for similar assets in markets that are active and observable
market data.
U.S. government and agencies: Certain
U.S. Treasury securities and debentures issued by agencies of the U.S. government
are valued based on observable inputs such as the U.S. Treasury yield curve, market
indicated
|
MEMBERS Life
Insurance Company |
Notes to Financial
Statements |
($ in 000s)
|
|
|
spreads and quoted prices for identical
assets in markets that are not active and/or similar assets in markets that are
active.
Domestic corporate securities: Valued
based on observable inputs such as the U.S. Treasury yield curve, market indicated
spreads by security rating and quoted prices for identical assets in markets that
are not active and/or similar assets in markets that are active.
Residential mortgage-backed securities:
Valuation is principally based on observable inputs including quoted prices
for similar assets in markets that are active and observable market data.
Foreign corporate securities: Valued
based on observable inputs such as the applicable, country-specific market yield
curve, market indicated spreads by security rating and quoted prices for identical
assets in markets that are not active and/or similar assets in markets that are
active.
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 index annuity
and flexible premium variable and index linked deferred 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.
|
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, 2018 and 2017:
|
|
|
|
|
|
|
|
Predominant
|
|
Significant
|
|
Range of
Values - Unobservable Input |
Valuation
Method |
|
Unobservable
Input |
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Single
premium deferred index annuity |
|
Discounted
cash flow |
|
Lapse rates
|
|
2% to 4% with
an |
|
2% to 4% with
an |
|
|
|
|
excess lapse
rate at |
|
excess lapse
rate at |
|
|
|
|
the end of
the index |
|
the end of
the index |
|
|
|
|
period of
50% or 95%. |
|
period of
50% or 95%. |
|
|
|
|
Weighted average
|
|
Weighted average
|
|
|
|
|
is 3.7%
|
|
is 2.9%
|
|
|
|
|
|
Companys
own |
|
51 - 113 basis
points |
|
58 - 99 basis
points |
|
|
credit and
risk margin |
|
added on to
|
|
added on to
|
|
|
|
|
discount rate.
|
|
discount rate.
|
|
|
|
|
Weighted average
|
|
Weighted average
|
|
|
|
|
is 80 basis
points |
|
is 70 basis
points |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flexible
premium variable and index linked deferred annuity |
|
Discounted
cash flow |
|
Lapse rates
|
|
2% to 10%
with an |
|
2% to 10%
with an |
|
|
|
|
excess lapse
rate at |
|
excess lapse
rate at |
|
|
|
|
the end of
the index |
|
the end of
the index |
|
|
|
|
period of
5% to 20%. |
|
period of
5% to 20%. |
|
|
|
|
Weighted average
|
|
Weighted average
|
|
|
|
|
is 2.6%
|
|
is 2.6%
|
|
|
|
|
|
Companys
own |
|
51 - 113 basis
points |
|
58 - 99 basis
points |
|
|
credit and
risk margin |
|
added on to
|
|
added on to
|
|
|
|
|
discount rate.
|
|
discount rate.
|
|
|
|
|
Weighted average
|
|
Weighted average
|
|
|
|
|
is 80 basis
points |
|
is 70 basis
points |
|
|
|
|
|
|
|
|
|
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, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
January 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2018 |
|
|
|
|
Purchases |
|
|
|
Maturities |
|
|
|
Earnings1 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
assets on deposit |
|
$ |
471,192
|
|
|
|
|
$ |
109,477
|
|
|
|
$ |
(11,390
|
) |
|
|
$ |
(45,101
|
) |
|
|
$ |
524,178
|
|
Total assets
|
|
$ |
471,192
|
|
|
|
|
$ |
109,477
|
|
|
|
$ |
(11,390
|
) |
|
|
$ |
(45,101
|
) |
|
|
$ |
524,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
annuity contracts |
|
$ |
471,192
|
|
|
|
|
$ |
109,477
|
|
|
|
$ |
(11,390
|
) |
|
|
$ |
(45,101
|
) |
|
|
$ |
524,178
|
|
Total liabilities
|
|
$ |
471,192
|
|
|
|
|
$ |
109,477
|
|
|
|
$ |
(11,390
|
) |
|
|
$ |
(45,101
|
) |
|
|
$ |
524,178
|
|
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, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
January 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2017 |
|
|
|
Purchases |
|
|
|
Maturities |
|
|
|
Earnings1 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
assets on deposit |
|
$ |
246,405
|
|
|
|
$ |
93,748
|
|
|
|
$ |
(5,039
|
) |
|
|
$ |
136,078
|
|
|
|
$ |
471,192
|
|
Total assets
|
|
$ |
246,405
|
|
|
|
$ |
93,748
|
|
|
|
$ |
(5,039
|
) |
|
|
$ |
136,078
|
|
|
|
$ |
471,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
embedded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
annuity contracts |
|
$ |
246,405
|
|
|
|
$ |
93,748
|
|
|
|
$ |
(5,039
|
) |
|
|
$ |
136,078
|
|
|
|
$ |
471,192
|
|
Total liabilities
|
|
$ |
246,405
|
|
|
|
$ |
93,748
|
|
|
|
$ |
(5,039
|
) |
|
|
$ |
136,078
|
|
|
|
$ |
471,192
|
|
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:
|
|
MEMBERS Life
Insurance Company |
Notes to Financial Statements |
($ in 000s)
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
Carrying |
|
Estimated |
|
|
|
|
|
Carrying |
|
Estimated |
|
|
|
|
|
|
Amount |
|
Fair Value |
|
|
Level |
|
|
Amount |
|
Fair Value |
|
|
Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recorded
as assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
3,282 |
|
|
$ |
3,282 |
|
|
|
1 |
|
|
$ |
1,833 |
|
|
$ |
1,833 |
|
|
|
1 |
|
Assets
on deposit |
|
|
2,613,918 |
|
|
|
2,303,358 |
|
|
|
2 |
|
|
|
1,981,841 |
|
|
|
1,726,602 |
|
|
|
2 |
|
Financial
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recorded
as liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-type
contracts |
|
|
2,613,918 |
|
|
|
2,303,358 |
|
|
|
2 |
|
|
|
1,981,841 |
|
|
|
1,726,602 |
|
|
|
2 |
|
Separate
account liabilities |
|
|
103,205 |
|
|
|
103,205 |
|
|
|
2 |
|
|
|
69,005 |
|
|
|
69,005 |
|
|
|
2 |
|
|
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.
|
|
MEMBERS Life
Insurance Company |
Notes to Financial Statements |
($ in 000s)
|
|
|
Income Tax Expense
Income tax expense for the years ended December
31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax
expense (benefit) |
|
$ |
80 |
|
|
$ |
481 |
|
|
$ |
647 |
|
Deferred tax
expense |
|
|
(262 |
) |
|
|
193 |
|
|
|
240 |
|
Adjustment
of deferred tax assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
for
enacted rate change |
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
tax expense (benefit) |
|
$ |
(182 |
) |
|
$ |
723 |
|
|
$ |
887 |
|
|
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 21% for 2018 and 35% for 2017 and 2016 to income before income
taxes due to the items listed in the following reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
Amount |
|
Rate |
|
Amount |
|
Rate |
|
Amount |
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
computed at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
federal
corporate tax rate |
|
$ |
132 |
|
|
|
21.0 |
% |
|
$ |
981 |
|
|
|
35.0 |
% |
|
$ |
953 |
|
|
|
35.0 |
% |
Income tax
expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
to prior years |
|
|
(240 |
) |
|
|
(38.2 |
) |
|
|
(221 |
) |
|
|
(7.8 |
) |
|
|
(53 |
) |
|
|
(2.0 |
) |
Dividends-received
deduction |
|
|
(59 |
) |
|
|
(9.4 |
) |
|
|
(83 |
) |
|
|
(3.0 |
) |
|
|
(11 |
) |
|
|
(0.4 |
) |
Foreign Tax
Credit |
|
|
(14 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
of deferred tax assets and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
for enacted rate change |
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
Other |
|
|
(1 |
) |
|
|
(0.2 |
) |
|
|
(3 |
) |
|
|
(0.1 |
) |
|
|
(2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
tax expense (benefit) |
|
$ |
(182 |
) |
|
|
(29.0 |
%) |
|
$ |
723 |
|
|
|
25.8 |
% |
|
$ |
887 |
|
|
|
32.5 |
% |
|
|
|
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, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
Deferred tax
assets |
|
|
|
|
|
|
|
|
Tax
reserves method change |
|
$ |
11 |
|
|
$ |
15 |
|
Unrealized
investment losses |
|
|
61 |
|
|
|
|
|
Accrued
expenses |
|
|
293 |
|
|
|
280 |
|
Deferred
policy acquisition costs |
|
|
380 |
|
|
|
291 |
|
Other |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Gross deferred
tax assets |
|
|
745 |
|
|
|
587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities |
|
|
|
|
|
|
|
|
Investments |
|
|
354 |
|
|
|
490 |
|
Deferred
reinsurance expense |
|
|
16 |
|
|
|
19 |
|
Unrealized
investment gains |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Gross deferred
tax liabilities |
|
|
370 |
|
|
|
513 |
|
|
|
|
|
|
|
|
|
|
|
Net deferred
tax asset |
|
$ |
375 |
|
|
$ |
74 |
|
|
Valuation Allowance
The Company considered the need for a valuation
allowance with respect to its gross deferred tax assets as of December 31, 2018
and 2017, and based on that evaluation, the Company has determined it is more likely
than not all deferred tax assets as of December 31, 2018 and 2017 will be realized.
Therefore, a valuation allowance was not established.
Unrecognized Tax Benefits
There are no unrecognized tax benefits as of December 31, 2018 and 2017. Management does not anticipate a material change to the Companys uncertain tax positions during 2019.
The Company recognizes interest and penalties
accrued related to unrecognized tax benefits in income tax expense in the statements
of operations and comprehensive income (loss). For the years ended December 31,
2018 and 2016, the Company did not recognize any addition or reduction in interest
and penalties. For the year ended December 31, 2017, the Company recognized a reduction
in interest and penalties of $5. The Company had accrued $2 and $2 for the payment
of interest and penalties at December 31, 2018 and 2017, respectively.
The Company is included in a consolidated
U.S. federal income tax return filed by CMHC. The Company also files income tax
returns in various states. For the major jurisdictions where it operates, the Company
is generally no longer subject to income tax examinations by tax authorities for
years ended before 2013. Amended refund claims filed for tax years 2010 and 2012
are currently under examination as part of the Joint Committee on Taxation approval
process.
|
|
MEMBERS Life
Insurance Company |
Notes to Financial Statements |
($ in 000s)
|
|
|
Other Tax Items
As of December 31, 2018 and 2017, the Company
did not have any capital loss, operating loss or credit carryforwards.
Tax Reform
The Tax Act made changes to the U.S. tax
code, including, but not limited to, reducing the U.S. federal corporate tax rate
to 21% effective January 1, 2018.
The Company completed its initial evaluation
of the impacts of the Tax Act and recorded a net tax expense of $49 for the year
ended December 31, 2017 due to the remeasurement of deferred tax assets and liabilities.
The Company has made no adjustments to the impacts initially recorded for the year ended December 31, 2018.
The Companys accounting for the impact of the Tax Act is now complete with no material changes to the amount
recorded at December 31, 2017.
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 $30,131, $20,808 and $15,349 for
these expenses in 2018, 2017 and 2016, respectively; which are included in operating
and other expenses.
Amounts receivable/payable from/to affiliates
are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
Receivable
from: |
|
|
|
|
|
|
|
|
CMFG
Life |
|
$ |
5,001 |
|
|
$ |
8,492 |
|
Other |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,027 |
|
|
$ |
8,492 |
|
|
|
|
|
|
|
|
|
|
|
Payable to: |
|
|
|
|
|
|
|
|
CUNA
Brokerage Services, Inc. |
|
$ |
2,948 |
|
|
$ |
2,749 |
|
Other |
|
|
58 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,006 |
|
|
$ |
2,771 |
|
|
Amounts receivable from CMFG Life at December 31, 2018 and 2017 are primarily for a policyholders purchase
of an MLIC annuity when a CMFG Life policyholder has surrendered their policy for the purchase of a single
premium deferred index annuity or flexible premium variable and index linked deferred annuity and for the cession
of death claims related to the Companys single premium deferred index annuity or flexible premium variable
index linked deferred annuity.
|
|
MEMBERS Life
Insurance Company |
Notes to Financial Statements |
($ in 000s)
|
|
|
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 $58, $21 and $28 for the years ended December 31, 2018, 2017 and 2016, 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 index
annuity and flexible premium variable and index linked deferred annuity and recorded
commission expense for this service of $29,996, $29,114 and $24,900 in 2018, 2017
and 2016, 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.
The Company received additional paid in
capital of $20,653 of debt securities from CMIC in 2018, net of deferred tax liability
of $24. The Company received no additional paid in capital in 2017 or 2016. The
Company paid a $7,000 cash dividend to its parent in 2017. The Company paid no dividends
in 2018 or 2016.
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 to
cede 100% of its investment-type contracts for its flexible premium variable and
index linked deferred annuity, which are accounted for using the deposit method
of accounting. On October 15, 2018, the Company amended its reinsurance agreement
with CMFG Life to include a new flexible premium variable and index linked deferred
annuity offering by the Company and will continue to cede 100% of its investment-type
contracts for its flexible premium variable and index linked deferred annuities.
The Company had $337,755 and $165,924 of assets on deposit for these contracts as
of December 31, 2018 and 2017, respectively. The Company had related liabilities
of $337,755 and $165,924 as of December 31, 2018 and 2017, respectively, which are
included in policyholder account balances in the balance sheets. The Company had
separate account assets and liabilities for these contracts of $103,205 and $103,205
and $69,005 and $69,005, respectively, as of December 31, 2018 and 2017. The Company
receives a commission equal to 100% of its actual expenses incurred for this business,
which was $17,738, $11,019 and $6,302 for the years ended December 31, 2018, 2017
and 2016, respectively.
The Company entered into a second agreement
with its affiliate, CMFG Life, to cede 100% of its investment-type contracts for
its single premium deferred index annuity, which are accounted for using the deposit
method of accounting. The Company had $2,800,341 and $2,287,109 of assets on deposit
for these contracts as of December 31, 2018 and 2017, respectively. The Company
had related liabilities of $2,800,341 and $2,287,109, 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 $52,652,
$44,773 and $37,961 for the years ended December 31, 2018, 2017 and 2016, 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 receives a commission equal to 100% of its actual expenses
incurred for this business, which was $767, $839 and $894 for the years ended December
31, 2018, 2017 and 2016, respectively.
MLIC did not have any other reinsurance
agreements at December 31, 2018 or 2017 and the entire reinsurance recoverable balance
of $24,034 and $23,973, respectively, was due from CMFG Life. The recoverable balances
|
|
MEMBERS Life
Insurance Company |
Notes to Financial Statements |
($ in 000s)
|
|
|
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 financial strength ratings of A 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face amount
of policies in force |
|
|
$ |
80,872 |
|
|
$ |
86,587 |
|
|
$ |
95,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
- written |
|
|
$ |
2,812 |
|
|
$ |
3,145 |
|
|
$ |
2,168 |
|
Direct
- change in unearned |
|
|
|
|
|
|
|
5 |
|
|
|
1 |
|
|
Direct
- earned |
|
|
|
2,812 |
|
|
|
3,150 |
|
|
|
2,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded
to affiliate - written |
|
|
|
(2,812 |
) |
|
|
(3,145 |
) |
|
|
(2,172 |
) |
Ceded
to affiliate - change in unearned |
|
|
|
|
|
|
|
(5 |
) |
|
|
(18 |
) |
|
Ceded
to affiliate - earned |
|
|
|
(2,812 |
) |
|
|
(3,150 |
) |
|
|
(2,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums -
written, net |
|
|
|
|
|
|
|
5 |
|
|
|
(4 |
) |
Premiums -
change in unearned, net |
|
|
|
|
|
|
|
(5 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums,
net |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
|
$ |
7,535 |
|
|
$ |
3,498 |
|
|
$ |
1,303 |
|
Ceded
to affiliate |
|
|
|
(7,535 |
) |
|
|
(3,498 |
) |
|
|
(1,303 |
) |
|
Contract charges,
net |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims, benefits
and losses incurred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
|
$ |
2,507 |
|
|
$ |
2,779 |
|
|
$ |
1,761 |
|
Ceded
to affiliate |
|
|
|
(2,507 |
) |
|
|
(2,777 |
) |
|
|
(1,762 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims, benefits
and losses, net |
|
|
$ |
|
|
|
$ |
2 |
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited
to policyholder account balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
|
$ |
41,175 |
|
|
$ |
30,469 |
|
|
$ |
20,519 |
|
Ceded
to affiliate |
|
|
|
(41,190 |
) |
|
|
(30,469 |
) |
|
|
(20,519 |
) |
|
Interest credited
to policyholder account balances, net |
|
|
$ |
(15 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
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 2018, 2017 or 2016. 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 |
|
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MLIC |
|
$ |
39,447 |
|
|
$ |
18,601 |
|
|
$ |
419 |
|
|
$ |
1,914 |
|
|
$ |
1,051 |
|
|
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 $3,294 during 2019, without prior approval of the Insurance
Department.
Risk-based capital (RBC) requirements promulgated by the National Association of Insurance Commissioners
(NAIC) require U.S. insurers to maintain minimum capitalization levels that are determined based on formulas
incorporating credit risk, insurance risk, interest rate risk, and general business risk. The adequacy of the
Companys actual capital is evaluated by a comparison to the RBC results, as determined by the formula. At
December 31, 2018 and 2017, the Companys adjusted capital exceeded the RBC minimum requirements as
required by the NAIC.
|
|
MEMBERS Life
Insurance Company |
Notes to Financial Statements |
($ in 000s)
|
|
|
Note 9: Accumulated Other Comprehensive
Income (Loss)
The components of accumulated other comprehensive
income (loss), net of tax, are as follows:
|
|
|
|
|
|
|
Accumulated |
|
|
Unrealized |
|
Other |
|
|
Investment |
|
Comprehensive |
|
|
Gains (Loss) |
|
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2016 |
|
$ |
(225 |
) |
|
$ |
(225 |
) |
Change
in unrealized holding gains (losses), |
|
|
|
|
|
|
|
|
net
of tax - ($53) |
|
|
(98 |
) |
|
|
(98 |
) |
|
Balance,
December 31, 2016 |
|
|
(323 |
) |
|
|
(323 |
) |
Change
in unrealized holding gains (losses), |
|
|
|
|
|
|
|
|
net
of tax - $181 |
|
|
334 |
|
|
|
334 |
|
|
Balance,
December 31, 2017 |
|
|
11 |
|
|
|
11 |
|
Effect
of change for |
|
|
|
|
|
|
|
|
ASU
2018-02 (Note 2) |
|
|
3 |
|
|
|
3 |
|
Change
in unrealized holding gains (losses), |
|
|
|
|
|
|
|
|
net
of tax - ($64) |
|
|
(240 |
) |
|
|
(240 |
) |
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018 |
|
$ |
(226 |
) |
|
$ |
(226 |
) |
|
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 (loss)
for the year ended December 31, 2018 was $52, net of deferred taxes of $14. There
were no reclassification adjustments for the years ended December 31, 2017 and 2016.
|
|
MEMBERS Life
Insurance Company |
Notes to Financial Statements |
($ 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, 2018.
|
|
|
Life and |
|
|
|
|
|
|
|
|
Year ended
or as of December 31, 2018 |
|
Health |
|
Annuities |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health premiums, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net
investment income |
|
|
762 |
|
|
|
|
|
|
|
762 |
|
Net
realized investment (losses) |
|
|
(17 |
) |
|
|
|
|
|
|
(17 |
) |
Other
income |
|
|
18 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
763 |
|
|
|
|
|
|
|
763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims and benefits, net |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
credited to policyholder account balances, net |
|
|
|
|
|
|
(15 |
) |
|
|
(15 |
) |
Operating
and other expenses |
|
|
151 |
|
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
151 |
|
|
|
(15 |
) |
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes |
|
|
612 |
|
|
|
15 |
|
|
|
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) |
|
|
(185 |
) |
|
|
3 |
|
|
|
(182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
797 |
|
|
|
12 |
|
|
|
809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains (losses), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
expense
(benefit) |
|
|
(188 |
) |
|
|
|
|
|
|
(188 |
) |
Reclassification
adjustment for (gains) |
|
|
|
|
|
|
|
|
|
|
|
|
included
in net income, net of tax (benefit) - |
|
|
(52 |
) |
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss) |
|
|
(240 |
) |
|
|
|
|
|
|
(240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
$ |
557 |
|
|
$ |
12 |
|
|
$ |
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
recoverable from affiliate |
|
$ |
24,034 |
|
|
$ |
|
|
|
$ |
24,034 |
|
Assets
on deposit |
|
|
|
|
|
|
3,138,096 |
|
|
|
3,138,096 |
|
Claim and
policy benefit reserves - life and health |
|
|
20,769 |
|
|
|
6,067 |
|
|
|
26,836 |
|
Policyholder
account balances |
|
|
3,981 |
|
|
|
3,138,096 |
|
|
|
3,142,077 |
|
|
|
|
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, 2017.
|
|
|
Life and |
|
|
|
|
|
|
|
|
Year ended
or as of December 31, 2017 |
|
Health |
|
Annuities |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health premiums, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net
investment income |
|
|
517 |
|
|
|
|
|
|
|
517 |
|
Net
realized investment (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
Other
income |
|
|
3,996 |
|
|
|
|
|
|
|
3,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,513 |
|
|
|
|
|
|
|
4,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health insurance claims and benefits, net |
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Interest
credited to policyholder account balances, net |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
and other expenses |
|
|
1,596 |
|
|
|
113 |
|
|
|
1,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits
and expenses |
|
|
1,598 |
|
|
|
113 |
|
|
|
1,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes |
|
|
2,915 |
|
|
|
(113 |
) |
|
|
2,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) |
|
|
763 |
|
|
|
(40 |
) |
|
|
723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,152 |
|
|
|
(73 |
) |
|
|
2,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains (losses), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
expense
(benefit) |
|
|
334 |
|
|
|
|
|
|
|
334 |
|
Reclassification
adjustment for (gains) |
|
|
|
|
|
|
|
|
|
|
|
|
included
in net income, net of tax (benefit) - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss) |
|
|
334 |
|
|
|
|
|
|
|
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
$ |
2,486 |
|
|
$ |
(73 |
) |
|
$ |
2,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
recoverable from affiliate |
|
$ |
23,973 |
|
|
$ |
|
|
|
$ |
23,973 |
|
Assets
on deposit |
|
|
|
|
|
|
2,453,033 |
|
|
|
2,453,033 |
|
Claim and
policy benefit reserves - life and health |
|
|
20,688 |
|
|
|
2,364 |
|
|
|
23,052 |
|
Policyholder
account balances |
|
|
3,601 |
|
|
|
2,453,033 |
|
|
|
2,456,634 |
|
|
|
|
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, 2016.
|
|
|
Life and |
|
|
|
|
|
|
|
|
Year ended
or as of December 31, 2016 |
|
Health |
|
Annuities |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and health premiums, net |
|
$ |
(21 |
) |
|
$ |
|
|
|
$ |
(21 |
) |
Net
investment income |
|
|
376 |
|
|
|
|
|
|
|
376 |
|
Net
realized investment (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
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, net |
|
|
|
|
|
|
|
|
|
|
|
|
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 gains (losses), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
expense
(benefit) |
|
|
(98 |
) |
|
|
|
|
|
|
(98 |
) |
Reclassification
adjustment for (gains) |
|
|
|
|
|
|
|
|
|
|
|
|
included
in net income, net of tax (benefit) - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss) |
|
|
(98 |
) |
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
$ |
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 |
|
|
|
|
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 2017 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 $1,224 and $992 at December 31, 2018 and 2017, 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, 2018 and 2017 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 subsequent events that required adjustment to or disclosure in the accompanying
financial statements.
|
APPENDIX
A: EXAMPLES OF PARTIAL WITHDRAWALS AND FULL SURRENDER WITH APPLICATION OF SURRENDER
CHARGE AND MARKET VALUE ADJUSTMENT |
|
Example 1: Partial Withdrawal with a Negative Market Value Adjustment (MVA) |
|
|
|
|
|
|
|
Assume the following information as it relates to the Contract: |
|
|
|
|
|
|
|
|
|
|
The Contract was issued on 06/10/2017 with an initial deposit of $100,000.00. |
|
|
|
The Contract Fee is 0.75%, only applied to Risk Control Accounts. |
|
|
|
Money is allocated to the Declared Rate Account and S&P 500 Risk Control Accounts. |
|
|
|
An Excess Withdrawal of $20,000.00 is taken on 12/10/2018. No other withdrawals have
been previously taken. |
|
|
|
Contract Value as of the last Contract Anniversary 6/10/2018: |
|
|
|
|
o |
|
Declared
Rate Account value equals $10,300.00. |
|
|
|
|
o |
|
The S&P
500 Secure Risk Control Account value equals $59,999.96. |
|
|
|
|
o |
|
The S&P
500 Growth Risk Control Account value equals $40,000.01. |
|
|
|
|
|
|
|
Assume the following information as it relates to the Declared Rate Account: |
|
|
|
As of the withdrawal date, the Declared Rate Account balance was $ 10,453.78. |
|
|
|
|
|
|
|
Assume the following information as it relates to the Risk Control Accounts: |
|
|
|
The Allocation Option Start Date is 06/10/2017 and the Allocation Option Maturity
Date is 06/10/2023. |
|
|
|
The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a 6.00%
Index Rate Cap. |
|
|
|
The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and a
15.00% Index Rate Cap. |
|
|
|
As of the withdrawal date, there are 5,940.59 S&P 500 Secure Risk Control Account
Accumulation Credits. |
|
|
|
As of the withdrawal date, there are 3,902.44 S&P 500 Growth Risk Control Account
Accumulation Credits. |
|
|
|
The Accumulation Credit Factor (P) at the start of the Contract Year immediately
preceding the withdrawal for the S&P 500 Secure Risk Control Account is $10.10. |
|
|
|
The Accumulation Credit Factor (P) at the start of the Contract Year immediately
preceding the withdrawal for the S&P 500 Growth Risk Control Account is $10.25. |
|
|
|
The S&P 500 Index value at the start of Contract Year immediately preceding
the withdrawal is 1000.00. |
|
|
|
The S&P 500 Index value at the time of the withdrawal is 1200.00. |
|
|
|
On the Allocation Option Start Date, the interpolated 6-year Constant Maturity Treasury
Rate (I) was 2.50% and the ICE BofAML Index (K) was 1.00%. |
|
|
|
At the time of the withdrawal the Constant Maturity Treasury Rate for the remaining
Index period (J) is 2.90% and the ICE BofAML Index (L) is 1.10%. |
A-1
|
|
|
At the
time of the withdrawal there are 4.50137 years remaining in the Allocation Option
Period (N). |
We take the following steps to determine
the net partial withdrawal amount (excluding taxes) payable to the Owner:
First, we calculate the Contract
Value at the time of the withdrawal.
Account
|
(1)
Accumulation Credits |
(2)
Accumulation Credit Factor |
(3)
Contract Value at time of Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
5,940.59 3,902.44 |
$10.668021
$11.748957 |
$10,453.78
$63,374.34 $45,849.60 |
Total |
|
|
$119,677.72
|
(1), (2), (3)
The current Declared Rate Value equals $10,453.78.
The return of the Index is equal to the
Closing Index Value divided by the Initial Index Value. The return of the S&P
500 Index is calculated to be 1.2 (1,200.00 / 1,000.00 - 1). This is greater than
the (1 + Index Rate Cap) and above (1 + the Index Rate Floor) for both the S&P
500 Secure and Growth Accounts. Therefore, the Index Rate of Return is set to (1
+ the Index Rate Cap) which equals 1.06 for the S&P 500 Secure Risk Control
Account and 1.15 for the S&P 500 Growth Risk Control Account.
The Contract Fee is calculated as 0.75%
divided by the number of days in the Contract Year multiplied by the Accumulation
Credit Factor at the start of the Contract Year (0.75% / 365 x 10.10 for the S&P
500 Secure Risk Control Account and 0.75% / 365 x 10.25 for the S&P 500 Growth
Risk Control Account).
The Accumulation Credit Factor is then calculated
as (a) the Accumulation Credit Factor at the start of the Contract Year multiplied
by (b) the Index Rate of Return less (c) the Risk Control Account Daily Contract
Fee multiplied by the number of days that have passed since the last Contract Anniversary
(i.e. a x b c).
For the S&P 500 Secure Risk Control
Account, this results in an Accumulation Credit Factor at the time of the withdrawal
of $10.10 x 1.06 ((0.75% / 365 x 10.10) x 183) which equals $10.668021. The
current S&P 500 Secure Risk Control Account Contract Value is then calculated
as 5,940.59 x $10.668021 which equals $63,374.34.
For the S&P 500 Growth Risk Control
Account, this results in an Accumulation Credit Factor at the time of the withdrawal
of $10.25 x 1.15 ((0.75% / 365 x $10.25) x 183) which equals $11.748957.
The current S&P 500 Growth Risk Control Account Contract Value is then calculated
as 3,902.44 x $11.748957 which equals $45,849.60.
A-2
Next, we calculate the gross withdrawal
from each account.
Account
|
(4)
Gross Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
$1,746.99
$10,590.83 $7,662.18 |
Total |
$20,000.00
|
(4)
Withdrawal
is taken Pro Rata from each Allocation Option at the time of the Withdrawal.
The Pro Rata withdrawal from the Declared
Rate Account is the Contract Value in this account divided by the total Contract
Value multiplied by the withdrawal amount. This is calculated as $10,453.78 / $119,677.72
x $20,000 which equals $1,746.99. The Pro Rata withdrawal from the S&P 500
Secure Risk Control Account is calculated the same way to be $63,374.34 / $119,677.72
x $20,000 which equals $10,590.83. The Pro Rata withdrawal from the S&P 500
Growth Risk Control Account is calculated the same way to be $45,849.60 / $119,677.72
x $20,000 which equals $7,662.28.
Next, we calculate the net withdrawal from
each account.
Account
|
(5)
Withdrawal Subject to Surrender Charge and MVA |
(6)
MVA |
(7)
Surrender Charge |
(8)
Net Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
$783.52
$4,749.99 $3,436.49 |
($16.81)
($101.93) ($73.75) |
$70.52
$427.50 $309.28 |
$1,659.66
$10,061.40 $7,279.15 |
Total |
$8,970.00 |
($192.49) |
$807.30 |
$19,000.21
|
(5)
The Annual
Free Withdrawal Amount based on beginning of Contract Year Contract Value is first
calculated to determine the withdrawal subject to a Surrender Charge and Market
Value Adjustment (MVA). The beginning of Contract Year Contract Value equals $59,999.96
+ $40,000.01 + $10,300.00 = $110,299.97. The total Annual Free Withdrawal Amount
is calculated as 10% x $110,299.97 = $11,030.00. This Annual Free Withdrawal Amount
is applied Pro Rata at the time of the withdrawal then subtracted from the Gross
Withdrawal Amount (4) to determine the withdrawal subject to Surrender Charge and
MVA (5). For the Declared Rate Account, it is calculated as $1,746.99 ($10,453.78
/ $119,677.72 x $11,030) which equals $783.52. For the S&P 500 Secure Risk
Control Account is calculated the same way to be $10,590.83 ($63,374.34 /
A-3
$119,677.72 x $11,030) which equals $4,749.99.
For the S&P 500 Growth Risk Control Account is calculated the same way to be
$7,662.18 ($45,849.60 / $119,677.72 x $11,030) which equals $3,436.49.
(6)
The MVA
equals W x (MVAF - 1) and is calculated separately for each Allocation Option, where
W is the amount of withdrawal that is in excess of the Annual Free Withdrawal Amount
for that Contract Year. At the time of the withdrawal there are 4.50137 years remaining
in the Allocation Option Period (N). Therefore, MVAF = ((1 + I + K)/(1 + J + L))^N
= ((1 + 2.50% + 1.00%)/(1 + 2.90% + 1.10%))^4.50137 = 0.9785402.
For the Declared Rate Account, the MVA is
$783.52 x (0.9785402 - 1) which equals -$16.81. For the S&P 500 Secure Risk
Control Account, the MVA is $4,749.99 x (0.9785402 - 1) which equals -$101.93. For
the S&P 500 Growth Risk Control Account, the MVA is $3,436.49 x (0.9785402
- 1) which equals -$73.75.
(7)
It has
been more than one year but less than two years since the Contract Issue Date so
the applicable Surrender Charge percentage is 9.00%. This is multiplied by the amount
of the withdrawal subject to a Surrender Charge to determine the Surrender Charge.
For the Declared Rate Account, the Surrender Charge is calculated as $783.52 x 9.00%
which equals $70.52. For the S&P 500 Secure Risk Control Account, the Surrender
Charge is calculated as $4,749.99 x 9.00% which equals $427.50. For the S&P
500 Growth Risk Control Account, the Surrender Charge is calculated as $3,436.49
x 9.00% which equals $309.28.
(8)
The net
withdrawal is equal to the gross withdrawal plus the Market Value Adjustment less
the Surrender Charge. For the Declared Rate Account, the net withdrawal is calculated
as $1,746.99 + - $16.81 - $70.52 which equals $1,659.66. For the S&P 500 Secure
Risk Control Account, the net withdrawal is calculated as $10,590.83 + -$101.93
- $427.50 which equals $10,061.40. For the S&P 500 Growth Risk Control Account,
the net withdrawal is calculated as $7,662.28 + -$73.75 - $309.28 which equals $7,279.15.
The total net withdrawal is the sum of the three accounts, $19,000.21.
Next, we calculate the Accumulation Credits
and Contract Value remaining after the withdrawal.
Account
|
(9)
Accumulation Credits After Withdrawal |
(10)
Contract Value after Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
4,947.83
3,250.28 |
$8,706.79
$52,783.51 $38,187.42 |
Total |
|
$99,677.72
|
(9)
The number
of Accumulation Credits remaining after the withdrawal is equal to the number of
Accumulation Credits prior to the withdrawal minus the result of the gross withdrawal
from the account divided by the Accumulation Credit Factor as of the withdrawal
date. For the Declared Rate
A-4
Account there are no Accumulation Credits
so this calculation does not apply, see (10) below. For the S&P 500 Secure
Risk Control Account, this is calculated as 5,940.59 - ($10,590.83 / $10.668021)
which equals 4,947.83. For the S&P 500 Growth Risk Control Account, this is
calculated as 3,902.44 - ($7,662.18/ $11.748957) which equals 3,250.28.
(10)
The
Contract Value remaining after the withdrawal for the Declared Rate Account is equal
to the Declared Rate Account value prior to the withdrawal less the Gross Withdrawal.
For the Declared Rate Account this is equal to $10,453.78 - $1,746.99 which equals
$8,706.79. For the Risk Control Accounts the Contract Value remaining after the
withdrawal is equal the Accumulation Credit Factor as of the withdrawal date multiplied
by the number of Accumulation Credits after the withdrawal. For the S&P 500
Secure Risk Control Account, this is calculated as $10.668021 x 4,947.83 which equals
$52,783.51. For the S&P 500 Growth Risk Control Account, this is calculated
as $11.748957 x 3,250.28 which equals $38,187.42. The total Contract Value after
the withdrawal is the sum of the three accounts, $99,677.72.
A-5
Example 2: Partial Withdrawal with a Positive MVA |
Assume the following information as it relates to the Contract: |
|
|
|
|
|
|
|
|
|
|
The Contract was issued on 06/10/2017 with an initial deposit of $100,000.00. |
|
|
|
The Contract Fee is 0.75%, only applied to Risk Control Accounts. |
|
|
|
Money is allocated to the Declared Rate Account and S&P 500 Risk Control Accounts. |
|
|
|
An Excess Withdrawal of $20,000.00 is taken on 12/10/2018. No other withdrawals have
been previously taken. |
|
|
|
Contract Value as of the last Contract Anniversary 6/10/2018: |
|
|
|
|
o |
|
Declared
Rate Account value equals $10,300.00. |
|
|
|
|
o |
|
The S&P
500 Secure Risk Control Account value equals $59,999.96. |
|
|
|
|
o |
|
The S&P
500 Growth Risk Control Account value equals $40,000.01. |
|
|
|
|
|
|
|
Assume the following information as it relates to the Declared Rate Account: |
|
|
|
As of the withdrawal date, the Declared Rate Account balance was $ 10,453.78. |
|
|
|
|
|
|
|
Assume the following information as it relates to the Risk Control Accounts: |
|
|
|
The Allocation Option Start Date is 06/10/2017 and the Allocation Option Maturity
Date is 06/10/2023. |
|
|
|
The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a 6.00%
Index Rate Cap. |
|
|
|
The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and a
15.00% Index Rate Cap. |
|
|
|
As of the withdrawal date, there are 5,940.59 S&P 500 Secure Risk Control Account
Accumulation Credits. |
|
|
|
As of the withdrawal date, there are 3,902.44 S&P 500 Growth Risk Control Account
Accumulation Credits. |
|
|
|
The Accumulation Credit Factor (P) at the start of the Contract Year immediately
preceding the withdrawal for the S&P 500 Secure Risk Control Account is $10.1. |
|
|
|
The Accumulation Credit Factor (P) at the start of the Contract Year immediately
preceding the withdrawal for the S&P 500 Growth Risk Control Account is $10.25. |
|
|
|
The S&P 500 Index value at the start of Contract Year immediately preceding
the withdrawal is 1000.00. |
|
|
|
The S&P 500 Index value at the time of the withdrawal is 1200.00. |
|
|
|
|
On the Allocation Option Start Date, the interpolated 6-year Constant Maturity Treasury
Rate (I) was 2.50% and the ICE BofAML Index (K) was 1.00%. |
|
|
|
At the time of the withdrawal the Constant Maturity Treasury Rate for the remaining
Index period (J) is 2.10% and the ICE BofAML Index (L) is 0.90%. |
|
|
|
|
At the time of the withdrawal there are 4.50137 years remaining in the Allocation
Option Period (N). |
A-6
We take the following steps to determine
the net partial withdrawal amount (excluding taxes) payable to the Owner:
First, we calculate the Contract Value at
the time of the withdrawal.
Account
|
(1)
Accumulation Credits |
(2)
Accumulation Credit Factor |
(3)
Contract Value at time of Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
5,940.59
3,902.44 |
$10.668021
$11.748957 |
$10,453.78
$63,374.34 $45,849.60 |
Total |
|
|
$119,677.72
|
(1), (2), (3)
The current Declared Rate Value equals $10,453.78.
The return of the Index is equal to the
Closing Index Value divided by the Initial Index Value. The return of the S&P
500 Index is calculated to be 1.2 (1,200.00 / 1,000.00 - 1). This is greater than
the (1 + Index Rate Cap) and above (1 + the Index Rate Floor) for both the S&P
500 Secure and Growth Accounts. Therefore, the Index Rate of Return is set to (1
+ the Index Rate Cap) which equals 1.06 for the S&P 500 Secure Risk Control
Account and 1.15 for the S&P 500 Growth Risk Control Account.
The Contract Fee is calculated as 0.75%
divided by the number of days in the Contract Year multiplied by the Accumulation
Credit Factor at the start of the Contract Year (0.75% / 365 x 10.1 for the S&P
500 Secure Risk Control Account and 0.75% / 365 x 10.25 for the S&P 500 Growth
Risk Control Account).
The Accumulation Credit Factor is then calculated
as (a) the Accumulation Credit Factor at the start of the Contract Year multiplied
by (b) the Index Rate of Return less (c) the Risk Control Account Daily Contract
Fee multiplied by the number of days that have passed since the last Contract Anniversary
(i.e. a x b c).
For the S&P 500 Secure Risk Control
Account, this results in an Accumulation Credit Factor at the time of the withdrawal
of $10.1 x 1.06 ((0.75% / 365 x 10.1) x 183) which equals $10.668021. The
current S&P 500 Secure Risk Control Account Contract Value is then calculated
as 5,940.59 x $10.668021 which equals $63,374.34.
For the S&P 500 Growth Risk Control
Account, this results in an Accumulation Credit Factor at the time of the withdrawal
of $10.25 x 1.15 ((0.75% / 365 x $10.25) x 183) which equals $11.748957.
The current S&P 500 Growth Risk Control Account Contract Value is then calculated
as 3,902.44 x $11.915414 which equals $45,849.60.
A-7
Next, we calculate the gross withdrawal
from each account.
Account
|
(4)
Gross Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
$1,746.99
$10,590.83 $7,662.18 |
Total |
$20,000.00
|
(4)
Withdrawal
is taken Pro Rata from each Allocation Option at the time of the Withdrawal.
The Pro Rata withdrawal from the Declared
Rate Account is the Contract Value in this account divided by the total Contract
Value multiplied by the withdrawal amount. This is calculated as $10,453.78 / $119,677.72
x $20,000 which equals $1,746.99. The Pro Rata withdrawal from the S&P 500
Secure Risk Control Account is calculated the same way to be $63,374.34 / $119,677.72
x $20,000 which equals $10,590.83. The Pro Rata withdrawal from the S&P 500
Growth Risk Control Account is calculated the same way to be $45,849.60 / $119,677.72
x $20,000 which equals $7,662.28.
Next, we calculate the net withdrawal from
each account.
Account
|
(5)
Withdrawal Subject to Surrender Charge and MVA |
(6)
MVA |
(7)
Surrender Charge |
(8)
Net Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
$783.52
$4,749.99 $3,436.49 |
$17.27
$104.68 $75.73 |
$70.52
$427.50 $309.28 |
$1,693.74
$10,268.01 $7,428.63 |
Total |
$8,970.00
|
$197.68
|
$807.30
|
$19,390.38
|
(5)
The Annual
Free Withdrawal Amount based on beginning of Contract Year Contract Value is first
calculated to determine the withdrawal subject to a Surrender Charge and Market
Value Adjustment (MVA). The beginning of Contract Year Contract Value equals $59,999.96
+ $40,000.01 + $10,300.00 = $110,299.97. The total Annual Free Withdrawal Amount
is calculated as 10% x $110,299.97 = $11,030.00. This Annual Free Withdrawal Amount
is applied Pro Rata at the time of the withdrawal then subtracted from the Gross
Withdrawal Amount (4) to determine the withdrawal subject to Surrender Charge and
MVA (5). For the Declared Rate Account, it is calculated as $1,746.99 ($10,453.78
/ $119,677.72 x $11,030) which equals $783.52. For the S&P 500 Secure Risk
Control Account is calculated the same way to be $10,590.83 ($63,374.34 /
$119,677.72 x $11,030) which equals $4,749.99. For the S&P 500 Growth Risk
Control Account is calculated the same way to be $7,662.28 ($45,849.60 / $119,677.72 x $11,030) which
equals $3,436.49.
A-8
(6)
The MVA
equals W x (MVAF - 1) and is calculated separately for each Allocation Option, where
W is the amount of withdrawal that is in excess of the Annual Free Withdrawal Amount
for that Contract Year. At the time of the withdrawal there are 4.50137 years remaining
in the Allocation Option Period (N). Therefore, MVAF = ((1 + I + K)/(1 + J + L))^N
= ((1 + 2.50% + 1.00%)/(1 + 2.10% + 0.90%))^4.50137 = 1.0220378.
For the Declared Rate Account, the MVA is
$783.52 x (1.0220378 - 1) which equals $17.27. For the S&P 500 Secure Risk
Control Account, the MVA is $4,749.99 x (1.0220378 - 1) which equals $104.68. For
the S&P 500 Growth Risk Control Account, the MVA is $3,436.49 x (1.0220378
- 1) which equals $75.73.
(7)
It has
been more than one year but less than two years since the Contract Issue Date so
the applicable Surrender Charge percentage is 9.00%. This is multiplied by the amount
of the withdrawal subject to a Surrender Charge to determine the Surrender Charge.
For the Declared Rate Account, the Surrender Charge is calculated as $783.52 x 9.00%
which equals $70.52. For the S&P 500 Secure Risk Control Account, the Surrender
Charge is calculated as $4,749.99 x 9.00% which equals $427.50. For the S&P
500 Growth Risk Control Account, the Surrender Charge is calculated as $3,436.49
x 9.00% which equals $309.28.
(8)
The net
withdrawal is equal to the gross withdrawal plus the Market Value Adjustment less
the Surrender Charge. For the Declared Rate Account, the net withdrawal is calculated
as $1,746.99 + $17.27 - $70.52 which equals $1,693.74. For the S&P 500 Secure
Risk Control Account, the net withdrawal is calculated as $10,590.83 + $104.68 -
$427.50 which equals $10,268.01. For the S&P 500 Growth Risk Control Account,
the net withdrawal is calculated as $7,662.28 + $75.73 - $309.28 which equals $7,428.63.
The total net withdrawal is the sum of the three accounts, $19,390.38.
Next, we calculate the Accumulation Credits
and Contract Value remaining after the withdrawal.
Account
|
(9)
Accumulation Credits After Withdrawal |
(10)
Contract Value after Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
4,947.83
3,250.28 |
$8,706.79
$52,783.51 $38,187.42 |
Total |
|
$99,677.72
|
(9)
The number
of Accumulation Credits remaining after the withdrawal is equal to the number of
Accumulation Credits prior to the withdrawal minus the result of the gross withdrawal
from the account divided by the Accumulation Credit Factor as of the withdrawal
date. For the Declared Rate
A-9
Account there are no Accumulation Credits,
so this calculation does not apply, see (10) below. For the S&P 500 Secure
Risk Control Account, this is calculated as 5,940.59 - ($10,590.83 / $10.668021)
which equals 4,947.83. For the S&P 500 Growth Risk Control Account, this is
calculated as 3,902.44 - ($7,662.18/ $11.748957) which equals 3,250.28.
(10)
The
Contract Value remaining after the withdrawal for the Declared Rate Account is equal
to the Declared Rate Account value prior to the withdrawal less the Gross Withdrawal.
For the Declared Rate Account this is equal to $10,453.78 - $1,746.99 which equals
$8,706.79. For the Risk Control Accounts the Contract Value remaining after the
withdrawal is equal the Accumulation Credit Factor as of the withdrawal date multiplied
by the number of Accumulation Credits after the withdrawal. For the S&P 500
Secure Risk Control Account, this is calculated as $10.668021 x 4,947.83 which equals
$52,783.51. For the S&P 500 Growth Risk Control Account, this is calculated
as $11.748957 x 3,250.28 which equals $38,187.42. The total Contract Value after
the withdrawal is the sum of the three accounts, $99,677.72.
A-10
Example 3: Full Surrender of Contract with a Negative MVA |
|
|
|
|
|
|
|
Assume the following information as it relates to the Contract: |
|
|
|
|
|
|
|
|
|
|
The Contract was issued on 06/10/2017 with an initial deposit of $100,000.00. |
|
|
|
The Contract Fee is 0.75%, only applied to Risk Control Accounts. |
|
|
|
The GLWB Rider Fee is 0.50% applied to GLWB Benefit Base. |
|
|
|
The average daily GLWB Benefit Base is $120,000 in the current Contract Year prior
to the surrender. |
|
|
|
Money is allocated to the Declared Rate Account and S&P 500 Risk Control Accounts. |
|
|
|
A full Surrender is taken on 12/10/2018. No other withdrawals have been previously
taken. |
|
|
|
Contract Value as of the last Contract Anniversary 6/10/2018: |
|
|
|
|
o |
|
Declared Rate
Account value equals $10,300.00. |
|
|
|
|
o |
|
The S&P
500 Secure Risk Control Account value equals $59,999.96. |
|
|
|
|
o |
|
The S&P
500 Growth Risk Control Account value equals $40,000.01. |
|
|
|
|
|
|
|
Assume the following information as it relates to the Declared Rate Account: |
|
|
|
As of the withdrawal date, the Declared Rate Account balance was $ 10,453.78. |
|
|
|
|
|
|
|
Assume the following information as it relates to the Risk Control Accounts: |
|
|
|
The Allocation Option Start Date is 06/10/2017 and the Allocation Option Maturity
Date is 06/10/2023. |
|
|
|
The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a 6.00%
Index Rate Cap. |
|
|
|
The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and a
15.00% Index Rate Cap. |
|
|
|
As of the withdrawal date, there are 5,940.59 S&P 500 Secure Risk Control Account
Accumulation Credits. |
|
|
|
As of the withdrawal date, there are 3,902.44 S&P 500 Growth Risk Control Account
Accumulation Credits. |
|
|
|
The Accumulation Credit Factor (P) at the start of the Contract Year immediately preceding the withdrawal for the S&P 500 Secure Risk Control Account is $10.10. |
|
|
|
The Accumulation Credit Factor (P) at the start of the Contract Year immediately preceding the withdrawal for the S&P 500 Growth Risk Control Account is $10.25. |
|
|
|
The S&P 500 Index value at the start of Contract Year immediately preceding
the withdrawal is 1000.00. |
|
|
|
The S&P 500 Index value at the time of the withdrawal is 1200.00. |
|
|
|
|
On the Allocation Option Start Date, the interpolated 6-year Constant Maturity Treasury
Rate (I) was 2.50% and the ICE BofAML Index (K) was 1.00%. |
|
|
|
At the time of the withdrawal the Constant Maturity Treasury Rate for the remaining
Index period (J) is 2.90% and the ICE BofAML Index (L) is 1.10%. |
|
|
|
|
At the time of the withdrawal there are 4.50137 years remaining in the Allocation
Option Period (N). |
A-11
We take the following steps to determine
the Surrender amount (excluding taxes) payable to the Owner:
First, we calculate the Contract
Value at the time of the Surrender.
Account
|
(1)
Accumulation Credits |
(2)
Accumulation Credit Factor |
(3)
Contract Value at time of Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
5,940.59
3,902.44 |
$10.668021
$11.748957 |
$10,453.78
$63,374.34 $45,849.60 |
Total |
|
|
$119,677.72
|
(1), (2), (3)
The current Declared Rate Value equals $ 10,453.78.
The return of the Index is equal to the
Closing Index Value divided by the Initial Index Value. The return of the S&P
500 Index is calculated to be 1.2 (1,200.00 / 1,000.00 - 1). This is greater than
the (1 + Index Rate Cap) and above (1 + the Index Rate Floor) for both the S&P
500 Secure and Growth Accounts. Therefore, the Index Rate of Return is set to (1
+ the Index Rate Cap) which equals 1.06 for the S&P 500 Secure Risk Control
Account and 1.15 for the S&P 500 Growth Risk Control Account.
The Contract Fee is calculated as 0.75%
divided by the number of days in the Contract Year multiplied by the Accumulation
Credit Factor at the start of the Contract Year (0.75% / 365 x 10.1 for the S&P
500 Secure Risk Control Account and 0.75% / 365 x 10.25 for the S&P 500 Growth
Risk Control Account).
The Accumulation Credit Factor is then calculated
as (a) the Accumulation Credit Factor at the start of the Contract Year multiplied
by (b) the Index Rate of Return less (c) the Risk Control Account Daily Contract
Fee multiplied by the number of days that have passed since the last Contract Anniversary
(i.e. a x b c).
For the S&P 500 Secure Risk Control
Account, this results in an Accumulation Credit Factor at the time of the withdrawal
of $10.1 x 1.06 ((0.75% / 365 x 10.1) x 183) which equals $10.668021. The
current S&P 500 Secure Risk Control Account Contract Value is then calculated
as 5,940.59 x $10.668021 which equals $63,374.34.
For the S&P 500 Growth Risk Control
Account, this results in an Accumulation Credit Factor at the time of the withdrawal
of $10.25 x 1.15 ((0.75% / 365 x $10.25) x 183) which equals $11.748957.
The current S&P 500 Growth Risk Control Account Contract Value is then calculated
as 3,902.44 x $11.915414 which equals $45,849.60.
A-12
Next, we calculate the gross withdrawal
from each account.
Account
|
(4)
Gross Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
$10,453.78
$63,374.34 $45,849.60 |
Total |
$119,677.72
|
(4)
Because
this is a full surrender, the entire Contract Value will be withdrawn from each
account.
Next, we calculate the net withdrawal
from each account.
Account
|
(5)
GLWB Rider Fee |
(6)
Withdrawal Subject to Surrender Charge and MVA |
(7)
MVA |
(8)
Surrender Charge |
(9)
Net Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
$26.27
$159.30 $115.25 |
$9,464.05
$57,374.20 $41,508.66 |
($203.10)
($1,231.24) ($890.77) |
$851.76
$5,163.68 $3,735.78 |
$9,372.65
$56,820.12 $41,107.80 |
Total |
$300.82
|
$108,346.91
|
($2,325.11) |
$9,751.22
|
$107,300.57
|
(5)
The GLWB
Rider Fee is calculated as 0.50% divided by the number of days in the Contract Year
multiplied by the number of days elapsed since the start of the Contract Year multiplied
by the average daily GLWB Benefit Base in the current Contract Year. The total GLWB
Rider Fee equals (0.50% / 365) x 183 x $120,000 = $300.82. This total GLWB Rider
Fee is taken Pro Rata at the time of the Surrender from each allocation option.
For the Declared Rate Account it is calculated as $10,453.78 / $119,677.72 x $300.82
which equals $26.27. For the S&P 500 Secure Risk Control Account is calculated
the same way to be $63,374.34 / $119,677.72 x $300.82 which equals $159.30. For
the S&P 500 Growth Risk Control Account is calculated the same way to be $45,849.60
/ $119,677.72 x $300.82 which equals $115.25.
(6)
The Annual
Free Withdrawal Amount based on beginning of Contract Year Contract Value is first
calculated to determine the withdrawal subject to a Surrender Charge and Market
Value Adjustment (MVA). The beginning of Contract Year Contract Value equals $59,999.96
+ $40,000.01 + $10,300.00 = $110,299.97. The total Annual Free Withdrawal Amount
is calculated as 10% x $110,299.97 = $11,030.00. This Annual Free Withdrawal Amount
is applied Pro Rata at the time of the withdrawal then subtracted from the Gross
Withdrawal Amount (4) less GLWB Rider Fee
A-13
(5) to determine the withdrawal subject
to Surrender Charge and MVA (6). For the Declared Rate Account it is calculated
as $10,453.78 - $26.27 ($10,453.78 / $119,677.72 x $11,030) which equals
$9,464.05. For the S&P 500 Secure Risk Control Account is calculated the same
way to be $63,374.34 $159.30 - ($63,374.34 / $119,677.72 x $11,030) which
equals $57,374.20. For the S&P 500 Growth Risk Control Account is calculated
the same way to be $45,849.60 - $115.25 ($45,849.60 / $119,677.72 x $11,030)
which equals $41,508.66.
(7)
The MVA
equals W x (MVAF - 1) and is calculated separately for each Allocation Option, where
W is the amount of withdrawal that is in excess of the Annual Free Withdrawal Amount
for that Contract Year. At the time of the withdrawal there are 4.50137 years remaining
in the Allocation Option Period (N). Therefore, MVAF = ((1 + I + K)/(1 + J + L))^N
= ((1 + 2.50% + 1.00%)/(1 + 2.90% + 1.10%))^4.50137 = 0.9785402.
For the Declared Rate Account, the MVA is
$9,464.05 x (0.9785402 - 1) which equals -$203.10. For the S&P 500 Secure Risk
Control Account, the MVA is $57,374.20 x (0.9785402 - 1) which equals -$1,231.24.
For the S&P 500 Growth Risk Control Account, the MVA is $41,508.79 x (0.9785402
- 1) which equals -$890.77.
(8)
It has
been more than one year but less than two years since the Contract Issue Date so
the applicable Surrender Charge percentage is 9.00%. This is multiplied by the amount
of the withdrawal subject to a Surrender Charge to determine the Surrender Charge.
For the Declared Rate Account, the Surrender Charge is calculated as $9,464.05 x
9.00% which equals $851.76. For the S&P 500 Secure Risk Control Account, the
Surrender Charge is calculated as $57,374.20 x 9.00% which equals $5,163.68. For
the S&P 500 Growth Risk Control Account, the Surrender Charge is calculated
as $41,508.79 x 9.00% which equals $3,735.78.
(9)
The net
withdrawal is equal to the gross withdrawal less GLWB Rider Fee plus the Market
Value Adjustment less the Surrender Charge. For the Declared Rate Account, the net
withdrawal is calculated as $10,453.78 - $26.27 + - $203.10 - $851.76 which equals
$9,372.65. For the S&P 500 Secure Risk Control Account, the net withdrawal
is calculated as $63,374.34 - $159.30 + -$1,231.24 - $5,163.68 which equals $56,820.12.
For the S&P 500 Growth Risk Control Account, the net withdrawal is calculated
as $45,849.60 - $115.25 + -$890.77 - $3,735.78 which equals $41,107.80. The total
net withdrawal is the sum of the three accounts, $107,300.57.
Next, we calculate the Accumulation Credits
and Contract Value remaining after the withdrawal.
Account
|
(10)
Accumulation Credits After Withdrawal |
(11)
Contract Value after Withdrawal |
Declared
Rate Account S&P 500 Secure Risk Control Account S&P 500 Growth
Risk Control Account |
0.00
0.00 |
$0.00
$0.00 $0.00 |
Total |
|
$0.00
|
A-14
(10)
The
number of Accumulation Credits remaining after the withdrawal is equal to the number
of Accumulation Credits prior to the withdrawal minus the result of the gross withdrawal
from the account divided by the Accumulation Credit Factor as of the withdrawal
date. For the Declared Rate Account there are no Accumulation Credits, so this calculation
does not apply, see (11) below. For the S&P 500 Secure Risk Control Account,
this is calculated as 5,940.59 - ($63,374.34 / $10.668021) which equals 0.00. For
the S&P 500 Growth Risk Control Account, this is calculated as 3,902.44 - ($45,849.60/
$11.748957) which equals 0.00.
(11)
Following
the surrender of the Contract, there is no Contract Value remaining because there
are no Declared Rate Account Value and no Accumulation Credits remaining. Following
the surrender of the Contract, the GLWB Rider terminates and the Guaranteed Lifetime
Withdrawal Benefit ends.
A-15
|
APPENDIX
B: STATE VARIATIONS OF CERTAIN FEATURES AND BENEFITS |
|
The following information is a summary of
certain features or benefits of the CUNA Mutual Group Zone Income Annuity Contracts
that vary from the features and benefits previously described in this Prospectus
as a result of requirements imposed by states. Please contact your financial professional
for more information about Contract variations and availability in your state.
States where certain CUNA Mutual Group
Zone Income Annuity features or benefits vary:
State |
|
Feature or
Benefit |
|
Variation |
Arizona |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If your age
as of the Contract Issue Date is at least 65 years old, you must return your Contract
within 30 days of receipt. |
|
California |
|
All references
to Allocation Options |
|
The Declared
Rate Account is not available as an Allocation Option. |
|
|
|
|
|
|
|
See Owner under Getting Started The Accumulation Period |
|
The Owner
has the right to assign the Contract. |
|
|
|
|
|
|
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if your age as of the Contract Issue Date is at least 60 years old. |
|
|
|
|
|
|
|
|
|
If your age
as of the Contract Issue Date is at least 60 years old, you must return your Contract
within 30 days of receipt. |
|
|
|
|
|
|
|
See Waiver
of Surrender Charges under Access to Your Money |
|
Nursing
Home or Hospital is replaced with Facility Care, Home Care, or Community-Based
Services. There is no minimum confinement period to utilize this waiver. The
Facility Care or Home Care and Terminal Illness waivers apply to full surrenders
only, not partial withdrawals. |
|
Connecticut |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 10 days of receipt, including replacement contracts. |
|
|
|
|
|
|
|
See Waiver
of Surrender Charges under Access to Your Money |
|
There is a
one-year wait before the waiver of surrender charge provisions may be exercised. |
|
B-1
State |
|
Feature or
Benefit |
|
Variation |
Delaware |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was a replacement, not
new money. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 10 days of receipt (20 days if it is a replacement contract). |
|
Florida |
|
See Owner under Getting Started The Accumulation Period |
|
The Owner
has the right to assign the Contract. |
|
|
|
|
|
|
|
See Right
to Examine under Getting Started The Accumulation Period |
|
You must return
your Contract within 21 days of receipt (30 days if it is a replacement contract). |
|
|
|
|
|
|
|
See Payout
Date under Income Payments The Payout Period |
|
The requested
Payout Date must be at least one year after the Contract Issue Date. |
|
Georgia |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
Hawaii |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
Idaho |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 20 days of receipt, including replacement contracts. |
|
Illinois |
|
All references
to Allocation Options |
|
The Declared
Rate Account is not available as an Allocation Option. |
|
|
|
|
|
|
|
See definition
of Terminally Ill and Terminal Illness in Glossary |
|
Terminally
Ill, Terminal Illness A life expectancy of 24 months or less due to any
illness or accident. |
|
Indiana |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was a replacement, not
new money. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 10 days of receipt (20 days if it is a replacement contract). |
|
B-2
State |
|
Feature or
Benefit |
|
Variation |
Kansas |
|
See definition
of Terminally Ill and Terminal Illness in Glossary |
|
Terminally
Ill, Terminal Illness A life expectancy of 24 months or less due to any illness
or accident. |
|
Louisiana |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
Maryland |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
Massachusetts |
|
See definition
of Terminally Ill and Terminal Illness in Glossary |
|
Terminally
Ill, Terminal Illness A life expectancy of 24 months or less due to any illness
or accident. |
|
|
|
|
|
|
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 10 days of receipt (20 days if it is a replacement contract). |
|
|
|
|
|
|
|
See Waiver
of Surrender Charges under Access to Your Money |
|
There is no
Nursing Home or Hospital waiver. The Terminal Illness waiver applies to full surrenders
only, not partial withdrawals. |
|
|
|
|
|
|
|
See Terms
of Income Payments under Income Payments The Payout Period |
|
Income Options
are not based on gender. The amount of each payment depends on all the items listed
other than gender. |
|
|
|
|
|
|
|
See Misstatement
of Age or Gender under Other Information |
|
Income Options
are not based on gender. Only proof of age is required for misstatement; proof of
gender is not. |
|
Minnesota |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was a replacement, not
new money. |
|
Mississippi |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
B-3
State |
|
Feature or
Benefit |
|
Variation |
Missouri |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 10 days of receipt (20 days if it is a replacement contract). |
|
Montana |
|
See Terms
of Income Payments under Income Payments The Payout Period |
|
Income Options
are not based on gender. The amount of each payment depends on all the items listed
other than gender. |
|
|
|
|
|
|
|
See Misstatement
of Age or Gender under Other Information |
|
Income Options
are not based on gender. Only proof of age is required for misstatement; proof of
gender is not. |
|
Nebraska |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
Nevada |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
New Jersey |
|
All references
to Allocation Options |
|
The Declared
Rate Account is not available as an Allocation Option. |
|
|
|
|
|
|
|
See Waiver
of Surrender Charges under Access to Your Money |
|
There is
no Terminal Illness waiver. |
|
New Hampshire |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
North Carolina |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
North Dakota |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
You must return
your Contract within 20 days of receipt (30 days if it is a replacement contract). |
|
Oklahoma |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 10 days of receipt (20 days if it is a replacement contract). |
|
B-4
State |
|
Feature or
Benefit |
|
Variation |
Pennsylvania |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
You must return
your Contract within 10 days of receipt (30 days if it is an external replacement
contract and 45 days if it is an internal replacement contract). |
|
|
|
|
|
|
|
See Waiver
of Surrender Charges under Access to Your Money |
|
Terminal
Illness is replaced with Terminal Condition. The minimum consecutive
day confinement is 90 days for a Nursing Home and 30 days for a Hospital. |
|
|
|
|
|
|
|
|
|
The waiver
applies to full surrenders only, not partial withdrawals. |
|
Rhode Island |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 20 days of receipt (30 days if it is a replacement contract). |
|
South Carolina |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
Tennessee |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
You must return
your Contract within 10 days of receipt (20 days if it is a replacement contract). |
|
|
|
|
|
|
|
|
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was a replacement, not
new money. |
|
B-5
State |
|
Feature or
Benefit |
|
Variation |
Texas |
|
See Owner under Getting Started The Accumulation Period |
|
The Owner
has the right to assign the Contract. |
|
|
|
|
|
|
|
See Right
to Examine under Getting Started The Accumulation Period |
|
You must return
your Contract within 20 days of receipt (30 days if it is a replacement contract). |
|
|
|
|
|
|
|
See Waiver
of Surrender Charges under Access to Your Money |
|
Terminal
Illness is replaced with Terminal Disability. |
|
Utah |
|
See Owner under Getting Started The Accumulation Period |
|
The Owner
has the right to assign the Contract. |
|
|
|
|
|
|
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
Vermont |
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals if the source of your initial Purchase Payment was new money, not a
replacement. |
|
Virginia |
|
See Waiver
of Surrender Charges under Access to Your Money |
|
Terminal
Illness is replaced with Terminal Condition |
|
Washington |
|
All references
to Allocation Options |
|
The Declared
Rate Account is not available as an Allocation Option. |
|
|
|
|
|
|
|
See Right
to Examine under Getting Started The Accumulation Period |
|
If the Purchase
Payment exceeds the Contract Value, the refund will be your Purchase Payment less
withdrawals. |
|
|
|
|
|
|
|
|
|
You must return
your Contract within 10 days of receipt (20 days if it is a replacement contract). |
|
|
|
|
|
|
|
See Waiver
of Surrender Charges under Access to Your Money |
|
The life expectancy
to utilize the Terminal Illness waiver is 24 months. |
|
Wisconsin |
|
See Owner under Getting Started The Accumulation Period |
|
The Owner
has the right to assign the Contract. |
|
B-6
MEMBERS Life Insurance Company
2000 Heritage
Way
Waverly, IA 50677
1-800-798-5500
Dealer Prospectus Delivery
Obligations
All dealers that effect transactions in
these securities are required to deliver a Prospectus.