As filed with Securities and Exchange Commission on April 19, 2016
18, 2024
File No. 333-207222333-276342
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
1 TO THE
FORM S-1
Registration Statement Under the Securities Act of 1933
MEMBERS Life Insurance Company
(Exact name of Registrant as specified in its charter)
IOWA | 6311 | 39-1236386 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
2000 Heritage Way
Waverly, Iowa 50677-9202
(319) 352-4090
(Address, including zip code, and telephone number, including area code,,
of Registrant’s principal executive offices)
Ross Hansen,Britney Schnathorst, Esq.
MEMBERS Life Insurance Company
2000 Heritage Way
Waverly, Iowa 50677-9202
(319) 352-4090
(Name, address, including zip code, and telephone number, including area code, of agent for service)
COPY TO:
Stephen E. Roth, Esq.
Thomas E. Bisset, Esq.
Eversheds Sutherland Asbill & Brennan(US) LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001
(202) 383-0100
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer | ☐ | Accelerated filer | |
☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company |
CALCULATION OF REGISTRATION FEE | ||||||||||
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED | AMOUNT TO BE REGISTERED | PROPOSED MAXIMUM OFFERING PRICE PER UNIT | PROPOSED MAXIMUM AGGREGATE OFFERING PRICE | AMOUNT OF REGISTRATION FEE | ||||||
Interests in Risk Control Accounts of Flexible Premium Deferred Variable Annuity Contract | * | * | $2,884,806,356 | $290,500 | ||||||
C-2
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(A) of the securities act of 1933 or until the registration statement shall become effective on such date as the securities and exchange commission, acting pursuant to said section 8(A), MAY DETERMINE.
MEMBERS®Horizon Flexible Premium Deferred Variable
and Index Linked Annuity
MEMBERS Horizon Variable Separate Account
Issued by:
MEMBERS Life Insurance Company
2000 Heritage Way
Waverly, Iowa 50677
Telephone number: 800-798-5500
Offered Through: CUNA Brokerage Services, Inc.
May 1, 2024
This Prospectus describes the MEMBERS® Horizon Flexible Premium Deferred Variable and Index Linked Annuity, an individual or joint owned, flexible premium variable and index-linked deferred annuity contract (the “Contract”) issued by MEMBERS Life Insurance Company (the “Company”, “we”, “us”, or “our”). Capitalized terms used in this prospectus and not otherwise defined have the meanings set forth in the “Glossary,” starting on page 1.Company.
The Contract, which you may purchase with an initial Purchase Payment that is at least $5,000, is designed primarily for individuals, trusts, and certain retirement plans that qualify for the special federal income tax treatment associated with annuity contracts. The Contract provides for the accumulation of retirement savings by allocating your monies among various Variable Subaccounts and/or Risk Control Accounts, and also offers a number of payout options.
The variable annuity portion of the Contract is supported bya complex insurance and investment vehicle. You should speak with a financial professional about the assets of the MEMBERS Horizon Variable Separate Account, a Separate Account of the Company, whichContract’s features, benefits, risks and fees, and whether it is divided into Variable Subaccounts that each invest in an underlying Fund. appropriate for you based upon your financial situation and objectives. We no longer issue new Contracts.
You may allocate your Purchase Payments among one or more Variable Subaccounts that each invest in an underlying Fund, and your investment results in a Variable Subaccount will depend on the investment performance of the related Fund. You bear the entire investment risk of any amounts you allocate to the Variable Subaccounts. There is a Variable Subaccount that invests in each of the following Funds. This Prospectus is accompanied by a current prospectus for each suchunderlying Fund. You should read a Fund’s prospectus carefully before investing.
You may allocate your Purchase Payments to one or more Risk Control Accounts. The Risk Control Accounts do not involve an investment in any underlying Fund, and instead are based in part on the investment experience of external Indices. You have two options to invest in one or more Risk Control Accounts. Each Risk Control Account has a reference Index. We currently offer two reference indices;indices: the (SS&P 500 Price Return Index) Index (“S&P 500500”) and the (MSCIMSCI EAFE Price Return Index) EAFE.Index (“MSCI EAFE”). Each Risk Control Account has two investment options, a Secure Account Option and a Growth Account Option. We credit interest under each Risk Control Account at the end of each Risk Control Account Year during the five-year Risk Control Account Period based in part on the performance of the reference Index by comparing the change in the Index from each Risk Control Account Anniversary (the first day of the Risk Control Account Year) to the last day of the current Risk Control Account Year, subject to the applicable Index Rate Cap and Index Rate Floor. When funds are withdrawn from a Risk Control Account prior to the Risk Control Account Anniversary for a surrender, partial withdrawal, transfer, annuitization or payment of the Death Benefit, index interest is calculated up to the date of withdrawal. It is possible that you will not earn any interest in thea Risk Control Accounts.Account or that we may credit negative interest to the Growth Account. Contract Value allocated to a Risk Control Account must remain in such Account for a period of five yearsthe entire Risk Control Account Period to avoid imposition of a Surrender Charge and a Market Value Adjustment. Each Risk Control Account Period is five years. Only one Risk Control Account Period can be in force at any time. This would allow for both a Secure Account and Growth Account for both reference Indices (the S&P 500 Index and the MSCI EAFE Index) to be established for the same Risk Control Account Period. However, once a Risk Control AccountAccount(s) is in force, new Risk Control Accounts cannot be established until the termination of the existing Risk Control Accounts on the Risk Control Account Maturity Date. Accordingly, no additional values can be transferred into a Risk Control Account and no additional Purchase Payments can be allocated to a Risk Control Account until the end of the current Risk Control Account Period.
The Secure Account option has an Index Rate Floor of 0%. The Index Rate Floor protects amounts allocated to the Secure Account from declines in the external Indices. This means that negative investment performance of the applicable Index would not reduce your Risk Control Account Value. The Secure Account
provides your Risk Control Account Value the most protection from negative investment performance of the reference Index. The Growth Account option has an Index Rate Floor of -10%. This means that negative investment performance of the applicable reference Index could result in a negative Index Raterate of Returnreturn that would reduce your Risk Control Account Value. However, your Risk Control Account Value will not decline by more than 10% as a result of Index performance for any one-year period even if Index performance is less than -10%. In return for accepting some risk of loss to your Risk Control Account Value allocated to the Growth Account, the Index Rate Cap for the Growth Account is higher than the Index Rate Cap for the Secure Accounts, which allows for the potential for greater increases to your Risk Control Account Value allocated to the Growth Account. The Index Rate Caps place a limit on the positive performance of an Index and therefore limit the amount of Index interest that can be credited to an Owner’s investment in a Risk Control Account. The Index Rate Cap will never be less than 1% for either Risk Control Account. ThereFor funds allocated to the Growth Account there is a risk of loss of your principal and any previously credited interest because each year you agree to absorb all losses less than or equalup to the applicable10% Index Rate Floor. In addition, if the performance of the reference Index equaled or approached the Index Rate Floor, the deduction of Contract charges, and the deduction of Surrender Charges, aany negative Market Value Adjustment, and Federal Income Tax PenaltiesTaxes and additional taxes could result in a reductionsignificant loss of Contract Value greater thanprincipal and previously credited interest. It is possible in extreme circumstances to lose up to 100% of your principal and previously credited interest if only the Index Rate Floor applied.
Purchase Payments and transfer amounts allocated toyou take a Variable Subaccountwithdrawal or Risk Control Account are held in insulated Separate Accounts, the assets of which are not chargeable with liabilities arising out of any other business that we conduct. Our General Account assets are also available to meet the guarantees under the Contract as well as our other general obligations. The guarantees in this Contract are subject to the Company’s financial strength and claims-paying ability.surrender your Contract.
We may offermake available additional Variable Subaccounts and Risk Control Accounts in the future. Not all Variable Subaccounts and Risk Control Accounts may be available in all markets where we offer the Contract.
The Contract offers two series: Series B and Series C. For Series B Contracts only, if you surrender your Contract or take a partial withdrawal during the Surrender Charge Period,period, we will apply a Surrender Charge to the amount being surrendered or withdrawn that is in excess of the free annual withdrawal amountAnnual Free Withdrawal Amount unless you qualify for the Nursing Home or Hospital waiver or Terminal Illness waiver, described in this Prospectus. The maximum Surrender Charge is 9% of the Purchase Payment withdrawn. Not all waiver benefits are available in all states. The terms under which the Surrender Charge will be waived may vary in some states and are described in Contracts issuedAppendix C of this Prospectus. All other state variations are also described in those states. Appendix C. Please review Appendix C for any variations from standard Contract provisions that may apply to your Contract based on the state in which your Contract was issued.
Surrender Charges do not apply to Series C Contracts. Series C Contracts impose a higher Contract Fee than Series B Contracts. Series C Contracts are not available in Maryland.Each Purchase Payment has an individual Surrender Charge schedule which begins when the Purchase Payment is credited to your Contract and continues for five years. In addition, for both Series B and Series C Contracts, if you surrender your Contract or take a partial withdrawal during the Accumulation Period,five years following allocation of a Purchase Payment, your Risk Control Account Value (if any) will be subject to a Market Value Adjustment. A surrender or partial withdrawal from a Risk Control Account on its Risk Control Account Maturity Date will not be subject to a Surrender Charge or Market Value Adjustment. See “Fees and Expenses” on page 11. SeeExpenses,” “Market Value Adjustment” on page 48 and “Access to Your Money” on page 51.. The Market Value Adjustment may be either positive or negative, which means the Market Value Adjustment may increase or decrease the amount you receive upon surrender or partial withdrawal.
You have the right to cancel your Contract. If you are a new purchaser of a Contract, you may cancel your Contract within 10 days of receiving it without paying fees or penalties. In some states, this cancellation period may be longer. If you cancel your Contract, you will receive either a full refund of the amount you paid with your application or your total Contract value. You should review this prospectus, or consult with your investment professional, for additional information about the specific cancellation terms that apply. See “Getting Started – The Accumulation Period – Right to Examine.”
There are risks associated with the Contract.These risks include liquidity risks, investment risks, market risks, Company risks, and interest rate risks. The guarantees in this Contract are subject to the Company’s financial strength and claims-paying ability.Also, a Market Value Adjustment, (in each case, as applicable), and for Series B contractsContracts Surrender Charges, may apply for a number of years, so that the Contract should only be
invested $10,000 in a Series B Series Contract with a 1.50% Contract Fee and allocated your investment to the Growth Account and the Index then declined by 10% or more in each of three consecutive years, your investment in the Contract at the end of the third year would be equal to $6,932. If you surrendered the Contract at the end of that third year, you would pay a Surrender Charge equal to 7% of your investment or $700 which would leave you with $6,232. That amount would be reduced further if a negative MVA applied. In addition, if you were age 59½59½ or younger at the time of the surrender, a ten percent additional tax penalty of $623 would apply and would reduce the amount you would have from the Contract to $5,608. This example, however, does not take into account your ability to allocate some or all of your initial investment to the Secure Account which has a floor that protects amounts allocated to that Account from declines in the Index or that you may purchase a Series C Series Contract which does not have a Surrender Charge.
The Company has the right to refuse or limit the amount and frequency of additional Purchase Payments allocated under the Contract and to refuse or limit the amount and frequency of additional Purchase Payments that may be allocated to the Risk Control Accounts. If we exercise this right, it will limit your ability to make further investments in the Contract and increase Contract Values and the Death Benefit through additional Purchase Payments.
We offer the
The Contract is offered through CUNA Brokerage Services, Inc. (“CBSI”), which is the principal underwriter. CBSI is an indirect, wholly-owned subsidiary of our parent company, CMFG Life Insurance Company, and is registered as a broker-dealer with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended, as well as with the securities commissions in the states in which it operates, and is a member of Financial Industry Regulatory Authority, Inc. The principal business address of CUNA Brokerage Services, Inc.CBSI is 2000 Heritage Way, Waverly, IA 50677. The principal underwriter is not required to sell any specific number or dollar amount of Contracts, but will use its best efforts to sell the Contracts. There are no arrangements to place funds in an escrow, trust, or similar account. The offering of the Contract is intended to be continuous.
This Prospectus provides important information you should know before investing including risks related to the Company’s business. Please see “Potential Risk Factors That May Affect Our Business and Our Future Results” on page 69 for more information regarding these risks. Please keep the prospectusthis Prospectus for future reference.
Additional information about certain investment products, including variable annuities, has been prepared by the Securities and Exchange Commission’s staff and is available at Investor.gov.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The Contracts are not insured by the Federal Deposit Insurance Corporation or any other government agency. They are not deposits or other obligations of any bank and are not bank guaranteed. They are subject to investment risks and possible loss of principal.principal and previously credited interest and prior earnings.
TABLE OF CONTENTS
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| 49 | |
Partial Withdrawals | 49 | |
| 49 | |
SURRENDER VALUE | 50 | |
Partial Withdrawal and Surrender Restrictions | 50 | |
Right to Defer Payments | 50 | |
51 | ||
Death Benefit | 51 | |
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| Automatic Rebalance Program | 54 |
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| 55 | |
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INCOME PAYMENTS – THE PAYOUT PERIOD | ||
INCOME PAYOUT OPTIONS | 56 | |
| Options | 57 |
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FEDERAL INCOME | 58 | |
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58 | ||
Taxation of Non-Qualified Contracts | 59 | |
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61 | ||
Federal Estate Taxes, Gift and Generation-Skipping Transfer Taxes | 62 | |
62 | ||
62 | ||
Annuity Purchases By Nonresident Aliens and Foreign Corporations | 62 | |
Possible Tax Law Changes | 63 | |
| 63 | |
63 | ||
| 63 | |
Distribution of the Contract | 65 | |
| 66 | |
| Incontestability | 66 |
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66 | ||
66 | ||
Reports to Owners | 66 | |
Householding | 67 | |
| Change of Address | 67 |
| Legal Proceedings | 67 |
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CORPORATE HISTORY OF THE COMPANY | ||
Financial Information | 69 | |
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69 | ||
POTENTIAL RISK FACTORS THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS | ||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS | ||
OF OPERATIONS | 75 | |
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| 76 | |
Summary of Significant Accounting Policies | 77 |
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82 | ||
Results of Operations for the Years ended December 31, | ||
| 2022 | 83 |
83 | ||
Liquidity and Capital Resources | 85 | |
86 | ||
86 | ||
87 | ||
MANAGEMENT | 88 | |
88 | ||
Transactions with Related Persons, Promoters and Certain Control Persons | 89 | |
| Executive Compensation | 91 |
Director Compensation | 91 | |
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92 | ||
APPENDIX C: STATE VARIATIONS | C-1 |
The Contract may not be available in all states. This Prospectus does not constitute an offer to sell any Contract and it is not soliciting an offer to buy any Contract in any state in which the offer or sale is not permitted. We do not authorize anyone to provide any information or representations regarding the offering described in this Prospectus other than the information and representations contained in this Prospectus.
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We have tried to make this Prospectus as understandable as possible. However, in explaining how the Contract works, we have had to use certain terms that have special meanings. We define these terms below.
1940 Act – The Investment Company Act of 1940, as amended.
Accumulation Credit – A unit of measure used to calculate Risk Control Account Value.
Accumulation Credit Factor – A dollar value for each Accumulation Credit in a Risk Control Account on a given Business Day.
Accumulation Period– The phase of the Contract that begins on the Contract Issue Date and ends on the Payout Date, or the date the Contract is terminated if earlier.
Accumulation Unit – A unit of measure used to calculate Variable Subaccount Value.
Accumulation Unit Value – A dollar value for each Accumulation Unit in a Variable Subaccount on a given Business Day.
Adjusted Index Value – The Closing Index Value adjusted for the Index Rate Cap or Index Rate Floor for the current Risk Control Account Year.
Administrative Office– MEMBERS Life Insurance Company, 2000 Heritage Way, Waverly, Iowa 50677. Phone: 1-800-798-5500.
Age– Age as of last birthday.
Allocation Level – Specific levels identified in your Contract for the sole purpose of administering allocation instructions according to the requirements of the Contract.
Annuitant (Joint Annuitant)– The natural person(s) whose life (or lives) determines the amount of annuity payments under the Contract.
Authorized Request – A signed and dated request that is in Good Order. A request to change your allocation instructions must be signed by all Owners. A request to change a party to the Contract, change the Payout Date or request a partial withdrawal or full surrender of the Contract must be signed by all Owners and any irrevocable Beneficiary or an assignee.
Automatic Rebalance Program – A program to automatically transfer values among the Risk Control Accounts and/or Variable Subaccounts to achieve the balance of Contract Value equal to the Allocation Levels you requested.
Bailout Provision– If the Index Rate Cap for your Risk Control Account is set below the bailout rate prominently displayed on your Contract Data Page attached to the front of the cover page of the Contract, the Bailout Provision allows you to transfer the Risk Control Account Value from that Risk Control Account during the 30-day period following the Risk Control Account Anniversary. A Market Value Adjustment will not apply to such transfer.
Beneficiary– The person(s) (or entity) you named to receive proceeds payable due to the death of the Owner. Before the Payout Date, if no Beneficiary survives the Owner, we will pay the Death Benefit proceeds to the Owner’s estate.
Business Day– Any day that the New York Stock Exchange is open for trading. All requests for transactions that are received at our Administrative Office in Good Order on any Business Day prior to market close, generally 4:00 P.M. Eastern Time, will be processed as of the end of that Business Day. However, with respect to a subaccount no valuation may be made on days that the subaccount’s corresponding fund does not value its share.
Closing Index Value – The closing value for an Index as of a Business Day.
Company– MEMBERS Life Insurance Company; also referred to as “we”, “our” and “us”.
Contract– The MEMBERS® Horizon Flexible Premium Deferred Variable and Index Linked Annuity, an individual or joint owned, flexible premium deferred variable and index-linked annuity contract issued by MEMBERS Life Insurance Company.
Contract Anniversary – The same day and month as the Contract Issue Date for each year the Contract remains in force. If a Contract Anniversary does not fall on a Business Day, any transactions required as of that date will be processed on the next Business Day but will be effective as of that Contract Anniversary.
Contract Fee – A fee assessed against Contract Value allocated to the Variable
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Contract Issue Date– The date we use to determine Contract Years and Contract Anniversaries.
Contract Value– The total value of your annuity during the Accumulation Period. All values are calculated as of the end of a Business Day.
Contract Year– Any twelve-month period beginning on the Contract Issue Date or Contract Anniversary and ending on the next Contract Anniversary.
Data Page – Pages attached to your Contract that describe certain terms applicable to your specific Contract.
Death Benefit -– The Contract Value as of the date Death Benefits are payable. We do not apply the Surrender Charge or Market Value Adjustment in determining the Death Benefit payable.
Earnings– Your Contract Value minus Purchase Payments not previously withdrawn.
Frequent Transfers Procedures – Policies and procedures that we have adopted in order to try to protect Owners and the Funds from potentially harmful trading activity.
Fund– Each investment portfolio or any other open-end management investment company or unit investment trust in which a Variable Subaccount invests.
General Account– All of the Company’s assets other than the assets in the Separate Accounts.
Good Order – A request or transaction generally is considered in “Good Order” if we receive it in our Administrative Office within the time limits, if any, prescribed in this Prospectus for a particular transaction or instruction, it includes all information and supporting legal documentation necessary for us to execute the requested instruction or transaction, and is signed by the individual or individuals authorized to provide the instruction or engage in the transaction. A request or transaction may be rejected or delayed if not in Good Order. Good Order generally means the actual receipt by us of the instructions relating to the requested transaction in writing by mail or facsimile along with all forms, information and supporting legal documentation we require to effect the instructions or transaction. This information and documentation necessary for a transaction or instruction generally includes, to the extent applicable: the completed application or instruction form; your contract number; the transaction amount (in dollars or percentage terms); the names and allocations to and/or from the Funds affected by the requested transaction; the signatures of all Owners (exactly as indicated on the Contract), if necessary; Social Security Number or Tax I.D.; and any other information or supporting documentation that we may require, including any consents. With respect to Purchase Payments, Good Order also generally includes receipt by us of sufficient funds to effect the purchase. We may, in our sole discretion, determine whether any particular transaction request is in Good Order, and we reserve the right to change or waive any Good Order requirement at any time. If you have any questions, you should contact us or your financial professional before submitting the form or request.
Holding Account – An account that holds each Purchase Payment pending investment in a Risk Control Account. The Holding Account cannot be elected as an Investment Option. The Holding Account is part of our General Account.
Holding Account Value – The value of the Contract in the Holding Account.
Hospital– A facility that is licensed and operated as a hospital according to the law of the jurisdiction in which it is located.
Income Payout Option – The choices available under the Contract for payout of your Contract Value.
Index, Indices– The reference index (or indices) we use in determining interest credited to the Risk Control Account Value.
Index Rate Cap– The maximum annual Index rate of return the Company will use in calculating interest credited to Risk Control Account Value for a Risk Control Account Year. The Index Rate Cap does not reflect deduction of the Contract Fee.
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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.
Initial Index Value – The value for the reference Index as of the start of a Risk Control Account Year.
Internal Revenue Code – The Internal Revenue Code of 1986, as amended.
Investment Options – The choices available under this Contract for allocation of your Purchase Payment(s) and Contract Value. Choices include the Risk Control Accounts (“Risk Control Account Option”) and the Variable Subaccounts (“Variable Subaccount Option”).
Irrevocable Beneficiary – A Beneficiary who has certain rights which cannot be changed unless he or she consents to the change.
Market Value Adjustment– The amount of an adjustment (increase or decrease) that may be applied to a full surrender or partial withdrawal from a Risk Control Account, also referred to as the MVA.
Market Value Adjustment Index (Indices) – The Index (Indices) used to determine the interest rates used to calculate the Market Value Adjustment.
Multiple Source Waiting Period – The maximum period of time we will wait for multiple sources of payment to be received by us prior to allocation to a Risk Control Account. It applies only to the sources of payment indicated on your application. The Multiple Source Waiting Period cannot be longer than six months.
Non-Qualified Contract – An annuity contract that is independent of any formal retirement or pension plan.
Nursing Home – A facility that is licensed and operates as a nursing facility according to the law of the jurisdiction in which it is located.
Owner– The person(s) (or entity) who owns the Contract and whose death determines the Death Benefit. If there are multiple Owners, each Owner will be a joint Owner of the Contract and all references to Owner will mean joint Owners. The Owner has all rights, title and interest in the Contract during the Accumulation Period.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.”
Payee– The person(s) (or entity) who receives income payments during the Payout Period while the Annuitant is living. The Payee is the Owner, unless otherwise designated. A minor cannot be the Payee.
Payout Date– The date the first income payment is paid from the Contract to the Payee.
Payout Period– The phase the Contract is in once income payments begin.
Pro Rata – A method of allocating, withdrawing or transferring values across all Variable Subaccounts and/or Risk Control Accounts that is proportional to the value in each.
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– Payment(s) made by or on behalf of the Owner for the Contract.
Qualified Contract – An annuity that is part of an individual retirement plan, pension plan or employer-sponsored retirement program.program that is qualified for special treatment under the Internal Revenue Code.
Risk Control Account – A subdivision of the Risk Control Account Option wherein two accountsaccount types are available: the Secure Account and the Growth Account. Each Risk Control Account has an Index Rate Cap and Index Rate Floor.
Risk Control Account Anniversary – The same day and month as a Risk Control Account Start Date for each year of a Risk Control Account Period. If a Risk Control Account Anniversary does not fall on a Business Day, any transactions required as of that date will be processed on the next Business Day, but will be effective as of that Risk Control Account Anniversary.Day.
Risk Control Account Daily Contract Fee – The Contract Fee divided by the number of days in the Risk Control Account Year and then multiplied by the Accumulation Credit Factor for the Risk Control Account at the start of a Risk Control Account Year.
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Risk Control Account Maturity Date – The last day of a Risk Control Account Period. If a Risk Control Account Maturity Date does not fall on a Business Day, any transactions required as of that date will be processed on the next Business Day, but will be effective as of that Risk Control Account Maturity Date.Day.
Risk Control Account Period – The period that begins on a Risk Control Account Start Date and ends on a Risk Control Account Maturity Date. Each Risk Control Account Period is five years.
Risk Control Account Start Date – The first day of a Risk Control Account Period. It must be a date that we offer as a Risk Control Account Start Date (as shown on your Contract Data Page). If a Risk Control Account Start Date does not fall on a Business Day, any transactions required as of that date will be processed on the next Business Day, but will be effective as of that Risk Control Account Start Date.Day.
Risk Control Account Value – The value of the Contract in a Risk Control Account.
Risk Control Account Year – Any 12-month period beginning on a Risk Control Account Start Date or Risk Control Account Anniversary and ending on the next Risk Control Account Anniversary.
Risk Control Separate Account – The Separate Account for the Risk Control Accounts.
SAI– The statement of additional information relating to the variable annuity aspect of the Contract.
SEC– The U.S. Securities and Exchange Commission.
SAP – The statutory accounting principles and practices prescribed by the insurance regulatory authorities in the Company’s state of domicile.
Separate Account– A legally insulated investment account that is maintained separately from our General Account. The Separate Account established for the variable portion of the Contract is registered under the Investment Company Act of 1940 (the “1940 Act”), while the Separate Account established for the index-linked aspect of the Contract is not registered under the 1940 Act.
Spouse– The person to whom you are legally married. The term Spouse doesincludes the person with whom you have entered into a legally-sanctioned same-sex marriage that grants you the rights, responsibilities, and obligations married couples have in accordance with applicable state laws. Individuals who do not include civil union partnersmeet the definition of Spouse may have adverse tax consequences when exercising provisions under this Contract. Additionally, individuals in other arrangements that are not recognized as marriage under the relevant state law will not be treated as married or domestic partners.as Spouses as defined in this Contract for federal tax purposes. Consult with a tax adviser for more information on this subject and before exercising benefits under the Contract.
Surrender Charge – The charge associated with surrendering either some or all of the Contract Value from a Series B Contract. Surrender Charges do not apply to Series C Contracts.
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.
Thirty Day Period to Discontinue Initial Risk Control Account– If a portion of the initial Purchase Payment is allocated to a Risk Control Account, a 30-day period beginning on the initial Risk Control Account Start Date will commence during which the Owner can discontinue the Risk Control Account(s) and transfer the entire Risk Control Account Value to the Variable Subaccounts without the application of a Market Value Adjustment.
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.
Variable Separate Account – The Separate Account for the Variable Subaccounts.
Variable Subaccount – A subdivision of the Variable Separate Account, the assets of which are invested in a corresponding Fund.
Variable Subaccount Value – The value of the Contract in a Variable Subaccount.
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IMPORTANT INFORMATION YOU SHOULD CONSIDER ABOUT THE MEMBERS® HORIZON FLEXIBLE PREMIUM DEFERRED VARIABLE AND INDEX LINKED ANNUITY
FEES AND EXPENSES | LOCATION IN PROSPECTUS | |||||
Charges for Early Withdrawals | For Series B Contracts only, if you withdraw money from your Contract during the five years following allocation of a Purchase Payment, you may be assessed a Surrender Charge of up to 9% of the Purchase Payment withdrawn in excess of the Annual Free Withdrawal Amount.
For example, if you were to surrender your Contract during the first Contract Year, you could pay a surrender charge of up to $8,100 on a $100,000 investment.
Withdrawals from Risk Control Accounts prior to the Risk Control Account Maturity Date will also be subject to a Market Value Adjustment which may be positive or negative and could result in the loss of principal and previously credited interest. It is possible in extreme circumstances to lose up to 100% of your principal and previously credited interest if you take a withdrawal or surrender your Contract as a result of the Market Value Adjustment, Surrender Charges, federal income taxes, and a potential 10% additional tax. | “Fees and Expenses” | ||||
Transaction Charges | In addition to Surrender Charges and a Market Value Adjustment, you may also be charged for other transactions, such as transfers, wire transfers, use of express mail, providing a duplicate contract and information previously provided to you that requires research on our part. | “Fees and Expenses” | ||||
Ongoing Fees and Expenses (annual charges) | The table below describes the fees and expenses that you may pay each year, depending on the options you choose. Please refer to your Contract specifications page for information about the specific fees you will pay each year based on the options you have elected. | “Fees and Expenses” | ||||
Series B | ||||||
Annual Fee | Minimum | Maximum | ||||
Base Contract (“Contract Fee”)(1) | 1.50% | 1.50% | ||||
Investment Options (Fund fees and expenses)(2) | 0.13% | 2.13% | ||||
Series C | ||||||
Annual Fee | Minimum | Maximum | ||||
Base Contract (“Contract Fee”)(1) | 1.75% | 1.75% | ||||
Investment Options (Fund fees and expenses)(2) | 0.13% | 2.13% | ||||
(1) As a percentage of average daily Variable Subaccount |
Value or as a percentage of the Risk Control Account Value at the start of the Risk Control Account Year, adjusted for any withdrawals. We do not assess a Contract Fee against Contract Value held in the Holding Account. | |||||||||
(2) As a percentage of Fund assets. | |||||||||
Because your Contract is customizable, the choices you make affect how much you will pay. To help you understand the cost of owning your Contract, the following table shows the lowest and highest cost you could pay each year, based on current charges. This estimate assumes that you do not take withdrawals from the Contract, which could add Surrender Charges and a negative Market Value Adjustment that substantially increase costs. | |||||||||
Series B | |||||||||
Lowest Annual Cost: $1,364 | Highest Annual Cost: $2,986 | ||||||||
Assumes: | Assumes: | ||||||||
● | Investment of $100,000 | ● | Investment of $100,000 | ||||||
● | 5% annual appreciation | ● | 5% annual appreciation | ||||||
● | Least expensive combination of Fund fees and expenses | ● | Most expensive combination of Fund fees and expenses | ||||||
● | No additional purchase payments, transfers or withdrawals | ● | No additional purchase payments, transfers or withdrawals | ||||||
Series C | |||||||||
Lowest Annual Cost: $1,572 | Highest Annual Cost: $3,155 | ||||||||
Assumes: | Assumes: | ||||||||
● | Investment of $100,000 | ● | Investment of $100,000 | ||||||
● | 5% annual appreciation | ● | 5% annual appreciation | ||||||
● | Least expensive combination of Fund fees and expenses | ● | Most expensive combination of Fund fees and expenses | ||||||
● | No additional purchase payments, transfers or withdrawals | ● | No additional purchase payments, transfers or withdrawals | ||||||
LOCATION IN PROSPECTUS | |||||||||
Risk of Loss | You can lose money by investing in the Contract, including loss of principal and previously credited interest because the Contract is designed to provide for the accumulation of retirement savings and income on a long-term basis. | “Principal Risks of Investing in the Contract” | |||||||
Not a Short-Term Investment | The Contract is not a short-term investment and is not appropriate if you need ready access to cash. Withdrawals and surrenders may be subject to a Surrender Charge, a Market Value Adjustment, federal and state income taxes, and, if taken before age 59½, a 10% additional tax. The benefits of tax deferral mean that the Contract is more | “Principal Risks of Investing in the Contract” “Fees and Expenses” “Market Value |
beneficial if you have a long time horizon. | Adjustment” “Federal Income Tax Matters” | |
Risks Associated with Investment Options | An investment in the Contract is subject to the risk of poor investment performance and can vary depending on the performance of the investment options available under the Contract. Each investment option, including the Holding Account, the Risk Control Accounts, and the Variable Subaccounts, has its own unique risks. You should review the investment options carefully before making an investment decision. | “Principal Risks of Investing in the Contract” “Variable Subaccount Option” “Risk Control Account Option” “Appendix A” |
Insurance Company Risks | An investment in the Contract is subject to the risks related to MEMBERS Life Insurance Company. Any obligations (including under the fixed Holding Account and the Risk Control Account options), guarantees (such as the Death Benefit), or benefits are subject to the claims-paying ability of the Company. More information about the Company, including its financial strength ratings, is available upon request by calling 1-800-798-5500. | “Principal Risks of Investing in the Contract” |
RESTRICTIONS | LOCATION IN PROSPECTUS | |
Investments | The Subaccount that invests in the Vanguard VIF Small Company Growth Portfolio is no longer available for new investments. However, Contract Owners with Contract Value already allocated to the Vanguard VIF Small Company Growth Subaccount can continue to invest in the Subaccount. Contract Value in the Holding Account cannot be transferred to the Variable Subaccount options. Partial withdrawals from the Risk Control Accounts are not permitted while there is Variable Subaccount Value, except for withdrawals from the Risk Control Accounts on the Risk Control Account Maturity Date (the end of each five-year Risk Control Account Period). Only one Risk Control Account Period can be in force at any time. Contract Value in the Risk Control Accounts can only be transferred to the Variable Subaccount options on the Risk Control Account Maturity Date. The Risk Control Account investment options are not available within five years of the Payout Date. We reserve the right to make additions to, deletions from, or substitutions for the shares of a Fund that are held in the Variable Separate Account or that the Variable Separate Account may purchase, subject to applicable law. We reserve the right to add or substitute an Index associated | “Appendix A” “Risk Control Account Option – Holding Account Value” “Allocating Your Purchase Payments – Transfers” “Risk Control Account Option – Risk Control Account Maturity Date” “Variable Subaccount Option – Addition, Deletion, or Substitution of Investments” “Risk Control Account Option – Addition or Substitution of an |
with the Risk Control Accounts. If there is a delay between the date we remove the Index and the date we add a substitute Index, your Risk Control Account Value will be based on the value of the Index on the date the Index ceased to be available, which means market changes during the delay will not be used to calculate the index interest. We reserve the right, at our discretion, to restrict transfers into the Risk Control Account in the event 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). | Index” “Risk Control Account Option – Express Portfolios” | |
Optional Benefits | Express Portfolios are only available at the time of purchase, and you must allocate all of your Purchase Payment to your selected Express Portfolio. Systematic Withdrawals may be taken on a monthly, quarterly, semi-annual, or annual basis. The withdrawals must be at least $100 each. Unless taken to satisfy minimum required distributions, a Market Value Adjustment may be applied to Systematic Withdrawals taken from a Risk Control Account. If the Systematic Withdrawal exceeds the 10% Annual Free Withdrawal Amount, a Surrender Charge may also apply. | “Benefits Available Under the Contract – Express Portfolios” “Benefits Available Under the Contract – Systematic Withdrawals” |
TAXES | LOCATION IN PROSPECTUS | |
Tax Implications | You should consult with a tax professional to determine the tax implications of an investment in and Purchase Payments received under the Contract. There is no additional tax benefit if you purchase the Contract through a qualified retirement plan or individual retirement account (IRA). Withdrawals from the Contract are subject to ordinary income tax, and may be subject to a 10% additional tax if taken before age 59½. | “Federal Income Tax Matters” |
CONFLICTS OF INTEREST | LOCATION IN PROSPECTUS | |
Investment Professional Compensation | Some investment professionals may receive compensation for selling the Contract to you in the form of commissions or other compensation. These other forms of compensation may include cash bonuses, insurance benefits and financing arrangements. Non-cash benefits may include conferences, seminars and trips (including travel, lodging and meals in connection therewith), entertainment, merchandise and other similar items. The Company may also pay asset-based commissions (sometimes called trail commissions) in addition to Purchase Payment-based commissions. Investment professionals may also receive other payments from us for services that do not directly involve the sale of the Contracts, including personnel recruitment and training, production of promotional literature and similar services. As a result of these compensation arrangements, these investment professionals may have a financial incentive to offer or recommend the Contract over another investment. You should ask your investment professional for additional information about the compensation he or she receives in connection with your purchase of the Contract. | “Other Information – Distribution of the Contract” |
Exchanges | Some investment professionals may have a financial incentive to offer you a new contract in place of the one you already own. You should only exchange your contract if you determine, after comparing the features, fees, and risks of both contracts, that it is better for you to purchase the new contract rather than continue to own your existing contract. | “Tax-Free Section 1035 Exchanges” |
The following is a summary of the key features of the Contract. This summary does not include all of the information you should consider before purchasing a Contract. You should carefully read the entire Prospectus, which contains more detailed information concerning the Contract and the Company, before making an investment decision.
Contract Series
The Contract offers two series: Series B and Series C. The primary difference between the two series is that Series B Contracts are subject to a Surrender Charge and Series C Contracts are not. In addition, Series B Contracts have a Nursing Home and Hospital/Terminal Illness benefit, which provides for a waiver of the Surrender Charge if its conditions are met. The amount of the Contract Fee for Series B and Series C Contracts differs, with Series C Contracts subject to a higher Contract Fee.
You should work with your financial professional to decide which series of the Contract may be appropriate for you based on a thorough analysis of your particular insurance needs, financial objectives, investment goals, time horizons and risk tolerance.
The Company is not an investment adviser and does not provide any investment advice to you in connection with your Contract.
Overview.Purpose. Your Contract is an individual or joint owned, flexible premium variable and index-linked deferred annuity contract. There are two periodsThe Contract is designed for long-term investors and is not intended for someone who needs ready access to your Contract: an Accumulation Period and a Payout Period.cash. Your Contract can help you save for retirement because it can allow your Contract Value to earn interest from the Risk Control Accounts and/or gains from the Variable Subaccounts on a tax-deferred basis and you can later elect to receive retirement income for life or a period of years. You generally will not pay taxes on your earnings until you withdraw them.
Contract Periods. There are two periods to your Contract: an Accumulation Period and a Payout Period.
During the Accumulation Period of your Contract, you allocate your Contract Value to the Variable Subaccounts and/or the Risk Control Accounts. Each of these options is described below.
● | Each of these options is described below. Each Variable Subaccount invests its assets solely in the shares or units of designated Funds. Depending on the performance of the Funds underlying the Variable Subaccounts selected by you, you could lose money.Additional information about each Fund is provided in Appendix A of this Prospectus. |
● | The portion of Contract Value allocated to a Risk Control Account is credited with interest based in part on the investment performance of external Indices (currently, the S&P 500 Index and 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 & Poor’s. 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. Neither Index includes dividends paid on the |
The Accumulation Period begins on the Contract Issue Date and continues until the Payout Date.
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During the Payout Period of your Contract, you can elect to receive income payments by applying Contract Value to the income options offered in your Contract. The Payout Period begins on the Payout Date and continues while income payments are paid. When the Payout Period begins, you will no longer be able to make withdrawals. The Death Benefit terminates when the Contract is applied to an Income Payout Option.
Please call your financial professional or the Company at 1-800-798-5500 if you have questions about how your Contract works.
Purchase Payments. You may purchase the Contract with an initial Purchase Payment of at least $5,000. Additional Purchase Payments can be made during the Accumulation Period, subject to certain restrictions, but are not required. Each additional Purchase Payment may not be less than $50 and must be received at our Administrative Office prior to the oldest Owner’s 85th birthday or the oldest Annuitant’s 85th birthday if the Owner is a non-natural person. Purchase Payments that, in total, exceed $1 million require our prior approval. Multiple Contracts owned by the same individual where the sum of the Purchase Payments exceeds $1 million also require our prior approval.
We reserve the right in our sole discretion to refuse additional Purchase Payments and to limit the amount and frequency of additional Purchase Payments under the Contract or that may be allocated to the Risk Control Accounts at any time. See “Allocating Your Purchase Payments – Purchase Payment” for more details.
Allocation Options. There are four Allocation Levels for your Contract, among which you may allocate your Purchase Payment(s) and Contract Value: Level C (Contract Allocation Level), Level V (Variable Subaccount Allocation Level), Level I (Index Allocation Level), and Level R (Risk Control Allocation Level), each. Each is described below.
● | At Level C, the allocation is split between the Variable Subaccounts and the Risk Control Accounts; |
● | At Level V, the allocation is split among the Variable Subaccounts; |
● | Level I only applies to Risk Control Accounts, and the allocation is split between Risk Control Accounts based on the reference Index; and |
● | Level R only applies to Risk Control Accounts, and the allocation is split among Risk Control Accounts with the same reference Index. |
Allocation Options | |||
Level C | Level V or Level I | Level R | Crediting Strategy* |
Variable Subaccounts | See Appendix A | N/A | N/A |
Risk Control Accounts | S&P 500 Index | Secure Account | 0% Floor, Cap |
Growth Account | -10% Floor, Cap | ||
MSCI EAFE Index | Secure Account | 0% Floor, Cap | |
Growth Account | -10% Floor, Cap |
* | The Floor will not change during the life of your Contract. We set the Cap each year for the next Contract Year. In return for accepting some risk of loss to your Risk Control Account Value allocated to the Growth Account, the Cap for the Growth Account is higher than the Cap for the Secure Account. The Cap will always be at least 1%. |
Your Purchase Payment toPayments will be allocated according to eachyour allocation instructions on file with us for the applicable Allocation LevelLevels. See “Allocating Your Purchase Payments” for more details.
For each Variable Subaccount, the Accumulation Unit Value increases or decreases at the end of each Business Day to reflect the investment performance of the corresponding underlying Fund, including deductions for underlying Fund fees and expenses.
For each Risk Control Account, we credit interest at the end of each Risk Control Account Year during the five-year Risk Control Account Period based in part on the Contract Issue Date. The amount you direct to a particular Allocation Level must be in whole percentages from 0% to 100%performance of the Purchase Payment and your total allocationreference Index by comparing the change in the Index from each Risk Control Account Anniversary (the first day of the Risk Control Account Year) to the last day of the current Risk Control Account Year, adjusted for the Index Rate Cap or Index Rate Floor. Your Risk Control Account Value must equal 100% at each Allocation Level. If you do not indicate your allocationsremain in a Risk Control Account for the entire Risk Control Account Period (five years). To avoid the imposition of a Market Value Adjustment, withdrawals should be made on the application, our Administrative Office will attemptRisk Control Account Maturity Date (the last day of the 5-year period).
Additionally, for Series B Contracts, a Surrender Charge may apply to contact your adviser and/or you for clarification.
Express Portfolios.Rather than choosing amounts to be directed to particular Allocation Levels, you can select one of six modelthree asset allocation portfolios or “Express Portfolios” we make available. At the time you purchase the Contract, you may elect to allocate all of your Purchase Payments according to one of the Express Portfolios. Each Express Portfolio employs different investment styles and allocates your Purchase Payments among the Variable Subaccounts and Risk Control Accounts based on a specified allocation percentage for each investment option available under the Express Portfolio. Each Express Portfolio employs different investment styles and allocates Purchase Payments among investment options to match a specified level of risk tolerance (e.g., conservative, moderate and aggressive). Express Portfolios are found inSee “Allocating Your Purchase PaymentPayments – Express Portfolios.” WePortfolios” for more details.
Automatic Rebalance Program. The Automatic Rebalance Program, which applies to all Contracts and may not be terminated, automatically transfers values between Risk Control Accounts and/or Variable Subaccounts to return your Contract Values to the Allocation Levels on file with us. Transfers that occur pursuant to the Automatic Rebalance Program will not issuecount towards the number of transfers allowed in a Contract Year without complete allocation instructions.
Variable Subaccount Option. You may allocate your Purchase Payments to the Variable Subaccount
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Option, which invests in the underlying Funds. The Funds currently available for investment are described in Appendix A to this Prospectus. Purchase Payments allocated to a Variable Subaccount become part of the total Variable Subaccount Value which fluctuates according to your allocation instructions on file with usthe investment performance of the selected Variable Subaccounts. See “Variable Subaccount Option” for the applicable Allocation Levels. However, if your allocation instructions on file with us include a more details.
Risk Control Account theOption. Only one Risk Control Account portion of your initial Purchase Payment willcan be allocated to the Holdingin force at any time, which can include both a Secure Account before it is transferred to the Risk Control Account. The allocation of additional Purchase Payments toand a Risk ControlGrowth Account is subject to additional requirements described in the “Allocating
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Purchase Payments allocated to a Variable Subaccount become part of the total Variable Subaccount Value which fluctuates according to the investment performance of the selected Variable Subaccounts. More detailed information regarding the Variable Subaccount Option is found in “Variable Subaccount Option.”
Once you have established a Risk Control Account you may not allocate your subsequent Purchase Payments or make transfers to a new Risk Control Account until the existing Risk Control Account matures.matures at the end of five years. You may not allocate subsequent Purchase Payments to existing Risk Control Accounts (other than during 30 days prior to the Risk Control Account Maturity Date). You may transfer between Risk Control Accounts with the same reference Index as of each Risk Control Account Anniversary. You may allocate Risk Control Account Value from the maturity of a current Risk Control Account and Variable Subaccount Value to new Risk Control Accounts we make available. We make the Index Rate Cap available for each new RiskSee “Risk Control Account at least two weeks prior to the Risk Control Account Start DateOption” for the Risk Control Account.more details.
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● | The Index Rate Floor is the minimum Index rate of return for determining the value of a Risk Control Account, prior to the deduction of the Contract 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%. 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 Risk Control Account 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 Risk Control Account Year by more than 10% even if such negative investment 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 Surrender Charges, Contract fees, negative MVAs, federal income taxes, and a 10% additional tax. |
● | The Index Rate Cap is the maximum Index rate of return for determining the value of a Risk Control Account, prior to the deduction of the Contract Fee. For each Risk Control Account, we set an Index Rate Cap for the first Risk Control Account Year, which is made available at least two weeks in advance of the Risk Control Account Start Date. We may set a new Index Rate Cap prior to each Risk Control Account Anniversary for the subsequent Risk Control Account Year and will send you written notice at least two weeks prior to the Risk Control Account 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 Accounts will be higher than the Index Rate Cap declared for the Secure Account for the same period which allows the potential for a higher positive increase in Contract Value for the Growth Account. |
The same Index will generally be used for each Risk Control Account for the duration of the Risk Control Account 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 Risk Control Account 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 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 a Risk Control Account 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.
Rebalancing / Reallocation. Bailout Provision.The Automatic Rebalance Program automatically transfers values between Risk Control Accounts and/or Variable Subaccounts to return your Contract Values to the Allocation Levels on file with us. Transfers that occur pursuant to the Automatic Rebalance Program will not count towards the number of transfers allowed in a Contract Year without incurring a transfer fee. The transfer fee is $25 per transfer after the first 12 transfers in a Contract Year.
Rebalancing at Level C (between Variable Subaccounts and Risk Control Accounts) will occur as of each Risk Control Account Maturity Date according to the allocation instructions on file with us, unless there is no Risk Control Account Value, you elect to discontinue rebalancing by Authorized Request, or you have requested to transfer value which results in rebalancing being discontinued at Levels C and V (among Variable Subaccounts) as of each Risk Control Account Maturity Date.
Rebalancing at Level V will occur as of each Contract Anniversary according to the allocation instructions on file with us, unless there is no Variable Subaccount Value. Rebalancing at Level V will also occur as of each Risk Control Account Maturity Date according to the allocation instructions on file with us, unless there is no Variable Subaccount Value or you have requested to transfer value which results in rebalancing being discontinued at Levels C and V as of each Risk Control Account Maturity Date. If rebalancing is discontinued, you may elect to reinstate rebalancing at Level C by Authorized Request, which will also reinstate rebalancing at Level V. Your Authorized Request to reinstate rebalancing must be received at least one Business Day prior to the Risk Control Account Maturity Date to take effect as of that date. If we are not notified at least one Business Day prior to the Risk Control Account Maturity Date, rebalancing at Level C will not occur until the next Risk Control Account Maturity Date.
Rebalancing at Level I (between Risk Controls Accounts with different reference Indices) will occur as of each Risk Control Account Maturity Date according to the allocation instructions on file with us. Rebalancing at Level I will not occur if your Risk Control Account Value is not split between Indices or there is no Risk Control Account Value.Rebalancing at Level R (between Risk Controls Accounts with the same reference Index) will occur as of each Risk Control Account Anniversary according to the allocation instructions on file with us. Rebalancing at Level R will not occur if there is no Risk Control Account Value.
If the Index Rate Cap for ayour Risk Control Account is set below the bailout rate for that Risk Control Account, the Bailout Provision allows you mayto transfer the Risk Control Account Value from that Risk Control Account during the 30-day period following the Risk Control Account Anniversary by Authorized Request. ARequest without the application of a Market Value AdjustmentAdjustment. If the bailout rate equals the Index Rate Cap for your Risk Control Account, you will not apply to such transfer. Your Authorized Requestbe eligible to transfer your Risk Account Control Account Value must be received in Good Order during this 30-day period.value under the Bailout Provision. If the request is not received during this 30-day period or the request is not in Good Order, no transfer will occur. Atat any time while the Index Rate Cap for your Risk Control Account is less
than the bailout rate specified in the Bailout Provision (as shown on your Contract Data Page),Page, we may at our discretion restrict transfers into that
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Risk Control Account and may not reallocate your RiskAccount. See “Risk Control Account Value between Risk Control Accounts under the Automatic Rebalance Program. See “Access to Your MoneyOption – Bailout Provision” for more details.
Withdrawal Options.This Contract may not be appropriate for you if you intend to take partial withdrawals or surrender the Contract. TheHowever, the Contract offers the following liquidity features during the Accumulation Period:
● | Annual Free Withdrawal Amount – For Series B Contracts only, each Contract Year, you may withdraw up to 10% of the total Purchase Payments that are within the Surrender Charge |
● | Systematic Withdrawals – 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 |
● | Partial Withdrawal Option – You may make partial withdrawals during the Accumulation Period by Authorized Request, but a withdrawal of Risk Control Account Value is not permitted while there is Variable Subaccount Value. |
● | Full Surrender Option – You may surrender your Contract during the Accumulation Period by Authorized Request. Upon full surrender, a Surrender Charge and/or a Market Value Adjustment may apply. Surrender Charges do not apply to Series C Contracts. |
Additionally, withdrawals from Risk Control Accounts prior to the Death Benefit. The Contract provides a Death Benefit if the Owner dies during the Accumulation Period. The Death Benefit is equal to the Contract Value as of the date Death Benefits are payable. We do not apply the Surrender Charge or Market Value Adjustment in determining the Death Benefit payable. See “Death Benefit” for more details. Income Payout Options. You have several income options to choose from during the Payout Period. Income payments will start on the Payout Date, and continue based on the option you elect. See “Getting Started – The Accumulated Period – Right to Examine” for more details. Right to Examine. You may cancel your Contract and receive either your Purchase Payments or your Contract Value depending upon applicable state Surrender Charges and income tax consequences noted in the preceding paragraph discussing partial withdrawals.Market Value Adjustment.The Market Value Adjustment applies only to withdrawals from a Risk Control Account and is calculated separately for each Risk Control Account. Required minimum distributions under the Internal Revenue Code that are withdrawn under a systematic withdrawal program and withdrawals of Risk Control Account Value on a Risk Control Account Maturity Date are notwill be subject to a Market Value Adjustment. The Market Value Adjustment can increasewhich may be positive or decreasenegative and could result in the loss of principal and previously credited interest. Withdrawals and surrenders may also be subject to a Surrender Charge. Withdrawals and surrenders are subject to income taxes, and, if taken before the Owner is age 59½, a 10% additional tax may apply. It is possible in extreme circumstances to lose up to 100% of your amount withdrawnprincipal and previously credited interest if you take a withdrawal or thesurrender your Contract. See “Federal Income Tax Matters”, “Fees and Expenses – Surrender Value, depending on how economic indicators have changed since your Contract was issued. SeeCharges”, and “Market Value Adjustment” for more details. You may lose a portion of your principal due to the Market Value Adjustment. The Market Value Adjustment is not assessed upon death, at the time Contract Value is applied to an Income Payout Option, on transfers on amounts withdrawn from the Holding Account, partial withdrawals taken as required minimum distributions under the Internal Revenue Code that are withdrawn under a systematic withdrawal program we provide, and partial withdrawals and surrenders from a Risk Control Account on the Risk Control Account Maturity Date.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 may range from 1% to 10% while the bailout rate for Risk Control Accounts under the Growth Account option may range from 1.5% to 25%. The bailout rates will be prominently displayed on your Contract Data Page attached to the front of the cover page of the Contract and will not change during the life of your Contract. If the Index Rate Cap for your Risk Control Account is set below the bailout rate for that Risk Control Account, you may transfer the Risk Control Account Value from that Risk Control Account during the 30-day period following the9Risk Control Account Anniversary without the application of any Market Value Adjustment by Authorized Request. If the bailout rate equals the Index Rate Cap for your Risk Control Account, you will not be eligible to transfer your Risk Control Account Value under the Bailout Provision. For example, if the bailout rate for the Secure Account is set at 1.00% and the Index Rate Cap for the Secure Account is set at 1.00%, you would not be eligible to transfer 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 transfers into that Risk Control Account. See “Access to Your Money – Bailout Provision” for more details.Income Options.You have several income options to choose from during the Payout Period. Income payments will start on the Payout Date, and continue based on the option you elect.law (Seelaw. See “Getting Started – The Accumulation Period – Right to Examine on page 18).Contract ChargesAn investment in the Contract involves certain fees and expenses, including Contract Fees, Surrender Charges and underlying Fund fees and expenses. Some of these fees vary depending on whether you invest in the Series B Contract or the Series C Contract. For a full description of all such fees and expenses, please see the section of this Prospectus entitled “Fees and Expenses.”Risk FactorsYour 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.Variable Subaccount Risk.Your investment results in any one of the Variable Subaccounts will depend on the investment performance of the underlying Funds. Because the Variable Subaccounts are not part of the Risk Control Accounts, they are not protected from losses. Therefore, you could lose all of your principal when investing in the Variable Subaccounts.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 Risk Control Account 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 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%. 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.Liquidity Risk.We designed your Contract to be a long-term investment that you may use to help save for retirement. Your Contract is not designed to be a short-term investment. While you are 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/or Market Value Adjustment (if applicable). We may defer payments made under this Contract with respect to a Risk Control Account and/or the Holding Account for up to six months if the insurance regulatory authority of the10state in which we issued the Contract approves such deferral. In addition, we m ay postpone payments made under this Contract with respect to a Variable Subaccount as permitted by the SEC.Market Risk. The historical performance of an Index relating to a Risk Control Account or a Fund underlying a Variable Subaccount should not be taken as an indication of the future performance of the Index or the Fund. The performance of an Index or a Fund 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.Risk Control Account Transfer 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 transfers into that Risk Control Account. See “Access to Your Money – Bailout Provision”Examine” 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Fee Tables
The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering or making withdrawals from the Contract. Please refer to your Contract Data Page for information about the specific fees you will pay each year based on the options you have elected.
The first table describes the fees and chargesexpenses that you will pay at the time that you surrenderbuy the Contract, surrender or make certain withdrawals from the Contract, or transfer Contract value between investment options, or request special services or make certain transfers. Charges designed to approximate certain taxes that may be imposed on us, such as premium taxes in your state, may also apply.(1)
Charges We Deduct from Your Contract Value at the Time You Request Certain Transactions | Series B Contract | Series C Contract |
Maximum Surrender Charge as a Percentage of Purchase Payment Surrendered or Withdrawn | 9%(2) | None |
Transfer Fee(3) | $25 | $25 |
Research Fee | $50 | $50 |
Wire Transfer Fee | $90 | $90 |
Express Mail Charge | $35 | $35 |
Duplicate Contract Charge (For each duplicate Contract) | $30 | $30 |
The next table describes the periodic charges that you will pay during the time that you own the Contract to the extent you allocate Purchase Payments and/or Contract Value to the Variable Subaccounts. This table does not include the underlying fund fees and expenses to the extent Purchase Payments and/or Contract Value are allocated to the Variable Subaccounts.
Periodic Charges to the Variable Subaccounts | Series B | Series C |
Contract Fee on Variable Subaccounts(4) (percentage of average daily Variable Subaccount Value) | 1.50% | 1.75% |
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Fund Operating Expenses Expressed as an Annual Percentage of Daily Net Assets | Minimum | Maximum |
Total Annual Fund Operating Expenses (total of all expenses that are deducted from Fund assets, including management fees, 12b-1 fees, service fees, and other expenses)(5) | 0.16% | 1.14% |
Periodic Charges to the Risk Control Accounts | Series B | Series C |
Contract Fee on Risk Control Accounts(4) | 1.50% | 1.75% |
Transaction Expenses | Charge |
Maximum Surrender Charge (as a percentage of Purchase Payment surrendered or withdrawn) (1) | 9% |
Market Value Adjustment (maximum potential loss applied to a full surrender or partial withdrawal from a Risk Control Account) | 100%(2) |
Transfer Fee(3) | $25 |
Research Fee | $50 |
Wire Transfer Fee | $90 |
Express Mail Charge | $35 |
Duplicate Contract Charge (per duplicate Contract) | $30 |
(2)(1) For Series B Series Contracts, if you surrender theyour Contract or make a partial withdrawal during the Accumulation Period, we may assess a Surrender Charge on Purchase Payments withdrawn during the Surrender Charge Period. For information on how we calculate the surrender charge, see “Fees - Surrender Charge.”five years following Purchase Payment allocation. We do not assess a surrender charge on the Annual Free Withdrawal Amount, withdrawals under the Nursing Home or Hospital/Terminal Illness waiver, required minimum distributions under the Internal Revenue Code that are withdrawn under a systematic withdrawal program and Risk Control Account Value withdrawn on a Risk Control Account Maturity Date. No Surrender Charge is assessed on death or and when values are applied toon an Income Payout Option. For information on the Annual Free Withdrawal Amount and other waivers ofabout the Surrender Charge, see “Fees -and Expenses – Surrender Charge.” Surrender Charges do not apply to Series C Contracts.
(2) The Market Value Adjustment may be positive or negative, increasing or decreasing the amount you receive from a partial withdrawal or your Surrender Value.
(3) We waive the transferCurrently no fee is charged for the first twelve transfers in a Contract Year on transfers between the Risk Control Accounts and/or Variable Subaccounts. We assessHowever, we reserve the right to impose a chargetransfer fee of $25 forper transfer after the thirteenth and each additional transferfirst twelve transfers in a Contract Year.
The next table describes the fees and expenses that you will pay each year during the time that you own the Contract Fee against Contract Value held in the Variable Subaccounts. The fee is to compensate us for the expenses(not including Fund fees and expense risks we assume under the Contract. expenses).
Annual Contract Expenses | Series B | Series C |
Base Contract Expense (“Contract Fee”) (as a percentage of average daily Variable Subaccount Value or as a percentage of beginning of Risk Control Account Year Risk Control Account Value, adjusted for any withdrawals) (1) | 1.50% | 1.75% |
(1) The Contract Fee is assessed against the Contract Value held in the Variable Subaccounts is equal on an annual basis to the annual Contract Fee percentage multiplied by the average daily value of the Contract Value held in the Variable Subaccounts. We deduct the Contract Fee on a daily basis which deduction reduces the Accumulation Unit Value for each Variable Subaccount in which you are invested.We also 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 Risk Control Account 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 theand Risk Control Accounts. We do not assess a Contract Fee against Contract Value held in the Holding Account. For information about the Contract Fee, see “Fees and Expenses – Contract Fee.”
(5)The table showingnext item shows the minimum and maximum total operating expenses charged by the Funds that you may pay periodically during the time that you own the Contract. The range of expensesbelow is for the Funds takes into account theyear ended December 31, 2023. The expenses of several “funds of funds.”may change from year to year. A “fund of funds” typically allocates its assets, within predetermined percentage ranges, among certain other fund portfolios, including exchange-traded funds (each such fund an “Acquired Fund”). Each “fund of funds” has its own set of operating expenses, as does eachcomplete list of the portfoliosFunds available under the Contract, including their annual expenses, may be found in which it invests. In determiningAppendix A of this Prospectus.
Annual Fund Expenses (As of 12/31/23) | Minimum | Maximum |
Annual Fund Expenses (expenses that are deducted from Fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses) | 0.13% | 2.13% |
Annual Fund Expenses After Expense Reimbursements or Fee Waivers)(1) | 0.13% | 2.04% |
(1) The annual fund expenses after expense reimbursements or fee waivers shows the range of Fund expenses, we took into account the information received on the combined actual expenses for each “fund of funds”minimum and the portfolios in which it invests. (The combined expense information includes the pro rata portion of themaximum fees and expenses incurred indirectlyas of December 31, 2023, charged by a “fund of funds” as a result of its investment in shares of onethe Funds after contractual reductions or more Acquired Funds.) Seeexpense reimbursements are considered. These contractual reductions or expense reimbursements are intended to reduce the prospectus for any Fund which is a “fund of funds” for a presentationoverall expense of the applicable Acquired Fund feesInvestment Options and expenses.will continue for at least one year from the date of this prospectus.
Examples
The Examples are intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include the Surrender Charge,Transaction Expenses, the Annual Contract Fee,Expenses, and underlying f und fees and expenses.the Annual Fund Expenses. These Examples do not reflect charges for any special services you may request. For a complete description of Fund charges and expenses, see the applicable Fund prospectuses.
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The Examples assume that you invest $10,000$100,000 in the Contract for the time periods indicated, and that your investment has a 5% return each year. year with a Contract Fee of 1.50%. The Examples assume that all Contract Value is allocated to the MEMBERS Horizon Variable Separate Account. The Examples also assume (i) the maximum total annual operating expenses of the Funds;Annual Fund Expenses; and (ii) there is no waiver of any Surrender Charge. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
If you surrender the Contract at the end of the applicable time period:
Series Type | 1 year | 3 years |
Series B | $1,077 | $1,540 |
Series C | $292 | $895 |
If you do not surrender the Contract at the end of the applicable time period:
Series Type | 1 year | 3 years |
Series B | $267 | $820 |
Series C | $292 | $895 |
Although your Variable Subaccount Value. For more information, please see each Fund’s prospectus.
The Examples are illustrations and do not represent past or future expenses. Your actual expensescosts may be higher or lower, than those shown. Similarly,based on these assumptions, your rate of return may be more or less than the 5% assumed in the Examples.costs would be:
1 Year | 3 Years | 5 Years | 10 Years | |
If you surrender your Contract at the end of the applicable time period | $11,755 | $17,416 | $18,782 | $38,886 |
If you do not surrender your Contract | $3,655 | $11,116 | $18,782 | $38,886 |
Surrender Charge (Contingent Deferred Sales Charge).Charge. For Series B Contracts, we deduct a Surrender Charge from each Purchase Payment withdrawn during the Surrender Charge Periodfive years following the allocation of such Purchase Payment that exceeds the Annual Free Withdrawal Amount. The deduction of the Surrender Charge will reduce the amount you receive from a partial withdrawwithdrawal or surrender of the Contract during the Accumulation Period. Each Purchase Payment has an individual Surrender Charge schedule which begins when the Purchase Payment is credited to your Contract and continues for a period of five years, as shown in the table below. The amount of the Surrender Charge is determined separately for each Purchase Payment withdrawn and is expressed as a percentage of the Purchase Payment as follows:
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Number of Years Since Purchase Payment Credited | Surrender Charge as a Percent of Purchase Payments Withdrawn |
Less than 1 | 9% |
At least 1 but less than 2 | 9% |
At least 2 but less than 3 | 8% |
At least 3 but less than 4 | 7% |
At least 4 but less than 5 | 6% |
5 or more | 0% |
For purposes of calculating the Surrender Charge, Purchase Payments are assumed to be withdrawn on a first-in-first-out basis. This means that Purchase Payments that were allocated to your Contract first are considered to be withdrawn first and Purchase Payments are considered to be withdrawn before Earnings. Therefore, withdrawals will be processed to occur in the following order: (1) Purchase Payments that are no longer subject to a Surrender Charge as of the date of the withdrawal; (2) your Annual Free Withdrawal Amount; (3) Purchase Payments that are subject to a Surrender Charge on a first-in-first-out basis; and (4) Earnings, if any, after all Purchase Payments have been withdrawn. We will deduct the Surrender Charge from your withdrawal proceeds. We will deduct the Surrender Charge before we apply any Market Value AdjustmentsAdjustment to withdrawal proceeds from the Risk Control Accounts. For an example of how we calculate the Surrender Charge, see “Appendix A” toAppendix B of this Prospectus.
We will not assess the Surrender Charge on:
● | Withdrawals under the Nursing Home or Hospital/Terminal Illness waiver; |
● | Required minimum distributions under the Internal Revenue Code that are withdrawn under the systematic withdrawal program provided by the Company; |
● | Withdrawal of Risk Control Account Value on a Risk Control Account Maturity Date; |
● | Purchase Payments that are no longer subject to a Surrender Charge as of the date of the partial withdrawal or full surrender; |
● | Your Annual Free Withdrawal Amount; |
● | Earnings, if any, after all Purchase Payments have been withdrawn; |
● | Death; |
● | At the time Contract Value is applied to an Income Payout Option; and |
● | Transfers. |
We will not deduct a Surrender Charge 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.
● | Nursing Home or Hospital Waiver. We will not deduct a Surrender Charge 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 (not available in Massachusetts). |
● |
The laws of your state may limit the availability of the Surrender Charge waivers and may also change certain terms and/or benefits under the waivers. You should consult Appendix C to this Prospectus and your Contract for further details on these variations. Also, even if you do not pay a Surrender Charge because of the waivers, a Market Value Adjustment may apply and you may be required to pay taxes on the amount withdrawn. You should consult a tax adviser to determine the effect of a partial withdrawal on your taxes.
Surrender Charges offset promotion, distribution expenses, and investment risks born by the Company. Surrender Charges do not apply to Series C Contracts. 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
Annual Free Withdrawal Amount. Each Contract Year, you may withdraw up to 10% of the total Purchase Payments allocated within the five years preceding the time of the withdrawal for that Contract Year without incurring a Surrender Charge, although a Market Value Adjustment may apply. As long as the partial withdrawals you take during a Contract Year do not exceed the Annual Free Withdrawal Amount, we will not assess a Surrender Charge.
If you make a partial withdrawal of less than the Annual Free Withdrawal Amount, the remaining Annual Free Withdrawal Amount will be applied to any subsequent partial withdrawal which occurs during the same Contract Year. Any remaining Annual Free Withdrawal Amount will not carry over to a subsequent Contract Year. Partial annuitization will count toward the Annual Free Withdrawal Amount.
The Annual Free Withdrawal Amount is subtracted from full surrenders for purposes of calculating the Surrender Charge.
Market Value Adjustment (“MVA”). Withdrawals from Risk Control Accounts prior to the Risk Control Account Maturity Date will be subject to a Market Value Adjustment which may be positive or negative and Surrender Charge waivers, see “Accesscould result in the loss of up to Your Money.”100% of your principal and previously credited interest. See “Market Value Adjustment” for more details.
Contract Fee. We deduct a Contract Fee from your Contract Value in the Variable Subaccounts and Risk Control Accounts on a daily basis to compensate us for the expenses, expense risks, and expensemortality risk we assume under the Contract. The Contract Fee assessed against Contract Value held in the Variable Subaccounts is equal on an annual basis to the annual Contract Fee percentage multiplied by the average daily value of
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the Contract Value held in the Variable Subaccounts. The deduction of the Contract Fee reduces the Accumulation Unit Value for each Variable Subaccount in which you are invested.
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 Risk Control Account Year. The deduction of the Contract Fee reduces the Accumulation Credit Factor for each Risk Control Account in which you are invested, thereby reducing the Index Interestinterest credited, if any, to values held in the Risk Control Accounts.
The annual Contract Fee percentage is 1.50% for Series B Contracts and 1.75% for Series C Contracts. We do not assess the Contract Fee against Contract Value held in the Holding Account.
Transfer FeeFee.. Currently no fee is charged for transfers.transfers among the Risk Control Accounts and Variable Subaccounts. However, we reserve the right to impose a transfer fee on transfers among the Risk Control Accounts and Variable Subaccounts. The transfer fee isof $25 per transfer after the first 12 transfers in a Contract Year. Each Written Request or telephone/fax authorization is considered to be one transfer, regardless of the number of Subaccounts affected by the transfer. The fee is deducted on a pro rataPro
Rata basis first from any Variable Subaccount, then, if there are insufficient funds, from the Risk Control Accounts on a pro rataPro Rata basis after the other funds are exhausted.
Research Fee. We may charge you a fee of up to $50 when you request information that is duplicative of information previously provided to you and requires research on our part. The fee is deducted on a pro rataPro Rata basis according to the current values in the accounts, first from any Variable Subaccounts, then, if there are insufficient funds, from the Holding Account and then from the Risk Control Accounts on a pro rataPro Rata basis after all the other funds are exhausted.
Wire Transfer Fee.We may charge you a fee of up to $90 when you request a wire transfer of funds from your Contract. The fee reimburses us for the costs we incur in sending funds by wire transfer. The wire transfer fee is deducted on a pro rataPro Rata basis according to current values in the accounts, first from any Variable Subaccounts, then, if there are insufficient funds, from the Holding Account and then from the Risk Control Accounts on a pro rataPro Rata basis after all the other funds are exhausted.
Express Mail Charge.We reserve the right to charge you a fee of up to $35 when you request that a check or other documents be sent via express mail. The express mail charge reimburses us for the costs we incur when sending materials by express mail. The fee is deducted on a pro rataPro Rata basis according to current values in the accounts, first from any Variable Subaccounts, then, if there are insufficient funds, from the Holding Account and then from the Risk Control Accounts on a pro rataPro Rata basis after all the other funds are exhausted.
Duplicate Contract ChargeCharge.. You can obtain a summary of your Contract at no charge. However, we will assess a $30 charge for each copy of your Contract that you request. A request for a duplicate copy of the Contract must be made by a Written Request in Good Order. The fee is deducted on a pro rataPro Rata basis according to current values in the accounts, first from any Variable Subaccounts, then, if there are insufficient funds, from the Holding Account and then from the Risk Control Accounts on a pro rataPro Rata basis after all the other funds are exhausted.
Underlying Fund Fees and Expenses. There are fees and expenses charged by the mutual funds underlying the Variable Subaccounts. The fees and expenses incurred are described in the Funds’ prospectuses.
Premium Taxes. Charges designed to approximate certain taxes that may be imposed on us, such as premium taxes in your state, may also apply. However, premium taxes are not currently charged to Contract holders. State premium taxes currently range from 0% to 3.5% of Purchase Payments.
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 surrender rights available under the Contract, the Death Benefit and the income benefits. We must provide the rates and benefits set forth in your Contract regardless of how our General Account investments that support the guarantees we provide perform. To help manage our investment risks, we engage in certain risk management techniques. There are costs associated with those risk management techniques. You do not directly pay the costs associated with our risk management techniques. However, we take those costs into account when we set rates and guarantees under your Contract.
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PRINCIPAL RISKS OF INVESTING IN THE CONTRACT
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.GETTING STARTED – THE ACCUMULATION PERIOD
Variable Subaccount Risk. Your investment results in any one of the Variable Subaccounts will depend on the investment performance of the underlying Funds. The Variable Subaccounts are not part of the Risk Control Accounts and are not protected from losses. You could lose all of your principal and prior earnings when investing in the Variable Subaccounts and such losses could be significant.
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 Risk Control Account 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 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 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 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%. 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. Performance of the relevant Index does not reflect dividends paid on the securities comprising the Index, and therefore calculation of Index performance under the Contract does not reflect the full Investment performance of the underlying securities. Ownership of a Contract does not provide ownership rights of the securities that are constituents of the Index.
If the performance of the reference Index is greater than the applicable Index Rate cap, the Index interest that you receive will be lower than the return you would have received on an investment in a mutual fund or exchange traded fund designed to track the performance of the selected reference Index. Because the Index interest is calculated at a certain point-in-time, an Owner may experience negative or flat performance even though a reference Index experienced gains through some or most of the Risk Control Account Year.
Liquidity and Withdrawal Risk. The Contract may not be appropriate for investors who plan to take withdrawals or surrender the Contract. It is possible in extreme circumstances to lose up to 100% of your principal and previously credited interest if you take a withdrawal or surrender your Contract. We designed your Contract to be a long-term investment that you may use to help save for retirement. Your Contract is not designed to be a short-term investment. While you are 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/or Market Value Adjustment (if applicable). The Market Value Adjustment may be positive or negative. If negative, it could result in the loss of principal and previously credited interest. Withdrawals are subject to income tax and, if taken before age 59½, a 10% additional tax may apply. You should consult your tax adviser before taking a withdrawal. See “Federal Income Tax Matters,” “Fees and Expenses – Surrender Charges”, and “Market Value Adjustment” for more information. We may defer payments made under your Contract with respect to a Risk Control Account and/or the fixed Holding Account for up to six months if the insurance regulatory authority of the state in which we issued the Contract approves such deferral. In addition, we may postpone payments made under this Contract with respect to a Variable Subaccount as permitted by the SEC.
Loss of Principal Risk. You could lose your investment. Investment in the Variable Subaccount and 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/or the MVA.
Market Risk. The historical performance of an Index relating to a Risk Control Account or a Fund underlying a Variable Subaccount should not be taken as an indication of the future performance of the Index or the Fund. The performance of an Index or a Fund 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.
The Russian/Ukraine conflict and the resulting responses by the United States and other governments could create economic disruption that results in increased market volatility and present economic uncertainty. The duration of these events and their future impact on the financial markets and global economy, are difficult to determine. Any such impact could adversely affect the performance of the
securities that comprise the reference Indices and may lead to losses on your investment in the Allocation Options.
Change of Index Risk. An Index which is associated with a Risk Control Account may be discontinued or may be materially changed. If an Index is eliminated or materially changed the Company may substitute a suitable Index that will be used for the remainder of the Risk Control Account Period. 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. If a change in an Index is made during a Risk Control Account Year, index interest will be calculated from the Risk Control Account Start Date 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 Risk Control Account Anniversary. If there is a delay between the date we remove the Index and the date we add a substitute Index, your Risk Control Account Value will be based on the value of the Index on the date the Index ceased to be available, which means market changes during the delay will not be used to calculate the index interest.
Risk Control Account Transfer 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 transfers into that Risk Control Account. See “Risk Control Account Option – 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We are exposed to risks related to natural and man-made disasters and catastrophes, such as storms, fires, floods, earthquakes, epidemics, pandemics, malicious acts, and terrorist acts, which could adversely affect our ability to conduct business. A natural or man-made disaster or catastrophe, including a pandemic (such as the coronavirus COVID-19), could affect the ability, or willingness, of our workforce and employees of service providers and third-party administrators to perform their job responsibilities. Even if our workforce and employees of our service providers and third-party administrators were able to work remotely, those remote work arrangements could result in our business operations being less efficient than under normal circumstances and lead to delays in our issuing Contracts and processing of other Contract-related transactions, including orders from Owners. Catastrophic events may negatively affect the computer and other systems on which we rely and may interfere with our ability to receive, pickup and process mail, our processing of Contract-related transactions, impact our ability to calculate Contract Value, or have other possible negative impacts. These events may also impact the issuers of securities in which the Funds invest, which may cause the Funds underlying your Contract to lose value. There can be no assurance that we or our service providers will avoid losses affecting your Contract due to a natural disaster or catastrophe.
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 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, the Funds 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 with
the Funds, 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, the Funds and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cyber-security risks may also impact the issuers of securities in which the Funds invest, which may cause the Funds underlying your Contract to lose value. The risk of cyber-attacks may be higher during periods of geopolitical turmoil (such as the Russian invasion of Ukraine and the responses by the United States and other governments). There can be no assurance that we, CBSI, the Funds or intermediaries will avoid losses affecting your Contract due to cyber-attacks or information security breaches in the future.
Regulatory Protections. You should be aware of various regulatory protections that do and do not apply to the Contract. Your Contract is registered with the SEC as a security under the Securities Act of 1933. The issuance and sale of your Contract must be conducted in accordance with the requirements of the Securities Act of 1933. In addition, the offer and sale of the Contract is subject to the provisions of the Securities Exchange Act of 1934.
The Company is not an investment company and therefore we are not registered as an investment company under the Investment Company Act of 1940, as amended, and the protections provided by that Act are not applicable to the guarantees we provide. The MEMBERS Horizon Variable Separate Account, a Separate Account of the Company, is registered as an investment company. Any allocations you make to the Risk Control Accounts are not part of the MEMBERS Horizon Variable Separate Account. The Company is not an investment adviser and is not subject to the Investment Advisers Act of 1940, and does not provide investment advice to you in connection with the Contract.
The Contract is filed with and approved by each state in which the Contract is offered. State insurance laws provide a variety of regulatory protections.
The Company is responsible for all guarantees provided under the Contract, including our obligations under the fixed Holding Account and the Risk Control Account options, the Death Benefit, and the Income Payout Options. Our General Account assets support these guarantees. The assets of our General Account are subject to our general liabilities from business operations and the claims of our creditors. Accordingly, any obligations, guarantees or benefits are subject to our financial strength and claims-paying ability. You may obtain information on our financial condition by reviewing our financial statements included in this Prospectus. You may also call 1-800-798-5500 for more information about us, including our financial strength ratings.
GETTING STARTED – THE ACCUMULATION PERIOD
The Prospectus describes all material rights, benefits and obligations under the Contract. AnyAll material state variations in the Contract are covereddescribed in Appendix C to this Prospectus and in your Contract. We will include any such state variations in your Contract. Please review Appendix C 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.
We no longer issue new Contracts. We offer the Contract to individuals, certain individual retirement plans, and other entities. To purchase a Contract, you and the Annuitant must be no older than age 85.
We sell the Contract through financial professionals who also are agents of the Company.professionals. To start the purchase process, you must submit an application to your financial professional. The initial Purchase Payment must either be paid at the Company’s 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. The selling firm’s 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 initial purchase payment, the initial Purchase Payment, if any, will be allocated to Subaccount(s) you choose within two Business Days of receipt by us at our mailing address. If the application is not properly completed, we may retain the purchase paymentPurchase Payment for up to five Business Days while we attempt to complete the application. If information which completes the application is received after the close of regular business on the New York Stock Exchange (usually, 4:00 P.M. Eastern Time) on a Business Day, the initial Purchase Payment will be allocated within the next two Business Days. If the application is not complete at the end of the 5-day period, we will inform you of the reason for the delay and the initial purchase paymentPurchase Payment will be returned immediately, unless you specifically consent to us retaining the purchase paymentPurchase Payment until the application is complete. Once the application is complete, the initial Purchase Payment, if any, will be allocated as designated by the Owner within two Business Days.
IMPORTANT: You may use the Contract with certain tax qualified retirement plans.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 Owner’s Contract and thereby refuse to honor any request for transfers, partial withdrawals, surrender, income payments, and Death Benefit payments, until instructions are received from the appropriate government regulator.
Tax-Free “Section 1035”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 includingand a possible penaltyadditional tax on your old contract. There will be a new Surrender Charge Periodperiod for
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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.
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 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. A non-natural person cannot jointly own a Contract. The Owner names the Annuitant or Joint Annuitants. All rights under the Contract may be exercised by the Owner, subject to the rights of any other Owner and any Irrevocable Beneficiary. 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.Contract, as identified in Appendix C 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.
The Owner may request to change the named owner at any time before the Payout Date. If a joint Owner is changed (or is named), he or she must be the Owner’s Spouse (or Partner if the state of issue is Illinois, New Jersey or Oregon). A Partner will not be treated as a spouse for federal tax purposes; however, and a tax adviser should be consulted before naming a Partner as a joint Owner. Any change in Owner must be made by Authorized Request and is subject to our acceptance. 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, the Beneficiary is entitled to the Death Benefit. The Death Benefit becomes payable at the death of the Owner (if there are joint Owners, the Death Benefit will become payable after the first joint Owner dies). If there is a surviving Owner and he or she is the Spouse of the deceased, the surviving Spouse (or surviving Partner Owner if the state of issue is New Jersey or Oregon) will be treated as the sole primary Beneficiary, and any other designated Beneficiary will be treated as a contingent Beneficiary.
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.
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 before the Payout Date by Authorized Request. A request to change the Annuitant must be received by us at least 30 days before the Payout Date. 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.
The Beneficiary is the person(s) (or entity) named by you when you apply for the Contract 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 (or Partner Owner if the Contract is issued in New Jersey or Oregon) will be treated as the sole primary Beneficiary and any other designated Beneficiary will be treated as a contingent Beneficiary. A Partner will not be treated as a spouse for federal tax purposes; however, and a tax adviser should be consulted before naming a Partner as a joint Owner. Prior to the Payout Date, if no Beneficiary survives the Owner, the proceeds will
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be paid to the Owner’s estate. If there is more than one Beneficiary, each Beneficiary will receive an equal share, 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, it will be assumed that the joint Owners died simultaneously. Thereupon, one-half of the Death Benefit will be payable to each of the joint Owner’s estates.
At any time before the Payout Date, you
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 Jointjoint Owners, each Owner must sign the Authorized Request. In addition, any Irrevocable Beneficiary or assignee must sign the Authorized Request. Any change is subject to payment or other actions we took before we received the request to change the Beneficiary at our Administrative Office.
Use care when naming Beneficiaries. If you have any questions concerning the criteria you should use when choosing Beneficiaries, consult your financial professional.
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 Payments you paid less withdrawals or your Contract Value, depending on the state in which your Contract was issued. If the Contract Value exceeds your Purchase Payments, you will receive the Contract Value regardless of where the Contract was issued. If the Purchase Payments exceed the Contract Value, the refund will depend on the law ofbe your Contract Value unless the state in which the Contract was issued.issued requires that the Purchase Payments less withdrawals be returned. If your Contract is an IRA, we will refund the greater of your Purchase Payment(s) 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 longerdifferent 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.
Thirty Day Period to Discontinue Initial Risk Control Accounts
If at the time the Contract is purchased a portion or all of the initial Purchase Payment, whether consisting of a single payment or multiple payments, is allocated to a Risk Control Account Option(s), the Risk Control Account portion of the initial Purchase Payment will be allocated to the Holding Account before it is transferred to a Risk Control Account. When the Holding Account Value is transferred to the Risk Control Account after our receipt of all funds that represent the initial Purchase Payment, we will notify you of the applicable Index Rate Cap for each Risk Control Account selected. The Index Rate Cap(s) may be different than the Index Rate Cap(s) at the time of your application. Therefore, you will have a 30-day period, beginning on the Risk Control Start Date to elect to discontinue your Risk Control Account and transfer the entire Risk Control Account Value to the Variable Subaccounts by Authorized Request. If you have multiple Risk Control Accounts, and you elect to exercise your right to discontinue your Risk Control Accounts, all of your Risk Control Accounts will be discontinued under this provision. This provision applies only to your initial Purchase Payment. Your election to discontinue your Risk Control Accounts can only be exercised one time.
If you elect to exercise your right under this provision, your entire Risk Control Account Value will be transferred to the Variable Subaccounts (according to the allocation instructions on file with us for Level V) on the Business Day that we receive your request in Good Order. For your request to be in Good Order, we will require you to provide Variable Subaccount allocationsallocation instructions (Level V) if none are on file with us, and to allocate 100% of your Contract Value to the Variable Subaccount OptionSubaccounts (Level C) with 0% for Risk Control Account Allocation Levels I and R. These allocation instructions (C, I and R) cannot be changed for at least 30 days, beginning on the date of transfer. This means that once discontinued, a new Risk Control Account cannot be established for at least 30 days. You can, however, change your Variable Subaccount allocation instructions (Level V) effective as of any Business Day.
The right to discontinue the Risk Control Account while funds are in the Holding Account is different than the Bailout Provision described on page 54.in “Risk Control Account Option – Bailout Provision.”. The 30 day30-day period to discontinue initial Risk Control Accounts as described here only applies to new Contracts where a portion of the initial Purchase Payment has been allocated to a Risk Control Account. The Bailout Provision applies if you allocated
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Contract Values to a Risk Control Account and the Index Rate Cap is set below the levels identified in your Contract.
On the Contract Issue Date, your Contract Value equals the initial 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 Variable Subaccount Value, plus the Holding Account Value.
ALLOCATING YOUR PURCHASE PAYMENTS
If the application for a Contract is in Good Order, which includes our receipt of the initial Purchase Payment, we will issue the Contract on the Contract Issue Date. If the application is not in Good Order, we may retain the initial Purchase Payment for up to five Business Days while we attempt to complete the application. If the application is not complete at the end of the five Business Day period, we will inform you of the reason for the delay and the initial Purchase Payment will be returned immediately, unless you specifically consent to us retaining the Purchase Payment until the application is complete. Once the application is complete, we will allocate the initial Purchase Payment according to your allocation instructions.
The minimum initial Purchase Payment for a Non-Qualified or Qualified Contract is $5,000. Additional Purchase Payments can be made during the Accumulation Period but are not required. Each Additionaladditional Purchase Payment may not be less than $50 and must be received at our Administrative Office prior to the oldest Owner’s 8595th birthday, or the oldest Annuitant’s 8595thbirthday if the Owner is a non-natural person. Additional Purchase Payments are not allowed on Traditional IRA Contracts after the Owner has reached age 70½.72. Purchase Payments that in total, exceed $1 million require our prior approval. Multiplein total, including multiple Contracts owned by the same individual where the sum of the Purchase Payments exceeds $1 million, also require our prior approval.approval, which may be withheld at our sole discretion.
We reserve the right, in our sole discretion, to refuse Additionaladditional Purchase Payments and to limit the amount and frequency of Additionaladditional Purchase Payments under the Contract or amounts that may be allocated to the Risk Control Accounts at any time. If we exercise this right it will limit your ability to make further investments in the Contract and increase Contract Values and the Death Benefit through additional Purchase Payments.
Purchase Payment Allocation Options
There are four Allocation Levels available under the Contract, among which you may allocate your Purchase Payments and Contract Value: Level C (Contract Allocation Level), Level V (Variable Subaccount Allocation Level), Level I (Index Allocation Level), and Level R (Risk Control Allocation Level). 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 a particular 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.
Allocation Options | |||
Level C | Level V or Level I | Level R | Crediting Strategy* |
Variable Subaccounts | See Appendix A | N/A | N/A |
Risk Control Accounts | S&P 500 Index | Secure Account | 0% Floor, Cap |
Growth Account | -10% Floor, Cap | ||
MSCI EAFE Index | Secure Account | 0% Floor, Cap | |
Growth Account | -10% Floor, Cap |
* | The Floor will not change during the life of your Contract. We set the Cap each year for the next Contract Year. In return for accepting some risk of loss to your Risk Control Account Value allocated to the Growth Account, the Cap for the Growth Account is higher than the Cap for the Secure Account. The Cap will always be at least 1%. |
Your Purchase Payments will be allocated according to your allocation instructions on file with us for the applicable Allocation Levels.
For each Variable Subaccount, the Accumulation Unit Value increases or decreases at the end of each Business Day to reflect the investment performance of the corresponding underlying Fund, including deductions for underlying Fund fees and expenses.
For each Risk Control Account, we credit interest at the end of each Risk Control Account Year during the five-year Risk Control Account Period based in part on the performance of the reference Index by comparing the change in the Index from each Risk Control Account Anniversary (the first day of the Risk Control Account Year) to the last day of the current Risk Control Account Year, adjusted for the Index Rate Cap or Index Rate Floor. Your Risk Control Account Value must remain in a Risk Control Account for the entire Risk Control Account Period (five years). To avoid the imposition of a Market Value Adjustment, withdrawals should be made on the Risk Control Account Maturity Date (the last day of the 5-year period).
Additionally, for Series B Contracts, a Surrender Charge may apply to withdrawals during the five years following the allocation of a Purchase Payment.
Allocation of the Purchase Payment
If the application for the Contract is in Good Order, we will allocate the portion of the initial Purchase Payment you designate for the Variable Subaccounts to the Subaccount(s) you have identified in your allocation instructions within two Business Days. If the application is not in Good Order and you are required to provide us with additional information that completes the application and we receive that information prior to the close of a Business Day, we will allocate the portion of the initial Purchase Payment you designate for the Variable Subaccounts that Business Day or the next Business Day according to your allocation instructions. If we receive the information after the close of the Business Day, we will allocate the portion of the initial Purchase Payment you designate for the Variable Subaccounts within the next two Business Days. We will allocate the portion of any additional Purchase Payment you designate for the Variable Subaccounts according to your allocation instructions on the Business Day we receive the Purchase Payment. We process Purchase Payments allocated to the Variable Subaccounts on a Business Day at the Accumulation Unit Values next determined for the Variable Subaccounts.
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The Risk Control Account portion of your initial Purchase Payment will be allocated to the Holding Account on your Contract Issue Date before it is transferred to the Risk Control Account. If there is one source of payment indicated on your application, the Holding Account Value will be transferred to the Risk Control Account(s) (according to the allocation instructions on file with us for Levels I and R) as of your initial Risk Control Account Start Date. Your initial Risk Control Account Start Date is the next available Risk Control Account Start Date following the Contract Issue Date (note: Risk Control Account Start Dates offered by the Company are currently the 10th and 25th of each month, or if a non-Business Day, the next Business Day). If there is more than one source of payment indicated on your application, the Holding Account Value will be transferred to the Risk Control Accounts (according to the allocation instructions on file with us for Levels I and R) as of the next available Risk Control Account Start Date following our receipt of all sources of payment. If all sources of payment are not received within the Multiple Source Waiting Period, the Holding Account Value will be transferred to the Risk Control Accounts (according to the allocation instructions on file with us for Levels I and R) as of the next available Risk Control Account Start Date following the last day of the Multiple Source Waiting Period. Any additional payments we receive after the last day of the Multiple Source Waiting Period will not be eligible to be added to the Risk Control Account. These funds will be treated as an additional Purchase Payment rather than an additional source of payment to establish a Risk Control Account. We will allocate any such additional Purchase Payments to the Variable Subaccounts according to the allocation instructions on file with us for Level V on the Business Day we receive the Purchase Payments. If there are no such allocation instructions on file with us or if you request that the additional Purchase Payment be allocated to the Risk Control Account, we will treat the request to allocate the additional Purchase Payment as not in Good Order and will return the additional Purchase Payment to you unless you provide Level V allocation instructions by 4:00 P.M. Eastern Time on the Business Day we receive the Purchase Payment.
If there is no Risk Control Account in force, an additional Purchase Payment may be made in order to establish a Risk Control Account. However, if you exercised your right to discontinue your Risk Control Accounts, as described under “Getting Started – The Accumulation Period – Thirty Day Period to Discontinue Initial Risk Control Accounts,” a new Risk Control Account cannot be established for a period of 30 days. To establish a Risk Control Account, therethe number of years until the Payout Date, must be at least five years untilequal to the Payout Date,Risk Control Account Period, and you must change your allocation instructions for Levels C, I and R to include Allocation Level percentages for the Risk Control Account Option and Risk Control Accounts. Each Risk Control Account Period is five years. If these requirements have been met, we will allocate the portion of your Purchase Payment designated for the Risk Control Accounts to the Holding Account, and we will transfer your Holding Account Value to the Risk Control Accounts (according to your allocation instructions on file with us for Levels I and R) as of the next available Risk Control Account Start Date following our receipt of the Purchase Payment. If there are less than fivethe number of years from the date we receive a Purchase Payment until the Payout Date is less than the Risk Control Account Period, the Purchase Payment will be allocated to the Variable Subaccounts according to the allocation instructions on file with us for Level V on the Business Day we receive the Purchase Payment. If there are no such allocation instructions on file with us or if you request that the additional Purchase Payment be allocated to the Risk Control Account, we will treat the request to allocate the additional Purchase Payment as not in Good Order and will return the additional Purchase Payment to you unless you provide Level V allocation instructions by 4:00 P.M. Eastern Time on the Business Day we receive the Purchase Payment.
Once a Risk Control Account is in force, you may allocate additional Purchase Payments to the Risk Control Account during a specific period of time prior to the Risk Control Account Maturity Date. This period of time is defined as at least one Business Day, but no more than 30 days prior to a Risk Control Account Maturity Date. Any Purchase Payment we receive during this time will be allocated according to your allocation instructions on file with us for all four Allocation Levels. The portion of the Purchase Payment to be allocated to a Risk Control Account will first be allocated to the Holding Account. The Holding Account Value will be transferred to the Risk Control Accounts (according to the allocation instructions on file with us for Levels I and R) as of the Risk Control Account Maturity Date, which becomes the next Risk Control Account Start Date. Any Purchase Payments we receive outside of this period of time, either on a Risk Control Account Maturity Date, or more than 30 days prior to that date, will be allocated to the Variable Subaccounts according to the allocation instructions on file with us for Level V on the Business Day we receive the Purchase Payment.
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Purchase Payments allocated to the Variable Subaccounts become part of the total Variable Subaccount Value, which fluctuates according to the investment performance of the selected Variable Subaccounts. Purchase Payments allocated to the Risk Control Accounts become part of the Risk Control Account Value and will reflect, in part, the investment performance of the reference Index(es), subject to the applicable Index Rate Caps and Index Rate Floors.
Transactions that are scheduled to occur on a day that the unit value for a Variable Subaccount or Risk Control Account is not available will be processed on the next Business Day at the Accumulation Unit Value for the Subaccount or Accumulation Credit Factor for the Risk Control Account next determined.
We make available certain modelCertain asset allocation portfolios or “Express Portfolios” are available to assist you in selecting investment options under the Contract. At the time you purchase the Contract, you may elect to allocate all of your Purchase Payments according to one of the Express Portfolios. Each Express Portfolio allocates your Purchase Payments among the Variable Subaccounts and Risk Control Accounts based on a specified allocation percentage for each investment option available under the Portfolio. Each Express Portfolio employs different investment styles and allocates Purchase Payments among investment options to match a specified level of risk tolerance (e.g.,, conservative, moderate and aggressive). You and your investment adviser can use an Express Portfolio as a tool to help select a menu of investment options under the Contract that matches your level of risk tolerance. There is no separate charge for selecting an Express Portfolio.
The Express Portfolios are only available on or before See “Benefits Available Under the Contract Issue Date. You may select only one– Express Portfolio and you must allocate 100% of your initial Purchase Payment to that Express Portfolio. Each Express Portfolio contains several different investment options that in combination may create different degrees of exposure to market risks and corresponding opportunitiesPortfolios” for more potential growth while other combinations of investment options may offer different degrees of protection from market risks but lower growth potential. If you elect to invest according to one of the Express Portfolios, we will invest your initial Purchase Payment according to the specified allocation percentages of the Express Portfolio you selected.details.
Automatic Rebalance Program at levels C or V. We reserve the right to discontinue offering new or current Express Portfolios.
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During the Accumulation Period, we will automatically rebalance your Contract Value among the Risk Control Accounts and/or Variable Subaccounts on specified dates based on your most recent allocation instructions that we have on file. This means, for example, that if your allocation instructions require that 50% of yourSee “Benefits Available Under the Contract Value be allocated to a Variable Subaccount and 50% of your Contract Value be allocated to a Risk Control Account, we will transfer your Contract Values between those Accounts so that 50% of your Contract Value is allocated to both the Variable Subaccount and Risk Control Account following the transfer. Transfers that occur as a result of rebalancing will not count towards the 12 transfers we allow each Contract Year without assessing a transfer fee.
Rebalancing at Level C (between Variable Subaccounts and Risk Control Accounts) will occur as of each Risk Control Account Maturity Date (which is five years after the Risk Control Account Start Date). This rebalancing will occur according to the allocation instructions on file with us, unless there is no Risk Control Account Value, you elect to discontinue rebalancing by Authorized Request, or you have requested to transfer value which results in rebalancing being discontinued at Levels C and V (among Variable Subaccounts) as of each Risk Control Account Maturity Date.
Rebalancing at Level V will occur as of each Contract Anniversary according to the allocation instructions on file with us, unless there is no Variable Subaccount Value. Rebalancing at Level V will also occur as of each Risk Control Account Maturity Date according to the allocation instructions on file with us, unless there is no Variable Subaccount Value or you have requested to transfer value which results in rebalancing being discontinued at Levels C and V as of each Risk Control Account Maturity Date. If rebalancing is discontinued, you may elect to reinstate rebalancing at Level C by Authorized Request, which will also reinstate rebalancing at Level V. Your Authorized Request to reinstate rebalancing must be received at least one Business Day prior to the Risk Control Account Maturity Date to take effect as of that date. If we are not notified at least one Business Day prior to the Risk Control Account Maturity Date, rebalancing at Level C will not occur until the next Risk Control Account Maturity Date.
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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 your Contract Data Page), we may, at our discretion, restrict transfers into that Risk Control Account and may not reallocate your Contract Value between Risk Control Accounts under the Automatic Rebalance Program. See “Access to Your Money – Bailout Provision”Program” for more details.
On the Contract Issue Date, your Contract Value equals the initial 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 Variable Subaccount Value, plus the Holding Account Value.
Transfers between Risk Control Accounts and/or Variable Subaccounts will occur automatically under the Automatic Rebalance Program. In addition, by Authorized Request, you may also transfer value:
● | Between Variable Subaccounts on any Business Day; |
● | Between Risk Control Accounts with the same reference Index as of a Risk Control Account Anniversary; |
● | From Risk Control Accounts to Variable Subaccounts under the Thirty Day Period to Discontinue Initial Risk Control Account; |
● | Between Risk Control Accounts or between Risk Control Accounts and Variable Subaccounts as of a Risk Control Account Maturity Date; and |
● | From a Variable Subaccount to a Risk Control Account as of the next available Risk Control Account Start Date if there is no Risk Control Account in force. |
You may also make a transfer under the Bailout Provision, as described in “Access to Your Money“Risk Control Account Option – Bailout Provision.”
Transfer requests must be in Good Order. Fund allocation changes and transfersTransfers are permitted by telephone, internet or in writing. Transfer requests received at our Administrative Office in Good Order on a Business Day prior to the close of the New York Stock Exchange (usually, 4:00 P.M. Eastern Time) will be processed as of the end of that Business Day. Additionally, the Authorized Request for transfer must be
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Transfer requests received inat our Administrative Office prior toin Good Order on a Business Day after the close of the New York Stock Exchange will be processed as of the end of the next Business Day. We will not process a transfer request we receive on the Payout Date.
We reserve the right to impose a transfer fee, which, if imposed, will be deducted from the Variable Subaccount or Risk Control Account from which the transfer is made. If a transfer is made from more than one Variable Subaccount or Risk Control Account at the same time, the transfer fee will be deducted Pro Rata from the value in the Variable Subaccounts and/or Risk Control Accounts. We reserve the right to modify, suspend or terminate the transfer privilege for any Contract or series of Contracts at any time for any reason.
If there is no Risk Control Account in force, you may request to transfer value from a Variable Subaccount in order to establish a Risk Control Account by Authorized Request. However, if you exercised your right to discontinue your Risk Control Accounts, as described under “Getting Started – The Accumulation Period – Thirty Day Period to Discontinue Initial Risk Control Accounts,” a new Risk Control Account cannot be established for a period of 30 days.
To establish one or more Risk Control Accounts, there must be at least fivethe number of years from the Risk Control Account Start Date until the Payout Date.Date must be at least equal to the Risk Control Account Period. Each Risk Control Account Period is five years. You must also provide allocation instructions for Levels I and R by Authorized Request at least one Business Day prior to a Risk Control Account Start Date to be effective as of that Risk Control Account Start Date. Allocation instructions received on a Risk Control Account Start Date will be effective as of the next available Risk Control Account Start Date. If these requirements are met, the transfer will occur on a Pro Rata basis from the Variable Subaccounts as of the next available Risk Control Account
Start Date. The Variable Subaccount Value transferred to a Risk Control Account will be allocated according to the allocation percentages on file with us for Levels I and R.
If there are less than fivethe number of years until the Payout Date is less than the Risk Control Account Period, transfers to a Risk Control Account will not be allowed. In addition, if your allocation instructions are not in Good Order, no transfer will occur until you provide allocation instructions that are in Good Order.Each Risk Control Account Period is five years.
The Variable Separate Account is a segregated investment account to which we allocate certain assets and liabilities attributable to those variable annuity contracts that offer Variable Subaccounts. The Variable Separate Account is registered with the SEC as a unit investment trust under the 1940 Act and was formed on June 8, 2015. We own the assets of the Variable Separate Account and value the assets of the Variable Separate Account each Business Day. The obligations under the Contracts, including obligations related to the Variable Separate Account, are obligations of the Company.
The portion of the assets of the Variable Separate Account equal to the reserves and other liabilities of the Contracts supported by the Variable Separate Account will not be charged with liabilities arising from any other business that we may conduct. We have the right to transfer to our General Account any assets of the Variable Separate Account that are in excess of such reserves and other Contract liabilities. The income, gains and losses, realized or unrealized, from the assets allocated to the Variable Separate Account will be credited to or charged against the Variable Separate Account, without regard to our other income, gains or losses.
The Variable Separate Account is divided into Variable Subaccounts. Each Variable Subaccount invests its assets solely in the shares or units of designated Funds of underlying investment companies. Purchase Payments allocated and transfers to a Variable Subaccount are invested in the Fund supporting that Variable Subaccount.
Subject to obtaining approval or consent required by applicable law, we reserve the right to:
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● | Combine the Variable Separate Account with any other variable separate accounts that are also registered as unit investment trusts under the 1940 Act; |
● | Eliminate or combine any Variable Subaccounts and transfer the assets of any Variable Subaccount to any other Variable Subaccount; |
● | Close certain Variable Subaccounts to the allocation of Purchase Payments or transfer of Contract Value; |
● | Deregister the Variable Separate Account under the 1940 Act if such registration is no longer required; |
● | Operate the Variable Separate Account as a management investment company under the 1940 Act (including managing the Variable Separate Account under the direction of a committee) or in any other form permitted by law; |
● | Restrict or eliminate any voting rights of Owners or other persons having such rights as to the Variable Separate Account; and |
● | Make any other changes to the Variable Separate Account or its operations as may be required by the 1940 Act or other applicable law or regulations. |
In the event of any substitution or other change, we may make changes to the Contract as may be necessary or appropriate to reflect such substitution or other change.
The investment objectives and policies of
This prospectus is accompanied by a current prospectus for each Fund underlying a Variable Subaccount. You should read the Fund prospectuses carefully before investing. More information about the Funds is available in the prospectuses for the Funds, which the Variable Subaccounts invest are summarized below. can be found online at https://www.trustage.com/business-solutions/annuities/horizon-ii-annuity. You can also request this information at no cost by calling 1-800-798-5500 or by sending an email request to AnnuityAndPRTManagersMail@trustage.com.
We select the Funds based on several criteria, including asset class coverage, the strength of the investment adviser’s or subadviser’s reputation and tenure, brand recognition, performance, fees, and the capability and qualification of each investment firm. Another factor we consider during the selection process is whether the Fund, its investment adviser, its subadviser(s), or an affiliate will compensate us or our affiliates, as described below under “Servicing Fees and Other Fund-Related Payments”“Availability of the Funds” and “Distribution of the Contract.” We review the Funds periodically and may remove or limit a Fund’s availability to new purchase payments and/or transfers of Variable Subaccount Value if we determine that the Fund no longer meets one or more of the selection criteria, and/or if the Fund has not attracted significant allocations from Owners.
Owners, through their indirect investment in the Funds, bear the costs of: (i) investment advisory or management fees that the Funds pay their respective investment advisers, and in some cases, subadvisers (see the Funds’ prospectuses for more information); (ii), administrative fees; (iii) 12b-1 service fees; and (iv) other expenses. As discussed above, an investment adviser or subadviser to a Fund, or its affiliates, may make payments to us and/or certain of our affiliates. These payments may be derived, in whole or in part, from the advisory (and in some cases, subadvisory) or other fees deducted from Fund assets.
From time to time, the Funds may reorganize or merge with other mutual funds. If that occurs, we willmay process any instructions to allocate to the Variable Subaccount investing in the merged Fund post-merger
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instead to the Variable Subaccount investing in the surviving Fund.
Invesco V.I. Global Real Estate Fund (Series I). The investment seeks total return through growth of capital and current income. The fund invests at least 80% of its net assets in securities of real estate and real estate-related issuers, and in derivatives and other instruments that have economic characteristics similar to such securities. It invests primarily in real estate investment trusts (REITS) and equity securities of domestic and foreign issuers. The fund will provide exposure to investments that are economically tied to at least three different countries, including the U.S. It may invest up to 20% of its net assets in securities of issuers located in emerging market countries.
Invesco V.I. Small Cap Equity Fund (Series I). The Fund seeks long-term growth of capital. The Fund invests, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of small-capitalization issuers. The principal type of equity security in which the Fund invests is common stock. The Fund’s managers consider an issuer to be a small-capitalization issuer if it has a market capitalization, at the time of purchase, no larger than the largest capitalized issuer included in the Russell 2000® Index. The Fund may also invest up to 25% of its net assets in foreign securities.
American Funds Insurance Series®
American Funds IS Asset Allocation Fund 1 (Series I). The Fund seeks high total return (including income and capital gains) consistent with preservation of capital over the long term. The Fund varies its mix of equity securities, debt securities and money market instruments. Under normal market conditions, its investment adviser expects (but is not required) to maintain an investment mix falling within the following ranges: 40%-80% in equity securities, 20%-50% in debt securities and 0%-40% in money market instruments. Although the Fund focuses on investments in medium to larger capitalization companies, the Fund’s investments are not limited to a particular capitalization size.
American Funds IS Bond Fund (Series I). The Fund seeks to provide as high a level of current income as is consistent with the preservation of capital. The Fund seeks to maximize the level of current income and preserve capital by investing primarily in bonds. Normally, it invests at least 80% of its assets in bonds and other debt securities which may be represented by other investment instruments, including derivatives. The Fund invests at least 65% of its assets in investment-grade debt securities rated Baaa3 or better or BBB- or by Nationally Recognized Statistical Rating Organizations, or NRSRO’s, or unrated but determined to be of equivalent quality by the fund’s investment adviser), including cash and cash equivalents, securities issued and guaranteed by the U.S. and other governments, and securities backed by mortgages and other assets. It may invest up to 35% of its assets in debt securities rated Ba1 or below by NRSROs or unrated but determined by the fund’s investment adviser to be of equivalent quality. Such securities are sometimes referred to as “junk bonds”. The Fund invests in debt securities of issuers domiciled outside the United States including in emerging market.
American Funds IS Growth Fund (Series I). The Fund seeks growth of capital. The Fund invests primarily in common stocks and seeks to invest in companies that appear to offer superior opportunities for growth of capital. It may invest up to 25% of its assets in common stocks and other securities of issuers domiciled outside the United States. Although the Fund focuses on investments in medium to larger capitalization companies, the Fund’s investments are not limited to a particular capitalization size.
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Capital Research and Management Company serves as the investment adviser to the American Funds Insurance Series.
BlackRock Variable Series Funds, Inc.
BlackRock Global Allocation V.I. I. The Fund seeks high total investment return. The Fund invests in a portfolio of equity, debt and money market securities. Generally, its portfolio will include both equity and debt securities. In selecting equity investments, the Fund mainly seeks securities that the adviser believes are undervalued. The Fund may buy debt securities of varying maturities, debt securities paying a fixed or fluctuating rate of interest, and debt securities of any kind. It may invest up to 35% of its total assets in “junk bonds,” corporate loans and distressed securities. The Fund may also invest in real estate investment trusts and securities related to real assets.
BlackRock Advisors, LLC serves as the investment adviser to BlackRock Global Allocation V.I.I.
Columbia Threadneedle
Columbia VP Emerging Markets Bond 1. The Fund seeks to provide shareholders with high total return through current income and, secondarily, through capital appreciation. Under normal circumstances, at least 80% of the Fund’s net assets will be invested in fixed income securities of issuers that are located in emerging markets countries, or that earn 50% or more of their total revenues from goods or services produced in emerging markets countries or from sales made in emerging markets countries. It may invest 25% or more of its total assets in the securities of foreign governmental and corporate entities located in the same country. The Fund is non-diversified.
Columbia Management Investment Advisers, LLC serves as the investment adviser to Columbia VP Emerging Markets Bond 1.
DFA Investment Dimensions Group Inc.
DFA VA International Small. The Fund seeks long-term capital appreciation. The Fund, using a market capitalization weighted approach, purchases securities of (i) Japanese small companies; (ii) United Kingdom small companies; (iii) small companies organized under the laws of certain European countries; (iv) small companies associated with Australia, New Zealand and Pacific Rim Asian countries; and (v) Canadian small companies. It may have some exposure to small cap equity securities associated with other countries or regions.
DFA VA International Value. The Fund seeks long-term capital appreciation. The Fund, using a market capitalization weighted approach, purchases securities of large non-U.S. companies in countries with developed markets that the investment adviser determines to be value stocks. It may gain exposure to companies associated with approved markets by purchasing equity securities in the form of depositary receipts, which may be listed or traded outside the issuer’s domicile country.
DFA VA US Large Value. The Fund seeks long-term capital appreciation. The Fund, using a market capitalization weighted approach, purchases a broad and diverse group of readily marketable securities
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of large U.S. companies that the investment adviser determines to be value stocks. As a non-fundamental policy, under normal circumstances, it will invest at least 80% of its net assets in securities of large cap U.S. companies. The Fund may use derivatives, such as futures contracts and options on futures contracts on U.S. equity securities and indices, to adjust equity market exposure based on actual or expected cash inflows to or outflows from the Portfolio.
DFA VA US Targeted Value. The Fund seeks long-term capital appreciation. The Fund, using a market capitalization weighted approach, purchases a broad and diverse group of readily marketable securities of U.S. small and mid-cap companies that the investment adviser determines to be value stocks. As a non-fundamental policy, under normal circumstances, it will invest at least 80% of its net assets in securities of U.S. companies. The Fund may use derivatives, such as futures contracts and options on futures contracts on U.S. equity securities and indices, to adjust equity market exposure based on actual or expected cash inflows to or outflows from the Fund.
Dimensional Fund Advisors LP serves as the investment adviser to the DFA Investment Dimensions Group Inc.
Dreyfus Variable Investment Fund
Dreyfus VIF Quality Bond (Institutional). The Fund seeks to maximize total return, consisting of capital appreciation and current income. To pursue its goal, the Fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in bonds. It may invest up to 10% of its net assets in bonds issued by foreign issuers that are denominated in foreign currencies, and up to 20% of its net assets in bonds issued by foreign issuers whether denominated in U.S. dollars or in a foreign currency.
The Dreyfus Corporation serves at the investment adviser to the Dreyfus Variable Investment Fund.
Franklin Templeton Variable Insurance Products Trust
Franklin High Income VIP (Class 1). The Fund seeks a high level of current income; capital appreciation is a secondary objective. Under normal market conditions, the Fund invests predominantly in high yield, lower-rated debt securities. Lower-rated securities generally pay higher yields than more highly rated securities to compensate investors for the higher risk. These securities include bonds, notes, debentures, convertible securities, and senior and subordinated debt securities. The Fund may also invest in preferred stock.
Templeton Global Bond VIP (Class 1). The Fund seeks high current income consistent with preservation of capital; capital appreciation is a secondary objective. Under normal market conditions, the Fund invests at least 80% of its net assets in “bonds.” Bonds include debt securities of any maturity, such as bonds, notes, bills and debentures. The Fund invests predominantly in bonds issued by governments and government agencies located around the world. Under normal market conditions, the investment adviser expects to invest at least 40% of its net assets in foreign securities, and may invest without limit in emerging or developing markets. It is non-diversified.
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Goldman Sachs Variable Insurance Trust
Goldman Sachs VIT Core Fixed Income Trust (Institutional). The Fund seeks a total return consisting of capital appreciation and income that exceeds the total return of the Barclays U.S. Aggregate Bond Index. The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes in fixed income securities, including securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises, corporate debt securities, privately issued adjustable rate and fixed rate mortgage loans or other mortgage-related securities and asset-backed securities.
Goldman Sachs Asset Management, L.P. serves as the investment adviser to Goldman Sachs VIT Core Fixed Income Trust.
Lazard Retirement Series, Inc.
Lazard Retirement Emerging Markets Equity Fund (Investor). The Fund seeks long-term capital appreciation. The Fund invests primarily in equity securities, principally common stocks, of non-U.S. companies whose principal activities are located in emerging market countries and that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. Under normal circumstances, it invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries.
Lazard Asset Management LLC serves as the investment adviser to Lazard Retirement Emerging Markets Equity Fund.
MFS® Variable Insurance Trust
MFS® Utilities Series (Initial Class). The Fund seeks total return. The Fund normally invests at least 80% of net assets in securities of issuers in the utilities industry. The Fund primarily invests in equity securities, but may also invest in debt instruments, including below investment grade quality debt instruments. The Fund may invest in companies of any size. The Fund invests in U.S. and foreign securities, including emerging market securities. The Fund may invest a large percentage of its assets in issuers in a single country, a small number of countries, or a particular geographic region. While the Fund may use derivatives for any investment purpose, the Fund expects to use derivatives primarily to increase or decrease currency exposure. Derivatives include futures, forward contracts, options, and swaps.
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MFS® Variable Insurance Trust III
MFS® Blended Research ® Small Cap Equity Portfolio (Initial Class). The Fund seeks capital appreciation. The Fund normally invests at least 80% of its net assets in equity securities of issuers with small market capitalizations. The Fund generally defines small market capitalization issuers as issuers with market capitalizations similar to those of issuers included in the Russell 2000 Index over the last 13 months at the time of purchase. Equity securities include common stocks, real estate investment trusts (REITs), and other securities that represent an ownership interest (or right to acquire an ownership interest) in a company or other issuer. The Fund may invest foreign securities. Investments for the Fund are selected primarily based on blending fundamental and quantitative research.
Massachusetts Financial Services Company serves as the investment adviser to MFS® VIT Blended Research® Small Cap Equity Portfolio.
Morgan Stanley
The Universal Institutional Funds, Inc. Global Infrastructure Portfolio (Class I). The Fund seeks both capital appreciation and current income. The Fund normally invests at least 80% of its assets in equity securities issued by companies located throughout the world that are engaged in the infrastructure business. It may invest up to 100% of its net assets in foreign securities, which may include emerging market securities. Under normal market conditions, the Fund invests at least 40% of its assets in the securities of issuers located outside of the United States. It is non-diversified.
The Universal Institutional Funds, Inc. Growth Portfolio (Class I). The Fund seeks long-term capital appreciation. The Fund invests primarily in established and emerging companies with market capitalizations of generally $10 billion or more that the Fund’s investment adviser believes exhibit, among other things, strong free cash flow and compelling business strategies. Its equity investments may include common and preferred stocks, convertible securities and equity-linked securities, rights and warrants to purchase common stocks, depositary receipts, exchange-traded funds, limited partnership interests and other specialty securities having equity features. The Fund may invest in privately placed and restricted securities. It may invest up to 25% of the Fund’s net assets in foreign securities including emerging market securities classified as American Depository Receipts, Global Depository Receipts, American Depository Shares or Global Depository Shares, foreign U.S. dollar denominated securities that are traded on a U.S. Exchange or local shares of non-U.S. issuers.
Oppenheimer Variable Account Funds
Oppenheimer International Growth Fund/VA (Non-Service Shares). The Fund seeks capital appreciation. The Fund will invest at least 65% of its total assets in equity securities of issuers that are domiciled or that have their primary operations in at least three different countries outside of the United States and may invest 100% of its total assets in foreign companies. It mainly invests in “growth companies,” which are companies whose earnings and stock prices are expected to increase at a faster rate than the overall market. The Fund may invest up to 25% of its total assets in emerging markets. It can also use derivative instruments, such as options, futures, forwards and swaps.
OFI Global Asset Management, Inc. serves as the investment adviser, and OppenheimerFunds, Inc., is the sub-adviser, to Oppenheimer International Growth Fund/VA.
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PIMCO Variable Insurance Trust
PIMCO VIT All Asset (Institutional Class).* The Fund seeks maximum real return consistent with preservation of capital and prudent investment management. The Fund invests under normal circumstances substantially all of its assets in Institutional Class shares of any funds of the PIMCO Funds and PIMCO Equity Series, affiliated open-end investment companies, except funds of funds, and shares of any actively-managed funds of the PIMCO ETF Trust, an affiliated investment company (collectively, “Underlying PIMCO Funds”). The Fund invests its assets in shares of the Underlying PIMCO Funds and does not invest directly in stocks or bonds of other issuers. Research Affiliates, LLC, the Fund’s asset allocation sub-adviser, determines how the Fund allocates and reallocates its assets among the Underlying PIMCO Funds. In doing so, the asset allocation sub-adviser seeks concurrent exposure to a broad spectrum of asset classes.
PIMCO serves as the investment adviser to the PIMCO Variable Insurance Trust.
*The Fund operates as a fund of funds.
Putnam Variable Trust
Putnam Investment Management, LLC serves at the investment adviser to the Putnam VT High Yield Fund.
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T. Rowe Price Equity Series, Inc.
T. Rowe Price Blue Chip Growth Portfolio. The Fund seeks to provide long-term capital growth; income is a secondary objective. The Fund normally invests at least 80% of its net assets (including any borrowings for investment purposes) in the common stocks of large-and medium-sized blue chip growth companies. It focuses on companies with leading market position, seasoned management, and strong financial fundamentals. The Fund may invest in foreign stocks in keeping with the Fund’s objectives. It may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities.
Northern Lights Variable Trust
TOPS® Aggressive Growth ETF Portfolio (Class 1).* The Fund seeks capital appreciation. The Fund employs a fund-of-funds structure that invests, under normal market conditions, at least 80% of its assets in exchange-traded funds. The exchange-traded funds included in the Fund invest primarily in securities representing one of the following asset classes: common and preferred stocks; real estate investment trusts; and natural resource-related securities.
TOPS® Conservative ETF Portfolio (Class 1). * The Fund seeks to preserve capital and provide moderate income and moderate capital appreciation. The Fund employs a fund-of-funds structure that invests, under normal market conditions, at least 80% of its assets in exchange-traded funds. The exchange-traded funds included in the Fund invest primarily in securities representing one of the following asset classes: government fixed income securities; corporate fixed income securities; common and preferred stocks; real estate investment trusts; and natural resource-related securities.TOPS® Growth ETF Portfolio (Class 1).* The Fund seeks capital appreciation. The Fund employs a fund-of-funds structure that invests, under normal market conditions, at least 80% of its assets in exchange-traded funds. The exchange-traded funds included in the Fund invest primarily in securities representing one of the following asset classes: government fixed income securities; corporate fixed income securities; common and preferred stocks; real estate investment trusts; and natural resource-related securities.
TOPS® Moderate Growth ETF Portfolio (Class 1).* The Fund seeks capital appreciation. The Fund employs a fund-of-funds structure that invests, under normal market conditions, at least 80% of its assets in exchange-traded funds. The exchange-traded funds included in the Fund invest primarily in securities representing one of the following asset classes: government fixed income securities; corporate fixed income securities; common and preferred stocks; real estate investment trusts; and natural resource-related securities.
*The Fund operates as a fund of funds.
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Vanguard Variable Insurance Fund
Vanguard VIF Diversified Value. The Fund seeks long-term capital appreciation and income growth, with reasonable current income. The Fund’s advisor, Barrow, Hanley, Mewhinney & Strauss, LLC, uses in-depth fundamental research and valuation forecasts to identify large- and mid-capitalization stocks with strong fundamentals and price appreciation potential. The Fund typically invests in securities with below-average price/earnings and price/book value ratios and above-average current yield. Earnings forecasts, based on Barrow, Hanley’s experience and analysis, drive dividend-discount and relative-return valuation models that are key to security selection.
Vanguard VIF Equity Index. The Fund seeks to track the investment performance of the Standard & Poor’s 500 Index, an unmanaged benchmark representing U.S. large-capitalization stocks. Using full replication, the Fund holds all stocks in the same capitalization weighting as the index.
Vanguard VIF High Yield Bond. The Fund seeks a high and sustainable level of current income by investing primarily in below-investment-grade corporate securities offering attractive yields. The Fund emphasizes higher credit quality and lower risk than are typical of other high-yield funds. Using a long-term, fundamental process, the advisor applies intensive credit analysis to identify high-yielding companies with stable or improving prospects. The Fund maintains broad diversification in its below-investment-grade holdings. It also holds investment-grade issues suffering from near-term weakness and U.S. Treasury bonds. The advisor’s strategy seeks to reduce default risk and limit capital depreciation potential. The resulting portfolio generally has a lower yield-to-maturity, higher average credit quality, and lower volatility than the Barclays U.S. Corporate High Yield Bond Index. The Fund purchases securities paying cash coupons and avoids zero-coupon or pay-in-kind bonds.
Vanguard VIF International. The Fund seeks long-term capital appreciation through broadly diversified exposure to the major equity markets outside the United States. The Fund’s advisors employ fundamental research to construct portfolios of growth stocks in developed and emerging markets. The advisors use fundamental research to identify high-quality companies with above-average growth potential in countries around the world. The Fund’s multimanager structure—three advisors managing independent subportfolios—increases diversification. In addition, Vanguard may invest the Fund’s cash flows in equity index futures and/or exchange-traded funds to manage liquidity needs while ensuring that the Fund remains fully invested.
Vanguard VIF Mid-Cap Index. The Fund seeks to track the investment performance of the CRSP US Mid Cap Index, an unmanaged benchmark representing medium-size U.S. firms. Using full replication, the portfolio holds all stocks in the same capitalization weighting as the index.
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Vanguard VIF Small Company Growth. The Fund seeks long-term capital appreciation by investing in a broad universe of small-company growth stocks. The Fund’s three investment advisors—two using a fundamental approach and one using a quantitative approach—manage independent subportfolios. The use of three advisors diversifies risk and increases investment capacity, while providing each manager with the opportunity to generate superior returns. The Fund’s broad diversification tends to produce lower volatility.
Vanguard VIF Total Bond Market Index. The Fund seeks to track the investment performance of the Barclays U.S. Aggregate Float Adjusted Bond Index, an unmanaged benchmark representing the broad U.S. bond market. The Fund invests in investment-grade corporate, U.S. Treasury, mortgage-backed, and asset-backed securities with short, intermediate, and long maturities in excess of one year, resulting in a portfolio of intermediate duration.
The Vanguard Group, Inc. serves as the investment adviser to Vanguard VIF Capital Growth, Vanguard VIF Diversified Value, Vanguard VIF Equity Index, Vanguard VIF High Yield Bond, Vanguard VIF International, Vanguard VIF Mid-Cap Index, Vanguard VIF Money Market, Vanguard VIF REIT Index, Vanguard VIF Small Co Growth, Vanguard VIF Total Bond Market Index and Vanguard VIF Total Stock Market Index.
These mutual fund portfolios are not available for purchase directly by the general public, and are not the same as other mutual fund portfolios with very similar or nearly identical names that are sold directly to the public. However, the investment objectives and policies of certain portfolios available under the Contract may be very similar to the investment objectives and policies of other portfolios that are managed by the same investment adviser or manager. Nevertheless, the investment performance and results of the portfolios available under the Contract may be lower, or higher, than the investment results of such other (publicly available) portfolios. There can be no assurance, and no representation is made, that the investment results of any of the portfolios available under the Contract will be comparable to the investment results of any other mutual fund portfolio, even in the other portfolio has the same investment adviser or manager and the same investment objectives and policies, and a very similar name.
The names, investment objectives, investment advisers and subadvisers, current expenses, and performance information for each Fund in which the Variable Subaccounts invest are summarized in Appendix A to this Prospectus.
There is no guarantee that the stated objectives and policies of any of the Funds will be achieved. More detailed information concerning the investment objectives, policies and restrictions of the Funds, the expenses of the Funds, the risks attendant to investing in the Funds and other aspects of their operations can be found in the current prospectuses for the Funds and the current statement of additional information for each of the Funds. You may obtain a prospectus or a statement of additional information for any of the Funds by contacting the Company or by asking your financial professional. You should read the Funds’ prospectuses carefully before making any decision concerning the allocation of Purchase Payments or transfers among the Variable Subaccounts.
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The Variable Separate Account purchases shares of a Fund in accordance with a participation agreement.
If a participation agreement terminates, the Variable Separate Account may not be able to purchase additional shares of the Fund(s) covered by the agreement. Likewise, in certain circumstances, it is possible that shares of a Fund may not be available to the Variable Separate Account even if the participation agreement relating to that Fund has not been terminated. In either event, Owners will no longer be able to allocate Purchase Payments or transfer Contract Value to the Variable Subaccount investing in the Fund.
We have entered into agreements with the investment adviser or distributor of certain Funds pursuant to which the investment adviser or distributor pays us a servicing fee based upon an annual percentage of the average daily net assets invested by the Variable Separate Account in the Fund. These percentages vary and currently range from 0.10%0.00% to 0.25% of each Fund’s average daily net assets. The amount paid is based on assets of the particular Fund attributable to the Contract issued by us. The amounts we receive under the servicing agreements may be significant.
The service fees are for administrative services provided to the Funds by us and our affiliates. These payments may be derived, in whole or in part, from the investment management fees deducted from assets of the Funds. Owners, through their indirect investment in the Funds, bear the costs of the investment management fees.
In addition, certain Funds have adopted 12b-1 plans. Such plans allow the Fund to pay Rule 12b-1 fees to those who sell or distribute Fund shares and/or provide services to shareholders and Owners. Each of those Funds describes its Rule 12b-1 plan in its prospectus. Under certain Rule 12b-1 plans, we may receive 12b-1 fees for providing services to the Funds. Rule 12b-1 fees are deducted from Fund assets and, therefore, are indirectly borne by Owners.
Addition, Deletion, or Substitution of Investments
We may, subject to applicable law, make additions to, deletions from, or substitutions for the shares of a Fund that are held in the Variable Separate Account or that the Variable Separate Account may purchase. If the shares of a Fund are no longer available for investment or if, in our judgment, further investment in any Fund should become inappropriate, we may redeem the shares, if any, of that Fund and substitute shares of another Fund. Such other Funds may have different fees and expenses. We will not substitute any shares attributable to a Contract’sContract's interest in a Variable Subaccount without prior notice and approval of the SEC and state insurance authorities, if and to the extent required by the 1940 Act or other applicable law.
We also may establish additional Variable Subaccounts of the Variable Separate Account, each of which would invest in shares of a new corresponding Fund having a specified investment objective. We may, in our sole discretion, establish new Variable Subaccounts or eliminate or combine one or more Variable Subaccounts if marketing needs, tax considerations, or investment conditions warrant. Any new Variable Subaccounts may be made available to existing Owners on a basis to be determined by us. Also, certain Variable Subaccounts may be closed to certain customers. Subject to obtaining any approvals or consents required by applicable law, the assets of one or more Variable Subaccounts may be transferred to any other Variable Subaccount if, in our sole discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, we (by appropriate endorsement, if necessary) may change the Contract to reflect the substitution or change.
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Frequent, large, or short-term transfers among Variable Subaccounts, such as those associated with “market timing”market timing transactions, can adversely affect the Funds and the returns achieved by Owners. In particular, such transfers may dilute the value of Fund shares, interfere with the efficient management of the Funds, and increase brokerage and administrative costs of the Funds. These costs are borne by all Owners allocating Purchase Payments or Contract Value to the Variable Subaccounts and other Fund shareholders, not just the Owner making the transfers.
In order to try to protect Owners and the Funds from potentially harmful trading activity, we have adopted certain Frequent Transfers Procedures.
We employ various means in an attempt to detect, deter, and prevent inappropriate frequent, large, or short-term transfer activity among the Variable Subaccounts that may adversely affect other Owners or Fund shareholders. We may vary the Frequent Transfers Procedures with respect to the monitoring of potential harmful trading activity from Variable Subaccount to Variable Subaccount, and may be more restrictive with regard to certain Variable Subaccounts than others. However, we will apply the Frequent Transfers Procedures, including any variance in the Frequent Transfers Procedures by Variable Subaccount, uniformly to all Owners. We also coordinate with the Funds to identify potentially inappropriate frequent trading, and will investigate any patterns of trading behavior identified by Funds that may not have been captured through operation of the Frequent Transfers Procedures. Please note that despite our best efforts, we may not be able to detect nor stop all harmful transfers.
If we determine under the Frequent Transfers Procedures that an Owner has engaged in inappropriate frequent transfers, we will notify such Owner that from that date forward, for three months from the date we mail the notification letter, transfer privileges for the fund(s) in which inappropriate transfers were made will be revoked. Second time offenders will be permanently restricted from buying into the fund(s).
In our sole discretion, we may revise the Frequent Transfers Procedures at any time without prior notice as necessary to (i) better detect and deter frequent, large, or short-term transfers that may adversely affect other Owners or Fund shareholders, (ii) comply with state or federal regulatory requirements, or (iii) impose additional or alternate restrictions on Owners who make inappropriate frequent transfers (such as dollars or percentage limits on transfers). We also may, to the extent permitted by applicable law, implement and administer redemption fees imposed by one or more of the Funds in the future. If required by applicable law, we may deduct redemption fees imposed by the Funds. Further, to the extent permitted by law, we also may defer the transfer privilege at any time that we are unable to purchase shares of the Funds. You should be aware that we are contractually obligated to prohibit purchases and transfers of Fund shares at the Fund’s request.
We currently do not impose redemption fees on transfers, or expressly allow a certain number of transfers in a given period, or limit the size of transfers in a given period; however, we domay impose a transfer fee as discussed under “Fees and Expenses.” Redemption fees, transfer limits, and other procedures or restrictions may be more or less successful than our policies in deterring inappropriate frequent transfers or other disruptive transfers and in preventing or limiting harm from such transfers.
Our ability to detect and deter such transfer activity is limited by our operational and technological systems, as well as by our ability to predict strategies employed by Owners (or those acting on their behalf) to avoid detection. Accordingly, despite our best efforts, we cannot guarantee that the Frequent Transfers Procedures will detect or deter frequent or harmful transfers by such Owners or intermediaries acting on their behalf. We apply the Frequent Transfers Procedures consistently to all Owners without waiver or exception.
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Fund Frequent Trading Policies
The Funds have adopted their own policies and procedures with respect to inappropriate frequent purchases and redemptions of their respective shares. The prospectuses for the Funds describe any such policies and procedures. The frequent trading policies and procedures of a Fund may be different, and more or less restrictive, than the frequent trading policies and procedures of other Funds and the policies and procedures we have adopted to discourage inappropriate frequent transfers. Accordingly, Owners and other persons who have material rights under the Contracts should assume that the sole protections they may have against potential harm from frequent transfers are the protections, if any, provided by the Frequent Transfers Procedures. You should read the prospectuses of the Funds for more details on their ability to refuse or restrict purchases or redemptions of their shares.
Owners also should be aware that the purchase and redemption orders received by the Funds generally are “omnibus” orders from intermediaries such as retirement plans and separate accounts funding variable insurance contracts. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance contracts and individual retirement plan participants. The omnibus nature of these orders may limit each Fund’s ability to apply its respective frequent trading policies and procedures.
You should be aware that we are required to provide to a Fund or its designee, promptly upon request, certain information about the transfer activity of individual Owners and, if requested by the Fund, to restrict or prohibit further purchases or transfers by specific Owners identified by the Fund as violating the frequent trading policies established for that Fund.
In accordance with our view of current applicable law, we will vote Fund shares held in the Variable Separate Account at regular and special shareholder meetings of the Funds in accordance with instructions received from persons having voting interests in the corresponding Variable Subaccounts. If, however, the 1940 Act or any regulation thereunder should be amended, or if the present interpretation thereof should change, or we otherwise determine that we are allowed to vote the shares in our own right, we may elect to do so.
The number of votes that an Owner has the right to instruct will be calculated separately for each Variable Subaccount and may include fractional votes. An Owner holds a voting interest in each Variable Subaccount to which the Variable Subaccount Value is allocated.
The number of votes attributable to a Variable Subaccount will be determined by dividing the Variable Subaccount Value by the net asset value per share of the Fund(s) in which that Variable Subaccount invests.
The number of votes available to an Owner will be determined as of the date coincident with the date established by the Fund for determining shareholders eligible to vote at the relevant meeting of the Fund’sFund's shareholders. Voting instructions will be solicited by written communication prior to such meeting in accordance with procedures established for the Fund. Each Owner having a voting interest in a Variable Subaccount will receive proxy materials and reports relating to any meeting of shareholders of the Fund in which that Variable Subaccount invests.
Fund shares for which no timely instructions are received and shares held by us in a Variable Subaccount for which no Owner has a beneficial interest will be voted in proportion to the voting instructions which are received with respect to all Contracts participating in that Variable Subaccount. This means that a small number of Owners may determine the outcome of the vote. Voting instructions to abstain on any item to be voted upon will be applied to reduce the total number of votes eligible to be cast on a matter.
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Your total Variable Subaccount Value for any Valuation Period is the sum of all Variable Subaccount Values. The Variable Subaccount Value for each Variable Subaccount is equal to:
The number of the Variable Subaccount’s Accumulation Units credited to you; multiplied by |
● | The Accumulation Unit Value for that Variable Subaccount at the end of the Valuation Period for which the determination is being made. |
and underlying Fund taxes. In addition, the Accumulation Unit Value decreases to reflect the Contract Fee and increases or decreases to reflect tax charges or credits at the Variable Subaccount level. |
Accumulation Unit Values. The Accumulation Unit Value for each Variable Subaccount was arbitrarily set initially at $10. Thereafter, the Accumulation Unit Value at the end of every Valuation Period is determined by subtracting (b) from (a) and dividing the result by (c) (i.e., (a - b) / c), where:
(a)= The net asset value of the shares of the underlying Fund held by the Variable Subaccount as of the end of the Valuation Period plus or minus the net charge or credit with respect to any taxes paid or any amount set aside by the underlying Fund as a provision for taxes during the Valuation Period;
(b)= The daily Contract Fee multiplied by the number of days in the Valuation Period; and
(c)= The number of Accumulation Units outstanding at the end of such Valuation Period.
Accumulation Units. For each Variable Subaccount, Purchase Payments or transferred amounts are converted into Accumulation Units. The number of Accumulation Units credited is determined by dividing the dollar amount directed to each Variable Subaccount by the Accumulation Unit Value for that Variable Subaccount at the end of the Valuation Period in which the Purchase Payment or amount is received. The number of your Accumulation Units in a Variable Subaccount is increased by additional Purchase Payments and transfers. The number of Accumulation Units does not change as a result of investment experience or deduction of the Contract Fee.
We will redeem Accumulation Units from a Variable Subaccount upon: (i) a partial withdrawal or full surrender (including deduction of any Surrender Charge, if applicable); (ii) a transfer from the Variable Subaccount; (iii) payment of the Death Benefit; (iv) the Payout Date; (v) the deduction of the transfer fee; (vi) the deduction of any fees imposed by a Fund as a redemption fee or liquidity fee in connection with the redemption of its shares or otherwise imposed by applicable law; and (vii) to pay fees for special services such as the wire transfers or express mail.
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 equal to the reserves and other liabilities of the Contract supported by the Risk Control Separate Account 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 Accounts, as well as our other general obligations. The guarantees in this Contract are subject to the Company’s financial strength and claims-paying ability.
You may allocate your Purchase Payments and Variable Subaccount Value to the Risk Control Accounts we currently make available. The portion of the Contract Value allocated to a Risk Control Account 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 and a Growth Account. We hold reserves for the
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described below. Your Risk Control Account Value must remain in a Risk Control Account for a period of five yearsthe entire Risk Control Account Period to avoid the imposition of Surrender Charges and a Market Value Adjustment. Each Risk Control Account Period is five years. Partial withdrawals from the Risk Control Accounts are not permitted if there is Variable Subaccount Value, except for withdrawals on the Risk Control Account Maturity Date. Only one Risk Control Account Period can be in force at any time. This would allow for both a Secure Account and Growth Account for each reference Index to be established for the same Risk Control Account Period. However, once a Risk Control Account(s) is in force, new Risk Control Accounts cannot be established until the termination of the existing Risk Control Accounts on the Risk Control Account Maturity Date. Accordingly, no additional values can be transferred into a Risk Control Account and no additional Purchase Payments can be allocated to a Risk Control Account until the end of the current Risk Control Account Period.
At the time the Contract is purchased, if a portion of the initial Purchase Payment is allocated to a Risk Control Account, you have thirty days after the initial Risk Control Account Start Date to discontinue your Risk Control Accounts and transfer the total Risk Control Account Value to the Variable Subaccounts. (See “ThirtySee “Getting Started – The Accumulation Period – Thirty Day Period to Discontinuing Risk Control Accounts” page 18.). Risk Control Account Start Dates currently offered by the Company are the 10th and 25th of each month, or if a non-Business Day, the next Business Day.
The performance of each Index associated with the Risk Control Accounts does not include dividends paid on the stockssecurities comprising the Index, and therefore, the performance of the Index does not reflect the full performance of those underlying securities.
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:
The number of that Risk Control Account’s Accumulation Credits credited to you; multiplied by |
● | 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 Risk Control Account 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:
(a) | = The Accumulation Credit Factor for the Risk Control Account at the start of the Risk Control Account Year; |
(b) | = The Index |
(c) | = The Risk Control Account Daily Contract Fee (defined below) multiplied by the number of days that have passed since the last Risk Control Account Anniversary. |
The “Index Raterate of Return”return” for each Risk Control Account on any Business Day is equal to the change in the Index for the current Risk Control Account 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
39B = The Initial Index Value as of the start of the current Risk Control Account Year. If a Risk Control Account Start Date or Risk Control Account Anniversary does not fall on a Business Day, the Initial Index Value for the next Business Day will be used.
We use the Index Raterate of Returnreturn to determine the interest we credit, if any, to 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 Risk Control Account Year. The Adjusted Index Value is calculated each time the Index Raterate of Returnreturn is calculated. This can be as frequently as daily and occurs on each Risk Control Account Anniversary or on any date when a partial withdrawal, surrender, Death Benefit or annuitization is processed. The 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:
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). |
● | |||
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). |
● | |||
If the Closing Index Value is less than the Initial Index Value multiplied by (1 + Index Rate Cap) but more thanthe Initial Index Value multiplied by |
For example, assume the following:
● | Initial Index Value = 1,000 |
● | Index Rate Cap = 15% |
● | Index Rate Floor = -10% | ||
At the time the Index Raterate of Returnreturn is calculated, the Adjusted Index Value will be:
● | Scenario 1: Closing Index Value is greater than Initial Index Value multiplied by (1 + Index Rate Cap) |
○ | Closing Index Value = 1,200 |
○ | 1,200 is greater than 1,150 (1,000 x (1 + 0.15)) so the Adjusted Index Value is equal to 1,150. |
● | Scenario 2: Closing Index Value is less than Initial Index Value multiplied by (1 + Index Rate Floor) |
○ | Closing Index Value = 850 |
○ | 850 is less than 900 (1,000 x (1 – 0.10)) so the Adjusted Index Value is equal to 900. |
● | Scenario 3: Closing Index Value is less than Initial Index Value multipliedby (1 + Index Rate Cap) but more than Initial Index Value multipliedby (1 + Index Rate Floor) |
○ | Closing Index Value = 1,100 |
○ | 1,100 is less than 1,150 (1,000 x (1 + 0.15)) and greater than 900 (1,000 x (1 – 0.10)) so the Adjusted Index Value is equal to 1,100. |
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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 Risk Control Account Year multiplied by (c) the Accumulation Credit Factor for the Risk Control Account at the start of the Risk Control Account Year (i.e., a / b x c).
For example, assume the following:
● | Contract Fee = 1.50% |
● | Number of days in the Risk Control Account Year = 365 |
● | Accumulation Credit Factor for the Risk Control Account at the start of the Risk Control Account Year = 10.00 |
Then, the Risk Control Account Daily Contract Fee = 1.50% / 365 x 10.00 = 0.000410959.
Accumulation Credits. In order to establish a Risk Control Account, Purchase Payments and/or Variable Subaccount Value transferred to the Risk Control Accounts are 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 Variable Subaccount Value transferred 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; (iii) payment of the Death Benefit; (iv) the Payout Date; (v) the deduction of the transfer fee; and (vi) to pay fees for special services such as wire transfers or express mail. We redeem Accumulation Credits as of the end of the Valuation Period (or effective date of the transfer) in which we receive your request for surrender, partial withdrawal or transfer or your Beneficiary’s request for payment of the Death Benefit in Good Order unless you or your Beneficiary specify a later date. We redeem Accumulation Credits to cover the transfer fee at the time the transfer occurs.
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 available at the time that we issue the Contract, the costs of our risk management techniques, sales commissions, administrative expenses, regulatory and tax requirements, general economic trends, and competitive factors. We determine the Index Rate Cap and the Index Rate Floor at our sole discretion. WeFor each Risk Control Account, we set thean Index Rate Cap onfor the first Risk Control Account Year, which is made available at least two weeks in advance of the Risk Control Account Start Date. We may set a new Index Rate Cap prior to each Risk Control Account Anniversary for the subsequent Risk Control Account Year and guarantee the Index Rate Cap for the duration of the Risk Control Account Year. We guarantee the Index Rate Floor for the life of your Contract. We will forward advancesend you written notice to Owners of any change in the Index Rate Cap for the subsequent Risk Control Account Year at least two weeks prior to the Risk Control Account Anniversary. This notice will describe the Owner’s right to transfer Contract Value between Risk Control Accounts, as permitted by the Contract, 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 indexIndex 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. 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 for each Risk Control Account Year, you could lose more than 10% due to
Contract Fees, Surrender Charges, a negative Market Value Adjustment, and federal income taxes, and additional taxes.
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 the Risk Control Account under the Secure Account Option may range from 1% - 10%, and the bailout rate for the Risk Control Account under the Growth Account Option may range from 1.5% - 25%. The bailout rate(s) will be prominently displayed on your Contract Data Page attached to the front of the cover page of the Contract and will not change during the life of your Contract. 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 transfer the Risk Control Account Value from that Risk Control Account to the Variable Subaccounts, during the 30-day period following the Risk Control Account Anniversary by Authorized Request without the application of a Market Value Adjustment. If the bailout rate equals the Index Rate Cap for your Risk Control Account, you will not be eligible to transfer your Risk Control Account Value under the Bailout Provision. For example, if the bailout rate for the Secure Account is set at 1.00% and the Index Rate Cap for the Secure Account is set at 1.00%, you would not be eligible to transfer under the Bailout Provision. If you intend to withdraw Risk Control Account Value transferred from a Risk Control Account under the Bailout Provision, the Risk Control Account Value would first be transferred to the Variable Subaccounts according to your instructions and then withdrawn from the Variable Subaccounts without the application of a Market Value Adjustment. The amount withdrawn from the Variable Subaccounts may be subject to a Surrender Charge. Partial withdrawals and surrenders are also subject to income taxes, and if taken before age 59½, a 10% additional tax penalties.
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The Bailout Provision applies to all Risk Control Accounts.
ExamplesExamples. .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 Raterate of Returnreturn and a reduction for the Contract Fee. No withdrawals are assumed to occur under these examples and all values are determined on Risk Control Account Anniversaries. The examples assume the purchase of a Series B Contract and 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 Risk Control Account Start Date:
Initial Index Value: 1,000
Contract Fee: 1.50%
S&P 500 Secure Account
Account Value: $75,000
Accumulation Credit Factor: $10
Accumulation Credits: 7,500
Index Rate Floor: 0.00%
Index Rate Cap: 8.00%
S&P 500 Growth Account
Account Value: $25,000
Accumulation Credit Factor: $10
Accumulation Credits: 2,500
Index Rate Floor: -10.00%
Index Rate Cap: 18.00%
As of the Risk Control Account Anniversary:
Closing Index Value: 1,200
Days in Risk Control Account Year: 366
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 0.08 which equals 1,080. For the Growth Account, this is calculated as 1,000 multiplied by the result of 1 plus 0.18 which equals 1,180.
Step 2: Calculate the Index Rate of Return
The Index Raterate of Returnreturn is equal to the Adjusted Index Value divided by the Initial Index Value. For the Secure Account, this is calculated as 1,080 divided by 1,000 which equals 1.08 (8% increase from Initial Index Value). For the Growth Account, this is calculated as 1,180 divided by 1,000 which equals 1.18 (18% 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 Risk Control Account Year multiplied by the Accumulation Credit Factor at the start of the Risk Control Account Year. For both the Secure and Growth Accounts, this is equal to 1.50% divided by 366 multiplied by $10 which equals $0.000409836.
Step 4: Calculate the Accumulation Credit Factor
The Accumulation Credit Factor is equal to the Accumulation Credit Factor at the start of the Risk Control Account Year multiplied by the Index Raterate of Returnreturn less the result of the Risk Control Account Daily Contract Fee multiplied by the number of days that have passed since the last Risk Control Account Anniversary. For the Secure Account, this is equal to $10 multiplied by 1.08 less the result of $0.000409836 multiplied by 366 which equals $10.65. For the Growth Account, this is equal to $10 multiplied by 1.18 less the result of $0.000409836 multiplied by 366 which equals $11.65.
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 $10.65 which equals $79,875. For the Growth Account, this is equal to 2,500 multiplied by $11.65 which equals $29,125. This is an increase of $4,875 for the Secure Account ($79,875 – $75,000 = $4,875) and an increase of $4,125 for the Growth Account ($29,125 – $25,000 = $4,125).
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 Prior Risk Control Account Anniversary:
Initial Index Value: 1,200
Contract Fee: 1.50%
S&P 500 Secure Account
Account Value: $79,875
Accumulation Credit Factor: $10.65
Accumulation Credits: 7,500
Index Rate Floor: 0.00%
Index Rate Cap: 8.00%
S&P 500 Growth Account
Account Value: $29,125
Accumulation Credit Factor: $11.65
Accumulation Credits: 2,500
Index Rate Floor: -10.00%
Index Rate Cap: 18.00%
As of the Risk Control Account Anniversary:
Closing Index Value: 1,236
Days in Risk Control Account Year: 365
Step 1: Calculate the Adjusted Index Value
The Initial Index Value is 1,200 and the Closing Index Value is 1,236. 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 1,236.
Step 2: Calculate the Index Rate of Return
The Index Raterate of Returnreturn is equal to the Adjusted Index Value divided by the Initial Index Value. For both the Secure and Growth Accounts, this is calculated as 1,236 divided by 1,200 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
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Step 4: Calculate the Accumulation Credit Factor
The Accumulation Credit Factor is equal to the Accumulation Credit Factor at the start of the Risk Control Account Year multiplied by the Index Raterate of Returnreturn less the result of the Risk Control Account Daily Contract Fee multiplied by the number of days that have passed since the last Risk Control Account Anniversary. For the Secure Account, this is equal to $10.65 multiplied by 1.03 less the result of $0.000437671 multiplied by 365 which equals $10.80975. For the Growth Account, this is equal to $11.65 multiplied by 1.03 less the result of $0.000478767 multiplied by 365 which equals $11.82475.
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 $10.80975 which equals $81,073.13. For the Growth Account, this is equal to 2,500 multiplied by $11.82475 which equals $29,561.88. This is an increase of $1,198.13 for the Secure Account ($81,073.13 – $79,875 = $1,198.13) and an increase of $436.88 for the Growth Account ($29,561.88 – $29,125 = $436.88).
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 Prior Risk Control Account Anniversary:
Initial Index Value: 1,236
Contract Fee: 1.50%
S&P 500 Secure Account
Account Value: $81,073.13
Accumulation Credit Factor: $10.80975
Accumulation Credits: 7,500
Index Rate Floor: 0.00%
Index Rate Cap: 8.00%
S&P 500 Growth Account
Account Value: $29,561.88
Accumulation Credit Factor: $11.82475
Accumulation Credits: 2,500
Index Rate Floor: -10.00%
Index Rate Cap: 18.00%
As of the Risk Control Account Anniversary:
Closing Index Value: 988.8
Days in Risk Control Account Year: 365
Step 1: Calculate the Adjusted Index Value
The Initial Index Value is 1,236 and the Closing Index Value is 988.8. 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 1,236 multiplied by the result of 1 plus 0.00 which equals 1,236. For the Growth Account, this is calculated as 1,236 multiplied by the result of 1 plus -0.10 which equals 1,112.4.
Step 2: Calculate the Index Rate of Return
The Index Raterate of Returnreturn is equal to the Adjusted Index Value divided by the Initial Index Value. For the Secure Account, this is calculated as 1,236 divided by 1,236 which equals 1.00 (0% increase from the Initial Index Value). For the Growth Account, this is calculated as 1,112.4 divided by 1,236 which equals 0.90 (10% decrease 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 Risk Control Account Year multiplied by the Accumulation Credit Factor at the start of the Risk Control Account Year. For the Secure Account, this is equal to 1.50% divided by 365 multiplied by $10.80975 which equals $0.000444236. For the Growth Account, this is equal to 1.50% divided by 365 multiplied by $11.82475 which equals $0.000485949.
Step 4: Calculate the Accumulation Credit Factor
The Accumulation Credit Factor is equal to the Accumulation Credit Factor at the start of the Risk Control Account Year multiplied by the Index Raterate of Returnreturn less the result of the Risk Control Account Daily Contract Fee multiplied by the number of days that have passed since the last Risk Control Account Anniversary. For the Secure Account, this is equal to $10.80975 multiplied by 1.00 less the result of $0.000444236 multiplied by 365 which equals $10.647604. For the Growth Account, this is equal to $11.82475 multiplied by 0.90 less the result of $0.000485949 multiplied by 365 which equals $10.464904.
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 $10.647604 which equals $79,857.03. For the Growth Account, this is equal to 2,500 multiplied by $10.464904 which equals $26,162.26. This is a decrease of $1,216.10 for the Secure Account ($79,857.03 – $81,073.13 = -$1,216.10) and a decrease of $3,399.62 for the Growth Account ($26,162.26 – $29,561.88 = -$3,399.62).
Addition or Substitution of an Index. The same Index will generally be used for each Risk Control Account for the duration of the Risk Control Account 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 Risk Control Account Period. Examples of such material changes to the Index include, without limitation: a contractual dispute between us and the Index provider, changes that make it impractical or too expensive to purchase derivatives to hedge the Index, or changes that result in significantly different Contract Values or performance. 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.
We reserve the right to add or substitute the Index. If we substitute the Index, the performance of the new Index may differ from the original Index. This, in turn, may affect the Creditedindex interest you earn. If there is a delay between the date we remove the Index Interest you earn.and the date we add a substitute Index, your Risk Control Account Value will be based on the value of the Index on the date the Index ceased to be available, which means market changes during the delay will not be used to calculate the index interest.
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 Risk Control Account Year, index interest will be calculated from the Risk Control Account Start Date 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 Risk Control Account Anniversary. If we are unable to do so, so thatsubstitute a new Index at the same time as an Index ceases to be available there ismay be a brief interval between the date on which we remove the Index and add a suitable alternative index as a replacement, your Contract Value will continue to be allocated to the Risk Control Accounts. However, any credit to your Contract Value for that Risk Control Account Year will not reflect changes in the value of the Index or the replacement index during that interim period. If you take a partial withdrawal, surrender or annuitize the Contract, or die during the interim period, we will apply to your Contract Value allocated to a Risk Control Accounts based on the percentage change in the Index from the beginning of the Risk Control Account 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.
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Risk Control Account Maturity Date
Rebalancing will occur automatically on the Risk Control Account Maturity Date. You may also exercise one of the following options by Authorized Request, without incurring a Market Value Adjustment or Surrender Charge. Surrender Charges do not apply to Series C Contracts. If you intend to change allocation instructions, transfer values or make withdrawals from a Risk Control Account, an Authorized Request must be received by us at least one Business Day prior to the Risk Control Account Maturity Date, otherwise your Risk Control Account Value will be allocated to a new Risk Control Account for another five-year term.
Five Years Until Payout Date.
If there are at least fivethe number of years until the Payout Date is at least equal to the Risk Control Account Period (five-year period), you may exercise any of the following options by Authorized Request:
● | Request a change to your allocation instructions as of the Risk Control Account Maturity Date for any or all of the Allocation Levels; |
● | Request to transfer value (either a specific dollar amount or percentage) from the Risk Control |
Account Option to the Variable Subaccount Option (Level C), or vice versa, as of the Risk Control Account Maturity Date. If you choose this option: |
● | The transfer will occur Pro Rata from the Risk Control Accounts, or Variable Subaccounts, as applicable; and |
● | Rebalancing at Levels I and R will occur as of the Risk Control Account Maturity Date. However, rebalancing at |
● | Withdraw the total Risk Control Account Value as of the Risk Control Account Maturity Date; or |
● | Withdraw a portion of the total Risk Control Account Value as of the Risk Control Account Maturity Date. If you choose this option, you may also change your allocation instructions or request to transfer value, as described above. |
You may also allocate additional Purchase Payments to the Risk Control Accounts 30 days prior to a Risk Control Account Maturity Date. Such Funds will be held in the Holding Account until the Risk Control Account Start Date.
A new Risk Control Account Period, with a newly declared Index Rate Cap, will begin on the Risk Control Account Maturity Date unless there is no Risk Control Account Value remaining as a result of a change to your allocation instructions and/or withdrawal.
Your Authorized Request to change your allocation instructions, transfer value and/or withdraw Risk Control Account Value must be received at least one Business Day prior to the Risk Control Account Maturity Date to take effect as of that date. If we do not receive such request at least one Business Day prior to the Risk Control Account Maturity Date, the request is not in Good Order and no transfer or withdrawal will occur based on such request. However, aA new Risk Control Account Period will begin and rebalancing will occur based on the allocation instructions on file with us.Less Than Five Years Until Payout Date.
If there are less than fivethe number of years until the Payout Date is less than the Risk Control Account Period, a new Risk Control Account cannot be started. You may choose one of the following by Authorized Request:
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Request to transfer the Total Risk Control Account Value to one or more Variable Subaccounts as of the Risk Control Account Maturity Date; |
● | Request to withdraw the total Risk Control Account Value as of the Risk Control Account Maturity Date; or |
● | Request to transfer a portion of the Risk Control Account Value to one or more Variable Subaccounts and withdraw the remaining Risk Control Account Value as of the Risk Control Account Maturity Date. |
● | Your Authorized Request to transfer Risk Control Account Value and/or withdraw Risk Control Account Value must be received at least one Business Day prior to |
Funds are allocated to the Holding Account when a Purchase Payment is received pending investment in
a Risk Control Account. Holding Account Value will remain in the Holding Account until the next Risk Control Account Start Date unless Holding Account Value is being held during a Multiple Source Waiting Period. The period that Holding Account Value is kept in the Holding Account cannot be longer than the Multiple Source Waiting Period of six months. If the maximum Multiple Source Waiting Period is reached, the Holding Account Value will be transferred to the Risk Control Accounts as of the next available Risk Control Account Start Date. Holding Account Value cannot be transferred from the Holding Account to the Variable Subaccounts. Once Holding Account Value attributable to the initial Purchase Payment is transferred from the Holding Account to the Risk Control Account there is the 30-day period to discontinue the Initial Risk Control Accounts as described on page 18 in “Getting Started – The Accumulation Period – Thirty Day Period to Discontinuing Risk Control Accounts” which would allow Risk Control Account Value to be transferred to the Variable Subaccounts. We credit interest on Holding Account Value on a daily basis.
We do not assess a Contract Fee against Contract Value held in the Holding Account.
Surrenders or withdrawals of Holding Account Values are subject to a Surrender Charge.
The Holding Account Value at any time is equal to:
● | The portion of the Purchase Payment(s) held in the Holding Account pending allocation to a Risk Control Account; |
● | Plus interest credited; and |
● | Less any prior partial withdrawal. |
Surrenders or withdrawals of Holding Account Values are subject to a Surrender Charge.
We credit interest on a daily basis on Purchase Payments that will be allocated to one or more Risk Control Accounts for the duration those Purchase Payments remain in the Holding Account. If your initial Purchase Payments are held in the Holding Account during the Multiple Source Waiting Period, we will credit such amounts with the annual effective rate of interest shown on your Contract data pageData Page for the duration those amounts remain in the Holding Account. The credited rate of interest will not be less than the minimum guaranteed interest rate described below. Funds allocated to the Holding Account on different dates may be credited with a different rate of interest for the duration the funds remain in the Holding Account.
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● | An annual rate of interest of 3%; or |
● | An annual rate of interest determined as follows: |
● | The average of the three applicable monthly five-year Constant Maturity Treasury rates reported by the Federal Reserve (described below), and rounded to the nearest 0.05%; |
● | Minus 1.25%; and |
● | Subject to a minimum interest rate of 1.00%. |
The three monthly five-year Constant Maturity Treasury rates used in the calculation above are as follows:
● | The prior September, October, and November monthly five-year Constant Maturity Treasury rates |
will be used to determine the first quarter Minimum Guaranteed Interest Rate effective each January 1; |
● | The prior December, January, and February monthly five-year Constant Maturity Treasury rates will be used to determine the second quarter Minimum Guaranteed Interest Rate effective each April 1; |
● | The prior March, April, and May monthly five-year Constant Maturity Treasury rates will be used to determine the third quarter Minimum Guaranteed Interest Rate effective each July 1; and |
● | The prior June, July, and August monthly five-year Constant Maturity Treasury rates will be used to determine the fourth quarter Minimum Guaranteed Interest Rate effective each October 1. |
The Market Value Adjustment only applies to withdrawals from the Risk Control Accounts and is calculated separately for each Risk Control Account. A surrender or partial withdrawal from a Risk Control Account on a Risk Control Account Maturity Date is not subject to a Market Value Adjustment. If you surrender your Contract or take a partial withdrawal from a Risk Control Account during the Accumulation Period, we will apply the Market Value Adjustment to the amount being surrendered or withdrawn. No withdrawals or surrenders can be taken once Contract Value has been allocated to an Income Payout Option, 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 mayIt is possible in extreme circumstances to lose a portionup to 100% of your principal and previously credited interest due to the Market Value Adjustment regardless of the Risk Control Account 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 during the Accumulation Period. In general, if interest rate levels have increased at the time of surrender or partial withdrawal over their levels at the Risk Control Account Start Date, the Market Value Adjustment will be negative. Similarly,Conversely, in general, if interest rate levels have decreased at the time of surrender or partial withdrawal over their levels at the Risk Control Account 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 five year period consistent with the Risk Control Account Period beginning on the Risk Control Account Start Date withand the yield of the Constant Maturity Treasury rate for a period starting on the date of surrender or partial withdrawal and
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The Company uses both the Constant Maturity Treasury rate and Bank of America/Merrill LynchICE 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 amount of the Market Value Adjustment also reflects in part any change in the Accumulation Credit Factor for the Risk Control Account(s) determined at the time of surrender or partial withdrawal. We use the change in the Accumulation Credit Factor measured from the last Risk Control Account Anniversary (prior Accumulation Credit Factor) to the date of surrender or partial withdrawal (current Accumulation Credit Factor) to increase or decrease the amount of the Market Value Adjustment. If the change in the Accumulation Credit Factor, the current Accumulation Credit Factor divided by the prior Accumulation Credit Factor, is positive (greater than one), we divide the amount of the withdrawal subject to the Market Value Adjustment by the change in the Accumulation Credit Factor, which will decrease the amount subject to the market value adjustment factor and thereby reduce the amount of any positive or negative Market Value Adjustment. Conversely, if the change is negative (less than one), we divide the amount of the withdrawal subject to the Market Value Adjustment by the change in the Accumulation Credit Factor, which will increase the amount subject to the market value adjustment factor and therefore increase the amount of any positive or negative Market Value Adjustment. If there is no change in the Accumulation Credit Factor (the current Accumulation Credit Factor divided by the prior Accumulation Credit Factor equals one), there will be no change in the amount of the withdrawal subject to the market value adjustment factor and in the amount of any positive or negative Market Value Adjustment.
The Market Value Adjustment helps protect us offset our costs and risksfrom market losses related to changes in the value of owningthe fixed income investments and other investments we use to back the guarantees under your Contract from the Risk Control Account Start Date to the time of a surrender or partial withdrawal if we have to sell those investments early to pay the surrender or partial withdrawal.
For each Risk Control Account, we will calculate the Market Value Adjustment as of the date we receive your Authorized Request for surrender or partial withdrawal in Good Order at our Administrative Office. If the Market Value Adjustment is positive, we will increase your Surrender Value or amount you receive from a partial withdrawal by the amount of the positive Market Value Adjustment. If the Market Value Adjustment is negative, we will decrease the Surrender Value or amount you receive from a partial withdrawal by the amount of the negative Market Value Adjustment.
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We will not apply a Market Value Adjustment to:
1. | Death Benefit proceeds; |
2. | Transfers; |
3. | Partial withdrawals taken as required minimum distributions under the Internal Revenue Code that are withdrawn under a systematic withdrawal program we provide; |
4. |
5. | Partial withdrawals and surrenders from a Risk Control Account on the Risk Control Account Maturity Date; and |
6. | Partial withdrawals and surrenders from the Holding |
Market Value Adjustment Formula
The Market Value Adjustment applies during every Risk Control Account Period, for the entire Risk Control Account Period. This means it applies for the initial 5-year Risk Control Account Period, is zero on the Risk Control Account Maturity Date, and restarts for any subsequent 5-year Risk Control Account Period. A Market Value Adjustment is equal to the amount of the partial withdrawal or surrender from the Risk Control Account (W) divided by the result of the current Accumulation Credit Factor for the Risk Control Account divided by the prior Accumulation Credit Factor for the Risk Control Account then multiplied by the market value adjustment factor (MVAF) minus 1 or (W/(C/P))x(MVAF -1).
Where:
C = current Accumulation Credit Factor for the Risk Control Account (i.e., as of the date of withdrawal); and
P = prior Accumulation Credit Factor for the Risk Control Account (i.e., as of the Risk Control Account Anniversary immediately preceding the date of withdrawal).
MVAF= ((1 + I + K)/(1 + J + L)) ^N where:
I = The Constant Maturity Treasury Rate as of the Risk Control Account Start Date for a maturity consistent with the Risk Control Account Period;Period (each Risk Control Account Period is five years);
J = 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 Risk Control Account Period;Period (each Risk Control Account Period is five years);
(if there is no corresponding maturity of the Constant Maturity Treasury Rate, then the linear interpolation of the Constant Maturity Treasury Rates with maturities closest to N will be used to determine I and J.)
K = The Bank of America/Merrill LynchICE BofAML Index as of the Risk Control Account Start Date;
L = The Bank of America/Merrill LynchICE BofAML Index as of the date of withdrawal; and
N = The number of years (whole and partial) from the date of withdrawal until the Risk Control Account Maturity Date.
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We determine I based on the Risk Control Account Period. For example, the Risk Control Account Period is 5 years. I would correspond to the 5-year Constant Maturity Treasury rate on the Risk Control Account Start Date. We determine J when you take a partial withdrawal or surrender. For example, the Risk Control Account Period is 5 years and you surrender the Contract 2 years into the Risk Control Account Period, J would correspond to the Constant Maturity Treasury rate consistent with the time remaining in the Risk Control Account Period or 3 years (3 = 5 - 2). For I and J where there is no Constant Maturity Treasury rate declared, we will use linear interpolation between declared Constant Maturity rates to determine I and J.
The value of K and L on any Business Day will be equal to the closing value of the Bank of America/Merrill LynchICE BofAML Index on the previous Business Day.
If the publication of any component of the Market Value Adjustment indices is discontinued or if the calculation of the Market Value Adjustment indices is changed substantially, we may substitute a new index for the discontinued or substantially changed index, subject to approval by the insurance department in your state. Before we substitute 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”Appendix B 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, minus any applicable Surrender Charge, adjusted for any applicable Market Value Adjustment for Risk Control Accounts. Surrender Charges do not apply to Series C Contracts.
Upon payment of the Surrender Value, the Contract is terminated, and we have no further obligation under the Contract. 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 redeeming Accumulation Units from the Variable Subaccounts and/or Accumulation Credits from the Risk Control Accounts, and withdrawing Holding Account Value, if applicable.ACCESS TO YOUR MONEY
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. Although withdrawal of Risk Control Account Value is generally not permitted while there is Variable Subaccount Value, you may withdraw Risk Control Account Value on the Risk Control Account Maturity Date. You may provide specific instructions for withdrawal of Variable Subaccount Value. If you do not provide specific instructions, withdrawals will be processed on a Pro Rata basis from the value in all Variable Subaccounts. If there is insufficient Variable Subaccount Value, or no Variable Subaccount Value, Holding Account Value will be withdrawn. If there is insufficient Holding Account Value or no Holding Account Value, Risk Control Account Value will be withdrawn on a Pro Rata basis. Any applicable Surrender Charge and/or 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 redeeming Accumulation Units from the appropriate Variable Subaccounts withdrawing Holding Account Value, and/or redeeming Accumulation Credits from the appropriate Risk Control Accounts, if applicable.
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To make a partial withdrawal, you must do so by Authorized Request in Good Order. Partial withdrawals for less than $25,000 and changes to systematic withdrawals are permitted by telephone and in writing. The written consent of all Owners and Irrevocable Beneficiaries 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 at or after 4:00 P.M. Eastern Time, it will be processed on the next Business Day. If a partial withdrawal would cause your Surrender Value to be less than $2,000, we will provide written notice that the Contract will be surrendered 15 Business Days following mailing of the notice unless the Surrender Value is increased to the minimum required value of $2,000.
The Contract may not be appropriate for investors who plan to take withdrawals or surrender the Contract. Partial withdrawals may be subject to Surrender Charges (for Series B Contracts only) and/or a Market Value Adjustment (for Risk Control Accounts only). See “Fees and Expenses” and “Market Value Adjustment.”Adjustment” for more details. Partial withdrawals may also beare subject to income tax and if taken before age 59½, ana 10% additional 10% federal penalty tax.tax may apply. You should consult your tax adviser before taking a partial withdrawal. See “Federal Income Tax Matters.”
Systematic Withdrawals.If elected at the time of the application or requested at any other time by Authorized Request in Good Order, youYou 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. Such withdrawals must be at least $100 each. Generally, you must be at least age 59½ to participate inSee “Benefits Available Under the systematic withdrawal plan. The withdrawals may be requested on the following basis:
Participation in the systematic withdrawal plan will terminate on the earliest of the following events:
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There are federal income tax consequences to partial withdrawals through the systematic withdrawal plan and you should consult with your tax adviser before electing to participate in the plan. We may discontinue offering the systematic withdrawal plan at any time.
Annual Free Withdrawal Amount. For Series B Contracts, each Contract Year, you may withdraw up to 10% of the total Purchase Payments received that are within the Surrender Charge Period at the time of the withdrawal for that Contract Year without incurring a Surrender Charge. As long as the partial withdrawals you take during a Contract Year do not exceed the Annual Free Withdrawal Amount, we will not assess a Surrender Charge.
If you make a partial withdrawal of less than the Annual Free Withdrawal Amount, the remaining Annual Free Withdrawal Amount will be applied to any subsequent partial withdrawal which occurs during the same Contract Year. Any remaining Annual Free Withdrawal Amount will not carry over to a subsequent Contract Year.
Please see your Contract– Systematic Withdrawals” for more information.details.
The laws of your state may limit the availability of the Surrender Charge waivers and may also change certain terms and/or benefits under the waivers. You should consult your Contract for further details on these variations. Also, even if you do not pay a Surrender Charge because of the waivers, you still may be required to pay taxes or tax penalties on the amount withdrawn. You should consult a tax adviser to determine the effect of a partial withdrawal on your taxes.
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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 and Irrevocable Beneficiaries must be obtained before the Contract is surrendered.
Surrender Charges and/or a Market Value Adjustment may apply to your Contract surrender. See “Market Value Adjustment” and “Fees and Expenses.” A surrender may also beis subject to income tax and, if taken before age
59½, ana 10% additional 10% federal penalty tax.tax may apply. You should consult a tax adviser before requesting a surrender. See “Federal Income Tax Matters.”
Surrender Value. 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, minus any applicable Surrender Charge, adjusted for any applicable Market Value Adjustment for Risk Control Accounts. Surrender Charges do not apply to Series C Contracts.
Upon payment of the Surrender Value, the Contract is terminated, and we have no further obligation under the Contract. 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 redeeming Accumulation Units from the Variable Subaccounts and/or Accumulation Credits from the Risk Control Accounts, and withdrawing Holding Account Value, if applicable.
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.
Generally, the amount of any partial withdrawal or full surrender will be paid to you within seven days after we receive your Authorized Request in Good Order. With respect to the Risk Control Accounts and Holding Accounts, 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 of postponement as described above, 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.
With respect to Variable Subaccounts, to the extent permitted by applicable law, we reserve the right to postpone payment of any partial withdrawal or full surrender or death benefit proceeds for any period when: (i) the New York Stock Exchange is closed (other than customary weekend and holiday closings), or the SEC determines that trading on the exchange is restricted; (ii) the SEC determines than an emergency exists such that disposal of securities held in the Variable Separate Account, or the termination of their value, is not reasonably practicable; or (iii) the SEC, by order, permits us to defer payment in order to protect persons with interests in the Funds. In addition, pursuant to SEC rules, if the money market fund available as one of the Fund options (the “Money Market Fund”) suspends payment of redemption proceeds in connection with the liquidation of the Money Market Fund, we may delay a transfer or payment of any partial withdrawal or full surrender from the Variable Subaccount investing in the Money Market Fund (“Money Market Subaccount”) until the Money Market Fund is liquidated. Moreover, if the Money Market Fund suspends payment of redemption proceeds in connection with the implementation of liquidity gates by such Money Market Fund, we will delay transfer or payment of any partial withdrawal or full surrender from the Money Market Subaccount until the removal of such liquidity gates.
Bailout ProvisionBENEFITS AVAILABLE UNDER THE CONTRACT
The following table summarizes information about the benefits available under the Secure Account option and a single bailout rate for all Risk Control Accounts under the Growth Account option. The bailout rate(s) will be prominently displayed on your Contract Data Page attached to the front of the cover page of the Contract and will not change during the life of your Contract. 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 transfer the Risk Control Account Value from that Risk Control Account during the 30-day period following the Risk Control Account Anniversary by Authorized Request without the application of a Market Value
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Benefit | ||||
Is Benefit Standard or Optional | Maximum Fee | Restrictions and Limitations | ||
Death Benefit | Provides a death benefit equal to the Contract Value if the Owner dies during the Accumulation Period. | Standard | No Charge | None. |
Express Portfolios | Provides asset allocation portfolios to assist you in selecting investment options under the Contract. The Express Portfolio utilize the Risk Control Accounts and Variable Subaccounts to accommodate various risk tolerances. | Optional | No Charge | Only available at the time of purchase. |
Automatic Rebalance Program | Returns your Contract Values to the Allocation Levels on file with us through a rebalancing schedule. | Standard | No Charge | There is a set schedule of when rebalancing occurs at various levels of the Contract. |
Systematic Withdrawals | Provide payments on a schedule as set up by you. | Optional | No Charge | Withdrawals may be subject to a Market Value Adjustment or Surrender Charge. |
Death of the Owner
Owner. 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:
● | Proof of Death of the Owner while the Contract is in force; |
● | our claim form from each Beneficiary, properly completed; and |
● | any other documents we require. |
The Death Benefit will equal your Contract Value on the date we receive all the documents listed above. 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 due proof of death and all other required documents as described above.
No Surrender Charges or Market Value Adjustments will apply to the Death Benefit.
Within 60 days after we receive Proof of Death, the Beneficiary must elect the payment method for the Death Benefit. Those options are described below. We will pay the Death Benefit in a manner that complies with the requirements of Section 72(s) or 401(a)(9) of the Internal Revenue Code, as applicable. If one or more Beneficiaries do not elect a payment method within 60 days of our receipt of due proof of death of the
Owner, we will pay the Death Benefit proceeds to each Beneficiary under the payment method elected by the Beneficiary or in a single lump-sum payment if the Beneficiary has not elected a payment method.
Death of Annuitant While the Owner is Living
Living. If an Owner is a natural person and the Annuitant dies during the Accumulation Period, the following will occur: (i) if there is a surviving Joint Annuitant, the surviving Joint Annuitant will become the Annuitant; and (ii) if there is no Joint Annuitant, the Owner will become the Annuitant (Primary Owner if Joint Owner). will become the Annuitant. If, however, the Owner is not a naturalnon-natural person, and thean Annuitant dies during the Accumulation Period the following will occur: (i) if there is a surviving Joint Annuitant, the surviving JointThe death of any Annuitant will becomebe treated as the
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Annuitant; death of the Owner and Death Benefit proceeds must be distributed in accordance with the Death Benefit Options; and (ii) if there is no Joint Annuitant, the Beneficiary must elect to receive the Death Benefit proceeds. If you have any questions concerning the criteria you should use when choosing Annuitants under the Contract, or the treatment of your Contract, consult your legal counsel or financial professional.
Death Benefit Payment Options
Options. The following rules apply to the payment of the Death Benefit under a Non-Qualified Contract:
● | Spouses –If the sole Beneficiary is the surviving Spouse of the deceased Owner, then he or she may choose to continue the Contract and become the new Owner (except under certain Qualified Contracts). At the death of the surviving Spouse, this provision may not be used again, even if that surviving Spouse remarries. In that case, the rules for non-Spouses will apply. A surviving Spouse may also elect to receive the Death Benefit proceeds in a lump sum, apply the proceeds to an Income Payout Option, or receive the Death Benefit proceeds within five years of the date of the Owner’s death. |
● | Non-Spouses – If the Beneficiary is not the surviving Spouse of the deceased Owner, then this Contract cannot be continued. Instead, upon the death of any Owner, the Beneficiary must choose one of the following: |
● | Receive the Death Benefit (if the Beneficiary is a natural person) pursuant to one of the Income Payout Options. Payments under an Income Payout Option must begin within one year of the Owner’s death and must not extend beyond a period certain equal to the Beneficiary’s life expectancy; |
● | Receive the Death Benefit in one lump sum following our receipt of Proof of Death; or |
● | Receive the Death Benefit in one lump sum, deferred for up to five years from the date of the Owner’s death. |
Upon receipt of Proof of Death, the Beneficiary must instruct us how to treat the proceeds subject to the distribution rules discussed above. Other minimum distribution rules apply to Qualified Contracts.
Death of Owner or Annuitant After the Payout Date
Date.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.
Interest on Death Benefit ProceedsProceeds. I
Interestnterest 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.
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Abandoned Property Requirements
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. The distribution of annuity contracts to the state abandoned property division is subject to tax information reporting, federal income tax withholding and state income tax withholding, where applicable. 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.
Certain asset allocation portfolios or “Express Portfolios” are available to assist you in selecting investment options under the Contract. At the time you purchase the Contract, you may elect to allocate all of your Purchase Payments according to one of the Express Portfolios. Each Express Portfolio allocates your Purchase Payments among the Variable Subaccounts and Risk Control Accounts based on a specified allocation percentage for each investment option available under the Portfolio. Each Express Portfolio employs different investment styles and allocates Purchase Payments among investment options to match a specified level of risk tolerance (e.g., conservative, moderate and aggressive). You and your investment adviser can use an Express Portfolio as a tool to help select a menu of investment options under the Contract that matches your level of risk tolerance. There is no separate charge for selecting an Express Portfolio.
The Express Portfolios are only available on or before the Contract Issue Date. You may select only one Express Portfolio and you must allocate 100% of your initial Purchase Payment to that Express Portfolio. Each Express Portfolio contains several different investment options that in combination may create different degrees of exposure to market risks and corresponding opportunities for more potential growth while other combinations of investment options may offer different degrees of protection from market risks but lower growth potential. If you elect to invest according to one of the Express Portfolios, we will invest your initial Purchase Payment according to the specified allocation percentages of the Express Portfolio you selected.
If you make additional Purchase Payments, the Purchase Payments will be invested according to the allocation percentages of your Express Portfolio, subject to additional requirements described in the “Purchase Payment Allocation” section of this Prospectus. If you submit new allocation instructions after the Contract Issue Date, these instructions will replace your existing instructions and will terminate your participation in the Express Portfolio. Changes to instructions for the Variable Subaccounts will take effect on the date we receive the request. Changes to instructions for investments in the Risk Control Accounts will take effect following our receipt of the request in Good Order either on the next Risk Control Account Anniversary or Risk Control Maturity Date, depending on the change requested. In either case, you will not be able to select a new Express Portfolio. However, you can always submit new allocation instructions that replicate the allocation percentages under an existing Express Portfolio.
If you are interested in the Express Portfolios, you should consult your investment adviser. In providing these Express Portfolios, we are not providing investment advice. You are responsible for determining which Express Portfolio is best for you. The Express Portfolios are an allocation tool, and investing by means of an Express Portfolio does not ensure a profit or protect against a loss. The compositions of the Express Portfolios may vary over time. The composition of the Express Portfolio you select will not change unless a Variable Subaccount or Risk Control Account option is discontinued, you terminate your Express Portfolio by amending your allocation instructions or you discontinue an Automatic Rebalance Program at levels C or V. We reserve the right to discontinue current Express Portfolios and making available new Express Portfolios in the future.
During the Accumulation Period, we will automatically rebalance your Contract Value among the Risk Control Accounts and/or Variable Subaccounts on specified dates based on your most recent allocation instructions that we have on file. This means, for example, that if your allocation instructions require that 50% of your Contract Value should be allocated to a Variable Subaccount and 50% of your Contract Value should be allocated to a Risk Control Account, we will transfer your Contract Values between those Accounts so that 50% of your Contract Value is allocated to both the Variable Subaccount and Risk Control Account following the transfer. Transfers that occur as a result of rebalancing will not count towards the 12 transfers we allow each Contract Year without assessing a transfer fee.
Rebalancing at Level C (between Variable Subaccounts and Risk Control Accounts) will occur as of each Risk Control Account Maturity Date. This rebalancing will occur according to the allocation instructions on file with us, unless there is no Risk Control Account Value, you elect to discontinue rebalancing by Authorized Request, or you have requested to transfer value which results in rebalancing being discontinued at Levels C and V (among Variable Subaccounts) as of each Risk Control Account Maturity Date. Each Risk Control Account Period is five years.
You may change your allocation instructions for Level C prior to rebalancing on a Risk Control Account Maturity Date by Authorized Request, subject to the requirements described under the “Risk Control Account Option – Risk Control Account Maturity Date” section in this Prospectus. Your Authorized Request to change your allocation instructions must be received at least one Business Day prior to the Risk Control Account Maturity Date to take effect as of that date. If we are not notified at least one Business Day prior to the Risk Control Account Maturity Date, the request will not be in Good Order and no transfer will occur based on such request.
Rebalancing at Level V will occur as of each Contract Anniversary according to the allocation instructions on file with us, unless there is no Variable Subaccount Value. Rebalancing at Level V will also occur as of each Risk Control Account Maturity Date according to the allocation instructions on file with us, unless there is no Variable Subaccount Value or you have requested to transfer value which results in rebalancing being discontinued at Levels C and V as of each Risk Control Account Maturity Date. If rebalancing is discontinued, you may elect to reinstate rebalancing at Level C by Authorized Request, which will also reinstate rebalancing at Level V. Your Authorized Request to reinstate rebalancing must be received at least one Business Day prior to the Risk Control Account Maturity Date to take effect as of that date. If we are not notified at least one Business Day prior to the Risk Control Account Maturity Date, rebalancing at Level C will not occur until the next Risk Control Account Maturity Date.
You may change your allocation instructions for Level V at any time by Authorized Request, including prior to rebalancing on a Contract Anniversary or a Risk Control Account Maturity Date. A change to your Level V allocation instructions will take effect as of the Business Day that we receive the request in Good Order, unless otherwise specified by you.
Rebalancing at Level I (between Risk Controls Accounts with different reference Indices) will occur as of each Risk Control Account Maturity Date according to the allocation instructions on file with us. Each Risk Control Account Period is five years. Rebalancing at Level I will not occur if your Risk Control Account Value and allocation instructions are not split between Indices or there is no Risk Control Account Value.
You may change your allocation instructions for Level I prior to rebalancing on a Risk Control Account Maturity Date by Authorized Request, subject to the requirements described under the “Risk Control Account Option – Risk Control Account Maturity Date” section in this Prospectus. Your Authorized Request to change your allocation instructions must be received at least one Business Day prior to the Risk Control Account Maturity Date to take effect as of that date. If we are not notified at least one Business Day prior to the Risk Control Account Maturity Date, the request will not be in Good Order and no transfer will occur based on such request.
Rebalancing at Level R (between Risk Controls Accounts with the same reference Index) will occur as of each Risk Control Account Anniversary according to the allocation instructions on file with us. Rebalancing at Level R will not occur if your Risk Control Account Value and allocation instructions are not split between Risk Control Accounts with the same reference Index or there is no Risk Control Account Value.
You may change your allocation instructions for Level R prior to rebalancing on a Risk Control Account Anniversary by Authorized Request. Your request to change your allocation instructions must be received at our Administrative Office at least one Business Day prior to a Risk Control Account Anniversary for the instructions to take effect prior to rebalancing. If we do not receive your request at least one Business Day prior to a Risk Control Account Anniversary, your change in allocation instructions will not be effective until after that Risk Control Account Anniversary and after rebalancing has taken place. If you change your allocation instructions by Authorized Request and there is no Risk Control Account in force, a change to your allocation instructions for the applicable Allocation Levels will be required to establish a Risk Control Account. However, if there is no Risk Control Account in force because you exercised your right to discontinue your Risk Control Accounts, as described under “Getting Started – The Accumulation Period – Thirty Day Period to Discontinue Initial Risk Control Accounts,” you will not be allowed to change your allocation instructions to establish a Risk Control Account for at least 30 days.
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 your Contract Data Page), we may, at our discretion, restrict transfers into that Risk Control Account and may not reallocate your Contract Value between Risk Control Accounts under the Automatic Rebalance Program. See “Risk Control Account Option – Bailout Provision” for more details.
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. Such withdrawals must be at least $100 each. Generally, you must be at least age 59½ to participate in the systematic withdrawal plan. The withdrawals may be requested on the following basis:
As a specified dollar amount; or |
● | In an amount equal to your required minimum distribution under the Internal Revenue Code. |
Payout DateFor systematic withdrawals of Variable Subaccount Value, you may provide specific withdrawal instructions. If you do not provide instructions or if there is insufficient Variable Subaccount Value for the specified subaccounts, withdrawals will be processed on a Pro Rata basis from the value in all Variable Subaccounts. If there is insufficient Variable Subaccount Value, Holding Account Value will be withdrawn. If there is insufficient Holding Account Value, Risk Control Account Value will be withdrawn on a Pro Rata basis. No Surrender Charges or Market Value Adjustment will be deducted from systematic withdrawals to satisfy minimum required distributions established by the Internal Revenue Code. Other systematic withdrawals may be subject to Surrender Charges if they exceed the 10% Annual Free Withdrawal Amount. A Market Value Adjustment will be applied to all amounts taken from a Risk Control Account unless the systematic withdrawals are taken to satisfy minimum required distribution obligations.
Participation in the systematic withdrawal plan will terminate on the earliest of the following events:
● | The Surrender Value falls below the minimum required value of $2,000; |
● | A termination date that you have specified is reached; |
● | You request that your participation in the plan cease; or |
● | The Payout Date is reached. |
There are federal income tax consequences to partial withdrawals through the systematic withdrawal plan and you should consult with your tax adviser before electing to participate in the plan. We may discontinue offering the systematic withdrawal plan at any time.
INCOME PAYMENTS – THE PAYOUT PERIOD
Payout Date. When you purchase the Contract, we will set the Payout Date as the Contract Anniversary following the Annuitant’s 95th birthday. If there are Joint Annuitants, we will set the Payout Date based on the age of the oldest Joint Annuitant. Please refer to the Data Page of your Contract for details.
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.Page. Any such change is subject to any maximum maturity age restrictions that may be imposed by law.
Payout Period
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, theyour Contract Value will be applied to the Income Payout Option you selected. A Surrender Charge (in the case of Series B Contracts only) 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. When the Payout Period begins, you will no longer be able to make withdrawals.
Terms of Income Payments
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The Owner may name the person to receive income payments. If no person is named, payments will be made to the Owner.
We will make the first income payment on the Payout Date. We may require proof of age and gender (if the Income Payout Option Ratesrate 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.
Election of an Income Payout Option
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 Payee may not assign or transfer any future payments under any option.
The amount applied under each option must be at least $2,500, or the amount required to provide an initial monthly income payment of $20. If the Contract Value is less than $2,500, we may make a lump sum payment equal to the Contract Value in lieu of income payments.
We will make income payments monthly, quarterly, semiannually, or annually for the Installment Option. Life Income and Joint Survivor options allow monthly income payments. We will also furnish the amount of such payments on request. Payments that are less than $20 will only be made annually.
If you do not select an Income Payout Option, we will make monthly payments on the following basis, unless the Internal Revenue Code requires that we pay in some other manner in order for this Contract to qualify as an annuity or to comply with Section 401(a)(9), in which case we will comply with those requirements;
● | Life Income Option with a 10-Year Guaranteed Period Certain (as described below) for Contracts with one Annuitant; and |
● | Joint and Survivor Life Income Option with a 10-Year Guaranteed Period Certain (as described below) for Contracts with two Annuitants. |
You may change your Income Payout Option any time before payments begin on the Payout Date.
Options
Option 1 –-- Installment OptionOption.. We will pay monthly income payments for a chosen number of years, not less than 10, nor more than 30. If the Annuitant dies before income payments have been made for the chosen number of years: (a) income payments will be continued for the remainder of the period to the Payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 1 rates, will be paid to the Payee or to the Owner, if there is no surviving Payee. For purposes of the present value calculation, guaranteed rates will be used.
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Option 2 –-- Life Income Option –-- Guaranteed Period CertainCertain.. We will pay monthly income payments for as long as the Annuitant lives. If the Annuitant dies before all the income payments have been made for the guaranteed period certain: (a) income payments will be continued for the remainder of the guaranteed period to the Payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 2 rates, will be paid to the Payee or to the Owner, if there is no surviving Payee. For purposes of the present value calculation, guaranteed rates will be used. The guaranteed period certain choices are 0 (life income only), 5, 10, 15, or 20 years.
Option 3 –-- Joint and Survivor Life Income Option –-- Guaranteed Period CertainCertain.. We will pay monthly income payments for as long as either of the Annuitants lives. If at the death of the second surviving Annuitant, income payments have been made for less than 10 years: (a) income payments will be continued for the remainder of the guaranteed period certain to the Payee; or (b) the present value of the remaining income payments, computed at the interest rate used to create the Option 3 rates, will be paid to the Payee or to the Owner, if there is no surviving Payee. For purposes of the present value calculation, guaranteed rates will be used.
The Income Payout Options described above may not be offered in all states. Any state variations are described in Appendix C 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. In addition, note that effective for Qualified Contract Owners who die on or after January 1, 2020, subject to certain exceptions, most non-spouse designated beneficiaries must now complete death benefit distributions within ten years of the Owner’s death in order to satisfy required minimum distribution rules. Consult a tax advisor. Option 2 and Option 3 pay monthly income payments. We do allow partial annuitization. Partial annuitization will count toward the Annual Free Withdrawal Amount.
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 —generallymoney—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“Taxation of Non-Qualified Contracts - 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 law imposes several requirements that annuities must satisfy in order to receive the tax treatment normally accorded to annuity contracts.
Diversification Requirements. Section 817(h) of the Code provides that separate account investment underlying a contract must be “adequately diversified” in accordance with Treasury regulations in order for the Contract to qualify as an annuity contract under Section 72 of the Code. The Variable Account, through each Fund, intends to comply with the diversification requirements prescribed in regulations under Section 817(h) of the Code, which affect how the assets in the various Subaccounts may be invested. Although we do not have direct control over the Funds in which the Variable Account invests, we believe that each Fund in which the Variable Account owns shares will meet the diversification requirements, and therefore, the Contract will be treated as an annuity contract under the Code.
Owner Control. In certain circumstances, owners of variable annuity contracts have been considered for Federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the Contract Owners have been currently taxed on income and gains attributable to the variable account assets. There is limited guidance in this area, and some features of the Contract, such as the flexibility of an owner to allocate premium payments and transfer amounts among the investment divisions of the separate account, have not been explicitly addressed in published rulings. While we believe that the Contract does not give Owners investment control over separate account assets, we reserve the right to modify the Contract as necessary to prevent an Owner from being treated as the Owner of the separate account assets supporting the Contract.
Required DistributionsDistributions.. 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 Owner’s 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 Owner’s death unless distributions are made over life or life expectancy, of such Beneficiary, 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
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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 PersonPerson.. 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 Payments 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.
WithdrawalsWithdrawals. .When a withdrawal from a Non-Qualified Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the Contract Value, without adjustment for any applicable Surrender Charge, immediately before the distribution over the Owner’s investment in the Contract (generally, the Purchase Payments or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) at that time. The Contract Value immediately before a withdrawal may have to be increased by any positive Market Value Adjustment that results from a withdrawal. There is, however, no definitive guidance on the proper tax treatment of Market Value Adjustments and you may want toshould 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 Owner’s investment in the Contract.
In the case of a withdrawal under a Qualified Contract, a ratable portion of the amount received is taxable, generally based on the ratio of the “investment in the contract” to the individual’s total account balance or accrued benefit under the retirement plan. The “investment in the contract” generally equals the amount of any non-deductible Purchase Payment paid by or on behalf of any individual. In many cases, the “investment in the contract” under a Qualified Contract can be zero.
PenaltyAdditional Tax on Certain Withdrawals. In the case of a distribution from a Non-Qualified Contract and Qualified Contract, there may be an imposed an additional federal tax penalty equal to ten percent of the amount treated as income. In general, however, there is no penalty onthis additional tax does not apply to distributions if they are:if:
● ● ● ● | your withdrawal is a qualified reservist distribution; the distribution is due to any IRS levy; your withdrawal is due to a terminal illness distribution; or you withdraw funds up to the cap for domestic violence abuse distribution. |
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.
Substantially Equal Periodic Payments. Substantially equal periodic payments must continue until the later of reaching age 59½ or five years. Modification of payments during that time period will result in the retroactive application of the 10% additional tax. You should consult a qualified tax adviser before making a modification.
Income Payments.Although tax consequences may vary depending on the payout option elected under an annuity contract, a portion of each income payment is generally not taxed, and the remainder is taxed as ordinary income. The non-taxable portion of an income payment is generally determined in a manner that is designed to allow you to recover your investment in the Contract ratably on a tax-free basis over the expected stream of income payments, as determined when income payments start. Once your investment in the Contract has been fully recovered, however, the full amount of each income payment is subject to tax as ordinary income.
Partial Annuitization. Under a new tax provision enacted in 2010, ifIf part of an annuity contract’s value is applied to an annuity option that provides payments for one or more lives or for a period of at least ten
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years, those payments may be taxed as annuity payments instead of withdrawals. The payment options under the Contract are intended to qualify for this “partial annuitization”"partial annuitization" treatment. Please consult a tax advisor if you are considering a partial annuitization.
Taxation of Death Benefit ProceedsProceeds.. 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.Transfers, Assignments or Exchanges of the Contract. A transfer or assignment of ownership of the Contract, the designation of an Annuitant other than the Owner, the selection of certain maturity dates, or the exchange of the Contract may result in certain tax consequences to you that are not discussed herein. An Owner contemplating any such transfer, assignment or exchange, should consult a tax advisor as to the tax consequences.
Withholding. Annuity distributions are generally subject to withholding for the recipient’s federal income tax liability.liability and state income tax liability, where applicable. Recipients can generally elect, however, not to have tax withheld from distributions. The withholding rate varies according to the type of distribution and the Owner’s tax status. The Owner will be provided the opportunity to elect not have tax withheld from distributions. Certain limitations may apply. Please consult a tax advisor before making any withholding election.
“Eligible rollover distributions” from section 401(a), 403(b), and governmental 457 plans are subject to a mandatory federal income tax withholding of 20%. For this purpose, an eligible rollover distribution is any distribution to an employee (or employee' spouse or former spouse as Beneficiary or alternate Payee) from such a plan, except certain distributions such as distributions required by the Internal Revenue Code, distributions in a specified annuity form, or hardship distributions. The 20% withholding does not apply, however, to nontaxable distributions or if (i) the employee (or employee’s spouse or former spouse as Beneficiary or alternative Payee) the employee chooses a “direct rollover” from the plan to a tax-qualified plan, IRA or tax sheltered annuity or to a governmental 457 plan that agrees to separately account for rollover contributions; or (ii) a non-spouse Beneficiary chooses a “direct rollover” from the plan to an IRA established by the direct rollover.
Multiple ContractsContracts.. All Non-Qualified deferred annuity contracts that are issued by us (or our affiliates) to the same Owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such Owner’s income when a taxable distribution occurs.
Further InformationInformation.. 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 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 individual’s gross income for the year. The contributions may be deductible in whole or in part, depending on the individual’s income. Distributions from certain retirement plans may be “rolled over” into an IRA on a tax-deferred basis without regard to these limits. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. A 10% penaltyadditional 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, anAn 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 individual’s 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% penaltyadditional 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% penaltyadditional 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, anAn 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
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aggregating all of an individual’s 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 required minimum distribution rules that govern the timing and amount of distributions. You should refer to your Contract or consult a tax adviser for more information about these distribution rules.
The required beginning date for these distributions is based on your applicable age as defined in the tax law. You should refer to your Contract, retirement plan, adoption agreement, or consult a tax adviser for more information about these distribution rules.
Distributions
Required Minimum Distributions. If distributions from your IRA are made in the form of an annuity, and the annuity payments in a year exceed the amount that would be required to be distributed for the year under the rules for non-annuitized contracts (determined by treating the IRA’s account balance as including the value of the annuity), the excess can be counted towards satisfying the required minimum distribution with respect to any non-annuitized account balance in your IRA(s). You should consult a tax adviser for if you want to use this special rule.
Effective for Qualified Contracts generally areContract Owners who die on or after January 1, 2020, subject to withholding forcertain exceptions, most non-spouse designated beneficiaries must now complete death benefit distributions within ten years of the Owner’s federal incomedeath in order to satisfy required minimum distribution rules. Consult a tax liability. The withholding rate varies accordingadvisor.
If you fail to the type of distribution and the Owner’s tax status. The Ownertake your full RMD for a year, you will be provided the opportunity to elect not have tax withheld from distributions.
“Eligible rollover distributions” from Section 401(a), 403(b), and governmental 457 plans are subject to a mandatory federal income25% excise tax withholdingon any shortfall. This excise tax is reduced to 10% if a distribution of 20%. For this purpose, an eligible rollover distributionthe shortfall is any distributionmade within two years and prior to an employee (or employee’s spousethe date the excise tax is assessed or former spouse as Beneficiary or alternate Payee) from such a plan, except certain distributions such as distributions requiredimposed by the Internal Revenue Code, distributions inIRS. If you fail to take your full RMD for a specified annuity form, or hardship distributions. The 20% withholding does not apply, however, to nontaxable distributions or if the employee choosesyear, you should consult with a “direct rollover” from the plan to a tax-qualified plan, IRA or tax sheltered annuity or to a governmental 457 plan that agrees to separately accountadviser for rollover contributions.more information.
Federal Estate Taxes, Gift and Generation-Skipping Transfer Taxes
While no attempt is being made to discuss in detail the Federal estate tax implications of the Contract, a purchaser should keep in mind that the value of an annuity contract owned by a decedent and payable to a Beneficiary by virtue of surviving the decedent is included in the decedent’s gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the contingent Owner or the actuarial value of the payments to be received by the Beneficiary. Consult an estate planning adviser for more information.
Under certain circumstances, the Internal Revenue Code may impose a “generation skippinggeneration-skipping transfer tax (“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 2016, theThe federal estate tax, gift tax and GST tax exemptions and maximum rates are $5,450,000 and 40%, respectively.
The potential application of these taxes underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios.
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.
The Contract provides that upon your death, a surviving spouseSpouse may have certain continuation rights that he or she may elect to exercise for the Contract’s Death Benefit and any joint-life coverage under an optional living benefit.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 regardless of whether theypurposes. Domestic partnerships and civil unions that are same or different sex.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.
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Annuity Purchases By Nonresident Aliens and Foreign Corporations
The discussion above provides general information regarding U.S. federal income tax consequences to annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S. citizens or residents will generally be subject to U.S. federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, such purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchaser’s country of citizenship or residence. Additional withholding may occur with respect to entity purchasers (including foreign corporations, partnerships and trusts) that are not U.S. residents. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S., state, and foreign taxation with respect to an annuity contract purchase.
What Acts may result in Penalties or Additional Taxes?
There are tax advantages to using an annuity for retirement savings. The tax advantages may be offset by additional taxes and penalties if you are not familiar with and follow the rules.
For example, there may be additions to regular tax for the following activities:
● | Taking early distributions |
● | Allowing excess amounts to accumulate for failing to tax required distributions. |
● | Making excess contributions |
There may be penalties for the following, without limitation:
● | Overstating the amount of nondeductible contributions |
● | Not having enough tax withheld |
● | Failing to report income |
Please consult with your personal advisor to understand when additional tax or penalties may apply.
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.
Important Information about the Indices
The Contract is not sponsored, endorsed, sold or promoted by Bank of America/Merrill Lynch (“BofA Merrill Lynch”). BofA Merrill Lynch has not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Contract, nor makes any representation or warranty, express or implied, to the Owners of the Contract or any member of the public regarding the Contract or the advisability of investing in the Contract, particularly the ability of the Bank of America/Merrill LynchICE BofAML Index to track performance of any market or strategy. BofA Merrill Lynch’s only relationship to the Company is the licensing of certain trademarks and trade names and indices or components thereof. The Bank of America/Merrill LynchICE BofAML Index is determined, composed and calculated by BofA Merrill Lynch without regard to the Company or the Contract or its Owners. BofA Merrill Lynch has no obligation to take the needs of the Company or the Owners of the Contract into consideration in determining, composing or calculating the Bank of America/Merrill LynchICE BofAML Index. BofA Merrill Lynch is not responsible for and has not participated in the determination of the timing of, prices of, or quantities of the Contract to be issued or in the determination or calculation of the equation by which the Contract is to be priced, sold, purchased, or redeemed. BofA Merrill Lynch has no obligation or liability in connection with the administration, marketing, or trading of the Contract.
BOFA MERRILL LYNCH DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE BANK OF AMERICA/MERRILL LYNCHICE BOFAML INDEX OR ANY DATA INCLUDED THEREIN AND BOFA MERRILL LYNCH SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, UNAVAILABILITY, OR INTERRUPTIONS THEREIN. BOFA MERRILL LYNCH MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, HOLDERS OF THE PRODUCT OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BANK OF AMERICA/MERRILL LYNCHICE BOFAML INDEX OR ANY DATA INCLUDED THEREIN. BOFA
MERRILL LYNCH MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, WITH RESPECT TO THE BANK OF AMERICA/MERRILL LYNCHICE BOFAML INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL BOFA MERRILL LYNCH HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL, CONSEQUENTIAL DAMAGES, OR LOST PROFITS, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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The Bank of America/Merrill LynchICE BofAML Index is a trademark of Bank of America/Merrill Lynch or its affiliates and has been licensed for use by the Company.
S&P 500 IndexIndex..
The Contract is not sponsored, endorsed, sold or promoted by Standard & Poor’s, a division of the McGraw-Hill companies, Inc. (“S&P”). S&P makes no representation or warranty, express or implied, to the owners of the 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&P’s only relationship to the Company is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to the Company or 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.Poor’s. 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 & PoorsPoor’s or its affiliates and has been licensed for use by the Company.
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. MSCI’s 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,
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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.
We offer the Contract on a continuous basis.no longer issue new Contracts. We have entered into a distribution agreement with our affiliate, CUNA Brokerage Services, Inc.,CBSI, for the distribution of the Contract. MEMBERS Life Insurance Company and CUNA Brokerage Services, Inc. are bothCBSI is a wholly-owned subsidiariessubsidiary of CUNA Mutual Investment Corporation.Corporation (“CMIC”). The principal business address of CUNA Brokerage Services, Inc.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 CUNA Brokerage Services, Inc. or
We and CBSI enter into selling agreements with other affiliated and unaffiliated broker-dealer firms (the “Selling Broker-Dealers”"Selling Broker-Dealers") registered under the Securities Exchange Act of 1934, as amended (the “1934 Act”), who are members of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Contracts are sold by registered representatives of Selling Broker-Dealers (“Selling Agents”). In those states where the Contract may be lawfully sold, the Selling Agents are licensed as insurance agents by applicable state insurance authorities and who have entered intoare appointed as our insurance agents. CBSI also offered securities to customers through CBSI registered representatives until May 2022. Through an agreement between LPL Financial (“LPL”) and CBSI, the Company’s sellingmajority of these former CBSI registered representatives, which primarily include employees of CBSI’s affiliates or the credit union where their FINRA registered branch is located, registered with LPL. LPL is one of the Selling Broker-Dealers. CBSI receives compensation from LPL for sales by certain LPL registered representatives pursuant to networking agreements with usvarious credit unions, LPL and the principal underwriter, CUNA Brokerage Services, Inc.CBSI.
We pay CUNA Brokerage Services, Inc. and/or our affiliatesCBSI 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 CUNA Brokerage Services, Inc. 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 CUNA Brokerage Services, Inc. or our affiliates are also eligible for various cash benefits, such as bonuses, insurance benefits and financing arrangements, and non-cash items that we may jointly provide with CUNA Brokerage Services, Inc. or our affiliates. Non-cash items include conferences, seminars and trips (including travel, lodging and meals in connection therewith), entertainment, merchandise and other similar items. Sales of the Contracts may help registered representatives of CUNA Brokerage Services, Inc. qualify for such benefits.
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 each Purchase Payment.
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In addition to the compensation described above, we may make additional cash payments, in certain circumstances referred to as “override”"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 Company’s products on the Selling Broker-Dealers’ preferred or recommended list, increased access to the Selling Broker-Dealers’ registered representatives for purposes of promoting sales of our products, assistance in training and education of the Selling Agents, and opportunities for us to participate in sales conferences and educational seminars. The payments or reimbursements may be calculated as a percentage of the particular Selling Broker-Dealer’s actual or expected aggregate sales of our 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 recouprecover commissions and other salescompensation, marketing, administrative and other expenses and costs of Contract benefits through the fees and charges deductedimposed under the Contract.
Cyber Security
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 us, CUNA Brokerage Services, Inc., and intermediaries 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 us and/or CUNA Brokerage Services, Inc. and intermediaries to regulatory fines and financial losses and/or cause reputational damage. There can be no assurance that we or CUNA Brokerage Services, Inc. will avoid losses affecting your Contract due to cyber-attacks or information security breaches in the future.
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.
We consider all statements in your application (in the absence of fraud) to be representations and not warranties. We will not contest your Contract.
If an Annuitant’s date of birth is misstated, 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 Annuitant’s correct date of birth. If an Annuitant’s 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 Annuitant’s correct gender. We will add any
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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.
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.
To reduce service expenses, the Company may send only one copy of certain mailings and reports per household, regardless of the number of contract owners at the household. However, you may obtain additional copies upon request to the Company. If you have questions, please call us at 1-800-798-5500, Monday through Friday, 7:30 A.M. to 6:00 P.M., Central Time.
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.
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 Company's practices. We respond to such inquiries and cooperate with regulatory examinations in the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from all such pending actions will not materially affect the financial statements of the Company, nor have a material adverse impact on the Variable Separate Account, on CBSI’s ability to perform its contract with the Variable Separate Account, nor the Company’s ability to meet its obligations under the Contracts.
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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.
CORPORATE HISTORY OF THE COMPANY
We are a direct wholly-owned indirect subsidiary of CMFG Life Insurance Company (“CMFG Life”) and a direct wholly-owned subsidiary of CUNA Mutual Investment Corporation (“CMIC”). We were formed by CMFG Life on February 27, 1976, as a stock life insurance company under the laws of the State of Wisconsin for the purpose of writing credit disability insurance. The original name of the Company was CUDIS Insurance Society, Inc. On August 3, 1989, the Company’s name changed to CUMIS Life Insurance, Inc., and was subsequently changed to its current name on January 1, 1993. League Life Insurance Company (Michigan) merged into the Company on January 1, 1992 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 world’s largest direct underwriters of credit life and disability insurance, and is a major provider of qualified pension products to credit unions. Further, CMFG Life and its affiliated companies currently offer deferred and immediate annuities, individual term and permanent life insurance, and accident and health insurance. In 2012, CMFG Life was reorganized as a wholly-owned subsidiary of TruStage Financial Group, Inc. (f/k/a 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.
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In addition, in August 2013, the Company began issuing an Index-Linked Annuity Contract under the name “MEMBERS® Zone Annuity”. This annuity contract accounts for all the new sales of the Company. 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 two annuity contract forms for sale. The Company also serves existing blocks of individual and group life policies.
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 deferred annuity contract under this Contract. In December 2018, the Company began issuing a flexible premium deferred variable and index linked annuity contract under the name “TruStage™ Horizon II Annuity” contract. In August 2019, the Company began issuing a single premium deferred modified guaranteed index annuity contract under the name “TruStage™ Zone Income Annuity”. In June 2021, the Company began issuing a single premium deferred annuity contract with index-linked interest options contract under the name “TruStage™ ZoneChoice 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 Company’s 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 CostAmended and Restated Expense Sharing Procurement, Disbursement, Billing and Collection Agreement described above.that we entered into with CMFG Life on January 1, 2015.
Our financial statements have been prepared in accordanceconformity with U.S. GAAP.accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division (“Insurance Department”). Prescribed statutory accounting practices are practices incorporated directly or by reference in state laws, regulations and general administrative rules and are applicable to all insurance enterprises domiciled in a particular state. The Insurance Department has identified the Accounting Practices and Procedures Manual as promulgated by the National Association of Insurance Commissioners (“NAIC”), as a source of prescribed statutory accounting practices for insurers domiciled in Iowa. Permitted statutory accounting practices encompass all accounting practices not prescribed by the NAIC and are approved by the Insurance Department.
Our investment portfolio consists primarily of fixed income securities.
We reinsure our life insurance exposure with an affiliated insurance company under a traditional indemnity reinsurance arrangement. We entered into a coinsurance agreementCoinsurance Agreement with CMFG Life in 2012. Under this agreement, we agreed to cede 95% of all insurance in force, including annuity contracts, as of October 31, 2012 to CMFG Life. On September 30, 2015, we amended the Company amended its coinsurance agreementCoinsurance Agreement with CMFG Life and now cedescede 100% of itsour insurance policies in force to CMFG Life. In 2013, we entered into a second coinsurance agreement to cede 100% of allthe business issued on and after January 1, 2013related 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 the Contract.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 TruStage™ Horizon II Annuity contracts. Effective January 1, 2019 an Amended and Restated Coinsurance and Modified Coinsurance Agreement with CMFG Life ceding 100% of the business relating to the MEMBERS Zone Annuity contracts, the MEMBERS Horizon Flexible Premium Deferred Variable and Index Linked Annuity Contracts, the TruStage™ Horizon II Annuity contracts and the TruStage™ Zone Income Annuity contracts was put in place. This Amended and Restated Coinsurance and Modified Coinsurance Agreement replaced all prior reinsurance agreements relating to the variable and index-linked annuity contracts issued by the Company. On August 19, 2019, we entered into a Coinsurance Agreement with CMFG Life to cede 100% of the business related to TruStage™ Zone Income Annuity contracts. These agreements do not relieve us of our obligations to our policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company’s underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities.
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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.
Although economic conditions both domesticallyPOTENTIAL RISK FACTORS THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS
Risks Related to Global Capital Markets, Economy, Competition, and globally have continued to improve since the financial crisis in 2008, we remainEvents Outside Our Control
We are vulnerable to market uncertainty and continued financial instability of national, state and local governments. Continued difficult conditionsinstability. 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 extremeare subject to volatility and disruption sincedisruption. Factors including the second halfCOVID-19 pandemic, wars and other armed conflicts, civil unrest, availability and cost of 2007, duecredit, geopolitical issues and trade disputes have contributed to increased volatility in partworldwide capital and equity markets. These global factors also could impact business and consumer confidence and may lead to the financial stresses affecting the liquidity of the banking systemeconomic uncertainty, stay-at-home orders, trade disruptions, and the financial markets. This volatility and disruption reached unprecedented levelsbusiness shutdowns, thereby causing a slowdown in late 2008 and early 2009. The United States entered a severe recession and recovery was slow with long-term high unemploymenteconomic activity. Changes in interest rates and lower average householdcredit spreads could result in fluctuations in the income levels. Onederived from our investments and could cause a material adverse effect on our business, financial condition, results of operations and cash flows. General economic conditions could also adversely affect the strategies usedCompany by decreasing demand for the U.S. government to stimulate the economy has been to keep interest rates lowCompany’s products. For example, holders of interest-sensitive life insurance and increase the supplyannuity products may engage in an elevated level of United States dollars. While these strategies have appeared to have had positive effects, any futurediscretionary withdrawals of contract-holder funds, which would adversely affect our business.
Any economic downturn or market disruption could negatively impact our ability to invest our funds.investment ability. Specifically:
our investment portfolio could incur other-than-temporary impairments; | ||
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due to potential downgrades in our investment portfolio, we could be required to raise additional capital to sustain our current business in force and new sales of our annuity products, which may be difficult in a distressed market. If capital would be available, it may be at terms that are not favorable to us; or | ||
● | our liquidity could be negatively |
The principal sources
Events outside of our liquidity are monthly settlements under the coinsurance agreementscontrol may negatively affect our business continuity, results of operations and financial performance.
The occurrence of a disaster, such as a natural catastrophe, pandemic, industrial accident, blackout, terrorist attack, war, cyberattack, computer virus, insider threat, unanticipated problems with CMFG Life, annuity deposits, investment income, proceedsour disaster recovery processes, a support failure from the sale, maturity and call of investments and capital contributions from CMFG Life.
Governmental initiatives intended to improve global and local economies that have been adopted may not be effective and, in any event, may be accompanied by other initiatives, including new capital requirementsexternal providers or other regulations thatevents outside of our control, could materially affecthave an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affects our computer-based data processing transmission, storage, and liquidityretrieval systems or destroy data. If a significant number of employees were unavailable in ways that we cannot predict.
Wethe event of a disaster, our ability to effectively conduct business could be severely compromised. Our systems are also subject to extensive lawscompromise from internal threats. In addition to disruptions to our operations, periods of market volatility may occur in response to pandemics or other events outside of our control.
The failure to understand and regulations that are administeredrespond effectively to the risks associated with global climate change could adversely affect our achievement of our long-term strategy.
Global climate change could pose a systemic risk to the financial system. Global climate change could increase the frequency and enforced byseverity of weather-related disasters and pandemics. Efforts to reduce greenhouse gas emissions and limit global warming could impact global investment asset valuations. Some asset sectors could face significantly higher costs and adverse impacts on the value and future performance
of investment assets as a numberresult of differentglobal climate change and regulatory authoritiesor other responses, including state insurance regulators,changing preferences of investment managers and investors and their evaluation of associated risk. Climate change could also impact other counterparties, including reinsurers and derivatives counterparties. A failure to identify and address these global climate issues could cause a material adverse effect on the National Associationachievement 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 whichobjectives.
We operate in turn could materially affect our results of operations, financial condition and liquidity.
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We face potential competition from companies that have greater financial resources, broader arrays of products, higher ratings and stronger financial performance,a highly competitive industry, 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 competitorsface competition from companies that are substantially larger and enjoy substantially greater financial resources, claims-paying ability and financial strength, broader and more diversified product lines and more widespread distribution relationships. Our annuity products compete with fixed indexed, traditional fixed rate and variable annuities (and combinations thereof) sold by other insurance companies and also with mutual fund products, traditional bank investments and other investment and retirement funding alternatives offered by asset managers, banks and broker-dealers. Our annuity products also compete with products of other insurance companies, financial intermediaries and other institutions based on a number of factors, including crediting rates, policy terms and conditions, 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’distributors' needs, we may not be able to establish and maintain satisfactory relationships with distributors of our annuity products. Our ability to compete will also depend in part on our ability to develop innovative new products and bring them to market more quickly than our competitors. In order for us to compete in the future, we will need to continue to bring innovative products to market in a timely fashion. Otherwise, our revenues and profitability could suffer.
The loss of key employeesexecutives could disrupt our operations.
Our success depends in part on the continued service of key executives within our Company and ourCMFG Life’s ability to attract and retain additional executives and employees. The loss of key employeesexecutives or ourCMFG Life’s 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.
ChangesRisks Related to Regulation
Our business is heavily regulated, which impacts our profitability and growth.
Our business is subject to extensive and potentially conflicting state and federal tax, securities, insurance and employee benefit plan laws and regulations in the jurisdictions in which we operate. These laws and regulations are complex and subject to change, which could have an unknown or adverse impact on us. Moreover, these laws and regulations are administered and enforced by a number of different governmental and self-regulatory authorities, including state insurance regulators, state securities administrators, the U.S. Securities and Exchange Commission ("SEC"), the Financial Industry Regulatory Authority, banking regulators, the U.S. Department of Labor (“DOL”), the United States Department of Justice, the U.S. Internal Revenue Service, and state attorneys general, each of which exercises a degree of interpretive latitude. We are also subject to the laws and regulations from state insurance regulators and the National Association of Insurance Commissioners (“NAIC”), who regularly re-examine existing laws and regulations
applicable to insurance companies and their products. In some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. In many respects, these laws and regulations limit our ability to grow and improve the profitability of our business.
Governmental initiatives intended to improve global and local economies may not be effective and may be accompanied by other initiatives that could materially affect our results of operations, financial condition and liquidity in ways that we cannot predict.
Regulatory 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.
The application of, or changes in, state and federal regulation and oversight 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. AsA failure to meet these requirements could subject us to further examination or corrective action imposed by insurance regulators, including limitations on our ability to write additional business, increased scrutiny has been placed upon the insurance regulatory framework, a number of state legislatures have consideredsupervision, or enacted legislative proposals that alter, and in many cases increase, state authority to regulate insurance companies and holding company systems.seizure or liquidation.
Regulators oversee matters relating to trade practices, product sales and distribution, 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.
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State insurance regulators and the NAIC continually reexamine existing laws and regulations and may impose changes in the future.
We are subject to the NAIC’sNAIC's risk-based capital requirements which are intended to be used by insurance regulators as an early warning tool to identify deteriorating or weakly capitalized insurance companies for the purpose of initiating regulatory action. We also may be required, under solvency or guaranty laws of most states in which we do business, to pay assessments up to certain prescribed limits to fund policyholder losses or liabilities for insolvent insurance companies. A failure to meet these requirements could subject us to further examination or corrective action imposed by insurance regulators, including limitations on our ability to write additional business, increased regulatory supervision, or seizure or liquidation.
Although the federal government does not directly regulate the insurance business, federal
Federal legislation and administrative policies in several areas, including pension regulation, age and sex discrimination,anti-discrimination regulation, financial services regulation, securities regulation and federal taxation, can significantly affect the insurance business. In addition, legislation has been enacted which could result in the federal government assuming some role in the regulation of the insurance industry.
For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”(“Dodd-Frank”) was enacted and signed into law, making extensivein July 2010 made sweeping changes to the laws regulating theregulation of financial services industry.entities, products and markets. Among other things, the Dodd-Frank Act imposes a comprehensive new regulatory regime on the over-the-counter (“OTC”) derivatives marketplace and grants new joint regulatory authority to the SEC and the U.S. Commodity Futures Trading Commission (“CFTC”) over OTC derivatives. While the SEC and CFTC continue to promulgate rules required by the Dodd-Frank Act, most rules have been finalized and, asAs a result, certain of derivatives operations that support the Company’s productsderivatives 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).
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Dodd-Frank also established various oversight regimes that impact our business:
● | The Federal Insurance Office (“FIO”) under the U.S. Treasury Department 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 Financial Stability Oversight Council (the “FSOC”) 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 a systematically important financial institution (“SIFI”) 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. The Company’s 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 it is unlikely that FSOC will be designating additional non-bank financial companies as systematically significant, there can be no assurance that it will not do so in the future. |
● | Title II of Dodd-Frank provides that the Federal Deposit Insurance Corporation (“FDIC”), under certain circumstances, may be appointed receiver of a “covered financial company,” which could include an insurance company, for purposes of liquidating such company. This would apply to insurance companies in a limited context, where the relevant state insurance regulator has failed to act within 60 days after a determination has been made to subject the insurance company to the FDIC’s orderly liquidation authority, and resolution by the FDIC would be in accordance with state insurance law. The uncertainty about regulatory requirements could influence the Company’s product line or other business decisions with respect to some product lines. |
● | The Consumer Financial Protection Bureau (“CFPB”) is 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. |
Many of the Dodd-Frank’s requirements could have adverse consequences for the financial services industry, including for the Company. Dodd-Frank could make it more expensive for the Company may be required to post and collect initial margin as well. The initial margin requirements of the Margin Rules will be phased-in over a period of five years based on the average aggregate notional amount of the Swap Entity’s (combined with all of its affiliates) and its counterparty’s (combined with all of its affiliates) swap positions. It is anticipated thatconduct
business, require the Company will not be subject to the initial margin requirements until September 1, 2020. The variation margin requirement will take effect on September 1, 2016 for swaps where both the Swap Entity (andmake changes to its affiliates) and its counterparty (and its affiliates) have an average daily aggregate notional amount of swaps for March, April and May of 2016 that exceeds $3 trillion. Otherwise, the variation margin requirement will take effect on March 1, 2017. It is anticipated that we will be subject to the March 1, 2017 compliance date.
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.
Changes in state laws and federal laws regarding fiduciary/best interest standards may affect the Company’s operations and profitability.
The Dodd-Frank Actsales of our insurance products could also established a Federal Insurance Officebe 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.
The SEC adopted Regulation Best Interest (“FIO”Regulation BI”) 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, which generally went effective on June 30, 2020. Among other things, (1) monitor all aspectsRegulation BI imposes a standard of care on broker-dealers making recommendations to their customers of securities transactions. The changes under Regulation BI could increase our overall compliance costs. In addition, these changes may lead to greater exposure to legal claims in certain circumstances, including an increased risk of regulatory enforcement actions or potentially private claims. It remains unclear whether or to what extent Regulation BI, and the evolving nature of the insurance industryenforcement and of lines of business other than certain health insurance, certain long-term care insurance and
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The Dodd-Frank Act established a new federal council of financial regulators, the Financial Stability Oversight Council (“Council”), which is charged with identifying risks to the financial stability of the U.S. financial markets, promoting market discipline, and responding to emerging threats to the stability of the U.S. financial markets. The Council is empowered to make recommendations to primary financial regulatory agencies regarding the application of new or heightened standards and safeguards for financial activities or practices, and certain participation in such activities, that threaten the stability of the U.S. financial markets. In addition, the Council is authorized to determine whether an insurance company is systematically significant anddistribution partners’ willingness to recommend our insurance products.
The DOL issued a proposed “retirement security rule” on October 31, 2023 that it should be subject to enhanced prudential standardswould significantly expand the investment advice and to supervision by the Board of Governors of the Federal Reserve System. In April 2012, the Council approved its final rule for designating non-bank financial companies as systemically important financial institutions (“SIFI”). Under the final rule, the Company’s assets, liabilities and operations do not currently satisfy the financial thresholds that serve as the first step of the three-stage process to designate a non-bank financial company as a SIFI. Despite not being a SIFI, the Company could potentially beretirement investors subject to the orderly liquidation authorityEmployee Retirement Income Security Act (“ERISA”). Notably, the proposal broadens the circumstances under which financial institutions, including insurance companies, could be considered fiduciaries under ERISA. A final rule is expected in 2024; however, prior iterations of the Federal Deposit Insurance Corporation (“FDIC”), in accordance with Title IIrule, and similar DOL guidance has been subject to court challenges. We continue to analyze the impact of the Dodd-Frank Act. Title IIproposed rule; while we cannot predict the rule’s impact, it could have an adverse effect on sales of the Dodd-Frank Act provides that the FDIC, under certain circumstances,annuities through our distribution partners. The rule may be appointed receiver of a “covered financial company,”also lead to changes to our compensation practices and product offerings and increased litigation risk, which could include anadversely affect our results of operations and financial condition. We may also need to take certain additional actions to comply with or assist our distributors in their compliance with the rule.
Various states are also developing rules raising the standard of care owed by insurance company, for purposesagents to their customers. For example, in February 2020, the NAIC adopted a model rule requiring a “best interest” standard of liquidating such company. This would apply to insurance companiescare in a limited context, where the relevantconnection with sales of annuity products. Some state insurance regulator has failed to act within 60 days afterregulators have adopted the NAIC model, or their own regulations that may impose similar obligations as the NAIC’s model. As a determination has been made to subject the insurance company to the FDIC’s orderly liquidation authority, and resolutionresult, as this or similar changes are adopted by the FDIC would be in accordance withour state insurance law.regulator(s) and made applicable to us or the third-party firms that distribute our products, they could have an adverse impact on our business.
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”"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.
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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”"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”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.
Risks Related to Regulatory Investigations and Litigation
We face risks relating to litigation, including the costs of such litigation, management distractionlegal and the potential for damage awards,regulatory investigations and litigation, 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,DOL, 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 notLitigation and actions, inquiries and investigations by governmental authorities and regulators are inherently unpredictable, and a substantial legal liability or a significant regulatory action against us could have a material adverse effect on our business, financial condition or results of operations, through distraction of our managementincluding requiring significant time and expense. Moreover, even if we ultimately prevail in any litigation or otherwise.any action or investigation by governmental authorities or regulators, we could suffer significant reputational harm.
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For the year ended December 31, | |||||||||||||||||||
Results of Operations Data: | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Revenues | |||||||||||||||||||
Life and health premiums | $ | (1,175 | ) | $ | 127 | $ | 139 | $ | (20,459 | ) | $ | 3,409 | |||||||
Contract charges | 18 | 24 | 46 | 460 | 501 | ||||||||||||||
Net investment income | 366 | 278 | 176 | 1,928 | 2,175 | ||||||||||||||
Net realized gains on investments | 117 | - | - | 4,319 | 119 | ||||||||||||||
Other income | 5,336 | - | 293 | - | - | ||||||||||||||
Total revenues | 4,662 | 429 | 654 | (13,752 | ) | 6,204 | |||||||||||||
Benefits and expenses: | |||||||||||||||||||
Life and health insurance claims | |||||||||||||||||||
and benefits | (1,204 | ) | 112 | 179 | (20,028 | ) | 2,268 | ||||||||||||
Interest credited to policyholder | |||||||||||||||||||
account balances | 4 | 8 | 9 | 158 | 164 | ||||||||||||||
Operating and other expenses | 1,633 | 137 | 86 | 1,087 | 1,040 | ||||||||||||||
Total benefits and expenses | 433 | 257 | 274 | (18,783 | ) | 3,472 | |||||||||||||
Income before income taxes | 4,229 | 172 | 380 | 5,031 | 2,732 | ||||||||||||||
Income tax expense | 1,449 | 11 | 249 | 1,679 | 921 | ||||||||||||||
Net income | $ | 2,780 | $ | 161 | $ | 131 | $ | 3,352 | $ | 1,811 | |||||||||
December 31, | |||||||||||||||||||
Balance Sheet Data: | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Assets: | |||||||||||||||||||
Total investments | $ | 12,351 | $ | 13,313 | $ | 6,681 | $ | 8,691 | $ | 53,678 | |||||||||
Cash and cash equivalents | 17,093 | 5,602 | 11,105 | 4,926 | 3,853 | ||||||||||||||
Reinsurance recoverable | 24,628 | 25,199 | 25,525 | 26,391 | - | ||||||||||||||
Assets on deposits | 947,595 | 349,937 | 89,313 | - | - | ||||||||||||||
Total assets | 1,007,811 | 399,381 | 138,582 | 47,405 | 64,248 | ||||||||||||||
Liabilities and stockholder’s equity: | |||||||||||||||||||
Claim and policy benefit reserves | 21,537 | 22,368 | 23,196 | 24,112 | 23,974 | ||||||||||||||
Policyholder account balances | 951,068 | 353,549 | 93,047 | 3,797 | 3,885 | ||||||||||||||
Total liabilities | 986,263 | 380,166 | 119,481 | 28,281 | 28,212 | ||||||||||||||
Total stockholder’s equity | 21,548 | 19,215 | 19,101 | 19,124 | 36,036 | ||||||||||||||
74MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations reviews our financial condition at December 31, 20152023 and December 31, 2014;2022; our results of operations for the years ended December 31, 2015, 20142023, 2022 and 2013;2021; and where appropriate, factors that may affect future financial performance. This discussion should be read in conjunction with our statutory basis financial statements and notes thereto appearing elsewhere in this Prospectus. The dollar amounts disclosed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are “inin thousands.”
The following discussion covers the year ended December 31, 2023 and year ended December 31, 2022. Please see the discussion that follows for a more detailed analysis of the fluctuations. Our comparative analysis of the year ended December 31, 2022 and the year ended December 31,2021 is included under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Form S-1 for the fiscal year ended December 31, 2022 filed with the SEC on April 13, 2023.
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 immediateultimate parent, CMIC, or CMFG Life as of January 1, 2024, 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 cautionThe Company cautions that these statements may vary from actual results and the differences between these statements and actual results can be material. Accordingly, wethe Company 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:
● | 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 |
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customer response to new products and marketing initiatives; |
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changes in the Federal income tax laws and regulations which may affect the relative income tax advantages of our products; |
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increasing competition in the sale of annuities; |
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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.”
During 2023, the Company was a direct wholly-owned subsidiary of CMIC. OurAs of January 1, 2024, the Company is now a direct wholly-owned subsidiary of CMFG Life. This reorganization is not anticipated to have a material effect on the Company’s operations or statutory basis financial statements. The Company’s ultimate parent is CUNA MutualCM Holding, Company (“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, wethe Company amended and restated ourthe Company’s Articles of Incorporation to change
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The Company is authorized to sell life, health and annuity policies in all states in the U.S. and the District of Columbia, except New York. In 2015, approximately 63%, 23%All life and 5%health premiums of the premiums paid under policies issued by the Company in 2023 were generated in the United States with a significant portion in California, Florida, Georgia, Michigan, Pennsylvania and Texas. All annuity deposits of the Company in 2023 were received in the United States with a significant portion in California, Florida, Michigan, North Carolina, Ohio, Pennsylvania, Texas, and California, respectively. No other state accounts for more than 5% of the premiums paid underWisconsin. Premiums are related to the Company’s policies for any year inwhole life product, along with our legacy life and health products. Premium deposits on annuities are related to the three years ended December 31, 2015. In 2015, approximately 8% ofCompany’s annuity contracts, including MEMBERS® Zone contract sales were generated in MichiganAnnuity, MEMBERS® Horizon Flexible Premium Deferred Variable and California, 7% were in Texas, 6% were in IndianaIndex-Linked Annuity, TruStage™ Horizon II Annuity, TruStage™ Zone Income Annuity and 5% were in Iowa, Wisconsin, Pennsylvania, Florida and Washington. In 2014, approximately 12% of MEMBERS Zone contract sales were generated in Michigan, 8% were in Texas, Rhode Island and Iowa, 7% were in Wisconsin, 6% were in Indiana and Pennsylvania and 5% were in Florida. In 2013, approximately 17% of MEMBERS Zone contract sales were generated in Iowa, 11% were in Michigan, 7% were in Wisconsin, 6% were in Indiana and Rhode Island and 5% were in Utah and Pennsylvania. No other state accounts for more than 5% of MEMBERS Zone contract sales for any year inTruStage™ ZoneChoice Annuity (collectively, the three years ended December 31, 2015. “Registered Index Annuities”).
As of December 31, 20152023 and 2014, we2022, the Company had more than $1,007 million$387,000 and $399 million$346,000 in assets and we had more than $110 million$989,000 and $123 million$681,000 of life insurance in force, respectively.
The Company also serves existing blocks of individual and group life policies. We distributedistributes the Contractannuity contracts through multiple face-to-face distribution channels, including:
● |
● | 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 |
● | 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 |
The Company has entered into a Coinsurance Agreement withreinsurance agreements to cede to CMFG Life in 2012. Under this agreement, we agreed to cede 95% of all insurance in force as of October 31, 2012 to CMFG Life. In 2013, we entered into a second agreement to cede 100% of all insurance issued on and after January 1, 2013 to CMFG Life. On September 30, 2015, we amended the Coinsurance Agreement with CMFG Life and now cede 100% of its insurance policies in force 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.Registered Index Annuities and all insurance policies in force. These agreements do not relieve usthe Company of ourthe Company’s obligations to ourthe Company’s policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company’s underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities. In addition, on January 1, 2015, we entered into a Cost Sharing Procurement, Disbursement and Billing and Collection Agreement, pursuant to which CMFG Life provides us with certain procurement, disbursement and billing and collection services. As a result, the Company believes its profitability from insurance operations going forward will be minimal.
Prior to 2021, the Company only serviced existing closed blocks of individual and group life policies which were 100% ceded to CMFG Life. In 2021, the Company began selling a whole life policy under the name TruStage Advantage Whole Life (“TAWL”). The Company contracts with unaffiliated broker-dealers to distribute TAWL through the broker-dealer’s distribution channels. In 2021, the Company entered into a reinsurance agreement to cede 100% of the premium, expenses and benefits of TAWL to CMFG Life.
CMFG Life provides significant services required in the conduct of the Company’s operations.operations pursuant to a Cost Sharing, Procurement, Disbursement and Billing and Collection Agreement. CMFG Life allocates expenses to usthe Company 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
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reasonable and that the results of the Company’s operations may have materially differed in a negative manner from the results reflected in the accompanying statutory basis financial statements if the Company did not have this relationship.
CriticalSummary of Significant Accounting Policies
The increasing complexity of the business environment and applicable authoritative accounting guidance requires us to closely monitor ourthe Company’s accounting policies. The following summary of our criticalthe Company’s significant accounting policies is intended to enhance your ability to assess ourthe assessment of the Company’s financial condition and results of operations and the potential volatility due to changes in estimates.
Use of Estimates.- The preparation of the statutory basis 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 atas of the date of the statutory basis 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 andpolicy reserve valuations, determination of other-than-temporary impairments (“OTTI”), deferred tax asset valuation reserves and reinsurance balances are most affected by the use of estimates and assumptions.
Investments - Investments are valued as prescribed by the National Association of Insurance Commissioners (“NAIC”).
Investment ValuationBonds and notes: . Investments in debtBonds and notes with an NAIC designation of 1 through 5 are generally stated at amortized cost. Bonds and notes with an NAIC designation of 6 are stated at the lower of amortized cost or fair value. Loan-backed securities may be carried at the lower of amortized cost or fair value if they receive an initial rating of 6 under the multiple-designation methodology. Prepayment assumptions for loan-backed securities are classified as availableobtained from historical industry prepayment averages, industry survey values or internal estimates to determine the effective yield. Changes in the anticipated prepayments are incorporated when determining statement values. Changes in estimated cash flows from the previous assumptions are accounted for sale and are carried at fair value. Unrealized gains and losses on investments in debt securities, net of federal income taxes, are included in accumulated other comprehensive income as a separate component of stockholder’s equity.using the prospective method.
Fair Value - 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. |
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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 Company’s estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. |
For purposes of determining the fair value of the Company’s investments,assets and liabilities, observable inputs are those inputs used by market participants in valuing financial instruments, which are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs, reflecting the Company’s estimates of the assumptions market participants would use in valuing investments,financial assets and liabilities, are developed based on the best information available in the circumstances. The Company uses prices and inputs that are current as of the measurement date. In some instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
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The hierarchy requiresfollowing table summarizes the usecarrying amounts and fair values of market observable information when availablethe Company’s financial instruments for assessingwhich it is practicable to estimate fair value. value by fair value measurement level at December 31, 2023.
Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Financial instruments recorded as assets: | |||||||||||||||||||||
Bonds and notes | $ | 43,036 | $ | 40,061 | $ | — | $ | 40,061 | — | ||||||||||||
Cash equivalents | 58,166 | 58,166 | 58,166 | — | — | ||||||||||||||||
Separate account assets | 238,473 | 238,473 | — | 238,473 | — | ||||||||||||||||
Financial instruments recorded as liabilities: | |||||||||||||||||||||
Separate account liabilities | 238,473 | 238,473 | — | 238,473 | — |
The availabilityfollowing table summarizes the carrying amounts and fair values of observable inputs variesthe Company’s financial instruments for which it is practicable to estimate fair value by investment. In situations wherefair value measurement level at December 31, 2022:
Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial instruments recorded as assets: | ||||||||||||||||||||
Bonds and notes | $ | 45,855 | $ | 42,116 | $ | — | $ | 42,116 | — | |||||||||||
Cash equivalents | 42,915 | 42,915 | 42,915 | — | — | |||||||||||||||
Separate account assets | 229,659 | 229,659 | — | 229,659 | — | |||||||||||||||
Financial instruments recorded as liabilities: | ||||||||||||||||||||
Separate account liabilities | 229,659 | 229,659 | — | 229,659 | — |
The carrying amounts for accrued net investment income, and certain receivables and payables approximate fair value due to their short-term nature and have been excluded from the fair value is based on inputs that are unobservable in the market or on inputs from inactive markets, the determination of fair value requires more judgment and is subject to the risk of variability. The degree of judgment exercised by the Company in determining fair value is typically greatest for investments categorized in Level 3.tables above.
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash equivalents | $ | 16,080 | $ | - | $ | - | $ | 16,080 | |||||||
Debt securities: | |||||||||||||||
U.S. government and agencies | - | 9,813 | - | 9,813 | |||||||||||
Mortgage-backed securities: | |||||||||||||||
Residential mortgage-backed | - | 2,538 | - | 2,538 | |||||||||||
Total debt securities | - | 12,351 | - | 12,351 | |||||||||||
Derivatives embedded in assets on deposits | - | - | 122,043 | 122,043 | |||||||||||
Total assets | $ | 16,080 | $ | 12,351 | $ | 122,043 | $ | 150,474 | |||||||
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 122,043 | $ | 122,043 | |||||||
Total liabilities | $ | - | $ | - | $ | 122,043 | $ | 122,043 | |||||||
Our assets which are measured at fair value on a recurring basis as of December 31, 2014 are presented below based on the fair value hierarchy levels. | |||||||||||||||
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash equivalents | $ | 3,681 | $ | - | $ | - | $ | 3,681 | |||||||
Debt securities: | |||||||||||||||
U.S. government and agencies | - | 9,987 | - | 9,987 | |||||||||||
Mortgage-backed securities: | |||||||||||||||
Residential mortgage-backed | - | 3,207 | - | 3,207 | |||||||||||
Total debt securities | - | 13,194 | - | 13,194 | |||||||||||
Derivatives embedded in assets on deposits | - | - | 45,503 | 45,503 | |||||||||||
Total assets | $ | 3,681 | $ | 13,194 | $ | 45,503 | $ | 62,378 | |||||||
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Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 45,503 | $ | 45,503 | |||||||
Total liabilities | $ | - | $ | - | $ | 45,503 | $ | 45,503 | |||||||
Other-Than-Temporary Investment Impairments.- Investment securities are reviewed for other than temporary impairment (“OTTI”)OTTI on an ongoing basis. The Company creates a watchlist of securities primarily based largely on the fair value of an investment security relative to its cost basis.amortized cost. When the fair value drops below the Company’s 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:including but not limited to:
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For mortgage-backed and structured securities, the Company’s intent and ability to retain |
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A debt securitybond or note is considered to be other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company’s holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the OTTI is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive income. If the Company intends to sell, at the timeperiod. When this determination is made,occurs, the Company records a realized capital 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 lossamortized cost. If the bond is expecteda loan-backed or structured security, it is considered to be other than temporary,other-than-temporarily impaired when the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer’s business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered at least its original cost basis.
For securitized debt securities, the Company considers factors including commercial and residential property changes in value that vary by property type and location and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral.
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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 inexceeds the present value of the estimated cash flows sinceexpected to be collected and its value is not expected to recover through the last revised estimate, considering both timing andCompany’s holding period. The amount an OTTI charge is recognized. The Company also considers its intent to retain a temporarily impaired security until recovery. Estimating future cash flows involves judgment and includes both quantitative and qualitative factors. Such determinations incorporate various information and assessments regarding the future performance of the underlying collateral. In addition, projections ofOTTI recognized in net income as a realized loss equals the difference between the investment's amortized cost basis and its expected future cash flows may change based upon new information regarding the performance of the underlying collateral.flows.
Management believes it has completed a reviewmade an appropriate provision for other-than-temporarily impaired securities owned at December 31, 2015, 20142023 and 2013 and recorded no2022. Future declines in fair value may result in additional 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 Company’s practices,Additional OTTI will be recorded as appropriate and as determined by the Company’s regular monitoring procedures of additional facts.
Derivative Financial Instruments. The Company issues 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 gains.
Changes in the fair value In light 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.variables involved, such additional OTTI could be significant.
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 cededissued and the terms of the reinsurance contracts. Premiums and insurance claimsbenefits ceded to other companies have been reported as reductions of premium income and benefits in the accompanying statutory basis statements of operationsoperations. Policy and comprehensive income (loss)claim reserves are reported net of unbilled reinsurance recoverables. The Company has evaluated our reinsurance contracts and determined that all significant contracts transfer the amounts ceded to other companies under suchunderlying economic risk of loss. CMFG Life, which is a related party, is the only reinsurer and there is no concern of default on reinsurance contracts. Ceded insurance reservesreceivable balances as CMFG Life is highly rated 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.well capitalized.
The Company entered into a Coinsurance Agreementcoinsurance and modified coinsurance agreements with the Company’s affiliate, CMFG Life, to cede 100% of our life, accident and health and annuity business as described above under “Management’spreviously in the Overview of this Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.” As consideration for the reinsurance provided under this agreement, we transfer all of our revenues to CMFG Life. Specifically, CMFG Life receives 100% of all premiums and insurance claims and benefits received on account of our existing business.
Operations. The Company entered into a second agreement withthe agreements for the purpose of limiting our exposure to loss on any one single insured, diversifying its risk and limiting its overall financial exposure to certain products, and to meet our overall financial objectives. The Company retains the risk of loss in the event that CMFG Life as described aboveis unable to meet the obligations assumed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview,” to cede 100% of its new business, which includes investment type contracts such as the Contract. Accordingly, the agreement is accounted for using the deposit method of accounting.reinsurance agreements.
Separate Accounts - The Company entered into a third agreement with CMFG Life as describedissues Registered Index Annuities, the assets and liabilities of which are legally segregated and reflected in the Overviewaccompanying statutory basis statements of this Management’s Discussionadmitted assets, liabilities and Analysis to cede 100%capital and surplus as assets and liabilities of new business related to the Contract, which will include investment type contracts similar to the Contract. Accordingly, the agreement will be accounted for using the deposit method of accounting.
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Assets on Deposit. Assets on deposit represent the amount of policyholderseparate accounts. All separate account balances related to deferred annuity contracts, an investment type contract, thatassets and liabilities are ceded to CMFG Life. These investment type contractsLife except the MEMBERS Life Variable Separate Account which is used to fund the variable accounts within the flexible premium variable and index linked deferred annuities.
Separate account assets for the variable annuity component of the flexible premium variable and index-linked deferred annuities are stated at fair value. Separate account liabilities are accounted for onin a manner similar to other policy reserves. Separate account premium deposits, benefit expenses and contract fee income for investment management and policy administration are reflected by the Company in the accompanying statutory basis consistentstatements of operations.
The variable annuity contract holders of the flexible premium variable and index linked deferred annuity are able to invest in investment funds managed for their benefit. All of the flexible premium variable and index-linked deferred annuity separate account assets are invested in unit investment trusts that are registered with the accountingSEC as of December 31, 2023 and 2022.
CMFG Life, on behalf of MLIC, invests the single premium deferred index annuity, single premium deferred index-linked interest options annuity, single premium deferred modified guaranteed index annuity and flexible premium deferred variable premiums for the underlying contracts. Since the related product is an investment type contract, the Company accounts for the reinsurance of these contracts using the deposit method of accounting consistent with the termsbenefit 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.
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.
The Company entered into three agreements with CMFG Life, as described above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.” These agreements do not relieve the Company of its obligations to its policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company’s underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities.
Policyholder Account Balances. The Company recognizes a liability at the stated account value for policyholder deposits that are not subject to significant policyholder mortality or longevity risk and for universal life-type policies. The account value equals the sum of the original deposit and accumulated interest, less any withdrawals and expense charges. The average credited rate of interest applied to the account values was 4.5% in 2015, 2014 and 2013. The minimum guaranteed rate of interest that must be credited to such account values for the life of those contracts is 4.5%.
holder. The single premium deferred index, single premium deferred modified guaranteed index and flexible premium variable and index linked deferred annuities which are included in policyholder account balances, have two risk control accounts, referred to as the Secure and Growth Accounts; the Secure Account has an annuala yearly credited interest rate floor and ceiling of 0% and 4%, respectively, and the yearly Growth Account has an annual credited interest rate floor and ceiling ofis -10% and 14%, respectively.. The Secure and Growth Accounts both have credited interest rate caps that vary with issuance. The single premium deferred index-linked interest options annuity has risk control accounts, with either caps and floors or participation rates and buffers applied based on the performance of an external index. For positive index performance, accounts with caps limit the interest credited to the policyholder at the cap; accounts with participation rates credit the full index performance multiplied by the participation rate to the policyholder. For negative index performance, floors represent the maximum negative interest credited a policyholder can receive, while the buffer represents the maximum negative index return for an interest term that will not result in negative interest credited to 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 during that Contract Year. Performance
Policy and Contract Claim Reserves - Liabilities established for unpaid benefits for life insurance contracts represent the estimated amounts required to cover the ultimate cost of bothsettling reported and incurred but unreported losses. These estimates are adjusted in the Secure Accountaggregate for ultimate loss expectations based on historical experience patterns and Growth Accountcurrent economic trends. Any change in the probable ultimate liabilities, which might arise from new information emerging, is calculated based,reflected in part,the statutory basis statements of operations in the period the change is determined to be necessary. Such adjustments could be material.
The policy and contract claim reserves are 100% ceded to CMFG Life.
Policy Reserves - Life Insurance reserves: Traditional life insurance reserves are computed on either the performancenet level reserve basis or the Commissioner’s Reserve Valuation Method basis dependent on product type and issue date using the applicable mortality table.
The Company waives deduction of deferred fractional premiums upon death of the S&P 500 Index. Atinsured and returns the endportion of the initialfinal premium beyond the date of death. Surrender values are not promised in excess of legally computed reserves.
Extra premiums are charged for substandard lives, plus the gross premium for a rated age. Mean reserves are determined by computing the regular mean reserve for the plan at the rated age and holding, plus one-half of the extra premium charge for the year.
Tabular interest, tabular less actual reserves released, tabular cost and tabular interest on funds not involving life contingencies have all been determined by formulas prescribed by the regulator of the Company’s state of domicile (“Insurance Department”).
Individual annuity reserves: Policyholder reserves related to individual annuity contracts are computed using the Commissioner's Annuity Reserve Valuation Method (“CARVM”), along with Valuation Method (“VM”) 21 for equity indexed annuities, during the contract accumulation period and the present value of future payments for contracts that have annuitized. Policyholder reserves related to single premium deferred index term onlyannuity, single premium deferred modified guaranteed index annuity and flexible premium variable and index linked deferred annuity contracts are computed using CARVM, along with Actuarial Guideline (AG) 33 and 35 and VM 21 for policies greater than ten days after issue; for the Secure Account will be available as an optionfirst ten days, the reserve is equal to the policyholder.
The policy reserves are 100% ceded to certain limitations, subject to the Index Rate Floor and Index Rate Cap.CMFG Life.
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Income Taxes.Liability for Deposit-Type Contracts - The Company recognizes a liability for policyholder deposits that are not subject to policyholder mortality or longevity risk at the stated account value. The account value equals the sum of the original deposit plus accumulated interest, less any withdrawals and expense charges. Such deposits primarily represent annuity contracts without life contingencies.
The liability for deposit-type contracts is 100% ceded to CMFG Life.
Income Tax - Deferred income taxes payable or refundableare recognized, subject to an admissibility test for deferred tax assets, and deferred taxes forrepresent the future tax consequences ofattributable to differences between the statutory basis financial reporting and tax basisstatement carrying amount of assets and liabilities. Deferredliabilities and their respective 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 andbases. Gross deferred tax assets are considered realizablereduced 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 astatutory valuation allowance for deferred tax assets if it determines it is more likely than not that some portion or all of the assetdeferred tax assets will not be realized by the consolidated group. Deferredrealized. Recorded deferred tax amounts are adjusted to reflect changes in income tax assets can be realized through future earnings, including, but not limitedrates and other tax law provisions as they are enacted. The net change in deferred taxes is recorded directly to the generation of future income, reversal of existing temporary differences and available tax planning strategies.unassigned surplus.
The Company is subject to tax-related audits. These audits may resultThe Company accounts for any federal and foreign tax contingent liabilities in additionalaccordance with Statement of Statutory Accounting Principles (“SSAP”) No. 5R, Liabilities, Contingencies and Impairments of Assets as modified by SSAP No. 101, Income Taxes, and any state and other tax assets or liabilities. In establishing taxcontingent liabilities in accordance with SSAP No. 5R.
Statutory Valuation Reserves - The Interest Maintenance Reserve (“IMR”) is maintained for the purpose of stabilizing the surplus of the Company determines whether a tax positionagainst gains and losses on sales of investments that are primarily attributable to changing interest rates. The interest rate-related gains and losses are deferred and amortized into income over the remaining lives of the securities sold. If the IMR is more likely than notcalculated to be sustained under examination bya net asset, the appropriate taxing authority. Tax positions that do not meetCompany admits the more likely than not standard are not recognized. Tax positions that meet this standard are recognized inIMR asset until it reaches 10% of the financial statements.
The Asset Valuation Reserve (“AVR”) is a formulaic reserve for fluctuations in the Company’s ultimate parent.values of invested assets, primarily bonds and notes, mortgage loans, common stocks and limited partnerships. Changes in the AVR are charged or credited directly to unassigned surplus.
Other Liabilities - The Company issues Registered Index Annuities on the 10th and 25th of each month. The Company recognizes a liability on contracts for which it has entered intoreceived cash, but has not issued a tax sharing agreement with CM Holdingcontract. Other liabilities primarily consist of these customer funds pending completion of the policy issuance process. The customer funds, are released from other liabilities when the policy is issued and its subsidiaries. the application process is completed.
Recently Adopted Accounting Standard Update - The agreement provides for the allocation of tax expenses based on each subsidiary’s contributionNAIC adopted INT 23-01 Net Negative (Disallowed) Interest Maintenance Reserve (“INT 23-01”), which is an interpretation that prescribes limited-time, optional, statutory accounting guidance as an exception to the consolidated federal income tax liability. Pursuantexisting guidance detailed in SSAP No. 7 Asset Valuation Reserve and Interest Maintenance Reserve. Under the INT 23-01, reporting entities are allowed to admit negative IMR if certain criteria are met. The adoption of this guidance allowed the agreement, subsidiaries that have incurred losses are reimbursed regardlessCompany to admit $685 of the utilization of the lossnegative IMR at December 31, 2023. The Company recorded IMR in the current year. Federal income taxes recoverable reportedother assets on the balance sheet are due from affiliates.
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 Index-Linked Annuity Contract in 2013 and the Contract offered by this Prospectus as of the date hereof.policies. The Company is managed as two reportable business segments, (1) lifemarkets and health, and (2) annuities. See Note 10 ofdistributes our TAWL contracts through third-party distributors. The Company provides the Notes toRegistered Index Annuities throughout the Financial Statements appearing elsewhereUnited States except in this Prospectus for information related to the two business segments.New York.
The Company entered into a Coinsurance Agreement with CMFG Life to cede 95% of its business inforce as of October 31, 2012. In 2013, it entered into a second agreement with CMFG Life to cede 100% all insurance issued on and after January 1, 2013. On September 30, 2015, the Company amended its Coinsurance Agreement with CMFG Life and now cedes 100% of itsour insurance and annuity policies in force to CMFG Life. On November 1, 2015,This does not relieve the Company entered into a Coinsuranceof our obligations to our policyholders under contracts covered by these agreements. However, the reinsurance agreements transfer all of the Company’s underwriting profits and Modified Coinsurance Agreement withlosses to CMFG Life and require CMFG Life to ceded 100%indemnify the Company for all of the business related to the Contract.its liabilities. See Note 7 of the Notes
to the Statutory Basis Financial Statements appearing elsewhere in this Prospectus for information on the 2012effect of these agreements and 2013 agreements.
The Company began distributing the Index-Linked Annuity Contract, an individual or joint owned, single premium deferred annuity contract, in 2013 which became the Company’s second reportable business segment. The Company began distributing the Contract as of the date of this Prospectus. The Company’s annuities segment, which includes the Index-Linked Annuity Contract and the Contract, is ceded 100% to CMFG Life under the 2013 ceding agreement and accordingly does not impact the results of operations.
Total revenues, which consisted mainly of premiums, net realized investment gains and investment income, reinsurance commissions and other income were $4,662, $429$163,818 and $654$160,907 for the years ended December 31, 2015, 20142023 and 2013,2022, respectively. The increase in total revenues in 2015 is reflective of2023 as compared to 2022, was primarily due to an increase in other income which is a
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Total benefitsCompany’s Registered Index Annuities, which was $132,242 and expenses were $433, $257 and $274$129,562, for the years ended December 31, 2015, 20142023 and 2013,2022, respectively. The increase inAll remaining commissions relate to the Company’s life and health benefitsproducts and expenses in 2015 compared to 2014 is primarily due to increased legal expenses related to the settlement received on structured security investments that had previously been sold, partially offset by the 2015 amendment to the 2012 reinsurance agreement. The primary decrease in lifetotaled $51,828 and health benefits in 2014 is due to fewer claims incurred by the Company in 2014. Life and health benefits totaled ($1,204), $112 and $179$33,910 for the years ended December 31, 2015, 20142023 and 2013,2022, respectively. The Company ceded $1,244 of life and health benefits in 2015, leadingalso records other income related to the modified coinsurance agreement, which represents the aggregate ceding allowance payable by the reinsurer to the Company in relation to its flexible premium deferred variable annuity contracts. The decrease in 2023 as compared to 2022 is due to a decrease in annuity sales and increased benefit payments, the two primary components of the ceding allowance.
Total benefits in 2015 from 2014. The Company’s primary expense is the payment of claims related to life insurance policies. Operatingand expenses totaled $1,633, $137were $159,844 and $86$159,220 for the years ended December 31, 2015, 20142023 and 2013,2022, respectively. The increase in benefits and expenses in 2023 as compared to 2022 was primarily due to increases in the Company’s general insurance expenses related to increased TAWL sales and production of the Company’s current annuity products. This increase was partially offset by a decrease in the net transfers to (from) separate accounts related to the decrease in commission received on premium related to the Company’s variable annuity component of our Horizon products. This commission has decreased due to a decrease in annuity sales, and an increase in benefits on past sales. The net result of these changes is included in the transfers to (from) the separate accounts. CMFG Life provides significant services required in the conduct of the Company’s operations. Operating expenses incurred by the Company that are specifically identifiable are borne by the Company; other operating expenses are allocated from CMFG Life on the basis of estimated time and usage studies. Operating expenses are primarily related to and include employee costs such as wages and benefits, and credit union reimbursements whereby the Company reimburses credit unions for certain administrative expenses they incur in the production of new and renewal business sold for the Companylegal and other operating expenses such as rent, insurance and utilities. The increase in operatingthese expenses in 2015 relates2023 as compared to 2022 was primarily due to increased legal feessalaries allocated to the Company and marketing costs related to the litigation settlement received on structured security investments that had previously been sold.Company’s TAWL product.
Income
Federal income tax expense is recorded at 35% offset by prior year tax expense or benefits primarily related to interest on accrued refunds, resulting in an effective tax rate of 34.3%, 6.4%was $1,894 and 65.5%$1,142 for the years ended December 31, 2015, 20142023 and 2013,2022, respectively, which represents an effective tax rate of 47.7% and 67.7%, for the same periods, respectively. The effective tax rates differ from the statutory income tax rate of 21% primarily due to the following: 1) nondeductible IMR amortization; 2) dividends received deductions and foreign tax credits related to separate account investments; 3) expenses required to be capitalized and amortized for tax purposes; and 4) differences in timing of certain accrued expenses. The increase in 2023 as compared to 2022 was driven mainly by an increase in pre-tax income and an increase in expenses required to be capitalized and amortized for tax purposes.
Net income was $2,780, $161$2,079 and $131$540 for the years ended December 31, 2015, 20142023 and 2013,2022, respectively. The increase in 2015 net income2023 as compared to 2022 was primarily due to the litigation settlement received on structured security investments that had previously been sold.
Our
The Company’s 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. OurThe Company’s investment in bonds and notes consists of publicly traded corporate bonds,U.S. government and agencies, industrial and miscellaneous, commercial mortgage-backed securities, residential mortgage-backed securities, and U.S. Treasurynon-mortgage backed securities. While the investments are categorized as available for sale, weThe Company generally hold ourholds its bond portfolio to maturity.
Insurance statutes regulate the type of investments that we arethe 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
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regulations and our business and investment strategy, wethe Company generally seekseeks to invest in United States government and government-sponsored agency securities and debt securitiesbonds and notes rated investment grade by established nationally recognized rating organizations or in securities of comparable investment quality, if not rated.
The composition of ourCompany’s investment portfolio was comprised solely of bonds and notes at December 31, 20152023 and December 31, 2014 was as follows:
December 31, | ||||||||||||||
2015 | % | 2014 | % | |||||||||||
Debt Securities | $ | 12,351 | 100.0 | % | $ | 13,194 | 99.1 | % | ||||||
Policy loans | - | - | 104 | 0.8 | ||||||||||
Receivable for securities sold | - | - | 15 | 0.1 | ||||||||||
Total investments | $ | 12,351 | 100.0 | % | $ | 13,313 | 100.0 | % | ||||||
2022. The table below presents the carrying value of our total debt securitiesbonds and notes by type at December 31, 20152023 and December 31, 2014.2022.
December 31, | ||||||||||||||
2015 | % | 2014 | % | |||||||||||
U.S. government and agencies | $ | 9,813 | 79.5 | % | $ | 9,987 | 75.6 | % | ||||||
Mortgage-backed securities: | ||||||||||||||
Residential mortgage-backed | 2,538 | 20.5 | 3,207 | 24.4 | ||||||||||
Total debt securities | $ | 12,351 | 100.0 | % | $ | 13,194 | 100.0 | % | ||||||
December 31, | ||||||||||||||||
2023 | % | 2022 | % | |||||||||||||
U.S. government and agencies | $ | 8,719 | 20.3 | % | $ | 8,724 | 19.0 | % | ||||||||
Industrial and miscellaneous | 26,081 | 60.6 | 27,887 | 60.8 | ||||||||||||
Residential mortgage-backed securities | 560 | 1.3 | 625 | 1.4 | ||||||||||||
Commercial mortgage-backed securities | 3,871 | 9.0 | 3,863 | 8.4 | ||||||||||||
Non-mortgage asset-backed securities | 3,805 | 8.8 | 4,756 | 10.4 | ||||||||||||
Total bonds and notes | $ | 43,036 | 100.0 | % | $ | 45,855 | 100.0 | % |
The amortized coststatement value and estimated fair value of debt securitiesbonds and notes by contractual maturity are shown below at December 31, 2015.2023. 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 | $ | 1,261 | $ | 1,280 | |||
Due after one year through five years | 315 | 322 | |||||
Due after ten years | 8,757 | 8,211 | |||||
Mortgage-backed securities: | |||||||
Residential mortgage-backed | 2,365 | 2,538 | |||||
Total debt securities | $ | 12,698 | $ | 12,351 | |||
We have classified our debt
Statement Value | Estimated Fair Value | |||||||
Due in one year or less | $ | 5,991 | $ | 5,957 | ||||
Due after one year through five years | 11,694 | 11,526 | ||||||
Due after five years through ten years | 8,395 | 7,735 | ||||||
Due after ten years | 8,720 | 6,967 | ||||||
Commercial mortgage-backed securities | 560 | 514 | ||||||
Residential mortgage-backed securities | 3,871 | 3,591 | ||||||
Non-mortgage asset-backed securities | 3,805 | 3,771 | ||||||
Total bonds and notes | $ | 43,036 | $ | 40,061 |
At December 31, 2023, the Company owned 27 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 aswith a separate component of stockholder’s equity, thereby exposing stockholder’s equity to volatility for changes in the reported fair value of $32,372 in an unrealized loss position. There were 25 bonds and notes with a fair value of $29,809 in an unrealized loss position for twelve or more months. The aggregate severity of unrealized losses for bonds and notes with a loss period of twelve months or greater is approximately 9.2% of amortized cost. All the securities classifiedwith unrealized losses as available for sale.of December 31, 2023 are rated “investment grade” based on having an NAIC rating of 1 or 2.
At December 31, 2022, the Company owned 37 securities with a fair value of $42,116 in an unrealized loss position. The Company hadowned seven industrial and miscellaneous securities and one debtcommercial mortgage-backed security of $1,073 and $229, respectively in unrealized loss positions greater than twelve months.
The aggregate severity of unrealized losses for bonds and notes with a grossloss period of twelve months or greater is approximately 15.1% of amortized cost. All the securities with unrealized losslosses as of $546 at December 31, 2015 and one debt security with a gross unrealized loss2022 are rated “investment grade” based on having an NAIC rating of $4 at December 31, 2014.
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Liquidity and Capital Resources
The Company amended its Coinsurance Agreement with CMFG Life and now cedes 100% of itsthe Company’s insurance and annuity policies in force to CMFG Life. In 2013, we entered into an agreement to cede 100% of all insurance issued on and after January 1, 2013 to CMFG Life. On November 1, 2015, we entered into a Coinsurance and Modified Coinsurance Agreement with CMFG Life to cede 100%This does not relieve the Company of the business related to the Contract. These agreements do not relieve us of ourCompany’s obligations to our policyholders under contracts covered by these agreements. However, theythe agreements do transfer nearly all of the Company’s underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities.
As consideration for the reinsurance provided under these agreements, as of October 1, 2015 we transferthe Company transfers all of ourthe Company’s 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 usthe Company 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 stockholder’s equity,capital and surplus, they substantially diminish our net liabilities and greatly decrease the amount of capital and liquidity needed within the Company.
Operating activities provided $10,987, $1,327$16,018 and $4,286 in$12,641 of net operating cash flow for the years ended December 31, 2015, 2014,2023 and 2013,2022, respectively. The Company’s sources of funds include renewal premiums, sales of annuities and investment income. The Company’s primary use of funds includes the payment of benefits and related operating expenses.expenses as well as settlements related to the reinsurance agreements with CMFG Life. The Company issues Registered Index Annuities 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 increase in operating cash flow in 2015 from 20142023 as compared to 2022 was primarily due to an increase in the Company’s new annuity product and the receipt of cash for income taxesnet transfers from the Company’s parent company. Theseparate account and an increase in reinsurance commissions received, offset by an increase in operating expenses paid and other income related to a decrease in cash flow in 2014 from 2013 was primarily due to the receipt of tax receivables in 2013 and the non-renewal of business on the Company’s older insurance policies. The Company’s sources of funds include renewal premiums and investment income.ceding commissions received.
Investing activities provided $331$3,063 and $1,655$1,205 of net cash flow for the years ended December 31, 20152023 and 2013, respectively, and used $6,779 for the year ended December 31, 20142022, respectively. The Company’s main investing activities include the purchasepurchases and salesales and maturity of debt securities.bonds and notes. The Company sold $8,987had maturities on bonds and purchased $8,760notes, which provided cash of debt securities$3,063 and $1,198 in 2015, contributing to2023 and 2022, respectively. The increase in bond proceeds from maturities drove the net increase of cash from investing activities. The Company purchased $7,535 of debt securitiesactivities in 2014, contributing2023 as compared to the net use of cash from investing activities. The increase in the cash provided in 2013 was driven by the Company receiving proceeds on the sale of debt securities and not making any purchases of investments in 2013.2022.
The Company’s financing activities provided $173used $3,287 and $228$4,799 of net cash flow for the years ended December 31, 20152023 and 2013, respectively, and used $51 of net cash flow for financing activities for the year ended December 31, 2014.2022, respectively. The Company’s main financing activities include the collection of deposits and payment of withdrawals from policyholder’s accounts.on deposit contracts. The Company had increased deposits on policyholder accounts in 2015 from 2014 leading to the increase in cash provideddecrease in financing activities in 2015.2023 was primarily due to a decrease in contracts issued after the 25th of the month which are not issued until the 10th of the following month as compared to the prior year. Total cash provided or (used) for financing activities can vary based upon the timing of deposits received. The Company had slightly increased withdrawals on policyholder account balancesreceived $19,680 of securities and related tax benefits as a non-cash capital contribution in 20142022 from 2013 leading toCMFG Life.
As of December 31, 2023, the Company’s cash being used in financing activities in 2014. The deposits on policyholder account balancesrequirements were offset byprimarily for the assets on deposit which were ceded topayment of benefits, operating expenses as well as settlements with CMFG Life under the 2013 ceding agreement.
Going forward,for reinsurance agreements. These liquidity requirements will beare met primarily through monthly settlements under the coinsurance and modified coinsurance agreements with CMFG Life. We anticipateThe Company anticipates receiving adequate cash flow from these settlements and our investment income to meet ourits obligations. However, a primary liquidity concern going
forward will beis the risk of an extraordinary level of early policyholder withdrawals. We includeThe Company includes provisions within ourits policies, such as Surrender Charges, that help limit and discourage early withdrawals.
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We believeThe Company believes that cash flows generated from sources above will be sufficient to satisfy the nearnear- term liquidity requirements of ourits operations, including reasonable foreseeable contingencies. However, wethe Company cannot predict future experience regarding benefits and surrenders since benefit and surrender levels are influenced by such factors as the interest rate environment, ourthe Company’s claims paying ability and ourthe Company’s financial credit ratings.
Most funds weannuity deposits the Company will receive going forward funds which we will receive as annuity deposits,are ceded to CMFG Life and will be invested in high quality investments, those identified by the CompanyCMFG Life as investment grade, to fund our future commitments. We believeThe Company believes that the settlement we receiveit receives under the reinsurance agreements with CMFG Life, the diversity of ourits investment portfolio and a concentration of investments in high quality securities should provide sufficient liquidity to meet foreseeablethe Company’s long-term cash requirements. Although there is no present need or intent to dispose of our investments, wethe 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
Risk-based capital requirements promulgated by the NAIC and adopted by the Insurance Department require U.S. insurers to maintain minimum capitalization levels that are determined based on formulas incorporating asset risk, insurance risk, and business risk. The adequacy of the Company’s actual capital is evaluated by a life and health insurer domiciled in Iowa. We file statutory basis financial statements with regulatory authorities. Our statutorycomparison to the risk-based capital and surplus was $21,111 and $18,366results, as ofdetermined by the formula. At December 31, 20152023 and 2014, respectively. Our statutory basis net income (loss) was $1,112, ($1,792) and ($1,562) for2022, the years ended December 31, 2015, 2014, and 2013, respectively.
We are
The Company is subject to statutory regulations as to maintenance of equity and the payment of dividends. Generally, ordinary dividends from an insurance subsidiary to its parent company must meet notice requirements promulgated by the regulator of the subsidiary’s state of domicile (“Insurance Department”).Department. Extraordinary dividends, as defined by state statutes, must be approved by the Insurance Department. Based on Iowa statutory regulations, theThe Company couldcan pay $5,537 in stockholder dividends of $2,111 during 2016,in 2024 without prior approval of the Iowa Insurance Department.regulatory approval.
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, 2015 and 2014, the Company’s adjusted capital exceeded the minimum capitalization requirements.
On January 1, 2015, the Company entered into a Cost Sharing, 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,Additionally, 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, we areis allocated a certain portion of the total compensation of each of ourthe Company’s 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 $8,447, $5,641$104,772 and $2,492$79,869 for these expenses for the years ended December 31, 2015, 20142023 and 2013,2022, respectively.
For detailed discussion of the management services agreement, the investment advisory agreement and the coinsurance agreements, see “Management"Management – Transactions with Related Persons, Promoters and Certain Control Persons.”"
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Going forward, weIn the future, the Company 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 December 31, 2015.2023.
Estimated Future Claim and Benefit Payments | |||||||
Estimated Future Claim and Benefit Payments | |||||||
Due in one year or less | $ | 49,319 | $ | 9,741 | |||
Due after one year through three years | 126,547 | 31,146 | |||||
Due after three years through five years | 280,564 | 22,358 | |||||
Due after five years | 660,945 | 238,663 | |||||
Total estimated payments | $ | 1,117,375 | $ | 346,908 | |||
Quantitative and Qualitative Disclosures about Market Risk and Cyber Security
Given our limited operations in writing new business to date, we are not currently subject to any material market risk exposures. However, in future periods, we expect to have
The Company has exposure to market risk through both our insurance operations and investment activities, although a significant portion of this risk will beis 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 will beare taken by CMFG Life asbecause it will hold nearlyholds all of the assets related to our insurance business as a result of the Coinsurance Agreements.coinsurance agreements.
Interest rate risk will beis 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 will haveThe Company has the ability to adjust crediting rates (caps, participation rates or asset fee rates for indexed annuities) on substantially all of our annuity products at least annually (subject to minimum guaranteed values). In addition, substantially all of our annuity products will have surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned. However, competitive factors, including the impact of the level of surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at levels necessary to avoid narrowing of spreads under certain market conditions.
A major component of our interest rate risk management program is structuring the General Account investment portfolio with cash flow characteristics consistent with the cash flow characteristics of our annuity products. We useThe Company uses 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”"duration" of a security is the time weighted present value of the security’ssecurity's expected cash flows and is used to measure a security’ssecurity's sensitivity to changes in interest rates. When the durations of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in value of assets should be largely offset by a change in the value of liabilities. As of December 31, 2015,2023, the Company’s fixed debt investment portfoliobonds and notes consisted of U.S. government and agency securitiesagencies, industrial and miscellaneous, residential mortgage-backed securities, commercial mortgage-backed securities and non-mortgage asset-backed securities with fairstatement values of $9,813$8,719, $26,081, $560, $3,871 and $2,538,$3,805, respectively, and has an average duration of 16.48.6 years.
The Company’s business is highly dependent upon the effective operation of our index-linked annuities (including this Contractcomputer systems and our Index-Linked Annuity Contract), we purchase call options on the applicable indices to fund the annual index credits on such annuities.
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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 offset by an increaseno assurance that we will avoid losses affecting the Company’s customer’s Contract due to cyber-attacks or decreaseinformation security breaches in the amounts added to policyholder account balances for indexed products.
We also utilize a hedging process in which we purchase options out of the money to the extent of any anticipated annual index credits under the indexed annuities. On the anniversary dates of the indexed annuities, we will purchase new one-year call options to fund the next annual index credits. The risk associated with these prospective purchases is the uncertainty of the cost, which will determine whether we are able to earn our spread on our index business. We will manage this risk through the terms of our annuities, which will permit us to change caps, participation rates and asset fees, subject to contractual features. By modifying caps, participation rates or asset fees, we can limit option costs to budgeted amounts, except in cases where the contractual features would prevent further modifications.
Directors and Executive Officers
Our directors and executive officers are as follows:
Name |
|
| |||||
David L. Sweitzer | 60 | President and Director | |||||
Paul D. Barbato | 47 | Secretary and Director | |||||
Brian J. Borakove | 45 | Treasurer | |||||
Jennifer M. Kraus-Florin | 49 | Director | |||||
William Karls | 53 | Director | |||||
Abigail R. Rodriguez | 41 | Director |
All executive officers and directors are elected annually.
M. Jeffrey BoscoDavid L. Sweitzer has served as President since December 1, 2015 and as director of the Company since January 1, 2015.October 31, 2016. He also serves as Executive Vice President-Chief Experience Officer for CMFG Life since 2021. He served as the Senior Vice President of Wealth Management for CMFG Life where he leadsled overall business strategy and product management for CUNA Brokerage Services, Inc.CBSI and CMFG Life’s and affiliates family of annuity products. Prior to joiningMr. Sweitzer has held various positions in CMFG Life for 32 years. He brings more than 30 years of progressive experience in 2011, Mr. Bosco held a number of positions at American Family Insurance Group, Madison, Wisconsin.sales and marketing, sales operations and sales strategy.
Steven R. SuleskiPaul D. Barbato has been aserved as Secretary and as director of the Company since December 15, 2015 and has served28, 2018. As of May 12, 2023, he also serves as our Secretary and Senior Vice President, since February 1, 2012.Chief Legal Officer & General Counsel. He has served as Vice President, Associate General Counsel for CMFG Life (January 2019-May 2023). 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 atand Director of Corporate Governance. Before joining CMFG Life, from May 1999 to January 2014. He serves as Chief Governance & Compliance Officer effective January 2014 to present. Before joining the Company, Mr. SuleskiBarbato spent 12two years at FoleyMichael Best & Lardner,Friedrich, LLP, in Madison, Wisconsin, where he was a partner specializing in securities law, mergers and acquisitions and general corporate law.an Associate Attorney.
Brian J. Borakovehas 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.
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Michael F. AndersonJennifer M. Kraus-Florin has been a director of the Company since December 15, 2015. HeMay 12, 2023. She also serves as the Senior Vice President, Chief Legal Officer forAssociate General Counsel, and Regulatory and Business Compliance Leader at CMFG Life where he is responsible for all legal matters across CMFG Life’s business entities since 2011. HeLife. Ms. Kraus-Florin previously served as Managing Associate General Counsel from 2008 to 2009, promoted to Vice President in 20092015- 2022, and in 2011 promoted to Senior Vice President.Lead Counsel from 2012-2015. Before joining the Company, Mr. Anderson spent 15 yearsMs. Kraus-Florin was Compliance Officer, and Associate General Counsel with American General Life Insurance Company in private practice, most recently as a partner in the New York office of Morgan, LewisHouston, Texas. Ms. Kraus-Florin was Associate Attorney with Foley & Bockius.Lardner LLP from 2001-2008.
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 Life’s Sales Department for 25 years. He brings more than 25 years of progressive experience in sales and marketing leadership, sales operations and sales strategy.
Abigail R. Rodriguez has been a director of the Company since October 1, 2019. She also serves as Senior Vice President for Aviva USA, an insurance company,of Lending Experience at CMFG Life. She served as Senior Vice President of Customer Success within the Customer Experience Unit from 2010 to 2012. Prior to Aviva USA, Mr. Pisarik2019-2021. Ms. Rodriguez previously served as Vice President of Consumer Operations from 2013-2019, and Senior Business Continuous Improvement Consultant from 2011-2013. Before joining the Company, Ms. Rodriguez held many leadership rolesseveral positions at KPMG, LLP, an accounting and consulting firmAce World Wide in Muskego, Wisconsin from 1994 to 2009.2008-2011. Ms. Rodriguez served as Six Sigma Black Belt at Graphic Packaging International in Kalamazoo, Michigan from 2004-2008. Ms. Rodriguez served as Implementation Specialist at Sonoo Products Company in Hartsville, South Carolina in 2004.
Transactions with Related Persons, Promoters and Certain Control Persons
Policy Regarding Related Person TransactionsTransactions.. It is our policy to enter into or ratify related person transactions only when our Board of Directors determines that the transaction either is in, or is not inconsistent with, our best interests, including but not limited to situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternative sources or when we provide products or services to related persons on an arm’sarm's length basis on terms comparable to those provided to unrelated third parties or on terms comparable to those provided to employees generally.
Therefore, we have adopted the following 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.
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 shallwill be consummated or amended only if the following steps are taken:
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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 |
meeting, to the President of the Company (who has been delegated authority to act between meetings). | ||
● | any immediate family member of any of the foregoing persons; or 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 | |
The Board of Directors shall approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders, as the Board of Directors determines in good faith. The Board of Directors shall convey the decision to counsel, who shall convey the decision to the appropriate persons within the Company. |
At the Board of Director’s first meeting of each fiscal year, it shall review any previously approved related person transactions that remain ongoing and have a remaining term of more than six months or remaining amounts payable to or receivable from the Company of more than $120,000. Based on all relevant facts and circumstances, taking into consideration the Company’sCompany's contractual obligations, the Board of Directors shall determine if it is in the best interests of the Company and its shareholders to continue, modify, or terminate the related person transaction.
No member of the Board of Directors shall participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person.
Certain Relationships and Related Person TransactionsTransactions.. 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. On October 15, 2018, we amended the Coinsurance and Modified Coinsurance Agreement with CMFG Life to cede 100% of the business related to TruStage™ Horizon II Annuity contracts. These agreements do not relieve us of our obligations to our policyholders under contracts covered by these agreements. However, they do transfer nearly all of the Company’s underwriting profits and losses to CMFG Life and require CMFG Life to indemnify the Company for nearly all of its liabilities.
As consideration for the reinsurance provided under these agreements, as of October
On January 1, 2015, we transfer nearly 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. As additional consideration, we transferred assets equal to 95% of our reserves as of October 31, 2012 to CMFG Life. CMFG Life pays us a monthly expense allowance to reimburse the Company for expenses and costs incurred on account of its insurance business. For the years ended December 31, 2015, 2014 and 2013, we ceded $3,559, $2,486 and $2,672, respectively. See Note 7 to the Financial Statements appearing elsewhere in this Prospectus.
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The Company has hired MEMBERS Capital Advisors, Inc. (“MCA”) to provide investment advisory services with respect to the Company’s General Account assets. MCA, which is 100% owned by CMIC,CUNA Mutual Investment Company, manages substantially all of the Company’s invested assets in accordance with policies, directives and guidelines established by the Company.
Committees of the Board of Directors
Our Board of Directors of the Company has not established any committees. The Board of Directors relies upon the committees of the CUNA MutualCM Holding Company to oversee actions over the subsidiary companies. For example, the CUNA MutualCM Holding Company Audit Committee will assist with oversight of the company’sCompany’s 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. BoscoSweitzer is on the Board of Directors for CUNA Brokerage Services, Inc.CBSI whose Board of Directors include Messrs. Anderson, Defnet, PisarikKarls, Copeland, Ms. Kraus-Florin and Suleski,Ms. Rodriguez, the other Directors of the Company.
We sharedo not have any employees but rather are provided personnel, withincluding our named executive officers, by our parent company, CMFG Life, pursuant to a Costthe Amended and Restated Expense Sharing Procurement, Disbursement, Billing and Collection Agreement between CMFG Life and us. Our operational needs are met by CMFG Life and certain of its affiliates pursuant to the CUNA Mutual Group Cost Sharing, Procurement, Disbursement, Billing and Collection Agreement. Certain employees who provide services to us under such agreement are CMFG Life executive officers or employees and are paid by CMFG Life. Their compensation-related costs are allocated to us based on various factors, the primary being the estimated time allocated to providing services to us. The Company had not been issuing new policies for several years and the primary business had been managing its block of existing business. As a result, some of the current officers havewe do not devoteddetermine or pay any significant amounts of time to the Company and its operations. The introduction of the Index-Linked Annuity Contract in 2013, and the Contract described in this Prospectus as of the date hereof, resulted in all officers and directors devoting more time to the Company’s business and more of their compensation-related costs allocated to the Company based upon the increased time devoted to development of this business.
In order to help you understand our compensation-related costs, we have set forth below a discussion of CMFG Life’s compensation policies and programs as such policies and programs relate to our named executive officers.
Compensation Discussion and Analysis. These compensation policies and programs are designed to attract and retain highly qualified and motivated executive officers and employees and encourage and reward achievement of annual and long-term goals.
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Federal income tax law limits deductibility of compensation in excess of $1 million paid to certain named executive officers unless this compensation qualifies as “performance-based compensation.” It is the intent ofor additional personnel provided by CMFG Life to qualify its executives’ compensation for deductibility under applicable tax laws, while recognizing that there may be situations in which compensation for executive officers may not be tax deductible.
Named Executive Officers. The primary elements of compensation forour operations. CMFG Life determines and pays the salaries, bonuses and other wages earned by our named executive officers who are officers of and compensatedby additional personnel provided to us by CMFG Life, include base pay and incentive compensation.
In August 2013, the Company began issuing a single premium deferred index annuity contract under the name “MEMBERS ® Zone Annuity”. This annuity contract accounts for all the new saleschange in control of the Company. The Contract described in this Prospectus is first being offered as ofSee “Contractual Obligations” for more information about the date of this Prospectus. When it becomes available the Company will have two annuity contract forms for sale. The Company also serves existing blocks of individualAmended and group life policies. The amount of compensation allocated to the Company for Mr. Trunzo in 2015, 2014 and 2013 was $72,412, $43,000 and $5,800, respectively. The amount of compensation allocated to the Company for Mr. Borakove for 2015, 2014 and 2013 was $4,398, $2,600 and $1,300, respectively. The amount of compensation allocated to the Company for Mr. Bosco in 2015 was $4,884. This represents an allocation of gross wages and Corporate SuccessRestated Expense Sharing Plan (“CSSP)” payment.
Incentive Compensation. Under the CSSP for 2016, an incentive compensation pool is created if CM Holding and its subsidiaries consolidated financial statement has positive pre-tax net income on a GAAP basis. If this objective is met, the Board determines the amount of the pool that may be paid to leadership and staff based on CMFG Life performance, using the following guidelines and weighting factors: adjusted pre-tax operating gain, 60%; controllable expenses, 20%; and weighted revenue, 20%. Depending upon the level of CMFG Life’s success as determined by the Board, compensation is paid out of this pool as a percentage of the base salary according to the level of individual performance. Our management and the Board believe that this CSSP design creates the proper focus, flexibility and alignment for maximizing short-term and long-term policyholder value creation to benefit the policyholders who own CUNA Mutual Holding Company, the ultimate parent of bothAgreement between CMFG Life and the Company.us.
The costs of the CSSP and other incentive programs and benefits that have been allocated to the Company for the President for 2016 is $58,376. These allocations increased as management has been required to devote more time to the operations of the Company.
The costs of the CSSP and other incentive programs and benefits that have been allocated to the Company for the Treasurer for 2016 is $1,595. These allocations increased as management has been required to devote more time to the operations of the Company.
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At the time the performance goals for the different incentive plans were approved by the Board, it was believed that the performance targets reflected an appropriate degree of stretch but that they were attainable based on successful execution of the Company’s business plan and the realization of macro-economic and market conditions reasonably aligned with the Company’s near term expectations.
Change in Control, Separation and Retirement Arrangements. CMFG Life has a written employment contract with Mr. Trunzo. None of the other named executive officers have employment contracts or separation agreements with CMFG Life. No costs associated with this employment contract have previously been allocated to the Company.
Other Compensation Including Other Non-Qualified Deferred Compensation Arrangements. CMFG Life has a qualified 401(k) plan for all eligible employees. CMFG Life matches 100% of employee contributions to the plan up to 5% of the employee’s total compensation, subject to the limitations specified in the Internal Revenue Code. CMFG Life also maintains a Supplemental 401(k) Plan in which some of the named executive officers participate that provides additional benefits and a company match.
In addition to the 401(k) plan, all employees of CMFG Life participate in a qualified Defined Benefit Pension Plan. There is a non-qualified plan for some of the named executives that provides benefits that would otherwise be paid into the qualified Defined Benefit Pension Plan but for Internal Revenue Code limitations. CMFG Life offers a package of insurance benefits to all employees including health, dental, long-term disability and life insurance. Several of the named executive officers receive perquisites including personal liability insurance, use of Company owned aircraft, travel to Company conventions for themselves and their spouse, tax benefits and tax preparation fees.Compensation Summary. The following table sets forth the allocated compensation based upon the estimated percentage of time the following officers devote to the affairs of the Company for the 2013, 2014 and 2015 fiscal years:
Name and principal position | Year* | Salary ($) | Bonus ($) | Total*** ($) |
(a) | (b) | (c) | (d) | (j) |
Robert N. Trunzo, President and Director* | 2013 2014 2015 | $2,800 $8,000 $14,036 | $3,000 $35,000 $58,376 | $5,800 $43,000 $72,412 |
M. Jeffrey Bosco, President ** | 2015 | $2,718 | $2,166 | $4,884 |
Brian J. Borakove, Treasurer*** | 2013 2014 2015 | $1,000 $1,600 $2,802 | $300 $1,000 $1,595 | $1,300 $2,600 $4,397 |
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The directors of the Company are also officers of CMFG Life. The Company’s directors receive no compensation for their service as directors of the Company but are compensated by CMFG Life for their services as officers of that company.CMFG Life. Accordingly, no costs were allocated to the Company for services of following persons in their role as current or former directors: Jennifer M. Jeffrey Bosco, Christopher J. Copeland, Thomas J. Merfeld, James M. Power, Michael F. Anderson, Michael T. Defnet, Jason A. PisarikKraus-Florin, William Karls, Paul D. Barbato, David L. Sweitzer and StevenAbigail R. Suleski. Messrs. Copeland, Merfeld and Power are no longer directors of the Company effective December 15, 2015.Rodriguez.
Legal ProceedingsFINANCIAL STATEMENTS
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.
The Company has established procedures and policies to facilitate compliance with laws and regulations and to supportCompany’s statutory basis financial reporting. These actions are based on a variety of issues and involve a range of the Company’s practices. We respond to such inquiries and cooperate with regulatory examinations in the ordinary course of business. In the opinion of management, the ultimate liability, if any, resultingstatements should be distinguished from all such pending actions will not materially affect the financial statements of the Company, nor have a material adverse impact on the Variable Separate Account, on CUNA Brokerage Services, Inc.’s ability to perform its contract withand you should consider the Variable Separate Account, norCompany’s statutory basis financial statements only as bearing on the Company’s 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 requirementsyour Contract. The statutory basis statements of Sections 13admitted assets, liabilities and 15capital and surplus of the 1934 Act.
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MEMBERS Life Insurance Company
Financial Statements as of December 31, 20152023 and 2014and for the Three Years in the Period Ended December 31, 2015and Report of Independent Registered Public Accounting Firm
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To the Board of Directors and Stockholder ofMEMBERS Life Insurance CompanyMadison, Wisconsin
We have audited the accompanying balance sheets of MEMBERS Life Insurance Company (the “Company”) as of December 31, 2015 and 2014,2022 and the related statutory basis statements of operations, capital and comprehensive income (loss), stockholder’s equity,surplus and cash flows for each of the three years in the period ended December 31, 2015. These2023 appear on the following pages. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseVariable Separate Account are located in the Statement of Additional Information dated May 1, 2024.
MEMBERS Life Insurance Company
Statutory Basis Financial Statements
as of December 31, 2023 and 2022
and for the Three Years in the Period Ended
December 31, 2023, Supplemental Schedules
as of and for the Year Ended December 31, 2023
and Independent Auditor’s Report
INDEPENDENT AUDITOR’S REPORT
Audit Committee and Stockholder of
MEMBERS Life Insurance Company
Waverly, Iowa
Opinions
We have audited the statutory basis financial statements based on our audits.
We conducted our auditsof MEMBERS Life Insurance Company (the “Company”), which comprise the statutory basis statements of admitted assets, liabilities, and capital and surplus as of December 31, 2023 and 2022, and the related statutory basis statements of operations, changes in accordance with the standardscapital and surplus, and cash flows for each of the Public Company Accounting Oversight Board (United States). Those standards require that we planthree years in the period ended December 31, 2023, and perform the auditrelated notes to obtain reasonable assurance about whether the statutory basis financial statements are free(collectively referred to as the “statutory basis financial statements”).
Unmodified Opinion on Statutory Basis of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.Accounting
In our opinion, suchthe statutory basis financial statements present fairly, in all material respects, the financial positionadmitted assets, liabilities, and capital and surplus of MEMBERS Life Insurancethe Company as of December 31, 20152023 and 2014,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015,2023, in conformityaccordance with the accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division, described in Note 2.
Adverse Opinion on Accounting Principles Generally Accepted in the United States of America
In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America section of our report, the statutory basis financial statements do not present fairly, in accordance with accounting principles generally accepted in the United States of America.America, the financial position of the Company as of December 31, 2023 and 2022, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2023.
Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Statutory Basis Financial Statements section of our report. We are required to be independent of the Company, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America
As described in Note 2 to the statutory basis financial statements, the statutory basis financial statements are prepared by the Company using the accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division, which is a basis of accounting other than accounting principles generally accepted in the United States of America, to meet the requirements of the Iowa Department of Commerce, Insurance Division. The effects on the statutory basis financial statements of the variances between the statutory basis of accounting described in Note 2 and
accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material and pervasive.
Emphasis of Matter
As discussed in Note 1 to the statutory basis financial statements, the 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.
Responsibilities of Management for the Statutory Basis Financial Statements
Management is responsible for the preparation and fair presentation of the statutory basis financial statements in accordance with the accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of statutory basis financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the statutory basis financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the statutory basis financial statements are issued.
Auditor’s Responsibilities for the Audit of the Statutory Basis Financial Statements
Our objectives are to obtain reasonable assurance about whether the statutory basis financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the statutory basis financial statements.
In performing an audit in accordance with GAAS, we:
● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
● | Identify and assess the risks of material misstatement of the statutory basis financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the statutory basis financial statements. |
● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the statutory basis financial statements. |
● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.
Report on Supplemental Schedules
Our 2023 audit was conducted for the purpose of forming an opinion on the 2023 statutory basis financial statements as a whole. The supplemental schedule of selected financial data, summary investment schedule, reinsurance contract interrogatories, and supplemental investment risks interrogatories as of and for the year ended December 31, 2023, are presented for purposes of additional analysis and are not a required part of the 2023 statutory basis financial statements. These schedules are the responsibility of the Company's management and were derived from and relate directly to the underlying accounting and other records used to prepare the statutory basis financial statements. Such schedules have been subjected to the auditing procedures applied in our audit of the 2023 statutory basis financial statements and certain additional procedures, including comparing and reconciling such schedules directly to the underlying accounting and other records used to prepare the statutory basis financial statements or to the statutory basis financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, such schedules are fairly stated in all material respects in relation to the 2023 statutory basis financial statements as a whole.
/s/ DELOITTEDeloitte & TOUCHETouche LLP
Chicago, Illinois
March 8, 201613, 2024
MEMBERS Life Insurance Company
Statutory Basis Statements of Admitted Assets, Liabilities and Capital and Surplus
December 31, 2023 and 2022
($ in 000s)
Admitted Assets | 2023 | 2022 | ||||||
Cash and invested assets | ||||||||
Bonds and notes | $ | 43,036 | $ | 45,855 | ||||
Cash and cash equivalents | 63,566 | 47,772 | ||||||
Total cash and invested assets | 106,602 | 93,627 | ||||||
Accrued investment income | 614 | 539 | ||||||
Federal income taxes recoverable from affiliate | - | 16 | ||||||
Net deferred tax asset | 2,733 | 505 | ||||||
Amounts due from reinsurers | 37,567 | 21,993 | ||||||
Receivables from affiliates | 709 | 45 | ||||||
Other assets | 693 | 14 | ||||||
Separate account assets | 238,473 | 229,659 | ||||||
Total admitted assets | $ | 387,391 | $ | 346,398 | ||||
Liabilities and Capital and Surplus | ||||||||
Liabilities | ||||||||
Reinsurance payable | $ | 26,214 | $ | 18,442 | ||||
Payable to affiliates | 46,583 | 25,569 | ||||||
Commissions, expenses, taxes, licenses, and fees accrued | 3,498 | 2,757 | ||||||
Asset valuation reserve | 102 | 68 | ||||||
Federal income taxes payable to affiliate | 62 | - | ||||||
Other liabilities | 21,096 | 22,548 | ||||||
Transfers to (from) separate accounts | (4,007 | ) | (4,695 | ) | ||||
Separate account liabilities | 238,473 | 229,659 | ||||||
Total liabilities | 332,021 | 294,348 | ||||||
Capital and surplus | ||||||||
Capital | ||||||||
Common stock, $5 par value, 1,000 shares issued and outstanding | 5,000 | 5,000 | ||||||
Paid-in surplus | 51,170 | 51,170 | ||||||
Unassigned surplus (deficit) | (800 | ) | (4,120 | ) | ||||
Total capital and surplus | 55,370 | 52,050 | ||||||
Total liabilities and capital and surplus | $ | 387,391 | $ | 346,398 |
Assets | 2015 | 2014 | ||||||
Investments | ||||||||
Debt securities, available for sale, at fair value | ||||||||
(amortized cost 2015 - $12,698; 2014 - $12,854) | $ | 12,351 | $ | 13,194 | ||||
Policy loans | - | 104 | ||||||
Receivable for securities sold | - | 15 | ||||||
Total investments | 12,351 | 13,313 | ||||||
Cash and cash equivalents | 17,093 | 5,602 | ||||||
Accrued investment income | 134 | 80 | ||||||
Reinsurance recoverable from affiliate | 24,628 | 25,199 | ||||||
Assets on deposit | 947,595 | 349,937 | ||||||
Premiums receivable, net | 26 | 28 | ||||||
Net deferred tax asset | 682 | 440 | ||||||
Receivable from affiliate | 4,518 | 2,765 | ||||||
Other assets and receivables | 268 | 220 | ||||||
Federal income taxes recoverable from affiliate | 516 | 1,797 | ||||||
Total assets | $ | 1,007,811 | $ | 399,381 | ||||
Liabilities and Stockholder’s Equity | ||||||||
Liabilities | ||||||||
Claim and policy benefit reserves - life and health | $ | 21,537 | $ | 22,368 | ||||
Policyholder account balances | 951,068 | 353,549 | ||||||
Unearned premiums | 1 | 3 | ||||||
Payables to affiliates | 2,480 | 1,292 | ||||||
Accounts payable and other liabilities | 11,177 | 2,954 | ||||||
Total liabilities | 986,263 | 380,166 | ||||||
Commitments and contingencies (Note 11) | ||||||||
Stockholder’s equity | ||||||||
Common stock, $5 par value, authorized 1,000 shares; | ||||||||
issued and outstanding 1,000 shares | 5,000 | 5,000 | ||||||
Additional paid in capital | 10,500 | 10,500 | ||||||
Accumulated other comprehensive income (loss), | ||||||||
net of tax expense (benefit) (2015 - ($122); 2014 - $118) | (225 | ) | 222 | |||||
Retained earnings | 6,273 | 3,493 | ||||||
Total stockholder’s equity | 21,548 | 19,215 | ||||||
Total liabilities and stockholder’s equity | $ | 1,007,811 | $ | 399,381 | ||||
See accompanying notes to statutory basis financial |
MEMBERS Life Insurance Company
Statutory Basis Statements of Operations
Years Ended December 31, 2023, 2022, and 2021
($ in 000s)
2023 | 2022 | 2021 | ||||||||||
Income | ||||||||||||
Reinsurance commissions | $ | 184,070 | $ | 163,472 | $ | 169,103 | ||||||
Net investment income | 4,172 | 1,679 | 748 | |||||||||
Other income (loss) | (24,424 | ) | (4,244 | ) | 32,689 | |||||||
Total income | 163,818 | 160,907 | 202,540 | |||||||||
Benefits and expenses | ||||||||||||
General insurance expenses | 101,198 | 75,646 | 62,147 | |||||||||
Insurance taxes, licenses, fees, and commissions | 82,918 | 87,648 | 107,116 | |||||||||
Net transfers to (from) separate accounts | (24,272 | ) | (4,074 | ) | 32,291 | |||||||
Total benefits and expenses | 159,844 | 159,220 | 201,554 | |||||||||
Income before federal income tax expense and net realized capital gains (losses) | 3,974 | 1,687 | 986 | |||||||||
Federal income tax expense | 1,894 | 1,142 | 1,668 | |||||||||
Income (loss) before net realized capital gains (losses) | 2,080 | 545 | (682 | ) | ||||||||
Net realized capital gains (losses), excluding gains transferred to IMR, net of tax expense (2023 - $1; 2022 - $5; 2021 - $21) | (1 | ) | (5 | ) | (21 | ) | ||||||
Net income (loss) | $ | 2,079 | $ | 540 | $ | (703 | ) |
2015 | 2014 | 2013 | |||||||||||
Revenues | |||||||||||||
Life and health premiums, net | $ | (1,175 | ) | $ | 127 | $ | 139 | ||||||
Contract charges, net | 18 | 24 | 46 | ||||||||||
Net investment income | 366 | 278 | 176 | ||||||||||
Net realized investment gains | 117 | - | - | ||||||||||
Other income | 5,336 | - | 293 | ||||||||||
Total revenues | 4,662 | 429 | 654 | ||||||||||
Benefits and expenses | |||||||||||||
Life and health insurance claims and benefits, net | (1,204 | ) | 112 | 179 | |||||||||
Interest credited to policyholder account balances, net | 4 | 8 | 9 | ||||||||||
Operating and other expenses (Note 6) | 1,633 | 137 | 86 | ||||||||||
Total benefits and expenses | 433 | 257 | 274 | ||||||||||
Income before income taxes | 4,229 | 172 | 380 | ||||||||||
Income tax expense | 1,449 | 11 | 249 | ||||||||||
Net income | 2,780 | 161 | 131 | ||||||||||
Change in unrealized gains (losses), net of tax expense | |||||||||||||
(benefit) (2015 - ($235); 2014 - ($25); 2013 - ($105)) | (437 | ) | (47 | ) | (154 | ) | |||||||
Reclassification adjustment for (gains) | �� | ||||||||||||
included in net income, net of tax (benefit) - (2015 - ($5)) | (10 | ) | - | - | |||||||||
Other comprehensive loss | (447 | ) | (47 | ) | (154 | ) | |||||||
Total comprehensive income (loss) | $ | 2,333 | $ | 114 | $ | (23 | ) | ||||||
See accompanying notes to statutory basis financial |
MEMBERS Life Insurance Company
Statutory Basis Statements of Changes in Capital and Surplus
Years Ended December 31, 2023, 2022, and 2021
($ in 000s)
2023 | 2022 | 2021 | ||||||||||
Capital and surplus at beginning of year | $ | 52,050 | $ | 35,637 | $ | 40,700 | ||||||
Additions (deductions) | ||||||||||||
Net income (loss) | 2,079 | 540 | (703 | ) | ||||||||
Change in net deferred income tax | 1,957 | 1,769 | 2,100 | |||||||||
Change in nonadmitted assets | (682 | ) | (5,863 | ) | (6,442 | ) | ||||||
Change in asset valuation reserve | (34 | ) | (50 | ) | (18 | ) | ||||||
Capital contribution from parent, net of tax | - | 20,017 | - | |||||||||
Net additions (deductions) | 3,320 | 16,413 | (5,063 | ) | ||||||||
Capital and surplus at end of year | $ | 55,370 | $ | 52,050 | $ | 35,637 |
Accumulated | ||||||||||||||||||||
Additional | other | Total | ||||||||||||||||||
Common | paid in | comprehensive | Retained | stockholder’s | ||||||||||||||||
stock | capital | income (loss) | earnings | equity | ||||||||||||||||
Balance, January 1, 2013 | $ | 5,000 | $ | 10,500 | $ | 423 | $ | 3,201 | $ | 19,124 | ||||||||||
Net income | - | - | - | 131 | 131 | |||||||||||||||
Other comprehensive (loss) | - | - | (154 | ) | - | (154 | ) | |||||||||||||
Balance, December 31, 2013 | 5,000 | 10,500 | 269 | 3,332 | 19,101 | |||||||||||||||
Net income | - | - | - | 161 | 161 | |||||||||||||||
Other comprehensive (loss) | - | - | (47 | ) | - | (47 | ) | |||||||||||||
Balance, December 31, 2014 | 5,000 | 10,500 | 222 | 3,493 | 19,215 | |||||||||||||||
Net income | - | - | - | 2,780 | 2,780 | |||||||||||||||
Other comprehensive (loss) | - | - | (447 | ) | - | (447 | ) | |||||||||||||
Balance, December 31, 2015 | $ | 5,000 | $ | 10,500 | $ | (225 | ) | $ | 6,273 | $ | 21,548 | |||||||||
See accompanying notes to statutory basis financial |
MEMBERS Life Insurance Company
Statutory Basis Statements of Cash Flows
Years Ended December 31, 2023, 2022, and 2021
($ in 000s)
2023 | 2022 | 2021 | ||||||||||
Cash from operating activities | ||||||||||||
Premiums and other considerations | $ | 7,772 | $ | (3,115 | ) | $ | 14,161 | |||||
Net investment income received | 3,831 | 1,461 | 802 | |||||||||
Reinsurance commissions | 184,070 | 163,472 | 169,103 | |||||||||
Other income | (42,693 | ) | 2,855 | 20,389 | ||||||||
Policy and contract benefits | 2,859 | (3,866 | ) | 151 | ||||||||
Operating expenses paid | (162,964 | ) | (158,638 | ) | (164,222 | ) | ||||||
Federal income taxes received from (paid to) affiliate | (1,817 | ) | (1,120 | ) | 1,546 | |||||||
Net transfers from (to) separate accounts | 24,960 | 11,592 | (35,088 | ) | ||||||||
Net cash provided by operating activities | 16,018 | 12,641 | 6,842 | |||||||||
Cash from investing activities | ||||||||||||
Proceeds from investments sold, matured or repaid | ||||||||||||
Bonds and notes | 3,063 | 1,198 | 2,820 | |||||||||
Miscellaneous proceeds | - | 7 | - | |||||||||
Total investment proceeds | 3,063 | 1,205 | 2,820 | |||||||||
Cost of investments acquired | ||||||||||||
Miscellaneous applications | - | - | 7 | |||||||||
Total investments acquired | - | - | 7 | |||||||||
Net cash provided by investing activities | 3,063 | 1,205 | 2,813 | |||||||||
Cash from financing and miscellaneous activities | ||||||||||||
Net deposits (withdrawals) on deposit-type contracts | (108 | ) | (126 | ) | (65 | ) | ||||||
Other cash provided (used) | (3,179 | ) | (4,673 | ) | 2,725 | |||||||
Net cash provided by (used in) financing and miscellaneous activities | (3,287 | ) | (4,799 | ) | 2,660 | |||||||
Net change in cash and cash equivalents | 15,794 | 9,047 | 12,315 | |||||||||
Cash and cash equivalents at the beginning of the year | 47,772 | 38,725 | 26,410 | |||||||||
Cash and cash equivalents at the end of the year | $ | 63,566 | $ | 47,772 | $ | 38,725 | ||||||
Supplemental disclosure of cash and non-cash transactions | ||||||||||||
Net cash paid (received) to (from) affiliate for income taxes | $ | 1,817 | $ | 1,120 | $ | (1,546 | ) | |||||
Capital contribution of securities from parent | - | 19,680 | - |
2015 | 2014 | 2013 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 2,780 | $ | 161 | $ | 131 | ||||||
Adjustments to reconcile net income | ||||||||||||
to net cash provided by operating activities: | ||||||||||||
Policyholder charges on investment type contracts | (18 | ) | (24 | ) | (46 | ) | ||||||
Net realized investment gains | (117 | ) | - | - | ||||||||
Interest credited to policyholder account balances | 4 | 8 | 9 | |||||||||
Deferred income taxes | (2 | ) | 197 | 675 | ||||||||
Amortization of bond premium and discount | 61 | 75 | 86 | |||||||||
Amortization and write off of deferred charges | 26 | 26 | 21 | |||||||||
Changes in other assets and liabilities | ||||||||||||
Accrued investment income | (54 | ) | (16 | ) | 9 | |||||||
Reinsurance recoverable | 273 | 326 | 611 | |||||||||
Premiums receivable | 2 | 4 | 2 | |||||||||
Other assets | (1,828 | ) | 356 | (1,079 | ) | |||||||
Federal income taxes recoverable from affiliate | 1,281 | 87 | 1,892 | |||||||||
Insurance reserves | (831 | ) | (828 | ) | (916 | ) | ||||||
Unearned premiums | (2 | ) | - | (1 | ) | |||||||
Other liabilities | 9,412 | 955 | 2,892 | |||||||||
Net cash provided by operating activities | 10,987 | 1,327 | 4,286 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of debt securities | (8,760 | ) | (7,535 | ) | - | |||||||
Proceeds on sale or maturity of debt securities | 8,987 | 750 | 1,665 | |||||||||
Net amounts received on policy loans | 104 | 6 | - | |||||||||
Net cash provided by (used in) investing activities | 331 | (6,779 | ) | 1,665 | ||||||||
Cash flows from financing activities: | ||||||||||||
Policyholder account deposits | 596,817 | 252,273 | 89,726 | |||||||||
Policyholder account withdrawals | (12,250 | ) | (3,581 | ) | (930 | ) | ||||||
Assets on deposit - deposits | (596,492 | ) | (252,273 | ) | (89,382 | ) | ||||||
Assets on deposit - withdrawals | 12,098 | 3,531 | 813 | |||||||||
Change in bank overdrafts | - | (1 | ) | 1 | ||||||||
Net cash provided by (used in) financing activities | 173 | (51 | ) | 228 | ||||||||
Change in cash and cash equivalents | 11,491 | (5,503 | ) | 6,179 | ||||||||
Cash and cash equivalents at beginning of year | 5,602 | 11,105 | 4,926 | |||||||||
Cash and cash equivalents at end of year | $ | 17,093 | $ | 5,602 | $ | 11,105 | ||||||
Supplemental disclosure of cash information: | ||||||||||||
Cash received (paid) during the year for income taxes | $ | (170 | ) | $ | 273 | $ | 2,318 | |||||
See accompanying notes to statutory basis financial |
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
Note 1: Nature of Business
MEMBERS Life Insurance Company (“MLIC”MEMBERS Life” or the “Company” or “MLIC”) is a stock 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.consumers. The Company’s ultimate parent is CUNA Mutual Holding Company (“CMHC”), a mutual insurance holding company organized under the laws of Iowa. In 2013, MLIC
The Company began selling a single premium deferred index annuity contractscontract in 2013, a flexible premium deferred variable and index-linked annuity contract in 2016, a single premium deferred modified guaranteed index annuity contract in 2019, a single premium deferred index-linked interest options annuity contract in 2021 (collectively the “registered index annuities”), and whole life insurance policies in 2021. Products are sold to consumers, including credit union members, through face-to-face and direct responsecall center distribution channels. PriorThe Company has reinsurance agreements under which it cedes 100% of its business to 2013, MLIC did not actively market new business; it primarily serviced existing blocks of individual and group life policies.CMFG Life. See Note 7, Reinsurance, for information on the Company’s reinsurance and ceding agreements.
MLIC
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 withAll 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 | |||||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Michigan | 63 | % | 63 | % | 64 | % | 8 | % | 12 | % | 11 | % | ||||||||||||||
Texas | 23 | 22 | 22 | 7 | 8 | * | ||||||||||||||||||||
California | 5 | 5 | 5 | 8 | * | * | ||||||||||||||||||||
Indiana | * | * | * | 6 | 6 | 6 | ||||||||||||||||||||
Iowa | * | * | * | 5 | 8 | 17 | ||||||||||||||||||||
Wisconsin | * | * | * | 5 | 7 | 7 | ||||||||||||||||||||
Pennsylvania | * | * | * | 5 | 6 | 5 | ||||||||||||||||||||
Florida | * | * | * | 5 | 5 | * | ||||||||||||||||||||
Washington | * | * | * | 5 | * | * | ||||||||||||||||||||
Rhode Island | * | * | * | * | 8 | 6 | ||||||||||||||||||||
Utah | * | * | * | * | * | 5 | ||||||||||||||||||||
No other state represents more than 5% of the Company’s premiums or deposits for any yearCompany were generated in the three years ended December 31, 2015.
CMFG Life providesUnited States with a significant services requiredportion in California, Florida, Georgia, Michigan, Pennsylvania, and Texas. All annuity deposits of the Company were received in the conductUnited States with a significant portion in California, Florida, Michigan, Ohio, North Carolina, Pennsylvania, Texas, and Wisconsin.
The accompanying statutory basis financial statements reflect various transactions and balances with the Company’s affiliates. See Note 6, Related Party Transactions, for a description of the Company’s operations. Managementsignificant transactions. While the Company believes allocations of expenses arethat these transactions were at reasonable butterms, the results of operations of the Company’s operationsCompany may have materially differed from the results reflected in the accompanying financial statements if the Company did not have this relationship.had these transactions been consummated with unrelated parties.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statutory basis financial statements have been prepared in accordanceconformity with accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division (“Insurance Department”), which differ in some respects from accounting principles generally accepted in the United States of America (“GAAP”).
Prescribed statutory accounting practices are practices incorporated directly or by reference in state laws, regulations and general administrative rules and are applicable to all insurance enterprises domiciled in a particular state. The Insurance Department has identified the Accounting Practices and Procedures Manual (“APPM”), as promulgated by the National Association of Insurance Commissioners (“NAIC”), as a source of prescribed statutory accounting practices for insurers domiciled in Iowa. Permitted statutory accounting practices encompass all accounting practices not prescribed by the NAIC and are approved by the insurance department of the insurer’s state of domicile. The Company does not utilize any permitted practices.
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
GAAP/Statutory Accounting Differences
The following summary identifies the significant differences between the accounting practices prescribed or permitted by the Insurance Department and GAAP:
“Nonadmitted assets” (principally a portion of deferred taxes, certain non-affiliated accounts receivable and commission receivable accounts, negative interest maintenance reserve (“IMR”) for 2022 only, and debit suspense balances) are excluded from the statutory basis statements of admitted assets, liabilities and capital and surplus through a direct charge to unassigned surplus. Under GAAP, nonadmitted assets are presented in the balance sheet, net of any valuation allowance.
Investments in bonds and notes are generally carried at amortized cost, while under GAAP, they are carried at either amortized cost or fair value based on their classification according to the Company’s ability and intent to hold or trade the securities.
For statutory accounting, after an other-than-temporary impairment (“OTTI”) of bonds (other than loan-backed securities) is recorded, the fair value of the other-than-temporarily impaired bond becomes its new cost basis. For GAAP, an impairment is based on the net present value of expected cash flows if the Company intends to hold the security until it has recovered, and an impairment is recorded as a valuation allowance. If the Company does not intend to hold the security until it has recovered, the Company records an impairment, and the fair value becomes its new cost basis. For loan-backed securities, the impairment for statutory accounting is based on future cash flows.
Policy reserves, which are 100% ceded to CMFG Life, are established based on mortality and interest assumptions prescribed by state statutes, without consideration for withdrawals, which may differ from reserves established for GAAP using assumptions with respect to mortality, interest, expense, and withdrawals that are based on company experience and expectations.
The Company cedes 100% of its annuity business to CMFG Life, which is accounted for as reinsurance ceded under statutory accounting. These contracts are accounted for as investment-type contracts under GAAP; as such, deposits are not reported as revenues for GAAP. Consequently, deposit accounting is used to account for the reinsurance agreement for GAAP.
Under both GAAP and statutory accounting, deferred federal income taxes are provided for unrealized capital gains or losses on investments and the temporary differences between the reporting and tax bases of assets and liabilities; however, there are limits as to the amount of deferred tax assets that may be reported as admitted assets under statutory accounting. Further, the change in deferred taxes is recognized as an adjustment to unassigned surplus under statutory accounting. For GAAP, changes in deferred taxes related to revenue and expense items are recorded in the statements of operations and comprehensive income. A federal income tax provision is required on a current basis only in the statutory basis statements of operations.
The asset valuation reserve (“AVR”), a statutory only reserve established by formula for the purpose of stabilizing the surplus of the Company against fluctuations in the fair value of certain invested assets, is recorded as a liability by a direct charge to unassigned surplus for statutory accounting. Such a reserve is not recorded under GAAP. For statutory reporting, the IMR defers recognition of interest rate-related gains and losses resulting from the disposal of investment securities and amortizes them into income over the remaining contractual maturities of those securities; under GAAP, such gains and losses are recognized in income immediately.
Amounts due from reinsurers for their share of ceded reserves are netted against the reserves rather than shown as assets as under GAAP.
9 |
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
Deposits, surrenders, and benefits on certain annuities, including those recorded in the separate accounts, are recorded in the statutory basis statements of operations, while such deposits and benefits are credited or charged directly to the policyholder account balances under GAAP. As a result, under GAAP, revenues on these types of contracts are composed of contract charges and fees, which are recognized when assessed against the account balance. Under GAAP, amounts collected are credited directly to policyholder account balances, and the benefits and claims on these contracts that are charged to expense only include benefits incurred in the period in excess of related policyholder account balances.
The registered index annuities are reported as separate account products for statutory reporting. For GAAP, only the variable annuity component of the flexible premium variable and index-linked deferred annuity is reported as a separate account product, with the other related assets and liabilities reported in the general account because criteria for separate account reporting are not met. The criteria are that funds must be invested at the direction of the contract holder and investment results must be passed through to the contract holder.
Comprehensive income and its components are not presented in the statutory basis financial statements, whereas under GAAP, comprehensive income is presented and changes in comprehensive income are reflected in accumulated other comprehensive income, a component of stockholder’s equity.
The statutory basis statements of cash flows are presented in the required statutory format. Under GAAP, the indirect method for the statements of cash flows requires a reconciliation of net income to net cash provided by operating activities.
Use of Estimates
The preparation of the statutory basis 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 atas of the date of the statutory basis 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,policy reserve valuations, determination of OTTI, deferred tax asset valuation reserves and claim and policyholder benefit reservesreinsurance balances are most affected by the use of estimates and assumptions.
Segment ReportingInvestments
The Company is currently managed
Investments are valued as two reportable business segments, (1) life and health and (2) annuities. See Note 7, Reinsurance, for information onprescribed by the Company’s reinsurance and ceding agreements, which impact the financial statement presentation of these segments.NAIC.
InvestmentsBonds and notes:
Debt securities: Investments in debtBonds and notes with an NAIC designation of 1 through 5 are generally stated at amortized cost. Bonds and notes with an NAIC designation of 6 are stated at the lower of amortized cost or fair value. Loan-backed securities may be carried at the lower of amortized cost or fair value if they receive an initial rating of 6 under the multiple-designation methodology. Prepayment assumptions for loan-backed securities are classified as available for sale andobtained from historical industry prepayment averages, industry survey values or internal estimates to determine the effective yield. Changes in the anticipated prepayments are carried at fair value. A debt security is considered other-than-temporarily impairedincorporated when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company’s anticipated holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related components. The credit portion of the other-than-temporary impairment (“OTTI”) is the difference between the present value of the expected futuredetermining statement values. Changes in estimated 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 issuer’s 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 as a separate component of stockholder’s equity.
Policy loans: Policy loans are reported at their unpaid principal balance. Valuation allowances are not established for policy loans, as they are fully collateralized by the cash surrender value of the underlying insurance policies. Any unpaid principal or interest on the loan is deducted from the cash surrender value orprevious assumptions are accounted for using the death benefit prior to settlement of the insurance policy. Policy loans allocated to CMFG Life as payment related to the 2012 reinsurance agreement and the 2015 amendment (See Note 7) are $1,882 and $1,975 at December 31, 2015 and 2014, respectively. As a result of the amendment, all policy loans are allocated to CMFG Life as of December 31, 2015.prospective method.
Net investment income: InterestInvestment income related to mortgage-backed and other structured securities is recognized on an accrual basis. Investment income reflects amortization of premiums and accretion of discounts on an effective-yield basis using a constant effective yield method, based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments and such adjustments are reflected in net investment income. Prepayment assumptions for loan-backed bonds and structured securities are based on industry averages or internal estimates. Interest income related to non-structured securities is recognized on an accrual basis using a constant effective yield method. Discounts and premiums on debt securities are amortized over the estimated lives of the respective securities on an effective yield basis.expected cash flows.
Net realized capital gains and losses:(losses): Realized capital gains and losses on the sale of investments are determined on abased upon the specific identification basismethod and are recorded on the trade date.
Derivative
10 |
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial InstrumentsStatements
($ in 000s)
Cash and Cash Equivalents
Cash includes unrestricted deposits in financial institutions. Cash equivalents include money market mutual funds and investments with maturities at the date of purchase of 90 days or less and are reported at carrying value, which approximates amortized cost. Money market mutual funds are valued based on the closing price as of December 31.
Income Tax
Deferred income taxes are recognized, subject to an admissibility test for deferred tax assets, and represent the future tax consequences attributable to differences between the statutory basis financial statement carrying amount of assets and liabilities and their respective tax bases. Gross deferred tax assets are reduced by a statutory valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. See Note 5, Income Tax, for the components of the admissibility test used to calculate the admitted deferred tax assets. Recorded deferred tax amounts are adjusted to reflect changes in income tax rates and other tax law provisions as they are enacted. The net change in deferred taxes is recorded directly to unassigned surplus.
The Company is subject to tax-related audits. The Company accounts for any federal and foreign tax contingent liabilities in accordance with Statement of Statutory Accounting Principles (“SSAP”) No. 5R, Liabilities, Contingencies and Impairments of Assets as modified by SSAP No. 101, Income Taxes, and any state and other tax contingent liabilities in accordance with SSAP No. 5R.
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 issued and the terms of the reinsurance contracts. Premiums and benefits ceded to other companies have been reported as reductions of premium income and benefits in the accompanying statutory basis statements of operations. Policy and claim reserves are reported net of unbilled reinsurance recoverables. The Company has evaluated its reinsurance contracts and determined that all significant contracts transfer the underlying economic risk of loss. CMFG Life, which is a related party, is the only reinsurer and there is no concern of default on reinsurance receivable balances as CMFG Life is highly rated and well capitalized.
Separate Accounts
The Company issues single premium deferred annuity contracts that contain embedded derivatives. Derivatives embedded within non-derivative host contractsregistered index annuities, the assets and liabilities of which are separated from the host instrument when the embedded derivative is not clearlylegally segregated 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 balancesreflected 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 valueaccompanying statutory basis statements of admitted assets, liabilities and capital and surplus as assets and liabilities of the embedded derivative inseparate accounts. All separate account assets and liabilities are ceded to CMFG Life on deposit offset changes ina coinsurance basis except the fair valuevariable annuity of the embedded derivative in policyholder account balances; both of these changesflexible premium variable and index-linked deferred annuities that are included in net realized investment gains. Accretion ofceded on a modified coinsurance basis and the interest onrelated assets on deposit offsets accretion of the interest on the host contract; both of these amountsand liabilities are included in interest credited on policyholder account balances.
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 activityretained in the Company’s statementseparate accounts.
Separate account assets for the variable annuity component of cash flows.
Recognition of Insurance Revenuethe flexible premium variable and Related Benefits
Term-lifeindex-linked deferred annuity are stated at fair value. Separate account liabilities are accounted for in a manner similar to other policy reserves. Separate account premium deposits, benefit expenses and whole-life insurance premiumscontract fee income for investment management and policy administration are recognized as premium income when due. Policy benefits for these products are recognized in relation toreflected by the premiums so as to resultCompany in the recognitionaccompanying statutory basis statements of profits over the expected livesoperations.
The variable annuity contract holders of the policiesflexible premium variable and contracts.
Amounts collected on policies not subject to significant mortality or longevity risk, such as the Company’s single premiumindex-linked deferred annuity contracts, are consideredable to invest in investment contractsfunds managed for their benefit. All of the flexible premium variable and index-linked deferred annuity separate account assets are recorded as increasesinvested in policyholder account balances. Revenues fromunit investment contracts principally consist of net investment income and contract charges such as expense and surrender charges. Expenses for investment contracts consist of interest credited to contracts, benefits incurred in excess of related policyholder account balances and policy maintenance costs. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues and expenses are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement.
Other Income / Operating and Other Expenses
Other income in 2015 and 2013 relates to legal settlements received on structured security investments that had previously been sold. Operating and other expenses in 2015 include legal expenses related to the settlement received.
Deferred Policy Acquisition Costs
The costs of acquiring insurance businesstrusts that are directly related toregistered with the successful acquisition of newSecurities and renewal business are deferred to the extent that such costs are expected to be recoverable from future profits. Such costs principally include commissions and sales costs, direct response advertising costs, premium taxes, and certain policy issuance and underwriting costs. Costs deferred on term-life and whole-life insurance products, deferred policy acquisition costs (“DAC”), are amortized in proportion to the ratio of the annual premium to the total anticipated premiums generated. Due to the age of the existing block of policies, all DAC has been fully amortizedExchange Commission as of December 31, 20152023 and 2014 and there was no amortization expense in 2015, 2014 or 2013.2022.
11 |
Acquisition costs
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
CMFG Life, on behalf of MEMBERS Life, invests the Company’s single premium deferred index 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 fromsingle premium deferred index-linked interest options annuity, single premium deferred modified guaranteed index annuity and flexible premium deferred variable premiums for the Company. See Note 7, Reinsurance for additional information on this agreement.
Insurance Reserves
Life and health claim and policy benefit reserves consist principally of future policy benefit reserves and reserves for estimates of future payments on incurred claims reported but not yet paid and unreported incurred claims. Estimates for future payments on incurred claims are developed using actuarial principles and assumptions based on past experience adjusted for current trends. Any change in the probable ultimate liabilities is reflected in net income in the period in which the change is determined.
When actual experience indicates that existing contract liabilities, together with the present value of future gross premiums will not be sufficient to recover the present value of future benefits or recover unamortized deferred acquisition costs, a premium deficiency will be recognized by either a reduction in unamortized acquisition costs or an increase in the liability for future benefits. There was no premium deficiency in 2015, 2014 or 2013.
Policyholder Account Balances
The Company recognizes a liability at the stated account value for policyholder deposits that are not subject to significant policyholder mortality or longevity risk and for universal life-type policies. The account value equals the sum of the original deposit and accumulated interest, less any withdrawals and expense charges. The average credited rate was 4.5% in 2015, 2014 and 2013. The future minimum guaranteed interest rate during the life of the contracts is 4.5%.
contract holder. The single premium deferred index, single premium deferred modified guaranteed index and flexible premium variable and index-linked deferred annuities which are included in policyholder account balances, 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 with issuance. The single premium deferred index-linked interest options annuity has risk control accounts, with either caps and floors or participation rates and buffers applied based on the performance of an external index. For positive index performance, accounts with caps limit the interest credited to the policyholder at the cap; accounts with participation rates credit the full index performance multiplied by the participation rate to the policyholder. For negative index performance, floors represent the maximum negative interest credited a policyholder can receive, while the buffer represents the maximum negative index return for an interest term that will not result in negative interest credited to 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 during that contract year. Both the Growth Account and Secure Account are based on the S&P 500 Index. At the end of the initial index term, only the Secure Account will be available as an option to the policyholder.
Policy and Contract Claim Reserves
Liabilities established for unpaid benefits for life insurance contracts represent the estimated amounts required to cover the ultimate cost of settling reported and incurred but unreported losses. These estimates are adjusted in the aggregate for ultimate loss expectations based on historical experience patterns and current economic trends. Any change in the probable ultimate liabilities, which might arise from new information emerging, is reflected in the statutory basis statements of operations in the period the change is determined to be necessary. Such adjustments could be material.
The average annualized credited rate was 1.65%, 1.10%policy and .72% in 2015, 2014 and 2013, respectively.contract claim reserves are 100% ceded to CMFG Life.
Policy Reserves
Life insurance reserves: Traditional life insurance reserves are computed on either the net level reserve basis or the Commissioner’s Reserve Valuation Method (“CRVM”) basis dependent on product type and issue date using the applicable mortality table.
The Company waives deduction of deferred fractional premiums upon death of the insured and returns the portion of the final premium beyond the date of death. Surrender values are not promised in excess of legally computed reserves.
Extra premiums are charged for substandard lives, plus the gross premium for a rated age. Mean reserves are determined by computing the regular mean reserve for the plan at the rated age and holding, plus one-half of the extra premium charge for the year.
Tabular interest, tabular less actual reserves released, tabular cost and tabular interest on funds not involving life contingencies have all been determined by formulas prescribed by the Insurance Department.
Individual annuity reserves: Policyholder reserves related to individual annuity contracts are computed using the Commissioner's Annuity Reserve Valuation Method (“CARVM”), along with Valuation Manual (“VM”) 21, for equity indexed annuities and variable annuities, during the contract accumulation period and the present value of future payments for contracts that have annuitized. Policy reserves related to the registered index annuities contracts are computed using CARVM, along with Actuarial Guideline (“AG”) 33 and 35 and VM 21 for policies greater than ten days after issue; for the first ten days, the reserve is equal to the return of premium. A reserve floor for all deferred annuities is set equal to the cash surrender value.
12 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ in 000s) |
The policy reserves are 100% ceded to CMFG Life.
Accounts PayableLiability for Deposit-Type Contracts
The Company recognizes a liability for policyholder deposits that are not subject to policyholder mortality or longevity risk at the stated account value. The account value equals the sum of the original deposit plus accumulated interest, less any withdrawals and expense charges. Such deposits primarily represent annuity contracts without life contingencies.
The liability for deposit-type contracts is 100% ceded to CMFG Life.
Statutory Valuation Reserves
The IMR is maintained for the purpose of stabilizing the surplus of the Company against gains and losses on sales of investments that are primarily attributable to changing interest rates. The interest rate-related gains and losses are deferred and amortized into income over the remaining lives of the securities sold. If the IMR is calculated to be a net asset, the Company admits the IMR asset until it reaches 10% of adjusted capital and surplus and is included in other assets on the Statutory Basis Statement of Admitted Assets, Liabilities and Capital and Surplus.
As of December 31, 2023 the Company admitted net negative IMR of $685. The Company’s IMR losses were recorded in compliance with the Company’s investment policies and procedures. The table below provides information regarding the admitted negative IMR.
As of December 31, 2023 | ||||
Net negative IMR | $ | 685 | ||
Reported capital and surplus | $ | 55,370 | ||
Adjustments: | ||||
Goodwill | - | |||
EDP Equipment | - | |||
Adjusted capital and surplus | $ | 55,370 | ||
Percentage of adjusted capital and surplus | 1.2 | % |
The AVR is a formulaic reserve for fluctuations in the values of invested assets, primarily bonds and notes, mortgage loans, common stocks and limited partnerships. Changes in the AVR are charged or credited directly to unassigned surplus.
Other Liabilities
The Company issues annuity contractsthe registered index annuities on the 10th10th and 25th25th 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 Other liabilities primarily consist of these customer funds pending completion of the reinsurance contracts. Premiums and insurance claims and benefits inpolicy issuance process. The customer funds are released from other liabilities when 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 assetpolicy application is also recorded for the portion of unearned premiums related to ceded policies.completed.
13 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
Recently Adopted Accounting Standard Update
The NAIC adopted INT 23-01 Net Negative (Disallowed) Interest Maintenance Reserve (“INT 23-01”), which is an interpretation that prescribes limited-time, optional, statutory accounting guidance as an exception to the existing guidance detailed in SSAP No. 7 Asset Valuation Reserve and Interest Maintenance Reserve. Under the INT 23-01, reporting entities are allowed to admit negative IMR if certain criteria are met. The adoption of this guidance allowed the Company to admit $685 of negative IMR at December 31, 2023. The Company recorded IMR in other assets on the Statutory Basis Statements of Admitted Assets, on DepositLiabilities and Capital and Surplus.
Assets on deposit represent
Accounting Standards Pending Adoption
During 2023, the amount of policyholder account balancesNAIC issued updates to the SSAPs related to its bond definition project that clarifies the single premium deferred annuity contracts (investment-type contracts) that are ceded to CMFG Life. These investment-type contracts are accounted for on a basis consistent with the accounting for the underlying contracts. Since the related product is an investment-type contract, the Company accounts for the reinsurancedefinition of these contracts using the deposit method of accounting consistent with the terms of the ceding agreement. The related contract charges and interest credited to policyholder account balances in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded under the agreement. See Note 7 for a further discussion of the ceding agreement.
Income Taxes
The Company recognizes taxes payable or refundable and deferred taxes for the tax consequences of differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured by applying the enacted tax rates to the difference between the financial statement and tax basis of assets and liabilities. The Company records current tax benefits and deferred tax assets utilizing a benefits-for-loss approach. Under this approach, current benefits are realized and deferred tax assets are considered realizable by the Company when realized or realizable by the consolidated group of which the Company is a member even if the benefits would not be realized on a stand-alone basis. The Company records a valuation allowance for deferred tax assets if it determines it is more likely than not that the asset will not be realized by the consolidated group. Deferred income tax assets can be realized through future earnings, including, but not limited to, the generation of future income, reversal of existing temporary differences and available tax planning strategies.
The Company is subject to tax-related audits. These audits may result in additional tax assets or liabilities. In establishing tax liabilities, the Company determines whether a tax position is more likely than not to be sustained under examination by the appropriate taxing authority. Tax positions that do not meet the more likely than not standard are not recognized. Tax positions that meet this standard are recognized in the financial statements within net deferred tax assets or liabilities or federal income taxes recoverable or payable.
Accounting Standards Updates Pending Adoption
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard, Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).bond investments. The new standard will supersede nearly all existing revenue recognition guidance by establishing a five step, principles-based process; however, it will not impact the accountingbond definition is applied to securities to determine whether they should be classified as long-term bonds or equity securities for insurance contracts, leases, financial instruments, and guarantees. For those contracts that are impacted bystatutory reporting purposes. Under the new guidance, ASU 2014-09 will requirea bond must represent a creditor relationship with a fixed payment schedule and qualify as either an entity to recognize revenue upon the transfer of promised goodsissuer credit obligation or services to customers in an amount that reflects the consideration to which the entity expectsasset-backed security. Securities with equity-like characteristics or ownership interests are not bonds and are to be entitledreported on a separate reporting schedule in exchange for those goods and services. In July 2015, the FASB approved the deferral of ASU 2014-09 for one year and it is effective for annual and interim reporting periods beginning in 2018 for public business entities and 2019 for others. Early adoption in 2017Annual Statement. The new guidance will be permitted.effective on January 1, 2025. The CompanyCompany’s implementation project is currently evaluatingin progress and the impact of ASU 2014-09 on itsthe statutory basis financial statements.statements is still being assessed.
In January 2016, the FASB issued Accounting Standard Update (ASU) No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities (“ASU 2016-01”), effective in 2018. The new standard will require equity investments to be measured at fair value with changes in fair value recognized in net income. Other provisions in ASU 2016-01 do not appear to be materially applicable to the Company. The Company is currently evaluating the potential impact of ASU 2016-01 on its financial statements.
Note 3: Investments
Debt Securities
Bonds and Notes
The statement value, which generally represents amortized cost, gross unrealized gains and losses and estimated fair values, as reported on the balance sheet,value of debt securitiesinvestments in bonds and notes at December 31, 20152023 are as follows:
Amortized | Gross Unrealized | Estimated | |||||||||||
Cost | Gains | Losses | Fair Value | ||||||||||
U.S. government and agencies | $ | 10,333 | $ | 26 | $ | (546 | ) | $ | 9,813 | ||||
Mortgage-backed securities: | |||||||||||||
Residential mortgage-backed | 2,365 | 173 | - | 2,538 | |||||||||
Total debt securities | $ | 12,698 | $ | 199 | $ | (546 | ) | $ | 12,351 | ||||
Gross | Gross | |||||||||||||||
Statement | Unrealized | Unrealized | ||||||||||||||
Value | Gains | Losses | Fair Value | |||||||||||||
U.S. government and agencies | $ | 8,719 | $ | - | $ | (1,752 | ) | $ | 6,967 | |||||||
Industrial and miscellaneous | 26,081 | 60 | (923 | ) | 25,218 | |||||||||||
Residential mortgage-backed securities | 560 | - | (46 | ) | 514 | |||||||||||
Commercial mortgage-backed securities | 3,871 | - | (280 | ) | 3,591 | |||||||||||
Non-mortgage asset-backed securities | 3,805 | 5 | (39 | ) | 3,771 | |||||||||||
Total bonds and notes | $ | 43,036 | $ | 65 | $ | (3,040 | ) | $ | 40,061 |
14 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ in 000s) |
The statement value, which generally represents amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet,value of debt securitiesinvestments in bonds and notes at December 31, 20142022 are as follows:
Amortized | Gross Unrealized | Estimated | |||||||||||
Cost | Gains | Losses | Fair Value | ||||||||||
U.S. government and agencies | $ | 9,888 | $ | 103 | $ | (4 | ) | $ | 9,987 | ||||
Mortgage-backed securities: | |||||||||||||
Residential mortgage-backed | 2,966 | 241 | - | 3,207 | |||||||||
Total debt securities | $ | 12,854 | $ | 344 | $ | (4 | ) | $ | 13,194 | ||||
No investments were non-income producing in 2015 or 2014.
Gross | Gross | |||||||||||||||
Statement | Unrealized | Unrealized | ||||||||||||||
Value | Gains | Losses | Fair Value | |||||||||||||
U.S. government and agencies | $ | 8,724 | $ | - | $ | (1,817 | ) | $ | 6,907 | |||||||
Industrial and miscellaneous | 27,887 | - | (1,434 | ) | 26,453 | |||||||||||
Residential mortgage-backed securities | 625 | - | (56 | ) | 569 | |||||||||||
Commercial mortgage-backed securities | 3,863 | - | (257 | ) | 3,606 | |||||||||||
Non-mortgage asset-backed securities | 4,756 | - | (175 | ) | 4,581 | |||||||||||
Total bonds and notes | $ | 45,855 | $ | - | $ | (3,739 | ) | $ | 42,116 |
The amortized coststatement value and estimated fair valuesvalue of investments in debt securitiesbonds and notes at December 31, 2015,2023, 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, commercial mortgage-backed and non-mortgage asset-backed securities, such securities have not been displayedclassified by expected maturity in the table below by contractual maturity.
Amortized | Estimated | |||||||||||||
Cost | Fair Value | Statement | ||||||||||||
Value | Fair Value | |||||||||||||
Due in one year or less | $ | 1,261 | $ | 1,280 | $ | 5,991 | $ | 5,957 | ||||||
Due after one year through five years | 315 | 322 | 11,694 | 11,526 | ||||||||||
Due after five years through ten years | 8,395 | 7,735 | ||||||||||||
Due after ten years | 8,757 | 8,211 | 8,720 | 6,967 | ||||||||||
Mortgage-backed securities: | ||||||||||||||
Residential mortgage-backed | 2,365 | 2,538 | ||||||||||||
Residential mortgage-backed securities | 560 | 514 | ||||||||||||
Commercial mortgage-backed securities | 3,871 | 3,591 | ||||||||||||
Non-mortgage asset-backed securities | 3,805 | 3,771 | ||||||||||||
Total debt securities | $ | 12,698 | $ | 12,351 | ||||||||||
Total bonds and notes | $ | 43,036 | $ | 40,061 |
15 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ in 000s) |
Cash and Cash Equivalents
The details of cash and cash equivalents as of December 31 are as follows:
2023 | 2022 | |||||||
Cash equivalents | $ | 58,166 | $ | 42,915 | ||||
Cash | 5,400 | 4,857 | ||||||
Total cash and cash equivalents | $ | 63,566 | $ | 47,772 |
Net Investment Income
Sources of net investment income for the years ended December 31 are summarized as follows:
2015 | 2014 | 2013 | ||||||||||
Gross investment income: | ||||||||||||
Debt securities | $ | 389 | $ | 304 | $ | 275 | ||||||
Policy loans | 5 | 8 | 8 | |||||||||
Other investments | - | - | 6 | |||||||||
Total gross investment income | 394 | 312 | 289 | |||||||||
Investment expenses | (28 | ) | (34 | ) | (113 | ) | ||||||
Net investment income | $ | 366 | $ | 278 | $ | 176 | ||||||
2023 | 2022 | 2021 | ||||||||||
Bonds and notes | $ | 1,698 | $ | 1,064 | $ | 792 | ||||||
Cash and cash equivalents | 2,548 | 693 | 12 | |||||||||
Gross investment income | 4,246 | 1,757 | 804 | |||||||||
Less investment expenses | 74 | 78 | 56 | |||||||||
Net investment income | $ | 4,172 | $ | 1,679 | $ | 748 |
Investment expenses are charged by a related party for investment management fees and include interest, salaries, brokerage fees and securities’ custodial fees.
Accrued Investment Income
Sources of accrued investment income as of December 31 are shown in the table below.
2023 | 2022 | |||||||
Bonds and notes | $ | 326 | $ | 362 | ||||
Cash and cash equivalents | 288 | 177 | ||||||
Total accrued investment income | $ | 614 | $ | 539 |
Due and accrued investment income over 90 days past due is excluded from the statutory basis statements of admitted assets, liabilities, and capital and surplus as a nonadmitted asset. There was no accrued investment income excluded at December 31, 2023 or 2022 on this basis.
16 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
Net Realized InvestmentCapital Gains (Losses)
Net realized investmentcapital gains (losses) for the years ended December 31 are summarized as follows:
2015 | 2014 | 2013 | |||||||
Debt securities | |||||||||
Gross gains on sales | $ | 117 | $ | - | $ | - | |||
Net realized investment gains | $ | 117 | $ | - | $ | - | |||
Proceeds from the sale of debt securities was $8,389 in 2015, there
2023 | 2022 | 2021 | ||||||||||
Tax on realized capital gains (losses) | $ | (1 | ) | $ | (5 | ) | $ | (21 | ) | |||
Net realized capital gains (losses) | $ | (1 | ) | $ | (5 | ) | $ | (21 | ) |
There were no sales of bonds and notes in 2023, 2022, or transfers of debt securities in 2014 or 2013 that resulted in a realized investment gain or loss.2021.
Other-Than-Temporary Investment Impairments
Investment securities are reviewed for OTTI on an ongoing basis. The Company creates a watchlist of securities based largelyprimarily on the fair value of an investment security relative to its cost basis.amortized cost. When the fair value drops below the Company’s amortized 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 |
● | The underlying reason for the decline in fair value (credit concerns, interest rates, etc.). |
● | The financial condition and |
● | |||
● | The Company’s ability to recover all amounts due according to the contractual terms of the agreements. |
● | The Company’s collateral position, in the case of bankruptcy or restructuring. |
A debt securitybond or note is considered to be other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company’s anticipated holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the OTTI is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive loss. If the Company intends to sell, at the timeperiod. When this determination is made,occurs, the Company records a realized capital 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 lossamortized cost. If the bond is expecteda loan-backed or structured security, it is considered to be other than temporary,other-than-temporarily impaired when the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer’s business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered at least its cost basis.
For securitized debt securities, the Company considers factors including, commercial and residential property changes in value that vary by property type and location and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of
expected recoveries. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral.
For certain securitized financial assets with contractual cash flows, the Company is required to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease inexceeds the present value of the estimated cash flows sinceexpected to be collected and its value is not expected to recover through the last revised estimate, considering both timing andCompany’s holding period. The amount an OTTI charge is recognized. The Company also considers its intent to retain a temporarily impaired security until recovery. Estimating future cash flows involves judgment and includes both quantitative and qualitative factors. Such determinations incorporate various information and assessments regarding the future performance of the underlying collateral. In addition, projectionsOTTI recognized in the Statutory Basis Statement of Operations as a realized loss equals the difference between the investment's amortized cost basis and its expected future cash flows may change based upon new information regarding the performance of the underlying collateral.flows.
Management believes it has completed a reviewmade an appropriate provision for other-than-temporarily impaired securities owned at December 31, 2015, 20142023 and 2013 and recorded no2022. Future declines in fair value may result in additional 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 Company’s practices,Additional OTTI will be recorded as appropriate and as determined by the Company’s regular monitoring procedures of additional facts. In light of the variables involved, such additional OTTI could be significant.
The Company did not recognize any OTTI on mortgage-backed and structured securities during 2023, 2022, and 2021 caused by an intent to sell or lack of intent and ability to hold until recovery of the amortized cost basis.
17 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ in 000s) |
Net Unrealized InvestmentCapital Gains (Losses)
The components of net
Information regarding the Company’s bonds and notes with unrealized investment gains (losses) included in accumulated other comprehensive income (loss)losses at December 31, were as follows:2023 is presented below, segregated between those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months.
2015 | 2014 | 2013 | ||||||||||
Debt securities | $ | (347 | ) | $ | 340 | $ | 412 | |||||
Deferred income taxes | 122 | (118 | ) | (143 | ) | |||||||
Net unrealized investment gains (losses) | $ | (225 | ) | $ | 222 | $ | 269 | |||||
Months in Unrealized Loss Position | ||||||||||||||||||||||||
Less Than | Twelve | Total | ||||||||||||||||||||||
Twelve Months | Months or Greater | December 31, 2023 | ||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||
U.S. government and agencies | $ | - | $ | - | $ | 6,967 | $ | (1,752 | ) | $ | 6,967 | $ | (1,752 | ) | ||||||||||
Industrial and miscellaneous | 2,563 | (8 | ) | 16,884 | (915 | ) | 19,447 | (923 | ) | |||||||||||||||
Residential mortgage-backed securities | - | - | 514 | (46 | ) | 514 | (46 | ) | ||||||||||||||||
Commercial mortgage-backed securities | - | - | 3,591 | (280 | ) | 3,591 | (280 | ) | ||||||||||||||||
Non-mortgage asset-backed securities | - | - | 1,853 | (39 | ) | 1,853 | (39 | ) | ||||||||||||||||
Total bonds and notes | $ | 2,563 | $ | (8 | ) | $ | 29,809 | $ | (3,032 | ) | $ | 32,372 | $ | (3,040 | ) |
At December 31, 2015,2023, the Company owned one debt security27 bonds and notes with a fair value of $8,210$32,372 in an unrealized loss position. There were 25 bonds and notes with a fair value of $29,809 in an unrealized loss position for twelve or more months. The aggregate severity of $546unrealized losses for bonds and notes with a loss period of twelve months or greater is approximately 9.2% of amortized cost. All the securities with unrealized losses as of December 31, 2023 are rated "investment grade" based on having an NAIC rating of 1 or 2.
18 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ in 000s) |
Information regarding the Company’s bonds and notes with unrealized losses at December 31, 2022 is presented below, segregated between those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months.
Months in Unrealized Loss Position | ||||||||||||||||||||||||
Less Than | Twelve | Total | ||||||||||||||||||||||
Twelve Months | Months or Greater | December 31, 2022 | ||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||
U.S. government and agencies | $ | 6,907 | $ | (1,817 | ) | $ | - | $ | - | $ | 6,907 | $ | (1,817 | ) | ||||||||||
Industrial and miscellaneous | 20,846 | (361 | ) | 5,607 | (1,073 | ) | 26,453 | (1,434 | ) | |||||||||||||||
Residential mortgage-backed securities | 569 | (56 | ) | - | - | 569 | (56 | ) | ||||||||||||||||
Commercial mortgage-backed securities | 1,906 | (28 | ) | 1,700 | (229 | ) | 3,606 | (257 | ) | |||||||||||||||
Non-mortgage asset-backed securities | 4,581 | (175 | ) | - | - | 4,581 | (175 | ) | ||||||||||||||||
Total bonds and notes | $ | 34,809 | $ | (2,437 | ) | $ | 7,307 | $ | (1,302 | ) | $ | 42,116 | $ | (3,739 | ) |
At December 31, 20142022, the Company owned one debt security37 securities with a fair value of $7,526$42,116 in an unrealized loss positionposition. The Company owned seven industrial and miscellaneous securities and one commercial mortgage-backed security of $4 for less$1,073 and $229, respectively, in unrealized loss positions greater than twelve months. The Company did not have any grossaggregate severity of unrealized losses at December 31, 2013.
Embedded Derivatives
The Company issues single premium deferred annuity contracts that contain embedded derivatives. Such embedded derivatives are separated from their host contractsfor bonds and recorded at fair value. The fair valuenotes with a loss period of twelve months or greater is approximately 15.1% of amortized cost. All the embedded derivatives, which are reported as part of assets on deposit and policyholder account balances in the balance sheets, were an asset of $122,043 and a liability of $122,043, respectively,securities with unrealized losses as of December 31, 2015 and2022 are rated "investment grade" based on having an assetNAIC rating of $45,503 and a liability of $45,503, respectively, as of December 31, 2014. The increase in fair value related1 or 2.
Restricted Assets
Prior to embedded derivatives from the date of deposit was $3,591, $9,581 and $592 for the years ended December 31, 2015, 2014 and 2013, respectively. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, this expense is ceded and does not impact the statement of operations and comprehensive income (loss).
Assets Designated/Securities on Deposit
July 1, 2023, Iowa law requiresrequired that assets equal to a life insurer’s “legal reserve” must be designated for the Iowa Department of Commerce, Insurance Division.Division (“Iowa Insurance Department”). The legal reserve iswas equal to the net present value of all outstanding policies and contracts involving life contingencies. After July 1, 2023, with the change in Iowa law, the legal reserve concept was removed, which includes the removal of the corresponding deposit requirement to equal the legal reserve. Iowa law continues to require the Company to designate assets to the Iowa Insurance Department. At December 31, 20152023 and 2014, debt securities, policy loans and cash with a carrying value of $10,618 and $11,512, 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,2022, securities with a fair valueadmitted asset values of $1,732$43,086 and $1,854$45,905, respectively, were on deposit with othergovernment authorities as required by law to satisfy regulatory jurisdictionsrequirements. These holdings as a percentage of total assets and total admitted assets were 11% and 11%, respectively, as of December 31, 20152023 and 2014, respectively.13% and 13%, respectively, as of December 31, 2022.
Investment Credit Risk
The Company maintains a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established certain exposure limits, diversification standards, and review procedures to mitigate credit risk.
19 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ 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 (otherother than investment-type contracts),deposit-type contracts, are excluded from the fair value disclosure requirements. The Company uses fair value measurements obtained using observable inputs or internally determined estimates to estimate fair value.
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 Company’s estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. |
For purposes of determining the fair value of the Company’s assets and liabilities, observable inputs are those inputs used by market participants in valuing financial instruments, which are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs, reflecting the Company’s estimates of the assumptions market participants would use in valuing financial assets and liabilities, are developed based on the best information available in the circumstances. The Company uses prices and inputs that are current as of the measurement date. In some instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The hierarchy requires the use of market observable information when available for assessingmeasuring fair value. The availability of observable inputs varies by investment. In situations where the fair value is based on inputs that are unobservable in the market or on inputs from inactive markets, the determination of fair value requires more judgment and is subject to the risk of variability. The degree of judgment exercised by the Company in determining fair value is typically greatest for investments categorized in Level 3. Transfers in and out of level
categorizations categories are reported as having occurred at the end of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized gains and losses and all changes in unrealized gains and losses in the fourth quarter are not reflected in the Level 3 rollforward table.
20 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ in 000s) |
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 anduses a 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 Company’s assets and liabilities are appropriately valued.
The Company has policies and guidelines that require the establishment of valuation methodologies and consistent application of such methodologies. These policies and guidelines govern the use of inputs and price source hierarchies and provide controls around the valuation processes. These controls include appropriate review and analysis of prices against market activity or indicators of reasonableness, approval of price source changes, price overrides, methodology changes and classification of fair value hierarchy levels. The valuation policies and guidelines are reviewed and updated as appropriate.
For fair values received from third parties or internally estimated, the Company’s processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are appropriately recorded. The Company performs procedures to understand and assess the methodologies, processprocesses, and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third partythird-party valuation sources for selected securities. When using internal valuation models, these models are developed by the Company’s investment group using established methodologies. The models, including key assumptions, are reviewed with various investment sector professionals, accounting, operations, compliance, and risk management.management professionals. In addition, when fair value determinations are expected to be more variable,estimates involve a high degree of subjectivity, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.
Transfers Between Levels
There were no transfers between levels during the yearyears ended December 31, 2015. There were two U.S. government2023 and agency securities totaling $2,556 transferred from Level 1 to Level 2 during the year ended December 31, 2014. The transfer occurred due to a change in the availability2022.
Determination of the observable inputs. There were no other transfers in 2014.
Fair Value Measurement – Recurring BasisValues
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2015.
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Cash equivalents1 | $ | 16,080 | $ | - | $ | - | $ | 16,080 | ||||
Debt securities: | ||||||||||||
U.S. government and agencies | - | 9,813 | - | 9,813 | ||||||||
Mortgage-backed securities: | ||||||||||||
Residential mortgage-backed | - | 2,538 | - | 2,538 | ||||||||
Total debt securities | - | 12,351 | - | 12,351 | ||||||||
Derivatives embedded in assets on deposit | - | - | 122,043 | 122,043 | ||||||||
Total assets | $ | 16,080 | $ | 12,351 | $ | 122,043 | $ | 150,474 | ||||
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 122,043 | $ | 122,043 | ||||
Total liabilities | $ | - | $ | - | $ | 122,043 | $ | 122,043 | ||||
The following table summarizes the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2014.2023.
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Cash equivalents 1 | $ | 3,681 | $ | - | $ | - | $ | 3,681 | ||||
Debt securities: | ||||||||||||
U.S. government and agencies | - | 9,987 | - | 9,987 | ||||||||
Mortgage-backed securities: | ||||||||||||
Residential mortgage-backed | - | 3,207 | - | 3,207 | ||||||||
Total debt securities | - | 13,194 | - | 13,194 | ||||||||
Derivatives embedded in assets on deposit | - | - | 45,503 | 45,503 | ||||||||
Total assets | $ | 3,681 | $ | 13,194 | $ | 45,503 | $ | 62,378 | ||||
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 45,503 | $ | 45,503 | ||||
Total liabilities | $ | - | $ | - | $ | 45,503 | $ | 45,503 | ||||
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents | $ | 58,166 | $ | - | $ | - | $ | 58,166 | ||||||||
Separate account assets | - | 238,473 | - | 238,473 | ||||||||||||
Total assets at fair value | $ | 58,166 | $ | 238,473 | $ | - | $ | 296,639 |
21 |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ in 000s) |
The following table summarizes the Company’s assets that is not subject toare measured at fair value accounting.
The Company had no assets or liabilities that required a fair value adjustment on a non-recurringrecurring basis as of December 31, 20152022.
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents | $ | 42,915 | $ | - | $ | - | $ | 42,915 | ||||||||
Separate account assets | - | 229,659 | - | 229,659 | ||||||||||||
Total assets at fair value | $ | 42,915 | $ | 229,659 | $ | - | $ | 272,574 |
There were no liabilities measured at fair value on a recurring basis as of December 31, 2023 or 2014.2022.
Changes in Fair Value Measurement of Financial Instruments
Accounting standards require disclosure of fair value information about certain on and off-balance sheet financial instruments for which it is practicable to estimate that value.
The following table sets forthsummarizes the carrying amounts and fair values of assetsthe Company’s financial instruments for which it is practicable to estimate fair value by fair value measurement level at December 31, 2023.
Carrying | ||||||||||||||||||||
Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial instruments recorded as assets: | ||||||||||||||||||||
Bonds and notes | $ | 43,036 | $ | 40,061 | $ | - | $ | 40,061 | $ | - | ||||||||||
Cash equivalents | 58,166 | 58,166 | 58,166 | - | - | |||||||||||||||
Separate account assets | 238,473 | 238,473 | - | 238,473 | - | |||||||||||||||
Financial instruments recorded as liabilities: | ||||||||||||||||||||
Separate account liabilities | 238,473 | 238,473 | - | 238,473 | - |
The following table summarizes the carrying amounts and liabilities classified as Level 3 withinfair values of the Company’s financial instruments for which it is practicable to estimate fair value by fair value measurement level at December 31, 2022.
Carrying | ||||||||||||||||||||
Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial instruments recorded as assets: | ||||||||||||||||||||
Bonds and notes | $ | 45,855 | $ | 42,116 | $ | - | $ | 42,116 | $ | - | ||||||||||
Cash equivalents | 42,915 | 42,915 | 42,915 | - | - | |||||||||||||||
Separate account assets | 229,659 | 229,659 | - | 229,659 | - | |||||||||||||||
Financial instruments recorded as liabilities: | ||||||||||||||||||||
Separate account liabilities | 229,659 | 229,659 | - | 229,659 | - |
The carrying amounts for accrued net investment income and certain receivables and payables approximate fair value due to their short-term nature and have been excluded from the fair value hierarchy at December 31, 2015.tables above.
Total Realized/Unrealized | ||||||||||||||||
Gain (Loss) Included in: | ||||||||||||||||
Balance January 1, 2015 | Purchases | Maturities | Earnings1 | Balance December 31, 2015 | ||||||||||||
Derivatives embedded | ||||||||||||||||
in assets on deposit | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Total assets | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Derivatives embedded | ||||||||||||||||
in annuity contracts | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Total liabilities | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
1 Included in net income is realized gains and losses associated with embedded derivatives. |
22 |
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
The following table sets forthmethods and assumptions were used by the values of assets and liabilities classified as Level 3 within theCompany in estimating its fair value hierarchy at December 31, 2014.
Total Realized/Unrealized | ||||||||||||||||
Gain (Loss) Included in: | ||||||||||||||||
Balance January 1, 2014 | Purchases | Maturities | Earnings1 | Balance December 31, 2014 | ||||||||||||
Derivatives embedded | ||||||||||||||||
in assets on deposit | $ | 8,652 | $ | 27,522 | $ | (252 | ) | $ | 9,581 | $ | 45,503 | |||||
Total assets | $ | 8,652 | $ | 27,522 | $ | (252 | ) | $ | 9,581 | $ | 45,503 | |||||
Derivatives embedded | ||||||||||||||||
in annuity contracts | $ | 8,652 | $ | 27,522 | $ | (252 | ) | $ | 9,581 | $ | 45,503 | |||||
Total liabilities | $ | 8,652 | $ | 27,522 | $ | (252 | ) | $ | 9,581 | $ | 45,503 | |||||
1 Included in net income is realized gains and losses associated with embedded derivatives. |
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 techniquesdisclosures for classes of financial assets and liabilitiesinstruments by fair value hierarchy level are as follows:level:
Level 1 Measurements
Cash equivalentsequivalents: : Consists of money market funds; valuationmutual funds reported as cash equivalents. Valuation for money market mutual funds is based on the closing price as of the balance sheet date.on an exchange at December 31.
Level 2 Measurements
U.S. governmentBonds and agencies:notes: Certain U.S. Treasury securities and debentures issued by agencies of the U.S. government are valued based on observable inputs such as the U.S. Treasury yield curve, market indicated spreads and quoted prices for identical assets in markets that are not active and/or similar assets in markets that are active.
Residential mortgage-backed securities:Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data.
For
Separate account assets and liabilities: Separate account assets are investments in mutual funds and unit investment trusts in which the majority of assets classified as Level 2 investments,contract holders could redeem their investment at net asset value per share at the Company valuesmeasurement date with the assets using third-party pricing sources, which generally relyinvestee; and mutual funds where valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data.
Level 3 Measurements
Derivatives embedded in assets on deposit and annuity contracts: The Company offers single premium deferred annuity contracts with certain caps and floors which Separate account liabilities represent a minimum and maximum amount that could be creditedthe account value owed to a contract during that contract year based on the performance of an external index. These embedded derivatives are measured atcustomer; the fair value separately from the host deposit asset and annuity contract.
In estimatingis determined by reference to 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 Company’s own credit and risk margins for unobservable non-capital market inputs. The Company’s own credit adjustment is determined taking intoseparate account its A.M. Best rating as well as its claims paying ability.assets.
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 Company’s own credit standing. Lastly, changes in actuarial assumptions regarding policyholder behavior (such as full or partial withdrawals varying from expectations) and risk margins related to non-capital market inputs may result in significant fluctuations in the fair value of the derivatives. See Embedded Derivatives within Note 3, Investments for the impact to net income.
The following table presents information about significant unobservable inputs used in Level 3 embedded derivative assets and liabilities measured at fair value developed by internal models as of December 31, 2015 and 2014:
Predominant | Significant | Range of Values - Unobservable Input | ||||
Valuation Method | Unobservable Input | 2015 | 2014 | |||
Derivatives embedded in single premium deferred annuities and related assets on deposit | ||||||
Discounted cash flow | Lapse rates | 2% to 4% with an excess lapse rate at the end of the index period of 95%. | 2% to 4% with an excess lapse rate at the end of the index period of 95%. | |||
Company’s own credit and risk margin | 82 - 137 basis points added on to discount rate | 60 - 90 basis points added on to discount rate | ||||
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 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.
Not Practicable to Estimate Fair Value
Policy loans: The Company believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity and policy loans are often repaid by reductions to policy benefits.
The carrying amounts and estimated fair values of the Company’s financial instruments which are not measured at fair value on a recurring basis at December 31 are as follows:
2015 | 2014 | ||||||||||||||||
Carrying | Estimated | Carrying | Estimated | ||||||||||||||
Amount | Fair Value | Level | Amount | Fair Value | Level | ||||||||||||
Financial instruments | |||||||||||||||||
recorded as assets: | |||||||||||||||||
Cash | $ | 1,013 | $ | 1,013 | 1 | $ | 1,921 | $ | 1,921 | 1 | |||||||
Policy loans | - | n/a | n/a | 104 | n/a | n/a | |||||||||||
Assets on deposit | 825,552 | 699,721 | 2 | 304,434 | 294,710 | 2 | |||||||||||
Financial instruments | |||||||||||||||||
recorded as liabilities: | |||||||||||||||||
Investment-type contracts | 825,552 | 699,721 | 2 | 304,434 | 294,710 | 2 | |||||||||||
Note 5: Income Tax
The Company is included in the consolidated federal income tax return filed byof CMHC along with the Company’s ultimate parent. following affiliates, which are also subsidiaries of CMHC: CMFG Life, CUMIS Mortgage Reinsurance Company, CUMIS Insurance Society, Inc., CUMIS Specialty Insurance Company, Inc., CUMIS Vermont, Inc., CMIC, CUNA Mutual Insurance Agency, Inc., CUNA Brokerage Services, Inc. (“CBSI”), International Commons, Inc., MEMBERS Capital Advisors, Inc., CPI Qualified Plan Consultants, Inc., TruStage Financial Group, Inc., CUNA Mutual Global Holdings, Inc., CuneXus Solutions, Inc. and Family Considerations, Inc.
The Company has entered into a tax sharing agreement with CMHC and certain of its subsidiaries. The agreement provides for the allocation of tax expense based on each subsidiary’s contribution to the consolidated federal income tax liability. Pursuant to the agreement, subsidiaries that have incurred losses are reimbursed regardless of the utilization of the loss in the current year. Federal
Current income taxes recoverable from affiliate reported ontax expense consists of the balance sheet are due from CMFG Life.
Income Tax Expense
Income tax expensefollowing for the years ended December 3131:
2023 | 2022 | 2021 | ||||||||||
Federal income tax expense on operations | $ | 1,894 | $ | 1,142 | $ | 1,668 | ||||||
Federal income tax expense on realized capital gains (losses) | 1 | 5 | 21 | |||||||||
Federal income tax expense | $ | 1,895 | $ | 1,147 | $ | 1,689 |
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
The 2023 change in net deferred income tax is as follows:comprised of the following:
2015 | 2014 | 2013 | ||||||||||
Current tax expense (benefit) | $ | 1,451 | $ | (186 | ) | $ | (426 | ) | ||||
Deferred tax expense (benefit) | (2 | ) | 197 | 675 | ||||||||
Total income tax expense | $ | 1,449 | $ | 11 | $ | 249 | ||||||
December 31, | December 31, | |||||||||||
2023 | 2022 | Change | ||||||||||
Adjusted gross deferred tax assets | $ | 7,074 | $ | 5,117 | $ | 1,957 | ||||||
Net deferred tax asset (excluding nonadmitted) | $ | 7,074 | $ | 5,117 | $ | 1,957 | ||||||
Tax effect of unrealized capital gains and losses, unrealized foreign exchange capital gains and losses, and changes as a result of other surplus adjustments | - | |||||||||||
Change in net deferred income tax | $ | 1,957 |
The 2022 change in net deferred income tax is comprised of the following:
December 31, | December 31, | |||||||||||
2022 | 2021 | Change | ||||||||||
Adjusted gross deferred tax assets | $ | 5,117 | $ | 3,191 | $ | 1,926 | ||||||
Total deferred tax liabilities | - | (180 | ) | 180 | ||||||||
Net deferred tax asset (excluding nonadmitted) | $ | 5,117 | $ | 3,011 | $ | 2,106 | ||||||
Tax effect of unrealized capital gains and losses, unrealized foreign exchange capital gains and losses, and changes as a result of other surplus adjustments | (337 | ) | ||||||||||
Change in net deferred income tax | $ | 1,769 |
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
The 2021 change in net deferred income tax is comprised of the following:
December 31, | December 31, | |||||||||||
2021 | 2020 | Change | ||||||||||
Adjusted gross deferred tax assets | $ | 3,191 | $ | 1,108 | $ | 2,083 | ||||||
Total deferred tax liabilities | (180 | ) | (197 | ) | 17 | |||||||
Net deferred tax asset (excluding nonadmitted) | $ | 3,011 | $ | 911 | $ | 2,100 | ||||||
Tax effect of unrealized capital gains and losses, unrealized foreign exchange capital gains and losses, and changes as a result of other surplus adjustments | - | |||||||||||
Change in net deferred income tax | $ | 2,100 |
Reconciliation to U.S. Tax Rate
Income tax expense
The total statutory provision for income taxes for the years ended December 31 differs from the amount computed by applying the U.S. federal corporate income tax rate of 35%21% to income before federal income taxes plus gross realized capital gains (losses) due to the items listed in the following reconciliation:
2015 | 2014 | 2013 | ||||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||
Tax expense computed at | ||||||||||||||||||||
federal corporate tax rate | $ | 1,480 | 35.0 | % | $ | 60 | 35.0 | % | $ | 133 | 35.0 | % | ||||||||
Income tax expense (benefit) | ||||||||||||||||||||
related to prior years | (31 | ) | (0.7 | ) | (41 | ) | (23.9 | ) | 116 | 30.5 | ||||||||||
Other | - | - | (8 | ) | (4.7 | ) | - | |||||||||||||
Total income tax expense | $ | 1,449 | 34.3 | % | $ | 11 | 6.4 | % | $ | 249 | 65.5 | % | ||||||||
2023 | 2022 | 2021 | ||||||||||
Tax expense computed at federal corporate rate | $ | 835 | $ | 354 | $ | 207 | ||||||
Foreign tax credit | (62 | ) | (79 | ) | (42 | ) | ||||||
Income tax expense (benefit) related to prior years | (357 | ) | (19 | ) | 508 | |||||||
Nonadmitted assets | (355 | ) | (791 | ) | (997 | ) | ||||||
Interest maintenance reserve amortization | 11 | 15 | 21 | |||||||||
Dividends received deductions | (135 | ) | (106 | ) | (108 | ) | ||||||
Other | 1 | 4 | - | |||||||||
Total statutory income taxes | $ | (62 | ) | $ | (622 | ) | $ | (411 | ) | |||
Federal income tax expense | $ | 1,895 | $ | 1,147 | $ | 1,689 | ||||||
Change in net deferred income tax | (1,957 | ) | (1,769 | ) | (2,100 | ) | ||||||
Total statutory income taxes | $ | (62 | ) | $ | (622 | ) | $ | (411 | ) |
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
Deferred Income Taxes
Deferred income taxes reflect
The components of the net deferred tax effectasset at December 31 are as follows:
December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||
Ordinary | Capital | Total | Ordinary | Capital | Total | Ordinary | Capital | Total | ||||||||||||||||||||||||||||
Gross deferred tax assets | $ | 6,686 | $ | 388 | $ | 7,074 | $ | 4,976 | $ | 141 | $ | 5,117 | $ | 1,710 | $ | 247 | $ | 1,957 | ||||||||||||||||||
Statutory valuation allowance adjustment | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Adjusted gross deferred tax assets | 6,686 | 388 | 7,074 | 4,976 | 141 | 5,117 | 1,710 | 247 | 1,957 | |||||||||||||||||||||||||||
Deferred tax assets nonadmitted | (3,953 | ) | (388 | ) | (4,341 | ) | (4,471 | ) | (141 | ) | (4,612 | ) | 518 | (247 | ) | 271 | ||||||||||||||||||||
Admitted deferred tax assets | 2,733 | - | 2,733 | 505 | - | 505 | 2,228 | - | 2,228 | |||||||||||||||||||||||||||
Deferred tax liabilities | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Net admitted deferred tax assets | $ | 2,733 | $ | - | $ | 2,733 | $ | 505 | $ | - | $ | 505 | $ | 2,228 | $ | - | $ | 2,228 |
The nonadmitted deferred tax asset decreased $271 in 2023 and increased $2,164 in 2022. There are no known deferred tax liabilities not recognized. Gross deferred tax assets are reduced by a statutory valuation allowance adjustment if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Based on the Company’s assessment, no valuation allowance was required as of December 31, 2023 and 2022.
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
The tax effects of temporary differences betweenthat give rise to the carrying amountssignificant portions of assets and liabilities for financial statement purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31 2015 and 2014 are as follows:
2015 | 2014 | |||||
Deferred tax assets | ||||||
Policy liabilities and reserves | $ | 36 | $ | 81 | ||
Unrealized investment losses | 122 | - | ||||
Investments | 168 | 276 | ||||
Accrued expenses | 94 | 26 | ||||
Deferred policy acquisition costs | 309 | 230 | ||||
Other | 1 | 3 | ||||
Gross deferred tax assets | 730 | 616 | ||||
Deferred tax liabilities | ||||||
Unrealized investment gains | - | 118 | ||||
Deferred reinsurance expense | 47 | 56 | ||||
Other | 1 | 2 | ||||
Gross deferred tax liabilities | 48 | 176 | ||||
Net deferred tax asset | $ | 682 | $ | 440 | ||
2023 | 2022 | Change | ||||||||||
Ordinary deferred tax assets: | ||||||||||||
Deferred acquisition costs | $ | 4,219 | $ | 2,871 | $ | 1,348 | ||||||
Miscellaneous nonadmitted assets | 2,367 | 2,012 | 355 | |||||||||
Other - accrued general expense | 100 | 93 | 7 | |||||||||
Subtotal ordinary deferred tax assets | 6,686 | 4,976 | 1,710 | |||||||||
Nonadmitted ordinary deferred tax assets | (3,953 | ) | (4,471 | ) | 518 | |||||||
Admitted ordinary deferred tax assets | 2,733 | 505 | 2,228 | |||||||||
Capital deferred tax assets: | ||||||||||||
Investments | 388 | 141 | 247 | |||||||||
Subtotal capital deferred tax assets | 388 | 141 | 247 | |||||||||
Nonadmitted capital deferred tax assets | (388 | ) | (141 | ) | (247 | ) | ||||||
Admitted capital deferred tax asset | - | - | - | |||||||||
Admitted deferred tax assets | 2,733 | 505 | 2,228 | |||||||||
Net admitted deferred tax asset | $ | 2,733 | $ | 505 | $ | 2,228 |
Valuation Allowance
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
Deferred Tax Asset Admission Calculation
The Company consideredcomponents of the need for a valuation allowance with respect to itsdeferred tax asset admission calculation at December 31 are as follows:
December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||
Ordinary | Capital | Total | Ordinary | Capital | Total | Ordinary | Capital | Total | ||||||||||||||||||||||||||||
(a) Federal income taxes paid in prior years recoverable through loss carrybacks | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||
(b) Adjusted gross deferred tax assets expected to be realized after application of the threshold limitation; the lesser of (i) or (ii): | 2,733 | - | 2,733 | 505 | - | 505 | 2,228 | - | 2,228 | |||||||||||||||||||||||||||
(i) Adjusted gross deferred tax assets expected to be realized following the balance sheet date | 2,733 | - | 2,733 | 505 | - | 505 | 2,228 | - | 2,228 | |||||||||||||||||||||||||||
(ii) Adjusted gross deferred tax assets allowed per limitation threshold | - | - | 7,896 | - | - | 7,732 | - | - | 164 | |||||||||||||||||||||||||||
(c) Adjusted gross deferred tax assets offset by gross deferred tax liabilities | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Admitted deferred tax assets | $ | 2,733 | $ | - | $ | 2,733 | $ | 505 | $ | - | $ | 505 | $ | 2,228 | $ | - | $ | 2,228 |
The amounts calculated in (b)(i) and (b)(ii) in the table above are based on the following information:
2023 | 2022 | |||||||
Ratio percentage used to determine recovery period and threshold limitation amount (Risk-based capital (“RBC”) reporting entity) | 5405 | % | 5775 | % | ||||
Recovery period used in (b)(i) | 3 years | 3 years | ||||||
Percentage of adjusted capital and surplus used in (b)(ii) | 15 | % | 15 | % | ||||
Amount of adjusted capital and surplus used in (b)(ii) | $ | 52,637 | $ | 51,544 |
No tax planning strategies were used in the calculation of adjusted gross deferred tax assets or net admitted adjusted gross deferred tax assets during 2023 and 2022.
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
Other Tax Items
As of December 31, 2023, the Company did not have any federal capital loss, operating loss, or credit carryforwards.
In 2023, the Company incurred $1 in taxes that are available for recoupment in the event of future capital losses. The Company has no taxes incurred in 2022 and 2021 that are available for recoupment in the event of future capital losses.
The Company did not have any protective tax deposits under Section 6603 of the Internal Revenue Code.
The Company did not have any tax contingencies as of December 31, 20152023 and 2014,2022 and based on that evaluation, the Company has determinedno tax loss contingencies for which it is more likely than not all deferred tax assets as of December 31, 2015 and 2014reasonably possible that the total liability will be realized. Therefore, a valuation allowance was not established.
Unrecognized Tax Benefits
A reconciliationsignificantly increase within twelve months of the beginning and ending amount of unrecognized tax benefits is as follows:reporting date.
2015 | 2014 | ||||||
Balance at January 1 | $ | 1 | $ | 7 | |||
Reductions for prior years’ tax positions | - | (6 | ) | ||||
Balance at December 31 | $ | 1 | $ | 1 | |||
There were no unrecognized tax benefits as of December 31, 2015 and 2014 that, if recognized, would affect the effective tax rate in future periods. Management does not anticipate a material change to the Company’s uncertain tax positions during 2016.
The Company recognizes interest and penalties accrued related to unrecognized tax benefitscontingencies, if any, in income tax expense in the statutory basis statements of comprehensive income (loss). The Company did not recognize any additions or reductions in interest and penalties for the year ended December 31, 2015 or 2014. During the year ended December 31, 2013 the Company recognized additions of $1 in interest and penalties. The Company had accrued $7 and $7 for the payment of interest and penalties at December 31, 2015 and 2014, respectively.operations.
The Company is included in a consolidated U.S. federal income tax return filed by CMHC. The Company is also included infiles income tax returns filed in various states. The Company is subject to tax audits. These audits may result in additional tax liabilities. For the major jurisdictions where it operates, the Company is generally no longer subject to income tax examinationsexamination by tax authorities for the years ended before 2008.2020. A carryback refund claim filed for tax year 2020 is currently under review.
Other Tax Items
AsThe Inflation Reduction Act was enacted on August 16, 2022, and included a new corporate alternative minimum tax (“CAMT”). The CAMT is effective for tax years beginning after 2022. The Company has determined that it is a nonapplicable reporting entity that does not reasonably expect to be an applicable corporation as a member of December 31, 2015 and 2014,its tax return consolidated group for the Company did not have any capital loss, operating loss or credit carryforwards.2023 tax year.
Note 6: Related Party Transactions
In the normal course of business, there arethe Company has various transactions between the Companywith related entities, primarily CMFG Life, such as information technology support, benefit plan administration and other related entities.costs associated with accounting, actuarial, tax, investment and administrative services. 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 affiliatesrelated party activity are generally settled monthly. The Company reimbursed CMFG Life $8,447, $5,641 and $2,492other affiliates $104,772, $79,869 and $67,119 for theseallocated expenses in 2015, 20142023, 2022, and 2013, respectively; which are included2021, respectively. Additionally, the Company was reimbursed $253, $72, and $181 for allocated expenses in operating2023, 2022, and other expenses.2021, respectively.
Amounts receivable/payable from/
As of December 31, 2023 and 2022, respectively, $45,481 and $24,611 was due to affiliates are shown in the following table:
2015 | 2014 | |||||
Receivable from: | ||||||
CMFG Life | $ | 4,518 | $ | 2,765 | ||
Total | $ | 4,518 | $ | 2,765 | ||
Payable to: | ||||||
CUNA Brokerage Services, Inc. | $ | 2,478 | $ | 1,290 | ||
MEMBERS Capital Advisors, Inc. | 2 | 2 | ||||
Total | $ | 2,480 | $ | 1,292 | ||
Amounts receivable from CMFG Life at December 31, 2015for such expense sharing transactions and 2014 are primarily for a policyholder’s purchase of an annuity when a CMFG Life policyholder has surrendered their policy for the purchase of a single premium deferred annuity and for the cession of death claims related to the Company’s single premium deferred annuity.party borrowing transactions, as described above.
The Company hires MEMBERS Capital Advisors, Inc. (“MCA”) for investment advisory services. MCA, which is 100% owned by CMIC, manages substantially all of the Company’s invested assets in accordance with policies, directives and guidelines established by the Company. The Company recorded MCA investment management fees totaling $28, $34 and $113 for the years ended December 31, 2015, 2014 and 2013, respectively, which are included as a reduction to net investment income.
The Company utilizes CUNA Brokerage Services, Inc. (“CBSI”),CBSI, which is 100% owned by CMIC, to distribute its single premium deferred annuity andproducts. Beginning in May 2022, CBSI advisors are licensed with LPL Financial LLC (“LPL”), an unaffiliated third party, such that starting in June 2022, commissions are paid to LPL prior to being collected by CBSI. The Company recorded commission expenseexpenses for this service of $23,072, $10,853$27,586 in 2023, $32,497 in 2022 and $4,256$49,484 in 2015, 2014 and 2013, respectively,2021, which is included in operatinginsurance taxes, licenses, fees and other expenses. This expense is entirely offset by commission incomecommissions.
The Company did not receive a capital contribution in 2023. The Company received a non-cash capital contribution from its parent, CMIC, of $20,017 during the year ended December 31, 2022. Such amount included $19,680 of bonds and $337 of a related deferred tax asset.
MEMBERS Life Insurance Company receives from CMFG Life as part of the 2013 reinsurance agreement.
See Note 7 regarding reinsurance and other agreements entered into by the Company and CMFG Life.Notes to Statutory Basis Financial Statements
($ in 000s)
Note 7: Reinsurance
The Company entered into a reinsurance agreementcoinsurance and modified coinsurance agreements with its affiliate, CMFG Life, on a coinsurance and modified coinsurance basis. The agreement was effective November 1, 2015 to cede 100% of the business related to a new product currently in development, which includes any related development expenses. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $1,027 for the year ended December 31, 2015.
The Company entered into an agreement with its affiliate, CMFG Life, effective January 1, 2013 to cede 100% of its investment-type contracts for its single premium deferredlife, accident and health, and annuity which are accounted for using the deposit method of accounting.business. The Company had $947,595 and $349,937 of assets on deposit for these contracts as of December 31, 2015 and 2014, respectively. The Company had related liabilities of $947,595 and $349,937, respectively which are included in policyholder account balances inentered into the balance sheets. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $34,236, $14,861 and $6,425agreements for the year ended December 31, 2015, 2014purpose of limiting its exposure to loss on any one single insured, diversifying its risk and 2013, respectively.
On October 31, 2012, the Company ceded 95% oflimiting its insurance policies in force pursuantoverall financial exposure to a reinsurance agreement with CMFG Lifecertain products, 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 amendedto meet 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. As a result of the amendment to this agreement the Company ceded $1,297 of earned premiums and $1,244 of benefits as of September 30, 2015.
MLIC did not have any other reinsurance agreements at December 31, 2015 or 2014 and the entire reinsurance recoverable balance of $24,628 and $25,199, respectively, was due from CMFG Life.overall financial objectives. The recoverable balances are not collateralized and the Company retains the risk of loss in the event that CMFG Life is unable to meet itsthe obligations assumed under the reinsurance agreements. CMFG Life is rated A (excellent) by A.M. Best Company and MLIC believes
The following table shows the risk of non-collection is remote.
The effectseffect of reinsurance on premiums, contract charges, interest credited to policyholder accounts, premiums and on claims, benefits and losses incurredsurrenders, and increase in policy reserves for 2023, 2022, and 2021.
2023 | 2022 | 2021 | ||||||||||
Premiums earned: | ||||||||||||
Direct | $ | 1,082,381 | $ | 1,324,876 | $ | 1,580,410 | ||||||
Ceded to affiliates | (1,082,381 | ) | (1,324,876 | ) | (1,580,410 | ) | ||||||
Premiums earned, net of reinsurance | $ | - | $ | - | $ | - | ||||||
Contract charges | ||||||||||||
Direct | $ | 8,304 | $ | 5,744 | $ | (1,598 | ) | |||||
Ceded to affiliates | (8,304 | ) | (5,744 | ) | 1,598 | |||||||
Contract charges, net of reinsurance | $ | - | $ | - | $ | - | ||||||
Benefits and surrender expenses: | ||||||||||||
Direct | $ | 793,990 | $ | 538,661 | $ | 491,970 | ||||||
Ceded to affiliates | (793,990 | ) | (538,661 | ) | (491,970 | ) | ||||||
Benefits and surrender expenses, net of reinsurance | $ | - | $ | - | $ | - | ||||||
Change in policy reserves: | ||||||||||||
Direct | $ | (23,016 | ) | $ | 109,870 | $ | 8,624 | |||||
Ceded to affiliates | 23,016 | (109,870 | ) | (8,624 | ) | |||||||
Increase in policy reserves, net of reinsurance | $ | - | $ | - | $ | - |
Policy reserves and claim liabilities are stated net of reinsurance balances ceded of $147,935 and $167,272 in 2023 and 2022, respectively.
The Company receives a reinsurance ceding commission equal to 100% of its actual expenses for life insurance and annuities ceded to CMFG Life, which was $184,071, $163,472 and $169,103 for the years ended December 31, are2023, 2022, and 2021, respectively.
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
Note 8: Annuity Reserves and Deposit-Type Liabilities
The following tables show an analysis of annuity actuarial reserves and deposit type contract liabilities by withdrawal characteristics at December 31, 2023:
Individual Annuities
The Company had policy liabilities associated with its separate accounts of $234,919 as follows:of December 31, 2023.
2015 | 2014 | 2013 | ||||||||||
Face amount of policies in force | $ | 110,827 | $ | 123,223 | $ | 147,371 | ||||||
Premiums: | ||||||||||||
Direct - written | $ | 2,384 | $ | 2,613 | $ | 2,811 | ||||||
Direct - change in unearned | - | - | - | |||||||||
Direct - earned | 2,384 | 2,613 | 2,811 | |||||||||
Ceded to affiliate - written | (3,559 | ) | (2,482 | ) | (2,671 | ) | ||||||
Ceded to affiliate - change in unearned | - | (4 | ) | (1 | ) | |||||||
Ceded to affiliate - earned | (3,559 | ) | (2,486 | ) | (2,672 | ) | ||||||
Premiums - written, net | (1,175 | ) | 131 | 140 | ||||||||
Premiums - change in unearned, net | - | (4 | ) | (1 | ) | |||||||
Premiums, net | $ | (1,175 | ) | $ | 127 | $ | 139 | |||||
Contract charges: | ||||||||||||
Direct | $ | 742 | $ | 472 | $ | 461 | ||||||
Ceded to affiliate | (724 | ) | (448 | ) | (415 | ) | ||||||
Contract charges, net | $ | 18 | $ | 24 | $ | 46 | ||||||
Claims, benefits and losses incurred: | ||||||||||||
Direct | $ | 1,784 | $ | 1,883 | $ | 2,953 | ||||||
Ceded to affiliate | (2,988 | ) | (1,771 | ) | (2,774 | ) | ||||||
Claims, benefits and losses, net | $ | (1,204 | ) | $ | 112 | $ | 179 | |||||
Interest credited to policyholder account balances: | ||||||||||||
Direct | $ | 9,833 | $ | 2,457 | $ | 320 | ||||||
Ceded to affiliate | (9,829 | ) | (2,449 | ) | (311 | ) | ||||||
Interest credited to policyholder account balances, net | $ | 4 | $ | 8 | $ | 9 | ||||||
Separate | Separate | |||||||||||||||||||
General | Account with | Account | % of | |||||||||||||||||
Account | Guarantees | Nonguaranteed | Total | Total | ||||||||||||||||
Subject to discretionary withdrawal - lump sum: | ||||||||||||||||||||
With market value adjustment | $ | - | $ | 7,255,395 | $ | - | $ | 7,255,395 | 92.4 | % | ||||||||||
At book value less surrender charge of 5% or more | 72 | - | - | 72 | 0.0 | % | ||||||||||||||
At fair value | - | - | 234,919 | 234,919 | 3.0 | % | ||||||||||||||
Total with adjustment or at fair value | 72 | 7,255,395 | 234,919 | 7,490,386 | 95.4 | % | ||||||||||||||
At book value with minimal or no charge adjustment | - | 344,854 | - | 344,854 | 4.4 | % | ||||||||||||||
Not subject to discretionary withdrawal | 16,210 | - | - | 16,210 | 0.2 | % | ||||||||||||||
Gross annuity reserves and deposit liabilities | 16,282 | 7,600,249 | 234,919 | 7,851,450 | 100.0 | % | ||||||||||||||
Reinsurance ceded | 16,282 | 7,600,249 | - | 7,616,531 | ||||||||||||||||
Total annuity reserves and deposit liabilities | $ | - | $ | - | $ | 234,919 | $ | 234,919 |
MEMBERS Life Insurance Company
Notes to Statutory Basis Financial Statements
($ in 000s)
Deposit-Type Contracts
Separate | Separate | |||||||||||||||||||
General | Account with | Account | % of | |||||||||||||||||
Account | Guarantees | Nonguaranteed | Total | Total | ||||||||||||||||
Not subject to discretionary withdrawal | $ | 9,692 | $ | - | $ | - | $ | 9,692 | 100.0 | % | ||||||||||
Gross annuity reserves and deposit liabilities | 9,692 | - | - | 9,692 | 100.0 | % | ||||||||||||||
Reinsurance ceded | 9,692 | - | - | 9,692 | ||||||||||||||||
Total annuity reserves and deposit liabilities | $ | - | $ | - | $ | - | $ | - |
The following table shows life policy reserves by withdrawal characteristics at December 31, 2023:
General Account | Separate Account - Guaranteed and Non Guaranteed | |||||||||||||||||||||||
Account Value | Cash Value | Reserve | Account Value | Cash Value | Reserve | |||||||||||||||||||
Subject to discretionary withdrawal, surrender values, or policy loans: | ||||||||||||||||||||||||
Term policies with cash value | $ | - | $ | 16 | $ | 29 | $ | - | $ | - | $ | - | ||||||||||||
Universal life | 2,078 | 2,078 | 2,120 | - | - | - | ||||||||||||||||||
Other permanent cash value life insurance | - | 18,805 | 31,629 | - | - | - | ||||||||||||||||||
Miscellaneous reserves | - | 30 | 30 | - | - | - | ||||||||||||||||||
Not subject to discretionary withdrawal or no cash values: | ||||||||||||||||||||||||
Term policies without cash value | - | - | 3,354 | - | - | - | ||||||||||||||||||
Accidental death benefits | - | - | 5 | - | - | - | ||||||||||||||||||
Disability - active lives | - | - | 1 | - | - | - | ||||||||||||||||||
Disability - disabled lives | - | - | 30 | - | - | - | ||||||||||||||||||
Miscellaneous reserves | - | - | 43 | - | - | - | ||||||||||||||||||
Gross reserves before reinsurance | 2,078 | 20,929 | 37,241 | - | - | - | ||||||||||||||||||
Ceded reinsurance | 2,078 | 20,929 | 37,241 | - | - | - | ||||||||||||||||||
Net reserves | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
MEMBERS Life Insurance Company |
Notes to Statutory Basis Financial Statements |
($ in 000s) |
The following tables show an analysis of annuity actuarial reserves and deposit type contract liabilities by withdrawal characteristics at December 31, 2022:
Individual Annuities
General Account | Separate Account with Guarantees | Separate Account Nonguaranteed | Total | % of Total | ||||||||||||||||
Subject to discretionary withdrawal - | ||||||||||||||||||||
lump sum: | ||||||||||||||||||||
With market value adjustment | $ | - | $ | 6,457,388 | $ | - | $ | 6,457,388 | 91.8 | % | ||||||||||
At book value less surrender charge of 5% or more | 402 | - | - | 402 | 0.0 | % | ||||||||||||||
At fair value | - | - | 225,401 | 225,401 | 3.2 | % | ||||||||||||||
Total with adjustment or at fair value | 402 | 6,457,388 | 225,401 | 6,683,191 | 95.0 | % | ||||||||||||||
At book value with minimal or no charge adjustment | - | 229,185 | - | 229,185 | 3.3 | % | ||||||||||||||
Not subject to discretionary withdrawal | 122,176 | - | - | 122,176 | 1.7 | % | ||||||||||||||
Gross annuity reserves and deposit liabilities | 122,578 | 6,686,573 | 225,401 | 7,034,552 | 100.0 | % | ||||||||||||||
Reinsurance ceded | 122,578 | 6,686,573 | - | 6,809,151 | ||||||||||||||||
Total annuity reserves and deposit liabilities | $ | - | $ | - | $ | 225,401 | $ | 225,401 |
The Company had policy liabilities associated with its separate accounts of $225,401 as of December 31, 2022.
33 |
MEMBERS Life Insurance Company Notes to Statutory Basis Financial Statements ($ in 000s) |
Deposit-Type Contracts
General Account | Separate Account with Guarantees | Separate Account Nonguaranteed | Total | % of Total | ||||||||||||||||
Subject to discretionary withdrawal - | ||||||||||||||||||||
Not subject to discretionary withdrawal | $ | 8,041 | $ | - | $ | - | $ | 8,041 | 100.0 | % | ||||||||||
Gross annuity reserves and deposit liabilities | 8,041 | - | - | 8,041 | 100.0 | % | ||||||||||||||
Reinsurance ceded | 8,041 | - | - | 8,041 | ||||||||||||||||
Total annuity reserves and deposit liabilities | $ | - | $ | - | $ | - | $ | - |
34 |
MEMBERS Life Insurance Company Notes to Statutory Basis Financial Statements ($ in 000s) |
The following table shows life policy reserves by withdrawal characteristics at December 31, 2022:
General Account | Separate Account - Guaranteed and Non Guaranteed | |||||||||||||||||||||||
Account Value | Cash Value | Reserve | Account Value | Cash Value | Reserve | |||||||||||||||||||
Subject to discretionary withdrawal, surrender values, or policy loans: | ||||||||||||||||||||||||
Term policies with cash value | $ | - | $ | 22 | $ | 38 | $ | - | $ | - | $ | - | ||||||||||||
Universal life | 2,232 | 2,232 | 2,278 | - | - | - | ||||||||||||||||||
Other permanent cash value life insurance | - | 15,385 | 19,884 | - | - | - | ||||||||||||||||||
Variable universal life | - | - | - | - | - | - | ||||||||||||||||||
Miscellaneous reserves | - | 59 | 59 | - | - | - | ||||||||||||||||||
Not subject to discretionary withdrawal or no cash values: | ||||||||||||||||||||||||
Term policies without cash value | - | - | 3,503 | - | - | - | ||||||||||||||||||
Accidental death benefits | - | - | 6 | - | - | - | ||||||||||||||||||
Disability - active lives | - | - | 2 | - | - | - | ||||||||||||||||||
Disability - disabled lives | - | - | 38 | - | - | - | ||||||||||||||||||
Miscellaneous reserves | - | - | 49 | - | - | - | ||||||||||||||||||
Gross reserves before reinsurance | 2,232 | 17,698 | 25,857 | - | - | - | ||||||||||||||||||
Ceded reinsurance | 2,232 | 17,698 | 25,857 | - | - | - | ||||||||||||||||||
Net reserves | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
35 |
MEMBERS Life Insurance Company Notes to Statutory Basis Financial Statements ($ in 000s) |
Note 8:9: 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 2015, 2014 or 2013. Certain statutory basis financial information for MLIC is presented in the table below as of and for the years ended December 31.
Statutory Basis | Statutory Basis | ||||||||||||||||
Capital and Surplus | Net Income (Loss) | ||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2013 | |||||||||||||
MLIC | $ | 21,111 | $ | 18,366 | $ | 1,112 | $ | (1,792 | ) | $ | (1,562 | ) | |||||
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 noticeRBC requirements promulgated by the regulator of the subsidiary’s state of domicile (“Insurance Department”). Extraordinary dividends, as defined by state statutes, must be approvedNAIC and adopted by the Insurance Department. Based on Iowa statutory regulations, the Company could pay dividends up to $2,111 during 2016, without prior approval of the Insurance Department.
Risk-based capital (“RBC”) requirements promulgated by the National Association of Insurance CommissionersDepartment require U.S. life insurers to maintain minimum capitalization levels that are determined based on formulas incorporating creditasset risk, insurance risk, interest rate risk, and general business risk. The adequacy of the Company’s actual capital is evaluated by a comparison to the RBC results, as determined by the formula. At December 31, 20152023 and 2014,2022, the Company’s adjusted capital exceeded the RBC minimum requirements.requirements, as required by the NAIC.
Note 9: Accumulated Other Comprehensive Income (Loss)
The componentsCompany is subject to statutory regulations as to maintenance of accumulated comprehensive income (loss), netpolicyholders’ surplus and payment of tax, arestockholder dividends. Generally, dividends to a parent must be reported to the appropriate state regulatory authority in advance of payment and extraordinary dividends, as follows:
Accumulated | ||||||||
Unrealized | Other | |||||||
Investment | Comprehensive | |||||||
Gains (Loss) | Income (Loss) | |||||||
Balance, January 1, 2013 | $ | 423 | $ | 423 | ||||
Change in unrealized holding gains (losses), | ||||||||
net of tax - ($105) | (154 | ) | (154 | ) | ||||
Balance, December 31, 2013 | 269 | 269 | ||||||
Change in unrealized holding gains (losses), | ||||||||
net of tax - ($25) | (47 | ) | (47 | ) | ||||
Balance, December 31, 2014 | 222 | 222 | ||||||
Change in unrealized holding gains (losses), | ||||||||
net of tax - ($240) | (447 | ) | (447 | ) | ||||
Balance, December 31, 2015 | $ | (225 | ) | $ | (225 | ) | ||
Reclassification Adjustmentsdefined by statutes, require regulatory approval. The Company can pay $5,537 in stockholder dividends in 2024 without regulatory approval.
Accumulated other comprehensive income (losses) includes amounts related to unrealized investment gains (losses) which were reclassified to net income. Reclassifications from accumulated other comprehensive income (losses) for the years ended December 31 are included in the following table:
2015 | 2014 | 2013 | ||||||||||
Reclassifications from accumulated other comprehensive income (losses) | ||||||||||||
Unrealized gains on available-for-sale | ||||||||||||
securities included in net realized investment losses | $ | 15 | $ | - | $ | - | ||||||
Total reclassifications from accumulated | ||||||||||||
other comprehensive income (losses) | 15 | - | - | |||||||||
Tax expense | 5 | - | - | |||||||||
Net reclassification from accumulated | ||||||||||||
other comprehensive income (losses) | $ | 10 | $ | - | $ | - | ||||||
Note 10: Business Segment Information
The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2015.
Life and | ||||||||||||
Year ended or as of December 31, 2015 | Health | Annuities | Total | |||||||||
Revenues | ||||||||||||
Life and health premiums, net | $ | (1,175 | ) | $ | - | $ | (1,175 | ) | ||||
Contract charges | 18 | - | 18 | |||||||||
Net investment income | 366 | - | 366 | |||||||||
Net realized investment gains | 117 | - | 117 | |||||||||
Other income | 5,336 | - | 5,336 | |||||||||
Total revenues | 4,662 | - | 4,662 | |||||||||
Benefits and expenses | ||||||||||||
Life and health insurance claims and benefits, net | (1,204 | ) | - | (1,204 | ) | |||||||
Interest credited to policyholder account balances | 4 | - | 4 | |||||||||
Operating and other expenses | 1,633 | - | 1,633 | |||||||||
Total benefits and expenses | 433 | - | 433 | |||||||||
Income before income taxes | 4,229 | - | 4,229 | |||||||||
Income tax expense | 1,449 | - | 1,449 | |||||||||
Net income | 2,780 | - | 2,780 | |||||||||
Change in unrealized (losses), net of tax (benefit) | (447 | ) | - | (447 | ) | |||||||
Other comprehensive (loss) | (447 | ) | - | (447 | ) | |||||||
Total comprehensive income | $ | 2,333 | $ | - | $ | 2,333 | ||||||
Reinsurance recoverable from affiliate | $ | 24,628 | $ | - | $ | 24,628 | ||||||
Assets on deposit | - | 947,595 | 947,595 | |||||||||
Claim and policy benefit reserves - life and health | 21,077 | 460 | 21,537 | |||||||||
Policyholder account balances | 3,473 | 947,595 | 951,068 | |||||||||
The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2014.
Life and | ||||||||||||
Year ended or as of December 31, 2014 | Health | Annuities | Total | |||||||||
Revenues | ||||||||||||
Life and health premiums, net | $ | 127 | $ | 127 | ||||||||
Contract charges | 24 | - | 24 | |||||||||
Net investment income | 278 | - | 278 | |||||||||
Net realized investment gains | - | - | - | |||||||||
Other income | - | - | - | |||||||||
Total revenues | 429 | - | 429 | |||||||||
Benefits and expenses | ||||||||||||
Life and health insurance claims and benefits, net | 112 | - | 112 | |||||||||
Interest credited to policyholder account balances | 8 | - | 8 | |||||||||
Operating and other expenses | 137 | - | 137 | |||||||||
Total benefits and expenses | 257 | - | 257 | |||||||||
Income before income taxes | 172 | - | 172 | |||||||||
Income tax expense | 11 | - | 11 | |||||||||
Net income | 161 | - | 161 | |||||||||
Change in unrealized (losses), net of tax (benefit) | (47 | ) | - | (47 | ) | |||||||
Other comprehensive (loss) | (47 | ) | - | (47 | ) | |||||||
Total comprehensive (loss) | $ | 114 | $ | - | $ | 114 | ||||||
Reinsurance recoverable from affiliate | $ | 25,199 | $ | - | $ | 25,199 | ||||||
Assets on deposit | - | 349,937 | 349,937 | |||||||||
Claim and policy benefit reserves - life and health | 22,035 | 333 | 22,368 | |||||||||
Policyholder account balances | 3,612 | 349,937 | 353,549 | |||||||||
The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2013.
Life and | ||||||||||||
Year ended or as of December 31, 2013 | Health | Annuities | Total | |||||||||
Revenues | ||||||||||||
Life and health premiums, net | $ | 139 | $ | - | $ | 139 | ||||||
Contract charges | 46 | - | 46 | |||||||||
Net investment income | 176 | - | 176 | |||||||||
Net realized investment gains | - | - | - | |||||||||
Other income | 293 | - | 293 | |||||||||
Total revenues | 654 | - | 654 | |||||||||
Benefits and expenses | ||||||||||||
Life and health insurance claims and benefits, net | 179 | - | 179 | |||||||||
Interest credited to policyholder account balances | 9 | - | 9 | |||||||||
Operating and other expenses | 86 | - | 86 | |||||||||
Total benefits and expenses | 274 | - | 274 | |||||||||
Income before income taxes | 380 | - | 380 | |||||||||
Income tax expense | 249 | - | 249 | |||||||||
Net income | 131 | - | 131 | |||||||||
Change in unrealized (losses), net of tax (benefit) | (154 | ) | - | (154 | ) | |||||||
Other comprehensive (loss) | (154 | ) | - | (154 | ) | |||||||
Total comprehensive (loss) | $ | (23 | ) | $ | - | $ | (23 | ) | ||||
Reinsurance recoverable from affiliate | $ | 25,525 | $ | - | $ | 25,525 | ||||||
Assets on deposit | - | 89,313 | 89,313 | |||||||||
Claim and policy benefit reserves - life and health | 23,196 | - | 23,196 | |||||||||
Policyholder account balances | 3,734 | 89,313 | 93,047 | |||||||||
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 2015 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 $270 and $75 at December 31, 2015 and 2014, 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, 2015 and 2014 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
Various legal and regulatory actions, including state market conduct exams and federal tax audits, are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is occasionally a party toroutinely involved in a number of lawsuits and other types of proceedings, some of which may involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and involve a range of the Company’sCompany's practices. The Company has established proceduresultimate outcome of these disputes is unpredictable.
These matters in some cases raise difficult and policiescomplicated factual and legal issues and are subject to facilitate compliance withmany uncertainties and complexities, including but not limited to, the underlying facts of each matter; novel legal issues; variations between jurisdictions in which matters are being litigated, heard or investigated; differences in applicable laws and regulationsjudicial interpretations; the length of time before many of these matters might be resolved by settlement, through litigation or otherwise and, in some cases, the timing of their resolutions relative to support financial reporting.
other similar matters involving other companies. 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 statutory basis financial statements of the Company.
36 |
MEMBERS Life Insurance Company Notes to Statutory Basis Financial Statements ($ in 000s) |
Note 11: Unassigned Surplus
Nonadmitted assets at December 31 reduce unassigned surplus and include the following:
2023 | 2022 | |||||||
Nonadmitted assets: | ||||||||
Net deferred tax asset | $ | 4,342 | $ | 4,612 | ||||
Accounts receivable - nonaffiliated | 6,495 | 6,599 | ||||||
Prepaid expenses | 270 | 494 | ||||||
Interest maintenance reserve | - | 740 | ||||||
Debit suspense balances | 4,508 | 2,488 | ||||||
Total nonadmitted assets | $ | 15,615 | $ | 14,933 |
Note 12: Separate Accounts
Separate accounts represent funds that are invested to support the variable component of the Company’s obligations under the flexible premium variable and index-linked deferred annuity contracts.
The general account of the Company has a maximum guarantee of separate account variable annuity liabilities of $478 and $4,220 as of December 31, 2023 and 2022, respectively. The general account paid $17 and $31 towards variable annuity guarantees in 2023 and 2022, respectively. The separate account did not pay risk charges to the general account related to these guarantees in 2023 or 2022.
Information relating to the Company’s flexible premium variable separate account business as of December 31 is set forth in the tables below:
2023 | 2022 | |||||||||||||||
Indexed with Guarantees | Non- Guaranteed | Indexed with Guarantees | Non- Guaranteed | |||||||||||||
Reserves with assets held: | ||||||||||||||||
At fair value | $ | - | $ | 234,919 | $ | - | $ | 225,401 | ||||||||
At amortized cost | - | - | - | - | ||||||||||||
Total | $ | - | $ | 234,919 | $ | - | $ | 225,401 | ||||||||
Reserves with assets subject to discretionary withdrawal: | ||||||||||||||||
At fair value | $ | - | $ | 234,919 | $ | - | $ | 225,401 | ||||||||
With fair value adjustment | - | - | - | - | ||||||||||||
Not subject to discretionary withdrawal | - | - | - | - | ||||||||||||
Total | $ | - | $ | 234,919 | $ | - | $ | 225,401 |
37 |
MEMBERS Life Insurance Company Notes to Statutory Basis Financial Statements ($ in 000s) |
The following table shows the premiums and deposits for flexible premium variable contracts recorded in the separate accounts for the years ended December 31:
2023 | 2022 | |||||||||||||||
Indexed with Guarantees | Non- Guaranteed | Indexed with Guarantees | Non- Guaranteed | |||||||||||||
Non-guaranteed premiums, considerations and deposits received for separate account policies | $ | - | $ | 234,919 | $ | - | $ | 225,401 | ||||||||
Total | $ | - | $ | 234,919 | $ | - | $ | 225,401 |
Details of the net transfers to (from) separate accounts for all annuity contracts are shown in the table below for the years ended:
2023 | 2022 | |||||||||||||||
Indexed with Guarantees | Non- Guaranteed | Indexed with Guarantees | Non- Guaranteed | |||||||||||||
Transfers to separate accounts | $ | - | $ | 1,035,439 | $ | - | $ | 1,295,577 | ||||||||
Transfers from separate accounts | - | (1,048,088 | ) | - | (1,291,131 | ) | ||||||||||
Valuation adjustment | - | (11,623 | ) | - | (8,520 | ) | ||||||||||
Net transfers to (from) separate accounts | $ | - | $ | (24,272 | ) | $ | - | $ | (4,074 | ) |
Note 13: Subsequent Events
The Company evaluated subsequent events through March 13, 2024, the date the statutory basis financial statements were issued. Duringavailable for issuance.
On October 23, 2023, CMIC declared a dividend whereby MLIC, being a direct subsidiary of CMIC, was transferred from CMIC to CMFG Life on January 1, 2024. There was no impact to MLIC’s operations or Statements of Admitted Assets, Liabilities and Capital and Surplus related to this period, there were no significant subsequent events that required adjustment to or disclosure in the accompanying financial statements.transfer.
38 |
MEMBERS Life Insurance Company Notes to Statutory Basis Financial Statements ($ in 000s) |
Supplemental Schedules
39 |
MEMBERS LIFE INSURANCE COMPANY
Schedule of Selected Financial Data
As of and for the Year Ended December 31, 2023
(000s omitted)
Investment income earned: | ||||
Government bonds | $ | 84 | ||
Other bonds (unaffiliated) | 1,614 | |||
Bonds of affiliates | - | |||
Preferred stocks (unaffiliated) | - | |||
Preferred stocks of affiliates | - | |||
Common stocks (unaffiliated) | - | |||
Common stocks of affiliates | - | |||
Mortgage loans | - | |||
Real estate | - | |||
Premium notes, contract loans and liens | - | |||
Collateral loans | - | |||
Cash | - | |||
Cash equivalents | 2,548 | |||
Short-term investments | - | |||
Other invested assets | - | |||
Derivative financial instruments | - | |||
Aggregate write-in for investment income | - | |||
Gross investment income | $ | 4,246 | ||
Real estate owned - book value less encumbrances | $ | - | ||
Mortgage loans - book value: | ||||
Farm mortgages | - | |||
Residential mortgages | - | |||
Commercial mortgages | - | |||
Total mortgage loans | $ | - | ||
Mortgage loans by standing - book value: | ||||
Good standing | - | |||
Good standing with restructured terms | - | |||
Interest overdue more than three months, not in foreclosure | - | |||
Foreclosure in process | - | |||
Other long-term assets-statement value | - | |||
Collateral loans | - | |||
Bonds and stocks of parents, subsidiaries and affiliates - book value: | ||||
Bonds | - | |||
Preferred stocks | - | |||
Common stocks | - |
MEMBERS LIFE INSURANCE COMPANY
Schedule of Selected Financial Data, continued
As of and for the Year Ended December 31, 2023
(000s omitted)
Bonds and short-term investments by class and maturity: | ||||
Bonds by maturity - statement value | ||||
Due within one year or less | $ | 8,013 | ||
Over 1 year through 5 years | 16,941 | |||
Over 5 years through 10 years | 9,183 | |||
Over 10 years through 20 years | 8,864 | |||
Over 20 years | 35 | |||
Total by maturity | $ | 43,036 | ||
Bonds by class - statement value | ||||
Class 1 | $ | 37,253 | ||
Class 2 | 5,783 | |||
Class 3 | - | |||
Class 4 | - | |||
Class 5 | - | |||
Class 6 | - | |||
Total by class | $ | 43,036 | ||
Total bonds publicly traded | $ | 39,144 | ||
Total bonds privately placed | 3,892 | |||
Preferred stocks - statement value | - | |||
Common stocks - market value | - | |||
Short-term investments - book value | - | |||
Options, caps & floors - statement value | - | |||
Options, caps & floors written and in force - statement value | - | |||
Collar, swap & forward agreements open - statement value | - | |||
Futures contracts open - current value | - | |||
Cash | 5,400 | |||
Cash equivalents | 58,166 |
MEMBERS LIFE INSURANCE COMPANY
Schedule of Selected Financial Data, continued
As of and for the Year Ended December 31, 2023
(000s omitted)
Life insurance in force: | ||||
Industrial | $ | - | ||
Ordinary | 980,422 | |||
Credit life | - | |||
Group life | 9,163 | |||
1,576 | ||||
Industrial | - | |||
Ordinary | 2,126 | |||
Credit life | - | |||
Group life | 164 | |||
Amount on deposit | - | |||
Income payable | - | |||
Ordinary - involving life contingencies | ||||
Income payable | - | |||
Group - not involving life contingencies | ||||
Amount of deposit | - | |||
Income payable | - | |||
Group - involving life contingencies | ||||
Income payable | - | |||
Ordinary | ||||
Immediate - amount of income payable | - | |||
Deferred - fully paid - account balance | - | |||
Deferred - not fully paid - account balance | - | |||
Immediate - amount of income payable | - | |||
Fully paid account payable | - | |||
Not fully paid - account balance | - | |||
Ordinary | - | |||
Group | - | |||
Credit | - | |||
Deposit funds - account balance | - | |||
Dividend accumulations - account balance | - | |||
MEMBERS LIFE INSURANCE COMPANY
Schedule of Selected Financial Data, continued
As of and for the Year Ended December 31, 2023
(000s omitted)
Claim payments 2023: | ||||
Group accident and health - year ended December 31 | ||||
2023 | $ | - | ||
2022 | - | |||
2021 | - | |||
2020 | - | |||
2019 | - | |||
Prior | - | |||
Other accident and health | ||||
2023 | - | |||
2022 | - | |||
2021 | - | |||
2020 | - | |||
2019 | - | |||
Prior | - | |||
Other coverages that use developmental methods to calculate claims reserves | ||||
2023 | - | |||
2022 | - | |||
2021 | - | |||
2020 | - | |||
2019 | - | |||
Prior | - |
You may obtain a copy of the SAI free of charge by writing to our Administrative Office at 2000 Heritage Way, Waverly, Iowa 50677, or by calling 1-800-798-5500.
96MEMBERS LIFE INSURANCE COMPANY
Summary Investment Schedule
December 31, 2023
(000s omitted)
Gross | Admitted Invested Assets | |||||||||||
Investment | Reported in the Annual Statement | |||||||||||
Investment Categories | Holdings | Amount | Percentage | |||||||||
Long-Term Bonds: | ||||||||||||
U.S. governments | $ | 8,813 | $ | 8,813 | 8.3 | % | ||||||
All other governments | - | - | 0.0 | % | ||||||||
U.S. states, territories and possessions, etc. guaranteed | - | - | 0.0 | % | ||||||||
U.S. political subdivisions of states, territories, and possessions, guaranteed | - | - | 0.0 | % | ||||||||
U.S. special revenue and special assessment obligations, etc. non-guaranteed | 466 | 466 | 0.4 | % | ||||||||
Industrial and miscellaneous | 33,757 | 33,757 | 31.7 | % | ||||||||
Hybrid securities | - | - | 0.0 | % | ||||||||
Parent, subsidiaries and affiliates | - | - | 0.0 | % | ||||||||
SVO identified funds | - | - | 0.0 | % | ||||||||
Unaffiliated Bank loans | - | - | 0.0 | % | ||||||||
Total long-term bonds | 43,036 | 43,036 | 40.4 | % | ||||||||
Preferred Stocks | ||||||||||||
Industrial and miscellaneous (unaffiliated) | - | - | 0.0 | % | ||||||||
Parent, subsidiaries and affiliates | - | - | 0.0 | % | ||||||||
Total preferred stocks | - | - | 0.0 | % | ||||||||
Common Stocks | ||||||||||||
Industrial and miscellaneous Publicly traded (unaffiliated) | - | - | 0.0 | % | ||||||||
Industrial and miscellaneous Other (unaffiliated) | - | - | 0.0 | % | ||||||||
Parent, subsidiaries and affiliates Publicly traded | - | - | 0.0 | % | ||||||||
Parent, subsidiaries and affiliates Other | - | - | 0.0 | % | ||||||||
Mutual funds | - | - | 0.0 | % | ||||||||
Unit investment trusts | - | - | 0.0 | % | ||||||||
Total common stocks | - | - | 0.0 | % | ||||||||
Mortgage loans | - | - | 0.0 | % | ||||||||
Real estate | - | - | 0.0 | % | ||||||||
Cash, cash equivalents and short-term investments | 63,566 | 63,566 | 59.6 | % | ||||||||
Contract loans | - | - | 0.0 | % | ||||||||
Derivatives | - | - | 0.0 | % | ||||||||
Other invested assets | - | - | 0.0 | % | ||||||||
Receivables for securities | - | - | 0.0 | % | ||||||||
Securities lending | - | - | 0.0 | % | ||||||||
Total invested assets | $ | 106,602 | $ | 106,602 | 100.0 | % |
Reinsurance Contract Interrogatories Year Ended December 31, 2023 |
1. | MLIC has applied reinsurance accounting, as described in SSAP No. 61R, to reinsurance contracts entered into, renewed or amended on or after January 1, 1996, which do not include risk-limiting features, as described in SSAP No. 61R. |
2. | MLIC has not entered into, renewed or amended reinsurance contracts on or after January 1, 1996, which contain provisions that allow (1) the reporting of losses or settlements with the reinsurer to occur less frequently than quarterly or (2) payments due from the reinsurer to not be made in cash within ninety days of the settlement date unless there is no activity during the period. |
3. | MLIC has not entered into, renewed or amended reinsurance contracts on or after January 1, 1996, which contain a payment schedule, accumulating retentions from multiple years or any features inherently designed to delay timing of the reimbursement to the ceding company. |
4. | MLIC has not ceded any risk during the period ended December 31, 2023 under any reinsurance contracts entered into, renewed or amended on or after January 1, 1996 accounted for as reinsurance under GAAP and as a deposit under SSAP No. 61R. |
5. | MLIC cedes 100% of its annuity business to CMFG Life, which is accounted for as reinsurance ceded under statutory accounting. These contracts are accounted for as investment-type contracts under GAAP; as such, deposits are not reported as revenues for GAAP. Consequently, deposit accounting is used to account for the reinsurance agreement for GAAP. |
45 |
MEMBERS Life Insurance Company Supplemental Investment Risks Interrogatories Year Ended December 31, 2023 |
1. | Reporting entity’s total admitted assets, excluding separate account assets. | $ | 148,918,359 |
2. | Ten largest exposures to a single issuer/borrower/investment. |
1 | 2 | 3 | 4 | |||||||||||
Issuer | Description of Exposure | Amount | Percentage of Total Admitted Assets | |||||||||||
2.01 | Procter & Gamble co. | Bond | $ | 1,930,912 | 1.3% | |||||||||
2.02 | Woodmont Trust | Bond | 1,912,046 | 1.3% | ||||||||||
2.03 | Citigroup Commercial Mortgage | Bond | 1,903,677 | 1.3% | ||||||||||
2.04 | AMSR Trust | Bond | 1,892,575 | 1.3% | ||||||||||
2.05 | Novartis Capital Corp | Bond | 1,761,471 | 1.2% | ||||||||||
2.06 | Toyota Motor Credit Corp | Bond | 1,002,549 | 0.7% | ||||||||||
2.07 | National Australia Bank LTD | Bond | 1,000,000 | 0.7% | ||||||||||
2.08 | Blackrock Inc | Bond | 999,846 | 0.7% | ||||||||||
2.09 | Mass Mutual Global Funding | Bond | 999,824 | 0.7% | ||||||||||
2.10 | Pfizer Inc | Bond | 999,491 | 0.7% | ||||||||||
3. | Amounts and percentages of the reporting entity's total admitted assets held in bonds and preferred stocks by NAIC designation. | |||||||||||||
Bonds | 1 | 2 | ||||||||||||
3.01 | NAIC-1 | $ | 37,252,689 | 25.0% | ||||||||||
3.02 | NAIC-2 | 5,783,253 | 3.9% | |||||||||||
3.03 | NAIC-3 | - | 0.0% | |||||||||||
3.04 | NAIC-4 | - | 0.0% | |||||||||||
3.05 | NAIC-5 | - | 0.0% | |||||||||||
3.06 | NAIC-6 | - | 0.0% | |||||||||||
Preferred Stocks | 3 | 4 | ||||||||||||
3.07 | P/RP-1 | $ | - | 0.0% | ||||||||||
3.08 | P/RP-2 | - | 0.0% | |||||||||||
3.09 | P/RP-3 | - | 0.0% | |||||||||||
3.10 | P/RP-4 | - | 0.0% | |||||||||||
3.11 | P/RP-5 | - | 0.0% | |||||||||||
3.12 | P/RP-6 | - | 0.0% | |||||||||||
4. | Assets held in foreign investments: | |||||||||||||
4.01 | Are assets held in foreign investments less than 2.5% of the reporting entity's total | Yes ☐ No ☒ | ||||||||||||
admitted assets? If response to 4.01 above is yes, responses are not provided for interrogatories 5-10. | ||||||||||||||
4.02 | Total admitted assets held in foreign investments | $ | 3,920,661 | 2.6% | ||||||||||
4.03 | Foreign-currency-denominated investments | - | 0.0% | |||||||||||
4.04 | Insurance liabilities denominated in that same foreign currency | - | 0.0% | |||||||||||
5. | Aggregate foreign investment exposure categorized by NAIC sovereign designation: | |||||||||||||
1 | 2 | |||||||||||||
5.01 | Countries designated NAIC-1 | $ | 3,920,661 | 2.6% | ||||||||||
5.02 | Countries designated NAIC-2 | - | 0.0% | |||||||||||
5.03 | Countries designated NAIC-3 or below | - | 0.0% |
46 |
MEMBERS Life Insurance Company Supplemental Investment Risks Interrogatories Year Ended December 31, 2023 |
6. | Two largest foreign investment exposures by country, categorized by the country's NAIC sovereign designation: | |||||||||||||
1 | 2 | |||||||||||||
Countries designated NAIC-1: | ||||||||||||||
6.01 | Country 1: United Kingdom | $ | 1,971,068 | 1.3% | ||||||||||
6.02 | Country 2: Australia | 1,000,000 | 0.7% | |||||||||||
Countries designated NAIC-2: | ||||||||||||||
6.03 | Country 1: | $ | - | 0.0% | ||||||||||
6.04 | Country 2: | - | 0.0% | |||||||||||
Countries designated NAIC-3 or below: | ||||||||||||||
6.05 | Country 1: | $ | - | 0.0% | ||||||||||
6.06 | Country 2: | - | 0.0% | |||||||||||
7. | Aggregate unhedged foreign currency exposure: | $ | - | 0.0% | ||||||||||
8. | Aggregate unhedged foreign currency exposure categorized by NAIC sovereign designation: | |||||||||||||
1 | 2 | |||||||||||||
8.01 | Countries rated NAIC-1 | $ | - | 0.0% | ||||||||||
8.02 | Countries rated NAIC-2 | - | 0.0% | |||||||||||
8.03 | Countries rated NAIC-3 or below | - | 0.0% | |||||||||||
9. | Largest unhedged foreign currency exposures by country, categorized by the country's NAIC sovereign designation: | |||||||||||||
Countries designated NAIC-1: | 1 | 2 | ||||||||||||
9.01 | Country 1: | $ | - | 0.0% | ||||||||||
9.02 | Country 2: | - | 0.0% | |||||||||||
Countries designated NAIC-2: | ||||||||||||||
9.03 | Country 1: | $ | - | 0.0% | ||||||||||
9.04 | Country 2: | - | 0.0% | |||||||||||
Countries designated NAIC-3 or below: | ||||||||||||||
9.05 | Country 1: | $ | - | 0.0% | ||||||||||
9.06 | Country 2: | - | 0.0% | |||||||||||
10. | Ten largest non-soverign (i.e. non-governmental) foreign issues: | |||||||||||||
1 | 2 | |||||||||||||
Issuer | NAIC Rating | 3 | 4 | |||||||||||
10.01 | National Australia Bank, Ltd. | 2 | $ | 1,000,000 | 0.7% | |||||||||
10.02 | Linde PLC | 1 | 990,010 | 0.7% | ||||||||||
10.03 | Barclays PLC | 2 | 981,058 | 0.7% | ||||||||||
10.04 | CNH Industrial NV | 2 | 949,593 | 0.6% | ||||||||||
10.05 | - | 0.0% | ||||||||||||
10.06 | - | 0.0% | ||||||||||||
10.07 | - | 0.0% | ||||||||||||
10.08 | - | 0.0% | ||||||||||||
10.09 | - | 0.0% | ||||||||||||
10.10 | - | 0.0% |
47 |
MEMBERS Life Insurance Company |
Supplemental Investment Risks Interrogatories |
Year Ended December 31, 2023 |
11. | Amounts and percentages of the reporting entity’s total admitted assets held in Canadian investments and unhedged Canadian currency exposure: | |||||
11.01 | Are assets held in Canadian investments less than 2.5% of the reporting entity’s total admitted assets? | Yes ☒ No ☐ | ||||
If response to 11.01 is yes, detail is not provided for the remainder of Interrogatory 11. | ||||||
11.02 | Total admitted assets held in Canadian Investments | $ | - | 0.000% | ||
11.03 | Canadian currency-denominated investments | - | 0.000% | |||
11.04 | Canadian-denominated insurance liabilities | - | 0.000% | |||
11.05 | Unhedged Canadian currency exposure | - | 0.000% | |||
12. | Report aggregate amounts and percentages of the reporting entity’s total admitted assets held in investments with contractual sales restrictions. | |||||
12.01 | Are assets held in investments with contractual sales restrictions less than 2.5% of the reporting entity’s total admitted assets? | |||||
Yes ☒ No ☐ | ||||||
If response to 12.01 is yes, responses are not provided for the remainder of Interrogatory 12. |
13. | Amounts and percentages of admitted assets held in the ten largest equity interests: | |||
13.01 | Are assets held in equity interest less than 2.5% of the reporting entity’s total admitted assets? | Yes ☒ No ☐ | ||
If response to 13.01 above is yes, responses are not provided for the remainder of Interrogatory 13. |
1 | 2 | 3 | |||||
Issuer | |||||||
13.02 | - | $ | - | 0.000% | |||
13.03 | - | - | 0.000% | ||||
13.04 | - | - | 0.000% | ||||
13.05 | - | - | 0.000% | ||||
13.06 | - | - | 0.000% | ||||
13.07 | - | - | 0.000% | ||||
13.08 | - | - | 0.000% | ||||
13.09 | - | - | 0.000% | ||||
13.10 | - | - | 0.000% | ||||
13.11 | - | - | 0.000% |
14. | Amounts and percentages of the reporting entity’s total admitted assets held in nonaffiliated, privately placed equities: | |||
14.01 | Are assets held in nonaffiliated, privately placed equities less than 2.5% of the reporting entity’s total admitted assets? | Yes ☒ No ☐ | ||
If response to 14.01 above is yes, responses are not required for 14.02 through 14.05. | ||||
1 | 2 | 3 | ||||||
14.02 | Aggregate statement value of investments held in nonaffiliated, privately placed equities: | $ | - | 0.0% | ||||
Largest three investments held in nonaffiliated, privately placed equities: | ||||||||
14.03 | - | $ | - | 0.0% | ||||
14.04 | - | - | 0.0% | |||||
14.05 | - | - | 0.0% | |||||
Ten largest fund managers: |
1 | 2 | 3 | 4 | |||||||||||
Fund Manager | Total Invested | Diversified | Nondiversified | |||||||||||
14.06 | Allspring | $ | 58,101,515 | $ | 58,101,515 | $ | - | |||||||
14.07 | Wells Fargo Funds | 50,000 | 50,000 | - | ||||||||||
14.08 | State Street Global Advisors | 14,107 | 14,107 | - | ||||||||||
14.09 | - | - | - | |||||||||||
14.10 | - | - | - | |||||||||||
14.11 | - | - | - | |||||||||||
14.12 | - | - | - | |||||||||||
14.13 | - | - | - | |||||||||||
14.14 | - | - | - | |||||||||||
14.15 | - | - | - |
MEMBERS LIFE INSURANCE COMPANY
Supplemental Investment Risks Interrogatories
Year Ended December 31, 2023
15. | Amounts and percentages of the reporting entity’s total admitted assets held in general partnership interests: |
15.01 | Are assets held in general partnership interests less than 2.5% of the reporting entity's total admitted assets? | ||
Yes ☒ No ☐ | |||
If response to 15.01 above is yes, responses are not provided for the remainder of Interrogatory 15. |
1 | 2 | 3 | |||||||||
15.02 | Aggregate statement value of investments held in general partnership interests: | $ | - | 0.0 | % | ||||||
Largest three investments in general partnership interests: | |||||||||||
15.03 | - | $ | - | 0.0 | % | ||||||
15.04 | - | - | 0.0 | % | |||||||
15.05 | - | - | 0.0 | % |
16. | Amounts and percentages of the reporting entity's total admitted assets held in mortgage loans: | ||
16.01 | Are mortgage loans reported in Schedule B less than 2.5% of the reporting entity's total admitted assets? If response to 16.01 above is yes, responses are not provided for the remainder of Interrogatory 16 and Interrogatory 17. | Yes ☒ No ☐ |
1 | 2 | 3 | |||||||||
Type (Residential, Commercial, Agricultural) | |||||||||||
16.02 | - | $ | - | 0.000 | % | ||||||
16.03 | - | - | 0.000 | % | |||||||
16.04 | - | - | 0.000 | % | |||||||
16.05 | - | - | 0.000 | % | |||||||
16.06 | - | - | 0.000 | % | |||||||
16.07 | - | - | 0.000 | % | |||||||
16.08 | - | - | 0.000 | % | |||||||
16.09 | - | - | 0.000 | % | |||||||
16.10 | - | - | 0.000 | % | |||||||
16.11 | - | - | 0.000 | % |
Amount and percentage of the reporting entity's total admitted assets held in the following categories of mortgage loans: |
Loans | ||||||||||
16.12 | Construction loans | $ | - | 0.000 | % | |||||
16.13 | Mortgage loans over 90 days past due | - | 0.000 | % | ||||||
16.14 | Mortgage loans in the process of foreclosure | - | 0.000 | % | ||||||
16.15 | Mortgage loans foreclosed | - | 0.000 | % | ||||||
16.16 | Restructured mortgage loans | - | 0.000 | % | ||||||
17. | Aggregate mortgage loans having the following loan-to-value ratios as determined from the most current appraisal as of the annual statement date: |
Residential | Commercial | Agricultural | |||||||||||||||||||||||||
Loan-to-Value | 1 | 2 | 3 | 4 | 5 | 6 | |||||||||||||||||||||
17.01 | above 95% | $ | - | 0.000 | % | $ | - | 0.000 | % | $ | - | 0.000 | % | ||||||||||||||
17.02 | 91% to 95% | - | 0.000 | % | - | 0.000 | % | - | 0.000 | % | |||||||||||||||||
17.03 | 81% to 90% | - | 0.000 | % | - | 0.000 | % | - | 0.000 | % | |||||||||||||||||
17.04 | 71% to 80% | - | 0.000 | % | - | 0.000 | % | - | 0.000 | % | |||||||||||||||||
17.05 | below 70% | - | 0.000 | % | - | 0.000 | % | - | 0.000 | % |
49 |
MEMBERS LIFE INSURANCE COMPANY
Supplemental Investment Risks Interrogatories
Year Ended December 31, 2023
18. | Amounts and percentages of the reporting entity's total admitted assets held in each of the five largest investments in real estate: | ||
18.01 | Are assets held in real estate reported less than 2.5% of the reporting entity's total admitted assets? | ||
Yes ☒ No ☐ | |||
If response to 18.01 above is yes, responses are not provided for the remainder of Interrogatory 18. | |||
Largest five investments in any one parcel or group of contiguous parcels of real estate. |
Description | 2 | 3 | |||||||||
18.02 | - | $ | - | 0.000 | % | ||||||
18.03 | - | - | 0.000 | % | |||||||
18.04 | - | - | 0.000 | % | |||||||
18.05 | - | - | 0.000 | % | |||||||
18.06 | - | - | 0.000 | % |
19. | Report aggregate amounts and percentages of the reporting entity's total admitted assets held in investments held in mezzanine real estate loans. | ||
19.01 | Are assets held in investments held in mezzanine real estate loans less than 2.5% of the reporting entity's admitted assets? | Yes ☒ No ☐ | |
If response to 19.01 is yes, responses are not provided for the remainder of Interrogatory 19. |
1 | 2 | 3 | |||||||||
19.02 | Aggregate statement value of investments held in mezzanine real estate loans: | $ | - | 0.000 | % | ||||||
Largest three investments held in mezzanine real estate loans. | |||||||||||
19.03 | $ | - | 0.000 | % | |||||||
19.04 | - | 0.000 | % | ||||||||
19.05 | - | 0.000 | % |
20. | Amounts and percentages of the reporting entity's total admitted assets subject to the following types of agreements: |
At Year-End | At End of Each Quarter | |||||||||||||||||||||
1st Qtr | 2nd Qtr | 3rd Qtr | ||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | ||||||||||||||||||
20.01 | Securities lending agreements (do not include assets | |||||||||||||||||||||
held as collateral for such transactions) | $ | - | 0.000 | % | $ | - | $ | - | $ | - | ||||||||||||
20.02 | Repurchase agreements | - | 0.000 | % | - | - | - | |||||||||||||||
20.03 | Reverse repurchase agreements | - | 0.000 | % | - | - | - | |||||||||||||||
20.04 | Dollar repurchase agreements | - | 0.000 | % | - | - | - | |||||||||||||||
20.05 | Dollar reverse repurchase agreements | - | 0.000 | % | - | - | - |
21. | Amounts and percentages of the reporting entity's total admitted assets for warrants not attached to other financial instruments, options, caps and floors: |
Owned | Written | |||||||||||||||||||||
1 | 2 | 3 | 4 | |||||||||||||||||||
21.01 | Hedging | $ | - | 0.000 | % | $ | - | 0.000 | % | |||||||||||||
21.02 | Income generation | - | 0.000 | % | - | 0.000 | % | |||||||||||||||
21.03 | Other | - | 0.000 | % | - | 0.000 | % |
22. | Amounts and percentages of the reporting entity's total admitted assets of potential exposure for collars, swaps, and forwards: |
At Year-End | At End of Each Quarter | |||||||||||||||||||||
1st Qtr | 2nd Qtr | 3rd Qtr | ||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | ||||||||||||||||||
22.01 | Hedging | $ | - | 0.000 | % | $ | - | $ | - | $ | - | |||||||||||
22.02 | Income generation | - | 0.000 | % | - | - | - | |||||||||||||||
22.03 | Replications | - | 0.000 | % | - | - | - | |||||||||||||||
22.04 | Other | - | 0.000 | % | - | - | - |
50 |
MEMBERS LIFE INSURANCE COMPANY
Supplemental Investment Risks Interrogatories
Year Ended December 31, 2023
23. | Amounts and percentages of the reporting entity's total admitted assets of potential exposure for futures contracts: |
At Year-End | At End of Each Quarter | |||||||||||||||||||||
1st Qtr | 2nd Qtr | 3rd Qtr | ||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | ||||||||||||||||||
23.01 | Hedging | $ | - | 0.000 | % | $ | - | $ | - | $ | - | |||||||||||
23.02 | Income generation | - | 0.000 | % | - | - | - | |||||||||||||||
23.03 | Replications | - | 0.000 | % | - | - | - | |||||||||||||||
23.04 | Other | - | 0.000 | % | - | - | - |
51 |
APPENDIX A: UNDERLYING FUNDS AVAILABLE UNDER THE CONTRACT
The following is a list of the Funds available under the Contract. More information about the Funds is available in the prospectuses for the Funds, which may be amended from time to time and can be found online at https://www.trustage.com/business-solutions/annuities/horizon-ii-annuity. You can also request this information at no cost by calling 1-800-798-5500 or by sending an email request to AnnuityAndPRTManagersMail@trustage.com.
The current expenses and performance information below reflects fees and expenses of the Funds, but do not reflect the other fees and expenses that your Contract may charge. Expenses would be higher and performance would be lower if these other charges were included. Each Fund’s past performance is not necessarily an indication of future performance.
Investment Objective | Fund and Adviser/Subadviser | Current Expenses | Average Annual Total Returns (as of 12/31/23) | ||
1 Year | 5 Year | 10 Year | |||
Total return through growth of capital and current income | Invesco V.I. Global Real Estate Fund (Series I) (4) Invesco Advisers, Inc. (Adviser) Invesco Asset Management Ltd. (Subadviser) | 1.02% | 9.05% | 2.11% | 3.10% |
Long-term growth of capital | Invesco V.I. Small Cap Equity Fund (Series I) Invesco Advisers, Inc. (Adviser) | 0.95% | 16.57% | 12.44% | 6.55% |
Capital appreciation | Invesco Oppenheimer V.I. International Growth Fund (Series I) Invesco Advisers, Inc. (Adviser) | 1.00% | 21.06% | 8.72% | 3.80% |
High total return (including income and capital gains) consistent with preservation of capital over the long-term | American Funds IS Asset Allocation Fund (Class 1) Capital Research and Management Company (Adviser) | 0.55% | 14.55% | 9.47% | 7.51% |
Provide as high a level of current income as is consistent with the preservation of capital | American Funds IS The Bond Fund of America (Class 1) Capital Research and Management Company (Adviser) | 0.48% | 5.21% | 2.14% | 2.33% |
Growth of capital | American Funds IS Growth Fund (Class 1) Capital Research and Management Company (Adviser) | 0.59% | 38.81% | 18.97% | 14.64% |
High level of current income; capital appreciation is the secondary objective | American Funds IS American High-Income Trust (Class 1) Capital Research and Management Company (Adviser) | 0.57% | 12.69% | 6.36% | 4.67% |
Investment Objective | Fund and Adviser/Subadviser | Current Expenses | Average Annual Total Returns (as of 12/31/23) | ||
1 Year | 5 Year | 10 Year | |||
Long-term growth of capital | American Funds IS International Fund (Class 1) Capital Research and Management Company (Adviser) | 0.78% | 16.12% | 5.10% | 3.67% |
High total investment return | BlackRock Global Allocation V.I. Fund (Class I) BlackRock Advisors, LLC (Adviser) BlackRock International Limited | 0.79% | 12.83% | 7.65% | 4.88% |
High total return through current income and, secondarily, through capital appreciation | Columbia VP Emerging Markets Bond Fund (Class 1) Columbia Management Investment Advisers, LLC (Adviser) | 0.76% | 10.43% | 1.82% | 2.47% |
Long-term capital appreciation | DFA VA International Small Portfolio Dimensional Fund Advisors LP (Adviser) | 0.40% | 14.11% | 7.86% | 4.89% |
Long-term capital appreciation | DFA VA International Value Portfolio Dimensional Fund Advisors LP (Adviser) | 0.27% | 17.86% | 8.87% | 4.16% |
Long-term capital appreciation | DFA VA U.S. Large Value Portfolio Dimensional Fund Advisors LP (Adviser) | 0.21% | 10.92% | 10.71% | 8.10% |
Long-term capital appreciation | DFA VA U.S. Targeted Value Portfolio Dimensional Fund Advisors LP (Adviser) | 0.29% | 20.03% | 15.40% | 9.00% |
Long-term capital growth | Templeton Foreign VIP Fund (Class 1) Templeton Investment Counsel, LLC (Adviser) | 0.82% | 21.09% | 5.54% | 1.54% |
High current income, consistent with preservation of capital; capital appreciation is a secondary objective | Templeton Global Bond VIP Fund (Class 1) (4) Franklin Advisors, Inc. (Adviser) | 0.52% | 3.19% | -1.89% | -0.41% |
Seeks a total return consisting of capital appreciation and income | Goldman Sachs VIT Core Fixed Income Fund (Institutional) Goldman Sachs Asset Management, L.P. (Adviser) | 0.62% | 6.08% | 1.37% | 1.88% |
Investment Objective | Fund and Adviser/Subadviser | Current Expenses | Average Annual Total Returns (as of 12/31/23) | ||
1 Year | 5 Year | 10 Year | |||
Long-term capital appreciation | Lazard Retirement Emerging Markets Equity Portfolio (Investor) Lazard Asset Management LLC (Adviser) | 1.17% | 22.61% | 5.26% | 2.29% |
Total return with emphasis on current income, but also considering capital appreciation | MFS Total Return Bond Series (Initial Class) Massachusetts Financial Services Company (Adviser) | 0.53% | 7.38% | 1.85% | 2.22% |
Total return | MFS Utilities Series (Initial Class) Massachusetts Financial Services Company (Adviser) | 0.79% | -2.11% | 8.31% | 6.39% |
Capital appreciation | MFS Value Series (Initial Class) Massachusetts Financial Services Company (Adviser) | 0.69% | 7.93% | 11.34% | 8.52% |
Capital appreciation | MFS Blended Research Small Cap Equity Portfolio (Initial Class) Massachusetts Financial Services Company (Adviser) | 0.51% | 18.96% | 10.28% | 8.27% |
Capital appreciation and current income | Morgan Stanley Variable Insurance Fund, Inc. Global Infrastructure Portfolio (Class I) Morgan Stanley Investment Management Inc. (Adviser) | 0.87% | 4.55% | 6.86% | 5.25% |
Long-term capital appreciation by investing primarily in growth-oriented equity securities of large capitalization companies | Morgan Stanley Variable Insurance Fund, Inc. Growth Portfolio (Class I) Morgan Stanley Investment Management Inc. (Adviser) | 0.57% | 48.66% | 11.22% | 11.90% |
Capital appreciation | TOPS Aggressive Growth ETF Portfolio (Class 1)(1) ValMark Advisers, Inc. (Adviser) | 0.29% | 17.77% | 10.83% | 7.69% |
Income and capital appreciation | TOPS Balanced ETF Portfolio (Class 1)(1) ValMark Advisers, Inc. (Adviser) | 0.30% | 11.75% | 6.67% | 4.87% |
Preserve capital and provide moderate income and moderate capital appreciation | TOPS Conservative ETF Portfolio (Class 1)(1) ValMark Advisers, Inc. (Adviser) | 0.31% | 9.48% | 5.11% | 3.64% |
Investment Objective | Fund and Adviser/Subadviser | Current Expenses | Average Annual Total Returns (as of 12/31/23) | ||
1 Year | 5 Year | 10 Year | |||
Capital appreciation | TOPS Growth ETF Portfolio (Class 1)(1) ValMark Advisers, Inc. (Adviser) | 0.29% | 16.41% | 9.75% | 6.81% |
Capital appreciation | TOPS Moderate Growth ETF Portfolio (Class 1)(1) ValMark Advisers, Inc. (Adviser) | 0.29% | 13.81% | 8.23% | 5.86% |
Maximum real return, consistent with prudent investment management | PIMCO Commodity Real Return Strategy Portfolio (Institutional Class) Pacific Investment Management Company LLC (Adviser) | 1.49% | -7.74% | 8.70% | -0.67% |
Maximum real return, consistent with preservation of real capital and prudent investment management | PIMCO VIT All Asset Portfolio (Institutional Class) Pacific Investment Management Company LLC (Adviser) | 2.13% | 8.28% | 6.16% | 4.19% |
Maximum real return, consistent with preservation of real capital and prudent investment management | PIMCO VIT Real Return Portfolio (Institutional Class) Pacific Investment Management Company LLC (Adviser) | 0.69% | 3.83% | 3.31% | 2.40% |
Seeks high current income. Capital growth is a secondary goal when consistent with achieving high current income | Putnam VT High Yield Fund (IA) Putnam Investment Management, LLC (Adviser) | 0.75% | 12.29% | 4.82% | 3.87% |
Long-term capital growth; income is a secondary objective | T. Rowe Price Blue Chip Growth Portfolio (Class I) T. Rowe Price Associates (Adviser) | 0.76% | 49.29% | 13.50% | 12.31% |
Long-term capital appreciation, using a fundamental approach to invest in growth-oriented companies at attractive valuation level | Vanguard VIF Capital Growth Portfolio PRIMECAP Management Company (Adviser) | 0.34% | 27.98% | 14.33% | 12.85% |
Long-term capital appreciation and income growth, with reasonable current income | Vanguard VIF Diversified Value Portfolio Hotchkis and Wiley Capital Management, LLC and Lazard Asset Management LLC (Subadviser) | 0.29% | 20.13% | 14.28% | 9.27% |
Investment Objective | Fund and Adviser/Subadviser | Current Expenses | Average Annual Total Returns (as of 12/31/23) | ||
1 Year | 5 Year | 10 Year | |||
Seeks to track the investment performance of the Standard & Poor’s 500 Index, an unmanaged benchmark representing U.S. large-capitalization stocks | Vanguard VIF Equity Index Portfolio The Vanguard® Group, Inc. (Adviser) | 0.14% | 26.11% | 15.52% | 11.88% |
High and sustainable level of current income by investing primarily in below-investment-grade corporate securities offering attractive yields | Vanguard VIF High Yield Bond Portfolio The Vanguard® Group, Inc. (Adviser) Wellington Management Company LLP (Subadvisor) | 0.24% | 11.66% | 5.13% | 4.34% |
Long-term capital appreciation through broadly diversified exposure to the major equity markets outside the United States | Vanguard VIF International Portfolio Baillie Gifford Overseas, Ltd and Schroder Investment Mgt North America Inc (Subadviders) | 0.33% | 14.65% | 10.28% | 6.80% |
Seeks to track the investment performance of the CRSP US Mid Cap Index, an unmanaged benchmark representing medium-size U.S. firms | Vanguard VIF Mid-Cap Index Portfolio The Vanguard® Group, Inc. (Adviser) | 0.17% | 15.83% | 12.56% | 9.27% |
Seeks to provide current income, while maintaining a stable $1 NAV and a very short maturity | Vanguard VIF Money Market Portfolio The Vanguard® Group, Inc. (Adviser) | 0.15% | 5.05% | 1.86% | 1.30% |
Seeks to track the investment performance of the MSCI US REIT Index, which covers approximately two-thirds of the U.S. real estate investment trust (REIT) market | Vanguard VIF Real Estate Index Portfolio The Vanguard® Group, Inc. (Adviser) | 0.26% | 11.70% | 7.18% | 7.29% |
Long-term capital appreciation by investing in a broad universe of small-company growth stocks | Vanguard VIF Small Company Growth Portfolio(2) The Vanguard® Group, Inc. (Adviser) ArrowMark Partners (Subadviser) | 0.29% | 19.65% | 9.98% | 7.85% |
Seeks to track the investment performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index, an unmanaged benchmark representing the broad U.S. bond market | Vanguard VIF Total Bond Market Index Portfolio The Vanguard® Group, Inc. (Adviser) | 0.14% | 5.58% | 1.04% | 1.71% |
Investment Objective | Fund and Adviser/Subadviser | Current Expenses | Average Annual Total Returns (as of 12/31/23) | ||
1 Year | 5 Year | 10 Year | |||
Seeks to track the investment performance of the Standard and Poor’s Total Market Index, an unmanaged benchmark representing the overall U.S. equity market | Vanguard VIF Total Stock Market Index Portfolio The Vanguard® Group, Inc. (Adviser) | 0.13% | 25.95% | 14.93% | 11.29% |
(1) The Fund operates as a fund of funds.
(2) The Vanguard Group, Inc. has requested that the Company no longer make the Vanguard VIF Small Company Growth Portfolio available for new investments. Existing contract owners with allocation to the Vanguard VIF Small Company Growth Portfolio can continue to invest in the portfolio.
(3) These Funds and their investment advisers have entered into contractual fee waivers or expense reimbursement arrangements. The temporary fee reductions are reflected in their annual expenses. Those contractual arrangements are designed to reduce total annual Fund operating expenses for Contract Owners and will continue past the current year.
(4) Effective May 1, 2022, these Funds are no longer available for new investments. Existing contract owners with allocation to these Funds can continue to invest in the portfolios.
(5) Current expenses as of February 28, 2023.
APPENDIX B: 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 |
● | The Series B Contract is purchased; therefore, the Contract Fee is 1.50%. |
● | Money is allocated to the Variable Subaccounts and S&P 500 Risk Control Accounts. |
● | There have been no additional Purchase Payments. |
● | A gross withdrawal of $20,000.00 is taken |
Assume the following information as it relates to the Variable Subaccounts:
● | As of the withdrawal date, there are 1,012.09 Variable Subaccount Accumulation Units with an Accumulation Unit Value of $10.560000. |
Assume the following information as it relates to the Risk Control Accounts:
● | The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a 7.00% Index Rate Cap. |
● | The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and a 17.00% 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 Risk Control Account 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 Risk Control Account 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 the Risk Control Account 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 Risk Control Account Start Date, the 5-year Constant Maturity Treasury Rate (I) was 2.50% and the |
● | At the time of the withdrawal the Constant Maturity Treasury Rate for the remaining Index period (J) is 2.90% and the |
● | At the time of the withdrawal there are 3.50137 years remaining in the Risk Control Account Period (N). |
A-1
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.
(1) | (2) | (3) | ||||||
Units / | Unit Value / | Contract Value | ||||||
Accumulation | Accumulation | at time of | ||||||
Account | Credits | Credit Factor | Withdrawal | |||||
Variable Subaccounts | 1,012.09 | $10.56 | $10,687.67 | |||||
S&P 500 Secure Risk Control Account | 5,940.59 | $10.731042 | $63,748.72 | |||||
S&P 500 Growth Risk Control Account | 3,902.44 | $11.915414 | $46,499.19 | |||||
Total | $120,935.58 |
(1) | (2) | (3) | |
Account | Units / Accumulation Credits | Unit Value / Accumulation Credit Factor | Contract Value at time of Withdrawal |
Variable Subaccounts | 1,012.09 | $10.56 | $10,687.67 |
S&P 500 Secure Risk Control Account | 5,940.59 | $10.731042 | $63,748.72 |
S&P 500 Growth Risk Control Account | 3,902.44 | $11.915414 | $46,499.19 |
Total | $120,935.58 |
(1),(2),(3)
The current Variable Subaccounts Value is 1,012.09 x $10.56 which equals $10,687.67.
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 1.07 for the S&P 500 Secure Risk Control Account and 1.17 for the S&P 500 Growth Risk Control Account.
The Risk Control Account Daily Contract Fee is calculated as 1.50% divided by the number of days in the Risk Control Account Year multiplied by the Accumulation Credit Factor at the start of the Risk Control Account Year (1.50% / 365 x 10.1 for the S&P 500 Secure Risk Control Account and 1.50% / 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 Risk Control Account 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 Risk Control Account 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 1.07 – ((1.50% / 365 x 10.1) x 183) which equals $10.731042. The current S&P 500 Secure Risk Control Account Contract Value is then calculated as 5,940.59 x $10.731042 which equals $63,748.72.
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 1.17 – ((1.50% / 365 x $10.25) x 183) which equals $11.915414. The current S&P 500 Growth Risk Control Account Contract Value is then calculated as 3,902.44 x $11.915414 which equals $46,499.19.
A-2
Next, we calculate the gross withdrawal from each account.
(4) | |
Account | Gross Withdrawal |
Variable Subaccounts | $10,687.67 |
S&P 500 Secure Risk Control Account | $5,384.67 |
S&P 500 Growth Risk Control Account | $3,927.66 |
Total | $20,000.00 |
(4)
Withdrawal of Risk Control Account Value is not permitted while there is Variable Subaccount Value. Therefore, the withdrawal of $20,000.00 will first be taken from the Variable Subaccounts. The Variable Subaccount Value of $10,687.67 is insufficient to cover the gross withdrawal, and there is no Holding Account Value. Therefore, the remaining withdrawal of $9,312.33 will be taken Pro Rata from the Risk Control Accounts.
The Pro Rata withdrawal from the S&P 500 Secure Risk Control Account is the Contract Value in this account divided by the total S&P 500 Risk Control Account Contract Value multiplied by the Risk Control Account withdrawal. This is calculated as $63,748.72 / $110,247.91 x $9,312.33 which equals $5,384.67. The Pro Rata withdrawal from the S&P 500 Growth Risk Control Account is calculated the same way to be $46,499.19 / $110,247.91 x $9,312.33 which equals $3,927.66.
Next, we calculate the net withdrawal from each account.
(5) | (6) | (7) | (8) | (9) | ||||||||||
Withdrawal | ||||||||||||||
Withdrawal | Subject to | |||||||||||||
Subject to | Surrender | Surrender | Net | |||||||||||
Account | MVA | MVA | Charge | Charge | Withdrawal | |||||||||
Variable Subaccounts | $0.00 | $0.00 | $687.67 | $61.89 | $10,625.78 | |||||||||
S&P 500 Secure Risk Control Account | $5,384.67 | ($84.80) | $5,384.67 | $484.62 | $4,815.25 | |||||||||
S&P 500 Growth Risk Control Account | $3,927.66 | ($56.53) | $3,927.66 | $353.49 | $3,517.64 | |||||||||
Total | $9,312.33 | ($141.33) | $10,000.00 | $900.00 | $18,958.67 |
(5) | (6) | (7) | (8) | (9) | |
Account | Withdrawal Subject to MVA | MVA | Withdrawal Subject to Surrender Charge | Surrender Charge | Net Withdrawal |
Variable Subaccounts | $0.00 | $0.00 | $687.67 | $61.89 | $10,625.78 |
S&P 500 Secure Risk Control Account | $5,384.67 | ($84.80) | $5,384.67 | $484.62 | $4,815.25 |
S&P 500 Growth Risk Control Account | $3,927.66 | ($56.53) | $3,927.66 | $353.49 | $3,517.64 |
Total | $9,312.33 | ($141.33) | $10,000.00 | $900.00 | $18,958.67 |
(5)
100% of the withdrawal from a Risk Control Account is subject to the MVA. The MVA does not apply to Variable Subaccounts.
(6)
The MVA equals (W/(C/P)) x (MVAF - 1), where W is the amount of withdrawal from the Risk Control Account Value, C is the Current Accumulation Credit Factor for the Risk Control Account, and P is Prior Accumulation Credit Factor for the Risk Control Account. At the time of the withdrawal there are 3.50137 years remaining in the Risk Control Account Period (N). Therefore, MVAF = ((1 + I + K)/(1 + J + L))^N = ((1 + 2.50%
A-3
+ 2.90% + 1.10%))^3.50137 = 0.983267.
For the S&P 500 Secure Risk Control Account, the MVA is ($5,384.67 / ($10.731042 / $10.10) x (0.983267 - 1) which equals -$84.80. For the S&P 500 Growth Risk Control Account, the MVA is ($3,927.66 / ($11.915414 / $10.25) x (0.983267 - 1) which equals -$56.53.
(7)
The amount of the withdrawal that is free of Surrender Charges is equal to 10% of the Purchase Payments received that are within the Surrender Charge Period. Because there have been no additional Purchase Payments and no prior withdrawals, the amount of the withdrawal that is free of Surrender Charge at the time of the withdrawal is equal to 10% x $100,000.00 which equals $10,000.00. The gross withdrawal is $20,000.00, and Purchase Payments are withdrawn before earnings, so the amount of the withdrawal subject to a Surrender Charge is calculated as $20,000.00 - $10,000.00 which equals $10,000.00.
Withdrawals are first taken from the Variable Subaccounts, and because $10,000.00 is free of Surrender Charge, the Surrender Charge only applies to the remaining $687.67. There is no Surrender Charge free withdrawal amount remaining, so a Surrender Charge applies to the entire withdrawal from the Risk Control Accounts.
(8)
It has been more than one year but less than two years since the Purchase Payment was received 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 Variable Subaccounts, the Surrender Charge is calculated as $687.67 x 9.00% which equals $61.89. For the S&P 500 Secure Risk Control Account, the Surrender Charge is calculated as $5,384.68 x 9.00% which equals $484.62. For the S&P 500 Growth Risk Control Account, the Surrender Charge is calculated as $3,927.66 x 9.00% which equals $353.49.
(9)
The net withdrawal is equal to the gross withdrawal plus the Market Value Adjustment less the Surrender Charge. For the Variable Subaccounts, the net withdrawal is calculated as $10,687.67 + $0.00 - $61.89 which equals $10,625.78. For the S&P 500 Secure Risk Control Account, the net withdrawal is calculated as $5,384.67 + -$84.80 - $484.62 which equals $4,815.25. For the S&P 500 Growth Risk Control Account, the net withdrawal is calculated as $3,927.66 + -$56.53 - $353.49 which equals $3,517.64. The total net withdrawal is the sum of the three accounts, $18,958.67.
A-4
Next, we calculate the Accumulation Units, Accumulation Credits, and Contract Value remaining after the withdrawal.
(10) | (11) | ||||
Units / | Contract | ||||
Accumulation Credits | Value after | ||||
Account | After Withdrawal | Withdrawal | |||
Variable Subaccounts | 0.00 | $0.00 | |||
S&P 500 Secure Risk Control Account | 5,438.81 | $58,364.10 | |||
S&P 500 Growth Risk Control Account | 3,572.81 | $42,571.51 | |||
Total | $100,935.61 |
(10) | (11) | |
Account | Units / Accumulation Credits After Withdrawal | Contract Value after Withdrawal |
Variable Subaccounts | 0.00 | $0.00 |
S&P 500 Secure Risk Control Account | 5,438.81 | $58,364.10 |
S&P 500 Growth Risk Control Account | 3,572.81 | $42,571.51 |
Total | $100,935.61 |
(10)
The number of Accumulation Units/Accumulation Credits remaining after the withdrawal is equal to the number of Accumulation Units/Accumulation Credits prior to the withdrawal minus the result of the gross withdrawal from the account divided by the Accumulation Unit Value/Accumulation Credit Factor as of the withdrawal date. For the Variable Subaccounts, this is calculated as 1,012.09 - ($10,687.67 / $10.56) which equals 0.00. For the S&P 500 Secure Risk Control Account, this is calculated as 5,940.59 - ($5,384.67 / $10.7310742) which equals 5,438.81. For the S&P 500 Growth Risk Control Account, this is calculated as 3,902.44 - ($3,927.66 / $11.915414) which equals 3,572.81.
(11)
The Contract Value remaining after the withdrawal is equal the Accumulation Unit Value/Accumulation Credit Factor as of the withdrawal date multiplied by the number of Accumulation Units/Accumulation Credits after the withdrawal. For the Variable Subaccounts, this is calculated as $10.56 x 0.00 which equals $0.00. For the S&P 500 Secure Risk Control Account, this is calculated as $10.731042 x 5,438.81 which equals $58,365.23. For the S&P 500 Growth Risk Control Account, this is calculated as $11.915414 x 3,572.81 which equals $42,571.51. The total Contract Value after the withdrawal is the sum of the three accounts, $100,935.61.
A-5Example 2: Partial Withdrawal with a Positive MVA
Assume the following information as it relates to the Contract:
● | The Contract was issued |
● | The Series B |
● | Money is allocated to the Variable Subaccounts and S&P 500 Risk Control Accounts. |
● | There have been no additional Purchase Payments. |
● | A gross withdrawal of $20,000.00 is taken |
Assume the following information as it relates to the Variable Subaccounts:
● | As of the withdrawal date, there are 1,012.09 Variable Subaccount Accumulation Units with an Accumulation Unit Value of $10.560000. | ||
Assume the following information as it relates to the Risk Control Accounts:
● | The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a 7.00% Index Rate Cap. |
● | The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and a 17.00% 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 Risk Control Account 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 Risk Control Account 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 the Risk Control Account 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 Risk Control Account Start Date, the 5-year Constant Maturity Treasury Rate (I) was 2.50% and the |
● | At the time of the withdrawal the Constant Maturity Treasury Rate for the remaining Index period (J) is 2.10% and the |
● | At the time of the withdrawal there are 3.50137 years remaining in the Risk Control Account 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.
(1) | (2) | (3) | ||||||
Units / | Unit Value / | Contract Value | ||||||
Accumulation | Accumulation | at time of | ||||||
Account | Credits | Credit Factor | Withdrawal | |||||
Variable Subaccounts | 1,012.09 | $10.56 | $10,687.67 | |||||
S&P 500 Secure Risk Control Account | 5,940.59 | $10.731042 | $63,748.19 | |||||
S&P 500 Growth Risk Control Account | 3,902.44 | $11.915414 | $46,499.19 | |||||
Total | $120,935.58 |
(1) | (2) | (3) | |
Account | Units / Accumulation Credits | Unit Value / Accumulation Credit Factor | Contract Value at time of Withdrawal |
Variable Subaccounts | 1,012.09 | $10.56 | $10,687.67 |
S&P 500 Secure Risk Control Account | 5,940.59 | $10.731042 | $63,748.72 |
S&P 500 Growth Risk Control Account | 3,902.44 | $11.915414 | $46,499.19 |
Total | $120,935.58 |
(1),(2),(3)
The current Variable Subaccounts Value is 1,012.09 x $10.56 which equals $10,687.67.
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). This is greater than (1 + the 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 1.07 for the S&P 500 Secure Risk Control Accounts and 1.17 for the S&P 500 Growth Risk Control Account.
The Risk Control Account Daily Contract Fee is calculated as 1.50% divided by the number of days in the Risk Control Account Year, multiplied by the Accumulation Credit Factor at the start of the Risk Control Account Year (1.50% / 365 x 10.1 for the S&P 500 Secure Risk Control Account and 1.50% / 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 Risk Control Account 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 Risk Control Account 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 1.07 – ((1.50% x 365 x 10.1) x 183) which equals $10.731042. The current S&P 500 Secure Risk Control Account Contract Value is then calculated as 5,940.59 x $10.731042 which equals $63,748.72.
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 ( 1.17 – ((1.50% / 365 x $10.25) x 183 which equals $11.915414. The current S&P 500 Growth Risk Control Account Contract Value is then calculated as 3,902.44 x $11.915414 which equals $46,499.19.
A-7
Next, we calculate the gross withdrawal from each account.
(4) | |
Account | Gross |
Withdrawal | |
Variable Subaccounts | $10,687.67 |
S&P 500 Secure Risk Control Account | $5,384.67 |
S&P 500 Growth Risk Control Account | $3,927.66 |
Total | $20,000.00 |
(4)
Withdrawal of Risk Control Account Value is not permitted while there is Variable Subaccount Value. Therefore, the withdrawal of $20,000.00 will first be taken from the Variable Subaccounts. The Variable Subaccount Value of $10,687.67 is insufficient to cover the gross withdrawal, and there is no Holding Account Value. Therefore, the remaining withdrawal of $9,312.33 will be taken Pro Rata from the Risk Control Accounts.
The Pro Rata withdrawal from the S&P 500 Secure Risk Control Account is the Contract Value in this account divided by the total S&P 500 Risk Control Account Contract Value multiplied by the Risk Control Account withdrawal. This is calculated as $63,748.72 / $110,247.91 x $9,312.33 which equals $5,384.67. The Pro Rata withdrawal from the S&P 500 Growth Risk Control Account is calculated the same way to be $46,499.19 / $110,247.91 x $9,312.33 which equals $3,927.66.
Next, we calculate the net withdrawal from each account.
(5) | (6) | (7) | (8) | (9) | ||||||||||
Withdrawal | ||||||||||||||
Withdrawal | Subject to | |||||||||||||
Subject to | Surrender | Surrender | Net | |||||||||||
Account | MVA | MVA | Charge | Charge | Withdrawal | |||||||||
Variable Subaccounts | $0.00 | $0.00 | $687.67 | $61.89 | $10,625.78 | |||||||||
S&P 500 Secure Risk Control Account | $5,384.67 | $86.67 | $5,384.67 | $484.62 | $4,986.72 | |||||||||
S&P 500 Growth Risk Control Account | $3,927.66 | $57.78 | $3,927.66 | $353.49 | $3,631.95 | |||||||||
Total | $9,312.33 | $144.45 | $10,000.00 | $900.00 | $19,244.45 |
(5) | (6) | (7) | (8) | (9) | |
Account | Withdrawal Subject to MVA | MVA | Withdrawal Subject to Surrender Charge | Surrender Charge | Net Withdrawal |
Variable Subaccounts | $0.00 | $0.00 | $687.67 | $61.89 | $10,625.78 |
S&P 500 Secure Risk Control Account | $5,384.67 | $86.67 | $5,384.67 | $484.62 | $4,986.72 |
S&P 500 Growth Risk Control Account | $3,927.66 | $57.78 | $3,927.66 | $353.49 | $3,631.95 |
Total | $9,312.33 | $144.45 | $10,000.00 | $900.00 | $19,244.45 |
(5)
100% of the withdrawal from a Risk Control Account is subject to the MVA. The MVA does not apply to Variable Subaccounts.
(6)
The MVA equals (W/(C/P)) x (MVAF - 1), where W is the amount of withdrawal from the Risk Control Account Value, C is the Current Accumulation Credit Factor for the Risk Control Account, and P is Prior Accumulation Credit Factor for the Risk Control Account. At the time of the withdrawal
A-8
For the S&P 500 Secure Risk Control Account, the MVA is ($5,384.67 / ($10.731042 / $10.100000) x (1.0171 - 1) which equals $86.67. For the S&P 500 Growth Risk Control Account, the MVA is ($3,927.66 / ($11.915414 / $10.25) x (1.0171 - 1) which equals $57.78.
(7)
The amount of the withdrawal that is free of Surrender Charges is equal to 10% of the Purchase Payments received that are within the Surrender Charge Period. Because there have been no additional Purchase Payments and no prior withdrawals, the amount of the withdrawal that is free of Surrender Charge at the time of the withdrawal is equal to 10% x $100,000.00 which equals $10,000.00. The gross withdrawal is $20,000.00, and Purchase Payments are withdrawn before earnings, so the amount of the withdrawal subject to a Surrender Charge is calculated as $20,000.00 - $10,000.00 which equals $10,000.00.
Withdrawals are first taken from the Variable Subaccounts, and because $10,000.00 is free of Surrender Charge, the Surrender Charge only applies to the remaining $687.67. There is no Surrender Charge free withdrawal amount remaining, so a Surrender Charge applies to the entire withdrawal from the Risk Control Accounts.
(8)
It has been more than one year but less than two years since the Purchase Payment was received 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 Variable Subaccounts, the Surrender Charge is calculated as $687.67 x 9.00% which equals $61.89. For the S&P 500 Secure Risk Control Account, the Surrender Charge is calculated as $5,384.67 x 9.00% which equals $484.62. For the S&P 500 Growth Risk Control Account, the Surrender Charge is calculated as $3,927.66 x 9.00% which equals $353.49.
(9)
The net withdrawal is equal to the gross withdrawal plus the Market Value Adjustment less the Surrender Charge. For the Variable Subaccounts, the net withdrawal is calculated as $10,687.67 + $0.00 - $61.89 which equals $10,625.78. For the S&P 500 Secure Risk Control Account, the net withdrawal is calculated as $5,384.67 + $86.67 - $484.62 which equals $4,986.72. For the S&P 500 Growth Risk Control Account, the net withdrawal is calculated as $3,927.66 + $57.78 - $353.49 which equals $3,631.95. The total net withdrawal is the sum of the three accounts, $19,244.45.
A-9
Next, we calculate the Accumulation Units, Accumulation Credits, and Contract Value remaining after the withdrawal.
(10) | (11) | ||||
Units / | Contract | ||||
Accumulation Credits | Value after | ||||
Account | After Withdrawal | Withdrawal | |||
Variable Subaccounts | 0.00 | $0.00 | |||
S&P 500 Secure Risk Control Account | 5,438.81 | $58,364.10 | |||
S&P 500 Growth Risk Control Account | 3,572.82 | $42,571.51 | |||
Total | $100,935.61 |
(10) | (11) | |
Account | Units / Accumulation Credits After Withdrawal | Contract Value after Withdrawal |
Variable Subaccounts | 0.00 | $0.00 |
S&P 500 Secure Risk Control Account | 5,438.81 | $58,364.10 |
S&P 500 Growth Risk Control Account | 3,572.82 | $42,571.51 |
Total | $100,935.61 |
(10)
The number of Accumulation Units/Accumulation Credits remaining after the withdrawal is equal to the number of Accumulation Units/Accumulation Credits prior to the withdrawal minus the result of the gross withdrawal from the account divided by the Accumulation Unit Value/Accumulation Credit Factor as of the withdrawal date. For the Variable Subaccounts, this is calculated as 1,012.09 - ($10,687.67 / $10.56) which equals 0.00. For the S&P 500 Secure Risk Control Account, this is calculated as 5,940.59 - ($5,384.67 / $10.731042) which equals 5,438.81. For the S&P 500 Growth Risk Control Account, this is calculated as 3,902.44 - ($3,927.66 / $11.915414) which equals 3,572.81.
(11)
The Contract Value remaining after the withdrawal is equal the Accumulation Unit Value/Accumulation Credit Factor as of the withdrawal date multiplied by the number of Accumulation Units/Accumulation Credits after the withdrawal. For the Variable Subaccounts, this is calculated as $10.56 x 0.00 which equals $0.00. For the S&P 500 Secure Risk Control Account, this is calculated as $10.731042 x 5,438.81 which equals $58,364.10. For the S&P 500 Growth Risk Control Account, this is calculated as $11.915414 x 3,572.81 which equals $42,571.51. The total Contract Value after the withdrawal is the sum of the three accounts, $100,935.61.
A-10Example 3: Full Surrender of Contract with a Negative MVA
Assume the following information as it relates to the Contract:
● | The Contract was issued |
● | The Series B Contract is purchase; therefore, the Contract Fee is 1.50%. |
● | Money is allocated to the Variable Subaccounts and S&P 500 Risk Control Accounts. |
● | There have been no additional Purchase Payments. |
● | A full surrender is taken |
Assume the following information as it relates to the Variable Subaccounts:
● | As of the withdrawal date, there are 1,012.09 Variable Subaccount Accumulation Units with an Accumulation Unit Value of $10.56. | ||
Assume the following information as it relates to the Risk Control Accounts:
● | The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a 7.00% Index Rate Cap. |
● | The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and a 17.00% 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 Risk Control Account 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 Risk Control Account 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 the Risk Control Account 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 Risk Control Account Start Date, the 5-year Constant Maturity Treasury Rate (I) was 2.50% and the |
● | At the time of the withdrawal the Constant Maturity Treasury Rate for the remaining Index period (J) is 2.90% and the |
● | At the time of the withdrawal there are 3.50137 years remaining in the Risk Control Account Period (N). |
A-11
We take the following steps to determine the Surrender Value (excluding taxes) payable to the Owner:
First, we calculate the Contract Value at the time of the withdrawal.
(1) | (2) | (3) | ||||||
Units / | Unit Value / | Contract Value | ||||||
Accumulation | Accumulation | at time of | ||||||
Account | Credits | Credit Factor | Withdrawal | |||||
Variable Subaccounts | 1,012.09 | $10.56 | $10,687.67 | |||||
S&P 500 Secure Risk Control Account | 5,940.59 | $10.731042 | $63,748.72 | |||||
S&P 500 Growth Risk Control Account | 3,902.44 | $11.915414 | $46,499.19 | |||||
Total | $120,935.58 |
(1) | (2) | (3) | |
Account | Units / Accumulation Credits | Unit Value / Accumulation Credit Factor | Contract Value at time of Withdrawal |
Variable Subaccounts | 1,012.09 | $10.56 | $10,687.67 |
S&P 500 Secure Risk Control Account | 5,940.59 | $10.731042 | $63,748.72 |
S&P 500 Growth Risk Control Account | 3,902.44 | $11.915414 | $46,499.19 |
Total | $120,935.58 |
(1),(2),(3)
The current Variable Subaccounts Value is 1,012.09 x $10.56 which equals $10,687.67.
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). This is greater than (1 + the 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 1.07 for the S&P 500 Secure Risk Control Account and 1.17% for the S&P 500 Growth Risk Control Account.
The Risk Control Account Daily Contract Fee is calculated as 1.50% divided by the number of days in the Risk Control Account Year multiplied by the Accumulation Credit Factor at the start of the Risk Control Account Year (1.50% / 365 x 10.1 for the S&P 500 Secure Risk Control Account and 1.50% / 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 Risk Control Account 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 Risk Control Account 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 1.07 – ((1.50% x 365 x 1.1) x 183) which equals $10.731042. The current S&P 500 Secure Risk Control Account Contract Value is then calculated as 5,940.59 x $10. 731042$10.731042 which equals $63,748.72.
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 1.17 – ((1.50% x 365 x 10.25) x 183) which equals $11.915414. The current S&P 500 Growth Risk Control Account Contract Value is then calculated as 3,902.44 x $11.915414 which equals $46,499.19.
A-12
Next, we calculate the gross withdrawal from each account.
(4) | ||
Account | Gross | |
Withdrawal | ||
Variable Subaccounts | $10,687.67 | |
S&P 500 Secure Risk Control Account | $63,748.72 | |
S&P 500 Growth Risk Control Account | $46,499.19 | |
Total | $120,935.58 |
(4)
Withdrawal of Risk Control Account Value is not permitted while there is Variable Subaccount Value. Therefore, the surrender is assumed to come from the Variable Subaccounts first and then from the Risk Control Accounts. 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.
(5) | (6) | (7) | (8) | (9) | ||||||||||
Withdrawal | Withdrawal Subject | |||||||||||||
Subject to | to Surrender | Surrender | Net | |||||||||||
Account | MVA | MVA | Charge | Charge | Withdrawal | |||||||||
Variable Subaccounts | $0.00 | $0.00 | $687.67 | $61.89 | $10,625.78 | |||||||||
S&P 500 Secure Risk Control Account | $63,748.72 | ($1,003.95) | $51,643.13 | $4,647.88 | $58,096.89 | |||||||||
S&P 500 Growth Risk Control Account | $46,499.19 | ($669.30) | $37,669.20 | $3,390.23 | $42,439.66 | |||||||||
Total | $110,247.91 | ($1,673.25) | $90,000.00 | $8,100.00 | $111,162.33 |
(5) | (6) | (7) | (8) | (9) | |
Account | Withdrawal Subject to MVA | MVA | Withdrawal Subject to Surrender Charge | Surrender Charge | Net Withdrawal |
Variable Subaccounts | $0.00 | $0.00 | $687.67 | $61.89 | $10,625.78 |
S&P 500 Secure Risk Control Account | $63,748.72 | ($1,003.95) | $51,643.13 | $4,647.88 | $58,096.89 |
S&P 500 Growth Risk Control Account | $46,499.19 | ($669.30) | $37,669.20 | $3,390.23 | $42,439.66 |
Total | $110,247.91 | ($1,673.25) | $90,000.00 | $8,100.00 | $111,162.33 |
(5)
100% of the withdrawal from a Risk Control Account is subject to the MVA. The MVA does not apply to Variable Subaccounts.
(6)
The MVA equals (W/(C/P)) x (MVAF - 1), where W is the amount of withdrawal from the Risk Control Account Value, C is the Current Accumulation Credit Factor for the Risk Control Account, and P is Prior Accumulation Credit Factor for the Risk Control Account. At the time of the withdrawal there are 3.50137 years remaining in the Risk Control Account Period (N). Therefore, MVAF = ((1 + I + K)/(1 + J + L))^N = ((1 + 2.50% + 1.00%)/(1 + 2.90% + 1.10%))^3.50137 = 0.983267.
For the S&P 500 Secure Risk Control Account, the MVA is ($63,748.72 / ($10.731042 / $10.1) x (0.983267 - 1) which equals -$1,003.95. For the S&P 500 Growth Risk Control Account, the MVA is ($46,499.19 / ($11.915414 / $10.25) x (0.983267 - 1) which equals -$669.30.
A-13
The amount of the withdrawal that is free of Surrender Charges is equal to 10% of the Purchase Payments received that are within the Surrender Charge Period. Because there have been no additional Purchase Payments and no prior withdrawals, the amount of the withdrawal that is free of Surrender Charge at the time of the withdrawal is equal to 10% x $100,000.00 which equals $10,000.00. The Purchase Payment within the Surrender Charge Period is $100,000.00, so the amount of the withdrawal subject to a Surrender Charge is calculated as $100,000.00 - $10,000.00 which equals $90,000.00.
Withdrawals are first taken from the Variable Subaccounts, and because $10,000.00 is free of Surrender Charge, the Surrender Charge only applies to the remaining $687.67. There is no Surrender Charge free withdrawal amount remaining, so a Surrender Charge applies to the Pro Rata withdrawal of the remaining Purchase payments subject to a Surrender Charge from the Risk Control Accounts. The remaining purchase Payments subject to a Surrender Charge is equal to the withdrawal subject to a Surrender Charge less the withdrawal from the Variable Subaccount subject to a surrender Charge, calculated as $90,000 - $687.67 which equals $89,312.33.
The Pro Rata withdrawal from the S&P 500 Secure Risk Control Account that is subject to a Surrender Charge is equal to the withdrawal from the S&P 500 Secure Risk Control Account divided by the total withdrawal from the S&P 500 Risk Control Account multiplied by the remaining Purchase Payments subject to a Surrender Charge. This is calculated as $63,748.72 / $110,247.91 x $89,312.33 = $51,643.13.
The Pro Rata withdrawal from the S&P 500 Growth Risk Control Account that is subject to a Surrender Charge is equal to the withdrawal from the S&P 500 Growth Risk Control Account divided by the total withdrawal from the S&P 500 Risk Control Account multiplied by the remaining Purchase Payments subject to a Surrender Charge. This is calculated as $46,499.19 / $110,247.91 x $89,312.33 = $37,669.20.
(8)
It has been more than one year but less than two years since the Purchase Payment was received 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 Variable Subaccounts, the Surrender Charge is calculated as $687.67 x 9.00% which equals $61.89. For the S&P 500 Secure Risk Control Account, the Surrender Charge is calculated as $51,643.13 x 9.00% which equals $4,647.88. For the S&P 500 Growth Risk Control Account, the Surrender Charge is calculated as $37,669.20 x 9.00% which equals $3,390.23.
(9)
The net withdrawal is equal to the gross withdrawal plus the Market Value Adjustment less the Surrender Charge. For the Variable Subaccounts, the net withdrawal is calculated as $10,687.67 + $0.00 - $61.89 which equals $10,625.78. For the S&P 500 Secure Risk Control Account, the net withdrawal is calculated as $63,748.72 + -$1,003.95 - $4,647.88 which equals $58,096.89. For the S&P 500 Growth Risk Control Account, the net withdrawal is calculated as $46,499.19 + -$669.30 - $3,390.23 which equals $42,439.66. The total net withdrawal is the sum of the three accounts, $111,162.33.
A-14
Next, we calculate the Accumulation Units, Accumulation Credits, and Contract Value remaining after the withdrawal.
(10) | (11) | ||||
Units / | Contract | ||||
Accumulation Credits | Value after | ||||
Account | After Withdrawal | Withdrawal | |||
Variable Subaccounts | 0.00 | $0.00 | |||
S&P 500 Secure Risk Control Account | 0.00 | $0.00 | |||
S&P 500 Growth Risk Control Account | 0.00 | $0.00 | |||
Total | $0.00 |
(10) | (11) | |
Account | Units / Accumulation Credits After Withdrawal | Contract Value after Withdrawal |
Variable Subaccounts | 0.00 | $0.00 |
S&P 500 Secure Risk Control Account | 0.00 | $0.00 |
S&P 500 Growth Risk Control Account | 0.00 | $0.00 |
Total | $0.00 |
(10)
The number of Accumulation Units/Accumulation Credits remaining after the withdrawal is equal to the number of Accumulation Units/Accumulation Credits prior to the withdrawal minus the result of the gross withdrawal from the account divided by the Accumulation Unit Value/Accumulation Credit Factor as of the withdrawal date. For the Variable Subaccounts, this is calculated as 1,012.09 - ($10,687.67 / $10.56) which equals 0.00. For the S&P 500 Secure Risk Control Account, this is calculated as 5,940.59 - ($63,748.72 / $10.731042) which equals 0.00. For the S&P 500 Growth Risk Control Account, this is calculated as 3,902.44 - ($46,499.19 / $11.915414) which equals 0.00.
(11)
Following the surrender of the Contract, there is no Contract Value remaining because there are no Accumulation Units or Accumulation Credits remaining.
A-15APPENDIX C: STATE VARIATIONS OF CERTAIN FEATURES AND BENEFITS
The following information is a summary of the states where certain features or benefits of the MEMBERS® Horizon Flexible Premium Deferred Variable and Index Linked Annuity Contracts vary from the features and benefits previously described in this Prospectus. Please contact your financial professional for more information about variations and availability in your state.
States where certain MEMBERS® Horizon Flexible Premium Deferred Variable and Index Linked 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 | See “Owner” under “Getting Started – The Accumulation Period” See “Right to Examine” under “Getting Started – The Accumulation Period” | The Owner has the right to assign the Contract. If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if your age as of the Contract Issue Date is at least 60 years old and you only allocated your Purchase Payments to the money market fund option. 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 “Fees and Expenses” | “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 Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals. You must return your Contract within 10 days of receipt, including replacement contracts. |
See “Waiver of Surrender Charges” under “Fees and Expenses” | There is a one-year wait before the waiver of surrender charge provisions may be exercised. | |
Delaware | 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). |
Florida | See “Owner” under “Getting Started – The Accumulation Period” | The Owner has the right to assign the Contract. |
See “Right to Examine” under “Getting | You must return your Contract within 21 |
State | Feature or Benefit | Variation |
Started – The Accumulation Period” | 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 Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals. |
Hawaii | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was new money, not a replacement. |
Illinois | 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. |
Idaho | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals. You must return your Contract within 20 days of receipt, including replacement contracts. |
Indiana | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was a replacement, not new money. You must return your Contract within 10 days of receipt (20 days if it is a replacement contract). |
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 Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was new money, not a replacement. |
Maryland | Series offered See “Right to Examine” under “Getting Started – The Accumulation Period” | Series C Contracts are not available. If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was new money, not a replacement. |
Massachusetts | See definition of Terminally Ill and | Terminally Ill, Terminal Illness – A life |
State | Feature or Benefit | Variation |
Terminal Illness in “Glossary” See “Right to Examine” under “Getting Started – The Accumulation Period” | expectancy of 24 months or less due to any illness or accident. If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments 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 “Fees and Expenses” | 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 Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was a replacement, not new money. |
Mississippi | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was new money, not a replacement. |
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 Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was new money, not a replacement. |
Nevada | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals. |
New Jersey | See “Purchase Payment” under “Allocating Your Purchase Payment” | We reserve the right, in our sole discretion, to refuse additional Purchase |
State | Feature or Benefit | Variation |
Payments. This refusal cannot be before the 5th Contract Anniversary. | ||
See “Waiver of Surrender Charges” under “Fees and Expenses” | There is no Terminal Illness waiver. | |
New Hampshire | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was new money, not a replacement. |
North Carolina | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments 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 Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals. You must return your Contract within 10 days of receipt (20 days if it is a replacement contract). |
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 “Fees and Expenses” | “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. | |
Rhode Island | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments 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 Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was new money, not a replacement. |
Tennessee | See “Right to Examine” under “Getting | If the Purchase Payments exceed the |
State | Feature or Benefit | Variation |
Started – The Accumulation Period” | Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was a replacement, not new money. | |
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 “Fees and Expenses” | “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 Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals. | |
Vermont | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments less withdrawals if the source of your initial Purchase Payments was new money, not a replacement. |
Washington | See “Right to Examine” under “Getting Started – The Accumulation Period” | If the Purchase Payments exceed the Contract Value, the refund will be your Purchase Payments 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 “Fees and Expenses” | 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. |
C-5
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.
MEMBERS Life Insurance Company
Financial Statements as of December 31, 2015 and 2014and for the Three Years in the Period Ended December 31, 2015and Report of Independent Registered Public Accounting Firm
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To the Board of Directors and Stockholder ofMEMBERS Life Insurance CompanyMadison, Wisconsin
We have audited the accompanying balance sheets of MEMBERS Life Insurance Company (the “Company”) as of December 31, 2015 and 2014, and the related statements of operations and comprehensive income (loss), stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of MEMBERS Life Insurance Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, results of the Company may not be indicative of those of a stand-alone entity, as the Company is a member of a controlled group of affiliated companies.
/s/ DELOITTE & TOUCHE LLP
Chicago, IllinoisMarch 8, 2016
Assets | 2015 | 2014 | ||||||
Investments | ||||||||
Debt securities, available for sale, at fair value | ||||||||
(amortized cost 2015 - $12,698; 2014 - $12,854) | $ | 12,351 | $ | 13,194 | ||||
Policy loans | - | 104 | ||||||
Receivable for securities sold | - | 15 | ||||||
Total investments | 12,351 | 13,313 | ||||||
Cash and cash equivalents | 17,093 | 5,602 | ||||||
Accrued investment income | 134 | 80 | ||||||
Reinsurance recoverable from affiliate | 24,628 | 25,199 | ||||||
Assets on deposit | 947,595 | 349,937 | ||||||
Premiums receivable, net | 26 | 28 | ||||||
Net deferred tax asset | 682 | 440 | ||||||
Receivable from affiliate | 4,518 | 2,765 | ||||||
Other assets and receivables | 268 | 220 | ||||||
Federal income taxes recoverable from affiliate | 516 | 1,797 | ||||||
Total assets | $ | 1,007,811 | $ | 399,381 | ||||
Liabilities and Stockholder’s Equity | ||||||||
Liabilities | ||||||||
Claim and policy benefit reserves - life and health | $ | 21,537 | $ | 22,368 | ||||
Policyholder account balances | 951,068 | 353,549 | ||||||
Unearned premiums | 1 | 3 | ||||||
Payables to affiliates | 2,480 | 1,292 | ||||||
Accounts payable and other liabilities | 11,177 | 2,954 | ||||||
Total liabilities | 986,263 | 380,166 | ||||||
Commitments and contingencies (Note 11) | ||||||||
Stockholder’s equity | ||||||||
Common stock, $5 par value, authorized 1,000 shares; | ||||||||
issued and outstanding 1,000 shares | 5,000 | 5,000 | ||||||
Additional paid in capital | 10,500 | 10,500 | ||||||
Accumulated other comprehensive income (loss), | ||||||||
net of tax expense (benefit) (2015 - ($122); 2014 - $118) | (225 | ) | 222 | |||||
Retained earnings | 6,273 | 3,493 | ||||||
Total stockholder’s equity | 21,548 | 19,215 | ||||||
Total liabilities and stockholder’s equity | $ | 1,007,811 | $ | 399,381 | ||||
2015 | 2014 | 2013 | |||||||||||
Revenues | |||||||||||||
Life and health premiums, net | $ | (1,175 | ) | $ | 127 | $ | 139 | ||||||
Contract charges, net | 18 | 24 | 46 | ||||||||||
Net investment income | 366 | 278 | 176 | ||||||||||
Net realized investment gains | 117 | - | - | ||||||||||
Other income | 5,336 | - | 293 | ||||||||||
Total revenues | 4,662 | 429 | 654 | ||||||||||
Benefits and expenses | |||||||||||||
Life and health insurance claims and benefits, net | (1,204 | ) | 112 | 179 | |||||||||
Interest credited to policyholder account balances, net | 4 | 8 | 9 | ||||||||||
Operating and other expenses (Note 6) | 1,633 | 137 | 86 | ||||||||||
Total benefits and expenses | 433 | 257 | 274 | ||||||||||
Income before income taxes | 4,229 | 172 | 380 | ||||||||||
Income tax expense | 1,449 | 11 | 249 | ||||||||||
Net income | 2,780 | 161 | 131 | ||||||||||
Change in unrealized gains (losses), net of tax expense | |||||||||||||
(benefit) (2015 - ($235); 2014 - ($25); 2013 - ($105)) | (437 | ) | (47 | ) | (154 | ) | |||||||
Reclassification adjustment for (gains) | |||||||||||||
included in net income, net of tax (benefit) - (2015 - ($5)) | (10 | ) | - | - | |||||||||
Other comprehensive loss | (447 | ) | (47 | ) | (154 | ) | |||||||
Total comprehensive income (loss) | $ | 2,333 | $ | 114 | $ | (23 | ) | ||||||
Accumulated | ||||||||||||||||||||
Additional | other | Total | ||||||||||||||||||
Common | paid in | comprehensive | Retained | stockholder’s | ||||||||||||||||
stock | capital | income (loss) | earnings | equity | ||||||||||||||||
Balance, January 1, 2013 | $ | 5,000 | $ | 10,500 | $ | 423 | $ | 3,201 | $ | 19,124 | ||||||||||
Net income | - | - | - | 131 | 131 | |||||||||||||||
Other comprehensive (loss) | - | - | (154 | ) | - | (154 | ) | |||||||||||||
Balance, December 31, 2013 | 5,000 | 10,500 | 269 | 3,332 | 19,101 | |||||||||||||||
Net income | - | - | - | 161 | 161 | |||||||||||||||
Other comprehensive (loss) | - | - | (47 | ) | - | (47 | ) | |||||||||||||
Balance, December 31, 2014 | 5,000 | 10,500 | 222 | 3,493 | 19,215 | |||||||||||||||
Net income | - | - | - | 2,780 | 2,780 | |||||||||||||||
Other comprehensive (loss) | - | - | (447 | ) | - | (447 | ) | |||||||||||||
Balance, December 31, 2015 | $ | 5,000 | $ | 10,500 | $ | (225 | ) | $ | 6,273 | $ | 21,548 | |||||||||
2015 | 2014 | 2013 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 2,780 | $ | 161 | $ | 131 | ||||||
Adjustments to reconcile net income | ||||||||||||
to net cash provided by operating activities: | ||||||||||||
Policyholder charges on investment type contracts | (18 | ) | (24 | ) | (46 | ) | ||||||
Net realized investment gains | (117 | ) | - | - | ||||||||
Interest credited to policyholder account balances | 4 | 8 | 9 | |||||||||
Deferred income taxes | (2 | ) | 197 | 675 | ||||||||
Amortization of bond premium and discount | 61 | 75 | 86 | |||||||||
Amortization and write off of deferred charges | 26 | 26 | 21 | |||||||||
Changes in other assets and liabilities | ||||||||||||
Accrued investment income | (54 | ) | (16 | ) | 9 | |||||||
Reinsurance recoverable | 273 | 326 | 611 | |||||||||
Premiums receivable | 2 | 4 | 2 | |||||||||
Other assets | (1,828 | ) | 356 | (1,079 | ) | |||||||
Federal income taxes recoverable from affiliate | 1,281 | 87 | 1,892 | |||||||||
Insurance reserves | (831 | ) | (828 | ) | (916 | ) | ||||||
Unearned premiums | (2 | ) | - | (1 | ) | |||||||
Other liabilities | 9,412 | 955 | 2,892 | |||||||||
Net cash provided by operating activities | 10,987 | 1,327 | 4,286 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of debt securities | (8,760 | ) | (7,535 | ) | - | |||||||
Proceeds on sale or maturity of debt securities | 8,987 | 750 | 1,665 | |||||||||
Net amounts received on policy loans | 104 | 6 | - | |||||||||
Net cash provided by (used in) investing activities | 331 | (6,779 | ) | 1,665 | ||||||||
Cash flows from financing activities: | ||||||||||||
Policyholder account deposits | 596,817 | 252,273 | 89,726 | |||||||||
Policyholder account withdrawals | (12,250 | ) | (3,581 | ) | (930 | ) | ||||||
Assets on deposit - deposits | (596,492 | ) | (252,273 | ) | (89,382 | ) | ||||||
Assets on deposit - withdrawals | 12,098 | 3,531 | 813 | |||||||||
Change in bank overdrafts | - | (1 | ) | 1 | ||||||||
Net cash provided by (used in) financing activities | 173 | (51 | ) | 228 | ||||||||
Change in cash and cash equivalents | 11,491 | (5,503 | ) | 6,179 | ||||||||
Cash and cash equivalents at beginning of year | 5,602 | 11,105 | 4,926 | |||||||||
Cash and cash equivalents at end of year | $ | 17,093 | $ | 5,602 | $ | 11,105 | ||||||
Supplemental disclosure of cash information: | ||||||||||||
Cash received (paid) during the year for income taxes | $ | (170 | ) | $ | 273 | $ | 2,318 | |||||
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 Company’s ultimate parent is CUNA Mutual Holding Company (“CMHC”), a mutual insurance holding company organized under the laws of Iowa. In 2013, MLIC began selling single premium deferred annuity contracts to credit union members through face-to-face and direct response distribution channels. 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 Company’s reinsurance and ceding agreements.
MLIC is authorized to sell life, health and annuity policies in all states in the U.S. and the District of Columbia, except New York. The following table identifies states with premiums greater than 5% of total direct premium and states with deposits on annuity contracts greater than 5% of total deposits:
Deposits on | ||||||||||||||||||||||||||
Direct Life and Health Premium | Annuity Contracts | |||||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Michigan | 63 | % | 63 | % | 64 | % | 8 | % | 12 | % | 11 | % | ||||||||||||||
Texas | 23 | 22 | 22 | 7 | 8 | * | ||||||||||||||||||||
California | 5 | 5 | 5 | 8 | * | * | ||||||||||||||||||||
Indiana | * | * | * | 6 | 6 | 6 | ||||||||||||||||||||
Iowa | * | * | * | 5 | 8 | 17 | ||||||||||||||||||||
Wisconsin | * | * | * | 5 | 7 | 7 | ||||||||||||||||||||
Pennsylvania | * | * | * | 5 | 6 | 5 | ||||||||||||||||||||
Florida | * | * | * | 5 | 5 | * | ||||||||||||||||||||
Washington | * | * | * | 5 | * | * | ||||||||||||||||||||
Rhode Island | * | * | * | * | 8 | 6 | ||||||||||||||||||||
Utah | * | * | * | * | * | 5 | ||||||||||||||||||||
No other state represents more than 5% of the Company’s premiums or deposits for any year in the three years ended December 31, 2015.
CMFG Life provides significant services required in the conduct of the Company’s operations. Management believes allocations of expenses are reasonable, but the results of the Company’s operations may have materially differed from the results reflected in the accompanying financial statements if the Company did not have this relationship.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
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 policyholder 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. See Note 7, Reinsurance, for information on the Company’s reinsurance and ceding agreements, which impact the financial statement presentation of these segments.
Investments
Debt securities: Investments in debt securities are classified as available for sale and are carried at fair value. A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company’s anticipated holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related components. The credit portion of the other-than-temporary impairment (“OTTI”) is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in net realized investment gains, with the remainder of the loss amount recognized in other comprehensive loss. If the Company intends to sell or it is more likely than not that the Company will be required to sell before anticipated recovery in value, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer’s 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 as a separate component of stockholder’s equity.
Policy loans: Policy loans are reported at their unpaid principal balance. Valuation allowances are not established for policy loans, as they are fully collateralized by the cash surrender value of the underlying insurance policies. Any unpaid principal or interest on the loan is deducted from the cash surrender value or the death benefit prior to settlement of the insurance policy. Policy loans allocated to CMFG Life as payment related to the 2012 reinsurance agreement and the 2015 amendment (See Note 7) are $1,882 and $1,975 at December 31, 2015 and 2014, respectively. As a result of the amendment, all policy loans are allocated to CMFG Life as of December 31, 2015.
Net investment income: Interest income related to mortgage-backed and other structured securities is recognized on an accrual basis using a constant effective yield method, based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments and such adjustments are reflected in net investment income. Prepayment assumptions for loan-backed bonds and structured securities are based on industry averages or internal estimates. Interest income related to non-structured securities is recognized on an accrual basis using a constant effective yield method. Discounts and premiums on debt securities are amortized over the estimated lives of the respective securities on an effective yield basis.
Net realized gains and losses: Realized gains and losses on the sale of investments are determined on a specific identification basis and are recorded on the trade date.
Derivative Financial Instruments
The Company issues single premium deferred annuity 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. 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.
Cash and Cash Equivalents
Cash and cash equivalents include unrestricted deposits in financial institutions with maturities of 90 days or less. The Company recognizes a liability in accounts payable and other liabilities for the amount of checks issued in excess of its current cash balance. The change in this overdraft amount is recognized as a financing activity in the Company’s statement of cash flows.
Recognition of Insurance Revenue and Related Benefits
Term-life and whole-life insurance premiums are recognized as premium income when due. Policy benefits for these products are recognized in relation to the premiums so as to result in the recognition of profits over the expected lives of the policies and contracts.
Amounts collected on policies not subject to significant mortality or longevity risk, such as the Company’s single premium deferred annuity contracts, are considered investment contracts and are recorded as increases in policyholder account balances. Revenues from investment contracts principally consist of net investment income and contract charges such as expense and surrender charges. Expenses for investment contracts consist of interest credited to contracts, benefits incurred in excess of related policyholder account balances and policy maintenance costs. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues and expenses are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement.
Other Income / Operating and Other Expenses
Other income in 2015 and 2013 relates to legal settlements received on structured security investments that had previously been sold. Operating and other expenses in 2015 include legal expenses related to the settlement received.
Deferred Policy Acquisition Costs
The costs of acquiring insurance business that are directly related to the successful acquisition of new and renewal business are deferred to the extent that such costs are expected to be recoverable from future profits. Such costs principally include commissions and sales costs, direct response advertising costs, premium taxes, and certain policy issuance and underwriting costs. Costs deferred on term-life and whole-life insurance products, deferred policy acquisition costs (“DAC”), are amortized in proportion to the ratio of the annual premium to the total anticipated premiums generated. Due to the age of the existing block of policies, all DAC has been fully amortized as of December 31, 2015 and 2014 and there was no amortization expense in 2015, 2014 or 2013.
Acquisition costs on the Company’s single premium 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.
Insurance Reserves
Life and health claim and policy benefit reserves consist principally of future policy benefit reserves and reserves for estimates of future payments on incurred claims reported but not yet paid and unreported incurred claims. Estimates for future payments on incurred claims are developed using actuarial principles and assumptions based on past experience adjusted for current trends. Any change in the probable ultimate liabilities is reflected in net income in the period in which the change is determined.
When actual experience indicates that existing contract liabilities, together with the present value of future gross premiums will not be sufficient to recover the present value of future benefits or recover unamortized deferred acquisition costs, a premium deficiency will be recognized by either a reduction in unamortized acquisition costs or an increase in the liability for future benefits. There was no premium deficiency in 2015, 2014 or 2013.
Policyholder Account Balances
The Company recognizes a liability at the stated account value for policyholder deposits that are not subject to significant policyholder mortality or longevity risk and for universal life-type policies. The account value equals the sum of the original deposit and accumulated interest, less any withdrawals and expense charges. The average credited rate was 4.5% in 2015, 2014 and 2013. The future minimum guaranteed interest rate during the life of the contracts is 4.5%.
The single premium deferred annuities, which are included in policyholder account balances, 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 with issuance. 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. Both the Growth Account and Secure Account are based on the S&P 500 Index. 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 was 1.65%, 1.10% and .72% in 2015, 2014 and 2013, respectively.
Accounts Payable and Other Liabilities
The Company issues annuity contracts on the 10th and 25th of each month. The Company recognizes a liability on contracts for which it has received cash, but has not issued a contract.
Reinsurance
Reinsurance premiums, claims and benefits, commission expense reimbursements, and reserves related to reinsured business ceded are accounted for on a basis consistent with the accounting for the underlying direct policies that have been ceded and the terms of the reinsurance contracts. Premiums and insurance claims and benefits in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded to other companies under such reinsurance contracts. Ceded insurance reserves and ceded benefits paid are included in reinsurance recoverables along with certain ceded policyholder account balances, which include mortality risk. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies.
Assets on Deposit
Assets on deposit represent the amount of policyholder account balances related to the single premium deferred annuity contracts (investment-type contracts) that are ceded to CMFG Life. These investment-type contracts are accounted for on a basis consistent with the accounting for the underlying contracts. Since the related product is an investment-type contract, the Company accounts for the reinsurance of these contracts using the deposit method of accounting consistent with the terms of the ceding agreement. The related contract charges and interest credited to policyholder account balances in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded under the agreement. See Note 7 for a further discussion of the ceding agreement.
Income Taxes
The Company recognizes taxes payable or refundable and deferred taxes for the tax consequences of differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured by applying the enacted tax rates to the difference between the financial statement and tax basis of assets and liabilities. The Company records current tax benefits and deferred tax assets utilizing a benefits-for-loss approach. Under this approach, current benefits are realized and deferred tax assets are considered realizable by the Company when realized or realizable by the consolidated group of which the Company is a member even if the benefits would not be realized on a stand-alone basis. The Company records a valuation allowance for deferred tax assets if it determines it is more likely than not that the asset will not be realized by the consolidated group. Deferred income tax assets can be realized through future earnings, including, but not limited to, the generation of future income, reversal of existing temporary differences and available tax planning strategies.
The Company is subject to tax-related audits. These audits may result in additional tax assets or liabilities. In establishing tax liabilities, the Company determines whether a tax position is more likely than not to be sustained under examination by the appropriate taxing authority. Tax positions that do not meet the more likely than not standard are not recognized. Tax positions that meet this standard are recognized in the financial statements within net deferred tax assets or liabilities or federal income taxes recoverable or payable.
Accounting Standards Updates Pending Adoption
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard, Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The new standard will supersede nearly all existing revenue recognition guidance by establishing a five step, principles-based process; however, it will not impact the accounting for insurance contracts, leases, financial instruments, and guarantees. For those contracts that are impacted by the new guidance, ASU 2014-09 will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In July 2015, the FASB approved the deferral of ASU 2014-09 for one year and it is effective for annual and interim reporting periods beginning in 2018 for public business entities and 2019 for others. Early adoption in 2017 will be permitted. The Company is currently evaluating the impact of ASU 2014-09 on its financial statements.
In January 2016, the FASB issued Accounting Standard Update (ASU) No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities (“ASU 2016-01”), effective in 2018. The new standard will require equity investments to be measured at fair value with changes in fair value recognized in net income. Other provisions in ASU 2016-01 do not appear to be materially applicable to the Company. The Company is currently evaluating the potential impact of ASU 2016-01 on its financial statements.
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, 2015 are as follows:
Amortized | Gross Unrealized | Estimated | |||||||||||
Cost | Gains | Losses | Fair Value | ||||||||||
U.S. government and agencies | $ | 10,333 | $ | 26 | $ | (546 | ) | $ | 9,813 | ||||
Mortgage-backed securities: | |||||||||||||
Residential mortgage-backed | 2,365 | 173 | - | 2,538 | |||||||||
Total debt securities | $ | 12,698 | $ | 199 | $ | (546 | ) | $ | 12,351 | ||||
The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2014 are as follows:
Amortized | Gross Unrealized | Estimated | |||||||||||
Cost | Gains | Losses | Fair Value | ||||||||||
U.S. government and agencies | $ | 9,888 | $ | 103 | $ | (4 | ) | $ | 9,987 | ||||
Mortgage-backed securities: | |||||||||||||
Residential mortgage-backed | 2,966 | 241 | - | 3,207 | |||||||||
Total debt securities | $ | 12,854 | $ | 344 | $ | (4 | ) | $ | 13,194 | ||||
No investments were non-income producing in 2015 or 2014.
The amortized cost and estimated fair values of investments in debt securities at December 31, 2015, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Because of the potential for prepayment on mortgage-backed securities, such securities have not been displayed in the table below by contractual maturity.
Amortized | Estimated | |||||
Cost | Fair Value | |||||
Due in one year or less | $ | 1,261 | $ | 1,280 | ||
Due after one year through five years | 315 | 322 | ||||
Due after ten years | 8,757 | 8,211 | ||||
Mortgage-backed securities: | ||||||
Residential mortgage-backed | 2,365 | 2,538 | ||||
Total debt securities | $ | 12,698 | $ | 12,351 | ||
Net Investment IncomeSources of investment income for the years ended December 31 are summarized as follows:
2015 | 2014 | 2013 | ||||||||||
Gross investment income: | ||||||||||||
Debt securities | $ | 389 | $ | 304 | $ | 275 | ||||||
Policy loans | 5 | 8 | 8 | |||||||||
Other investments | - | - | 6 | |||||||||
Total gross investment income | 394 | 312 | 289 | |||||||||
Investment expenses | (28 | ) | (34 | ) | (113 | ) | ||||||
Net investment income | $ | 366 | $ | 278 | $ | 176 | ||||||
Net Realized Investment Gains
Net realized investment gains for the years ended December 31 are summarized as follows:
2015 | 2014 | 2013 | |||||||
Debt securities | |||||||||
Gross gains on sales | $ | 117 | $ | - | $ | - | |||
Net realized investment gains | $ | 117 | $ | - | $ | - | |||
Proceeds from the sale of debt securities was $8,389 in 2015, there were no sales or transfers of debt securities in 2014 or 2013 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 Company’s 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:
A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company’s anticipated holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the OTTI is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive loss. If the Company intends to sell, at the time this determination is made, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer’s business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered at least its cost basis.
For securitized debt securities, the Company considers factors including, commercial and residential property changes in value that vary by property type and location and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of
expected recoveries. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral.
For certain securitized financial assets with contractual cash flows, the Company is required to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the estimated cash flows since the last revised estimate, considering both timing and amount, an OTTI charge is recognized. The Company also considers its intent 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, 2015, 2014 and 2013 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 Company’s practices, OTTI will be recorded as appropriate and as determined by the Company’s regular monitoring procedures of additional facts.
Net Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses) included in accumulated other comprehensive income (loss) at December 31 were as follows:
2015 | 2014 | 2013 | ||||||||||
Debt securities | $ | (347 | ) | $ | 340 | $ | 412 | |||||
Deferred income taxes | 122 | (118 | ) | (143 | ) | |||||||
Net unrealized investment gains (losses) | $ | (225 | ) | $ | 222 | $ | 269 | |||||
At December 31, 2015, the Company owned one debt security with a fair value of $8,210 in an unrealized loss position of $546 for less than twelve months. At December 31, 2014 the Company owned one debt security with a fair value of $7,526 in an unrealized loss position of $4 for less than twelve months. The Company did not have any gross unrealized losses at December 31, 2013.
Embedded Derivatives
The Company issues single premium 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 $122,043 and a liability of $122,043, respectively, as of December 31, 2015 and an asset of $45,503 and a liability of $45,503, respectively, as of December 31, 2014. The increase in fair value related to embedded derivatives from the date of deposit was $3,591, $9,581 and $592 for the years ended December 31, 2015, 2014 and 2013, respectively. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, this expense is ceded and does not impact the statement of operations and comprehensive income (loss).
Assets Designated/Securities on Deposit
Iowa law requires that assets equal to a life insurer’s “legal reserve” must be designated for the Iowa Department of Commerce, Insurance Division. The legal reserve is equal to the net present value of all outstanding policies and contracts involving life contingencies. At December 31, 2015 and 2014, debt securities, policy loans and cash with a carrying value of $10,618 and $11,512, 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 $1,732 and $1,854 were on deposit with other regulatory jurisdictions as of December 31, 2015 and 2014, respectively.
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:
For purposes of determining the fair value of the Company’s assets and liabilities, observable inputs are those inputs used by market participants in valuing financial instruments, which are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs, reflecting the Company’s estimates of the assumptions market participants would use in valuing financial assets and liabilities, are developed based on the best information available in the circumstances. The Company uses prices and inputs that are current as of the measurement date. In some instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The hierarchy requires the use of market observable information when available for assessing fair value. The availability of observable inputs varies by investment. In situations where the fair value is based on inputs that are unobservable in the market or on inputs from inactive markets, the determination of fair value requires more judgment and is subject to the risk of variability. The degree of judgment exercised by the Company in determining fair value is typically greatest for investments categorized in Level 3. Transfers in and out of level
categorizations are reported as having occurred at the end of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized gains and losses and all changes in unrealized gains and losses in the fourth quarter are not reflected in the Level 3 rollforward table.
Valuation Process
The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that the Company’s assets and liabilities are appropriately valued.
The Company has policies and guidelines that require the establishment of valuation methodologies and consistent application of such methodologies. These policies and guidelines govern the use of inputs and price source hierarchies and provide controls around the valuation processes. These controls include appropriate review and analysis of prices against market activity or indicators of reasonableness, approval of price source changes, price overrides, methodology changes and classification of fair value hierarchy levels. The valuation policies and guidelines are reviewed and updated as appropriate.
For fair values received from third parties or internally estimated, the Company’s processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are appropriately recorded. The Company performs procedures to understand and assess the methodologies, process and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. When using internal valuation models, these models are developed by the Company’s investment group using established methodologies. The models including key assumptions are reviewed with various investment sector professionals, accounting, operations, compliance and risk management. In addition, when fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.
Transfers Between Levels
There were no transfers between levels during the year ended December 31, 2015. There were two U.S. government and agency securities totaling $2,556 transferred from Level 1 to Level 2 during the year ended December 31, 2014. The transfer occurred due to a change in the availability of the observable inputs. There were no other transfers in 2014.
Fair Value Measurement – Recurring Basis
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2015.
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Cash equivalents1 | $ | 16,080 | $ | - | $ | - | $ | 16,080 | ||||
Debt securities: | ||||||||||||
U.S. government and agencies | - | 9,813 | - | 9,813 | ||||||||
Mortgage-backed securities: | ||||||||||||
Residential mortgage-backed | - | 2,538 | - | 2,538 | ||||||||
Total debt securities | - | 12,351 | - | 12,351 | ||||||||
Derivatives embedded in assets on deposit | - | - | 122,043 | 122,043 | ||||||||
Total assets | $ | 16,080 | $ | 12,351 | $ | 122,043 | $ | 150,474 | ||||
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 122,043 | $ | 122,043 | ||||
Total liabilities | $ | - | $ | - | $ | 122,043 | $ | 122,043 | ||||
The following table summarizes the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2014.
Assets, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Cash equivalents 1 | $ | 3,681 | $ | - | $ | - | $ | 3,681 | ||||
Debt securities: | ||||||||||||
U.S. government and agencies | - | 9,987 | - | 9,987 | ||||||||
Mortgage-backed securities: | ||||||||||||
Residential mortgage-backed | - | 3,207 | - | 3,207 | ||||||||
Total debt securities | - | 13,194 | - | 13,194 | ||||||||
Derivatives embedded in assets on deposit | - | - | 45,503 | 45,503 | ||||||||
Total assets | $ | 3,681 | $ | 13,194 | $ | 45,503 | $ | 62,378 | ||||
Liabilities, at Fair Value | Level 1 | Level 2 | Level 3 | Total | ||||||||
Derivatives embedded in annuity contracts | $ | - | $ | - | $ | 45,503 | $ | 45,503 | ||||
Total liabilities | $ | - | $ | - | $ | 45,503 | $ | 45,503 | ||||
The Company had no assets or liabilities that required a fair value adjustment on a non-recurring basis as of December 31, 2015 or 2014.
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, 2015.
Total Realized/Unrealized | ||||||||||||||||
Gain (Loss) Included in: | ||||||||||||||||
Balance January 1, 2015 | Purchases | Maturities | Earnings1 | Balance December 31, 2015 | ||||||||||||
Derivatives embedded | ||||||||||||||||
in assets on deposit | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Total assets | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Derivatives embedded | ||||||||||||||||
in annuity contracts | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
Total liabilities | $ | 45,503 | $ | 73,631 | $ | (682 | ) | $ | 3,591 | $ | 122,043 | |||||
1 Included in net income is realized gains and losses associated with embedded derivatives. |
The following table sets forth the values of assets and liabilities classified as Level 3 within the fair value hierarchy at December 31, 2014.
Total Realized/Unrealized | ||||||||||||||||
Gain (Loss) Included in: | ||||||||||||||||
Balance January 1, 2014 | Purchases | Maturities | Earnings1 | Balance December 31, 2014 | ||||||||||||
Derivatives embedded | ||||||||||||||||
in assets on deposit | $ | 8,652 | $ | 27,522 | $ | (252 | ) | $ | 9,581 | $ | 45,503 | |||||
Total assets | $ | 8,652 | $ | 27,522 | $ | (252 | ) | $ | 9,581 | $ | 45,503 | |||||
Derivatives embedded | ||||||||||||||||
in annuity contracts | $ | 8,652 | $ | 27,522 | $ | (252 | ) | $ | 9,581 | $ | 45,503 | |||||
Total liabilities | $ | 8,652 | $ | 27,522 | $ | (252 | ) | $ | 9,581 | $ | 45,503 | |||||
1 Included in net income is realized gains and losses associated with embedded derivatives. |
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
U.S. government and agencies: Certain U.S. Treasury securities and debentures issued by agencies of the U.S. government are valued based on observable inputs such as the U.S. Treasury yield curve, market indicated spreads and quoted prices for identical assets in markets that are not active and/or similar assets in markets that are active.
Residential mortgage-backed securities: Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data.
For the majority of assets classified as Level 2 investments, the Company values the assets using third-party pricing sources, which generally rely on quoted prices for similar assets in markets that are active and observable market data.
Level 3 Measurements
Derivatives embedded in assets on deposit and annuity contracts: The Company offers single premium 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 Company’s own credit and risk margins for unobservable non-capital market inputs. The Company’s own credit adjustment is determined taking into account its A.M. Best rating 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 Company’s own credit standing. Lastly, changes in actuarial assumptions regarding policyholder behavior (such as full or partial withdrawals varying from expectations) and risk margins related to non-capital market inputs may result in significant fluctuations in the fair value of the derivatives. See Embedded Derivatives within Note 3, Investments for the impact to net income.
The following table presents information about significant unobservable inputs used in Level 3 embedded derivative assets and liabilities measured at fair value developed by internal models as of December 31, 2015 and 2014:
Predominant | Significant | Range of Values - Unobservable Input | ||||
Valuation Method | Unobservable Input | 2015 | 2014 | |||
Derivatives embedded in single premium deferred annuities and related assets on deposit | ||||||
Discounted cash flow | Lapse rates | 2% to 4% with an excess lapse rate at the end of the index period of 95%. | 2% to 4% with an excess lapse rate at the end of the index period of 95%. | |||
Company’s own credit and risk margin | 82 - 137 basis points added on to discount rate | 60 - 90 basis points added on to discount rate | ||||
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 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.
Not Practicable to Estimate Fair Value
Policy loans: The Company believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity and policy loans are often repaid by reductions to policy benefits.
The carrying amounts and estimated fair values of the Company’s financial instruments which are not measured at fair value on a recurring basis at December 31 are as follows:
2015 | 2014 | ||||||||||||||||
Carrying | Estimated | Carrying | Estimated | ||||||||||||||
Amount | Fair Value | Level | Amount | Fair Value | Level | ||||||||||||
Financial instruments | |||||||||||||||||
recorded as assets: | |||||||||||||||||
Cash | $ | 1,013 | $ | 1,013 | 1 | $ | 1,921 | $ | 1,921 | 1 | |||||||
Policy loans | - | n/a | n/a | 104 | n/a | n/a | |||||||||||
Assets on deposit | 825,552 | 699,721 | 2 | 304,434 | 294,710 | 2 | |||||||||||
Financial instruments | |||||||||||||||||
recorded as liabilities: | |||||||||||||||||
Investment-type contracts | 825,552 | 699,721 | 2 | 304,434 | 294,710 | 2 | |||||||||||
Note 5: Income Tax
The Company is included in the consolidated federal income tax return filed by CMHC, the Company’s 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 subsidiary’s contribution to the consolidated federal income tax liability. Pursuant to the agreement, subsidiaries that have incurred losses are reimbursed regardless of the utilization of the loss in the current year. Federal income taxes recoverable from affiliate reported on the balance sheet are due from CMFG Life.
Income Tax Expense
Income tax expense for the years ended December 31 is as follows:
2015 | 2014 | 2013 | ||||||||||
Current tax expense (benefit) | $ | 1,451 | $ | (186 | ) | $ | (426 | ) | ||||
Deferred tax expense (benefit) | (2 | ) | 197 | 675 | ||||||||
Total income tax expense | $ | 1,449 | $ | 11 | $ | 249 | ||||||
Reconciliation to U.S. Tax Rate
Income tax expense differs from the amount computed by applying the U.S. federal corporate income tax rate of 35% to income before income taxes due to the items listed in the following reconciliation:
2015 | 2014 | 2013 | ||||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||
Tax expense computed at | ||||||||||||||||||||
federal corporate tax rate | $ | 1,480 | 35.0 | % | $ | 60 | 35.0 | % | $ | 133 | 35.0 | % | ||||||||
Income tax expense (benefit) | ||||||||||||||||||||
related to prior years | (31 | ) | (0.7 | ) | (41 | ) | (23.9 | ) | 116 | 30.5 | ||||||||||
Other | - | - | (8 | ) | (4.7 | ) | - | |||||||||||||
Total income tax expense | $ | 1,449 | 34.3 | % | $ | 11 | 6.4 | % | $ | 249 | 65.5 | % | ||||||||
Deferred Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2015 and 2014 are as follows:
2015 | 2014 | |||||
Deferred tax assets | ||||||
Policy liabilities and reserves | $ | 36 | $ | 81 | ||
Unrealized investment losses | 122 | - | ||||
Investments | 168 | 276 | ||||
Accrued expenses | 94 | 26 | ||||
Deferred policy acquisition costs | 309 | 230 | ||||
Other | 1 | 3 | ||||
Gross deferred tax assets | 730 | 616 | ||||
Deferred tax liabilities | ||||||
Unrealized investment gains | - | 118 | ||||
Deferred reinsurance expense | 47 | 56 | ||||
Other | 1 | 2 | ||||
Gross deferred tax liabilities | 48 | 176 | ||||
Net deferred tax asset | $ | 682 | $ | 440 | ||
Valuation Allowance
The Company considered the need for a valuation allowance with respect to its gross deferred tax assets as of December 31, 2015 and 2014, and based on that evaluation, the Company has determined it is more likely than not all deferred tax assets as of December 31, 2015 and 2014 will be realized. Therefore, a valuation allowance was not established.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2015 | 2014 | ||||||
Balance at January 1 | $ | 1 | $ | 7 | |||
Reductions for prior years’ tax positions | - | (6 | ) | ||||
Balance at December 31 | $ | 1 | $ | 1 | |||
There were no unrecognized tax benefits as of December 31, 2015 and 2014 that, if recognized, would affect the effective tax rate in future periods. Management does not anticipate a material change to the Company’s uncertain tax positions during 2016.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense in the statements of comprehensive income (loss). The Company did not recognize any additions or reductions in interest and penalties for the year ended December 31, 2015 or 2014. During the year ended December 31, 2013 the Company recognized additions of $1 in interest and penalties. The Company had accrued $7 and $7 for the payment of interest and penalties at December 31, 2015 and 2014, respectively.
The Company is included in a consolidated U.S. federal income tax return filed by CMHC. The Company is also included in income tax returns filed in various states. For the major jurisdictions where it operates, the Company is generally no longer subject to income tax examinations by tax authorities for years ended before 2008.
Other Tax Items
As of December 31, 2015 and 2014, the Company did not have any capital loss, operating loss or credit carryforwards.
Note 6: Related Party Transactions
In the normal course of business, there are various transactions between the Company and other related entities. In certain circumstances, expenses such as those related to sales and marketing, administrative, operations, other support and infrastructure costs are shared between the companies. Expenses incurred that are specifically identifiable with a particular company are borne by that company; other expenses are allocated among the companies on the basis of time and usage studies. Amounts due from transactions with affiliates are generally settled monthly. The Company reimbursed CMFG Life $8,447, $5,641 and $2,492 for these expenses in 2015, 2014 and 2013, respectively; which are included in operating and other expenses.
Amounts receivable/payable from/to affiliates are shown in the following table:
2015 | 2014 | |||||
Receivable from: | ||||||
CMFG Life | $ | 4,518 | $ | 2,765 | ||
Total | $ | 4,518 | $ | 2,765 | ||
Payable to: | ||||||
CUNA Brokerage Services, Inc. | $ | 2,478 | $ | 1,290 | ||
MEMBERS Capital Advisors, Inc. | 2 | 2 | ||||
Total | $ | 2,480 | $ | 1,292 | ||
Amounts receivable from CMFG Life at December 31, 2015 and 2014 are primarily for a policyholder’s purchase of an annuity when a CMFG Life policyholder has surrendered their policy for the purchase of a single premium deferred annuity and for the cession of death claims related to the Company’s single premium 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 Company’s invested assets in accordance with policies, directives and guidelines established by the Company. The Company recorded MCA investment management fees totaling $28, $34 and $113 for the years ended December 31, 2015, 2014 and 2013, respectively, which are included as a reduction to net investment income.
The Company utilizes CUNA Brokerage Services, Inc. (“CBSI”), which is 100% owned by CMIC, to distribute its single premium deferred annuity and recorded commission expense for this service of $23,072, $10,853 and $4,256 in 2015, 2014 and 2013, 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 reinsurance agreement.
See Note 7 regarding reinsurance and other agreements entered into by the Company and CMFG Life.
Note 7: Reinsurance
The Company entered into a reinsurance agreement with its affiliate, CMFG Life, on a coinsurance and modified coinsurance basis. The agreement was effective November 1, 2015 to cede 100% of the business related to a new product currently in development, which includes any related development expenses. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $1,027 for the year ended December 31, 2015.
The Company entered into an agreement with its affiliate, CMFG Life, effective January 1, 2013 to cede 100% of its investment-type contracts for its single premium deferred annuity, which are accounted for using the deposit method of accounting. The Company had $947,595 and $349,937 of assets on deposit for these contracts as of December 31, 2015 and 2014, respectively. The Company had related liabilities of $947,595 and $349,937, 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 $34,236, $14,861 and $6,425 for the year ended December 31, 2015, 2014 and 2013, 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. As a result of the amendment to this agreement the Company ceded $1,297 of earned premiums and $1,244 of benefits as of September 30, 2015.
MLIC did not have any other reinsurance agreements at December 31, 2015 or 2014 and the entire reinsurance recoverable balance of $24,628 and $25,199, 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. CMFG Life is rated A (excellent) by A.M. Best Company and MLIC believes the risk of non-collection is remote.
The effects of reinsurance on contract charges, interest credited to policyholder accounts, premiums and on claims, benefits, and losses incurred for the years ended December 31 are as follows:
2015 | 2014 | 2013 | ||||||||||
Face amount of policies in force | $ | 110,827 | $ | 123,223 | $ | 147,371 | ||||||
Premiums: | ||||||||||||
Direct - written | $ | 2,384 | $ | 2,613 | $ | 2,811 | ||||||
Direct - change in unearned | - | - | - | |||||||||
Direct - earned | 2,384 | 2,613 | 2,811 | |||||||||
Ceded to affiliate - written | (3,559 | ) | (2,482 | ) | (2,671 | ) | ||||||
Ceded to affiliate - change in unearned | - | (4 | ) | (1 | ) | |||||||
Ceded to affiliate - earned | (3,559 | ) | (2,486 | ) | (2,672 | ) | ||||||
Premiums - written, net | (1,175 | ) | 131 | 140 | ||||||||
Premiums - change in unearned, net | - | (4 | ) | (1 | ) | |||||||
Premiums, net | $ | (1,175 | ) | $ | 127 | $ | 139 | |||||
Contract charges: | ||||||||||||
Direct | $ | 742 | $ | 472 | $ | 461 | ||||||
Ceded to affiliate | (724 | ) | (448 | ) | (415 | ) | ||||||
Contract charges, net | $ | 18 | $ | 24 | $ | 46 | ||||||
Claims, benefits and losses incurred: | ||||||||||||
Direct | $ | 1,784 | $ | 1,883 | $ | 2,953 | ||||||
Ceded to affiliate | (2,988 | ) | (1,771 | ) | (2,774 | ) | ||||||
Claims, benefits and losses, net | $ | (1,204 | ) | $ | 112 | $ | 179 | |||||
Interest credited to policyholder account balances: | ||||||||||||
Direct | $ | 9,833 | $ | 2,457 | $ | 320 | ||||||
Ceded to affiliate | (9,829 | ) | (2,449 | ) | (311 | ) | ||||||
Interest credited to policyholder account balances, net | $ | 4 | $ | 8 | $ | 9 | ||||||
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 2015, 2014 or 2013. Certain statutory basis financial information for MLIC is presented in the table below as of and for the years ended December 31.
Statutory Basis | Statutory Basis | ||||||||||||||||
Capital and Surplus | Net Income (Loss) | ||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2013 | |||||||||||||
MLIC | $ | 21,111 | $ | 18,366 | $ | 1,112 | $ | (1,792 | ) | $ | (1,562 | ) | |||||
The Company is subject to statutory regulations as to maintenance of equity and the payment of dividends. Generally, ordinary dividends from an insurance subsidiary to its parent company must meet notice requirements promulgated by the regulator of the subsidiary’s state of domicile (“Insurance Department”). Extraordinary dividends, as defined by state statutes, must be approved by the Insurance Department. Based on Iowa statutory regulations, the Company could pay dividends up to $2,111 during 2016, without prior approval of the Insurance Department.
Risk-based capital (“RBC”) requirements promulgated by the National Association of Insurance Commissioners require U.S. insurers to maintain minimum capitalization levels that are determined based on formulas incorporating credit risk, insurance risk, interest rate risk, and general business risk. The adequacy of the Company’s actual capital is evaluated by a comparison to the RBC results, as determined by the formula. At December 31, 2015 and 2014, the Company’s adjusted capital exceeded the minimum requirements.
Note 9: Accumulated Other Comprehensive Income (Loss)
The components of accumulated comprehensive income (loss), net of tax, are as follows:
Accumulated | ||||||||
Unrealized | Other | |||||||
Investment | Comprehensive | |||||||
Gains (Loss) | Income (Loss) | |||||||
Balance, January 1, 2013 | $ | 423 | $ | 423 | ||||
Change in unrealized holding gains (losses), | ||||||||
net of tax - ($105) | (154 | ) | (154 | ) | ||||
Balance, December 31, 2013 | 269 | 269 | ||||||
Change in unrealized holding gains (losses), | ||||||||
net of tax - ($25) | (47 | ) | (47 | ) | ||||
Balance, December 31, 2014 | 222 | 222 | ||||||
Change in unrealized holding gains (losses), | ||||||||
net of tax - ($240) | (447 | ) | (447 | ) | ||||
Balance, December 31, 2015 | $ | (225 | ) | $ | (225 | ) | ||
Reclassification Adjustments
Accumulated other comprehensive income (losses) includes amounts related to unrealized investment gains (losses) which were reclassified to net income. Reclassifications from accumulated other comprehensive income (losses) for the years ended December 31 are included in the following table:
2015 | 2014 | 2013 | ||||||||||
Reclassifications from accumulated other comprehensive income (losses) | ||||||||||||
Unrealized gains on available-for-sale | ||||||||||||
securities included in net realized investment losses | $ | 15 | $ | - | $ | - | ||||||
Total reclassifications from accumulated | ||||||||||||
other comprehensive income (losses) | 15 | - | - | |||||||||
Tax expense | 5 | - | - | |||||||||
Net reclassification from accumulated | ||||||||||||
other comprehensive income (losses) | $ | 10 | $ | - | $ | - | ||||||
Note 10: Business Segment Information
The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2015.
Life and | ||||||||||||
Year ended or as of December 31, 2015 | Health | Annuities | Total | |||||||||
Revenues | ||||||||||||
Life and health premiums, net | $ | (1,175 | ) | $ | - | $ | (1,175 | ) | ||||
Contract charges | 18 | - | 18 | |||||||||
Net investment income | 366 | - | 366 | |||||||||
Net realized investment gains | 117 | - | 117 | |||||||||
Other income | 5,336 | - | 5,336 | |||||||||
Total revenues | 4,662 | - | 4,662 | |||||||||
Benefits and expenses | ||||||||||||
Life and health insurance claims and benefits, net | (1,204 | ) | - | (1,204 | ) | |||||||
Interest credited to policyholder account balances | 4 | - | 4 | |||||||||
Operating and other expenses | 1,633 | - | 1,633 | |||||||||
Total benefits and expenses | 433 | - | 433 | |||||||||
Income before income taxes | 4,229 | - | 4,229 | |||||||||
Income tax expense | 1,449 | - | 1,449 | |||||||||
Net income | 2,780 | - | 2,780 | |||||||||
Change in unrealized (losses), net of tax (benefit) | (447 | ) | - | (447 | ) | |||||||
Other comprehensive (loss) | (447 | ) | - | (447 | ) | |||||||
Total comprehensive income | $ | 2,333 | $ | - | $ | 2,333 | ||||||
Reinsurance recoverable from affiliate | $ | 24,628 | $ | - | $ | 24,628 | ||||||
Assets on deposit | - | 947,595 | 947,595 | |||||||||
Claim and policy benefit reserves - life and health | 21,077 | 460 | 21,537 | |||||||||
Policyholder account balances | 3,473 | 947,595 | 951,068 | |||||||||
The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2014.
Life and | ||||||||||||
Year ended or as of December 31, 2014 | Health | Annuities | Total | |||||||||
Revenues | ||||||||||||
Life and health premiums, net | $ | 127 | $ | 127 | ||||||||
Contract charges | 24 | - | 24 | |||||||||
Net investment income | 278 | - | 278 | |||||||||
Net realized investment gains | - | - | - | |||||||||
Other income | - | - | - | |||||||||
Total revenues | 429 | - | 429 | |||||||||
Benefits and expenses | ||||||||||||
Life and health insurance claims and benefits, net | 112 | - | 112 | |||||||||
Interest credited to policyholder account balances | 8 | - | 8 | |||||||||
Operating and other expenses | 137 | - | 137 | |||||||||
Total benefits and expenses | 257 | - | 257 | |||||||||
Income before income taxes | 172 | - | 172 | |||||||||
Income tax expense | 11 | - | 11 | |||||||||
Net income | 161 | - | 161 | |||||||||
Change in unrealized (losses), net of tax (benefit) | (47 | ) | - | (47 | ) | |||||||
Other comprehensive (loss) | (47 | ) | - | (47 | ) | |||||||
Total comprehensive (loss) | $ | 114 | $ | - | $ | 114 | ||||||
Reinsurance recoverable from affiliate | $ | 25,199 | $ | - | $ | 25,199 | ||||||
Assets on deposit | - | 349,937 | 349,937 | |||||||||
Claim and policy benefit reserves - life and health | 22,035 | 333 | 22,368 | |||||||||
Policyholder account balances | 3,612 | 349,937 | 353,549 | |||||||||
The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2013.
Life and | ||||||||||||
Year ended or as of December 31, 2013 | Health | Annuities | Total | |||||||||
Revenues | ||||||||||||
Life and health premiums, net | $ | 139 | $ | - | $ | 139 | ||||||
Contract charges | 46 | - | 46 | |||||||||
Net investment income | 176 | - | 176 | |||||||||
Net realized investment gains | - | - | - | |||||||||
Other income | 293 | - | 293 | |||||||||
Total revenues | 654 | - | 654 | |||||||||
Benefits and expenses | ||||||||||||
Life and health insurance claims and benefits, net | 179 | - | 179 | |||||||||
Interest credited to policyholder account balances | 9 | - | 9 | |||||||||
Operating and other expenses | 86 | - | 86 | |||||||||
Total benefits and expenses | 274 | - | 274 | |||||||||
Income before income taxes | 380 | - | 380 | |||||||||
Income tax expense | 249 | - | 249 | |||||||||
Net income | 131 | - | 131 | |||||||||
Change in unrealized (losses), net of tax (benefit) | (154 | ) | - | (154 | ) | |||||||
Other comprehensive (loss) | (154 | ) | - | (154 | ) | |||||||
Total comprehensive (loss) | $ | (23 | ) | $ | - | $ | (23 | ) | ||||
Reinsurance recoverable from affiliate | $ | 25,525 | $ | - | $ | 25,525 | ||||||
Assets on deposit | - | 89,313 | 89,313 | |||||||||
Claim and policy benefit reserves - life and health | 23,196 | - | 23,196 | |||||||||
Policyholder account balances | 3,734 | 89,313 | 93,047 | |||||||||
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 2015 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 $270 and $75 at December 31, 2015 and 2014, 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, 2015 and 2014 since it does not believe any amount will be recoverable. Recoveries of assessments from premium taxes are generally made over a five-year period.
Legal Matters
Like other members of the insurance industry, the Company is occasionally a party to a number of lawsuits and other types of proceedings, some of which may involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and involve a range of the Company’s practices. The Company has established procedures and policies to facilitate compliance with laws and regulations and to support financial reporting.
In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution and changes in business practices. The Company may not be advised of the nature and extent of relief sought until the final stages of the examination or proceeding. In the opinion of management, the ultimate liability, if any, resulting from all such pending actions will not materially affect the financial statements of the Company.
Note 12: Subsequent Events
The Company evaluated subsequent events through the date the financial statements were issued. During this period, there were no significant subsequent events that required adjustment to or disclosure in the accompanying financial statements.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.*
The expenses for the issuance and distribution of the securities offered by this Registration Statement, other than any underwriting discounts and commissions, are as follows:
Securities and Exchange Commission Registration Fees | $ | 290,500 | |
Printing and engraving | $ | 70,000 | |
Accounting fees and expenses | $ | 53,202 | |
Legal fees and expenses | $ | 200,000 | |
Miscellaneous | $ | 7,000 | |
TOTAL EXPENSES | $ | 620,702 |
Securities and Exchange Commission Registration Fees | $ | 147.60 | ||
Printing and engraving | $ | 15,000 | ||
Accounting fees and expenses | $ | 66,681 | ||
Legal fees and expenses | $ | 25,000 | ||
Miscellaneous | $ | 5,000 | ||
TOTAL EXPENSES | $ | 111,828.60 | ||
* Estimated.
Item 14. Indemnification of Directors and Officers.
Section 490.202 of the Iowa Business Corporation Act (the “IBCA”), provides that a corporation’s articles of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for any action taken, or failure to take action, as a director, except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on MEMBERS Life Insurance Company (the “Registrant,” “we,” “our,” or “us”) or the shareholders, (3) a violation of Section 490.833 of the IBCA or (4) an intentional violation of criminal law.
Further, Section 490.851 of the IBCA provides that a corporation may indemnify its directors who may be party to a proceeding against liability incurred in the proceeding by reason of such person serving in the capacity of director, if such person has acted in good faith and in a manner reasonably believed by the individual to be in the best interests of the corporation, if the director was acting in an official capacity, and in all other cases that the individual’s conduct was at least not opposed to the best interests of the corporation, and in any criminal proceeding if such person had no reasonable cause to believe the individual’s conduct was unlawful or the director engaged in conduct for which broader indemnification has been made permissible or obligatory under a provision of the articles of incorporation. The indemnity provisions under Section 490.851 do not apply (i) in the case of actions brought by or in the right of the corporation except for reasonable expenses incurred in connection with the proceeding if it is determined that the director has met the relevant standard of conduct set forth above or (ii) in connection with any proceedings with respect to conduct for which the director was adjudged liable on the basis that the director received a financial benefit to which the director was not entitled, whether or not involving action in the director’s official capacity.
In addition, Section 490.852 of the IBCA provides mandatory indemnification of reasonable expenses incurred by a director who is wholly successful in defending any action in which the director was a party because the director is or was a director of the corporation. A director who is a party to a proceeding because the person is a director may also apply for court-ordered indemnification and advance of expenses under Section 490.854 of the IBCA.
Section 490.853 of the IBCA provides that a corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding because such person is a director if the director delivers the following to the corporation: (1) a written affirmation that the director has met the standard of conduct described above or that the proceeding involved conduct for which liability has been eliminated under the corporation’s articles of incorporation and (2) the director’s written undertaking to repay any funds advanced if the director is not entitled to mandatory indemnification under Section 490.852 of the IBCA and it is ultimately determined that the director has not met the standard of conduct described above.
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Under Section 490.856 of the IBCA, a corporation may indemnify and advance expenses to an officer of the corporation who is a party to a proceeding because such person is an officer, to the same extent as a director. In addition, if the person is an officer but not a director, further indemnification may be provided by the corporation’s articles of incorporation or bylaws, a resolution of the board of directors or by contract, except liability for (1) a proceeding by or in the right of the corporation other than for reasonable expenses incurred in connection with the proceeding and (2) conduct that constitutes receipt by the officer of a financial benefit to which the officer is not entitled, an intentional infliction of harm on the corporation or the shareholders or an intentional violation of criminal law. Such indemnification is also available to an officer who is also a director if the basis on which the officer is made a party to a proceeding is an act taken or a failure to take action solely as an officer.
Our Amended and Restated Articles of Incorporation provide that our directors will not be liable to us or our shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on the Registrant or the shareholders, (3) a violation of Section 490.833 of the IBCA or (4) an intentional violation of criminal law.
Our Amended and Restated Articles of Incorporation also provide that we indemnify each of our directors or officers for any action taken, or any failure to take any action, as a director or officer except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on the Registrant or the shareholders, (3) a violation of Section 490.833 of the IBCA or (4) an intentional violation of criminal law. Additionally, the Registrant is required to exercise all of its permissive powers as often as necessary to indemnify and advance expenses to its directors and officers to the fullest extent permitted by law.
Our Bylaws also provide indemnification to our directors on the same terms as the indemnification provided in our Amended and Restated Articles of Incorporation. Our Bylaws also provide for advances of expenses to our directors and officers. The indemnification provisions of our Bylaws are not exclusive of any other right which any person seeking indemnification may have or acquire under any statute, our Amended and Restated of Incorporation or any agreement, vote of stockholders or disinterested directors or otherwise.
Section 490.857 of the IBCA provides that a corporation may purchase and maintain insurance on behalf of a person who is a director or officer of a corporation, or who, while a director or officer of a corporation, serves at the corporation’s request as a director, officer, partner, trustee, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust, employee benefit plan or other entity, against liability asserted against or incurred by that person in that capacity or arising from that person’s status as a director or officer, whether or not the corporation would have the power to indemnify or advance expenses to that person against the same liability under the IBCA. As permitted by and in accordance with Section 490.857 of the IBCA, we maintain insurance coverage for our officers and directors as well as insurance coverage to reimburse us for potential costs for indemnification of directors and officers.
Item15. Recent Sales of Unregistered Securities
None.
Item 16. Exhibits.
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Exhibit Item Number | Description | Incorporated by Reference to | Filed Herewith |
10(v)(a)ii | American Funds Rule 22c-2 Agreement between American Funds Service Company and MLIC | Incorporated herein by reference to the initial filing of the |
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Exhibit Item Number | Description | Incorporated by Reference to | Filed Herewith |
10(v)(h) | Participation Agreement between AIM Variable Insurance Funds(Invesco Variable Insurance Funds), Invesco Distributors, Inc., CBSI and MLIC | Incorporated herein by reference to the initial filing of the MEMBERS Horizon Variable Separate Account on Form N-4, filed April 6, 2016 (File No. 333-207276) | |
10(v)(h)i | Administrative Services Agreement between AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and MLIC | Incorporated herein by reference to the Post-Effective Amendment No. 1 to the MLIC Registration Statement on Form S-1, filed on April 5, 2022 (File No. 333-249535) | |
10(v)(h)ii | Distribution Services Agreement between AIM Variable Insurance Funds(Invesco Variable Insurance Funds) and MLIC | Incorporated herein by reference to the initial filing of the Registrant on Form N-4, filed April 6, 2016 (File No. 333-207276) | |
10(v) | |||
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Administrative | |||
Incorporated herein by reference to the |
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Exhibit Item Number | Description | Incorporated by Reference to | Filed Herewith |
23(i) | Consent of Legal Counsel | See Exhibit 5 | |
X | |||
24 | Powers of Attorney | X | |
107 | Calculation of Filing Fee Table | Incorporated herein by reference to the initial filing of the | |
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Item 17. Undertakings.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
(ii) | To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; |
(iii) | To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. |
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a Registration Statement relating to an offering, other than Registration Statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the Registration Statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a Registration Statement or prospectus that is part of the Registration Statement or made in a document incorporated or deemed incorporated by reference into the Registration Statement or prospectus that is part of the Registration Statement will, as to a purchaser with a time of contract of sale prior to
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such first use, supersede or modify any statement that was made in the Registration Statement or prospectus that was part of the Registration Statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) | Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and |
(iv) | Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
(B) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, MEMBERS Life Insurance Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Madison, and State of Wisconsin as of this 1918 day of April, 2016.2024.
MEMBERS Life Insurance Company | ||
By: | /s/ | |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated:
Name | Title | Date | |||
* | President and Director (Principal Executive Officer) | April | |||
David L. Sweitzer | |||||
* | Treasurer (Principal Financial & Accounting Officer) | April 18, 2024 | |||
Brian J. Borakove | |||||
* | Director | April 18, 2024 | |||
Jennifer M. | |||||
* | Director | April 18, 2024 | |||
Abigail R. Rodriguez | |||||
* | Director | April 18, 2024 | |||
William A. Karls | |||||
* | Director | April 18, 2024 | |||
Paul D. Barbato |
*By: | /s/Britney Schnathorst | ||||
Britney Schnathorst |
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*Pursuant to Powers of Attorney dated April 18, 2024, filed electronically as exhibits with the Pre-Effective Amendment 1 filing (File No. 333-276342) filed with the Commission on April 18, 2024. Incorporated by reference.
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