As filed with the Securities and Exchange Commission on June 16, 2021

Registration No. 333-252290 

 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

 

PRE-EFFECTIVE AMENDMENT NO. 1 TO

 

FORM S-1

 

Registration Statement Under the Securities Act of 1933

 

 

 

MEMBERS Life Insurance Company 

(Exact name of registrant as specified in its charter)

 

IOWA 

(State or other jurisdiction of 

incorporation or organization)

6311

(Primary Standard Industrial

Classification Code Number)

39-1236386

(I.R.S. Employer

Identification No.)

 

2000 Heritage Way

Waverly, Iowa 50677 

(319) 352-4090 

(Address, including zip code, and telephone number, including area code,  

of registrant’s principal executive offices)

 

Jennifer Kraus-Florin, Esq. 

MEMBERS Life Insurance Company 

2000 Heritage Way 

Waverly, Iowa 50677 

(319) 352-4090

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

COPY TO: 

Stephen E. Roth, Esq.

Thomas E. Bisset, Esq.

Eversheds Sutherland (US) LLP 

700 Sixth Street, NW, Suite 700 

Washington, DC 20001 

(202) 383-0100

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

 

 

 

 

Calculation of Registration Fee  

Title of each
class of securities
to be registered
Amount to be
registered
Proposed
maximum offering
price
per unit
Proposed
 maximum
aggregate offering
price

Amount of
registration fee

 

Single Premium Deferred Indexed Annuity Contract * *  $2.5 billion $272,750(1)

 

*      The maximum aggregate offering price is estimated solely for the purposes of determining the registration fee. The amount to be registered and the proposed maximum offering price per unit are not applicable since these securities are not issued in predetermined amounts or units.

(1)    $272,750 was previously paid with the initial Form S-1 registration statement filed with the Securities and Exchange Commission on January 21, 2021.

 

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 Life Insurance Company

 

Unaudited Condensed Statutory Basis Financial Statements

as of March 31, 2021 and December 31, 2020

and for the three months ended March 31, 2021 and 2020

 

 

 

 

MEMBERS Life Insurance Company

Condensed Statutory Basis Statements of Admitted Assets, Liabilities and Capital and Surplus, Unaudited

March 31, 2021 and December 31, 2020

($ in 000s)

 

 

 

   March 31,   December 31, 
Admitted Assets  2021   2020 
Cash and invested assets          
Bonds and notes  $29,016   $30,309 
Receivable for securities sold   7    - 
Cash and cash equivalents   44,913    26,410 
Total cash and invested assets   73,936    56,719 
Accrued investment income   187    257 
Federal income taxes recoverable from affiliate   3,079    3,278 
Net deferred tax asset   255    255 
Amounts due from reinsurers   23,162    12,718 
Receivables from affiliates   25    223 
Other assets   14    11 
Separate account assets   249,095    230,314 
Total admitted assets  $349,753   $303,775 
Liabilities and Capital and Surplus          
Liabilities          
Reinsurance payable  $18,681   $7,397 
Amount held for others   140    27 
Payable to affiliates   20,491    18,329 
Commissions, expenses, taxes, licenses, and fees accrued   1,231    499 
Other liabilities   28,955    15,925 
Transfers to (from) separate accounts   (8,894)   (9,416)
Separate account liabilities   249,095    230,314 
Total liabilities   309,699    263,075 
Capital and surplus          
Capital          
Common stock, $5 par value, 1,000 shares          
issued and outstanding   5,000    5,000 
Paid-in capital   31,153    31,153 
Unassigned surplus   3,901    4,547 
Total capital and surplus   40,054    40,700 
Total liabilities and capital and surplus  $349,753   $303,775 

 

See accompanying notes to unaudited condensed statutory basis financial statements2

 

 

MEMBERS Life Insurance Company

Condensed Statutory Basis Statements of Operations, Unaudited

Three Months Ended March 31, 2021 and 2020

($ in 000s)

 

 

   March 31,   March 31, 
   2021   2020 
Income          
Reinsurance commissions  $34,632   $25,616 
Net investment income   193    347 
Other income   10,382    10,959 
Total income   45,207    36,922 
Benefits and expenses          
General insurance expenses   12,851    11,229 
Insurance taxes, licenses, fees, and commissions   21,781    14,389 
Net transfers to separate accounts   10,369    11,047 
Total benefits and expenses   45,001    36,665 
Income before federal income tax expense (benefit) and net realized capital (losses)   206    257 
Federal income tax expense (benefit)   184    (3)
Income before net realized capital (losses)   22    260 
Net realized capital (losses), net of tax expense (2021 - $15; 2020 - $49)   (15)   (49)
Net income  $7   $211 

 

See accompanying notes to unaudited condensed statutory basis financial statements3

 

 

 

MEMBERS Life Insurance Company

Condensed Statutory Basis Statements of Changes in Capital and Surplus, Unaudited

Three Months Ended March 31, 2021 and 2020

($ in 000s)

 

 

   March 31,   March 31, 
   2021   2020 
Capital and surplus at beginning of period  $40,700   $39,989 
Additions (deductions)          
Net income   7    211 
Change in net deferred income tax   341    (45)
Change in nonadmitted assets   (994)   386 
Net additions (deductions)   (646)   552 
Capital and surplus at end of period  $40,054   $40,541 

 

 

See accompanying notes to unaudited condensed statutory basis financial statements4

 

 

 

MEMBERS Life Insurance Company

Condensed Statutory Basis Statements of Cash Flows, Unaudited

Three Months Ended March 31, 2021 and 2020

($ in 000s)

 

  

   March 31,   March 31, 
   2021   2020 
Cash from operating activities          
Premiums and other considerations  $11,284   $(5,220)
Net investment income received   250    491 
Reinsurance commissions   34,632    25,616 
Other income   1,098    7,006 
Policy and contract benefits and dividends paid   (184)   461 
Operating expenses paid   (32,458)   (22,833)
Net transfers (to) separate accounts   (9,847)   (10,332)
Net cash provided by (used in) operating activities   4,775    (4,811)
Cash from investing activities          
Proceeds from investments sold, matured or repaid          
Bonds and notes   1,280    2,221 
Total investment proceeds   1,280    2,221 
Cost of investments acquired          
Miscellaneous applications   7    7 
Total investments acquired   7    7 
Net cash provided by investing activities   1,273    2,214 
Cash from financing and miscellaneous activities          
Net (withdrawals) on deposit-type contracts   (38)   (4)
Other cash provided by (used in)   12,493    (1,984)
Net cash provided by (used in) financing and miscellaneous activities   12,455    (1,988)
Net change in cash and cash equivalents   18,503    (4,585)
Cash and cash equivalents at the beginning of the period   26,410    29,037 
           
Cash and cash equivalents at the end of the period  $44,913   $24,452 

 

See accompanying notes to unaudited condensed statutory basis financial statements5

 

Note 1: Nature of Business

 

MEMBERS Life Insurance Company (“MEMBERS Life” or the “Company” or “MLIC”) is a stock life and health insurance 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.

 

The Company began selling single premium deferred index annuity contracts in 2013, flexible premium deferred variable and index linked annuity contracts in 2016, and single premium deferred modified guaranteed index annuity in 2019. All annuity products are sold to consumers, including credit union members, through the face-to-face distribution channel. In 2021, the Company began selling whole life insurance. The Company has reinsurance agreements with CMFG Life under which it cedes 100% of its business to CMFG Life. See Note 7, Reinsurance, for information on the Company’s reinsurance agreements. Prior to 2013, the Company did not actively market new business; it primarily serviced existing blocks of individual and group life policies.

 

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 accompanying unaudited condensed 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 material transactions. While the Company believes that these transactions were at reasonable terms, the results of operations of the Company may have materially differed had these transactions been consummated with unrelated parties.

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S economy as federal, state, and local governments react to this public health crisis.

 

The impacts of the current COVID-19 pandemic are broad reaching, and the impacts on the Company’s unaudited condensed statutory basis financial statements have not been estimated. Due to the COVID-19 outbreak, there is uncertainty surrounding the potential impact on the Company’s future financial position, results of operations and related cash flows. Continued impacts of the pandemic could materially adversely affect the Company’s near-term and long-term premium revenues, policyholder benefits, earnings, liquidity, and cash flows. These potential impacts will largely depend on future developments that cannot be accurately predicted, including the duration and severity of the pandemic, government actions, and the length of time until the economy recovers.

 

Note 2: Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed statutory basis financial statements have been prepared in conformity 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.

See accompanying notes to unaudited condensed statutory basis financial statements6

 

 

The accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring items, unless otherwise disclosed) necessary for a fair statement of the financial position as of March 31, 2021 and December 31, 2020, the results of operations, cash flows, and changes in capital and surplus for the three months ended March 31, 2021 and 2020. These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in the annual financial statements prepared in accordance with the accounting practices prescribed or permitted by the Insurance Department have been condensed or omitted pursuant to such rules and regulations.  However, the Company believes that the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed financial statements and notes should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2020. These results are not necessarily indicative of the results to be expected for the full year.

 

Use of Estimates

 

The preparation of the unaudited condensed statutory basis financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed 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, policy 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 NAIC.

 

Bonds and notes: Bonds 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 obtained 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 using the prospective method.

 

Net investment income: Net investment income is recognized on an accrual basis. Investment income reflects amortization of premiums and accretion of discounts on an effective-yield basis using expected cash flows.

 

Net realized capital (losses): Net realized capital (losses) on the sale of investments are determined based upon the specific identification method and are recorded on the trade date.

 

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 March 31, 2021 and December 31, 2020, as applicable.

 

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 unaudited condensed 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. 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.

See accompanying notes to unaudited condensed statutory basis financial statements7

 

 

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.

 

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the U.S. federal government on March 27, 2020.  The income tax provisions of the CARES Act did not have a material impact on the Company’s unaudited condensed statutory basis financial statements.

 

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 unaudited condensed 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 is the only reinsurer, and there is no allowance for doubtful accounts given the lack of concern about the risk of default on reinsurance receivable balances.

 

Separate Accounts

 

The Company issues single premium deferred index annuities, single premium deferred modified guaranteed index annuities and flexible premium variable and index linked deferred annuities, the assets and liabilities of which are legally segregated and reflected in the accompanying unaudited condensed statutory basis statements of admitted assets, liabilities and capital and surplus as assets and liabilities of the separate accounts. All separate account assets and liabilities are ceded to CMFG Life on a coinsurance basis except the variable annuity of the flexible premium variable and index linked deferred annuities that are ceded on a modified coinsurance basis and the related assets and liabilities are retained in the Company’s separate account.

 

Separate account assets for the variable annuity component of the flexible premium variable and index linked deferred and single premium deferred modified guaranteed index 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 contract fee income for investment management and policy administration are reflected by the Company in the accompanying unaudited condensed statutory basis statements of operations.

 

The variable annuity contract holders of the flexible premium variable and index linked deferred and the single premium deferred modified guaranteed index annuity are able to invest in investment funds managed for their benefit. All of the flexible premium variable separate account assets are invested in unit investment trusts that are registered with the Securities and Exchange Commission as of March 31, 2021 and December 31, 2020, respectively.

 

CMFG Life, on behalf of MLIC, invests the single premium deferred index annuity, single premium deferred modified guaranteed index annuity and flexible premium deferred variable premiums for the benefit of the contract holder. The single premium deferred index, single premium deferred modified guaranteed index and flexible premium variable and index linked deferred annuities 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. 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 unaudited condensed statutory basis statements of operations in the period the change is determined to be necessary. Such adjustments could be material.

See accompanying notes to unaudited condensed statutory basis financial statements8

 

 

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 net level reserve basis or the Commissioner’s Reserve Valuation Method (“CRVM”) basis dependent on product type and issue date. Depending upon the issue year, the American Experience table, the American Men table, or the 1941, 1958, 1980, 2001, or 2017 Commissioners Standard Ordinary mortality table is used.

 

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 fixed annuities, equity indexed annuities and variable 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 annuity, 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 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.

 

The policy reserves are 100% ceded to CMFG Life.

 

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.

 

Statutory Valuation Reserves

 

The interest maintenance reserve (“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, it is nonadmitted.

 

The asset valuation reserve (“AVR’) is a formulaic reserve for fluctuations in the values of invested assets, primarily bonds and notes. Changes in the AVR are charged or credited directly to unassigned surplus.

See accompanying notes to unaudited condensed statutory basis financial statements9

 

 

Other Liabilities

 

The Company issues the single premium deferred index annuity contracts, single premium deferred modified guaranteed index annuity contracts and flexible premium deferred variable and index linked 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.  Other liabilities primarily consist of these pending customer funds, which are released from other liabilities when the policy is issued.

 

Note 3: Investments

 

Bonds and Notes

 

The statement value, which generally represents amortized cost, gross unrealized gains and losses and fair value of investments in bonds and notes at March 31, 2021 are as follows:

                 
                 
   Statement   Gross Unrealized     
   Value   Gains   Losses   Fair Value 
                     
U.S. government and agencies  $8,733   $462   $-   $9,195 
Industrial and miscellaneous   15,927    916    (321)   16,522 
Commercial mortgage-backed securities   1,972    -    (16)   1,956 
Residential mortgage-backed securities   1,386    54    -    1,440 
Non-mortgage asset-backed securities   998    -    -    998 
                     
Total bonds and notes  $29,016   $1,432   $(337)  $30,111 

 

The statement value, which generally represents amortized cost, gross unrealized gains and losses and fair value of investments in bonds and notes at December 31, 2020 are as follows:

                 
                 
       Gross   Gross     
   Statement   Unrealized   Unrealized     
   Value   Gains   Losses   Fair Value 
                 
U.S. government and agencies  $8,734   $1,916   $-   $10,650 
Industrial and miscellaneous   16,926    1,170    (1)   18,095 
Commercial mortgage-backed securities   1,977    3    -    1,980 
Residential mortgage-backed securities   1,674    60    -    1,734 
Non-mortgage asset-backed securities   998    -    (8)   990 
                     
Total bonds and notes  $30,309   $3,149   $(9)  $33,449 

 

See accompanying notes to unaudited condensed statutory basis financial statements10

 

The statement value and fair value of bonds and notes at March 31, 2021, 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 classified by expected maturity in the table below by contractual maturity.

         
         
   Statement     
   Value   Fair Value 
         
Due in one year or less  $1,996   $2,063 
Due after one year through five years   6,972    7,562 
Due after five years through ten years   6,959    6,898 
Due after ten years   8,733    9,194 
Residential mortgage-backed securities   1,386    1,440 
Commercial mortgage-backed securities   1,972    1,956 
Non-mortgage asset-backed securities   998    998 
           
Total bonds and notes  $29,016   $30,111 

 

Cash and Cash Equivalents

 

The details of cash and cash equivalents as of March 31, 2021 and December 31, 2020, are as follows:

         
         
   March 31,   December 31, 
   2021   2020 
           
Cash equivalents  $36,688   $24,336 
Cash   8,225    2,074 
           
Total cash and cash equivalents  $44,913   $26,410 

 

Net Investment Income

 

Sources of net investment income for the three months ended March 31 are summarized as follows:

         
         
   March 31,   March 31, 
   2021   2020 
           
Bonds and notes  $204   $266 
Cash and cash equivalents   3    96 
           
Gross investment income   207    362 
           
Less investment expenses   14    15 
           
Net investment income  $193   $347 

 

Investment expenses are allocated from a related party for investment management fees and include interest, salaries, brokerage fees and securities’ custodial fees.

See accompanying notes to unaudited condensed statutory basis financial statements11

 

 

Due and accrued investment income over 90 days past due is excluded from the unaudited condensed statutory basis statements of admitted assets, liabilities, and capital and surplus as a nonadmitted asset. There was no accrued investment income excluded at March 31, 2021 and December 31, 2020 on this basis.

 

Net Realized Capital (Losses)

 

The net realized capital (losses) of ($15) and ($49) for the three months ended March 31, 2021 and 2020 related to taxes on previously deferred capital gains (losses) on intercompany portfolio transfers between the Company and affiliates.

 

There were no proceeds from the sales of bonds and notes for the three months ended March 31, 2021 and 2020, respectively.

 

Other-Than-Temporary Investment Impairments

 

Investment securities are reviewed for OTTI on an ongoing basis. The Company creates a watchlist of securities based primarily on the fair value of an investment security relative to its 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 statement value.

 

The underlying reason for the decline in fair value (credit concerns, interest rates, etc.).

 

The financial condition and near-term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions and cash flow analysis.

 

For mortgage-backed and structured securities, the Company’s intent and ability to retain its investment for a period of time sufficient to allow for an anticipated recovery in fair value.

 

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 bond and 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. When this 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. If the bond is a loan-backed or structured security, it is considered to be other-than-temporarily impaired when the amortized cost exceeds the present value of cash flows expected to be collected and its value is not expected to recover through the Company’s holding period. The amount of OTTI recognized in net income as a realized loss equals the difference between the investment’s amortized cost basis and its expected cash flows. 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 above its cost basis.

 

Management believes it has made an appropriate provision for other-than-temporarily impaired securities owned at March 31, 2021 and December 31, 2020. Future declines in fair value may result in additional OTTI. 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 the three months ended March 31, 2021 and 2020 caused by an intent to sell or lack of intent and ability to hold until recovery of the amortized cost basis.

 

See accompanying notes to unaudited condensed statutory basis financial statements12

 

Net Unrealized Capital (Losses)

 

Information regarding the Company’s bonds and notes with unrealized losses at March 31, 2021 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   March 31, 2021 
   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss 
                         
Industrial and miscellaneous  $4,651   $(321)  $-   $-   $4,651   $(321)
Commercial mortgage-backed   1,955    (16)   -    -    1,955    (16)
                               
Total bonds and notes  $6,606   $(337)  $-   $-   $6,606   $(337)

 

At March 31, 2021, the Company owned six securities with a fair value of $6,606 in an unrealized loss position. The Company owned five industrial and miscellaneous securities with an unrealized loss of $321, and one commercial mortgage-backed security with an unrealized loss of $16. The total fair value of securities with unrealized losses at March 31, 2021 and which are rated “investment grade” based on having an NAIC rating of 1 or 2 is $6,606 or 100% of the total fair value of all securities with unrealized losses at March 31, 2021.

 

Information regarding the Company’s bonds and notes with unrealized losses at December 31, 2020 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, 2020 
   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss 
                         
Industrial and miscellaneous  $1,004   $(1)  $-   $-   $1,004   $(1)
Non-mortgage asset-backed   990    (8)   -    -    990    (8)
                               
Total bonds and notes  $1,994   $(9)  $-   $-   $1,994   $(9)

 

At December 31, 2020, the Company owned two securities with a fair value of $1,994 in an unrealized loss position. The Company owned one industrial and miscellaneous security with an unrealized loss of $1, and one non-mortgage asset-backed security with an unrealized loss of $8. The total fair value of securities with unrealized losses at December 31, 2020 and which are rated “investment grade” based on having an NAIC rating of 1 or 2 is $1,994 or 100% of the total fair value of all securities with unrealized losses at December 31, 2020.

 

See accompanying notes to unaudited condensed statutory basis financial statements13

 

 

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 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 measuring 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 applicable 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 assets and liabilities are appropriately valued.

 

See accompanying notes to unaudited condensed statutory basis financial statements14

 

 

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, processes 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 professionals. In addition, when fair value 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 three months ended March 31, 2021 and 2020.

 

Determination of Fair Values

 

The following table summarizes the Company’s assets and liabilities that are measured at fair value as of March 31, 2021.

 

                 
Assets, at Fair Value  Level 1   Level 2   Level 3   Total 
                 
Cash equivalents  $36,688   $-   $-   $36,688 
Separate account assets   -    249,095    -    249,095 
                     
Total assets at fair value  $36,688   $249,095   $-   $285,783 
                     
                     
Liabilities, at Fair Value   Level 1    Level 2    Level 3    Total 
                     
Separate account liabilities  $-   $249,095   $-   $249,095 
                     
Total liabilities at fair value  $-   $249,095   $-   $249,095 

 

See accompanying notes to unaudited condensed statutory basis financial statements15

 

 

The following table summarizes the Company’s assets and liabilities that are measured at fair value as of December 31, 2020.

 

                 
Assets, at Fair Value  Level 1   Level 2   Level 3   Total 
                 
Cash equivalents  $24,336   $-   $-   $24,336 
Separate account assets   -    230,314    -    230,314 
                     
Total assets at fair value  $24,336   $230,314   $-   $254,650 
                     
                     
Liabilities, at Fair Value   Level 1    Level 2    Level 3    Total 
                     
Separate account liabilities  $-   $230,314   $-   $230,314 
                     
Total liabilities at fair value  $-   $230,314   $-   $230,314 

 

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.

 

See accompanying notes to unaudited condensed statutory basis financial statements16

 

 

The following table summarizes the carrying amounts and fair values of the Company’s financial instruments for which it is practicable to estimate fair value by fair value measurement level at March 31, 2021:

 

                     
   Carrying                 
   Amount   Fair Value   Level 1   Level 2   Level 3 
Financial instruments recorded as assets:                         
Bonds and notes  $29,016   $30,111   $-   $29,113   $998 
Cash equivalents¹   36,688    36,688    36,688    -    - 
Separate account assets   249,095    249,095    -    249,095    - 
Financial instruments recorded as liabilities:                         
Separate account liabilities   249,095    249,095    -    249,095    - 

1 Excludes cash of $8,225 that is not subject to fair value accounting.

 

The following table summarizes the carrying amounts and fair values of the Company’s financial instruments for which it is practical to estimate by fair value measurement level at December 31, 2020:

 

                     
   Carrying                 
   Amount   Fair Value   Level 1   Level 2   Level 3 
                 
Financial instruments recorded as assets:                
Bonds and notes  $30,309   $33,449   $-   $32,459   $990 
Cash equivalents1   24,336    24,336    24,336    -    - 
Separate account assets   230,314    230,314    -    230,314    - 
Financial instruments recorded as liabilities:                         
Separate account liabilities   230,314    230,314    -    230,314    - 

1 Excludes cash of $2,074 that is not subject to fair value accounting.

 

The carrying amount for cash approximates fair value due to the short-term nature and has been excluded from the fair value tables above.

 

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments by fair value hierarchy level:

 

Level 1 Measurements

 

Cash equivalents: Consists of money market mutual funds reported as cash and cash equivalents. Their valuation is based on the closing price as of the unaudited condensed statements of admitted assets, liabilities and capital and surplus date.

 

Level 2 Measurements

 

Bonds and notes: Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data.

 

Separate account assets and liabilities: Separate account assets are investments in mutual funds and unit investment trusts in which the contract holder could redeem its investment at net asset value per share at the measurement date with the investee; and bonds and notes where valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data; and options where valuation is based primarily on quoted interest rates, derivative markets, market-implied volatility and other observable inputs regularly used by industry participants in over-the-counter derivatives markets. Separate account liabilities represent the account value owed to the customer; the fair value is determined by reference to the fair value of the related separate account assets.

 

See accompanying notes to unaudited condensed statutory basis financial statements17

 

 

Level 3 Measurements

 

Bonds and notes: Valuation is principally based on unobservable inputs that are significant including estimated prices for similar assets in markets that may not be active. When available, market indices and observable inputs, along with analytical modeling are used.

 

Note 5: Income Tax

 

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.

 

Reconciliation to U.S. Tax Rate

 

The total statutory provision for income taxes for the three months ended March 31, 2021 and 2020 differs from the amount computed by applying the U. S. federal corporate income tax rate of 21% to income before federal income taxes plus gross realized capital gains (losses) due to the items listed in the following reconciliation:

 

         
   March 31,   March 31, 
   2021   2020 
         
Tax expense computed at federal corporate rate  $43   $54 
Foreign tax credit   (8)   (10)
Income tax (benefit) related to prior years   (21)   (34)
Nonadmitted assets   (142)   96 
Interest maintenance reserve amortization   5    6 
Dividends received deductions   (19)   (21)
           
Total statutory income taxes  $(142)  $91 
           
Federal income tax expense  $199   $46 
Change in net deferred income tax   (341)   45 
           
Total statutory income taxes  $(142)  $91 

 

See accompanying notes to unaudited condensed statutory basis financial statements18

 

 

Note 6: Related Party Transactions

 

In the normal course of business, the Company has various lending and other transactions with related entities. In certain circumstances, expenses 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 intercompany activity are generally settled monthly. The Company reimbursed CMFG Life $13,085 and $11,358 in the three months ended March 31, 2021 and 2020, respectively.

 

CMFG Life provides significant services required in the conduct of the Company’s operations pursuant to an agreement. CMFG Life allocates expenses to the Company on the basis of estimated time spent by employees of CMFG Life on Company matters and the use of operational resources. The Company believes the allocations of expenses are reasonable, and that the results of the Company’s operations may have materially differed in a negative manner from the results reflected in the condensed statutory basis financial statements if the Company did not have this relationship.

 

Significant amounts due to/from affiliates are shown in the following table:

 

         
   March 31,   December 31, 
   2021   2020 
Due to the Company:          
CMFG Life  $-   $218 
Other   25    5 
Total  $25   $223 
           
Due from the Company:          
CMFG Life  $15,711   $14,680 
CUNA Brokerage Services, Inc. (“CBSI”)   4,631    3,513 
Other   149    136 
Total  $20,491   $18,329 

 

MEMBERS Capital Advisors, Inc., (“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’s upstream parent, CMFG Life. The Company recorded MCA investment management fees totaling $14 and $15 for the three months ended March 31, 2021 and 2020, respectively, which are included in net investment income on the unaudited condensed statutory basis statements of operations.

 

The Company utilizes CBSI, which is 100% owned by CMIC, to distribute its annuity products and recorded commission expense for this service of $10,970 and $9,401 for the three months ended March 31, 2021 and 2020, respectively, which is included in insurance taxes, licenses, fees and commissions on the unaudited condensed statutory basis statements of operations. Commissions paid to non-affiliates totaled $9,972 and $4,405 for the three months ended March 31, 2021 and 2020, respectively, which are included in insurance taxes, licenses, fees and commissions on the unaudited condensed statutory basis statements of operations.

 

See accompanying notes to unaudited condensed statutory basis financial statements19

 

 

Note 7: Reinsurance

 

The Company entered into a coinsurance and modified coinsurance agreement with its affiliate, CMFG Life, to cede 100% of its life, accident and health, and annuity business. The Company entered into the coinsurance and modified coinsurance agreement for the purpose of limiting its exposure to loss on any one single insured, diversifying its risk and limiting its overall financial exposure, to certain products, and to meet its overall financial objectives. The Company retains the risk of loss in the event that CMFG Life is unable to meet the obligations assumed under the reinsurance agreements.

 

The Company cedes 100% of its annuity business to its parent, 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.

 

The following table shows the effect of reinsurance on premiums, benefits, and surrenders, and increase in policy reserves for the three months ended March 31, 2021 and 2020.

 

         
   March 31,   March 31, 
   2021   2020 
Premiums earned:          
Direct  $336,936   $308,418 
Ceded to affiliates   (336,936)   (308,418)
Premiums earned, net of reinsurance  $-   $- 
Contract charges          
Direct   (920)   313 
Ceded to affiliates   920    (313)
Contract charges, net of reinsurance  $-   $- 
Benefits and surrender expenses:          
Direct  $113,528   $67,365 
Ceded to affiliates   (113,528)   (67,365)
Benefits and surrender expenses, net of reinsurance  $-   $- 
Increase in policy reserves:          
Direct  $2,285   $(1,420)
Ceded to affiliates   (2,285)   1,420 
Increase in policy reserves, net of reinsurance  $-   $- 

 

Note 8: 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 2021 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 $132 at March 31, 2021 and December 31, 2020 for guaranty fund assessments, respectively, which is reported in other liabilities in the unaudited condensed statutory basis statements of admitted assets, liabilities and capital and surplus. The Company also estimates the amount recoverable from future premium tax payments related to these assessments and has not established an asset as of March 31, 2021 and December 31, 2020 since it does not believe any amount will be recoverable. Recoveries of assessments from premium taxes are generally made over a five-year period.

 

See accompanying notes to unaudited condensed statutory basis financial statements20

 

 

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 routinely 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’s practices. The ultimate outcome of these disputes is unpredictable.

 

These matters in some cases raise difficult and complicated factual and legal issues and are subject to many 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 judicial 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 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 unaudited condensed statutory basis financial statements of the Company.

 

Note 9: Subsequent Events

 

The Company evaluated subsequent events through the date the unaudited condensed statutory basis financial statements were issued. During this period, there were no subsequent events that required adjustment to or disclosure in the accompanying unaudited condensed statutory basis financial statements.

 

See accompanying notes to unaudited condensed statutory basis financial statements21

 

 

MEMBERS Life Insurance Company

 

Statutory Basis Financial Statements

as of December 31, 2020 and 2019

and for each of the Three Years Ended

December 31, 2020, 2019 and 2018,

Supplemental Schedules as of and for the

the Year Ended December 31, 2020

and Independent Auditors’ Report

 

1

 

 

INDEPENDENT AUDITORS’ REPORT

 

Audit Committee and Stockholder of
MEMBERS Life Insurance Company
Waverly, Iowa

 

We have audited the accompanying statutory basis financial statements of MEMBERS Life Insurance Company (the “Company”), which comprise the statutory basis statements of admitted assets, liabilities, and capital and surplus as of December 31, 2020 and 2019, and the related statutory basis statements of operations, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the statutory basis financial statements.

 

Management’s Responsibility for the Statutory Basis Financial Statements

 

Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these statutory basis financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statutory basis financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statutory basis financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the statutory basis financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the statutory basis financial statements 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, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statutory basis financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

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 MEMBERS Life Insurance 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.

 

2

 

 

The effects on the statutory basis financial statements of the variances between the statutory basis of accounting described in Note 2 to the statutory basis financial statements and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

 

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 paragraph, the statutory basis financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of MEMBERS Life Insurance Company as of December 31, 2020 and 2019, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2020.

 

Opinion on Statutory Basis of Accounting

 

In our opinion, the statutory basis financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, and capital and surplus of MEMBERS Life Insurance Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in accordance with the accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division as described in Note 2 to the statutory basis financial statements.

 

Emphasis of Matter

 

As discussed in Note 1 to the statutory basis financial statements, results of the Company may not be indicative of those of a stand-alone entity, as the Company is a member of a controlled group of affiliated companies. Our opinion is not modified with respect to this matter.

 

3

 

 

Report on Supplemental Schedules

 

Our 2020 audit was conducted for the purpose of forming an opinion on the 2020 statutory basis financial statements as a whole. The supplemental schedule of selected financial data, the supplemental summary investment schedule, the supplemental investment risks interrogatories, and the supplemental reinsurance contract interrogatories as of and for the year ended December 31, 2020 are presented for purposes of additional analysis and are not a required part of the 2020 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 2020 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 2020 statutory basis financial statements as a whole.

  

/s/ DELOITTE & TOUCHE LLP

 

Chicago, Illinois

March 4, 2021

 

4

 

 

 

MEMBERS Life Insurance Company

Statutory Basis Statements of Admitted Assets, Liabilities and Capital and Surplus
December 31, 2020 and 2019
($ in 000s) 

 

 

Admitted Assets  2020   2019 
Cash and invested assets          
Bonds and notes  $30,309   $34,412 
Cash and cash equivalents   26,410    29,037 
Total cash and invested assets   56,719    63,449 
Accrued investment income   257    358 
Federal income taxes recoverable from affiliate   3,278    3,493 
Net deferred tax asset   255    670 
Amounts due from reinsurers   12,718    6,827 
Receivables from affiliates   223    8 
Other assets   11    13 
Separate account assets   230,314    169,654 
Total admitted assets  $303,775   $244,472 
           
Liabilities and Capital and Surplus          
Liabilities          
Reinsurance payable  $7,397   $14,933 
Amount held for others   27    8 
Payable to affiliates   18,329    8,626 
Commissions, expenses, taxes, licenses, and fees accrued   499    763 
Asset valuation reserve   -    40 
Other liabilities   15,925    17,608 
Transfers to (from) separate accounts   (9,416)   (7,149)
Separate account liabilities   230,314    169,654 
Total liabilities   263,075    204,483 
Capital and surplus          
Capital          
          
Common stock, $5 par value, 1,000 shares
issued and outstanding
   5,000    5,000 
Paid-in capital   31,153    31,153 
Unassigned surplus   4,547    3,836 
Total capital and surplus   40,700    39,989 
Total liabilities and capital and surplus  $303,775   $244,472 

 

 

See accompanying notes to statutory basis financial statements

 

5

 

 

 

MEMBERS Life Insurance Company

Statutory Basis Statements of Operations
Years Ended December 31, 2020, 2019, and 2018
($ in 000s)

 

 

   2020   2019   2018 
Income               
Net investment income  $1,017   $1,626   $758 
Reinsurance commissions   103,297    85,813    71,157 
Commission and fee income   -    38    18 
Other income   31,596    39,864    40,425 
Total income   135,910    127,341    112,358 
Benefits and expenses               
General insurance expenses   45,029    37,669    30,755 
Insurance taxes, licenses, fees, and commissions   58,279    48,143    40,402 
Net transfers to separate accounts   31,908    40,318    40,705 
Total benefits and expenses   135,216    126,130    111,862 
Income before federal income tax expense (benefit)               
and net realized capital (losses)   694    1,211    496 
Federal income tax expense (benefit)   256    (59)   (74)
Income before net realized capital (losses)   438    1,270    570 
Net realized capital (losses), excluding gains transferred               
to IMR, net of tax expense (2020 - $100; 2019 - $23;               
 2018 - $154)  excluding taxes transferred to IMR               
(2020 - $0; 2019 - ($4); 2018 - ($3))   (241)   (20)   (151)
Net income  $197   $1,250   $419 

 

 

See accompanying notes to statutory basis financial statements

6

 

 

 

MEMBERS Life Insurance Company

Statutory Basis Statements of Changes in Capital and Surplus
Years Ended December 31, 2020, 2019, and 2018
($ in 000s)

 

 

   2020   2019   2018 
Capital and surplus at beginning of year  $39,989   $39,447   $18,600 
Additions (deductions)               
Net income   197    1,250    419 
Change in net deferred income tax   241    209    387 
Change in nonadmitted assets   233    (897)   (595)
Change in asset valuation reserve   40    (20)   (17)
Paid-in capital   -    -    20,653 
Net additions   711    542    20,847 
Capital and surplus at end of year  $40,700   $39,989   $39,447 

 

 

See accompanying notes to statutory basis financial statements

7

 

 

 

MEMBERS Life Insurance Company

Statements of Cash Flows

Years Ended December 31, 2020, 2019, and 2018
($ in 000s)

 

 

   2020   2019   2018 
Cash from operating activities               
Premiums and other considerations  $(7,537)  $7,522   $(8,605)
Net investment income received   1,191    1,568    790 
Reinsurance commissions   103,297    85,813    71,157 
Other income   25,668    36,446    52,391 
Policy and contract benefits and dividends paid   187    (44)   (363)
Operating expenses paid   (94,087)   (83,030)   (64,178)
Federal income taxes paid   (141)   (568)   (497)
Net transfers (to) separate accounts   (34,175)   (42,734)   (42,947)
Net cash provided by (used in) operating activities   (5,597)   4,973    7,748 
Cash from investing activities               
Proceeds from investments sold, matured or repaid               
Bonds and notes   11,864    428    1,268 
Total investment proceeds   11,864    428    1,268 
Cost of investments acquired               
Bonds and notes   7,951    4,994    - 
Total investments acquired   7,951    4,994    - 
Net cash provided by (used in) investing activities   3,913    (4,566)   1,268 
Cash from financing and miscellaneous activities               
Net deposits (withdrawals) on deposit-type contracts   (26)   (12)   (7)
Other cash provided (used)   (917)   3,730    (2,536)
Net cash provided by (used in) financing               
and miscellaneous activities   (943)   3,718    (2,543)
Net change in cash and cash equivalents   (2,627)   4,125    6,473 
Cash and cash equivalents at the beginning of the year   29,037    24,912    18,439 
                
Cash and cash equivalents at the end of the year  $26,410   $29,037   $24,912 
                
Supplemental disclosure of non-cash transactions               
Capital contribution of securities from parent  $-   $-   $20,653 

 

 

See accompanying notes to statutory basis financial statements

8

 

 

 

MEMBERS Life Insurance Company 

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Note 1: Nature of Business

 

MEMBERS Life Insurance Company (“MEMBERS Life” or the “Company” or “MLIC”) is a stock life and health insurance 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. The Company began selling a single premium deferred index annuity contracts in 2013, a flexible premium deferred variable and index linked annuity contracts in 2016, and a single premium deferred modified guaranteed index annuity in 2019. All products are sold to consumers, including credit union members, through the face-to-face distribution channel. The Company has reinsurance agreements with CMFG Life under which it cedes 100% of its business to CMFG Life. See Note 7, Reinsurance, for information on the Company’s reinsurance agreements. Prior to 2013, the Company did not actively market new business; it primarily serviced existing blocks of individual and group life policies.

 

The Company is authorized to sell life, health and annuity policies in all states in the U.S. and the District of Columbia, except New York. The following table identifies states with premiums greater than 5% of total direct premium and states with deposits on annuity contracts greater than 5% of total deposits:

 

        Deposits on
    Direct Premium  Annuity Contracts
                          
    2020   2019   2018   2020   2019   2018 
0                         
Michigan   61%  60%  62%  5%  6%  7%
Texas   24   25   24   6   5    * 
California   5   5   5   5    *    * 
Pennsylvania    *    *    *   7   7   8 
Wisconsin    *    *    *   6   6   5 
North Carolina    *    *    *   5    *    * 
Florida    *    *    *   5   5   6 
Indiana    *    *    *   5    *   5 
Iowa    *    *    *    *   5   6 

*Less than 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, 2020.

 

The accompanying statutory basis financial statements reflect various transactions and balances with the Company’s affiliates. See Note 6 for a description of the more significant transactions. While the Company believes that these transactions were at reasonable terms, the results of operations of the Company may have differed had these transactions been consummated with unrelated parties.

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S economy as federal, state, and local governments react to this public health crisis.

 

The impacts of the current COVID-19 pandemic are broad reaching, and the impacts on the Company’s financial statements to date have not been estimated. Due to the COVID-19 outbreak, there is uncertainty surrounding the potential impact on the Company’s future financial position, results of operations and related cash flows. Continued impacts of the pandemic could materially adversely affect the Company’s near-term and long-term premium revenues, policyholder benefits, earnings, liquidity, and cash flows. These potential impacts will largely depend on future developments that cannot be accurately predicted, including the duration and severity of the pandemic, government actions, and the length of time until the economy recovers.

 

 

9

 

 

 

MEMBERS Life Insurance Company 

Notes to Statutory Basis Financial Statements
($ in 000s)

 

  

Note 2: Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying statutory basis financial statements have been prepared in conformity 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.

 

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, the interest maintenance reserve and items not allocated) 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 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.

 

Policy reserves, which are 100% ceded to CMFG Life, are established based on mortality and interest assumptions prescribed or permitted 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.

 

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 for the statutory basis statements of operations.

 

 

10

 

 

 

MEMBERS Life Insurance Company

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

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 reporting. Such a reserve is not recorded under GAAP. For statutory reporting, the interest maintenance reserve (“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.

 

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.

 

Single premium deferred index annuities, single premium deferred modified guaranteed index annuities and flexible premium variable and index linked deferred annuities are reported as a separate account product 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 requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as 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, policy 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 NAIC.

 

Bonds and notes: Bonds 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 obtained 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 using the prospective method.

 

 

11

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s) 

 

 

Net investment income: Investment income is recognized on an accrual basis. Investment income reflects amortization of premiums and accretion of discounts on an effective-yield basis using expected cash flows.

 

Net realized capital (losses): Realized capital (losses) on the sale of investments are determined based upon the specific identification method and are recorded on the trade date.

 

Net unrealized capital gains: Unrealized capital gains and losses are included in unassigned surplus, net of deferred federal income taxes.

 

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 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.

 

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the U.S. federal government on March 27, 2020.  The income tax provisions of the CARES Act did not have a material impact on the Company’s statutory basis financial statements.

 

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. Since CMFG Life is the only reinsurer, there is no concern of default on reinsurance receivable balances.

 

 

12

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Separate Accounts

 

The Company issues single premium deferred index annuities, single premium deferred modified guaranteed index annuities and flexible premium variable and index linked deferred annuities, the assets and liabilities of which are legally segregated and reflected in the accompanying statutory basis statements of admitted assets, liabilities and capital and surplus as assets and liabilities of the separate accounts. All separate account assets and liabilities are ceded to CMFG Life on a coinsurance basis except the variable annuity of the flexible premium variable and index linked deferred annuities that are ceded on a modified coinsurance basis and the related assets and liabilities are retained in the Company’s separate account.

 

Separate account assets for the variable annuity component of the flexible premium variable and index linked deferred and single premium deferred modified guaranteed index 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 contract fee income for investment management and policy administration are reflected by the Company in the accompanying statutory basis statements of operations.

 

The variable annuity contract holders of the flexible premium variable and index linked deferred and the single premium deferred modified guaranteed index annuity are able to invest in investment funds managed for their benefit. All of the flexible premium variable separate account assets are invested in unit investment trusts that are registered with the Securities and Exchange Commission as of December 31, 2020 and 2019, respectively.

 

CMFG Life, on behalf of MLIC, invests the single premium deferred index annuity, single premium deferred modified guaranteed index annuity and flexible premium deferred variable premiums for the benefit of the contract holder. The single premium deferred index, single premium deferred modified guaranteed index and flexible premium variable and index linked deferred annuities 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. 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 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 net level reserve basis or the Commissioner’s Reserve Valuation Method (“CRVM”) basis dependent on product type and issue date. Depending upon the issue year, either the American Experience table, the American Men table, the 1941, 1958, 1980, 2001, or 2017 Commissioners Standard Ordinary mortality table is used.

 

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.

 

 

13

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

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 fixed annuities, equity indexed annuities and variable 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 annuity, 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 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.

 

The policy reserves are 100% ceded to CMFG Life.

 

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.

 

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, it is nonadmitted.

 

The AVR is a formulaic reserve for fluctuations in the values of invested assets, primarily bonds and notes. Changes in the AVR are charged or credited directly to unassigned surplus.

 

Other Liabilities

 

The Company issues the single premium deferred index annuity contracts, single premium deferred modified guaranteed index annuity contracts and flexible premium deferred variable and index linked 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.  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 application is completed.

 

Recently Adopted Accounting Standards

 

The Company adopted revised statutory principles-based based reserve valuation standards effective January 1, 2020. For life insurance, the amendments affect new business only and therefore had no impact on existing policy reserves. Further, the Company does not currently issue new life insurance business which would be impacted by the new valuation standards. For the flexible premium deferred variable and index linked annuities and single premium deferred modified guaranteed index annuity, there was an immaterial impact from adoption on the direct reserves, which are 100% ceded to CMFG Life.

 

 

14

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Note 3: Investments

 

Bonds and Notes

 

The statement value, which generally represents amortized cost, gross unrealized gains and losses and fair value of investments in bonds and notes at December 31, 2020 are as follows:

 

                 
       Gross   Gross     
   Statement   Unrealized   Unrealized     
   Value   Gains   Losses   Fair Value 
                 
U.S. government and agencies  $8,734   $1,916   $-   $10,650 
Industrial and miscellaneous   16,926    1,170    (1)   18,095 
Commercial mortgage-backed securities   1,977    3    -    1,980 
Residential mortgage-backed securities   1,674    60    -    1,734 
Non-mortgage asset-backed securities   998    -    (8)   990 
                     
Total bonds and notes  $30,309   $3,149   $(9)  $33,449 

 

The statement value, which generally represents amortized cost, gross unrealized gains and losses, and fair value of investments in bonds and notes at December 31, 2019 are as follows:

 

                 
       Gross   Gross     
   Statement   Unrealized   Unrealized     
December 31, 2019  Value   Gains   Losses   Fair Value 
                 
U.S. government and agencies  $8,739   $454   $-   $9,193 
Industrial and miscellaneous   20,455    861    -    21,316 
Residential mortgage-backed securities   3,217    18    -    3,235 
Non-mortgage asset-backed securities   2,001    -    -    2,001 
                     
Total bonds and notes  $34,412   $1,333   $-   $35,745 

 

 

15

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

The statement value and fair value of bonds and notes at December 31, 2020, 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 displayed in the table below by contractual maturity.

 

         
   Statement     
   Value   Fair Value 
         
Due in one year or less  $2,004   $2,022 
Due after one year through five years   7,964    8,709 
Due after five years through ten years   6,958    7,364 
Due after ten years   8,734    10,650 
Residential mortgage-backed securities   1,674    1,734 
Commercial mortgage-backed securities   1,977    1,980 
Non-mortgage asset-backed securities   998    990 
           
Total bonds and notes  $30,309   $33,449 

 

Cash and Cash Equivalents

 

The details of cash and cash equivalents as of December 31, are as follows:

 

         
   2020   2019 
Cash equivalents  $24,336   $28,122 
Cash   2,074    915 
Total cash and cash equivalents  $26,410   $29,037 

 

Net Investment Income

 

Sources of net investment income for the years ended December 31 are summarized as follows:

 

             
   2020   2019   2018 
Bonds and notes  $954   $971   $364 
Cash and cash equivalents   116    709    452 
Gross investment income   1,070    1,680    816 
Less investment expenses   53    54    58 
Net investment income  $1,017   $1,626   $758 

 

Investment expenses include interest, salaries, brokerage fees and securities’ custodial fees.

 

 

16

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

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, 2020 or 2019 on this basis.

 

Net Realized Capital (Losses)

 

Net realized capital (losses) for the years ended December 31 are summarized as follows:

 

             
   2020   2019   2018 
Gross gains from sales of bonds and notes  $1   $17   $17 
Other   (142)   -      
                
Realized capital gains (losses) before taxes and transfer to IMR   (141)   17    17 
                
Tax on realized capital gains (losses)   (100)   (24)   (155)
Transfer to interest maintenance reserve   -    (13)   (13)
Net realized capital (losses)  $(241)  $(20)  $(151)

 

Proceeds from the sale of bonds and notes were $2,002, $338, and $651 in 2020, 2019 and 2018, respectively.

 

Other-Than-Temporary Investment Impairments

 

Investment securities are reviewed for OTTI on an ongoing basis. The Company creates a watchlist of securities based largely on the fair value of an investment security relative to its 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 statement value.

 

The underlying reason for the decline in fair value (credit concerns, interest rates, etc.).

 

The financial condition and near-term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions and cash flow analysis.

 

For mortgage-backed and structured securities, the Company’s intent and ability to retain its investment for a period of time sufficient to allow for an anticipated recovery in fair value.

 

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 bond and 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. When this 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. If the bond is a loan-backed or structured security, it is considered to be other-than-temporarily impaired when the amortized cost exceeds the present value of cash flows expected to be collected and its value is not expected to recover through the Company’s holding period. The amount of the other-than-temporary impairment recognized in net income as a realized loss equals the difference between the investment’s amortized cost basis and its expected cash flows. 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 above its cost basis.

 

 

17

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Management believes it has made an appropriate provision for other-than-temporarily impaired securities owned at December 31, 2020 and 2019. As a result of the subjective nature of these estimates, however, additional provisions may subsequently be determined to be necessary, as new facts emerge and a greater understanding of economic trends develop. 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 2020, 2019 and 2018 caused by an intent to sell or lack of intent and ability to hold until recovery of the amortized cost basis.

 

Net Unrealized Capital (Losses)

 

Information regarding the Company’s bonds and notes with unrealized losses at December 31, 2020 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, 2020 
   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss   Fair Value   Unrealized Loss 
                         
Industrial and miscellaneous  $1,004   $(1)  $-   $-   $1,004   $(1)
Non-mortgage asset-backed   990    (8)   -    -    990    (8)
                               
Total bonds and notes  $1,994   $(9)  $-   $-   $1,994   $(9)

 

At December 31, 2020, the Company owned two securities with a fair value of $1,994 in an unrealized loss position. The Company owned one industrial and miscellaneous security with an unrealized loss of $1, and one non-mortgage asset-backed security with an unrealized loss of $8. The total fair value of securities with unrealized losses at December 31, 2020 and which are rated “investment grade” based on having an NAIC rating of 1 or 2 is $1,994 or 100% of the total fair value of all securities with unrealized losses at December 31, 2020.

 

The Company had no securities in an unrealized loss position at December 31, 2019.

 

 

18

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Assets Designated/Securities on Deposit

 

Iowa law requires that assets equal to a life insurer’s legal reserve must be designated for the Insurance Department for the protection of all policyholders. The legal reserve is equal to the net present value of all outstanding policies and contracts involving life contingencies. At December 31, 2020 and 2019, bonds and notes and cash with a statement value of $28,240 and $32,342, respectively, were accordingly designated for Iowa. Additionally, the Company designates assets for other regulatory jurisdictions who require cash and securities be deposited for the benefit of policyholders. Pursuant to these requirements, bonds and notes with a statement value of $2,119 and $2,120 were on deposit with other regulatory jurisdictions as of December 31, 2020 and 2019, respectively.

 

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.

 

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 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.

 

 

19

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

The hierarchy requires the use of market observable information when available for measuring 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 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 professionals. In addition, when fair value 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 years ended December 31, 2020 and 2019.

 

 

20

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Determination of Fair Values

 

The following table summarizes the Company’s assets and liabilities that are measured at fair value as of December 31, 2020.

 

                 
Assets, at Fair Value  Level 1   Level 2   Level 3   Total 
                 
Cash equivalents  $24,336   $-   $-   $24,336 
Separate account assets   -    230,314    -    230,314 
Total assets at fair value  $24,336   $230,314   $-   $254,650 
                     
                     
Liabilities, at Fair Value   Level 1    Level 2    Level 3    Total 
                     
Separate account liabilities  $-   $230,314   $-   $230,314 
Total liabilities at fair value  $-   $230,314   $-   $230,314 

 

The following table summarizes the Company’s assets and liabilities that are measured at fair value as of December 31, 2019.

 

                 
Assets, at Fair Value  Level 1   Level 2   Level 3   Total 
                 
Cash equivalents  $28,122   $-   $-   $28,122 
Separate account assets   -    169,654    -    169,654 
Total assets at fair value  $28,122   $169,654   $-   $197,776 
                     
                     
Liabilities, at Fair Value   Level 1    Level 2    Level 3    Total 
                     
Separate account liabilities  $-   $169,654   $-   $169,654 
Total liabilities at fair value  $-   $169,654   $-   $169,654 

 

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.

 

 

21

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

The following table summarizes the carrying amounts and fair values of the Company’s financial instruments for which it is practicable to estimate fair value by fair value measurement level at December 31, 2020:

 

                     
   Carrying                 
   Amount   Fair Value   Level 1   Level 2   Level 3 
Financial instruments recorded as assets:                         
Bonds and notes  $30,309   $33,449   $-   $32,459   $990 
Cash equivalents¹   24,336    24,336    24,336    -    - 
Separate account assets   230,314    230,314    -    230,314    - 
Financial instruments recorded as liabilities:                         
Separate account liabilities   230,314    230,314    -    230,314    - 

1Excludes cash of $2,074 that is not subject to fair value accounting.

 

The following table summarizes the carrying amounts and fair values of the Company’s financial instruments for which it is practical to estimate by fair value measurement level at December 31, 2019:

 

                     
   Carrying                 
   Amount   Fair Value   Level 1   Level 2   Level 3 
Financial instruments recorded as assets:                
Bonds and notes  $34,412   $35,745   $-   $35,745   $- 
Cash equivalents1   28,122    28,122    28,122    -    - 
Separate account assets   169,654    169,654    -    169,654    - 
Financial instruments recorded as liabilities:                         
Separate account liabilities   169,654    169,654    -    169,654    - 
1Excludes cash of $915 that is not subject to fair value accounting.

 

The carrying amount for cash approximates fair value due to the short-term nature and has been excluded from the fair value tables above.

 

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments by fair value hierarchy level:

 

Level 1 Measurements

 

Cash equivalents: Consists of money market mutual funds reported as cash and cash equivalents. Their valuation is based on the closing price as of the balance sheet date.

 

Level 2 Measurements

 

Bonds and notes: Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data.

 

Separate account assets and liabilities: Separate account assets are investments in mutual funds and unit investment trusts in which the contract holder could redeem its investment at net asset value per share at the measurement date with the investee; and bonds and notes where valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data; and options where valuation is based primarily on quoted interest rates, derivative markets, market-implied volatility and other observable inputs regularly used by industry participants in over-the-counter derivatives markets. Separate account liabilities represent the account value owed to the customer; the fair value is determined by reference to the fair value of the related separate account assets.

 

 

22

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Level 3 Measurements

 

Bonds and notes: Valuation is principally based on unobservable inputs that are significant including estimated prices for similar assets in markets that may not be active. When available, market indices and observable inputs, along with analytical modeling are used.

 

Note 5: Income Tax

 

The Company is included in the consolidated federal income tax return of CMHC along with the 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., CUNA Mutual Investment Corporation, CUNA Mutual Insurance Agency, Inc., CUNA Brokerage Services, Inc., 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 ForeverCar Holdings, Inc.

 

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.

 

Current income tax expense (benefit) consists of the following for the years ended December 31:

 

             
   2020   2019   2018 
Federal income tax expense (benefit) on operations  $256   $(59)  $(74)
Federal income tax expense on realized capital gains (losses)   100    23    154 
Federal income tax expense (benefit)  $356   $(36)  $80 

 

 

23

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

The 2020 change in net deferred income tax is comprised of the following:

 

             
   December 31,   December 31,     
   2020   2019   Change 
Adjusted gross deferred tax assets  $1,108   $1,010   $98 
Total deferred tax liabilities   (197)   (340)   143 
Net deferred tax asset (excluding nonadmitted)  $911   $670   $241 
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            $241 

 

The 2019 change in net deferred income tax is comprised of the following:

 

             
             
   December 31,   December 31,     
   2019   2018   Change 
Adjusted gross deferred tax assets  $1,010   $828   $182 
Total deferred tax liabilities   (340)   (367)   27 
Net deferred tax asset (excluding nonadmitted)  $670   $461   $209 
Tax effect of unrealized capital gains and losses, unrealized foreign exchange capital gains and losses, and changes as a             -  
Change in net deferred income tax            $209 

 

The 2018 change in net deferred income tax is comprised of the following:

 

             
             
   December 31,   December 31,     
   2018   2017   Change 
Adjusted gross deferred tax assets  $828   $596   $232 
Total deferred tax liabilities   (367)   (498)   131 
Net deferred tax asset (excluding nonadmitted)  $461   $98    363 
Tax effect of unrealized capital gains and losses, unrealized foreign exchange capital gains and losses, and changes as a result of other surplus adjustments             24  
Change in net deferred income tax            $387 

 

 

24

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Reconciliation to U.S. Tax Rate

 

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 21% to income before federal income taxes plus gross realized capital gains (losses) due to the items listed in the following reconciliation:

 

             
   2020   2019   2018 
             
Tax expense computed at federal corporate rate  $116   $258   $108 
Foreign tax credit   (32)   (40)   - 
Income tax (benefit) related to prior years   (82)   (159)   (240)
Nonadmitted assets   161    (247)   (134)
Interest maintenance reserve amortization   26    29    33 
Dividends received deductions   (76)   (87)   (59)
Other   3    2    (15)
                
Total statutory income taxes  $116   $(244)  $(307)
                
Federal income tax expense (benefit)  $356   $(36)  $80 
Change in net deferred income tax   (240)   (208)   (387)
                
Total statutory income taxes  $116   $(244)  $(307)

 

Deferred Income Taxes

 

The components of the net deferred tax asset at December 31 are as follows:

 

                                     
   December 31, 2020   December 31, 2019   Change 
   Ordinary   Capital   Total   Ordinary   Capital   Total   Ordinary   Capital   Total 
Gross deferred tax assets  $1,108   $-   $1,108   $1,010   $-   $1,010   $98   $-   $98 
Statutory valuation allowance adjustment   -    -    -    -    -    -    -    -    - 
Adjusted gross deferred tax assets   1,108    -    1,108    1,010    -    1,010    98    -    98 
Deferred tax assets nonadmitted   (656)   -    (656)   -    -    -    (656)   -    (656)
Admitted deferred tax assets   452    -    452    1,010    -    1,010    (558)   -    (558)
Deferred tax liabilities   -    (197)   (197)   -    (340)   (340)   -    143    143 
Net admitted deferred tax assets  $452   $(197)  $255   $1,010   $(340)  $670   $(558)  $143   $(415)

 

 

25

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

The nonadmitted deferred tax asset increased $656 in 2020 and did not change in 2019. 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, 2020 and 2019.

 

The tax effects of temporary differences that give rise to the significant portions of the deferred tax assets and liabilities at December 31 are as follows:

 

             
   2020   2019   Change 
Ordinary deferred tax assets:               
Life reserves method change  $4   $7   $(3)
Investments   6    -    6 
Deferred acquisition costs   807    479    328 
Miscellaneous nonadmitted assets   223    384    (161)
Other - accrued general expense   68    140    (72)
Subtotal ordinary deferred tax assets   1,108    1,010    98 
Nonadmitted ordinary deferred tax assets   (656)   -    (656)
Admitted ordinary deferred tax assets   452    1,010    (558)
Admitted deferred tax assets   452    1,010    (558)
Capital deferred tax liabilities:               
Investments   (197)   (340)   143 
Subtotal capital deferred tax liabilities   (197)   (340)   143 
Total deferred tax liabilities   (197)   (340)   143 
Net admitted deferred tax asset  $255   $670   $(415)

 

 

26

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Deferred Tax Asset Admission Calculation

 

The components of the deferred tax asset admission calculation at December 31 are as follows:

 

 

                                     
   December 31, 2020   December 31, 2019   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):   255    -    255    680    -    680    (425)   -    (425)
(i) Adjusted gross deferred tax assets expected to be realized following the balance sheet date   255    -    255    680    -    680    (425)   -    (425)
(ii) Adjusted gross deferred tax assets allowed per limitation threshold   -    -    6,067    -    -    5,898    -    -    169 
(c) Adjusted gross deferred tax assets offset by gross deferred tax liabilities   197    -    197    330    -    330    (133)   -    (133)
Admitted deferred tax assets  $452   $-   $452   $1,010   $-   $1,010   $(558)  $-   $(558)

  

The amounts calculated in (b)(i) and (b)(ii) in the table above are based on the following information:

 

         
   2020   2019 
Ratio percentage used to determine recovery period and          
threshold limitation amount (RBC reporting entity)   10514%   10916%
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)  $40,444   $39,319 

 

No tax planning strategies were used in the calculation of adjusted gross deferred tax assets or net admitted adjusted gross deferred tax assets during 2020 and 2019.

 

 

27

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Other Tax Items

 

As of December 31, 2020, the Company did not have any federal capital loss, operating loss, or credit carryforwards.

 

The Company has no taxes incurred in 2020, 2019, and 2018 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, 2020 and 2019 and has no tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within twelve months of the reporting date.

 

The Company recognizes interest and penalties accrued related to tax contingencies in income tax expense in the statutory basis statements of operations. During the years ended December 31, 2020, 2019 and 2018, the Company did not recognize any addition or reduction in interest and penalties. The Company had accrued $2 and $2 for the payment of interest and penalties at December 31, 2020 and 2019, respectively.

 

The Company is included in a consolidated U.S. federal income tax return filed by CMHC. The Company also files income tax returns in various states. 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 examination by tax authorities for the years ended before 2014.   Income tax liabilities have settled with the U.S. federal taxing authority (“IRS”) for tax year 2015, and the statute of limitations is closed.  Amended refund claims filed for tax years 2010 and 2012 are currently under examination as part of the Joint Committee on Taxation approval process.

 

Note 6: Related Party Transactions

 

In the normal course of business, the Company has various lending and other transactions with related entities. In certain circumstances, expenses 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 intercompany activity are generally settled monthly. The Company reimbursed CMFG Life $47,364, $38,579 and $30,131 in 2020, 2019, and 2018, respectively.

 

 

28

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Significant amounts due to/from affiliates are shown in the following table:

 

        
   2020   2019
Due to the Company:         
CMFG Life  $218   $-
Other   5    8
Total  $223   $8
          
Due from the Company:         
CUNA Brokerage Services, Inc.  $3,513   $3,383
CMFG Life   14,680    5,093
Other   136    150
Total  $18,329   $8,626

 

MEMBERS Capital Advisors, Inc., (“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’s upstream parent, CMFG Life. The Company recorded MCA investment management fees totaling $54, $54 and $58 in 2020, 2019, and 2018, respectively, which are included in net investment income on the statutory basis statements of operations.

 

Significant capital contributions from affiliates are shown in the following table:

 

             
   2020   2019   2018 
Capital contribution to MLIC from:               
CMIC  $-   $-   $20,653 
Total  $-   $-   $20,653 

 

The Company utilizes CBSI, which is 100% owned by CMIC, to distribute its annuity products and recorded commission expense for this service of $36,884, $34,180 and $29,996 in 2020, 2019, and 2018, respectively, which is included in insurance taxes, licenses, fees and commissions. Commissions paid to non-affiliates totaled $18,715, $12,994 and $8,136 in 2020, 2019, and 2018, respectively, which are included in insurance taxes, licenses, fees and commissions on the statutory basis statements of operations.

 

 

29

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Note 7: Reinsurance

 

The Company entered into a coinsurance and modified coinsurance agreement with its affiliate, CMFG Life, to cede 100% of its life, accident and health, and annuity business. The Company entered into the coinsurance and modified coinsurance agreement for the purpose of limiting its exposure to loss on any one single insured, diversifying its risk and limiting its overall financial exposure, to certain products, and to meet its overall financial objectives. The Company retains the risk of loss in the event that CMFG Life is unable to meet the obligations assumed under the reinsurance agreements.

 

The Company cedes 100% of its annuity business to its parent, 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.

 

The following table shows the effect of reinsurance on premiums, benefits, and surrenders, and increase in policy reserves for 2020, 2019, and 2018.

 

             
   2020   2019   2018 
Premiums earned:               
Direct  $1,170,733   $995,842   $830,582 
Ceded to affiliates   (1,170,733)   (995,842)   (830,582)
Premiums earned, net of reinsurance  $-   $-   $- 
Contract charges               
Direct   (836)   1,865    2,106 
Ceded to affiliates   836    (1,865)   (2,106)
Contract charges, net of reinsurance  $-   $-   $- 
Benefits and surrender expenses:               
Direct  $348,428   $158,793   $94,123 
Ceded to affiliates   (348,428)   (158,793)   (94,123)
Benefits and surrender expenses, net of reinsurance  $-   $-   $- 
Increase in policy reserves:               
Direct  $(2,136)  $3,630   $2,536 
Ceded to affiliates   2,136    (3,630)   (2,536)
Increase in policy reserves, net of reinsurance  $-   $-   $- 

 

Policy reserves and claim liabilities are stated net of reinsurance balances ceded of $39,749 and $40,092 in 2020 and 2019, respectively.

 

The Company receives a commission equal to 100% of its actual expenses incurred for the Company’s business in its single premium deferred index annuity product, flexible premium deferred variable and index linked annuity product, and single premium deferred modified guaranteed index annuity product, which was $102,791, $86,481 and $70,391 for the years ended December 31, 2020, 2019, and 2018, respectively. All remaining commissions relate to the Company’s life and health products and total $506, ($668) and $766 for the years ended December 31, 2020, 2019, and 2018, respectively.

 

 

30

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Note 8: Annuity Reserves and Deposit-Type Liabilities

 

The following tables show the withdrawal characteristics of the Company’s annuity reserves and deposit-type liabilities at December 31, 2020, which are reported as policy reserves on annuity contracts and liability for deposit-type contracts are as follows:

 

Individual Annuities

 

       Separate   Separate         
   General   Account with   Account       % of 
December 31, 2020  Account   Guarantees   Nonguaranteed   Total   Total 
                     
Subject to discretionary withdrawal -lump sum:                         
With market value adjustment  $-   $5,050,170   $-   $5,050,170    94.6%
At book value less surrender charge of 5% or more   2,851    -    -    2,851    0.1%
At fair value   -    -    220,969    220,969    4.1%
                          
Total with adjustment or at fair value   2,851    5,050,170    220,969    5,273,990    98.8%
At book value with minimal or no charge adjustment   205    59,534    -    59,739    1.1%
Not subject to discretionary withdrawal   7,074    -    -    7,074    0.1%
                          
Gross annuity reserves and deposit liabilities   10,130    5,109,704    220,969    5,340,803    100.0%
Reinsurance ceded   10,130    5,109,704    -    5,119,834      
                          
Total annuity reserves and deposit liabilities  $-   $-   $220,969   $220,969      

 

 

31

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Deposit-Type Contracts

 

       Separate   Separate         
   General   Account with   Account       % of 
December 31, 2020  Account   Guarantees   Nonguaranteed   Total   Total 
                     
Subject to discretionary withdrawal - lump sum:                         
With market value adjustment  $-   $-   $-   $-    0.0%
At book value less surrender charge of 5% or more   -    -    -    -    0.0%
At fair value   -    -    -    -    0.0%
                          
Total with adjustment or at fair value   -    -    -    -    0.0%
At book value with minimal or no charge adjustment   -    -    -    -    0.0%
Not subject to discretionary withdrawal   4,473    -    -    4,473    100.0%
                          
Gross annuity reserves and deposit liabilities   4,473    -    -    4,473    100.0%
Reinsurance ceded   4,473    -    -    4,473      
                          
Total annuity reserves and                         
deposit liabilities  $-   $-   $-   $-      

 

The following table shows policy liabilities associated with the Company’s annuity products:

 

     
   2020 
Annuity reserves from the separate accounts  $220,969 
Total annuity reserves  $220,969 

 

 

32

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

The following table shows life reserves by withdrawal characteristics at December 31, 2020:

 

                         
    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  $-   $38   $68   $-   $-   $- 
Universal life   2,649    2,649    2,704    -    -    - 
Other permanent cash value life insurance   -    11,474    12,353    -    -    - 
Miscellaneous reserves   -    36    34    -    -    - 
Not subject to discretionary withdrawal or no cash values:                              
Term policies with cash value   -    -    4,465    -    -    - 
Accidental death benefits   -    -    7    -    -    - 
Disability - active lives   -    -    3    -    -    - 
Disability - disabled lives   -    -    113    -    -    - 
Miscellaneous reserves   -    -    64    -    -    - 
Gross reserves before reinsurance   2,649    14,197    19,811    -    -    - 
Ceded reinsurance   2,649    14,197    19,811    -    -    - 
Net reserves  $-   $-   $-   $-   $-   $- 

 

 

33

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

The following tables show the withdrawal characteristics of the Company’s annuity reserves and deposit liabilities at December 31, 2019, which are reported as policy reserves on annuity contracts and liability for deposit-type contracts are as follows:

 

Individual Annuities

 

       Separate   Separate         
   General   Account with   Account       % of 
December 31, 2019  Account   Guarantees   Nonguaranteed   Total   Total 
                     
Subject to discretionary withdrawal -lump sum:                         
With market value adjustment  $-   $4,076,413   $-   $4,076,413    95.9%
At book value less surrender charge of 5% or more   6,019    -    -    6,019    0.1%
At fair value   -    -    161,987    161,987    3.9%
                          
Total with adjustment or at fair value   6,019    4,076,413    161,987    4,244,419    99.9%
At book value with minimal or no charge adjustment   327    -    -    327    0.0%
Not subject to discretionary withdrawal   4,863    -    -    4,863    0.1%
                          
Gross annuity reserves and deposit liabilities   11,209    4,076,413    161,987    4,249,609    100.0%
Reinsurance ceded   11,209    4,076,413    -    4,087,622      
                          
Total annuity reserves and deposit liabilities  $-   $-   $161,987   $161,987      

 

 

34

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Deposit-Type Contracts

 

       Separate   Separate         
   General   Account with   Account       % of 
December 31, 2019  Account   Guarantees   Nonguaranteed   Total   Total 
                     
Subject to discretionary withdrawal -lump sum:                         
With market value adjustment  $-   $-   $-   $-    0.0%
At book value less surrender charge of 5% or more   -    -    -    -    0.0%
At fair value   -    -    -    -    0.0%
                          
Total with adjustment or at fair value   -    -    -    -    0.0%
At book value with minimal or no charge adjustment   -    -    -    -    0.0%
Not subject to discretionary withdrawal   3,873    -    -    3,873    100.0%
                          
Gross annuity reserves and deposit liabilities   3,873    -    -    3,873    100.0%
Reinsurance ceded   3,873    -    -    3,873      
                          
Total annuity reserves and deposit liabilities  $-   $-   $-   $-      

 

The following table shows policy liabilities associated with the Company’s annuity products:

 

     
   2019 
Annuity reserves from the separate accounts  $161,987 
Total annuity reserves  $161,987 

 

 

35

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

The following table shows life reserves by withdrawal characteristics at December 31, 2019:

 

                         
   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  $-   $48   $85   $-   $-   $- 
Universal life   2,816    2,816    2,878    -    -    - 
Other permanent cash value life insurance   -    11,812    12,712    -    -    - 
Miscellaneous reserves   -    35    35    -    -    - 
Not subject to discretionary withdrawal or no cash values:                              
Term policies with cash value   -    -    4,954    -    -    - 
Accidental death benefits   -    -    7    -    -    - 
Disability - active lives   -    -    3    -    -    - 
Disability - disabled lives   -    -    122    -    -    - 
Miscellaneous reserves   -    -    72    -    -    - 
Gross reserves before reinsurance   2,816    14,711    20,868    -    -    - 
Ceded reinsurance   2,816    14,711    20,868    -    -    - 
Net reserves  $-   $-   $-   $-   $-   $- 

 

Note 9: Statutory Financial Data and Dividend Restrictions

 

Risk-based capital (“RBC”) requirements promulgated by the NAIC and adopted by the Insurance Department require U.S. life 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 comparison to the RBC results, as determined by the formula. At December 31, 2020 and 2019, the Company’s adjusted capital exceeded the RBC minimum requirements, as required by the NAIC.

 

The Company is subject to statutory regulations as to maintenance of policyholders’ surplus and payment of stockholder dividends. Generally, dividends to a parent must be reported to the appropriate state regulatory authority in advance of payment and extraordinary dividends, as defined by statutes, require regulatory approval. The Company could pay $4,070 in stockholder dividends in 2021 without the approval of the Insurance Department.

 

 

36

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Note 10: 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 2020 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 $132 and $116 at December 31, 2020 and 2019, 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, 2020 and 2019 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 routinely 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’s practices. The ultimate outcome of these disputes is unpredictable.

 

These matters in some cases raise difficult and complicated factual and legal issues and are subject to many 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 judicial 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 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.

 

Note 11: Unassigned Surplus

 

Unassigned surplus at December 31 considers the accumulated balances for the following items:

 

         
   2020   2019 
Nonadmitted assets:          
Net deferred tax asset  $656   $- 
Prepaid expenses   491    - 
Interest maintenance reserve   907    1,029 
Other   574    1,831 
Total nonadmitted assets  $2,628   $2,860 
           
Asset valuation reserve  $-   $40 

 

 

37

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Note 12: Separate Accounts

 

Separate accounts represent funds that are invested to support the Company’s obligations under the flexible premium variable and index linked deferred annuities policies.

 

Information relating to the Company’s flexible premium variable separate account business as of December 31 is set forth in the tables below:

 

                 
   2020   2019 
   Indexed with Guarantees   Non-Guaranteed   Indexed with Guarantees   Non-Guaranteed 
Reserves with assets held:                    
At fair value  $-   $220,969   $-   $161,987 
At amortized cost   -    -    -    - 
Total  $-   $220,969   $-   $161,987 
Reserves with assets subject to                    
discretionary withdrawal:                    
At fair value  $-   $220,969   $-   $161,987 
With fair value adjustment   -    -    -    - 
Not subject to discretionary withdrawal   -    -    -    - 
Total  $-   $220,969   $-   $161,987 

 

The following table shows the premiums and deposits for flexible premium variable contracts recorded in the separate accounts for the years ended December 31:

 

                 
                 
   2020   2019 
   Indexed with Guarantees   Non-Guaranteed   Indexed with Guarantees   Non-Guaranteed 
Non-guaranteed premiums, considerations and deposits received for separate account policies  $-   $220,969   $-   $161,987 
Total  $-   $220,969   $-   $161,987 

 

 

38

 

 

 

MEMBERS Life Insurance Company  

Notes to Statutory Basis Financial Statements
($ in 000s)

 

 

Details of the net transfers to separate accounts for all annuity contracts are shown in the table below for the years ended:

 

                 
   2020   2019 
   Indexed with Guarantees   Non-Guaranteed   Indexed with Guarantees   Non-Guaranteed 
Transfers to separate accounts  $-   $1,170,261   $-   $990,809 
Transfers from separate accounts   -    (1,141,308)   -    (952,622)
Valuation adjustment   -    2,955    -    2,131 
Net transfers to separate accounts  $-   $31,908   $-   $40,318 

 

Note 13: Subsequent Events

 

The Company evaluated subsequent events from December 31, 2020 through March 4, 2021, the date the statutory basis financial statements were available for issuance. During this period, there were no significant subsequent events that require adjustment to or disclosure in the accompanying statutory basis financial statements.

 

 

39

 

 

 

MEMBERS LIFE INSURANCE COMPANY  

Supplemental Schedules
December 31, 2020

 

 

Supplemental Schedules

 

 

40

 

 

 

MEMBERS LIFE INSURANCE COMPANY  

Schedule of Selected Financial Data
As of and for the Year Ended December 31, 2020
(000s omitted)

 

 

 

Investment income earned:    
Government bonds  $240 
Other bonds (unaffiliated)   714 
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   116 
Cash equivalents   - 
Short-term investments   - 
Other invested assets   - 
Derivative financial instruments   - 
Aggregate write-in for investment income   - 
Gross investment income  $1,070 
      
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   - 

 

 

41

 

 

 

MEMBERS LIFE INSURANCE COMPANY  

Schedule of Selected Financial Data, continued
As of and for the Year Ended December 31, 2020
(000s omitted)

 

 

Bonds and short-term investments by class and maturity:    
Bonds by maturity - statement value    
Due within one year or less  $2,865 
Over 1 year through 5 years   9,350 
Over 5 years through 10 years   9,341 
Over 10 years through 20 years   19 
Over 20 years   8,734 
Total by maturity  $30,309 
      
Bonds by class - statement value     
Class 1  $28,315 
Class 2   1,994 
Class 3   - 
Class 4   - 
Class 5   - 
Class 6   - 
Total by class  $30,309 
      
Total bonds publicly traded  $27,315 
Total bonds privately placed   2,994 
      
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   2,074 
Cash equivalents   24,336 

 

 

42

 

 

 

MEMBERS LIFE INSURANCE COMPANY  

Schedule of Selected Financial Data, continued
As of and for the Year Ended December 31, 2020
(000s omitted)

 

 

Life insurance in force:    
Industrial    
Ordinary  - 
Credit life   - 
Group life   - 
      
Amount of accidental death insurance in force under ordinary policies   2,437 
      
      
Life insurance policies with disability provisions in force:     
Industrial   - 
Ordinary   3,620 
Credit life   - 
Group life   300 

 

 

43

 

 

 

MEMBERS LIFE INSURANCE COMPANY  

Schedule of Selected Financial Data, continued
As of and for the Year Ended December 31, 2020
(000s omitted)

 

 

Supplementary contracts in force:     
Ordinary - not involving life contingencies     
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   - 
Annuities:     
Ordinary     
Immediate - amount of income payable   - 
Deferred - fully paid - account balance   - 
Deferred - not fully paid - account balance   - 
Group     
Immediate - amount of income payable   - 
Fully paid account payable   - 
Not fully paid - account balance   - 
Accident and health insurance - premium in force     
Ordinary   - 
Group   - 
Credit   - 
Deposit funds and dividends accumulations:     
Deposit funds - account balance   - 
Dividend accumulations - account balance   - 

 

 

44

 

 

 

MEMBERS LIFE INSURANCE COMPANY  

Schedule of Selected Financial Data, continued
As of and for the Year Ended December 31, 2020
(000s omitted)

 

 

Claim payments 2020      
  Group accident and health - year ended December 31      
2020   $- 
2019    - 
2018    - 
2017    - 
2016    - 
Prior    - 
       
Other accident and health      
2020    - 
2019    - 
2018    - 
2017    - 
2016    - 
Prior    - 
       
Other coverages that use developmental methods to calculate claims reserves
2020    - 
2019    - 
2018    - 
2017    - 
2016    - 
Prior    - 

 

 

45

 

 

 

MEMBERS LIFE INSURANCE COMPANY  

Summary Investment Schedule
December 31, 2020
(000s omitted)

 

 

   Gross   Admitted Invested Assets 
   Investment   Reported in the Annual Statement 
Investment Categories  Holdings   Amount   Percentage 
Long-Term Bonds:               
U.S. governments  $8,914    8,914    15.7%
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   1,494    1,494    2.6%
Industrial and miscellaneous   19,901    19,901    35.1%
Hybrid securities   -    -    0.0%
Parent, subsidiaries and affiliates   -    -    0.0%
SVO identified funds   -    -    0.0%
Unaffiliated bank loans   -    -    0.0%
Total long-term bonds   30,309    30,309    53.4%
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   26,410    26,410    46.6%
Contract loans   -    -    0.0%
Derivatives   -    -    0.0%
Other invested assets   -    -    0.0%
Receivables for securities   -    -    0.0%
Securities lending   -    -    0.0%
Total invested assets  $56,719   $56,719    100.0%

 

 

46

 

 

 

MEMBERS LIFE INSURANCE COMPANY

Supplemental Investment Risks Interrogatories
December 31, 2020
(000s omitted)

 

 

1. Reporting entity’s total admitted assets, excluding separate account assets.  $73,461 
        
2. Ten largest exposures to a single issuer/borrower/investment.     

 

   1   2    3    4 
                 Percentage of Total 
   Issuer   Description of Exposure    Amount       Admitted Assets    
2.01  Citigroup Commercial Mort.   Bond   $1,977    2.691%
2.02  Toyota Motor Credit Corp   Bond    1,005    1.368%
2.03  John Deere Capital Corp.   Bond    1,002    1.364%
2.04  Microsoft Corporation   Bond    1,001    1.363%
2.05  National Australia Bank, Ltd.   Bond    1,000    1.361%
2.06  MASS Mutual Global Fund.   Bond    998    1.359%
2.07  Blackrock, Inc.   Bond    998    1.359%
2.08  CFIP CLO Ltd.   Bond    998    1.359%
2.09  Automatic Data Prcoessing   Bond    997    1.357%
2.10  Nestle Holdings   Bond    996    1.356%

 

3. Amounts and percentages of the reporting entity’s total admitted assets held in bonds and preferred stocks by NAIC rating.

 

       -          
   Bonds           1    2 
3.01  NAIC-1          $28,315    38.544%
3.02  NAIC-2           1,994    2.714%
3.03  NAIC-3           -    0.000%
3.04  NAIC-4           -    0.000%
3.05  NAIC-5           -    0.000%
3.06  NAIC-6           -    0.000%
   Preferred Stocks     -     3    4 
3.07  P/RP-1          $-    0.000%
3.08  P/RP-2           -    0.000%
3.09  P/RP-3           -    0.000%
3.10  P/RP-4           -    0.000%
3.11  P/RP-5           -    0.000%
3.12  P/RP-6           -    0.000%

 

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 [ X  ]
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  $3,978    5.415%
4.03  Foreign-currency-denominated investments   -    0.000%
4.04  Insurance liabilities denominated in that same foreign currency   -    0.000%

 

 

47

 

 

 

MEMBERS LIFE INSURANCE COMPANY  

Supplemental Investment Risks Interrogatories, continued
December 31, 2020
(000s omitted)

 

 

5. Aggregate foreign investment exposure categorized by NAIC sovereign rating:    

 

      1    2 
5.01 Countries rated NAIC-1  $3,978    5.415%
5.02 Countries rated NAIC-2   -    0.000%
5.03 Countries rated NAIC-3 or below   -    0.000%

 

6. Two largest foreign investment exposures by country, categorized by the country’s NAIC sovereign rating:    

 

       1    2 
   Countries rated NAIC-1:          
6.01  Country 1: Australia  $1,000    1.361%
6.02  Country 2: Cayman Islands   998    1.359%
              
   Countries rated NAIC-2:          
6.03  Country 1:  $-    0.000%
6.04  Country 2:   -    0.000%
              
   Countries rated NAIC-3 or below:          
6.05  Country 1:  $-    0.000%
6.06  Country 2:   -    0.000%

 

Questions 7-9 are not applicable.

           

10. Ten largest non-sovereign (i.e. non-governmental) foreign issues:    

 

   1   2           
   Issuer   NAIC Rating    3    4 
10.01  National Australia Bank, Ltd.   2   $1,000    1.361%
10.02  CFIP CLO Ltd.   1    998    1.359%
10.03  Rabobank Nederland   2    994    1.353%
10.04  Lind PLC   1    986    1.342%
10.05           -    0.000%
10.06           -    0.000%
10.07           -    0.000%
10.08           -    0.000%
10.09           -    0.000%
10.10           -    0.000%

 

Questions 11-23 are not applicable.      

  

 

48

 

  

 

MEMBERS LIFE INSURANCE COMPANY  

Reinsurance Contract Interrogatories
Year Ended December 31, 2020

 

 

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, 2020 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.

 

 

49

 

 

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  $272,750 
Printing and engraving  $175,000 
Accounting fees and expenses  $150,000 
Legal fees and expenses  $75,000 
Miscellaneous  $20,000 
TOTAL EXPENSES  $692,750 

 

 

* Estimated.

 

Item 14. Indemnification of Directors and Officers.

 

Section 490.202 of the Iowa Business Corporation Act (the “IBCA”), provides that a corporation’s articles of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for any action taken, or failure to take action, as a director, except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on the 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.

 

 

 

 

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.

 

Item 15. Recent Sales of Unregistered Securities

 

None.

 

 

 

Item 16. Exhibits.

 

Exhibit Item
Number
Description Incorporated by Reference to Filed
Herewith
1(i) Amended and Restated Distribution Agreement dated as of January 7, 2016 between MEMBERS Life Insurance Company (“MLIC”) and CUNA Brokerage Services, Inc. (“CBSI”) Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
1(ii)(a) Form of Selling and Services Agreement Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
1(ii)(b) Addendum to Selling and Service Agreement for Electronic Signature Agreement dated August 27, 2020 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
1(iii) Amended and Restated Distribution Agreement dated Exhibit A dated September 2018 between MEMBERS Life Insurance Company (“MLIC”) and CUNA Brokerage Services, Inc. (“CBSI”) Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
3(i) Articles of Incorporation of MLIC Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
3(ii) Bylaws of MLIC Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
4(i) Form of Contact. (Form No. 2020-VAIL) Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
4(ii) Form of Application. (Form No. 2020-VAILAPP) Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
4(iii) Form of Application-Amendment. (Form No. 2020-VAILAPPAMEND) Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
4(iv) Form of Data Page. (Form No. 2020-VAILDP) Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
4(v) Form of Nursing Home or Hospital/ Terminal Illness Withdrawal Privilege Endorsement (Form No. 2020-WVRSCEND) Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
5 Legal Opinion   X
10(i)(a) Amended and Restated Coinsurance and Modified Coinsurance Agreement between MLIC and CMFG Life Insurance Company (CMFG Life) dated January 1, 2019 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
10(i)(b) Coinsurance Agreement dated August 19, 2019 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  

 

 

 

 

Exhibit Item
Number
Description Incorporated by Reference to Filed
Herewith
10(i)(c) Amended and Restated Coinsurance Agreement between MLIC and CMFG Life dated February 4, 2021    X
10(ii)(a) Cost Sharing Agreement dated as of January 1, 2008 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
10(ii)(b) Expense Sharing Agreement dated as of December 31, 2013 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
10(ii)(c) Amended and Restated Expense Sharing Agreement dated as of January 1, 2015 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
10(ii)(d) Amendment to Cost Sharing Agreement dated February 1, 2012 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
10(iii)(a) Investment Advisory Agreement dated as of January 31, 2012 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
10(iii)(b) Amendment to Investment Advisory Agreement dated January 15, 2014 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
10(iii)(c) Amended and Restated Investment Advisory Agreement dated January 1, 2015 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
10(iv)(a) CUNA Mutual Group Cost Sharing, Procurement, Disbursement, Billing and Collection Agreement dated as of January 1, 2015 Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
23(i) Consent of Legal Counsel See Exhibit 5 X
23(ii) Consent of Independent Registered Public Accounting Firm   X
24 Powers of Attorney Incorporated herein by reference to the initial filing of the Registrant on Form S-1, filed January 21, 2021 (File No. 333-252290)  
101 Interactive Date Files   X

 

 

 

Item 17. Undertakings.

 

(A) The undersigned Registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

 

(i)To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

 

(ii)To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement;

 

(iii)To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a Registration Statement relating to an offering, other than Registration Statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the Registration Statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a Registration Statement or prospectus that is part of the Registration Statement or made in a document incorporated or deemed incorporated by reference into the Registration Statement or prospectus that is part of the Registration Statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the Registration Statement or prospectus that was part of the Registration Statement or made in any such document immediately prior to such date of first use.

 

(5) That, for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii)Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;

 

(iii)The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

 

(iv)Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

 

(B) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, MEMBERS Life Insurance Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Madison, and State of Wisconsin as of this 16 day of June, 2021.

     
  MEMBERS Life Insurance Company
     
  By: /s/ David L. Sweitzer
    David L. Sweitzer, President

 

*Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and as of the dates indicated.

 

Name   Title   Date
         
*   President and Director   June 16, 2021
David L. Sweitzer   (Principal Executive Officer)    
         
*   Treasurer (Principal   June 16, 2021
Brian J. Borakove   Financial & Accounting Officer)  
         
*   Director   June 16, 2021
Michael F. Anderson        
         
*   Director   June 16, 2021
Abigail R. Rodriguez    
         
*   Director   June 16, 2021
William A. Karls    
         
*   Director   June 16, 2021
Paul D. Barbato    

 

*By: /s/Jennifer Kraus-Florin  
  Jennifer Kraus-Florin  

 

* Pursuant to Power of Attorney dated January 21, 2021, herewith Powers of Attorney are filed as exhibits to the Registrant’s initial filing on Form S-1 on January 21, 2021.