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Document and Entity Information

v3.9.0.1
Document and Entity Information
12 Months Ended
Dec. 31, 2017
Details  
Registrant Name MEMBERS Life Insurance Co
Registrant CIK 0001562577
SEC Form S-1
Period End date Dec. 31, 2017
Fiscal Year End --12-31
Trading Symbol mlic
Filer Category Non-accelerated Filer
Current with reporting Yes
Voluntary filer No
Well-known Seasoned Issuer No
Amendment Flag false
Document Fiscal Year Focus 2017
Document Fiscal Period Focus FY

Balance Sheets

v3.9.0.1
Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Investments    
Debt securities, available for sale, at fair value $ 10,667 $ 10,539
Total investments 10,667 10,539
Cash and cash equivalents 18,440 18,732
Accrued investment income 113 116
Reinsurance recoverable from affiliate 23,973 23,687
Assets on deposit 2,453,033 1,619,113
Premiums receivable, net 12 15
Net deferred tax asset 74 495
Receivable from affiliate 8,492 11,460
Other assets and receivables 137 415
Federal income taxes recoverable from affiliate 2,471 1,637
Separate Account Assets 69,005 20,221
Total assets 2,586,417 1,706,430
Liabilities    
Claim and policy benefit reserves - life and health 23,052 21,506
Policyholder account balances 2,456,634 1,622,448
Payables to affiliates 2,771 6,196
Accounts payable and other liabilities 16,257 12,774
Separate account liabilities 69,005 20,221
Total liabilities 2,567,719 1,683,145
Commitments and contingencies [1]
Stockholder's equity    
Common stock 5,000 5,000
Additional paid in capital 10,500 10,500
Accumulated Other Comprehensive Income (Loss), net of tax 11 (323)
Retained earnings (deficit) 3,187 8,108
Total stockholder's equity 18,698 23,285
Total liabilities and stockholder's equity $ 2,586,417 $ 1,706,430
[1] See Note 11.

Balance Sheets - Parenthetical

v3.9.0.1
Balance Sheets - Parenthetical - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Details    
Available-for-sale Debt Securities, Amortized Cost Basis $ 10,650 $ 11,037
Common Stock, Par or Stated Value Per Share $ 5 $ 5
Common Stock, Shares Authorized 1,000 1,000
Common Stock, Shares, Issued 1,000 1,000
Common Stock, Shares, Outstanding 1,000 1,000
Tax expense (benefit) in Accumulated Other Comprehensive Income $ 6 $ (175)

Statements of Operations

v3.9.0.1
Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Details      
Life and health premiums, net $ 0 $ (21) $ (1,175)
Contract charges 0 0 18
Net investment income 517 376 366
Net realized investment gains 0 0 117
Other income 3,996 3,415 5,336
Total revenues 4,513 3,770 4,662
Benefits and expenses      
Life and health insurance claims and benefits, net 2 (1) (1,204)
Interest credited to policyholder account balances 0 0 4
Operating and other expenses 1,709 1,049 1,633
Total benefits and expenses 1,711 1,048 433
Income (loss) before income taxes 2,802 2,722 4,229
Income tax expense (benefit) 723 887 1,449
Net Income (Loss) 2,079 1,835 2,780
Change in unrealized gains (losses), net of tax expense (benefit) 334 (98) (437)
Reclassification adjustment for (gains) included in net income, net of tax expense (benefit) 0 0 (10)
Other Comprehensive Income (Loss) 334 (98) (447)
Total Comprehensive Income (Loss) $ 2,413 $ 1,737 $ 2,333

Statements of Operations - Parenthetical

v3.9.0.1
Statements of Operations - Parenthetical - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Details      
Tax expense (benefit) portion of change in unrealized gains (losses) $ 181 $ (53) $ (235)
Tax Expense (Benefit), Portion of reclassification adjustment for (gains)   $ (5)  

Statements of Stockholders' Equity

v3.9.0.1
Statements of Stockholders' Equity - USD ($)
$ in Thousands
Common Stock
Additional Paid-in Capital
AOCI Attributable to Parent
Retained Earnings
Total
Balance at Dec. 31, 2014 $ 5,000 $ 10,500 $ 222 $ 3,493 $ 19,215
Net Income (Loss) 0 0 0 2,780 2,780
Other Comprehensive Income (Loss) 0 0 (447) 0 (447)
Dividend to parent         0
Balance at Dec. 31, 2015 5,000 10,500 (225) 6,273 21,548
Net Income (Loss) 0 0 0 1,835 1,835
Other Comprehensive Income (Loss) 0 0 (98) 0 (98)
Dividend to parent         0
Balance at Dec. 31, 2016 5,000 10,500 (323) 8,108 23,285
Net Income (Loss) 0 0 0 2,079 2,079
Other Comprehensive Income (Loss) 0 0 334 0 334
Dividend to parent 0 0 0 (7,000) (7,000)
Balance at Dec. 31, 2017 $ 5,000 $ 10,500 $ 11 $ 3,187 $ 18,698

Statements of Cash Flows

v3.9.0.1
Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:      
Net Income (Loss) $ 2,079 $ 1,835 $ 2,780
Adjustments to reconcile net income to net cash provided by (used in) operating activities:      
Policyholder charges on investment type contracts 0 0 (18)
Net realized investment gains 0 0 (117)
Interest credited to policyholder account balances 0 0 4
Deferred income taxes 241 240 (2)
Amortization of bond premium and discount 19 33 61
Amortization and write off of deferred charges 20 23 26
Increase (Decrease) in Operating Assets      
Increase (Decrease) in Accrued investment income 3 18 (54)
Increase (Decrease) in Reinsurance recoverable (590) 752 273
Increase (Decrease) in Premiums receivable 3 11 2
Increase (Decrease) in Other assets and receivables 3,228 (6,423) (1,828)
Increase (Decrease) in Federal income taxes recoverable from affiliate (835) (1,121) 1,281
Claim and policy benefit reserves - life and health 1,546 (720) (831)
Increase (Decrease) in other liabilities 59 5,311 9,410
Net cash provided by operating activities 5,773 (41) 10,987
Cash flows from investing activities:      
Purchases of Debt Securities 0 0 (8,760)
Proceeds from sale or maturity of Debt Securities 367 1,628 8,987
Net payments received on policy loans 0 0 104
Net cash provided by (used in) investing activities 367 1,628 331
Cash flows from financing activities:      
Dividend to parent (7,000) 0 0
Policyholder account deposits 719,883 634,345 596,817
Policyholder account withdrawals (50,481) (31,206) (12,250)
Assets on deposit - deposits (718,797) (634,039) (596,492)
Assets on deposit - withdrawals 49,964 30,951 12,098
Change in bank overdrafts (1) 1 0
Net cash provided by (used in) financing activities (6,432) 52 173
Change in cash and cash equivalents (292) 1,639 11,491
Cash and cash equivalents at beginning of period 18,732 17,093 5,602
Cash and cash equivalents at end of period 18,440 18,732 17,093
Supplemental disclosure of cash information:      
Net cash paid to affiliate for income taxes $ 1,316 $ 1,768 $ 170

Nature of Business

v3.9.0.1
Nature of Business
12 Months Ended
Dec. 31, 2017
Notes  
Nature of Business

Note 1:  Nature of Business

 

MEMBERS Life Insurance Company (“MLIC” or the “Company”) is a life and health insurance stock company organized under the laws of Iowa and a wholly-owned subsidiary of CUNA Mutual Investment Corporation (“CMIC”). CMIC is organized under the laws of Wisconsin and is a wholly-owned subsidiary of CMFG Life Insurance Company (“CMFG Life”), an Iowa life insurance company. CMFG Life and its affiliated companies primarily sell insurance and other products to credit unions and their members. The Company’s ultimate parent is CUNA Mutual Holding Company (“CMHC”), a mutual insurance holding company organized under the laws of Iowa. MLIC began selling flexible premium deferred variable annuity contracts in 2016 and single premium deferred annuity contracts in 2013. Both products are sold to consumers, including credit union members, through the face-to-face distribution channel. Prior to 2013, MLIC did not actively market new business; it primarily serviced existing blocks of individual and group life policies. See Note 7, Reinsurance, for information on the Company’s reinsurance and ceding agreements.

 

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

 

 

 

Deposits on

 

Direct Life and Health Premium

Annuity Contracts

 

 

 

 

 

 

 

 

2017

2016

2015

2017

2016

2015

Michigan

62%

63%

63%

9%

6%

8%

Texas

24  

23  

23  

5  

8  

7  

California

5  

6  

5  

6  

7  

8  

Pennsylvania

*  

*  

*  

8  

6  

5  

Iowa

*  

*  

*  

7  

6  

5  

Indiana

*  

*  

*  

6  

7  

6  

Wisconsin

*  

*  

*  

6  

6  

5  

Washington

*  

*  

*  

*  

5  

5  

Florida

*  

*  

*  

*  

*  

5  

*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, 2017.

 

As discussed in Note 6, CMFG Life provides significant services required in the conduct of the Company’s operations. Management believes allocations of expenses are reasonable, but the results of the Company’s operations may have materially differed from the results reflected in the accompanying financial statements if the Company did not have this relationship.


Summary of Significant Accounting Policies

v3.9.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Notes  
Summary of Significant Accounting Policies

Note 2:  Summary of Significant Accounting Policies

 

Basis of Presentation

 

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and in some cases the difference could be material. Investment valuations, embedded derivatives, deferred tax asset valuation reserves, and claim and policy benefit reserves are most affected by the use of estimates and assumptions.

 

Segment Reporting

 

The Company is currently managed as two reportable business segments, (1) life and health and (2) annuities. The Company’s life and health segment includes individual and group life policies that the Company no longer actively markets. The annuities segment includes its single premium deferred annuity contracts and flexible premium deferred variable annuity contracts which the Company began selling in 2013 and 2016, respectively. See Note 7, Reinsurance, for information on the Company’s reinsurance agreements, which impact the financial statement presentation of these segments.  

 

Investments

 

Debt securities: Investments in debt securities are classified as available-for-sale and are carried at fair value. A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company's anticipated holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related components. The credit portion of the other-than-temporary impairment (“OTTI”) is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in net realized investment gains, with the remainder of the loss amount recognized in other comprehensive loss. If the Company intends to sell or it is more likely than not that the Company will be required to sell before anticipated recovery in value, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer’s business and industry sector, credit ratings, and the intent and ability of the Company to hold the investment until the fair value has recovered at least its cost basis. 

 

Unrealized gains and losses on investments in debt securities, net of deferred federal income taxes, are included in accumulated other comprehensive income (loss) as a separate component of stockholder’s equity.

 

Policy loans:  The Company allocated $1,540 and $1,628 of policy loans to CMFG Life as of December 31, 2017 and 2016, respectively, as payment related to the 2012 reinsurance agreement and the 2015 amendment (See Note 7). As a result of the 2015 amendment, all policy loans are allocated to CMFG Life.

 

Net investment income:  Interest income related to mortgage-backed and other structured securities is recognized on an accrual basis using a constant effective yield method, based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments and such adjustments are reflected in net investment income. Prepayment assumptions for loan backed bonds and structured securities are based on industry averages or internal estimates. Interest income related to non-structured securities is recognized on an accrual basis using a constant effective yield method. Discounts and premiums on debt securities are amortized over the estimated lives of the respective securities on an effective yield basis. 

 

Net realized gains and losses:  Realized gains and losses on the sale of investments are determined on a specific identification basis and are recorded on the trade date. 

 

Assets on Deposit

 

Assets on deposit represent the amount of policyholder account balances related to reinsurance of the single premium deferred annuity and risk control accounts of the flexible premium deferred variable annuity contracts (investment-type contracts) that are ceded to CMFG Life. Assets on deposit are accounted for on a basis consistent with accounting for the underlying investment type contracts; therefore, the Company accounts for the reinsurance of these contracts using the deposit method of accounting consistent with the terms of the reinsurance agreement with CMFG Life. The related contract charges and interest credited to policyholder account balances in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded under the agreement. See Note 7 for a further discussion of the ceding agreement.    

 

Derivative Financial Instruments

 

The Company issues single premium deferred annuity and flexible premium deferred variable annuity contracts that contain embedded derivatives. Derivatives embedded within non-derivative host contracts are separated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument.  Such embedded derivatives are recorded at fair value, and they are reported as part of assets on deposit and policyholder account balances in the balance sheets, with the change in the value being recorded in net realized investment gains. See Note 3, Investments-Embedded Derivatives for additional information.

 

Changes in the fair value of the embedded derivative in assets on deposit offset changes in the fair value of the embedded derivative in policyholder account balances; both of these changes are included in net realized investment gains and are ceded as part of the ceding and reinsurance agreements. Accretion of the interest on assets on deposit offsets accretion of the interest on the host contract; both of these amounts are included in interest credited on policyholder account balances and are ceded as part of the ceding and reinsurance agreements.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include unrestricted deposits in financial institutions with maturities of 90 days or less.  The Company recognizes a liability in accounts payable and other liabilities for the amount of checks issued in excess of its current cash balance. The change in this overdraft amount is recognized as a financing activity in the Company’s statement of cash flows.

 

Variable Interest Entities

 

A variable interest entity (“VIE”) is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains and losses of the entity. Consolidation of a VIE by its primary beneficiary is not based on majority voting interest, but is based on a review of the VIE’s capital structure, contractual relationships and terms, nature of the VIE’s operations and purpose, nature of the VIE’s interests issued and the Company’s involvement with the entity. When assessing the need to consolidate a VIE, the Company evaluates the design of the VIE as well as the related exposure to the variable interest holders.

 

The primary beneficiary is the entity that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation conclusion depends on the breadth of the Company’s decision-making ability and the Company’s ability to influence activities that significantly affect the economic performance of the VIE.

 

Unconsolidated VIEs:  The Company holds a variable interest in certain VIEs for which the Company is not the primary beneficiary, and, therefore, these VIEs were not consolidated on the Company’s consolidated balance sheets. The Company invests in unconsolidated VIEs with the primary purpose of earning capital appreciation.  

 

All of the Company’s investments in residential mortgage-backed securities are classified as unconsolidated VIEs. The maximum exposure to loss relating to these securities is equal to the carrying amount of the security. The values of these investments are disclosed in the Debt Securities section of Note 3.

 

Recognition of Insurance Revenue and Related Benefits

 

Term-life and whole-life insurance premiums are recognized as premium income when due. Policy benefits for these products are recognized in relation to the premiums so as to result in the recognition of profits over the expected lives of the policies and contracts. 

 

Policies not subject to significant mortality or longevity risk, such as the Company’s single premium deferred annuity and flexible premium deferred variable annuity contracts, are considered investment contracts. Amounts collected on these products, with the exception of the variable annuity component of the flexible premium deferred variable annuity, are recorded as increases in policyholder account balances. The variable annuity component of the flexible premium deferred variable annuity meets criteria for separate account reporting and therefore is recorded in separate account assets and liabilities. Revenues from investment contracts principally consist of net investment income and contract charges such as expense and surrender charges. Expenses for investment contracts consist of interest credited to contracts, benefits incurred in excess of related policyholder account balances and policy maintenance costs. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues and expenses are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement.

 

Other Income / Operating and Other Expenses

 

Other income in 2017, 2016 and 2015 includes legal settlements received on structured security investments that had previously been sold. Operating and other expenses in 2017, 2016 and 2015 include legal expenses related to settlements received.

 

Deferred Policy Acquisition Costs

 

The costs of acquiring insurance business that are directly related to the successful acquisition of new and renewal business are deferred to the extent that such costs are expected to be recoverable from future profits.  Such costs principally include commissions and sales costs, premium taxes, and certain policy issuance and underwriting costs. Costs deferred on term-life and whole-life insurance products, deferred policy acquisition costs (“DAC”), are amortized in proportion to the ratio of the annual premium to the total anticipated premiums generated.  Due to the age of the existing block of life insurance policies, all DAC has been fully amortized as of December 31, 2017 and 2016 and there was no amortization expense in 2017, 2016 or 2015. 

 

Acquisition costs on the Company’s single premium deferred annuity and flexible premium deferred variable annuity contracts are reimbursed through a ceding commission by CMFG Life, which assumes all deferrable costs as part of its agreement to assume 100% of this business from the Company. See Note 7, Reinsurance for additional information on this agreement.

 

Claim and Policy Benefits Reserves – Life and Health

 

Life and health claim and policy benefit reserves consist principally of future policy benefit reserves and reserves for estimates of future payments on incurred claims reported but not yet paid and unreported incurred claims.  Estimates for future payments on incurred claims are developed using actuarial principles and assumptions based on past experience adjusted for current trends. Any change in the probable ultimate liabilities is reflected in net income in the period in which the change is determined.

 

When actual experience indicates that existing contract liabilities, together with the present value of future gross premiums will not be sufficient to recover the present value of future benefits or recover unamortized deferred acquisition costs, a premium deficiency will be recognized by either a reduction in unamortized acquisition costs or an increase in the liability for future benefits. There was no premium deficiency in 2017, 2016 or 2015.

 

Policyholder Account Balances

 

The Company recognizes a liability at the stated account value for policyholder deposits that are not subject to significant policyholder mortality or longevity risk and for universal life-type policies. The account value equals the sum of the original deposit and accumulated interest, less any withdrawals and expense charges. The average credited rate was 4.5% in 2017, 2016 and 2015. The future minimum guaranteed interest rate during the life of the contracts is 4.5%.

 

The single premium deferred annuities and risk control accounts of the flexible premium deferred variable annuities are included in policyholder account balances. These products have two risk control accounts, referred to as the Secure and Growth Accounts; the Secure Account has a yearly credited interest rate floor of 0% and the yearly Growth Account floor is -10%. The Secure and Growth Accounts both have credited interest rate caps that vary based on the issuance date of the contract.  Interest is credited at the end of each contract year during the selected index term based on the allocation between risk control accounts and the performance of an external index (reference index) during that contract year. For the single premium deferred annuity, the Company offers one reference index, which is the S&P 500 Index. For the flexible premium deferred variable annuity, the Company offers two reference indices, which are the S&P 500 Index and the MSCI EAFE Index. Policyholders are able to allocate funds in both the Secure and Growth Accounts for the available indices. At the end of the initial index term, only the Secure Account is available as an option to the policyholder.  The average annualized credited rate for the single premium deferred annuity was 1.44%, 1.63% and 1.65% in 2017, 2016 and 2015, respectively. The average annualized credited rate for the risk control accounts of the flexible premium deferred variable annuity was 1.59% and 1.12% in 2017 and 2016, respectively.

 

Accounts Payable and Other Liabilities

 

The Company issues the single premium deferred annuity contracts on the 10th and 25th of each month. The Company recognizes a liability on contracts for which it has received cash, but has not issued a contract.

 

Reinsurance

 

Reinsurance premiums, claims and benefits, commission expense reimbursements, and reserves related to reinsured business ceded are accounted for on a basis consistent with the accounting for the underlying direct policies that have been ceded and the terms of the reinsurance contracts. Premiums and insurance claims and benefits in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded to other companies under such reinsurance contracts. Ceded insurance reserves and ceded benefits paid are included in reinsurance recoverables along with certain ceded policyholder account balances, which include mortality risk. A prepaid reinsurance asset is also recorded for the portion of unearned premiums related to ceded policies. 

 

Separate Accounts

 

Separate accounts represent customer accounts related to the variable annuity component of the flexible premium deferred variable annuity contracts issued by the Company, where investment income and investment gains and losses accrue directly to the contract holders who bear the investment risk.

 

Contract holders are able to invest in investment funds managed for their benefit. All of the separate account assets are invested in unit investment trusts that are registered with the Securities and Exchange Commission (“SEC”) as of December 31, 2017.

 

Separate account assets are legally segregated and may only be used to settle separate account liabilities. Separate account assets are carried at fair value, which is based on daily quoted net asset values at which the Company could transact on behalf of the contract holder. Separate account liabilities are equal to the separate account assets and represent contract holders’ claims to the related assets. Contract holder deposits to and withdrawals from the separate accounts are recorded directly to the separate account assets and liabilities and are not included in the Company’s statements of operations and comprehensive income (loss).

 

Charges made by the Company to the contract holders’ balances include fees for maintenance, administration, cost of insurance, and surrenders of contracts prior to the contractually specified dates. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement. 

 

Income Taxes

 

The Company recognizes taxes payable or refundable and deferred taxes for the tax consequences of differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured by applying the enacted tax rates to the difference between the financial statement and tax basis of assets and liabilities. The Company records current tax benefits and deferred tax assets utilizing a benefits-for-loss approach. Under this approach, current benefits are realized and deferred tax assets are considered realizable by the Company when realized or realizable by the consolidated group of which the Company is a member even if the benefits would not be realized on a stand-alone basis. The Company records a valuation allowance for deferred tax assets if it determines it is more likely than not that the asset will not be realized by the consolidated group. Deferred income tax assets can be realized through future earnings, including, but not limited to, the generation of future income, reversal of existing temporary differences and available tax planning strategies.

 

The Company is subject to tax-related audits. These audits may result in additional tax assets or liabilities. In establishing tax liabilities, the Company determines whether a tax position is more likely than not to be sustained under examination by the appropriate taxing authority. Tax positions that do not meet the more likely than not standard are not recognized. Tax positions that meet this standard are recognized in the financial statements within net deferred tax assets or liabilities or federal income taxes recoverable or payable.

 

As a result of the comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"), which was enacted by the U.S. federal government on December 22, 2017, the Company remeasured its deferred tax assets and liabilities. The impact of the remeasurement and further discussion on the Tax Act are disclosed in the Tax Reform section of Note 5, Income Tax. 

 

Recently Adopted Accounting Standard Updates

 

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2017-08, Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”), with an effective date in 2019 for public business entities and 2020 for others. The ASU shortens the amortization period for callable debt securities purchased at a premium to the earliest call date. The Company early adopted ASU 2017-08 in 2017; the new guidance did not have a material impact on the financial statements.

 

Accounting Standards Updates Pending Adoption

 

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”) with an effective date in 2020 for public business entities and 2021 for others. The new standard replaces the existing incurred loss recognition model with an expected credit loss recognition model. The objective of the expected credit loss model is for the Company to recognize its estimate of expected credit losses for affected financial assets in a valuation allowance deducted from the amortized cost basis of the related financial assets that results in presenting the net carrying value of the financial assets at the amount expected to be collected. The Company must consider all available relevant information when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts over the contractual life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses for available-for-sale debt securities measured at fair value is not affected, except that credit losses recognized are limited to the amount by which fair value is below amortized cost and the carrying value adjustment is recognized through an allowance and not as a direct write-down. Upon adoption, the Company does not expect the impact to be material.

 

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU No. 2018-02”), with an effective date in 2018; however, early adoption is permitted. The amended guidance allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for “stranded tax effects” as defined in ASU 2018-02. Stranded tax effects occur when a change in enacted tax rates is recorded in income from operations, even in situations in which the related income tax effects of items in accumulated other comprehensive income (loss) were originally recognized in AOCI, rather than in income from operations. Companies may elect to make the reclassification only as it relates to the U.S. federal income tax rate cut made by the 2017 Tax Act and can apply the change at the beginning of the period of adoption or retrospectively to each period in which the effect of the change in the tax rate is recognized. The election will not change total stockholder’s equity or net income. If an entity makes the election, the impact of the reclassification should be disclosed. The Company has not determined if it will make the election; if the election is made, the estimated reclassification is insignificant.


Investments

v3.9.0.1
Investments
12 Months Ended
Dec. 31, 2017
Notes  
Investments

Note 3:  Investments

 

Debt Securities

 

The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2017 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

Gross Unrealized

Estimated

 

 

 

 

Cost

Gains

Losses

Fair Value

 

 

 

 

 

 

 

 

U.S. government and agencies

$ 9,052   

$ 5   

$ (103)  

$ 8,954   

Residential mortgage-backed securities

 

 

 

1,598   

115   

-   

1,713   

 

 

 

 

Total debt securities

$ 10,650   

$ 120   

$ (103)  

$ 10,667   

 

The amortized cost, gross unrealized gains and losses, and estimated fair values, as reported on the balance sheet, of debt securities at December 31, 2016 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized

Gross Unrealized

Estimated

 

 

 

 

Cost

Gains

Losses

Fair Value

 

 

 

 

 

 

 

 

U.S. government and agencies

$ 9,063   

$ 5   

$ (638)  

$ 8,430   

Residential mortgage-backed securities

 

 

 

1,974   

135   

-   

2,109   

 

 

 

 

Total debt securities

$ 11,037   

$ 140   

$ (638)  

$ 10,539   

 

No investments were non-income producing in 2017 or 2016.

 

The amortized cost and estimated fair values of investments in debt securities at December 31, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.  Because of the potential for prepayment on residential mortgage-backed securities, such securities have not been displayed in the table below by contractual maturity.

 

 

 

 

 

 

 

 Amortized

 Estimated

 

 

 Cost

 Fair Value

 

 

 

 

Due in one year or less

$ 304   

$ 304   

Due after ten years

8,748   

8,650   

Residential mortgage-backed securities

 

1,598   

1,713   

 

 

Total debt securities

$ 10,650   

$ 10,667   

 

Net Investment Income

 

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

 

   

 

 

 

   

2017

2016

2015

   

 

 

 

Gross investment income:

 

 

 

  Debt securities

$ 321   

$ 363   

$ 389   

  Policy loans

-   

-   

5   

  Cash and cash equivalents

217   

53   

-   

   

Total gross investment income

538   

416   

394   

  Investment expenses

(21)  

(40)  

(28)  

   

Net investment income

$ 517   

$ 376   

$ 366   

 

Net Realized Investment Gains

 

There were no sales or transfers of debt securities in 2017 or 2016 that resulted in a realized investment gain or loss. The realized investment gain on the sale of debt securities was $117 in 2015. Proceeds from the sale of debt securities were $8,389 in 2015.

 

Other-Than-Temporary Investment Impairments

 

Investment securities are reviewed for OTTI on an ongoing basis. The Company creates a watchlist of securities based largely on the fair value of an investment security relative to its cost basis. When the fair value drops below the Company’s cost, the Company monitors the security for OTTI. The determination of OTTI requires significant judgment on the part of the Company and depends on several factors, including, but not limited to:

 

·         The existence of any plans to sell the investment security.

·         The extent to which fair value is less than book value.

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

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

·         The Company’s intent and ability to retain the 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 debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company's anticipated holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related risk. The credit portion of the OTTI is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in earnings, with the remainder of the loss amount recognized in other comprehensive income (loss). If the Company intends to sell, at the time this determination is made, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer’s business and industry sector, credit ratings, and the ability of the Company to hold the investment until the fair value has recovered at least its cost basis. 

 

For securitized debt securities, the Company considers factors including residential property changes in value that vary by property type and location and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral.

 

For certain securitized financial assets with contractual cash flows, the Company is required to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the estimated cash flows since the last revised estimate, considering both timing and amount, an OTTI charge is recognized. The Company also considers its intent and ability to retain a temporarily impaired security until recovery. Estimating future cash flows involves judgment and includes both quantitative and qualitative factors. Such determinations incorporate various information and assessments regarding the future performance of the underlying collateral.  In addition, projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral. 

 

Management has completed a review for other-than-temporarily impaired securities at December 31, 2017, 2016 and 2015 and recorded no OTTI. As a result of the subjective nature of these estimates, however, provisions may subsequently be determined to be necessary as new facts emerge and a greater understanding of economic trends develops. Consistent with the Company’s practices, OTTI will be recorded as appropriate and as determined by the Company’s regular monitoring procedures of additional facts. 

 

Net Unrealized Investment Gains (Losses)

 

The components of net unrealized investment gains (losses) included in accumulated other comprehensive income (loss) at December 31 were as follows:

 

 

 

 

 

 

2017

2016

2015

 

 

 

 

Debt securities

$ 17   

$ (498)  

$ (347)  

Deferred income taxes

(6)  

175   

122   

 

Net unrealized investment gains (losses)

$ 11   

$ (323)  

$ (225)  

 

At December 31, 2017, the Company owned ­­­­one debt security with a fair value of $8,207 in an unrealized loss position of $103 for more than twelve months. At December 31, 2016, the Company owned one debt security with a fair value of $8,115 in an unrealized loss position of $638 for less than twelve months. At December 31, 2015 the Company owned one debt security with a fair value of $8,210 in an unrealized loss position of $546 for less than twelve months. 

 

Embedded Derivatives

 

The Company issues single premium deferred annuity and flexible premium deferred variable annuity contracts that contain embedded derivatives. Such embedded derivatives are separated from their host contracts and recorded at fair value. The fair value of the embedded derivatives, which are reported as part of assets on deposit and policyholder account balances in the balance sheets, were an asset of $471,192 and a liability of $471,192 as of December 31, 2017 and an asset of $246,405 and a liability of $246,405 as of December 31, 2016. The increase in fair value related to embedded derivatives from the date of deposit was $136,078, $49,225 and $3,591 for the years ended December 31, 2017, 2016 and 2015, respectively. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, this expense is ceded and does not impact the statement of operations and comprehensive income (loss).

 

Assets Designated/Securities on Deposit

 

Iowa law requires that assets equal to a life insurer’s “legal reserve” must be designated for the Iowa Department of Commerce, Insurance Division. The legal reserve is equal to the net present value of all outstanding policies and contracts involving life contingencies. At December 31, 2017 and 2016, debt securities and cash with a carrying value of $8,694 and $8,876, respectively, were accordingly designated for Iowa. Other regulatory jurisdictions require cash and securities to be deposited for the benefit of policyholders. Pursuant to these requirements, securities with a fair value of $2,024 and $1,713 were on deposit with other regulatory jurisdictions as of December 31, 2017 and 2016, respectively.


Fair Value

v3.9.0.1
Fair Value
12 Months Ended
Dec. 31, 2017
Notes  
Fair Value

Note 4:  Fair Value

 

The Company uses fair value measurements to record fair value of certain assets and liabilities and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value. Certain financial instruments, such as insurance policy liabilities (other than investment-type contracts), are excluded from the fair value disclosure requirements.

 

Valuation Hierarchy

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 

 

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value of assets and liabilities into three broad levels. The Company has categorized its financial instruments, based on the degree of subjectivity inherent in the valuation technique, as follows:

 

·         Level 1: Inputs are directly observable and represent quoted prices for identical assets or liabilities in active markets the Company has the ability to access at the measurement date.

 

·         Level 2: All significant inputs are observable, either directly or indirectly, other than quoted prices included in Level 1, for the asset or liability. This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

·         Level 3: One or more significant inputs are unobservable and reflect the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.

 

For purposes of determining the fair value of the Company’s assets and liabilities, observable inputs are those inputs used by market participants in valuing financial instruments, which are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs, reflecting the Company’s estimates of the assumptions market participants would use in valuing financial assets and liabilities, are developed based on the best information available in the circumstances. The Company uses prices and inputs that are current as of the measurement date. In some instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

The hierarchy requires the use of market observable information when available for assessing fair value. The availability of observable inputs varies by investment.  In situations where the fair value is based on inputs that are unobservable in the market or on inputs from inactive markets, the determination of fair value requires more judgment and is subject to the risk of variability. The degree of judgment exercised by the Company in determining fair value is typically greatest for investments categorized in Level 3. Transfers in and out of level categorizations are reported as having occurred at the end of the quarter in which the transfer occurred.  Therefore, for all transfers into Level 3, all realized gains and losses and all changes in unrealized gains and losses in the fourth quarter are not reflected in the Level 3 rollforward table.

 

Valuation Process

 

The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that the Company’s assets and liabilities are appropriately valued. 

The Company has policies and guidelines that require the establishment of valuation methodologies and consistent application of such methodologies. These policies and guidelines govern the use of inputs and price source hierarchies and provide controls around the valuation processes. These controls include appropriate review and analysis of prices against market activity or indicators of reasonableness, approval of price source changes, price overrides, methodology changes and classification of fair value hierarchy levels. The valuation policies and guidelines are reviewed and updated as appropriate.

 

For fair values received from third parties or internally estimated, the Company’s processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are appropriately recorded. The Company performs procedures to understand and assess the methodologies, process and controls of valuation service providers.  In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. When using internal valuation models, these models are developed by the Company’s investment group using established methodologies. The models including key assumptions are reviewed with various investment sector professionals, including accounting, operations, compliance and risk management.  In addition, when fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.

 

Transfers Between Levels

 

There were no transfers between levels during the years ended December 31, 2017 and 2016.

 

Fair Value Measurement – Recurring Basis

 

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2017.

 

     

 

 

 

 

Assets, at Fair Value

Level 1

Level 2

Level 3

Total

     

 

 

 

 

Cash equivalents1

$ 16,607   

$ -   

$ -   

$ 16,607   

Debt securities:

  U.S. government and agencies

-   

8,954   

-   

8,954   

  Residential mortgage-backed securities  

-   

1,713   

-   

1,713   

    Total debt securities

-   

10,667   

-   

10,667   

     

Derivatives embedded in assets on deposit

-   

-   

471,192   

471,192   

Separate account assets

-   

69,005   

-   

69,005   

     

  Total assets

$ 16,607   

$ 79,672   

$ 471,192   

$ 567,471   

     

 

 

 

 

     

 

 

 

 

     

 

 

 

 

Liabilities, at Fair Value

Level 1

Level 2

Level 3

Total

     

 

 

 

 

Derivatives embedded in annuity contracts

$ -   

$ -   

$ 471,192   

$ 471,192   

     

  Total liabilities

$ -   

$ -   

$ 471,192   

$ 471,192   

1Excludes cash of $1,833 that is not subject to fair value accounting.

 

The following table summarizes the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2016.

 

     

 

 

 

 

     

 

 

 

 

Assets, at Fair Value

Level 1

Level 2

Level 3

Total

     

 

 

 

 

Cash equivalents1

$ 14,415   

$ -   

$ -   

$ 14,415   

Debt securities:

  U.S. government and agencies

-   

8,430   

-   

8,430   

  Residential mortgage-backed securities  

-   

2,109   

-   

2,109   

    Total debt securities

-   

10,539   

-   

10,539   

     

Derivatives embedded in assets on deposit

-   

-   

246,405   

246,405   

Separate account assets

-   

20,221   

-   

20,221   

     

   Total assets

$ 14,415   

$ 30,760   

$ 246,405   

$ 291,580   

     

 

 

 

 

     

 

 

 

 

     

 

 

 

 

Liabilities, at Fair Value

Level 1

Level 2

Level 3

Total

     

Derivatives embedded in annuity contracts

$ -   

$ -   

$ 246,405   

$ 246,405   

     

  Total liabilities

$ -   

$ -   

$ 246,405   

$ 246,405   

1Excludes cash of $4,317 that is not subject to fair value accounting.

 

The Company had no assets or liabilities that required a fair value adjustment on a non-recurring basis as of December 31, 2017 or 2016.

 

Determination of Fair Values

 

The Company determines the estimated fair value of its investments using primarily the market approach and the income approach. The use of quoted prices and matrix pricing or similar techniques are examples of market approaches, while the use of discounted cash flow methodologies is an example of the income approach. 

 

A summary of valuation techniques for classes of financial assets and liabilities by fair value hierarchy level are as follows: 

 

Level 1 Measurements

 

Cash equivalents:  Consists of money market funds; valuation is based on the closing price as of the balance sheet date.

 

Level 2 Measurements

 

For assets classified as Level 2 investments, the Company values the assets using third-party pricing sources, which generally rely on quoted prices for similar assets in markets that are active and observable market data. 

 

U.S. government and agencies: Certain U.S. Treasury securities and debentures issued by agencies of the U.S. government are valued based on observable inputs such as the U.S. Treasury yield curve, market indicated spreads and quoted prices for identical assets in markets that are not active and/or similar assets in markets that are active.

 

Residential mortgage-backed securities:  Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. 

 

Separate account assets: Consists of mutual funds and unit investment trusts in which the contract holder could redeem its investment at net asset value per share at the measurement date with the investee.

 

Level 3 Measurements

 

Derivatives embedded in assets on deposit and annuity contracts:  The Company offers single premium deferred annuity and flexible premium deferred variable annuity contracts with certain caps and floors which represent a minimum and maximum amount that could be credited to a contract during that contract year based on the performance of an external index. These embedded derivatives are measured at fair value separately from the host deposit asset and annuity contract.

 

In estimating the fair value of the embedded derivative, the Company attributes a present value to the embedded derivative equal to the discounted sum of the excess cash flows of the index related fund value over the minimum fund value. The current year portion of the embedded derivative is adjusted for known market conditions. The discount factor at which the embedded derivative is valued contains an adjustment for the Company’s own credit and risk margins for unobservable non-capital market inputs. The Company’s own credit adjustment is determined taking into consideration publicly available information relating to the Company’s debt as well as its claims paying ability.

 

These derivatives may be more costly than expected in volatile or declining equity markets. Changes in market conditions include, but are not limited to, changes in interest rates, equity indices, default rates and market volatility. Changes in fair value may be impacted by changes in the Company’s own credit standing. Lastly, changes in actuarial assumptions regarding policyholder behavior (such as full or partial withdrawals varying from expectations) and risk margins related to non-capital market inputs may result in significant fluctuations in the fair value of the derivatives. See Embedded Derivatives within Note 3, Investments for the impact to net income. 

 

The following table presents information about significant unobservable inputs used in Level 3 embedded derivative liabilities and related assets on deposit measured at fair value developed by internal models as of December 31, 2017 and 2016:

 

 

 

 

 

 

 

Predominant

Significant

Range of Values - Unobservable Input

 

Valuation Method

Unobservable Input

2017

2016

 

 

 

 

 

Single premium deferred annuities

 

 

 

 

 

Discounted cash flow

Lapse rates

2% to 4% with an

2% to 4% with an

 

 

 

excess lapse rate at

excess lapse rate at

 

 

 

the end of the index

the end of the index

 

 

 

period of 50% or 95%.

period of 95%.

 

 

Company's own

58 - 99 basis points

105 - 181 basis points

 

 

credit and risk margin

added on to

added on to

 

 

 

discount rate.

discount rate.

 

 

 

Flexible premium deferred variable annuities

 

 

 

 

 

Discounted cash flow

Lapse rates

2% to 10% with an

2% to 10% with an

 

 

 

excess lapse rate at

excess lapse rate at

 

 

 

the end of the index

the end of the index

 

 

 

period of 5% to 20%.

period of 80% to 95%.

 

 

Company's own

58 - 99 basis points

105 - 181 basis points

 

 

credit and risk margin

added on to

added on to

 

 

 

discount rate.

discount rate.

 

 

 

 

Changes in Fair Value Measurement

 

The following table sets forth the values of assets and liabilities classified as Level 3 within the fair value hierarchy at December 31, 2017.

 

     

Balance

 

 

 

Balance

     

January 1,

Total Realized/Unrealized Gain (Loss) Included in:

December 31,

     

2017

Purchases

Maturities

Earnings1

2017

     

 

 

 

 

 

Derivatives embedded in assets on deposit

$ 246,405   

$ 93,748   

$ (5,039)  

$ 136,078   

$ 471,192   

Total assets

$ 246,405   

$ 93,748   

$ (5,039)  

$ 136,078   

$ 471,192   

     

Derivatives embedded in annuity contracts

$ 246,405   

$ 93,748   

$ (5,039)  

$ 136,078   

$ 471,192   

Total liabilities

$ 246,405   

$ 93,748   

$ (5,039)  

$ 136,078   

$ 471,192   

1 Included in net income is realized gains and losses associated with embedded derivatives.

 

The following table sets forth the values of assets and liabilities classified as Level 3 within the fair value hierarchy at December 31, 2016.

 

     

Balance

 

 

 

Balance

     

January 1,

Total Realized/Unrealized Gain (Loss) Included in:

December 31,

     

2016

Purchases

Maturities

Earnings1

2016

     

 

 

 

 

 

Derivatives embedded in assets on deposit

$ 122,043   

$ 78,090   

$ (2,953)  

$ 49,225   

$ 246,405   

Total assets

$ 122,043   

$ 78,090   

$ (2,953)  

$ 49,225   

$ 246,405   

     

Derivatives embedded in annuity contracts

$ 122,043   

$ 78,090   

$ (2,953)  

$ 49,225   

$ 246,405   

Total liabilities

$ 122,043   

$ 78,090   

$ (2,953)  

$ 49,225   

$ 246,405   

1 Included in net income is realized gains and losses associated with embedded derivatives.

 

Fair Value Measurements for Financial Instruments Not Reported at Fair Value

Accounting standards require disclosure of fair value information about certain on- and off balance sheet financial instruments which are not recorded at fair value on a recurring basis for which it is practicable to estimate that value. 

 

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

 

Level 1 Measurements

 

Cash: The carrying amount for this instrument approximates its fair value due to its short term nature and is based on observable inputs.

 

Level 2 Measurements

 

Assets on deposit and Investment-type contracts:  Assets on deposit and investment-type contracts include single premium deferred annuity and the risk control accounts of the flexible premium deferred variable annuity contracts, excluding the related embedded derivative. In most cases, the fair values are determined by discounting expected liability cash flows and required profit margins using the year-end swap curve plus a spread equivalent to a cost of funds for insurance companies based on observable inputs.

 

Separate account liabilities: Separate account liabilities represent the account value owed to the contract holder, which is equal to the segregated assets carried at fair value.

 

The carrying amounts and estimated fair values of the Company’s financial instruments which are not measured at fair value on a recurring basis at December 31 are as follows:

 

           

 

 

 

 

 

 

   

 

 

 

 

2017

2016

           

Carrying

Estimated

 

Carrying

Estimated

 

           

Amount

Fair Value

Level

Amount

Fair Value

Level

           

 

 

 

 

 

 

Financial instruments  

  recorded as assets:  

    Cash    

$ 1,833   

$ 1,833   

1   

$ 4,317   

$ 4,317   

1   

    Assets on deposit  

1,981,841   

1,726,602   

2   

1,372,708   

1,227,484   

2   

Financial instruments  

  recorded as liabilities:  

    Investment-type contracts

1,981,841   

1,726,602   

2   

1,372,708   

1,227,484   

2   

    Separate account liabilities

69,005   

69,005   

2   

20,221   

20,221   

2   


Income Tax

v3.9.0.1
Income Tax
12 Months Ended
Dec. 31, 2017
Notes  
Income Tax

Note 5:  Income Tax

 

The Company is included in the consolidated federal income tax return filed by CMHC, the Company’s ultimate parent. The Company has entered into a tax sharing agreement with CMHC and its subsidiaries. The agreement provides for the allocation of tax expense based on each subsidiary’s contribution to the consolidated federal income tax liability. Pursuant to the agreement, subsidiaries that have incurred losses are reimbursed regardless of the utilization of the loss in the current year. Federal income taxes recoverable from affiliate reported on the balance sheet are due from CMFG Life.

 

Income Tax Expense

 

Income tax expense for the years ended December 31 is as follows:

 

   

 

 

 

   

2017

2016

2015

   

 

 

 

Current tax expense (benefit)

$ 481   

$ 647   

$ 1,451   

Deferred tax expense

193   

240   

(2)  

Adjustment of deferred tax assets and liabilities

  for enacted rate change

49   

-   

-   

   

Total income tax expense

$ 723   

$ 887   

$ 1,449   

 

Reconciliation to U.S. Tax Rate

 

Income tax expense differs from the amount computed by applying the U.S. federal corporate income tax rate of 35% to income before income taxes due to the items listed in the following reconciliation:

 

   

 

 

 

 

 

 

 

 

2017

2016

2015

   

Amount

Rate

Amount

Rate

Amount

Rate

   

 

 

 

 

 

 

Tax expense computed at

  federal corporate tax rate

$ 981   

35.0 %

$ 953   

35.0 %

$ 1,480   

35.0 %

Income tax expense (benefit)

  related to prior years

(221)  

(7.8)  

(53)  

(2.0)  

(31)  

(0.7)  

Dividends-received deduction

(83)  

(3.0)  

(11)  

(0.4)  

-   

-   

Adjustment of deferred tax assets and

  liabilities for enacted rate change

49   

1.7   

-   

-   

-   

-   

Other

(3)  

(0.1)  

(2)  

(0.1)  

-   

-   

   

Total income tax expense

$ 723   

25.8 %

$ 887   

32.5 %

$ 1,449   

34.3 %

 

Deferred Income Taxes

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows:

 

       

 

 

       

2017

2016

       

 

 

Deferred tax assets

  Tax reserves method change

$ 15   

$ 29   

  Unrealized investment losses

-   

175   

  Accrued expenses

280   

291   

  Deferred policy acquisition costs

291   

391   

  Other  

1   

4   

       

Gross deferred tax assets

587   

890   

       

Deferred tax liabilities

  Investments  

490   

355   

  Deferred reinsurance expense

19   

39   

Unrealized investment gains

4   

-   

  Other  

-   

1   

       

Gross deferred tax liabilities

513   

395   

       

Net deferred tax asset

$ 74   

$ 495   

 

Valuation Allowance

 

The Company considered the need for a valuation allowance with respect to its gross deferred tax assets as of December 31, 2017 and 2016, and based on that evaluation, the Company has determined it is more likely than not all deferred tax assets as of December 31, 2017 and 2016 will be realized. Therefore, a valuation allowance was not established.  

 

Unrecognized Tax Benefits

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

   

 

 

   

2017

2016

   

 

 

Balance at January 1

$ -   

$ 1   

  Reductions for prior years' tax positions

-   

(1)  

   

Balance at December 31

$ -   

$ -   

 

There were no unrecognized tax benefits as of December 31, 2017 and 2016 that, if recognized, would affect the effective tax rate in future periods. Management does not anticipate a material change to the Company’s uncertain tax positions during 2018.

 

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense in the statements of comprehensive income (loss). For the year ended December 31, 2017, the Company recognized a reduction in interest and penalties of approximately $5. The Company did not recognize any additions or reductions in interest and penalties for the years ended December 31, 2016 or 2015. The Company had accrued $2 and $7 for the payment of interest and penalties at December 31, 2017 and 2016, respectively.

 

The Company is included in a consolidated U.S. federal income tax return filed by CUNA Mutual Holding Company. The Company also files income tax returns in various states. For the major jurisdictions where it operates, the Company is generally no longer subject to income tax examinations by tax authorities for years ended before 2013. Amended refund claims are expected to be filed for tax years 2010 and 2012 in early 2018, which will be subject to examination as part of the Joint Committee on Taxation approval process.

 

Other Tax Items

 

As of December 31, 2017 and 2016, the Company did not have any capital loss, operating loss or credit carryforwards.

 

Tax Reform

 

The Tax Act makes changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate to 21% effective January 1, 2018; (2) limiting the deductible interest expense; and (3) limiting the deductibility of certain executive compensation.

 

The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company has completed its initial evaluation of the impacts of the Tax Act and has recorded a net tax expense of $49 for the period ended December 31, 2017 due to the remeasurement of deferred tax assets and liabilities.

 

Management believes it has made the appropriate adjustments for the impacts of the Tax Act at December 31, 2017. As a result of the subjective nature of these adjustments, however, additional adjustments may subsequently be determined to be necessary as clarification of the law and accounting guidance emerges. Additional adjustments will be recorded as appropriate and as determined by the Company’s continued evaluation of the Tax Act. In light of the variables involved, such additional adjustments could be material.


Related Party Transactions

v3.9.0.1
Related Party Transactions
12 Months Ended
Dec. 31, 2017
Notes  
Related Party Transactions

Note 6:  Related Party Transactions

 

In the normal course of business, there are various transactions between the Company and other related entities.  In certain circumstances, expenses such as those related to sales and marketing, administrative, operations, other support and infrastructure costs are shared between the companies. Expenses incurred that are specifically identifiable with a particular company are borne by that company; other expenses are allocated among the companies on the basis of time and usage studies. Amounts due from transactions with affiliates are generally settled monthly. The Company reimbursed CMFG Life $20,808, $15,349 and $8,447 for these expenses in 2017, 2016 and 2015, respectively; which are included in operating and other expenses.

 

Amounts receivable/payable from/to affiliates are shown in the following table:

 

   

 

 

     

2017

2016

     

 

 

Receivable from:

  CMFG Life

$ 8,492   

$ 11,460   

     

    Total

$ 8,492   

$ 11,460   

     

Payable to:

  CUNA Brokerage Services, Inc.

$ 2,749   

$ 6,177   

  Other

22   

19   

     

    Total

$ 2,771   

$ 6,196   

 

Amounts receivable from CMFG Life at December 31, 2017 and 2016 are primarily for a policyholder’s purchase of an MLIC annuity when a CMFG Life policyholder has surrendered their policy for the purchase of a single premium deferred annuity or flexible premium deferred variable annuity and for the cession of death claims related to the Company’s single premium deferred annuity or flexible premium deferred variable annuity. 

 

The Company hires MEMBERS Capital Advisors, Inc. (“MCA”) for investment advisory services. MCA, which is 100% owned by CMIC, manages substantially all of the Company’s invested assets in accordance with policies, directives and guidelines established by the Company. The Company recorded MCA investment management fees totaling $21, $28 and $28 for the years ended December 31, 2017, 2016 and 2015, respectively, which are included as a reduction to net investment income. 

 

The Company utilizes CUNA Brokerage Services, Inc., which is 100% owned by CMIC, to distribute its single premium deferred annuity and flexible premium deferred variable annuity and recorded commission expense for this service of $29,114, $24,900 and $23,072 in 2017, 2016 and 2015, respectively, which is included in operating and other expenses. This expense is entirely offset by commission income the Company receives from CMFG Life as part of the 2013 and 2015 reinsurance agreements.   

 

The Company paid a $7,000 cash dividend to its parent in 2017. The Company paid no dividends in 2016 or 2015.

 

See Note 7 regarding reinsurance and other agreements entered into by the Company and CMFG Life.


Reinsurance

v3.9.0.1
Reinsurance
12 Months Ended
Dec. 31, 2017
Notes  
Reinsurance

Note 7:  Reinsurance

 

The Company entered into a reinsurance agreement with its affiliate, CMFG Life, on a coinsurance and modified coinsurance basis. The agreement was effective November 1, 2015 to cede 100% of its investment-type contracts for its flexible premium deferred variable annuity, which are accounted for using the deposit method of accounting. MLIC began selling its flexible premium deferred variable annuity in 2016. The Company had $165,924 and $43,734 of assets on deposit for these contracts as of December 31, 2017 and 2016, respectively. The Company had related liabilities of $165,924 and $43,734 as of December 31, 2017 and 2016, respectively, which are included in policyholder account balances in the balance sheets. The Company had separate account assets and liabilities for these contracts of $69,005 and $69,005 and $20,221 and $20,221, respectively, as of December 31, 2017 and 2016. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $11,019, $6,302 and $1,027 for the years ended December 31, 2017, 2016 and 2015, respectively.

 

The Company entered into an agreement with its affiliate, CMFG Life, effective January 1, 2013 to cede 100% of its investment-type contracts for its single premium deferred annuity, which are accounted for using the deposit method of accounting. The Company had $2,287,109 and $1,575,379 of assets on deposit for these contracts as of December 31, 2017 and 2016, respectively. The Company had related liabilities of $2,287,109 and $1,575,379, respectively which are included in policyholder account balances in the balance sheets. The Company receives a commission equal to 100% of its actual expenses incurred for this business, which was $44,773, $37,961 and $34,236 for the years ended December 31, 2017, 2016 and 2015, respectively.

 

On October 31, 2012, the Company ceded 95% of its insurance policies in force pursuant to a reinsurance agreement with CMFG Life and the Company was reimbursed for 95% of expenses incurred in the provision of policyholder and benefit payment services, and insurance taxes and charges on a go forward basis under this contract. On September 30, 2015, the Company amended its reinsurance agreement with CMFG Life and now cedes 100% of its insurance policies in force to CMFG Life and is reimbursed 100% for expenses incurred in the provision of policyholder and benefit payments services, and insurance taxes and charges going forward. The Company received commissions of $839, $894 and $1,567 for the years ended December 31, 2017, 2016 and 2015, respectively. As a result of the amendment to this agreement the Company ceded $1,297 of earned premiums and $1,244 of benefits as of September 30, 2015.

 

MLIC did not have any other reinsurance agreements at December 31, 2017 or 2016 and the entire reinsurance recoverable balance of $23,973 and $23,687, respectively, was due from CMFG Life. The recoverable balances are not collateralized and the Company retains the risk of loss in the event CMFG Life is unable to meet its obligations assumed under the reinsurance agreements. MLIC believes the risk of non-collection is remote due to CMFG Life’s stable A ratings from A.M. Best Company and S&P Global Ratings and A2 rating from Moody’s Investors Service.

 

The effects of reinsurance on contract charges, interest credited to policyholder accounts, premiums and on claims, benefits, and losses incurred for the years ended December 31 are as follows:

 

 

2017

2016

2015

Face amount of policies in force

$ 86,587   

$ 95,577   

$ 110,827   

       

Premiums:

  Direct - written

$ 3,145   

$ 2,168   

$ 2,384   

  Direct - change in unearned

5   

1   

-   

  Direct - earned

3,150   

2,169   

2,384   

       

  Ceded to affiliate - written

(3,145)  

(2,172)  

(3,559)  

  Ceded to affiliate - change in unearned

(5)  

(18)  

-   

  Ceded to affiliate - earned

(3,150)  

(2,190)  

(3,559)  

       

Premiums - written, net

5   

(4)  

(1,175)  

Premiums - change in unearned, net

(5)  

(17)  

-   

Premiums, net

$ -   

$ (21)  

$ (1,175)  

       

Contract charges:

  Direct

$ 3,498   

$ 1,303   

$ 742   

  Ceded to affiliate

(3,498)  

(1,303)  

(724)  

Contract charges, net

$ -   

$ -   

$ 18   

       

Claims, benefits and losses incurred:

  Direct

$ 2,779   

$ 1,761   

$ 1,784   

  Ceded to affiliate

(2,777)  

(1,762)  

(2,988)  

       

Claims, benefits and losses, net

$ 2   

$ (1)  

$ (1,204)  

       

Interest credited to policyholder account balances:

  Direct

$ 30,469   

$ 20,519   

$ 9,833   

  Ceded to affiliate

(30,469)  

(20,519)  

(9,829)  

Interest credited to policyholder account balances, net

$ -   

$ -   

$ 4   

 


Statutory Financial Data and Dividend Restrictions

v3.9.0.1
Statutory Financial Data and Dividend Restrictions
12 Months Ended
Dec. 31, 2017
Notes  
Statutory Financial Data and Dividend Restrictions

Note 8:  Statutory Financial Data and Dividend Restrictions

 

The Company is a life and health insurer and is domiciled in Iowa. The Company files statutory-basis financial statements with insurance regulatory authorities. The Company did not use any permitted practices in 2017, 2016 or 2015. Certain statutory basis financial information for MLIC is presented in the table below as of and for the years ended December 31.

 

 

 

Statutory Basis

Statutory Basis

 

 

Capital and Surplus

Net Income (Loss)

   

2017

2016

2017

2016

2015

   

 

 

 

 

 

  MLIC

$ 18,601   

$ 23,205   

$ 1,914   

$ 1,051   

$ 1,112   

 

The Company is subject to statutory regulations as to maintenance of equity and the payment of dividends.  Generally, ordinary dividends from an insurance subsidiary to its parent company must meet notice requirements promulgated by the regulator of the subsidiary’s state of domicile (“Insurance Department”). Extraordinary dividends, as defined by state statutes, must be approved by the Insurance Department.  Based on Iowa statutory regulations, the Company could pay dividends up to $1,860 during 2018, without prior approval of the Insurance Department.

 

Risk-based capital (“RBC”) requirements promulgated by the National Association of Insurance Commissioners (NAIC) require U.S. insurers to maintain minimum capitalization levels that are determined based on formulas incorporating credit risk, insurance risk, interest rate risk, and general business risk. The adequacy of the Company’s actual capital is evaluated by a comparison to the RBC results, as determined by the formula. At December 31, 2017 and 2016, the Company’s adjusted capital exceeded the RBC minimum requirements as required by the NAIC.


Accumulated Other Comprehensive Income

v3.9.0.1
Accumulated Other Comprehensive Income
12 Months Ended
Dec. 31, 2017
Notes  
Accumulated Other Comprehensive Income

Note 9:  Accumulated Other Comprehensive Income (Loss)

 

The components of accumulated comprehensive income (loss), net of tax, are as follows:

 

       

 

Accumulated

       

Unrealized

Other

       

Investment

Comprehensive

       

Gains (Loss)

Income (Loss)

Balance, January 1, 2015

$ 222   

$ 222   

  Change in unrealized holding gains (losses),

    net of tax - ($240)

(447)  

(447)  

Balance, December 31, 2015

(225)  

(225)  

  Change in unrealized holding gains (losses),

    net of tax - ($53)

(98)  

(98)  

Balance, December 31, 2016

(323)  

(323)  

  Change in unrealized holding gains (losses),

    net of tax - $181

334   

334   

Balance, December 31, 2017

$ 11   

$ 11   

 

Reclassification Adjustments

 

Accumulated other comprehensive income (losses) includes amounts related to unrealized investment gains (losses) which were reclassified to net income. Reclassifications from accumulated other comprehensive income (loss) for the years ended December 31 are included in the following table:

 

       

 

 

 

       

2017

2016

2015

       

 

 

 

Reclassifications from accumulated other comprehensive income (loss)

  Unrealized gains on available-for-sale  

    securities included in net realized investment gains  

$ -   

$ -   

$ 15   

       

Total reclassifications from accumulated

  other comprehensive income (loss)

-   

-   

15   

  Tax expense

-   

-   

5   

       

Net reclassification from accumulated

  other comprehensive income (loss)

$ -   

$ -   

$ 10   


Business Segment Information

v3.9.0.1
Business Segment Information
12 Months Ended
Dec. 31, 2017
Notes  
Business Segment Information

Note 10:  Business Segment Information

 

The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2017.

 

     

 

 Life and

 

Year ended or as of December 31, 2017

Health

Annuities

Total

Revenues

       

  Life and health premiums, net

$ -   

$ -   

$ -   

  Contract charges

-   

-   

-   

  Net investment income

517   

-   

517   

  Net realized investment gains

-   

-   

-   

  Other income

3,996   

-   

3,996   

       

Total revenues

4,513   

-   

4,513   

       

Benefits and expenses

  Life and health insurance claims and benefits, net

2   

-   

2   

  Interest credited to policyholder account balances

-   

-   

-   

Operating and other expenses

1,596   

113   

1,709   

     

Total benefits and expenses

1,598   

113   

1,711   

       

Income before income taxes

2,915   

(113)  

2,802   

       

  Income tax expense

763   

(40)  

723   

       

Net income

2,152   

(73)  

2,079   

       

  Change in unrealized gains, net of tax expense

334   

-   

334   

       

Other comprehensive income

334   

-   

334   

       

Total comprehensive income

$ 2,486   

$ (73)  

$ 2,413   

       

Reinsurance recoverable from affiliate

$ 23,973   

$ -   

$ 23,973   

Assets on deposit

-   

2,453,033   

2,453,033   

Claim and policy benefit reserves - life and health

20,688   

2,364   

23,052   

Policyholder account balances

3,601   

2,453,033   

2,456,634   

 

The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2016.

 

     

 

 Life and

 

Year ended or as of December 31, 2016

Health

Annuities

Total

Revenues

       

  Life and health premiums, net

$ (21)  

$ -   

$ (21)  

  Contract charges

-   

-   

-   

  Net investment income

376   

-   

376   

  Net realized investment gains

-   

-   

-   

  Other income

3,415   

-   

3,415   

       

Total revenues

3,770   

-   

3,770   

       

Benefits and expenses

  Life and health insurance claims and benefits, net

(1)  

-   

(1)  

  Interest credited to policyholder account balances

-   

-   

-   

Operating and other expenses

1,033   

16   

1,049   

     

Total benefits and expenses

1,032   

16   

1,048   

       

Income before income taxes

2,738   

(16)  

2,722   

       

  Income tax expense

892   

(5)  

887   

       

Net income

1,846   

(11)  

1,835   

       

  Change in unrealized (losses), net of tax (benefit)

(98)  

-   

(98)  

       

Other comprehensive (loss)

(98)  

-   

(98)  

       

Total comprehensive income

$ 1,748   

$ (11)  

$ 1,737   

       

Reinsurance recoverable from affiliate

$ 23,687   

$ -   

$ 23,687   

Assets on deposit

-   

1,619,113   

1,619,113   

Claim and policy benefit reserves - life and health

20,344   

1,162   

21,506   

Policyholder account balances

3,335   

1,619,113   

1,622,448   

 

The following table sets forth financial information regarding the Company’s two reportable business segments for the year ended December 31, 2015.

 

     

 

 Life and

 

Year ended or as of December 31, 2015

Health

Annuities

Total

Revenues

       

  Life and health premiums, net

$ (1,175)  

$ -   

$ (1,175)  

  Contract charges

18   

-   

18   

  Net investment income

366   

-   

366   

  Net realized investment gains

117   

-   

117   

  Other income

5,336   

-   

5,336   

       

Total revenues

4,662   

-   

4,662   

       

Benefits and expenses

  Life and health insurance claims and benefits, net

(1,204)  

-   

(1,204)  

  Interest credited to policyholder account balances

4   

-   

4   

Operating and other expenses

1,633   

-   

1,633   

     

Total benefits and expenses

433   

-   

433   

       

Income before income taxes

4,229   

-   

4,229   

       

  Income tax expense

1,449   

-   

1,449   

       

Net income

2,780   

-   

2,780   

       

  Change in unrealized (losses), net of tax (benefit)

(447)  

-   

(447)  

       

Other comprehensive (loss)

(447)  

-   

(447)  

       

Total comprehensive income

$ 2,333   

$ -   

$ 2,333   

       

Reinsurance recoverable from affiliate

$ 24,628   

$ -   

$ 24,628   

Assets on deposit

-   

947,595   

947,595   

Claim and policy benefit reserves - life and health

21,077   

460   

21,537   

Policyholder account balances

3,473   

947,595   

951,068   


Commitments and Contingencies

v3.9.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2017
Notes  
Commitments and Contingencies

Note 11:  Commitments and Contingencies

 

Insurance Guaranty Funds

 

The Company is liable for guaranty fund assessments related to certain unaffiliated insurance companies that have become insolvent during 2017 and prior years. The Company includes a provision for all known assessments that will be levied as well as an estimate of amounts that it believes will be assessed in the future relating to past insolvencies. The Company has established a liability of $992 and $667 at December 31, 2017 and 2016, 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, 2017 and 2016 since it does not believe any amount will be recoverable. Recoveries of assessments from premium taxes are generally made over a five-year period.

 

Legal Matters

 

Like other members of the insurance industry, the Company is occasionally a party to a number of lawsuits and other types of proceedings, some of which may involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and involve a range of the Company's practices. The Company has established procedures and policies to facilitate compliance with laws and regulations and to support financial reporting.

 

In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution and changes in business practices. The Company may not be advised of the nature and extent of relief sought until the final stages of the examination or proceeding. In the opinion of management, the ultimate liability, if any, resulting from all such pending actions will not materially affect the financial statements of the Company.


Subsequent Events

v3.9.0.1
Subsequent Events
12 Months Ended
Dec. 31, 2017
Notes  
Subsequent Events

Note 12:  Subsequent Events

 

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


Summary of Significant Accounting Policies: Basis of Presentation (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Basis of Presentation (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Basis of Presentation

Basis of Presentation

 

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).


Summary of Significant Accounting Policies: Use of Estimates (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Use of Estimates (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and in some cases the difference could be material. Investment valuations, embedded derivatives, deferred tax asset valuation reserves, and claim and policy benefit reserves are most affected by the use of estimates and assumptions.


Summary of Significant Accounting Policies: Segment Reporting (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Segment Reporting (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Segment Reporting

Segment Reporting

 

The Company is currently managed as two reportable business segments, (1) life and health and (2) annuities. The Company’s life and health segment includes individual and group life policies that the Company no longer actively markets. The annuities segment includes its single premium deferred annuity contracts and flexible premium deferred variable annuity contracts which the Company began selling in 2013 and 2016, respectively. See Note 7, Reinsurance, for information on the Company’s reinsurance agreements, which impact the financial statement presentation of these segments.  


Summary of Significant Accounting Policies: Investments (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Investments (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Investments

Investments

 

Debt securities: Investments in debt securities are classified as available-for-sale and are carried at fair value. A debt security is considered other-than-temporarily impaired when the fair value is less than the amortized cost basis and its value is not expected to recover through the Company's anticipated holding period of the security. If a credit loss exists, but the Company does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, it is required to bifurcate the impairment into the loss that is attributable to credit and non-credit related components. The credit portion of the other-than-temporary impairment (“OTTI”) is the difference between the present value of the expected future cash flows and amortized cost. Only the estimated credit loss amount is recognized in net realized investment gains, with the remainder of the loss amount recognized in other comprehensive loss. If the Company intends to sell or it is more likely than not that the Company will be required to sell before anticipated recovery in value, the Company records a realized loss equal to the difference between the amortized cost and fair value. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In determining whether an unrealized loss is expected to be other than temporary, the Company considers, among other factors, any plans to sell the security, the severity of impairment, financial position of the issuer, recent events affecting the issuer’s business and industry sector, credit ratings, and the intent and ability of the Company to hold the investment until the fair value has recovered at least its cost basis. 

 

Unrealized gains and losses on investments in debt securities, net of deferred federal income taxes, are included in accumulated other comprehensive income (loss) as a separate component of stockholder’s equity.

 

Policy loans:  The Company allocated $1,540 and $1,628 of policy loans to CMFG Life as of December 31, 2017 and 2016, respectively, as payment related to the 2012 reinsurance agreement and the 2015 amendment (See Note 7). As a result of the 2015 amendment, all policy loans are allocated to CMFG Life.

 

Net investment income:  Interest income related to mortgage-backed and other structured securities is recognized on an accrual basis using a constant effective yield method, based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments and such adjustments are reflected in net investment income. Prepayment assumptions for loan backed bonds and structured securities are based on industry averages or internal estimates. Interest income related to non-structured securities is recognized on an accrual basis using a constant effective yield method. Discounts and premiums on debt securities are amortized over the estimated lives of the respective securities on an effective yield basis. 

 

Net realized gains and losses:  Realized gains and losses on the sale of investments are determined on a specific identification basis and are recorded on the trade date. 


Summary of Significant Accounting Policies: Assets On Deposit (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Assets On Deposit (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Assets On Deposit

Assets on Deposit

 

Assets on deposit represent the amount of policyholder account balances related to reinsurance of the single premium deferred annuity and risk control accounts of the flexible premium deferred variable annuity contracts (investment-type contracts) that are ceded to CMFG Life. Assets on deposit are accounted for on a basis consistent with accounting for the underlying investment type contracts; therefore, the Company accounts for the reinsurance of these contracts using the deposit method of accounting consistent with the terms of the reinsurance agreement with CMFG Life. The related contract charges and interest credited to policyholder account balances in the statements of operations and comprehensive income (loss) are reported net of the amounts ceded under the agreement. See Note 7 for a further discussion of the ceding agreement.    


Summary of Significant Accounting Policies: Derivative Financial Instruments (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Derivative Financial Instruments (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Derivative Financial Instruments

Derivative Financial Instruments

 

The Company issues single premium deferred annuity and flexible premium deferred variable annuity contracts that contain embedded derivatives. Derivatives embedded within non-derivative host contracts are separated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument.  Such embedded derivatives are recorded at fair value, and they are reported as part of assets on deposit and policyholder account balances in the balance sheets, with the change in the value being recorded in net realized investment gains. See Note 3, Investments-Embedded Derivatives for additional information.

 

Changes in the fair value of the embedded derivative in assets on deposit offset changes in the fair value of the embedded derivative in policyholder account balances; both of these changes are included in net realized investment gains and are ceded as part of the ceding and reinsurance agreements. Accretion of the interest on assets on deposit offsets accretion of the interest on the host contract; both of these amounts are included in interest credited on policyholder account balances and are ceded as part of the ceding and reinsurance agreements.


Summary of Significant Accounting Policies: Cash and Cash Equivalents (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Cash and Cash Equivalents (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Cash and Cash Equivalents

Cash and Cash Equivalents

 

Cash and cash equivalents include unrestricted deposits in financial institutions with maturities of 90 days or less.  The Company recognizes a liability in accounts payable and other liabilities for the amount of checks issued in excess of its current cash balance. The change in this overdraft amount is recognized as a financing activity in the Company’s statement of cash flows.


Summary of Significant Accounting Policies: Variable Interest Entities (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Variable Interest Entities (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Variable Interest Entities

Variable Interest Entities

 

A variable interest entity (“VIE”) is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains and losses of the entity. Consolidation of a VIE by its primary beneficiary is not based on majority voting interest, but is based on a review of the VIE’s capital structure, contractual relationships and terms, nature of the VIE’s operations and purpose, nature of the VIE’s interests issued and the Company’s involvement with the entity. When assessing the need to consolidate a VIE, the Company evaluates the design of the VIE as well as the related exposure to the variable interest holders.

 

The primary beneficiary is the entity that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation conclusion depends on the breadth of the Company’s decision-making ability and the Company’s ability to influence activities that significantly affect the economic performance of the VIE.

 

Unconsolidated VIEs:  The Company holds a variable interest in certain VIEs for which the Company is not the primary beneficiary, and, therefore, these VIEs were not consolidated on the Company’s consolidated balance sheets. The Company invests in unconsolidated VIEs with the primary purpose of earning capital appreciation.  

 

All of the Company’s investments in residential mortgage-backed securities are classified as unconsolidated VIEs. The maximum exposure to loss relating to these securities is equal to the carrying amount of the security. The values of these investments are disclosed in the Debt Securities section of Note 3.


Summary of Significant Accounting Policies: Recognition of Insurance Revenue and Related Benefits (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Recognition of Insurance Revenue and Related Benefits (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Recognition of Insurance Revenue and Related Benefits

Recognition of Insurance Revenue and Related Benefits

 

Term-life and whole-life insurance premiums are recognized as premium income when due. Policy benefits for these products are recognized in relation to the premiums so as to result in the recognition of profits over the expected lives of the policies and contracts. 

 

Policies not subject to significant mortality or longevity risk, such as the Company’s single premium deferred annuity and flexible premium deferred variable annuity contracts, are considered investment contracts. Amounts collected on these products, with the exception of the variable annuity component of the flexible premium deferred variable annuity, are recorded as increases in policyholder account balances. The variable annuity component of the flexible premium deferred variable annuity meets criteria for separate account reporting and therefore is recorded in separate account assets and liabilities. Revenues from investment contracts principally consist of net investment income and contract charges such as expense and surrender charges. Expenses for investment contracts consist of interest credited to contracts, benefits incurred in excess of related policyholder account balances and policy maintenance costs. Because the Company has entered into an agreement with CMFG Life to cede 100% of this business, these revenues and expenses are ceded and do not impact the statement of operations and comprehensive income (loss). See Note 7, Reinsurance for additional information on this agreement.


Summary of Significant Accounting Policies: Other Income / Operating and Other Expenses (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Other Income / Operating and Other Expenses (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Other Income / Operating and Other Expenses

Other Income / Operating and Other Expenses

 

Other income in 2017, 2016 and 2015 includes legal settlements received on structured security investments that had previously been sold. Operating and other expenses in 2017, 2016 and 2015 include legal expenses related to settlements received.


Summary of Significant Accounting Policies: Deferred Policy Acquisition Costs (Policies)

v3.9.0.1
Summary of Significant Accounting Policies: Deferred Policy Acquisition Costs (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs

 

The costs of acquiring insurance business that are directly related to the successful acquisition of new and renewal business are deferred to the extent that such costs are expected to be recoverable from future profits.  Such costs principally include