SEC Issues No-Action Letter Regarding MEMBERS Life Insurance Co.

WASHINGTON, Nov. 7 -- The Securities and Exchange Commission issued the following no-action letter by Alison Staloch, chief accountant of Division of Investment Management:

To: Stephen E. Roth Eversheds Sutherland (US) LLP Email: [email protected]

Re: MEMBERS Life Insurance Company

By letter dated November 4, 2020, you request permission under Regulation S-X Sec.3-13 ("Rule 3-13") for MEMBERS Life Insurance Company ("Company") to file audited financial statements of the Company prepared in accordance with statutory accounting principles/1 ("SAP"), in place of financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). You are requesting this permission in connection with certain registration statements on Form S-1 that are currently effective or may be filed in the future for index-linked annuity contracts (collectively, "Contracts"), in satisfaction of the financial information required by Form S-1, including the requirements of Items 11(e), 11(f) and 11(g) and Item 16(b) of Form S-1, as described in your letter.

Background

The Company

You state that the Company is a stock life insurance company, domiciled in the State of Iowa, that is subject to regulation by the Iowa Insurance Division. You also state that the Company is a direct wholly owned subsidiary of CUNA Mutual Investment Corporation ("CMIC"), a holding company that does not have any operations, whose direct parent is CMFG Life Insurance Company ("CFMG Life"), a stock life insurance company domiciled in Iowa. In addition, you state that CMFG Life is a direct wholly-owned subsidiary of TruStage Financial Group, Inc. ("TruStage Financial Group"), a financial services holding company, which in turn is a direct wholly-owned subsidiary of CUNA Mutual Holding Company ("CMHC"), a mutual insurance holding company and the ultimate parent company of the Company.

You state that the Contracts are the only securities issued by the Company that are registered with the Commission, and for which the Company must prepare GAAP financial statements. You note that the Company's current GAAP reporting process is structured for the sole purpose of producing GAAP financial statements for use in the registration statements on Form S-1 for the Contracts. You state that while the Company must prepare full entity level GAAP financial statements only in connection with issuing the Contracts, the Company provides limited GAAP financial information to certain of its parent companies for use in their consolidated financial statements.

You further state that if the Company no longer prepared full entity level GAAP financial statements, the GAAP financial information that the Company would be required to prepare for use by its parent companies would consist only of the Company's unaudited balance sheet and income statement accounts included in the parent companies' consolidated general ledger. You state that the Company believes that the GAAP financial information prepared by the Company for consolidation by its direct and indirect parent companies does not constitute a GAAP reporting package or partial GAAP financial statements.

You also state that the Company currently relies on the exemption from filing periodic reports required by the Securities Exchange Act of 1934 (the "Exchange Act") provided by rule 12h-7 under the Exchange Act and will continue to rely on this exemption and comply with its conditions so long as the Company relies on the requested relief./2 In this regard, you note that the Company (1) is subject to supervision by the Insurance Commissioner of the State of Iowa, and (2) files an annual statement of its financial condition with the Iowa state insurance regulator and the National Association of Insurance Commissioners, and (3) its financial statements are periodically examined by state regulators./3

The Contracts

You state that the Contracts are either standalone registered index-linked annuity contracts, or combination annuity contacts that offer variable investment options as well as registered index-linked investment options, that either currently have an effective registration statement on Form S-1 or that will be registered on Form S-1 in the future./4 You also state that (1) the Contracts do not represent an equity interest in the Company and are subject to regulation under Iowa insurance law,/5 (2) the Contracts are not listed, traded or quoted on an exchange, alternative trading system, inter-dealer quotation system, electronic communications network, or any similar system and the Company takes steps reasonably designed to ensure that a trading market for the securities does not develop,/6 and (3) prospectuses for the Contracts disclose, and will disclose, that the Company relies on the relief provided by rule 12h-7./7

Discussion

You note that Rule 3-13 provides that the Commission may, upon the informal written request of the registrant, and where consistent with the protection of investors, permit the omission of one or more of the financial statements required by Regulation S-X or the filing in substitution therefor of appropriate statements of comparable character. You assert that, for the Form S-1 registration statement of the Contracts, SAP financial statements audited by an independent auditor/8 are appropriate statements of a comparable character to GAAP financial statements and are consistent with investor protection. In support of this claim, you assert that investors in the Contracts will be most interested in information relevant to assessing the Company's ability to fulfill its contractual obligations./9

You assert that SAP financial statements would provide investors in the Contracts with sufficient information to assess the Company's solvency and its ability to fulfill its contractual obligations./10

In this regard, you claim that SAP financial statements contain detailed information about an insurance company's balance sheet, including its regulatory capital and surplus that serve as financial cushions for paying contract owner claims. In addition, you claim that SAP financial statements enable state regulators to determine an insurance company's ability to meet its obligations to contract owners based on the availability of readily marketable assets when obligations are due.

Based on the facts and representations set forth in your letter as summarized above, as well as the conditions outlined above, and without necessarily agreeing with all of your analysis, your request for permission under Rule 3-13 for the Company to file SAP financial statements, audited by an independent auditor, in lieu of GAAP financial statements in registration statements filed for the Contracts on Form S-1, as it relates to the accounting basis of those financial statements only and as described above, is granted./11,/12,/13

If you have any questions regarding this letter, please call the Chief Accountant's Office of the Division of Investment Management at (202) 551-6918.

Sincerely,

Alison Staloch, Chief Accountant Division of Investment Management

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Footnotes:

1/ You note that these principles are those that are prescribed or permitted by the Company's domiciliary state regulator.

2/ Rule 12h-7 exempts insurance companies from filing Exchange Act reports with respect to certain specified types of securities that are subject to state insurance regulation and are registered under the Securities Act of 1933 if certain other conditions are satisfied. 17 CFR 240.12h-7.

3/ Rule 12h-7(a) and (c) specify that an issuer qualifying under that rule is a corporation subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any State (as defined in the Exchange Act); and files an annual statement of its financial condition with, and is supervised and its financial condition examined periodically by, theinsurance commissioner, bank commissioner, or any agency or officer performing like functions, of the issuer's domiciliary State.

4/ You note that in the future, the Company expects to offer updated versions of the existing Contracts listed in your letter or new Contracts that will be registered in a similar fashion to the existing Contracts.

5/ Rule 12h-7(b) specifies that the securities that would otherwise trigger Exchange Act reporting obligations must not constitute an equity interest in the issuer, and must either be securities subject to regulation under the insurance laws of the domiciliary State of the issuer or guarantees of securities that are subject to regulation under the insurance laws of that jurisdiction.

6/ Rule 12h-7(d) requires that those securities must not be listed, traded, or quoted on an exchange, alternative trading system, inter-dealer quotation system, electronic communications network, or any other similar system, network, or publication for trading or quoting. Rule 12h-7(e) requires that an issuer take steps reasonably designed to ensure that a trading market for the securities does not develop.

7/ Rule 12h-7(f) provides that the prospectus for the securities must contain a statement indicating that the issuer is relying on the exemption provided by the rule.

8/ You state that the independent auditor engaged to audit the SAP financial statements will be registered with and subject to inspection by the Public Company Accounting Oversight Board, and will satisfy the independence standards of Article 2 of Regulation S-X.

9/ You note the Commission recognized, in proposing variable annuity registration forms, that contract owners, participants, and annuitants may not want or need disclosure about the financial performance of the insurance company, but instead may be interested only in the insurer's solvency. Registration Form for Insurance Company Separate Accounts that Offer Variable Annuity Contracts, Securities Act Release No. 6502 and Investment Company Act Release No. 13689 (Dec. 22, 1983).

10/ You also note that, while GAAP financial statements assist investors in understanding the Company's going concern value, investors in the Contracts do not need information regarding the Company's going concern value since there is no secondary market in the Contracts.

11/ The staff notes that it would be receptive to considering applications under Rule 3-13 from other registrants seeking to file SAP financial statements in lieu of GAAP financial statements in registration statements filed for products similar to the Contracts described here, under circumstances similar to those described above.

12/ Our analysis underlying this assurance has been developed in consultation with the staff of the Commission's Office of the Chief Accountant.

13/ This relief is provided for the Contracts described in your letter based on the facts disclosed therein, including that the Contracts seeking to rely on the relief are non-variable annuity contracts classified as market-value adjusted annuities, contingent deferred annuities, and/or indexed annuities. As to any Contract registered or materially amended in the future, this permission is subject to the Commission staff's assessment of the Contract's registration statement for consistency with the facts described in your letter and the intended product types. In this regard, you have stated that the Company will notify the staff, in a letter accompanying the filing of any registration statement for a new Contract or any post-effective amendment to an existing registration statement that reflects a material change to a Contract, of its intent to rely on the permission granted in this letter.